Solar

What’s Next in the SolarWorld-China Game of High Stakes Poker?

A few years ago, a U.S. manufacturer began feeling pressure from unfair overseas competition. The company found itself losing money and market share to Asian competitors that seemingly popped up from nowhere. The manufacturer found that the conventional remedies of cutting costs and gaining efficiencies would not help much since competitors were selling similar products below production costs and receiving significant help from their government in the form of subsidies.

After several years, the U.S. industry was in dire straits. Many U.S. competitors had gone out of business, and the company itself was in danger of going under, taking its partners with it. With few alternatives, the CEO filed a trade case against his foreign competitors. Upon filing, the company’s opponents pounced. Some said the company’s products had become commodities, and it should either resign itself to a low-margin future — or liquidate. Others claimed dumping was a gift to American consumers and the trade case would drive up prices.

If this story sounds similar to the SolarWorld case, it should. Yet, the company is not SolarWorld. However, I hope the outcomes will be the same. (More on the case later.)

With last month’s decision by the U.S. Department of Commerce to impose preliminary antidumping duties on Taiwanese and Chinese manufacturers of solar panels, SolarWorld compiled its ninth consecutive win against the Chinese before Commerce and the International Trade Commission (ITC) since 2011. At this stage in the game, SolarWorld — as Pete Danko, a journalist who has covered both cases, put it — “holds all the winning cards so far.”

The final determinations by the Commerce Department and ITC in December and January are the only remaining steps to unfold. Until then, the two sides have sparred over what to do about the impasse.

On one side, you have SolarWorld’s opponents. Among them is a group calling itself CASE, made up of Chinese manufacturers and some installation companies, such as SolarCity and REC Solar, that rely on inexpensive Chinese imports. Another is the Solar Energy Industries Association (SEIA). These groups predict that SolarWorld’s trade case will harm the solar industry, call on SolarWorld to drop its cases, and ask the Obama administration to facilitate negotiations with the Chinese.

The Obama administration so far has resisted these calls to get involved in the trade case before it plays itself out in early 2015.  As Michael Kanellos recently pointed out on Forbes.com, getting involved in an agreement that could ship more green manufacturing jobs overseas is a political “stinker.”

On the other side is SolarWorld and its supporters. Those include more than 250 companies, many of them installation firms such as my company, Future Energy Savers. At 200 employees strong, Future Energy Savers has installed solar systems throughout California since 1992; we also did the recent installation atop the White House. As a proponent of a strong American solar manufacturing industry, we understand the downstream benefits of an American solar manufacturing industry in terms of jobs and innovation.

While SolarWorld, holding several aces, could simply rest on its lead and attempt to run the table, it has called its opponents’ bluff because it suspects the Chinese are not serious about negotiations. On numerous occasions, SolarWorld has stated that it is willing to participate in meaningful negotiations as long as they meet two conditions to ensure any agreement has teeth.

First, SolarWorld insists on a negotiated solution to eliminate China’s unfair trade practices. Second, that solution must be enforceable. SolarWorld wants to avoid the issues arising in Europe, where manufacturers there have alleged massive cheating on last year’s agreement between the European Union and China.

These conditions make sense. After all, what’s the point of going forward with a trade case or a negotiated settlement if the net result leaves illegal trade practices unchecked?

So far, the Chinese government has indicated an interest in talking under a process known as a suspension agreement, but it so far has not publically offered a proposal. 

Under the process set forth in U.S. law, the Chinese government can make a proposal that — if accepted by the Commerce Department — would suspend any potential final findings by Commerce and the ITC in the antidumping case (the countervailing duty case and the 2012 cases would not be affected).

However, suspension agreements with the Chinese governments are very rare and the Chinese record in fulfilling their obligations under these agreements is poor.

Until an agreement is reached, the regular process moves forward. The U.S. Government is already collecting preliminary duties averaging 47 percent on Chinese imports, and the Commerce Department will continue its investigation toward a Dec. 16 deadline. If it rules again in SolarWorld’s favor, the final decision in the case comes on January 29, 2015, from the ITC.

So we are left with a high-stakes poker game watching to see who will raise first.  If a settlement is really best for all, as CASE and SEIA claim, let’s see if China decides to make a bet.

Back to the original example of a U.S. manufacturer trade case: Despite the criticism and second-guessing, the company pushed forward and, using the stick of trade cases, ended up with a negotiated settlement that was both measureable and enforceable. This deal ended the dumping and subsidies, thereby leveling the playing field. After a brief increase, prices started to drop again as consumers began demanding new, innovative products from the company. The company, computer technology manufacturer Intel, and its American partners once again began to flourish thanks in part to a decision by Andy Grove to file a trade case.

There is no guarantee that SolarWorld will be the next Intel. But we are confident in betting on U.S. manufacturing. The use of U.S. trade laws is giving SolarWorld a real opportunity to be a player in the solar manufacturing market.

Lead image: Poker via Shutterstock