United Steelworkers

U.S. Blows Hard at Chinese Wind Power Subsidies

by Fran Smith on December 23, 2010

in Energy, Ethanol, International, Sanctimony, Trade

Well, the U.S. has taken it one step further — it has gone to the World Trade Organization for “consultations” about China’s green energy subsidies, specifically for wind power manufacturing. As a result of investigations triggered by a United Steelworkers’ complaint, U.S. Trade Representative Ron Kirk announced on December 22, 2010, that the U.S. is requesting consultations with China under the WTO’s dispute settlement provisions.

The U.S. says that under China’s Special Fund for Wind Power Manufacturing program,

. . . China appears to provide subsidies that are prohibited under WTO rules because the grants awarded under the program seem to be contingent on Chinese wind power equipment manufacturers using parts and components made in China rather than foreign-made parts and components.

According to a USTR press release, China is giving large grants to Chinese manufacturers of wind turbines and their components while excluding foreign parts manufacturers.

The size of individual grants currently available under the Special Fund for Wind Power Manufacturing ranges between $6.7 million and $22.5 million, and the recipients of these grants – Chinese manufacturers of wind turbines and Chinese manufacturers of parts and components for wind turbines – can receive multiple grants as the size of the wind turbine models increases. USTR estimates that grants provided under this program since 2008 could total several hundred million dollars.

These consultations are the first stage of the WTO’s dispute settlement process. In many cases, the parties at this point will reach an agreement to resolve the issue.  If agreement isn’t reached, the next stage is more serious and formal — it involves adjudication by a WTO panel and perhaps by the Appellate Body, and then the ruling’s implementation.

Some observers caution that the U.S. should be wary, as it could face challenges to its own funding of green energy programs and its “Buy American” program:

In President Obama’s stimulus bill, $71 billion was dedicated to clean energy funding, with an additional $20 billion for loan guarantees and tax incentives to support clean energy projects.  President Obama’s budget proposes $150 billion over ten years in clean energy and efficiency programs.  Clean energy job creation is also one of the central tenets of the Administration’s new Middle Class Task Force.  Given these policies, and other proposals pending in Congress, the United States needs to tread carefully in denouncing green-energy subsidies as violations of WTO rules.

In terms of green energy, the best approach is to let the market work, without subsidies that distort that market. Government support through green subsidies and incentives for particular industries, whether by foreign governments such as China or by the United States, are a form of industrial policy intervention to pick winners (and losers) and can lead to unintended consequences in addition to the trade implications, e.g., heavy support for corn ethanol and its effect on food prices and the environment.

Photo Credit

“Illegal” Green Energy Subsidies

by Brian McGraw on October 15, 2010

in Energy, Trade

In a move that surprised no one, The New York Times reported today that the U.S. agreed to go ahead and formally investigate a complaint filed by the United Steelworkers in early September, accusing China of illegally subsidizing their green energy industry. The original story on the filing of the case is here. A summary of the complaint is here.

Two quotes from the summary, emphasis mine:

The USW petition details the broad range of WTO-inconsistent policies that China has employed to vault ahead of the United States as a leading producer and exporter of green technologies. These practices include discriminatory laws and regulations, technology transfer requirements, restrictions on access to critical materials, and massive subsidies that have caused serious prejudice to U.S. interests. Together, these practices have given Chinese producers an upper hand in accessing investment, technology, raw materials and markets, while foreclosing these same opportunities to U.S. producers. The Chinese government has invested hundreds of billions of dollars to unfairly advantage its producers and exporters, undercutting U.S. companies and workers and distorting billions of dollars of world trade.

China’s massive domestic subsidies to green technology are distorting trade and harming producers in other countries. In its economic stimulus package, for example, China gave more than $216 billion to subsidize green technologies – more than twice as much as the U.S. spent in the sector and nearly half of the total “green” stimulus spent worldwide. These subsidies are helping Chinese producers ramp up production, seize market share, drive down prices, and put global competitors out of business.

