Monday, September 13, 2010

China's Domination of Clean Energy— Is it in Violation of International Trade Laws?

NYT: On Clean Energy, China Skirts Rules
NYT: Union Accuses China of Illegal Clean Energy Subsidies
WSJ: U.S. Steelworkers to File China Trade Complaint

The United Steelworkers Union ("USW") filed a petition on September 9 demanding that the Obama Administration investigate China's clean energy policies. USW is the largest labor union in the United States and represents workers in a wide range of jobs related to clean energy, including manufacturers who make steel for wind turbine towers and nuclear reactors, glassmakers who make solar panels, and manufacturers of other components for clean energy equipment.

In their petition, the USW argues that China has violated World Trade Organization ("WTO") rules by subsidizing exports of clean energy equipment to the United States and Europe. Specifically, the USW claims that the assistance that the Chinese government has given clean energy manufacturers and exporters, by providing them with free or very cheap land for their plants, is in violation of the international trade rules which China and most other countries have adopted. China's government also supports its clean energy sector by spending $1 billion a day on interventions in the currency markets to keep the yuan artificially low, ensuring that Chinese exports are as affordable as possible in foreign markets. These interventions are in violation of the International Monetary Fund's ("IMF)" rules, which China should be following as an IMF member. Further, Chinese clean energy companies have benefited because China has restricted the export of rare earth elements, which are necessary to manufacture wind turbines, solar panels, and fluorescent bulbs. Nearly all of the world's rare earth elements come from China. This restriction is also in violation of WTO rules.

To be sure, China's clean energy sector has been very successful, and currently employs 1 million Chinese. In fact, China is on pace to produce over half of the world's solar panels within the next year. However, because China's clean energy sector relies so heavily on governmental support, it may be vulnerable if the state runs into financial problems. The United Steelworkers Union is hoping that its suit will successfully slow down the competition and ultimately result in an improved clean-energy sector in the United States.

Discussion questions:

(1) Is China's success in the clean energy sector a result of its ignoring international trade rules, or is it due to the ingenuity of its citizens, its growing number of talented engineers, low manufacturing costs, and commitment to the development of clean energy?
(2) How much are the United States and other purchasers of Chinese clean energy benefiting from China's production of cheap clean energy? For example, Chinese wind turbines sell for $685,000 per megawatt of capacity, while Western wind turbines sell for $850,000 per megawatt of capacity.

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