In a blow to China’s position as the world’s dominant producer of solar panels, the new military authorization law  prevents the Defense Department from buying Chinese-made solar panels, but allows it to buy solar panels from any country that has signed the W.T.O.’s side agreement on government procurement.

The W.T.O. Government Procurement Agreement, which requires free trade in government purchases, has been signed by virtually all industrialized countries. China agreed to sign it on joining the W.T.O. in November 2001, but still has not done so, possibly because of internal pressure that strongly favors steering lucrative government contracts to domestic companies.

Chinese leaders have strongly criticized provisions like the “Buy America” provision in the 2009 economic stimulus legislation, despite having similar restrictions on the use of its own stimulus funds.

China accounted for at least half the world’s production of solar panels in 2010 and its market share is rising. While the United States and Europe have focused on subsidizing solar panel purchasers, China has focused on subsidizing its solar panel manufacturers. It then exports virtually all of its panels to the United States and Europe, taking advantage of American and European consumer subsidies.  

Industry experts predict that the new legislation will boost the American solar panel market, partly by requiring future military contracts to specify American-made panels and partly by encouraging Chinese solar panel manufacturers to establish factories in the United States, with the concomitant higher labor and overhead costs.