TODAY’S STUDY: WORLD NEW ENERGY LEAVING U.S. NEW ENERGY BEHIND

Wyden Report: U.S. Losing Out to China on Goods that Protect the Environment
February 28, 2012 (Office of Senator Ron Wyden, D-Oregon)

Summary

This fourth report about trade flows in environmental goods, “Losing the Environmental Goods Economy to China,” is a continuation of my office’s efforts to analyze global trade in environmental goods. Its key findings:

In 2011:

• The U.S. trade deficit in environmental goods with China reached an all-time high.

• Driven by rising imports from China, the overall U.S. deficit in environmental goods grew by 87 percent.

• U.S. imports of solar cells and modules from China grew in value by 135 percent in 2011; solar cells alone grew by nearly 300 percent.

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• Exports of solar cells and modules from China to the U.S. grew by over 300 percent by volume. (Taking the U.S. from a nearly $2 billion trade surplus in solar energy products in 2010 to over $1.5 billion deficit in 2011.)

• U.S. imports of utility scale wind towers from China grew by over 100 percent.

• In each of the largest and fastest-growing markets throughout the world, U.S. exporters of environmental goods are rapidly losing market share to China.

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Losing the Environmental Goods Economy to China also finds that:

• Between the years 2005 and 2010, China’s market share of environmental goods in the E.U., the biggest regional market for such products, increased sevenfold (to 21 percent), while U.S. market share shrank during the same period.

• In other regional export markets of environmental goods, Chinese market share generally doubled (Africa, Asia, and Middle East) or tripled (NAFTA, Latin America).

• E.U. and Japanese exporters of environmental goods are also losing market share to China in most major markets in the world.

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Introduction

Why a report on the trade of environmental goods?

As more and more nations and citizens embrace environmentally friendly policies and practices, the demand for environmental goods and services – products and services that contribute to a cleaner and more sustainable environment – grows. In fact, between 2005 and 2010, the global export market for environmental goods alone doubled and reached an estimated $298 billion in 2011.

Much of the technology behind environmental goods – like solar panels and wind turbines – was, and continues to be, developed in the United States. Therefore, not only is global demand for environmental goods on the rise, Americans are manufacturing cutting edge products to meet that demand. As long as U.S. manufacturers have a level-playing field to compete in that growing market, exporting environmental goods presents a significant opportunity to sell more American-made products, grow American manufacturing and create more good-paying American jobs.

Since becoming Chairman of the Senate Finance Committee’s Subcommittee on International Trade, Customs and Global Competitiveness, I have focused on ensuring a level-playing field exists for U.S. producers, especially manufacturers of environmental goods. Since 2009, I have issued an annual report examining the major opportunities and challenges facing U.S. exports of environmental goods. While the initial goal was to examine a wide array of challenges and opportunities facing these U.S. exports abroad, the work has increasingly focused on China’s unprecedented rise in the global market for environmental goods. This year’s report shows the broader trend in trade flows of environmental goods while highlighting specific areas – such as solar goods – in which the U.S. is “Losing the Environmental Goods Economy to China.”

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How is the U.S. losing the environmental goods economy to China?

In recent years, the Chinese Government has undertaken an aggressive strategy to capitalize on the growing market for environmental goods by making China a leading producer of environmental goods. Plans issued by the Chinese Government have detailed this strategy. For example, a 2007 report released by China’s National Development and Reform Commission (NDRC) outlined efforts to “speed up the development and deployment of hydropower, wind power, solar energy, and biomass energy; . . . {and} increase market competitiveness” by directing local authorities to “allocate the necessary funds to support renewable energy development.”

“Losing the Environmental Goods Economy to China” finds that China’s strategy has been working for China. In just the last five years, China rose from playing a minor role in the global market for environmental goods to become the dominant actor in the world’s biggest and fastest growing markets. Exports of environmental goods from the U.S. and other similarly-positioned countries are not growing at a rate commensurate with the technology their industries hold, the productivity of their workforce and the overall growth in global demand, because they appear crowded-out by China’s exports. China has neither a technological advantage nor any clear comparative advantage in terms of the production of environmental goods, yet China’s environmental goods exports are experiencing a rate of growth far afield of its competitors, which are losing to China.

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What makes this report timely?

While “Losing the Environmental Goods Economy to China” does not examine the reasons behind China’s rapid growth in the world market for environmental goods, its findings track recent complaints that U.S. solar manufactures and producers of utility scale wind towers have filed with the International Trade Commission (ITC) and the U.S.
Department of Commerce. The report's findings correct the contention that the U.S. continues to enjoy a trade surplus with China in solar products. Overall, it supports the assertion that China’s environmental goods industries are experiencing rapid growth that industries located in other countries appear unable to duplicate, suggesting that China’s competitiveness is significantly due to its violation of norms and rules of international trade.

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Why do trade rules matter?

Since the Second World War, the world’s advanced economies – led by the United States – set out to establish a rules-based trading system that would promote innovation, competition and efficiency in a way that facilitates rising living standards. This global, rules-based trading system is designed to prevent trade wars by establishing clear, enforceable standards for all of the world’s participants. Its rules ensure that competition is based – not on the amount of assistance a government provides its industries – on each industry’s ability to innovate quality products and produce them efficiently.

