Multinational companies, Trade Policy and Global Production Networks
The Solar panel case
Louise CURRAN. Department of Marketing and International Business, Toulouse Business School.
l.curran@esc-toulouse.fr
DRAFT.
Keywords: global production networks, EU trade policy, solar panels, China, antidumping,
Abstract:
This paper seeks to shed light on the interactions between national and regional institutions and
increasingly complex Global Production Networks (GPNs) through a case study of the European
Union (EU) antidumping investigation against Chinese solar panels. The paper explores the facts of
the case, drawing also on the recent very similar case in the US, and analyses the arguments
proposed by actors for and against antidumping action. This case demonstrates how the growing
complexity of these chains makes the process of lobbying for government support for a given
industry more difficult. As value chains cross frontiers, different actors in the same country have
different interests and so the interests of governments are less self-evident.
The result of the US antidumping action was a large and immediate fall in Chinese exports of solar
panels to the US. As a Chinese company representative interviewed for the research explained; ‘Like
every other company, who was manufacturing solar cells in China… we moved them instead to
overseas production’. The case thus also highlights the malleable nature of GPNs in response to
institutional action. Although they are not direct actors in the current debate, third countries clearly
have an interest in the outcome. In terms of the GPN literature, the case also highlights that MNE
choices on where to produce within global value chains can be heavily impacted by the institutions
which regulate world trade – in this case regional and national administrations.
Introduction
This paper seeks to shed light on the interactions between national and regional institutions and
increasingly complex Global Production Networks (GPNs). In particular it seeks to contribute to the
growing literature on the impacts of socio-institutional characteristics on these structures. Extensive
work in the Global Value Cain (GVC) tradition on the manner in which actors within global production
structures interact and the power relations between them mean that we now have a good
understanding of the governance structures of different chains and the implications of these
structures for the different actors (Gereffi, Humphrey and Sturgeon, 2005; Sturgeon, van Biesebroeck
and Gereffi, 2008). The way in which actors external to these structures impact on their operations,
particularly institutional actors like governments, is much less widely explored. The fact that politics
is often a key motivation for strategic choices within is widely acknowledged by writers in the area
(Gereffi, 1999; Sturgeon etc; Wallerstein, 2009), but it is seen more as a backdrop to interactions
within the chain than as a vital element guiding choices.
This paper will explore an ongoing trade dispute in the EU in the light of the GVC and more recent
GPN literature. The efforts by certain EU companies in the solar photovoltaic (PV) industry to secure
antidumping duties against Chinese imports take place in a context where supply chains within the
industry are widely dispersed and where many EU companies are either dependent on Chinese
imports for competitiveness or on access to the Chinese market for sales growth, or both. The case
thus typifies the difficulty of harnessing national or regional institutional structures to support
particular actors within a given chain. It also highlights the difficulty for geographically bounded
institutions to make judgments about the most appropriate regulatory action to take, in a context
where multiple actors within their jurisdiction have very variable interests. The case provides us with
a real world example of what Levy has termed ‘contested organizational fields’ (Levy, 2008: 944)
where actors are struggling over key rules of the game – in this case trade rules.
This paper will look at a specific EU case where certain EU actors were calling for protection from
what is claimed to be unfair trade practices by Chinese exporters. The case is complicated by the fact
that the product in question – Photovoltaic (PV) solar panels – is a complex one incorporating many
intermediate inputs and sub-assemblies. The production networks – or global value chains as they
are often called – for such systems are increasingly geographically dispersed. This makes the
definition of national interests in relation to protection more complex than in more locally grounded
networks. As the EU Commissioner for Trade explicitly recognized, the complexities of global
production systems pose difficulties for trade policy:
‘…it is a fact that a lot of our imports are inputs for manufacturing that takes place here and that a
significant share of the value of the finished goods we import has its origin in Europe: we all know the
difference between Made in China and Made by China. So I think that we should stay vigilant about
these value chains when conducting the Union interest test.’ (De Gucht, 2012)
In order to explore the current case, I will firstly look at literature on GVCs and GPNs on the
interaction between the institutional framework and company strategy. I shall then explore this
specific case and the positions of the different actors, before discussing briefly the parallels with the
recent US case. Finally I will draw some conclusions on what this case tells us about the complexity of
the institutional frameworks framing the operations of MNEs within GVCs and the difficulties
involved in seeking national or regional government protection for a given industry, in an era where
production networks are increasingly global.
Global Value Chains and the institutional environment
The increasing complexity of global production systems in recent decades has been the subject of
much interest in academia. Initial research by scholars like Froebel (Frobel et al, 1980) has fostered
extensive work in several different disciplines exploring the phenomenon. As Buckley and Ghauri
(2004) have described ‘…the increasingly sophisticated decision making of managers in MNEs is
slicing the activities of firms more finely and in finding optimum locations for each closely defined
activity, they are deepening the international division of labour.’ (Buckley and Ghauri (2004) p.94).
