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Legal issues in Chinese international trade disputes on photovoltaic products --- On the perfection of green subsidies WTO rules. FAN, Chien Te Professor of Law & Director, ILST, National Tsing Hua University, Taiwan 2014/10/8.
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Legal issues in Chinese international trade disputes on photovoltaic products ---On the perfection of green subsidies WTO rules FAN, ChienTe Professor of Law & Director, ILST, National Tsing Hua University, Taiwan 2014/10/8 7th International Scientific Conference on Energy and Climate Change, Athens, Greece
The Growth of Market • The solar power market is divided by technology into a photovoltaics segment and a concentrated solar thermal segment. • Photovoltaics - Segment • In absolute terms, electricity generation from photovoltaics is still very much a niche market. The worldwide installed capacity at the end of 2012 was 30GW. This equates to 0.1% of worldwide electricity generation. However, growth has been breath-taking with double digits over the past years. • The global market share in new builds is still led by Germany, but now closely followed by China. Italy, U.S. and Japan are other big solar countries. Despite the recent auctions of solar capacity in South Africa, solar is still in its infancy on the African continent
The Down of Price • .To compare modules, prices are typically converted into a $/W amount. • From the second quarter of 2008 to May 2009, prices for silicon pv products have dropped dramatically. The average price for polysilicon has dropped over 60% from $2/W to below $0.6/W. The prices for polysilicon- based products, namely wafers, cells and modules have dropped in a similar fashion. • The sharp drop has been caused by a drop in demand following the credit freeze in 2008/09, lower feed-in tariffs and overcapacity. Although demand will return, it is unlikely that polysilicon prices will return to 2008- levels. • (Average prices taken from Deutsche Bank analyst report)
Outlook of PV Industry Market Outlook and Opportunities • There are many factors that are driving this market, namely concerns about energy security, energy prices, climate change and cost of carbon as well as increased demand for electricity and need for replacing huge amounts of existing electricity generating capacity. However, in 2009, solar electricity can not compete on price with conventional technologies. This makes regulatory frameworks a necessity whilst solar technologies are being further developed. Feed-in tariffs have proved to be the most effective way of encouraging demand. Unfortunately, though, this also means that the market is dependent on public policy, which has proved to be fickle at times, introducing risk. However, given public pressure, we believe that stable support frameworks will stay in place. • In the absence of public policy, the market is very much tied to the oil price, as cheap oil (and gas) reduces the pressure to seek alternative sources for electricity generation • The return on solar power assets depends not only on the costs required to build the plant, but also on the yearly solar irradiation at the location of the plant and the prevailing electricity prices in the local market
Story began from Driven by the demand of global cost effective renewable energy supply: • Development of wind power/ photovoltaic industries in China • Export of these products to the USA and EU • Investigation of “anti-dumping and anti-subsidy” by EU and the US governments. Then, the concerns were raised : • Does existing subsidy program (under WTO) violate the regulation? • Does existing subsidy limit to any particular industry? Including or excluding the green (or renewable) industries? • “photovoltaic products” not belonging to any of the existing categories of goods. > renewable energy, FIT program
Request for consultations: December 22, 2010 EU and JP requested to join the consultation in 2011 “Wind power” dispute cases in WTO • DS419 China — Measures concerning wind power (Complainant: USA) • The United States requested consultations with China concerning certain measures providing grants, funds, or awards to enterprises manufacturing wind power equipment (including the overall unit, and parts thereof) in China. • The United States indicated that the measures appear to provide grants, funds, or awards that are contingent on the use of domestic over imported goods and, consequently, they appear to be inconsistent with Article 3 of the SCM Agreement. • The evidence: Notice of the Ministry of Finance on Issuing the Provisional Measure on Administration of Special Fund for Industrialization of Wind Power Equipment, including the Annex on Provisional Measures on Administration of Special Fund for Industrialization of Wind Power Equipment. • China is seen failed to comply with its obligation. (translation and report to WTO, etc) > Subsidy > Prohibited subsidies (subsidies contingent, upon export performance)
US and EU’s anti-dumping allegation against China’s photovoltaic products • Common beliefs: • Low labor costs and deliberate currency undervaluation from China • Chinese industries are economically inefficient, if there is no subsidy, they would not be competitive globally.. • Chinese subsidization leads to manufacturing overcapacity, which affects both domestic and foreign producers, and inhibits consolidation among Chinese producers that otherwise would occur. • U.S. says China illegally subsidizes exporters of crystalline silicon photovoltaic cells and solar panels
Summary of arguments • Chinese solar manufacturers are dumping product into the U.S. market at below cost. • In 2012, the price downturn of solar panels came from the cyclical correction of the industry. The entire solar industry was unprofitable due to a 70% drop in module prices over the prior year. • The dumping activity is negatively impacting U.S. jobs. • The growth of solar jobs in the U.S. is in Manufacturing, Distribution and Finance. There are more than 140,000 jobs and the figure keeps growing. Low cost centers will always be the manufacturing centers for solar panels, just as they are for mobile phones, computers, network equipment and appliances. Companies making solar cells in the USA employ less than 1000 people. • Chinese solar manufacturers get access to below market rate financing, pay below market taxes and are unfairly subsidized. • South Korean central bank has supplied 1-2% interest rate debt to its main manufacturers. If cheap debt is a cause for an anti-dumping tariff then it should be applied to all Samsung & LG product. • The tariff should apply to all iPhone, iPad, Mac, PC, etc., since they are all probably “made in China”.