Congress and the Administration’s work to promote trade and help American producers gain from foreign markets not only follows the rules of the global trading system, it requires other participants in the trading system to follow the rules as well. The system breaks down when the world’s participants fail to abide by its rules. That is especially true when the country that appears to be breaking the rules has the world’s second largest economy…

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Recent Developments

September 2010. The United Steel Workers filed a Section “301” petition asking the Obama Administration to investigate a myriad of subsidies that were identified in the petition and which allegedly provide Chinese producers unfair advantages that are inconsistent with China’s World Trade Organization (WTO) obligations. This 301 petition relied on Major Opportunities and Challenges to U.S. Exports of Environmental Goods 2009.

October 2010. Forty-three Senators expressed strong, formal support to President Obama for the 301 petition submitted by United Steel Workers in September 2010. The Obama Administration successfully challenged certain subsidies that China provides its wind energy producers and continues to investigate the other allegations contained in the Steelworkers’ petition.

December 2010. The Obama Administration established the Renewable Energy and Energy Efficiency Export Initiative, a multi-agency effort to significantly increase exports of environmental goods related to renewable energy production and energy efficiency.

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March 2011. China’s National People’s Congress approves the Twelfth Five-Year Plan. This plan establishes spending and preferential tax and procurement policies designed to promote industries related to solar, biomass and wind energy technology.

September 2011. As imports of Chinese solar panels dramatically surged into the U.S., President Obama was urged to take appropriate measures to prevent Chinese manufacturers from unfairly harming U.S. solar cell and panel producers. The following month, the administration provided the WTO with evidence of 200 potentially illegal Chinese subsidies that China failed to report to the WTO, despite requirements to do so.

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October 2011. The Oregon- and California-based company, SolarWorld, along with six other U.S. solar manufacturers filed a complaint with the U.S. Department of Commerce and the ITC against the perceived dumping practices by solar manufacturers from China and the subsidies provided by China to its solar industry. In December 2011, the ITC made a unanimous preliminary determination that U.S. solar producers were harmed by surging Chinese imports, which advanced the investigation of the case. It is possible that U.S. producers of solar cells and panels will be provided import relief from surging Chinese imports in early 2012.

November 2011. Leaders of the Asia Pacific Economic Council (APEC), which was hosted by President Obama in Hawaii, adopted the Honolulu Declaration that committed members to ensuring that tariff rates on environmental goods would not exceed five percent. In many instances, APEC members were assigning tariffs on environmental goods that exceeded 30 percent. This was welcome news because, in of November of 2009, I and three other Senators called on the Administration to conclude such an agreement.

January 2012. Pursuant to a complaint filed by producers of utility scale wind towers, the U.S. Department of Commerce initiated an investigation on imports from China and Vietnam and whether they are illegally subsidized or are being dumped into the United State. On February 10, 2012, the ITC preliminarily determined that these imports are threatening American producers with injury, advancing the investigation and moving closer to providing U.S. producers with import relief…

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Conclusion

As the United States and its international trade partners work to develop clean energy, reduce emissions of greenhouse gases, mitigate climate change, and protect the environment, those countries that develop and foster competitive environmental goods industries should be positioned to take advantage of growing international demand for these products. This report shows that over the last several years, the U.S. and other seemingly well-positioned countries have not adequately benefited from this growing demand as they continue to be outpaced by China’s efforts to supply global markets with environmental goods.

By specifically examining U.S. trade flows in solar and wind technology, this report also shows that U.S. imports from China continue to rapidly surge, strengthening the preliminary determinations by the ITC that such imports are a cause of domestic industry harm that, left unmitigated, could wipe out U.S. manufacturers in this sector.
China’s rapid and punctuated growth appears to be the outcome of aggressive industrial policies employed by Chinese authorities to become one of the world’s leading producers and exporters of environmental goods, a stated goal in China’s two most recent Five Year Plans. Programs that distort trade by providing unfair advantage to Chinese exporters of environmental goods not only harm American producers but also those in other major environmental goods producing countries like E.U. member states and Japan. These Chinese programs need to be further identified and investigated to determine their consistency with WTO rules. WTO violations in this sector, and any other, must be aggressively challenged by the U.S. and its trading partners bilaterally and in multilateral forums.

The complaints filed by U.S. producers of solar and wind energy products represent a test as to whether international trade rules can be respected and whether U.S. trade laws provide a sufficient remedy to illegal dumping and subsidization by China.

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The recent efforts by the Obama Administration to challenge some of China’s unfair trade practices are welcome and encouraging. A strategy to eliminate foreign barriers to American environmental goods and a strong effort to enforce global trade rules to combat unfair trade are necessary steps toward ensuring a level playing field for U.S. producers in global markets. However, these steps alone are insufficient given that the myriad practices employed by China are not likely to be sufficiently remedied in the near term.

Insufficient political appetite in Washington, D.C. to more fully challenge China’s tactics, and weak enforcement of international trade rules, undermine America’s environmental goods industry, and many others. As a result, the U.S. domestic policy environment will also remain critical to the success or failure of an American environmental goods industry. Policy makers in Congress would be wise to develop and implement policies that reflect a lasting, bipartisan consensus that establishes a pro-growth environment that enables the development of the American environmental goods industry.