However the choices made by managers are not made in a vacuum. They are influenced to a series of
factors which have a direct impact on the feasibility and profitability of international production, not
least the political/institutional environment in the countries in which they operate.
Gereffi has been one of the key writers seeking to explore how these chains are structured. He has
written extensively on Global Value Chains (GVCs), defining the four key dimensions of such
structures as being their Input-output structure, their geography, their governance and the socioinstitutional context in which they are based (Gereffi, 1995). Although Gereffi’s work has motivated
extensive research seeking to better understand GVCs, not all dimensions have been subject to
detailed scrutiny. The governance dimension has been most extensively studied, especially in relation
to defining different types of relationships within the chains (Gereffi et al, 2005) and the impact of
such structures on the potential for upgrading of suppliers (Gereffi, 1999; Palpacuer, Gibbon and
Thomsen, 2005).
Other dimensions have been subject to less research, although several economic geographers have
explored the geographic dimension of GVCs or Global Production Networks (GPNs) as they tend to
characterize them (Pickles and Smith, 2010; Yeung, 2009). In a contribution to a recent book on the
subject, Immanuel Wallerstein, whose work on World Systems Theory in many ways laid the
foundations for GVC, called for a greater emphasis on political economy when analyzing these chains:
‘…one cannot make sense of decisions by particular producers in a commodity chain without first
taking into account the geopolitical situation…’ (Wallerstein, 2009, p.87).
However, within the GVC research stream, the issue of socio-institutional context has been little
explored. In an early article pointing out the limitations of this approach, Dicken et al (2001) called
for a network methodology to be applied to understanding global economic linkages. They highlight
that networks are both social structures and ongoing processes – where human agency impacts on
structures. In a more recent article on the Global Production Networks (GPN) literature Coe, Dicken
and Hess (2008) note the lack of attention in the literature to that the fact that GPNs are embedded
within what they term ‘multi-scalar regulatory systems’ and call for better integration of these
different regulatory levels into work exploring GPNs. National, regional and international regulatory
systems impact on firm choices in many of these chains and networks, yet analysis of the extent of
this impact and the interactions between firms and these different regulatory levels is limited. This
paper is in part a response to this criticism. It will explore the agency of certain companies within a
GPN seeking to use their national and regional regulatory structures to orient the production
network in a manner which is in their interests. It will also explore the likely impacts of this action,
both within the specific PV GPN and in the wider global economy.
Methodology and contribution of this paper
This paper will explore the debate around this case through analysis of the various position papers
and reports provided by the different actors, but also through analysis of trade data. The research is
also informed by telephone and face to face interviews with two key actors in the case – the Alliance
for Affordable Solar Energy (AFASE) – an ad-hoc group established to militate against anti-dumping
duties - and the European Photovoltaic Industry Association (EPIA) the industry trade body. Prosun –
the ad hoc group representing those in favour of anti-dumping duties - were contacted several times
for this research, but failed to respond to requests for interviews. Therefore their arguments had to
be gleaned from published data.
The current debate around the claims by certain EU companies that low cost Chinese solar panels are
being dumped on the EU market and calls for anti-dumping duties to be instigated, provides an
interesting case study of how some actors within global production structures seek to use the
politico-institutional context to secure regulatory change in their interests. The situation resembles
very much the above quote from Levy of ‘contested organizational fields’, which are particularly
complex when actors cross international borders.
If GVCs could be easily divided up between different geographical spaces and institutional contexts,
the process of seeking protection from the key institutions would be quite straightforward, even if
the outcome, like that of any lobbying process, is never assured. However, GVCs are by definition
cross border and often significantly so. In addition many GVCs are interconnected, such that defining
the limits of one GVC compared to another can be extremely difficult. Therefore in seeking to assure
protection for one chain, there is a risk of disruption to other chains, some of which may be equally
important to a given region.
This fact has led to quite different positions being defined within the EU PV industry, as different
actors at different positions in the chain militate for and against the proposed measures. It therefore
gives us an interesting insight into both the complexity of this particular production network and the
interests of the different actors within it. It is also a real world example of the scenario described by
Wallerstein: ‘Because there are so many ways to play games with commodity chains, we have
situations in which one set of producers in a country of final sale wants laws that are directly contrary
to those preferred by another set of producers in the same country.’ (Wallerstein, 2009 p. 86
emphasis added). Differing interests within a country lead to increasing complexity for policy makers
in terms of defining the national (or in this case regional) interest and lead to variable concepts of
national interest, even within states.
The commercial importance of the decisions in these kind of cases often means that companies are
willing to make public details of operational activities and relative value added which is often
considered to be confidential. The footwear case several years ago was the subject of an in-depth
analysis by the Swedish Board of Trade where companies gave quite unprecedented details of the
value added activities in their supply chains and relative weights of different inputs, in an effort to
impact on the debate (Swedish Board of Trade, 2007). Such cases therefore provide a rich terrain for
analysis, as the arguments of the different sides of the debate are often supported by details of the
operational activities of their GVCs. At the same time the decision making process and outcome gives
us an indication of the power relations within a given GPN, in this case the different actors within the
EU PV industry.
