Thursday, September 9, 2010

Comment on the NYT China Clean Energy Subsidies

Stan Abrams has a great post up today on this morning's New York Times article by Keith Bradsher about China's various solar subsidies, On Clean Energy, China Skirts Rules. In his post, Stan enumerates the various subsidies discussed in the article, and he discusses their strengths if they were filed in a WTO complaint. One response to Mr. Bradsher's article: I thought the juxtaposition of US industry complaints with a Chinese entrepreneur's responses, or at least the selection of quotes from a Chinese entrepreneur, definitely painted the alleged Chinese subsidies in a poor light. One response to Stan's post: I had to investigate why export restrictions are such difficult items.

Juxtapositions of Complaints and Responses
In response to export subsidies in general, Zhao Feng, a GM at Sunzone, responded that "the world should appreciate the generous assistance of Chinese government agencies to the country’s clean energy industries."

In response to the land use rights, Mr. Zhao responded that "the subsidized land will also help Sunzone afford plans to sell solar panels below cost to poor people in western China."

And in response to official encouragement, Mr. Zhao pointed out that "Our provincial governor has come several times to our plant, just as Gov. Arnold Schwarzenegger has made several visits to solar power companies” in California.

Mr. Zhao is not exactly helping his own case here.

Mr. Bradsher only presents one real defense from the Chinese government: China contends "that it is still a developing country struggling to understand its commitments."

Response to Export Restrictions
Stan's comment on rare earth metal export restrictions:
"Export restrictions on raw materials and currency manipulation are certainly ongoing trade disputes. However, whether either of these practices is a violation on WTO law are hotly debated issues, and if you take a poll of trade lawyers, you would be unlikely to get any sort of consensus opinion. Moreover, proving these allegations in a formal dispute resolution procedure would be quite difficult."
I think he is right that proving the allegations is quite difficult because WTO rules allow for export restrictions in certain circumstances including general revenue and conservation. And, in fact, when Beijing imposed export restrictions on rare earth exports, they claimed it was for conservation after "years of over-exploitation that has damaged the country's environment." Export He is also right that the issue is hotly debated. Let's see what the debate is about.

So what are the WTO legal standards for illegal export restrictions under the General Agreement on Tariffs and Trade (GATT)? Here's a summary of a summary of GATT rules. The main source for what export restrictions are and are not allowed is Article XI:1 of the 1994 GATT. The summary distinguishes between allowed export duties and disallowed quantitative export restrictions:
  • Export Duties: Export duties, taxes, and other charges are generally permitted.
  • Quantitative Export Restrictions (QER): Includes quotas, bans, minimum prices, and non-automatic licensing requirements on the "exportation or sale for export of any product." Could potentially include prohibitively high export duties, but that's highly debatable. There are exceptions:
    • If QERs are applied to relieve temporary shortages;
    • If QERs are necessary to spread supplies over a longer period of time;
    • If QERs are for price stabilization;
    • If QERs reasonably relate to conservation "in conjunction with restrictions on domestic production or consumption." And this exception, which is in Article XX(g), cannot be relied on if they are "designed to protect or promote a domestic processing industry."
    • And there are also a number of security related exceptions.
If a quantitative export restriction causes the price for domestic production to be lower than in the absence of the restriction, then a subsidy could be found to exist. If a subsidy is found to exist, then a countervailing duty or anti-dumping remedy could be appropriate.

Of particular note by analogy for rare earth metals is that quantitative export restrictions apply to the saleor sale for export. The OPEC countries and their oil quotas have not been tested, but it is argued that OPEC quotas are production quotas and not sale or export quotas. But China's quotas are explicitly export quotas.

So, yeah, this sounds like one difficult situation...

1 comment:

solar panels uk said...

I'm glad that China is adapting policies to support renewable solar energy. The more country support green living, the faster the industry would develop.