China Retaliates Against U.S. Renewable Energy Products
T. Augustine Lo
On May 24, the Chinese Ministry of Commerce (“MOFCOM”) announced its preliminary determination finding U.S. subsidization of its green energy products in violation of WTO agreements. MOFCOM’s decision closely followed a decision by Commerce issued on May 17, which found that China subsidizes its solar panel manufacturers, and which consequently imposed preliminary tariff rates at approximately 31 percent on imported solar panels from 61 Chinese companies. For all other Chinese producers and exporters of solar panels, Commerce imposed a preliminary tariff rate of 249.96 percent.
As reported in January, China initiated an investigation of alleged U.S. subsidization of its green energy products last November following the initiation of a similar U.S. case against Chinese solar panels. Although the original petition by two Chinese trade associations targeted over 2000 federal and state programs as subsidies in violation of WTO obligations, MOFCOM narrowed the scope of the investigation to six renewable energy incentive programs in the states of Washington, Massachusetts, Ohio, New Jersey, and California. These state programs all provide consumers of green energy products with tax incentives to install solar, wind, and hydropower generation equipment that is manufactured within the respective state.
According to MOFCOM’s preliminary determination, these six state programs violate both the WTO obligation against prohibited subsidies and the provision against discriminatory treatment of imports. The WTO Agreement on Subsidies and Countervailing Measures prohibits the use of subsidies that are contingent on the use of domestic over imported goods. MOFCOM determined that, by favoring the use of equipment manufactured within the state, each of the six state incentive programs effectively favors U.S. made products over imported merchandise. MOFCOM also noted that the General Agreement on Tariffs and Trade requires member nations to accord treatment to imported products that is equal to that accorded to their national products. This national treatment provision contains an exception for subsidies paid by governments to domestic producers. According to MOFCOM, the six state incentive programs do not qualify for this exception, because the subsidies are paid to consumers, and not the manufacturers, of green energy products.