The Solar panel production network
In terms of the structure of the production systems for the Photovoltaic modules, wafers and cells
which are the subject of the anti-dumping case, the first question to pose is what is the relevant
production network? PV panels could be considered to be final products on one level, but they are
useless to their owners unless installed and linked up to an electrical system. Thus, rather than look
at the PV modules themselves, most existing analysis considers these panels as part of a wider
network of solar energy systems.
The schema shown in Figure 1 below (inspired to a large extent by the extensive explanations
provided in USITC (2011) and IRENA (2012)) highlights the key elements in the production structure
for PV systems. In brief, high grade polysilicon is sliced into wafers which are made into cells to be
assembled into panels (often called modules) which are mounted together with ancillary elements to
make the final solar energy production system. I have differentiated in the diagram between captive
actors which are very dependent on this particular chain and non-captive actors like polysilicon, glass
and balance of system (BOS) actors who can, and often do, sell their inputs to other value chains.
The EU case covers wafers, cells and panels. Whereas the recent US case only covered cells and
panels. AFASE are very critical of the EU’s decision to include wafers in the investigation, as they
consider them to be a key intermediate input to several value chains, not just solar. Their
representative commented: ‘Launching a case against wafers in China is kind of like launching a case
against aluminum and glass, which are basic inputs for a lot of different industries’ (Author interview,
29.01.13). The EPIA were more circumspect. They considered that the specific kinds of raw materials
which are used in solar energy systems are not interchangeable with those used in other value chains
and thus the direct impacts of action will be within the immediate production network.
Figure 1: The production network for solar panels
A recent report by IRENA, the international renewable energy association, analyses how the costs are
spread within such systems. In terms of the solar panel itself they estimate that 50% of the cost is the
wafer, 25% the module structure and 25% the cell (IRENA, 2011 p. 16). According to the same report
the average price in 2010 of an installed PV system in Europe, was just under $5/MW, of which more
than half was the installation – service costs as well as the cost of ancillary equipment - BoS and
inverters. Unfortunately, the report only breaks down BoS costs for the US market. In that case, the
key cost is racking, followed by business processes (IRENA, 2011 p. 20). This cost structure however
varies depending on whether the system is roof or ground mounted. Thus using a rough indication of
half of the value of the system being the ancillary elements and installation, even if the whole of the
inputs and the panel itself come from China, an installed system in Europe could still be half
European, in terms of added value.
However some BoS and other inputs in a European system may also be non-European. On the other
hand some of the inputs to Chinese solar panels may be non-Chinese. This is particularly likely in the
key raw material – polysilicon (reported by USITC (2012) to represent 23% of the final price of the
module), where Chinese production capacity is reported to be insufficient for domestic industry’s
needs and the key exporters are the US and the EU - especially Germany (Bradsher, 2012).
If we look at the whole system and the different actors within it, in the event of new duties being
imposed on a given subset of Chinese exports as a result of the current investigation, costs will rise
for one set of actors (in this case importers or, specifically, installers who use imported modules)
while competition will abate for another set of actors (in this case domestic EU producers) while the
competitive position of others will/may be compromised (in this case intermediate goods exporters
from the EU who export to China, as well as any EU industry at risk of retaliatory action, many of
which are unrelated to the PV industry).
Antidumping and its impacts
Prior to analyzing the different positions in this case, it is important to clarify the process on which
the different actors are seeking to impact. Antidumping – or trade defence as it is also known – is a
mechanism by which countries can seek to counteract unfair trading practices by their trading
partners, most notably by imposing additional taxes – anti-dumping duties (ADDs) on the offending
exports. It is based on the principal that selling goods below a certain value (cost of production or
price on the home market are the most widely used benchmarks) is unfair and that retaliation is
justified.
Within the EU, the 27 member states have a common trade policy as defined under Article 133 of the
Treaty of Rome. Decisions on trade policy, including on such things as unfair trade practices,
therefore take place at EU level, not that of the member state. An industry that considers that it is
subject to unfair competition can submit a complaint to the European Commission. As the
Commission outlined in its press release on the solar panel case (CEC, 2012), the factors which it
must explore in making its judgment on whether to impose ADDS are clearly defined by EU
regulations and are: whether evidence is found of dumping; whether there is evidence of ‘material
injury’ (usually job losses and/or company closures) within the EU; whether there is a ‘causal link’
between the two; and whether the imposition of ADDs is in the ‘community interest’. Anti-dumping
investigations usually last for 15 months (thus in this case until December 2013) although provisional
measures can be imposed after 9 months, if the initial indications are that all of the above factors are
present.
