Pentagon Must ‘Buy American,’ Barring Chinese Solar Panels

HONG KONG — The military appropriations law signed by President Obama on Friday contains a little-noticed “Buy American” provision for the Defense Department purchases of solar panels — a provision that is likely to dismay Chinese officials as President Hu Jintao prepares to visit the United States next week.

Although there are many big issues to discuss, including concerns about North Korea, trade and economic matters are certain to be high on the agenda. And while both sides are aiming to keep the discussion positive — the United States is the world’s largest importer and China the largest exporter of goods — simmering resentments over trade in green-energy technologies could be a distraction.

China has emerged as the world’s dominant producer of solar panels in the last two years. It accounted for at least half the world’s production last year, and its market share is rising rapidly. The United States accounts for $1.6 billion of the world’s $29 billion market for solar panels; market analyses typically have not broken out military sales separately.

The perception that Beijing unfairly subsidizes the Chinese solar industry to the detriment of American companies and other foreign competitors has drawn concern in Congress. The issue of clean-energy subsidies is also at the heart of a trade investigation under way by the Obama administration, which plans to bring a case against China before the World Trade Organization.

The new Buy American provision, created mainly by House and Senate conferees during a flurry of activity at the end of the lame-duck session of Congress, prevents the Defense Department from buying Chinese-made solar panels.

The American military is a rapidly growing consumer of renewable energy products, because it is extremely expensive and frequently dangerous to ship large quantities of fuel into remote areas of Iraq and Afghanistan.

The solar panel provision is carefully written to help it comply with the free trade rules of the World Trade Organization, which would make it hard for China to ask a W.T.O. tribunal to overturn the provision, trade lawyers said.

Chinese leaders have strongly criticized such provisions in the past, particularly one in President Obama’s economic stimulus package in early 2009 that applied to government procurement of steel and construction materials.

But China required in the late spring of 2009 that virtually all of its $600 billion economic stimulus be spent within China, not just for construction materials.

Chinese officials in Beijing and Washington did not respond on Saturday or Sunday to requests for comment on the solar panel provision.

While the United States and Europe have focused on subsidizing buyers of solar panels, China has emphasized subsidies for solar panel manufacturers. It then exports virtually all of its panels to the United States and Europe, often helped by the American and European consumer subsidies.

The solar panel provision in the defense appropriations law comes as President Obama has ordered a broad investigation into whether Chinese export subsidies, local content requirements and other rules have violated W.T.O. rules. As a result of the investigation, the United States started a W.T.O. case on Dec. 22 against what it said were Chinese wind turbine manufacturing subsidies.

American trade officials said then that they were still examining other Chinese clean-energy subsidy policies to decide whether to file additional W.T.O. cases.

The solar panel provision was part of the initial defense appropriations bill passed by the House. The House version had a simple requirement that the Defense Department buy solar panels made in the United States.

The Senate, which has been more leery of interfering with free trade, had no comparable provision, however, and many people in the solar panel industry did not expect the final law to have such a provision.

But the conference of House and Senate leaders ended up retaining the House provision and modifying it, by adding legal language to require that it also comply with previous American trade legislation.

Representative Maurice Hinchey, Democrat of New York, said he had fought for the provision to be included in the bill.

“We’ve had a lot of money taken out of this country and invested in other places around the world, particularly China, and particularly in alternative energies,” he said in an interview by phone. “For them to be producing alternative energy, that’s great, but we need to do it ourselves, and as much of it as possible.”

Mr. Hinchey said he did not think the provision would jeopardize relations with the Chinese ahead of Mr. Hu’s visit. “We have provided them with a lot of economic growth there,” he said. “A lot of money has gone out of this country and into China, and a lot of manufacturing operations, particularly alternative energy, has also gone into China.”

Mr. Hinchey had praised the Obama administration in November for starting a broad investigation into Chinese subsidies for solar and wind energy exports, saying then that these subsidies had put a company in his district, Prism Solar Technologies of Highland, N.Y., at a competitive disadvantage.