The Commerce Department, in its preliminary finding over illegal subsidies, said solar panels imported from China would face a duty of 2.9% to 4.73%, smaller than what some had hoped for.

By Don Lee and Andrea Chang, Los Angeles Times

March 20, 2012, 9:16 p.m. -Washington and Los Angeles—

Ratcheting up the battle over a vital energy industry, the U.S. Commerce Department decided to impose tariffs on solar panels imported from China after concluding that manufacturers there received illegal government subsidies.

 The Commerce Department, in its preliminary finding over illegal subsidies, said solar panels imported from China — now dominating the U.S. market — would face a duty of 2.9% to 4.73%.

The tariff is considerably smaller than what some had hoped for but nonetheless marks another step by the Obama administration to get tougher on trade with China. It also highlights efforts aimed at supporting U.S jobs and a renewable energy future.

Additional tariffs could be imposed in mid-May when the Commerce Department is expected to determine whether China has been dumping the panels in the U.S. at below-cost prices.

Some American lawmakers and solar firms hailed the finding on illegal subsidies, saying the new tariffs will help create a more-level playing field for the domestic solar market, which has been growing rapidly despite the bankruptcy of some panel makers. The high-profile failure of solar equipment maker Solyndra of Fremont, Calif., was attributed in part to a sudden influx of low-cost Chinese panels.

The Commerce Department decision "is a signal that China's unfair trade practices in the solar energy industry may soon be remedied," said Sen. Ron Wyden (D-Ore.), who heads a Senate Finance subcommittee on international trade.

The senator recently released a report detailing the widening U.S. trade deficit with China on environmental goods such as solar panels.

Gordon Brinser, president of SolarWorld Industries America, which with six other U.S. firms filed the trade case with the Commerce Department, said the decision would help restore fair competition and advance the U.S. solar industry's "reach for greater national energy, economic and environmental security."

Experts, though, said the tariffs, which range from 2.9% to 4.73% to correspond to the amount of Chinese subsidies found, aren't big enough to have a major effect on the market.

"This is a modest one that should be viewed as an indication that more is to come," said Tom Soto, co-founder and managing partner of Craton Equity Partners, a Los Angeles clean-technology fund.

Although nobody knew how much in loans, land, tax breaks and other subsidies Chinese producers received from the government, the basic assumption had been that the total was large, at least in the double digits.

"This really for the first time sheds light on the amount of support they give to the solar industry," said Rhone Resch, chief executive of the Solar Energy Industries Assn. Based on the Commerce Department's findings, he said, the subsidies are "not very much."

The tariffs brought statements akin to words of vindication from such Chinese firms as Suntech Power Holdings Co., the world's largest solar panel maker, with headquarters in Wuxi, China.

On Wall Street, shares of Chinese solar panel makers soared, and there was a collective sigh of relief on the part of developers of solar panels in the U.S., who feared that large duties would undermine the surging growth in solar developments by sharply increasing global prices or triggering a trade war.

"I'm relieved the tariffs are as modest as they are," said Tony Clifford, chief executive of Standard Solar, a solar projects developer and installer based in Rockville, Md. He said he buys a majority of his panels from Chinese makers.

But referring to the anti-dumping case, Clifford said: "We're still waiting for the other shoe to drop."

Commerce Department officials said they had notified their Chinese counterparts Tuesday of the preliminary decision on illegal subsidies. There was no immediate comment from Chinese officials, but in the past, some have bristled at the threat of duties imposed on green-technology manufacturers that Beijing sees as crucial for its economic security.

China controls about 50% of the U.S. market for solar panels. The Commerce Department said Chinese imports of solar panels totaled $3.1 billion last year, up from $640 million in 2009.

Experts said the U.S. remained the leader in solar cell technology, but China has made significant strides in boosting its exports of both solar cells and panels — and drawing U.S. companies such as Applied Materials to set up major solar research operations in China.

The new tariffs apply to solar panels and cells made in China, as well as panels made in other countries that have Chinese-made cells.

For Obama, Tuesday's decision is the latest in a series of recent moves aimed at stepping up the pressure on China in an election year.

Last week his administration took action with the World Trade Organization to press China to halt its export restrictions of rare earth minerals, which are crucial for such green technologies as hybrid vehicles and wind turbines. And earlier, Obama formed a new trade enforcement unit to crack down on violators, specifically naming China as a potential target.

More recently Obama has come under fire from Republican opponents as oil prices have soared.

On Wednesday, he is scheduled to travel to Boulder City, Nev., where he will visit the Copper Mountain Solar 1 Facility, the largest photovoltaic plant operating in the country. The president will highlight his efforts to expand renewable energy from sources like wind and solar, which his administration has supported with government investments.

Chinese analysts have said such U.S. investments are essentially subsidies, not unlike the ones for which the Chinese have been under scrutiny. That's raised concerns that China could retaliate by imposing tariffs on U.S. goods to China, including certain solar products.

"Within the clean-tech sector, there's always been this love-hate relationship with subsidies," said Craton Equity's Soto.

Tuesday's decision, he said, "is clearly an indication that the governments of the United States and China need to have a frank and open discussion on what their relationship is going to be with respect to trade and on renewable technologies like solar."