The economic basis for antidumping action is quite controversial (Messerlin, 2004). What research
exists indicates that it is as much, if not more, an institutionalised strategic tool to support
competitiveness, as a tool to prevent unfair trading practices. There is evidence that anti-dumping
filings are strongly motivated by strategic concerns (Prusa and Skeath, 2001), as well as
macroeconomic factors like exchange rates and industrial production levels (Jallab et al, 2006), as
well as GDP growth (Knetter and Prusa, 2002). The rather fundamental issue of whether antidumping filings are related to actual dumping, as economically defined, remains debatable. Jallab
and Kobak (2006) found questionable economic bases in 68.2% of the antidumping investigations
launched in the EU between 1998 and 2001, while the equivalent figure for the US was 76%. Other
studies suggest that retaliation for ADD imposed by foreign governments is the motivation for at
least some antidumping investigations (Feinberg and Reynolds, 2006, Prusa and Skeath, 2001).
This body of research tends to undermine the idea of ADD as being solely motivated by unfair trading
practices on the market and points instead to wider politico-economic motivations. It also highlights
a key concern in relation to the imposition of such measures and that is the fear of retaliation. De
Gucht (2012) referred to this fear in a recent speech calling for reform of the EU’s trade defence
system, however his concerns were focused on the fear of retaliation for individual firms. There is
good reason to believe that retaliation could go well beyond directly affected firms.
Initial press reports indicated that both related industries (polysilicon, as indicated above, a key input
to solar panels) and others which are completely unrelated (wine) were mentioned by Chinese trade
officials as potential sectors for investigation from the very beginning of the investigation (Chaffin
and Wiesmann, 2012; Bradsher, 2012). The EU’s own annual report on third country anti-dumping
actions highlights the fact that in a number of cases, Chinese anti-dumping investigations against the
EU seem to be a reaction to the latter’s similar action– for example in stainless steel tubes and X-ray
scanners (CEC, 2012b). In the event, a Chinese case against EU polysilicon exports was launched even
before the interim decision to impose ADDS was made (Chaffin, 2013) and EU wine was targeted just
after interim duties were imposed (Hook, Daneshkhu and Spiegel, 2013).
China is already the country most impacted by EU ADDs, in terms of number of cases. Of the 124
anti-dumping measures in force at the end of 2010, 56 affected China (CEC, 2012c), although most
covered rather small markets such as melanine and coated paper. This trend towards a
predominance of Chinese investigations in the EU shows no sign of abating. Of the 18 new
investigations in 2010, 10 concerned China (CEC, 2012c). The definitive anti-dumping duties imposed
on China in 2010 ranged from 0% (High tenacity yarn of polyesters) to 64.3% (Molybdenum wires).
The PV Solar Panel case
In September 2012, the European Commission launched an antidumping investigation into exports of
Photovoltaic (PV) solar panels and their key components (i.e. solar cells and solar wafers) from China
(CEC, 2012). The Commission acknowledges that this is the most significant anti-dumping
investigation to date, covering approximately €21bn of Chinese exports. The investigation was
initiated further to a complaint by a solar panel industry ad-hoc organization – ProSun. However the
industry was by no means unanimous in calling for action. EU solar panel installation companies,
Chinese PV exporters and manufacturers of intermediate goods formed another pressure group to
make the case against anti-dumping measures – the Alliance for Affordable Solar Energy (Afase).
The case highlights the complexity of the landscape of post-financial crisis EU-Chinese relations. On
the one hand, Chinese solar panels are clearly seen as a competitive threat by some EU producers.
Hence their calls for instigation of anti-dumping duties. The pro-anti-dumping lobby is led by a
German company – SolarWorld. It was the US subsidiary of the same company that instigated a
similar, already successful, request to the US authorities for protection against dumping which led to
provisional duties being imposed in May 2012. Although 20 other companies are said to back the
complaint, only 6 have formally been identified (Afase, 2012a). Most have remained anonymous,
reportedly for fear of retribution by China (Chaffin, 2012).
Solarworld (2012) claims that their complaint is supported by the majority of EU PV industry, but in a
context of widespread anonymity it is impossible to know the extent of that support. The German
government seemed ambivalent about the complaint, which is unusual in the case of a complaint
emanating so clearly from a specific member state. This highlights the difficult position of EU
governments seeking to balance the interests of different domestic industries in formulating their
trade policy. A senior EU diplomat was quoted as saying “[The German chancellor] wants to stay on
good terms with the Chinese and will not sacrifice those relations for one company that makes solar
panels,” (Chaffin and Weisman, 2012).
Although official support has been muted, the sector of the industry which supports action has some
strong arguments. They claim that, if Chinese low cost exports go unchecked, thousands of people in
Europe will lose their jobs, especially high end jobs in research and skilled production; that EU’s
existing investments in the technology will be lost to China; that losing the industry now will mean
that the EU can never again hope to be active in the solar industry; that China will become a de facto
global production monopoly, reducing incentives for investment and increasing prices and finally,
that allowing China to become the dominant supplier of solar energy equipment will undermine the
EU’s long term energy security1.
