Report: China's push to be green tech leader violates WTO accord

China is protecting its green tech energy industries, says a new report by the National Foreign Trade Council. Moreover, Beijing is ordering big state-owned enterprises to favor Chinese manufacturers in their energy purchases, in violation of its WTO commitments, the report finds.

The Chinese government is encouraging domestic companies to learn from, copy, and ultimately supplant foreign producers of 'green tech' renewable-energy technology as it presses forward with its campaign to shift rapidly to noncarbon sources of energy, says a new report commissioned by the Washington-based National Foreign Trade Council (NFTC).

The report finds, too, that China is ordering its large state-owned enterprises to favor Chinese manufacturers in their purchases of energy-related equipment – a policy that if substantiated would violate commitments China made when it joined the World Trade Organization in 2001.

The report coincides with rocky times in US-China economic relations and with growing concern in other countries about being shut out of China’s booming markets. Chinese officials on Sunday rebuffed Obama administration calls for China to allow its currency to appreciate – and indicated China will continue to aggressively promote export-driven growth.

In remarks Sunday, Chinese Prime Minister Wen Jiabao referred critically to unnamed foreign economies “attempting to force other countries to appreciate their own currencies, just for the purpose of increasing their own exports.” The remark was seen to be aimed at the US, which has led a chorus of foreign powers that accuse China of artificially undervaluing its own currency as a means of keeping the cost of its exports low.

Mr. Wen’s no-apologies stance Sunday demonstrates China's more self-assured approach to global issues, according to many China watchers – some of whom also point to a shift away from past free-market policies in favor of an increasingly state-directed economy. “The Chinese have made a frankly hard left turn in terms of their economic policy,” says Bill Reinsch, NFTC president.

Picture of a protectionist China

Wen accuses foreign powers of “a kind of trade protectionism,” but the NFTC report on China’s renewable energy policies identifies a variety of measures China has implemented to protect and foster its producers of wind and solar energy equipment.

The report finds, for example, that between 2004 and 2008 the percentage of wind power equipment installed in China of Chinese manufacture rose from 20 to 80 percent – while similar equipment of foreign origin fell by the same percentage. Moreover, to help its green leap forward, China instituted measures during the same years to aid domestic production, including procurement preferences for Chinese-owned companies, tax incentives and rebates, and local content preferences.

“All countries want to produce green jobs, the US included,” says Alan Wolff, a lead author of the report and a former US trade official. But “what we found in China is phenomenal [government] involvement in solar and wind in particular. They have used every measure you could possibly think of,” he adds, “to promote renewables.”

In the US, green-tech industries have pressed the Obama administration for a green trade accord to liberalize trade specifically in environmental goods and services, out of concern they will otherwise be shut out of foreign markets.

From 130 in Congress, a letter to Geither about China's currency

The report, conducted by the international trade group at the Washington law firm Dewey & LeBoeuf LLP, is meant as a stock-taking and does not include policy recommendations. But NFTC’s Mr. Reinsch says it will be shared with Congress and the White House. Congress is increasingly vocal on US trade policy with China, with 130 lawmakers signing a letter Monday to Treasury Secretary Timothy Geithner and Commerce Secretary Gary Locke urging them to address China’s “flouting [of] international trade law by manipulating its currency value.”

The report details a number of practices the Obama administration has taken up with China and which many in Congress won’t like. Mr. Wolff notes, for example, that China agreed upon accession to the WTO that it would not extend government procurement to its many and sizable state-run enterprises. “But here [in the renewable energy sector] they have,” he says.

So far, that has mostly hurt European wind and solar manufacturers, who only a few years ago were dominant in the Chinese market. But Wolff says the practices will be important for US manufacturers to watch as well.