“Never cast dirt into that fountain of which you have sometime drunk”
The master plan of initial idea of trading solar panels between China and U.S., EU looked perspective, lucrative and environmentally friendly. However, the problem which led to all filed complaints and further challenges was loophole in trading rules settled in 2011. Using this loophole and subsidies from the government Chinese panel manufacturers took advantage of the situation. This advantage resulted in dominance of Chinese producers that led to bankruptcy of Solyndra, the California-based manufacturer, due to incapability to compete with less advanced but cheaper products from China. Moreover, SolarWorld Industries America Inc. filed a complaint with Commerce Department.
According to the final terms of this trade agreement for the U.S. tariff decision, if a panel cell was manufactured outside China, then the tariffs would not be applied to this cell. Following this agreement, Chinese panel manufacturers started producing them in Taiwan since Taiwan possess all technologies and materials required to make cells for solar panels. Thereafter the cells are exported back to China where whole solar panel, the final product, is assembled and then shipped to the U.S. This scheme allows to legally avoid tariffs due to imperfect terms of the agreement. The final version of the ruling stated that the tariff is 31% on solar panels produced in China and then exported to the U.S. Thus, taking into account avoiding tariffs and subsidizing the solar industry by government help Chinese companies to set their prices lower than for American compatibles. This is considered as a “dumping” policy.
As a countermeasure from China, the tariff for the material, which is called polysilicon, was set at the level of 57% for suppliers that produce polysilicon in the U.S for the material for the next five years.
A number of key issues arise from this case of the trade war. To begin with, from the jurisdictional point of view, China as a member of WTO, should have not subsidized in the amount to undermine the solar industry in the U.S. However, the loophole in the terms of contract was obvious, thus, one must admit that there are reasons to consider. What is more, from the political point of view further restraints could result in delaying the wide installment of green source of energy on a global basis that will ruin the image of political leaders of the involved countries.
It goes without saying that the policy of Chinese government to provide subsidies to manufacturers can be treated as the act of mercantilism. However, since the solar energy is alternative source of source of energy providing independence from fossil fuels, this policy can also be treated as subsidizing for the prosperity of humankind because portion of the earnings is invested into research of new and improved technologies and devices. Secondly, trade war gives nothing but tensions in business relations and lower welfare for society than in case of stable trade partnership through higher prices for consumers. Thirdly, consequently tensions and trade war could reduce the amount of jobs in the solar industry in the world. Fourthly, increasing the costs and delaying of the installment safe alternative source of energy affect dramatically the progress, environment and social welfare.