On the other hand, China is just one of the countries within the global value chain for solar panels
and in many cases not the most important actor, at least in terms of value added. As we discussed
above, Europe or the US are key suppliers of many key inputs to panels including polysilicon, and the
machinery used in factories. Thus imposing antidumping duties on Chinese assembled panels
ostensibly ‘Made in China’ may have direct negative consequences on intermediate product
producers elsewhere, including in Europe.
Those who oppose the duties, organised through the AFASE ad-hoc group - claim that the upstream
and downstream jobs represent about 80 per cent of the approximately 300,000 employees in the
EU solar industry and that for every solar panel installed in Europe – even if it is produced outside the
EU – about 70 percent of the value-creation remains local2. As the figures above from IRENA indicate,
if about half of the value of a solar system is the panel, this figure assumes that quite a high
percentage (about 40%) of the imported solar panel is made up of EU inputs and that all BOS inputs
are European. It seems therefore to be somewhat on the high side. However AFASE also make
another point. This is that the EU intermediates industry for solar is very important and that
instigating anti-dumping duties would increase prices in the EU thus reducing demand both for the
final product and for these intermediate inputs, creating a ‘boomerang’ effect in Europe (Afase,
2012b).
In support of its case, AFASE commissioned a report from a Swiss consultancy – Prognos – which was
made public in February 2013. The report considered 3 scenarios – 20%; 35% and 60% duties. Job
losses were forecast to be large, varying from 115,600 to 193,700 in the first year to 175,500 to
242,000 in the third year between the lower and upper scenarios. Value added is estimated to fall by
1
2
See http://www.prosun.org/cost-eu-action.html for the key pro anti dumping arguments.
See http://www.afase.eu/en/about for arguments against anti-dumping action
a total of between €18,4-27,2bn over three years. The exact manner in which these figures were
calculated is not explained in the text, which refers to a model based on OECD input-output data, but
input-output tables are not generally available at high levels of aggregation. For example solar panels
are likely to be included in the sector: 15 Electrical machinery & apparatus3. It is unclear how the very
micro sub-sector of solar panels is disaggregated in the model. In addition, the likely diversion of
demand from PV to other forms of renewables, acknowledged in the text, is not included in the
evaluation of economic effects. The report argues that the ADDs are counter-productive as EU-made
modules are too expensive to meet current demand ‘…all that anti-dumping and/or countervailing
duties will cause is to deter potential investors from investing in PV installations in most if not all
segments of the PV market and in most EU countries.’ (Prognos, 2013: 49). The markets in the UK and
Spain, for example, are forecast to almost completely disappear.
The overall EU industry association for the solar panel industry – the EPIA - issued a statement at the
launch of the investigation, which, while not taking a formal position, called for the quick resolution
of the dispute and stated: ‘We need to move beyond destabilising trade conflicts and work together
to respond this global demand for clean, renewable and safe electricity. Whatever the outcome of the
EU investigation, Europe needs a strong PV industry along the whole value chain…’ (EPIA, 2012a).
The EPIA has also issued a fact sheet on PV panels which, although it makes no specific reference to
the anti-dumping case, is clearly relevant to the debate (EPIA, 2012b). They look both at the supply
chain in the production of the panels themselves and the chain for the whole process of production
and installation and provide the following key figures:




Regardless of where they are assembled, more than 25% of the value of PV modules installed
in Europe is created in Europe. The equivalent figure for exports is 36%.
Over half of the value of the important PV system inverters is European. This industry is
estimated to be worth €3bn to Europe.
European installation services are worth around €14.3 bn to the European economy.
They estimate that approximately 58% of the value of the PV supply chain in the EU market is
created in Europe, rising to 64% for exports beyond the EU.
Thus while the EPIA’s estimates of EU added value for PV panels vary from those of AFASE and seem
more in line with the work of IRENA, they nevertheless concur that over half of added value of
installed solar systems in Europe is European. Although there are clearly disagreements within the
EU solar panel industry itself about the merit and long term effectiveness of the AD investigation, the
Commission’s press statement (CEC, 2012) indicates that those opposing the complaint did not
represent a higher share of EU production than those supporting it (although the exact balance
between the two is not indicated) and therefore the investigation went ahead.
Interim duties of 11.8% were imposed by the Commission in June 2013 for a period of 2 months with
the potential to rise to 47.6% if a negotiated solution was not found with the Chinese. It was
reported in the press and by AFASE that, in a rare move, duties were imposed in spite of a majority of
Member States coming out against them (He, 2013; AFASE, 2013). The Chinese reacted furiously to
the move and only a few hours later instigated an anti-dumping case against EU wine (Hille, 2013;
Hook, Daneshkhu and Spiegel, 2013) promoting similarly furious reactions in France, by far the EU’s
3
Details of OECD I-O tables are given at: http://www.oecd.org/trade/input-outputtables.htm
biggest exporter of wine to China (Compadre, 2013). The move underlines a factor common in antidumping cases and highlighted in several academic studies – the fact that many cases are instigated
in retaliation (Feinberg and Reynolds, 2006, Prusa and Skeath, 2001). The solar panel case thus
became strongly politicized, with a much wider value chain suddenly implicated in the decisions on
the case. Although this paper will focus on the solar panel value chain, the implications of decisions
in this case clearly go far wider.
