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Chinese Solar Goods Escape Bigger Tariffs in Trade Dispute

Chinese Solar Goods Escape Large Tariffs in Trade Dispute

The U.S. will decide in May whether to assign additional duties after SolarWorld AG claimed the Chinese firms sell solar panels under market value in an effort to drive out competition. Photo: Jochen Eckel/Bloomberg

President Barack Obama today will
visit one of the biggest U.S. solar projects, a day after
imposing duties on Chinese imports that analysts said were too
low to curb record installations.

The Commerce Department yesterday set duties of as much as
4.73 percent on solar products from China, backing a complaint
from U.S. solar makers who said their rivals were receiving
improper government subsidies.

Obama, criticized by Republicans for backing solar
manufacturer Solyndra LLC before it went bankrupt, is scheduled
to visit a solar facility today in Boulder City, Nevada, where
he will highlight the administration’s efforts to promote
renewable energy.

The Commerce Department’s preliminary decision to impose
duties of less than 5 percent on $3.1 billion a year of imports
was claimed as a victory by both supporters and opponents of the
action. Shares of the affected importers rallied on the news.

“This is a clear statement going forward, there was not
free trade happening,” said Gordon Brinser, the president of
the U.S. unit of SolarWorld AG (SWV) of Bonn, which brought the
complaint. “We support free trade without government
intervention, and clearly there has been illegal Chinese
government interference.”

Opponents of the tariffs, such as the Washington-based
Coalition for Affordable Solar Energy, which includes
Westinghouse Solar Inc. (WEST) and more than 100 other solar companies,
said they would increase prices and cost U.S. jobs.

‘Victory’ for Industry

“This is a victory for the solar industry,” said Jigar
Shah, president of the coalition. “The government of China was
found innocent of all charges, that’s what low tariffs mean.”

The Obama administration’s action increases trade frictions
between the world’s two biggest economies. The U.S., along with
the European Union and Japan, filed a complaint last week with
the World Trade Organization challenging China’s export limits
on rare-earth minerals.

Yesterday’s decision represents a determination that China
was providing improper subsidies to its producers. The Commerce
Department tentatively concluded that the subsidies ranged from
2.9 percent to 4.73 percent. Duties in those amounts, which vary
by producer, will be collected by U.S. officials. A final
determination is scheduled for June.

Outside Factors

The department may have been concerned that stiffer tariffs
would result in higher prices and slow the solar-energy
industry, said Kelly Dougherty, an analyst with New York-based
Macquarie Capital USA Inc.

“If they were to slap double-digit tariffs, the Chinese
companies, who have razor-thin margins, would have to pass them
down to customer, and that would hurt demand,” Dougherty said.
The lower duties facing the companies, including Suntech Power
Holdings Co. (STP)
and Trina Solar Ltd. (TSL), can be more easily absorbed,
she said.

Yesterday’s decision focused on China’s subsidies to its
domestic producers. The U.S. will decide in May whether to
assign duties based on additional SolarWorld allegations that
the Chinese firms sell solar panels under market value to drive
out competition. SolarWorld has asked for 100 percent tariffs to
counter the alleged dumping.

Shares of Chinese solar companies rose in New York trading,
with Suntech, Trina and Yingli Green Energy Holdings each up
more than 10 percent. Some expected the duties to be as high as
10 percent, Dougherty said.

Market Reaction

The stocks may have overreacted on the lower-than-expected
tariffs, said Aaron Chew, an analyst at Maxim Group LLC, an
investment bank.

“The anti-dumping tariff could be much larger. The real
story is what happens May 16,” he said. “That one cannot be
extended.”

The trade deficit with China widened to $295 billion last
year and U.S. leaders have called for a harder line on the Asian
nation to drive down the 8.3 percent U.S. unemployment rate.

“Right now U.S. manufacturers are being hammered by
Chinese imports that appear to be subsidized by the government
and dumped on the U.S. market,” Senator Ron Wyden, an Oregon
Democrat, said in a statement. “For domestic producers to
compete, they need only a level playing field free from the
unfair trade practices that are routinely employed by China.”

The size of the tariffs imposed yesterday probably won’t
affect prices significantly, said Paula Stern, a former
commissioner with the International Trade Commission.

“With so many other moving parts, including distributors
in South Korea and Taiwan, I don’t think it will have a very
large market impact,” Stern said in an interview yesterday at a
Bloomberg New Energy Finance conference in New York. “It could
get wiped out in an exchange-rate shift.”

Trade Talks

The decision may have a bigger impact on trade talks
between the countries than on the renewable-energy industry,
though it may prod Chinese manufacturers to make more of their
solar products abroad, said Anthony Kim, solar analyst with
Bloomberg New Energy Finance.

“The tariff won’t have an effect on Chinese-sourced
modules” which are 10 percent cheaper than similar products
made elsewhere, Kim said at the conference. “At this point,
that tariff is more symbolic of the fight against Chinese
imports.”

Using diplomatic channels, such as the WTO and the Commerce
Department, reduces the chances of starting a full-scale trade
war, said Meredith Broadbent, a senior adviser at the Center for
Strategic and International Studies.

“China has had more government involvement in their
economy, though you don’t see the U.S. reverting to
protectionist measures,” said Broadbent. “That’s how you avoid
a trade war — use WTO rules to negotiate a solution to various
areas of friction.”

ITC Ruling

The quasi-judicial U.S. International Trade Commission
unanimously agreed in December that domestic producers have been
hurt by Chinese imports of solar panels that turn sunlight into
electricity. The probe was then turned over to the Commerce
Department to determine the punishment.

Representatives of Chinese companies told the commission
Nov. 8 that tariffs sought by U.S. competitors would make it
more difficult to expand the use of renewable energy. China and
the U.S. are among nations encouraging the use of alternative-
energy sources, driving costs down across the board, so it would
be unfair to penalize China, they told the panel.

“This could have been a lot worse,” said Chew, from Maxim
Group. “The tariffs were totally expected, but this is at
levels that are much lower than expected.”

To contact the reporters on this story:
William McQuillen in Washington at
bmcquillen@bloomberg.net;
Justin Doom in New York at
jdoom1@bloomberg.net

To contact the editors responsible for this story:
Jon Morgan at
jmorgan97@bloomberg.net;
Will Wade at
wwade4@bloomberg.net

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