The largest American industrial union is accusing China of using unfair trade practices to create jobs in its clean energy technology sector and get a permanent edge on U.S. manufacturers.
The United Steelworkers yesterday filed a 5,000-page complaint with the U.S. Trade Representative that asserts China aims to control the global clean energy market at the expense of U.S. jobs. China's tactics for accelerating green technology development and securing big shares of the wind turbine and solar panel manufacturing businesses breach World Trade Organization rules, according to the union.
"This case draws a line in the sand," said union president Leo Gerard. "The petition presents comprehensive facts and data regarding China's illegal acts under international trade rules."
Gerard criticized U.S. trade officials for engaging in "unending diplomatic niceties" and photo-ops, instead of serious trade negotiations with China. "We're hemorrhaging jobs, seeing our bilateral trade deficit skyrocket and jeopardizing our future."
The state of U.S.-China trade relations has been a constant sore spot for groups that represent American workers. Increasingly, clean energy technology has been on their radar as China has made the development of that sector a national goal, and as concern mounts about U.S. job losses in a global market reliant on lower-cost Chinese manufacturers.
More broadly, the Bush and Obama administrations have come under fire for not aggressively challenging China's practice of intervening in currency markets to dampen the price of Chinese goods sold in foreign markets.
China recently surpassed Japan to become the second-largest economy in the world. That has happened as China has become the major global power player in renewable energy, producing about half of the equipment used in building solar panels and wind turbines. China and its companies, heavily subsidized by their government, invested more than $30 billion in 2009 to produce energy technology designed to lower carbon dioxide emissions tied to global warming.
The United States spends about half of that, despite support through U.S. government loans and grants meant to boost fledgling energy technology companies competing for a share of a U.S. market dominated by lower-cost conventional fuels such as coal.
Union lawsuit forces Obama's hand
By filing a complaint at the office of the chief U.S. trade negotiator, which has 45 days to decide whether it will open a formal investigation, the steelworkers union forces the Obama administration to respond just weeks before a midterm congressional election that promises to focus on the U.S. economy.
"I'd be shocked if they said there's nothing to look into. It allows them to kick the can down the road past the election," said Tim Keeler, counsel at the law firm Mayer Brown and former USTR chief of staff under the Bush administration.
"But what do they do then?" he added. "If all of a sudden you have formal trade fights between the U.S. and China, how does that affect U.S. and China bilateral and multilateral climate talks and trade negotiations?"
Trade officials under the Bush and Obama administrations have advocated for WTO members to consider lowering tariffs on environmental products. A U.S.-China imbroglio over China's trade practices could jeopardize progress on that issue.
Keeler said, to some degree, these types of trade disputes will be increasingly normal. "As the global market for clean technology grows, the trade fights associated with it will grow also," he said.
Still, he and others responding to questions about the filing yesterday said this puts the administration in a difficult position. Top Obama administration officials have said China is doing the right thing by investing in cleaner energy sources.
From the perspective of United Nations-led climate negotiations, China's financial commitments could help smooth the way during future talks. In addition, the expansion of China's manufacturing capacity has driven down the costs of producing wind and solar power globally.
A clash between environmental and technology policies?
"At some point we'll have to answer the question: Is there a clash between our environmental goals and our goal of having a robust clean technology manufacturing sector?" Keeler said.
The union's petition asserts primarily that China is in violation of a number of WTO rules. The WTO prohibits export subsidies that give domestic companies an advantage when they sell into the global market; it also restricts tariffs and subsidies that could thwart foreign competition.
China produces most of the world's supply of rare earth minerals that serve as critical raw materials in the manufacturing of wind turbines, solar panels and advanced batteries. In its petition, the union asserts China restricts exports of these minerals through export quotas, taxes and a complicated licensing process.
The WTO prohibits export restrictions on these minerals, and the U.S. and European countries are already pursuing a separate case against China tied to the trade of the rare earth minerals. The union asserts that China's alleged export restrictions increase prices for companies outside of China and create an incentive to shift U.S. manufacturing to China to gain access to the minerals supply.
The union's complaint also asserts China subsidizes companies based on export performance or on the use of Chinese-made goods in the manufacturing process. It notes that one program, called "Ride the Wind," grants access to loan benefits and connections to the power grid if a wind power project can show it uses Chinese-made equipment. Foreign companies that operate in China also get preferential treatment if they use Chinese-built products, according to the petition.
To Joanna Lewis, a China expert at Georgetown University, China isn't simply dumping wind and solar equipment onto the global markets, but also increasing its domestic market. "China was the largest wind energy market last year," she said. "It's not just that China is manufacturing these for export, but actually using it themselves."
Technology transfer and 'local content'
The complaint also asserts China rigs bidding processes for wind power projects by forcing consideration of "local content" in the project. Much of this is done through power purchase agreements with local governments, which the union asserts don't fall under a WTO exemption allowing "local content" discrimination for government procurement.
The U.S. Congress passed legislation in 2009 that included a "Buy America" provision for government-procured projects.
There is also the heated issue of technology transfer, which U.S. companies often agree to voluntarily as a way of entering the Chinese market. The transfer of advanced Western technology is considered a critical issue for helping developing countries such as China and India cut emissions and address global warming. But it's a highly contentious issue for U.S. companies afraid to introduce patented products into China for fear of losing their grip on the technology.
Georgetown's Lewis said a trade fight probably isn't the best approach for the United States. "There are plenty of areas that the U.S. has a comparative advantage over China, especially in advanced technologies.
"Our strength is never going to be low-cost manufacturing," she said. "There are plenty of areas where we are stronger and that we spend money on."
Adele Morris, an energy economist at the Brookings Institution, agreed that U.S. manufacturing -- be it green technologies or widgets or toilets -- isn't well-positioned to compete with China, and pursuing trade sanctions might not be the best approach to creating U.S. jobs.
"It's hard to see why clean energy should have a substantially different pattern of trade than the rest of the manufacturing sector," she said.
For example, she said, for a renewable energy standard to be in the interest of American consumers, the equipment and technology need to be affordable.
"In the interest of the environment, that's a good thing. We want the technologies to be cheap," Morris said. "So that's trouble for American manufacturers."