The actors and their position in the value chain
This section will seek to deconstruct the different actors within the debate in as much as that is
possible from available information. The schema in Figure 2 attempts to summarise the position for
the different actors in the EU and China. The World Trade Organisation (WTO) is included in the
schema, as both actors are members of the body and are bound by its rules. If a member feels that
another member has not respected EU rules when imposing anti-dumping duties (or any other trade
restrictions) they can, and do, complain to WTO. The WTO website lists 94 such cases of complaints
in relation to antidumping proceedings up to the end of November 20124. Many of these cases
involve the EU and/or China.
In the EU context, the EU solar panel industry, as represented by EPIA, is seeking to influence the key
policy makers – at EU and Member State level – on the overall issue of solar energy. The EPIA have
consciously taken a neutral stance on the ADD case. On this issue, the sub-groups of Prosun and
AFASE and the key actors, who propose very different policy prescriptions. Intermediate
manufacturers are in a difficult position, as many may supply members of both the Prosun and AFASE
lobbies, but also other actors within Chinese industry. Therefore they often have little interest in new
regulations which create tensions with an important market. The EU installers tend to have similar
interests to AFASE and indeed many are members of the latter. Their interest in having a variety of
products at different price points is likely to lead many to oppose regulation which increases the cost
of Chinese imports.
Production linkages are extensive between the actors, but also between many EU actors and Chinese
industry. Specifically, EU intermediate producers often supply either intermediate or assembly
companies in China, while EPIA members and AFASE members supply both the solar panel industry
and final installers. In this sense the value chain ‘slices through national boundaries’ incorporating
parts of different national spaces into a single production network, as described in Cox et al, 2008.
Given their political stance in support of ADDs it seems likely that Prosun companies do not have
extensive market links to China. Solarworld – the company behind Prosun, does not have a presence
in China. Its East Asian operations are in Singapore.
One of AFASE’s key arguments is that it is impossible to seek to put a national identity on a company
in such an international industry. As their representative commented in our interview: ‘In terms of
the national identity of an international company, the renewables industry has always been really
global and so when we look at the supply chain, you could draw a line in any direction across this field
of companies and nationalities and say well…What does it mean to be Chinese?’ (Author interview,
29.01.13)
4
http://www.wto.org/english/tratop_e/dispu_e/dispu_agreements_index_e.htm?id=A6#selected_agreement
Figure 2 - The lobbying and production linkages within the Solar panel production network
As the lobbying links indicate, both Prosun and AFASE are targeting member states and the European
Commission (who will undertake the technical analysis) as well as Members of the European
Parliament, who, although they don’t formally vote on the decision, have nevertheless taken an
interest and can be important in terms of pressurizing Member States governments and raising the
profile of the case.
The likely impact of ADDs on pricing and sourcing – Trade trends and lessons from the US case
The initial impacts of the ADD investigation are difficult to assess, however we do have trade data for
the first six months of the period of investigation from September 2012 to March 2013 as well as
prior to its launch. These data indicate that Chinese PV exports to the EU were already falling, even
before the instigation of the AD investigation. As the graph shows, this was also the case with total
Chinese exports to the EU, certainly linked to reduced demand with the escalation of the euro-zone
crisis. However the extent of the fall and the failure of trade to pick up is more extensive in PV
panels. Although at the launch of the investigation the Commission indicated that PV panel exports
from China were worth €21bn
The recent imposition of ADDs in the US gives some indications of the potential impact on the EU
market of similar action. Further to a similar investigation of Chinese solar cell exporters, the US
imposed provisional anti-subsidy duties of between 2.9-4.73% in March 2012 and antidumping duties
of between 31% and 250% in May. Final duties of between 18,32% and 250% were imposed in
November (US Dept of Commerce, 2012). Developments in US trade with China in the PV sector
before and after the imposition of provisional measures are reported below. Solar cells of two
categorizations were included in the action – HS 8541406020 –cells made up into panels and HS
8541406030 – cells not made up into panels. Most trade is in the first category – cells made up into
panels.
The trade flows by month are shown below. Figures show that there was a clear surge in imports
from China in the months immediately following the launching of the investigation, followed by a
brutal fall in March 2012 when the first impacts were felt – in the form of relatively low anti-subsidy
tariffs. The preliminary anti-dumping duties themselves came into effect in May, by which time trade
volumes were already 45% lower than in the same month of the previous year and over 70% below
their peak value in February 2012.
US imports of Solar cells as Panels:
Total and top 3 sources.
