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Wave of Trade Disputes Complicates Global Market For Renewable Energy Firms, Particularly Solar Sector

Tuesday, February 19, 2013
By David J. Levine and Pamela D. Walther,McDermott, Will & Emery

A number of recent trade actions involving renewable energy, particularly in the solar sector, are complicating the business landscape domestically and globally for a wide range of entities operating in these industries. In light of finite demand and increasing global production capacity of renewable energy resources, governments have brought trade actions on behalf of their domestic industries in the World Trade Organization in Geneva. Domestic industries in the United States, China, the European Union, and India have brought trade remedy actions under their respective country's trade remedy laws seeking to curtail import competition.

Decreased prices for various alternative sources of energy, such as natural gas and coal, pose additional challenges for the renewable energy sector that further complicate strategic decision-making by renewable energy industry members, their existing and prospective customers, their investors, and even the governments that are administering the trade actions. All parties involved, from developers and producers of solar or wind projects to distributors and installers of energy systems, are well advised to monitor and consider carefully the impact of these trade actions on their businesses.

WTO Rulings Could Kill FIT Programs

Three of the four renewable energy-related trade actions now pending before the WTO involve challenges to solar-sector domestic content requirements, including domestic content requirements of solar sector feed-in-tariff (FIT) programs. FIT programs provide domestic solar energy producers with long-term guaranteed revenue contracts at favorable prices. The FIT programs being challenged in the WTO allegedly favor domestic producers in violation of international rules because they make the guaranteed purchase contracts contingent on the use of domestically-produced equipment. The WTO actions could result in the elimination of the domestic content requirements that favor domestic producers, or possibly a dismantling of the FIT programs themselves.

The first of the WTO actions, brought by the European Union and Japan, challenges the domestic content requirements of an Ontario, Canada, FIT program (WT/DS412 and WT/DS426). That program requires wind and solar energy producers to use a certain percentage of equipment sourced from Ontario to qualify for the high fixed-rate prices for electricity guaranteed under the FIT program.

A WTO panel ruling issued on Dec. 19, 2012, condemned the domestic content requirement of Ontario's FIT program on the basis that it creates incentives to use domestic equipment and components over equipment produced by third-country suppliers (244 DER A-8, 12/20/12). The panel found the domestic content requirements violate both the General Agreement on Tariffs and Trade (GATT) and the WTO Agreement on Trade-Related Investment Measures (TRIMs). The panel rejected claims brought under the WTO Agreement on Subsidies and Countervailing Measures (SCM) essentially because the complainants failed to prove that the energy production facilities in Ontario received a subsidy benefit through the guaranteed prices for their electricity. One of the panel members wrote a dissenting opinion, rare in WTO dispute settlement proceedings, arguing that the challenged measures did in fact confer a “benefit” because the generous pricing offered to the high-cost energy producers allowed them to enter the wholesale electricity market when that would not have been possible in the absence of the FIT program.

On Feb. 5, 2013, Canada appealed the panel's findings to the WTO Appellate Body, reportedly arguing that the panel failed to recognize that a government procurement exception to GATT Article III's domestic content limitation applied to the FIT program (25 DER A-3, 2/6/13). The EU and Japan may file counter-appeals with the Appellate Body, which must decide appeals within 90 days of requests.

The second FIT case, initiated by China in November 2012, challenges the domestic content requirements of EU and EU Member State FIT programs (WT/DS452)(214 DER A-1, 11/6/12). China specifically named Greece and Italy as two European countries with offending FIT programs. Although this dispute has only reached the consultation stage, China raised GATT and TRIMS claims similar to those upheld by the WTO panel in the Ontario FIT case discussed above.

If the Ontario panel's findings are upheld on appeal, the EU may find it difficult to defend its own Member State FIT programs since they appear to contain domestic content requirements similar to those the EU itself challenged in the Canadian case. China has also raised a claim under the WTO SCM agreement and may seek to overcome the evidentiary problem in the Ontario case by showing how the guaranteed prices of the FIT programs do confer a benefit to the participating electricity producers in the EU Member States.

U.S. Complaint Against India

A third WTO solar-related domestic content case was initiated on Feb. 6 by the United States against India's national solar program (26 DER A-1, 2/7/13). In its formal consultation request, the United States challenges so-called “forced localization requirements” under which India requires its solar energy producers to use Indian-manufactured solar cells and modules to participate in its national solar program, and subsidies offered to those developers that use domestic equipment instead of imports. Similar to the cases brought against Canada and the EU, the United States claims India's domestic content requirements and related subsidies violate the non-discrimination provisions of GATT Article III, the TRIMS agreement, and the WTO SCM agreement.

A fourth WTO case could affect the administration by the United States of its countervailing duty (anti-subsidy) law in all cases involving non-market economy countries, including those targeting the renewable energy sector. In this action, China has challenged a 2012 U.S. law that allows countervailing duty cases against non-market economies. This WTO action by China follows a number of legal challenges to the application beginning in 2007 of the U.S. countervailing duty to China and Vietnam, countries deemed by the U.S. Commerce Department to be non-market economy countries for which special treatment under the antidumping law is required. The WTO agreed to establish a dispute settlement panel in mid-December 2012 and a panel ruling could come sometime in late 2013 (242 DER A-2, 12/18/12).

