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UPDATED: November 15, 2010 NO. 46 NOVEMBER 18, 2010
Typical Protectionism

In the middle of October, acting on a complaint from the United Steelworkers union, the Office of the U.S. Trade Representative initiated a Section 301 investigation into China's clean energy policies and practices. The move has aroused strong opposition from China. China's New Energy Association says the probe is neither well-founded nor responsible, and is typical trade protectionism.

New energy has recently become a driving force of economic development, most obviously in the two major greenhouse gas emitters—China and the United States. These two countries have huge potential for cooperation in this sector, the object of a significant consensus reached by their leaders.

If it has a direct effect, the probe will reduce exports of China's new energy products, and will undermine U.S. efforts to develop new energy. Investment in China by U.S. new energy corporations will be hit hard.

Based on Customs statistics for the first eight months of this year, solar panels sold to the United States accounted for only 4.57 percent of China's total exports, and 75 percent of the panels were done by way of processing trade. As Chinese manufacturers must import polycrystalline silicon, the main raw material in the production of the panels, from the United States, they earn only a little from manufacturing, and the majority of the profit is gained by U.S. corporations. Additionally, most of China's top 10 solar panel manufacturers, by output, are listed in the United States and U.S. shareholders are direct beneficiaries.

Support for new energy is almost the same in China and the United States, both in policy and financial terms.

The Obama administration considers the development of new energy a core project to prop up the post-crisis U.S. economy and strengthen international competitiveness, and has budgeted $14 billion to support research and development in renewable energy. In the next 10 years, the United States is expected to invest $150 billion in research and development of clean energy.

Meanwhile, as important means of realizing the goals of energy conservation and emissions reduction, development of new and renewable energy is being emphasized more than ever in China. More importantly, related policies of the Chinese Government are in accordance with WTO rules.

With high-quality but cheap products, China's new energy enterprises occupy their own positions in international competition. In order to protect the interests of its enterprises, the United States is trying to manipulate trading rules to weaken the competitive advantage of Chinese enterprises. That's the real purpose of the ongoing Section 301 investigation.

The United States has a strong advantage in hi-tech, clean energy in particular, while China has the largest market for clean energy technologies and products, and relatively low manufacturing costs. Long-term bilateral cooperation in new energy, energy conservation and emissions reductions will be a win-win result for both sides. What the U.S. Government should be thinking about is how to promote cooperation in that area, rather than cracking down on China and damaging common interests.

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