US trade union accuses China of protectionism in energy

UNITED STATES: The US's largest industrial trade union, the United Steelworkers (USW), has filed a trade complaint with the US government identifying what it says are "protectionist and predatory practices" employed by China to protect the Asian nation's domestic renewable energy industry at the expense of that of the US. Wind power currently dominates China's renewable energy sector.

The petition cites a broad array of unfair trade practices that it says violate World Trade Organisation (WTO) rules. The USW alleges that China has unfairly used hundreds of billions of dollars in subsidies, performance requirements, preferential practices and other allegedly illegal activities to cheat and advance its domination of the fast-growing sector.

"They are breaking every rule in the book," says USW vice-president Tom Conway. "With high unemployment, less than optimal growth and rising budget deficits, America can't afford to let China cheat any longer." It is only the third such trade complaint that the USW has been party to since 2002.

The USW case addresses China's behaviour in five key areas: restrictions on access to critical materials; performance requirements for investors; discrimination against foreign firms and goods; prohibited export subsidies and prohibited domestic content subsidies; and trade-distorting domestic subsidies.

The USW accuses China of having largely reneged in 2009 on an agreement to eliminate a 70% domestic content requirement for wind farms in China to gain approval. The USW further claims that foreign joint ventures operating wind farms in China enjoy loan and tax subsidies if they buy Chinese equipment.

In addition, the petition blasts China's Ride the Wind programme, which it describes as giving Chinese wind power projects special access to loan-interest subsidies and priority connection to the grid if they use Chinese-made wind equipment.

Also cited is China's Special Fund for Wind Power Manufacturing, created by the Chinese Ministry of Finance in 2008. This provides a grant to domestic manufacturers of CNY 600 (US$90) per kW, or 5-10% of the cost of a turbine. To qualify for the grant, certain critical components of the turbines must be produced in China.

The USW cites China giving domestic wind firms a 5% preference in the bidding process for wind concessions as another example of alleged discrimination against foreign firms. "As a result, foreign firms have never been awarded a major wind farm concession despite competitive bids," it says.

The petition also notes that investment agreements between foreign firms and state-owned partners or state financiers invariably contain requirements to transfer technology.

The petition could gain traction in the run-up to the US midterm elections, given the major concerns about the country's rising unemployment.

The American Wind Energy Association (AWEA) did not comment directly on the document, with officials only saying they were reviewing it. "Any practice that tilts the global playing field unfairly would be of serious concern," says AWEA president Denise Bode.

In June, the USW and AWEA launched a partnership to promote the development of wind energy in the US. And it was the USW that forged an agreement with China-based A-Power Energy Generation Systems and Shenyang Power Group. They agreed that the wind turbine towers used in the Chinese companies' $1.5 billion project in Texas would be made from US steel.

The USW filed the 5,800-page petition with the Office of the United States Trade Representative, part of the Obama administration, which must decide whether to take action on or before October 24, 45 days after the filing of the petition.

One option might be to refer it to the WTO, which China joined in 2001. The WTO supervises international trade and, in theory, can resolve trade disputes. In practice, the process would be delicate, especially given the massive US trade deficit and China's surging economy.

Other complainants

The petition comes at a time when international complaints about China's trade and monetary practices are escalating (Windpower Monthly, August 2010). In September, ambassador Ron Kirk, US trade representative, filed two complaints with the WTO about China's allegedly anti-competitive behaviour - one involving Visa Corp and one claiming that China had wrongly slapped massive anti-dumping duties on US steel products.

The European Commission recently announced that it is looking into claims that China is illegally subsidising wireless modem technologies made in China and exported to the EU.

An official from the Chinese Ministry of Foreign Affairs could not be reached for comment on the USW petition.