* Case clears first hurdle at U.S. trade commission
* SolarWorld says faces unfair competition from China
* Case could lead to broadening of import duties
* Installers say duties would push up cost of solar power
WASHINGTON/LOS ANGELES, Feb 14 (Reuters) - The United States took a step on Friday towards potentially extending import duties on Chinese solar energy products to also cover panels made with parts from Taiwan in a case that could have a major impact on the fast-growing U.S. solar market.
The U.S. International Trade Commission found there was reason to think the imports could harm the local solar industry, putting Washington on a path toward widening the reach of the steep duties it slapped on products from China in 2012 and potentially escalating a tit-for-tat trade spat.
The U.S. arm of German solar manufacturer SolarWorld AG had complained that Chinese manufacturers are sidestepping the duties by shifting production of the cells used to make their panels to Taiwan and continuing to flood the U.S. market with cheap products.
"Step by step, U.S. solar producers are returning to a day when they no longer are forced to compete with the government of China," said Mukesh Dulani, president of SolarWorld Industries America, which makes crystalline silicon solar panels at a factory in Hillsboro, Oregon.
SolarWorld said it had the support of other solar manufacturers operating in the United States in pushing for a broadening of the duties.
But the Coalition for Affordable Solar Energy, which represents about 50 U.S. solar companies that mainly focus on installation, said installers would suffer if there was another jump in the cost of modules. CASE said those prices had already gone up 10 percent since the complaint was filed on Dec. 31.
"By raising the cost of solar for American homeowners, SolarWorld is poised to inflict critical damage on an industry which last year added more than 20,000 solar installation, sales, and distribution jobs to the U.S. economy," CASE President Jigar Shah said in a statement.
Lawyer Richard Weiner, a partner at Sidley Austin who is representing the Chinese solar industry, said SolarWorld was trying to shut competition out of the U.S. market but did not have the capacity itself to supply all the goods needed.
"We remain convinced that fairly traded imported solar products from China and Taiwan are vital for America to continue its shift away from fossil fuels," he said.
Taiwanese solar manufacturers have never engaged in dumping practices in the United States, the Taipei Economic and Cultural Representative Office in the U.S. said in a statement, adding that prices on Taiwan-made solar cells are 8 percent above the global average due to their "excellent quality."
The ITC's preliminary decision means the Commerce Department will continue with its investigation into whether the products are being sold in the United States below their fair value, or if their manufacturers receive inappropriate levels of subsidies. It could eventually suggest duties.
The department is due to make a preliminary decision on subsidies from China on March 28 and a preliminary decision on dumping on June 11.
The value of imports of solar products from China fell by almost a third from 2012 to 2013, while imports from Taiwan rose more than 40 percent, although from a much smaller base, according to ITC data. Commerce Department figures show solar imports from China were worth just over $2 billion in 2012, while imports from Taiwan totaled $510 million.
China, which has criticized the United States over the new investigation, has slapped anti-dumping and anti-subsidy duties on imports of U.S. polysilicon, solar's key raw material.
China's solar manufacturers have taken over the global solar market by offering cheaper modules than their peers, but the glut of solar equipment has led to a pricing slump over the past four years, throwing many companies into crisis.
U.S. solar installations were worth more than $13 billion in 2013, according to research firm GTM. About half the solar equipment installed in the United States last year was made in China. In the fast-growing rooftop solar market, that figure was 71 percent.
The U.S. solar trade group, the Solar Energy Industries Association (SEIA), is against the trade litigation and has been trying to get SolarWorld, Chinese manufacturers and the Chinese and U.S. governments to settle the dispute. This marks a new approach for SEIA, which in SolarWorld's previous trade case did not take a public stance on the dispute.
Under the association's settlement proposal, Chinese companies would agree to pay into a fund that would be used for the benefit of U.S. solar manufacturers. The deal would require China to revoke the restrictions on imports of U.S. polysilicon.
The group is seeing some "signs of progress" in its push for a negotiated settlement, according to John Smirnow, SEIA's vice president of trade and competitiveness.
"We're getting more interest from all of the key players on having a negotiating dialogue," Smirnow said. "The next step is actually having SolarWorld in the room with Chinese manufacturers."