800000
700000
600000
500000
Anti-subsidy
400000
Investigation
launched
300000
Anti-dumping
200000
100000
World
Malaysia
China
Oct
Sept
August
July
June
May
April
March
Feb
Jan
Dec
Nov
Oct
Sept
August
July
June
May
April
March
0
Chinese Taipei
Source: ITC
Interestingly, total US imports in the category are rather similar to levels prevalent before the
investigation - between $350-400m per month. The fall in Chinese exports has been largely
compensated by increases in other sources. The representative of Trinasolar interviewed for this
paper was unambiguous about the impact of the US ADDs: ‘Like every other company, who was
manufacturing solar cells in China, we stopped manufacturing solar cells in China and we moved
them instead to overseas production.’? (Author interview, 29.01.13). In their case they moved
production to Taiwan.
Although US exports from Taiwan increased by 358% year on year to October, that was from a low
base. The main beneficiary of the US anti-dumping duties in terms of trade value, seems to have
been Malaysia, whose exports have increased strongly in the last two years, and surpassed those of
China in April 2012 making the former the US’s leading supplier. Other suppliers have also seen
increases in exports over the last year. In October, year on year figures were up, by 8,2% for
Malaysia, and a huge 635% for Germany.
Thus alternative sources to China do seem to exist, although the prices of exports of higher cost
countries like Malaysia and Chinese Taipei seem likely to exceed those of China. Unit prices from
trade figures are a rather unreliable indicator of relative prices as they do not take account of
variations in size, quality or other aspects of the goods. Unit prices of US imports as declared at
customs are shown in annex. China was not generally the cheapest of the three key sources to the US
market – although Chinese prices are highly variable, they tended to be above the average price of
imports from all sources, while Chinese Taipei had very low unit prices. Furthermore Chinese unit
prices have increased since the ADDs were imposed, which is counter intuitive given that ADDS are
imposed ad valorum – i.e. they are a % of the value of the good.
US ADDs only apply to panels made up in China from Chinese solar cells. Those made up from
imported cells are not covered (US Dept of Commerce, 2012). It has been reported in the press that
Chinese companies have been sourcing solar cells in Taiwan and South Korea, almost certainly higher
cost sources than mainland China, to avoid the US tariffs. However, the current overcapacity in the
industry is also reported to be keeping prices low, so overall consumer price impacts on the panels
themselves are said to be limited (Crooks, 2012). Chinese import figures are available up to October
2012 (see annex). They do not show significant increases in imports from these two sources. Taiwan
and Japan, but not Korea, have both seen increases in their monthly exports to China since the
beginning of the year, but these levels are not significantly above similar figures for the previous
year. Thus major restructuring of the Chinese supply chain in response to the new US measures is not
visible in trade data.
A final element of note in the decision is that the level of ADDs specified is very variable by company.
Of the named companies in the investigation Trina solar has the lowest applied level – 18.32% - while
Suntech has the highest – 31,73%. 59 other named companies have levels of 25,9%. However the
most affected are those that are not named in the decision. All other Chinese Solar cell exporters will
face an ADD of 250%. This decision essentially closes off the US market to any new manufacturers for
the duration of the measures. AFASE explained the failure of these companies to interact with the US
investigation as a simple result of ignorance of such procedures due to the newness of the industry
and relatively small size of some actors.
The freezing of the market by creating high barriers to new actors is a characteristic of certain trade
policy measures. In the period when clothing exports were subject to quota restrictions, countries
which were no longer competitive in clothing retained market share in the US and EU partly because
they retained quota. When quotas were removed, several quota restricted suppliers like Korea and
Hong Kong, lost significant market share in the EU and US (Curran, 2008). At the same time, quota
restrictions of the most competitive producers provided opportunities for new entrants from
countries that were not limited by quota, spreading sourcing to a wider group of countries (Gereffi,
1999). The new US anti-dumping measures can be expected to have two impacts – firstly the freezing
of the number of Chinese suppliers on the US market by closing the market to ‘unnamed’ producers,
further restricting the capacity for expansion of Chinese exports and secondly the re-distribution of
market share to other non-Chinese suppliers which, as we have seen above, seems to be already
happening.
The EU case is rather different to that of the US, as the complaint covers not just solar cells and the
panels made up from them, but also wafers, making the potential to avoid the tariffs through
alternative sourcing strategies or partial restructuring of supply chains more limited. Goods would
have to be majority sourced from outside China in order to avoid the duties, which is likely to make
assembly in China uncompetitive and push importers towards alternative sources. Nevertheless, US
experience indicates that overall imports may not vary greatly, as restrictions on Chinese exports of
solar panels are as likely push importers towards other sources in Asia, rather than towards local
producers. The EPIA warned against drawing too many parallels with the US case however, given the
sheer size of the EU market and the scale of the required restructuring of the supply chain if Chinese
panels become uncompetitive: ‘The reorganization of the value chain and the actors cannot be
compared [between the EU and the US]’. (Author interview 29.01.13).