Domestic Trade Remedy Actions

Under domestic trade remedy laws, China, the European Union, the United States, and India have actions pending that could result in additional duties at the border on imports of solar cells and modules alleged or (in the U.S. cases) already found to be subsidized and/or unfairly priced in countervailing duty (CVD) and antidumping (AD) investigations, respectively. The United States also has just concluded AD/CVD investigations on wind towers from China and Vietnam and, like the solar cells/modules cases, these investigations concluded with affirmative findings of dumping, subsidization, and resulting injury to the U.S. domestic industry.


The United States recently concluded AD/CVD investigations on imports of Chinese solar cells and modules. The findings mean that importers into the United States of these products must now deposit AD/CVD duties ranging from 24 percent to more than 250 percent, depending on the Chinese producers/exporters. The CVD and AD duty orders imposing the additional duties on solar cells and modules will remain in place for a minimum of five years (216 DER A-13, 11/8/12). The Chinese and U.S. participants in the case are separately challenging different parts of the Commerce Department's determination through the U.S. court system (26 DER A-20, 2/7/13).

U.S. Moves Against Wind Tower Dumping

In January, the United States concluded its AD/CVD investigations on wind towers (the large steel bases for wind turbines) imported from China and Vietnam with findings of dumping, subsidization, and resulting injury to U.S. producers of wind towers. As with the U.S. cases on solar cells/modules, imports into the United States of wind towers from China and Vietnam will now be subject to AD/CVD duties.

On Dec. 18, 2012, the Commerce Department released its final determinations finding that Chinese exporters sold wind towers in the United States at below fair value and received countervailable subsidies (243 DER A-14, 12/19/12). The dumping margins range from 44.99 percent to 70.63 percent. The subsidy rates range from 21.86 percent to 34.81 percent. The Commerce Department also found that Vietnamese exporters sold wind towers in the U.S. market at below fair value prices at margins between 51.50 percent and 58.49 percent.

On Jan. 18, the International Trade Commission made a positive injury determination finding that the U.S. industry is threatened with material injury by reason of subsidized and less than fair value imports from China and imports of less than fair value from Vietnam. As a result, the Commerce Department has issued AD/CVD orders in this case (14 DER A-15, 1/22/13).

Chinese solar cells and modules are also the subject of EU antidumping and countervailing subsidy investigations (173 DER A-4, 9/7/12; 217 DER A-6, 11/9/12). Members of the European Parliament have urged the European Commission to conclude the preliminary stage of both its antidumping and countervailing duty investigations against Chinese solar cells and modules earlier than the legal deadlines of June 2013 and August 2013, respectively. Members of the European Parliament have argued that the survival of the EU solar industry could be threatened by waiting until June and August.

China and India Fight Back

Widely reported as retaliatory in response to the U.S. and EU actions, on Nov. 26, 2012, China announced it was initiating AD and CVD investigations on polysilicon, a key element in the production of solar cells, from the United States and from the European Union, as well as from South Korea (213 DER A-12, 11/5/12). The Chinese industry is seeking retroactive application of the duties in both cases.

In November, India joined the solar sector trade wars by announcing the initiation of antidumping investigations against solar cells produced in or exported from China, Taiwan, Malaysia, and the United States (230 DER A-2, 11/30/12). The targeted third-country industries had until early January to respond with information and data showing they are not dumping low-priced solar cells into the Indian market and are not a reason for the Indian solar cell manufacturers' failure to capture a reasonable share of the domestic market. The cases could have investment implications for U.S. solar cell manufacturers that supply or have signed contracts to supply solar cells to Indian companies.

Implications for Renewable Energy Sector

The series of legal actions discussed here reflect the broader competing interests of the industries involved as well as the interests of their governments in promoting and protecting their domestic businesses. The actions themselves present immediate costs and burdens for those parties directly involved.

The longer term implications raise more serious strategic considerations for the industries at issue. For the solar sector, particularly, these actions will likely prompt—or at least contribute to—“winners” and “losers” among the current array of companies involved globally. AD/CVD duties will increase the costs to importers and, ultimately, consumers in any country that imposes such import relief.

With global economic pressures persisting, domestic employment concerns ever-present, and national resources at issue, governments certainly will continue to seek, directly and indirectly, to affect the markets for these industries. Accordingly, producers as well as investors, suppliers, and consumers are all well advised to monitor and, where appropriate, take an active role in these legal proceedings to protect their interests going forward.

David Levine is a partner in the International Trade Practice of McDermott, Will & Emery, Washington, D.C. He represents and counsels clients in regulatory trade matters involving customs, export controls, trade sanctions, anti-corruption laws, anti-boycott, and trade remedy actions including antidumping, countervailing duty, and safeguards matters.

Pam Walther is a partner in the International Trade Practice of McDermott, Will & Emery, Washington, D.C. She has significant experience in World Trade Organization dispute settlement proceedings and also represents and counsels clients on a variety of trade issues, including multilateral and bilateral trade negotiations, U.S. trade preference programs, food safety issues, and U.S. trade assistance programs.

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