This document summarizes the debate around tariffs on solar imports from China. It provides background on Solar World's 2011 petition that led to tariffs of up to 165.04% on Chinese solar imports. Both sides of the debate are presented. The pro-tariff argument is that China subsidizes its solar industry, allowing it to dump products at unfairly low prices in the US. The free trade argument is that tariffs reduce the benefits of free trade and cause economic inefficiencies. Empirical evidence is presented on both sides but no clear conclusion is reached.

1. SOLAR INDUSTRY:
TRADE POLICY
Team: Jacob Henderson, Mark Chesney,
Jake Schurmeler, Shannon Morrison

2. Background: Facts of Tariff
¨ Solar World petition (November 2011)
¤ Alleged that many PRC or PRC-based manufacturers of CSPV
components were taking advantage of preferential loans, raw
material discounts, tax incentives and currency manipulation1 to dump
products into the US market.
¨ ITC findings
¤ ITC rulings “the domestic industry” has been “materially injured.”
¤ Solar World claimed material injuries through:
n Decreased market share, decreased shipments, decreased sales and decrease
prices, decreased employment, decreased profits, lost in sales and revenue, and
increase imports.
¨ ITA ruling
¤ Judgment in favor of petitioner rendered in December 2012
¤ Anti-dumping and Countervailing Duties
¨ Tariffs
¤ Dumping Margins for China 165.04%

3. Background: Scope of the Protection
¨ Crystalline Silicon Photovoltaic Cell
¨ Modules, Laminates and Panels consisting of
crystalline silicon photovoltaic cells
¨ Includes PV cells manufactured in China,
regardless if exported directly from China or
via another country.

4. Process for Determination of Tariff
Less than
Fair
Value?
U.S. Price: “Constructed
Export Price”
based on price quotes, sales,
delivery terms adjusted for
discounts, shipping, credit
expense, domestic brokerage,
etc.
Normal Value:
based on a surrogate market-
economy country (India)
because China is a non-
market economy

5. Theories for Protection
¨ Infant industries
¨ Improve terms of trade
¨ Market Failure (from
positive production
externalities)
¨ Bargaining Tool
¨ Market Distortion from
China’s subsidies and
dumping practices

6. Anti-dumping Tariff Theory
China
Subsidizes
their Solar
Manufactures
to Dump into
U.S. markets
at lower
prices.
Drives U.S.
firms out of
the market.
China Supply with
Subsidy
US Supply
Demand US
Ys Y1 C1 Cs
|-------------Ms-----------|
ATC

7. Anti-dumping Tariff Theory
If China’s
Solar
Manufactures
manage to
gains market
power, they
may be able
to increase
prices in the
future.
China Supply with
Subsidy
US Supply
Demand US
China Supply After
Ys Cs
C2
|-------------M2--|

8. Empirical Evidence for Protection
¨ Solar was listed as one of China’s “Strategic Emerging
Industries (SEIs, 战略性新 产业)” in 2009. Then-
Premier Wen Jiabao said during a November 2009
speech at the Chinese Academy of Sciences:
¨ Then-President Hu Jintao on SEIs in May of 2009:
“the scientific selection of the Strategic Emerging
Industries is vital. If we choose correctly, we can leap
forward with development…”
“…a necessary requirement for taking the
initiative in international competition.”

9. Chinese Government Subsidies:
Rationale for worries about market saturation
Secondary source: GWU report
According to a paper by GWU, Chinese production of PV cells increased from 1 GW in
2008 to 20 GW in 2011, and at that time comprised 50% of the global market. Several
reasons Chinese manufacturers were able to accomplish this worried US producers, including
• Easy credit at low interest rates
provided by state-owned banks
• Tax incentives
• Artificially low input prices,
including land and raw materials
• Guaranteed price mechanisms
• Feed-in-tariffs (FiTs)
Empirical Evidence for Protection
Average selling price, Chinese vs. non-Chinese companies

10. Empirical Evidence for Protection
Renewable Energy Law of 2006:

11. Empirical Evidence for Protection
Chinese companies
less efficient, yet able
to obtain tremendous
market share
Secondary source: GWU Report
2010

12. Theory for Free Trade
China Import
Supply
US Supply
Demand US
Ys Cs
|----------------Ms---------------|

13. Theory for Free Trade
Green
Triangles
represent
deadweight
losses
China Import
Supply
US Supply
Demand US
China supply with
Tariff
Yft Yt Ct Cft
|----Ms-|

14. Theory for Free Trade
Additional
purple
triangle
represents
losses of
positive
consumption
externalities
China Import
Supply
US Supply
Demand US
China supply with
Tariff
SMB
Yft Yt Ct Cft
|--------Ms-|

15. Theory for Free Trade
Optimal Policy
would not be
implemented
through the
trade channel,
but rather by
directly
subsidizing US
solar
producers to
attain the
desired
domestic
production
China Import
Supply
US Supply
Demand US
China supply with
Tariff
SMB
Yft Ysubsidy Csubsidy
|--------Ms-|

16. Anti-Tariff Argument: Free Trade
¨ China’s Production Scale
¤ preferred access to capital (indirect government
subsidies)
¤ anticipated PV price equalization from US and Chinese
manufacturers
Source: National Renewable Energy Laboratory
http://www.nrel.gov/news/press/2013/2295.html

17. Empirical Evidence for Free Trade
¨ Chinese Increasing
Returns to Scale
¤ historical advantage in
low-cost manufacturing
n production base largely
based in China
n access to global
network of
manufactures
Source: NREL
Solar Cell Production, 2000-2010 (MW)
Chart Source: Congressional Research Services, 2012 Report

18. Empirical Evidence for Free Trade
Source: Bloomberg,
New Energy Finance

19. Empirical Evidence for Free Trade
¨ Reduced Import Volume
¤ Can be attributed to the threat of a tariff
¨ Increases from 2010 to 2012
¤ Volume: only +17%
¤ Value: +40%

20. Empirical Evidence for Free Trade
¨ Relatively Weak US Demand
¤ Overshadowed by Europe
¤ US unable to influence world price
through a tariff
Secondary Source: GWU Report 2010

21. Empirical Evidence for Free Trade
¨ Major Growth Outside
of Manufacturing
¤ manufacturing jobs flat as
total employment increased
¤ < 1% of the 11.7 million
domestic
¨ Tariff may not help protect
solar industry
¤ Unlikelihood of future jobs
Chart Source: Congressional Research Services, 2012 Report
US Solar Industry Employment, 2006-2012

22. Summary of Recent Developments
¨ Solar World’s instituted another petition in order to
close the apparent loophole of the previous anti-
dumping and countervailing duties imposed on the PRC.
¨ The key new provision is that any wafers, cells or
modules produced in a customs territory of the PRC, or
where any of the above are partially produced in the
PRC before being finished in another country.
¨ The new petition seeks to rectify the offshoring of
component production to Taiwan or other countries using
Chinese made products.

23. THE DEBATE
¨ Tariff protection
¤ China Gov’t ability to
change the playing
field
¤ Depending on a
production inefficiency
may later hurt our
supply chain for solar
projects
¨ Free Trade
¤ Changing the free-
market, avoid
correcting one
distortion with another.
¤ Estimates and
construction of costs for
China are based on
India

24. Questions?