WTO Politics Target Chinese Manufacturers

WTO Politics Target Chinese Manufacturers A bill containing a provision that has the potential to dramatically impact the U.S. solar supply chain – particularly module manufacturing – has been signed into law by President Obama.

The National Defense Authorization Act for Fiscal Year 2011 (H.R.5136), introduced last year by then-Rep. Ike Skelton, D-Mo., contains an amendment authored by Rep. Maurice Hinchey, D-N.Y., requiring that solar photovoltaic modules purchased by the Department of Defense (DOD) through subcontracts – including Energy Savings Performance Contracts, land leases and utility service contracts – be produced either in the U.S. or in countries that are signatories of the World Trade Organization (WTO) Government Procurement Agreement.

The Hinchey amendment was added to the bill when the House voted on it last May, and builds upon the Buy American Act. A component of the American Recovery and Reinvestment Act, the Buy American provision originally applied to the importation of steel, Michael Stosser, an attorney at Day Pitney's energy practice, tells Solar Industry. The House version of the bill contained this provision, Stosser says, whereas the Senate version did not, and the reconciliation bill tied the Buy American provision to actions conducted through the WTO.

Under the new provision, the DOD can only buy PV modules manufactured in countries that have signed the WTO side agreement. ‘The problem is that China has not signed the agreement,’ Stosser notes.

Trade relations between the U.S. and China took a beating last month when the U.S. accused China of violating WTO rules by providing unfair subsidies to Chinese wind power manufacturers, so it is clear that renewable energy is a high priority when it comes to Sino-American trade relations.

Considering the DOD is the largest government purchaser of solar panels and that China supplies more solar modules to the U.S. than any other country, the enacted provision has obvious implications not only for Sino-American trade relations, but also for U.S. solar manufacturing business. According to IMS Research, Chinese companies supply over half of the solar panels used in the U.S., led by giants such as JA Solar and Yingli Solar.

‘The difficulty has been that you don't want to institute something that appears to be anti-trade legislation. This clearly is a direct attack on the Chinese,’ Stosser says, adding that the legislation makes it clear that WTO side-agreement signatories are not punished with the same restrictions.

Stosser predicts a possible cascade effect from the legislation, as other government agencies and contractors may face pressure to adopt Buy American provisions of their own. In addition, some solar developers – in an effort to be patriotic and support U.S.-based employment – may opt against importing Chinese modules.

These actions, in turn, may prompt Chinese manufacturers to set up production facilities in the U.S. and to form joint ventures with American companies, Stosser says, adding that it will be difficult for these companies to compete with the low costs of labor offered in China.

German manufacturer SolarWorld has already expanded its production facilities by adding factories in Camarillo, Calif., and Hillsboro, Ore. China may win when it comes to labor expenses, but the U.S. offers its own advantages for solar module manufacturing, including a highly silicon-savvy workforce, SolarWorld spokesperson Ben Santarris tells SI.

However, the Buy American provision is not exclusively motivated by trade politics and is aimed, to some degree, at spurring manufacturing job creation in the U.S.

‘Just as solar electricity allows power users to tap sunshine exactly where they need electricity, domestic production enables nations to rely on their own manufacturing technology to generate renewable power,’ Bob Beisner, managing director of SolarWorld Industries America Inc., said in a statement." This new provision promotes technology production in the United States and its special trading partner nations using operations that offer manufacturing jobs and expertise to their citizens.’

‘As the Department of Defense purchases solar panels to address very serious energy security concerns at defense installations around the country, we must ensure that those purchases support American solar energy manufacturing jobs, including those here in New York, rather than Chinese and other competitors,’ added Hinchey, the author of the provision, in a statement. ‘There is no good reason a company in China should be building the solar equipment that our military will use when we have a strong, emerging solar manufacturing presence here in New York.’

Photo courtesy of Suntech Power Holdings Co. Ltd.

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