By Sungjoon Cho [originally posted at The National Law Journal]
Undoubtedly, our existence depends on the sun. The whole ecological system, in which humans are part, would not sustain without it. One fascinating, albeit often underappreciated, fact is that this particular source of energy is fail-safe. From Day One, the sun has never neglected its job: It always rises in the morning. Also, it is limitless, at least for the next billion years.
No wonder the sun has carried the symbol of power in the human history, ranging from the Pharaoh to the Louis XIV.
Recently, however, earthlings have discovered new ways of basking in the sunshine: photovoltaic modules, also known as solar panels. They have somehow managed to extract electricity from the sun. Two main drawbacks from conventional energy sources — high prices and environmental degradation — have compelled humans to go back to the good old sun. What a happy marriage of modern science and business!
The statistics on the recent growth of solar energy (photovoltaic power) are staggering. For the past five years, an average annual growth rate of global total solar power has been more than 50 percent. For Germany, solar power production increased from 24 megawatts (MW) in 2001 to 2, 022 MW in 2010. In the case of China, the number is even more astounding: only 3 MW in 2001 to 10, 852 MW in 2010! In the United States, the size of the solar cell and panel market has grown fivefold between 2006 and 2010.
Naturally, this global passion for solar power has generated an oversupply of solar panels, which is currently about 50 percent in excess of demand, according to one study. Hence, the domestic trade protection mechanism has been activated to thwart competition from abroad.
In October 2011, the Coalition for American Solar Manufacturing accused Chinese solar panel producers of “predatory and illegal aggression” into the U.S. market. A similar accusation ensued in Europe in May of this year. Milan Nitzschke, president of EU ProSun, accused Chinese manufacturers of illegal dumping.
To the chagrin of free traders, anti-dumping measures are structurally biased against foreign producers. Petitioners, i.e., domestic producers, usually get what they want. Yes, this is the sacred cow of trade politics. Last October, the U.S. government imposed on Chinese solar panel producers anti-dumping duties ranging from 24 percent to 255 percent. The European Union has just followed the suit. Last month, it imposed anti-dumping duties of 11.8 percent on Chinese solar panel exports.
At first glance, these developments may sound all too familiar. They share the same pattern of the old protectionist tactics once applied to shoes, steels and semiconductors in the 1970s and 1980s. Business as usual? Well, this time it is different. After all, it is the sun that we are talking about. The commercial potential derived from its characteristic inexhaustibility and ubiquity is unprecedented. This unique nature of solar energy has brought a number of players other than solar panel manufacturers themselves into this political economy battle. This is why the temporary anti-dumping victory to domestic producers both in the United States and Europe seems unsustainable.
Generating electricity from the sun gets many different businesses — domestic and foreign — involved. One needs raw materials, such as crystalline silicon, to manufacture a solar cell. One also needs a DC-AC inverter. Moreover, someone has to install the whole system. The list goes on. In 2011, more than half of solar jobs in the United States originated from installation, while only 25 percent came from actual manufacturing.
These upstream and downstream businesses in the global photovoltaic supply chains have an opposite economic interest — cheaper solar panels from more competition — than do domestic solar panel manufacturers. Thus, they have begun to establish their own lobby groups, such as the Coalition for Affordable Solar Energy (CASE), to match the political clout mobilized by domestic solar panel producers in the United States.
In Europe, which boasts a solar market four times bigger than that of he United States, the level of defiance to protectionism is even fiercer than in the United States. Not only the Alliance for Affordable Solar Energy, a coalition of 459 European solar panel-related companies, but also some E.U. members, such as Germany, have attacked the European Commission’s anti-dumping investigations against Chinese solar panels. The commission’s lower-than-expected anti-dumping duty rate against China imposed earlier last month substantiated this counterforce.
The long and short of the recent solar panel saga is that trade winds appear to prevail over solar winds. The shiny economic prospects on solar energy, both domestic and international, are indeed stronger than political perturbations caused by an economic version of geomagnetic storms, such as churning effects.
This offers a great example of what free trade is capable of doing. Different types of comparative advantages, such as cheap labor or high technology, if combined, can truly broaden the winners’ circle. This is tantamount to the economic law of gravity. Resistance is futile. Note that the U.S. protectionist tariffs imposed last year have largely failed to generate the intended outcome. The agile U.S. industries consuming imported solar panels simply switched their supply source from China to Taiwan and Malaysia.
Nonetheless, politicians from the major countries involved, such as the United States, E.U. members and China, have recently demonstrated their inclination for a negotiated option of managed trade. China might agree to voluntarily restrict its solar panel exports, as Japan did on semiconductors in the 1980s with the United States. Although this kind of arrangement might bring a temporary political peace, it would effectively form a global cartel on solar panels and consequently expunge the enormous economic, and environmental, potential. That would not be a sunny situation to most of us.
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