The USW are angry that China is subsidizing green energy MORE than the U.S. does. Their language is unclear, but they agree that the U.S. subsidizes green energy, unfortunately just not to the extent that the Chinese do. This article indicates that the stimulus package reserved $43 billion for renewable energy.

The Energy Information Administration estimated that in 2008 annual subsidies for the renewable energy industry were 4.87 billion (and this group makes a convincing case that their estimates are far lower than reality). Does the WTO account for subsidy levels versus total population? If China has four times the population of the United States, can they give a subsidy that’s larger in absolute terms but smaller in relative terms?

I am not a lawyer; it’s possible that certain types of subsidies are legal while others aren’t. Regardless, it is pretty clear that the U.S. has been on the wrong side of numerous international trade violations — and even if not wrong legally, is wrong in spirit here. See the dispute over Mexican trucks, the international gambling ban, the U.S. Brazilian cotton dispute, and many others.

Regardless of how you feel about the accusations of a weak currency (see CEI’s Fran Smith on the issue here), the U.S. cannot with a straight face accuse China of illegally subsidizing its green energy sector. Until the case is resolved, or goes away, this will be another great talking point for politicians who are more than willing to cater to protectionist fears. Nancy Pelosi has already seized the opportunity.

Finally, this is another great time to look at the mission statement of the USTR:

American trade policy works toward opening markets throughout the world to create new opportunities and higher living standards for families, farmers, manufacturers, workers, consumers, and businesses. The United States is party to numerous trade agreements with other countries, and is participating in negotiations for new trade agreements with a number of countries and regions of the world.

The Office of the U.S. Trade Representative (USTR) is responsible for developing and coordinating U.S. international trade, commodity, and direct investment policy, and overseeing negotiations with other countries. The head of USTR is the U.S. Trade Representative, a Cabinet member who serves as the president’s principal trade advisor, negotiator, and spokesperson on trade issues.

The relevant parts are the first paragraph, where they forgot to include “politically favored” when describing businesses and manufacturers (they could also delete consumers from the list and stop pretending). The relevant part of the second paragraph is where they reveal that the USTR is nothing more than a tool of the Obama administration, who has been depressingly bad on trade issues.

Another Hoover on trade?

by Fran Smith on September 15, 2009 · 1 comment

in Economy, International, Trade

President Obama’s slapping of tariffs on tires imported from China is the latest in a series of protectionist moves by the U.S. that threaten the world trading system, risk retaliation by the U.S.’s largest foreign creditor, and ultimately harm consumers.  A Wall Street Journal editorial today titled “A Protectionist President” points out that Obama’s trade stance could be following in the disastrous footsteps of President Hoover.

The reality is that without the U.S. leading by example, the world trading order is likely to deteriorate into every country for itself. This is especially dangerous amid a global recession in which world merchandise trade volume fell by roughly 33% from the second quarter of 2008 to June 2009. Reviving trade flows is crucial to restoring global growth.

Mr. Obama may not intend to start a trade war, but then Hoover didn’t set out to pick one either. His political abdication is what made it possible, however, and trade passions once unleashed can be impossible to control. On his present course, President Obama is giving the world every reason to conclude he is a protectionist.

The Chinese have said they may retaliate on the tire tariffs by restrictions on U.S. chicken and auto parts.  That indeed could escalate to the detriment of U.S. manufacturers and producers and the jobs they maintain.  But U.S. consumers, especially lower-income consumers, could face immediate and substantial increases on lower-cost tires, many of which come from China.  Some tire distributors estimate that the cost of a $50 tire could rise to $85.  Since U.S. manufacturers mainly produce higher-priced tires, this protectionist move will do virtually nothing  for U.S. jobs in the tire industry, except perhaps appease the trade unions, especially the United Steelworkers, which have been clamoring for more protection.