Initial implications for theory
The EU solar panel case is still on-going and it will be the end of 2013 before the final outcome is
known. However there are some interesting aspects to the case and the parallel case in the US,
which have implications for theorizing about Global Value Chains and the operations of international
business more generally.
This case demonstrates how the growing complexity of global value chains makes the process of
lobbying for government support for a given industry more difficult. As value chains cross frontiers,
the interests of governments representing a certain part of the chain are less self-evident. This is
complicated by the fact that different actors in the same country have different interests resulting in
diametrically opposite pressures on governments, as highlighted by Wallerstein (2009). Even within
individual MNEs, interests may be split. The fact that most members of ProSUN have chosen to
remain anonymous is said to be due to fear of retribution from the Chinese authorities or customers.
Thus the interests of these companies on the EU market is to secure protection, but without
provoking retaliatory action which undermines their Chinese business.
The conflagration of country of ownership and national interest is not self-evident in this case.
Although EU-based producers of solar panels clearly have an interest in protection, some EU owned
and operated companies have an interest in maintaining the status quo, either because they import
low costs solar panels from China and rely on these inputs to keep prices competitive, or because
they export inputs or final products to China and do not want to suffer collateral damage from a titfor-tat trade war. Thus we have a rather unusual situation where EU companies from within the
sector (and even outside it) are lobbying together with Chinese companies against trade protection.
Their position within the global PV value chains is such that their interests conflate with those of
Chinese manufacturers, rather than EU-based PV producers. Such trans-national interest groups are
a relatively new feature of policy making and pose problems for national or regionally based policy
makers.
The interests of Chinese companies are less ambiguous. Clearly Chinese based producers would have
much to lose from new measures, however some may have production facilities in other low cost
locations to which they could switch production relatively quickly. Thus the extent to which the
measures would be fatal to the EU exports of the company as a whole, would vary depending on the
extent to which their value chains are substantially or wholly based in China. History shows that
when clothing companies in countries like Hong Kong and Korea were are restricted in their access to
key markets, they often moved investment from their home base to other unrestricted countries
(Gereffi, 1999). Clothing is, however, much less capital intensive than solar panels, thus it remains to
be seen how many companies would be willing to consider such a move.
In terms of the GVC literature, this case highlights that choices within global value chains can be
heavily impacted by the institutions which regulate world trade – in this case regional and national
administrations. The choice by the US authorities to impose ADDs on Chinese exports has had major
impacts on sourcing strategies for that market. Similar impacts could be expected if action is taken at
EU level. In spite of the progress that has been made in liberalizing markets and the almost universal
membership of key trading nations of WTO, choices about production and sourcing remain impacted
by political sensitivities and state regulations. More work needs to be done within the GVC/GPN
literature to better take account of institutional constraints on companies’ choices within the
production chain. We know a great deal about the kinds of governance which permeate these chains,
but little effort has gone into conceptualizing how the institutional context impacts on key strategic
choices.
The case also highlights the malleable nature of GPNs. Although they are not direct actors in the
current debate, third country producers clearly have an interest in the outcome. As the impact on
the US market has shown, the imposition of new protectionist measures can provide opportunities
for companies in unaffected countries who position themselves as alternative sources, or for
subsidiaries of Chinese companies producing outside China. In effect these measures provide lower
barriers to market entry for producers in unaffected countries compared to those in the key
exporting country targeted by the measures. This provides them with opportunities to integrate the
chain which are similar to that provided by preferential market access (Stevens, 2001). This effect,
which is certainly not unique to solar panels (Curran, 2009), both limits the effectiveness of
protectionism policy measures and provides another mechanism by which they impact on value
chains. By encouraging buyers to seek competitive sources outside of affected countries, restrictive
regulations like this spread the geography of production wider than would be the case in a restriction
free context.
The considerable effort which is going into lobbying in both the US and EU cases highlights the fact
that institutions and the regulations which they can adopt, still matter a great deal for companies
operating in the global marketplace. The fact that the EU can impose substantial cost increases on
Chinese exporters in this sector has major implications for those companies and EU producers in the
same sector. The Trina Solar representative admitted: ‘This is a crisis issue for the company’. The
solar panel GPN, in both the EU and the US, is very much a ‘contested field’ (Levy, 2008) and the
discourse of those within it offers quite different conceptions of the ‘national interest’.
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Annex
Chinese imports of solar cells
2011-12. $000s
350000
300000
250000
200000
150000
100000
50000
March
April
May
June
July
August
Sept
Oct
Nov
Dec
Jan
Feb
March
April
May
June
July
August
Sept
Oct
0
World
Chinese Taipei
Japan
Malaysia
Source ITC
Unit prices of US imports - monthly
trends 2011-12
250
200
150
100
50
World
Malaysia
China
Chinese Taipei
Oct
Sept
August
July
June
May
April
March
Feb
Jan
Dec
Nov
Oct
Sept
August
July
June
May
April
March
0