US could have more puff at WTO after China wind turbine deal

June 10, 2011
Gerry O'Kane
US China green sector subsidy dispute
The US Trade Department has said that China has conceded in green-tech dispute and agreed to halt subsidies to wind power manufacturers that violate World Trade Organization (WTO) rules.

The deal has not been officially acknowledged in China and will be seen as bitter-sweet in the United States. While it means China will no longer support a subsidy programme for wind turbine manufacturers, the US complaint, which began with a petition from the United Steelworkers Union, covered a much wider list of grievances.

The Steelworkers' 5,800-page petition - released during the run-up to last year's US Congressional mid-term elections - accused Beijing of effectively subsidising its green energy sector and hindering foreign companies from competing in China. At the time China's Ministry of Commerce said: "The United Steelworkers Union allegations on China's clean energy policies are groundless and irresponsible."

The Steelworkers - the union that threw Chinese steel into the harbour during the infamous WTO 'Battle for Seattle' protest in 1999 - made a number of allegation against China, including:

  • restrictions on access to critical materials;

  • performance requirements for investors;

  • discrimination against foreign firms and goods ;

  • prohibited export subsidies and prohibited domestic content subsidies;

  • trade-distorting domestic subsidies.

These points were, however, not only aimed at the wind turbine industry. In fact the were primarily made in relation to China's solar sector companies, which export the vast majority of their output. At a time when China was flaunting its 'Buy Chinese' policy, a raft of Chinese companies were picking up millions in tax credits under the US Recovery Act, which highlighted clean energy.

A 2009 analysis of Yingli, LDK Solar and Suntech (China's top three solar-related companies by market capitalisation) by an academic in the US, showed that bank loans averaged 25 percent of corporate capital. Many of the loans were unsecured and supported by China's cash-rich and government-influenced banks. Indeed, both the China Development Bank and the China Construction Bank have just sunk millions more into LDK Solar prior to the spin-off of its polysilicon business.

The Steelworkers did specify that wind sector subsidies were made in the form of grants to wind turbine makers that agreed to use key parts and components made in China rather than buying imports. Individual grants since 2008 ranged from USD6.7 million to USD22.5 million and could collectively total several hundred million dollars, it said.

Now China is said to have agreed to not to support local part purchasing for turbine manufacture and to open the market to overseas companies. As this is not a ruling from the WTO, however, China could change its mind. And the Steelworkers may challenge again, pointing out that only part of their complaint has been addressed.

According to Reuters, US Trade Representative Kirk has chide China for failing to meet a WTO obligation to provide information on a regular basis about its subsidy programs. "China is the second largest trader at the WTO, and it is simply not acceptable that China continues to evade its transparency commitments," he said.