Following developments • U.S. Commerce Department decided to impose duties of as much as 250 percent on Chinese solar imports. • EU decided to impose anti-dumping and anti-subsidy duties to Chinese solar imports. The average duty for exporters that cooperated in the investigation is 47.7%, which is the duty rate applicable to the majority of exporters. • A duty of 64.9% will be applied to those exporters who did not cooperate in the European Commission's investigation, which are estimated to account for less than 20% of exports. • Following those consultations starting from Feb. 2011, China took action formally revoking the legal measure that had created the Special Fund program in July, 2011.
“Renewable energy” dispute cases in WTO • DS452 European Union and Certain Member States — Certain Measures Affecting the Renewable Energy Generation Sector (Complainant: China) • DS412 Canada - Certain Measures Affecting the Renewable Energy Generation Sector (Complainant: Japan)
DS452 EU and Italy/Greece Request for consultations: November 5, 2012 • China requested consultations with the European Union, Greece and Italy regarding certain measures, including domestic content restrictions, that affect the renewable energy generation sector relating to the feed‑in tariff programs of EU member States, including but not limited to Italy and Greece. • China claims that these measures are inconsistent with: • Articles I, III:1, III:4 and III:5 of the GATT 1994; • Articles 3.1(b) and 3.2 of the SCM Agreement; and • Articles 2.1 and 2.2 of the TRIMs Agreement
DS 412 & DS 426 These two cases are converged by the dispute panel
DS412 Canada Request for consultations: September 13, 2010 Panel report circulated: December 19, 2012 Appellate body report circulated: May 6, 2013 • Japan requested consultations with Canada regarding Canada's measures relating to domestic content requirements in the feed-in tariff program (the “FIT Program”). EU and USA later joined the consultation and Canada accepted the requests. • The dispute concerns the domestic content requirements that certain generators of electricity utilizing solar photovoltaic and wind power technology must comply with in the design and construction of electricity generation facilities in order to qualify for guaranteed prices offered under the Feed-In Tariff (“FIT”) Programme, adopted by the Government of the Province of Ontario, as well as all individual FIT and microFIT Contracts implementing these requirements since the FIT Programme's inception in 2009. > National treatment obligation
Cont. • Japan claimed that the domestic content requirements provided for and implemented under the challenged measures place Canada in violation of: • (i) the national treatment obligation under Article III:4 of the GATT 1994; • (ii) the prohibition that is set out in Article 2.1 of the TRIMs Agreement on the application of any trade-related investment measures that are inconsistent with Article III of the GATT 1994; and • (iii) the prohibition on import substitution subsidies prescribed in Articles 3.1(b) and 3.2 of the SCM Agreement. (SCM: subsidies and countervailing measures)
“Feed-in Tariff Program” dispute cases in WTO • DS412 • DS426 Canada - Measures Relating to the Feed-in Tariff Program (Complainant: European Union) GATT 1994: Art. III:4Subsidies and Countervailing Measures: Art.1.1, 3.1(b), 3.2Trade-Related Investment Measures (TRIMs): Art. 2.1
DS426 • The European Union claimed that the measures are inconsistent with Canada's obligations under Article III:4 and III:5 of the GATT 1994 because they appear to be laws, regulations or requirements affecting the internal sale, offering for sale, purchase, transportation, distribution, or use of equipment for renewable energy generation facilities that accord less favourable treatment to imported equipment than that accorded to like products originating in Ontario. • The European Union alleged that it appears that a subsidy is granted under the measures because there would be a financial contribution or a form of income or price support, and a benefit is thereby conferred. • Canada already agree to modify Ontario’s FITs regulations so as to comply with the WTO rules in 2014. The case has been highly regarded as the guide for several similar “programs” and/or “policy devices” applied in different countries to serve the anti climate impact related policies. > National treatment obligation > Prohibited subsidies
Approximate duration of a dispute settlement procedure (the panel process) Appeal report (60-90 days) Dispute Settlement Body adopts appeals report (30 days) Total ~ one year Total ~ one year 3 months (with appeal)
How WTO/SCM sees subsidies? • The agreement recognizes that subsidies may play an important role in economic development programmes of developing countries, and in the transformation of centrally-planned economies to market economies. • Poor countries are exempted from disciplines on prohibited export subsidies, and have a time-bound exemption from other prohibited subsidies. • For developing countries, the export subsidy prohibition would take effect 8 years after the entry into force of the agreement establishing the WTO • Countervailing investigation of a product originating from a developing-country member would be terminated if the overall level of subsidies does not exceed 2 per cent (and from certain developing countries 3 per cent) of the value of the product. (i.e. 2-3% subsidies are “allowed”.)
Subsidy defined in Agreement of SCM A subsidy shall be deemed to exist if: • (a1) there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as “government”), i.e. where: (i) a government practice involves a direct transfer of funds (e.g. grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees); (ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits)(1); (iii) a government provides goods or services other than general infrastructure, or purchases goods; (iv) a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments; or (a2) there is any form of income or price support in the sense of Article XVI of GATT 1994; and • (b) a benefit is thereby conferred.
Three categories of specific subsidies in SCM • Prohibited subsidies - (1) export subsidies, and (2) local content or import substitution subsidies. Export subsidies are those that are contingent, in law or in fact, whether solely or as one of several conditions, on export performance. • Actionable subsidies • Non-actionable subsidies
Specificity • Key concept of WTO agreement. • The concept is deemed to exist when access to the subsidy is limited, explicitly or in fact, to certain enterprises. • SCM Agreement only aims at disciplining the use of subsidies that are “specific”. Most notably, a subsidy is to be considered “specific” if access to it is explicitly limited to certain enterprises. • Conversely, if eligibility of enterprises is based on objective criteria and neutral conditions, which are economic in nature and horizontal in application, such as size, and if eligibility for the subsidy is automatic, specificity does not exist.
Sword and/or Shied ? • Understanding the rules: Prohibitedor Actionable? The SCM Agreement differentiates between prohibited and actionable subsidies. Article 3.1(b) of the SCM prohibits subsidies conditioned on the use of domestic over imported goods – known as import substitution subsidies – because they are recognized to be especially trade distorting. The Special Fund for Wind Power Manufacturing appears to fall within the prohibition of Article 3.1(b). In contrast, actionable subsidies are permissible under the SCM unless they cause adverse effects or injury to the interests of another Member. • Strategic flexibility: Transparency? and to what extent? The obligations of WTO Members to submit notifications about their subsidies are set forth in Article 25 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement.)
Cont. • Ideal Goal of Green Energy vs. Realistic Restriction on Technology Maturity & Financial Capacity • Global Competitiveness v. Domestic Self-reliance • Centralized Market v. Free Market • Policy Goals: Energy Portfolio, Installation Deployments, Supply Chains & Components mfrs (trading) • Sustainability, Low carbon, Green Industry & etc. v. Decent Jobs?
Conclusions • The market for installing solar in the U.S. is nearly doubling per year, but is now faced with an anti-dumping tariff that has already increased the cost of solar panels and fallaciously affects development of solar industry in the US. • WTO should take the renewable energy subsidy problem as an opportunity to improve its green subsidy rules timely. • China’s PV products do not comply with the specificity concept. > potentially trade-distortive effects of certain subsidies. (export subsidies) • The balance between “development space” and trading rules (for developing countries) is hard to strike.
GATT III: National Treatment on Internal Taxation and Regulation • III.4: The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.
GATT III: National Treatment on Internal Taxation and Regulation • III.5: No contracting party shall establish or maintain any internal quantitative regulation relating to the mixture, processing or use of products in specified amounts or proportions which requires, directly or indirectly, that any specified amount or proportion of any product which is the subject of the regulation must be supplied from domestic sources. Moreover, no contracting party shall otherwise apply internal quantitative regulations in a manner contrary to the principles set forth in paragraph 1.*
Subsidies and Countervailing Measures (SCM): • Art. 3.1(b) Except as provided in the Agreement on Agriculture, the following subsidies, within the meaning of Article 1, shall be prohibited: • (a) .. • (b) subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods. • Art.3.2 A Member shall neither grant nor maintain subsidies referred to in paragraph 1.
GATT XVI: Subsidies • XVI:1: If any contracting party grants or maintains any subsidy, including any form of income or price support, which operates directly or indirectly to increase exports of any product from, or to reduce imports of any product into, its territory, it shall notify the CONTRACTING PARTIES in writing of the extent and nature of the subsidization, of the estimated effect of the subsidization on the quantity of the affected product or products imported into or exported from its territory and of the circumstances making the subsidization necessary. In any case in which it is determined that serious prejudice to the interests of any other contracting party is caused or threatened by any such subsidization, the contracting party granting the subsidy shall, upon request, discuss with the other contracting party or parties concerned, or with the CONTRACTING PARTIES, the possibility of limiting the subsidization.
PPT中提到四個案子，補充背景資料如附。另有一些問題如下：PPT中提到四個案子，補充背景資料如附。另有一些問題如下： • 1. DS419 (PPT第4頁) • 此案是美國認為中國的風電基金對本國形成補貼而提請consultation • 後來中國取消該措施 (請參所附word檔中USTR的新聞稿) • 若依該頁PPT最後一句的說法，似乎容易引起誤解? • 2. DS412 (PPT第7、8頁)、DS426 (PPT第12頁) • 此兩案是日本、歐盟認為加拿大的FIT構成補貼而提請consultation • 後來dispute panel 併案處理，而PPT中兩案分開? • 另，昨天寄給三位老師的DS449還沒有被放進ppt • 該案涉及之項目除了PV外，亦有風電 • 清單中所列名稱 Utility Scale Wind Towers (應用級風塔) • 即在 Crystalline Silicon Photovoltaic Cells 下一欄
