China-EU solar panel duel: Between a rock and a hard place

solar-panelOn July 27 this year, the European Union (EU) and China struck a deal to regulate Chinese solar panel imports – an issue that had been at the heart of a wider dispute on goods ranging from wine to steel. On May 8 2013, European Union Trade Commissioner Karel de Gucht recommended that the bloc would slap massive punitive tariffs on Chinese solar panels to protect the European Union from what is being termed as dumping.

EU Offensive

With tariffs expected to be as high as 47 percent, this was not welcome news for the Chinese solar industry, which has been mired in the doldrums of late. Major players in the field, like Suntech Power and LDK Solar, have been struggling, with Suntech reporting in May that its revenue in 2012 had plunged by 48 percent since 2011. Indeed, both Suntech and LDK Solar have since defaulted on loans, with the former being declared bankrupt by a Chinese court on behalf of several Chinese banks with exposure to the company. In another blow to the industry, the European Commission launched a separate probe into China’s solar industry, aimed at illegal subsidies which allegedly benefit the Chinese makers of solar glass.
A second front on the dispute opened in May as well, with a formal warning issued by the European Commission against Chinese telecom equipment makers Huawei Technologies Co Ltd and ZTE Corp over what it said were illegal subsidies. Huawei and ZTE were little-known companies less than a decade ago, but currently they hold almost a quarter of the European market. According to company statistics, Huawei holds a third of the European market, and ZTE holds nearly a quarter. Further breakdowns of statistics are not available. But what is clear is that European industries ranging from healthcare to water utilities are becoming increasingly reliant on Chinese wireless technology.

China’s Counter-strategy

A severe response to the allegations has already been issued from the Chinese side. China’s foreign ministry and the companies involved – from Solar Suntech to Huawei and ZTE – have denied the allegations slapped on them by the European Commission. Prior to his trip to Germany earlier this year, Chinese Premier Li Keqiang stated unequivocally that his Party stood “firmly opposed” to the allegations. Furthermore, in a move widely seen to be retaliatory, China’s Ministry of Commerce launched an anti-dumping and anti-subsidy probe into solar-grade polysilicon – a key component in solar panels – from the United States and South Korea in 2012, including the EU in the case in November 2012. This year, the ministry issued a statement announcing that it would be looking at the possibility of dumping European wine into Chinese markets. The move would affect the French imports of wine into China, which is fast becoming one of the biggest Asian wine markets.

The current spat has highlighted some extremely thorny issues, the most glaring being that of dumping – more commonly known as the practice of selling to another market below cost. But it also highlights the underlying frissons of political tensions that exist within the EU. Take the case of the solar panels. The case is the largest trade investigation that the European Commission has ever undertaken. It has raised questions of protectionism on the part of the European Union, and is testing whether separate EU governments can actually unite behind the European Commission on global trade issues, while overcoming worries about the possibilities of Chinese retaliation.

With 18 of the 27 member countries of the bloc being opposed to the initial proposal of 47 percent tariffs that had been planned, the current duty being imposed is only 11.8 percent. De Gucht has stated that 11.8 percent duties will apply until August 6. If no settlement is reached, the average rate will then rise to 47.6 percent – effectually blocking China’s market access. Come December, that rate will be put in force for five years.

A Tightrope Walk

The EU is walking a political tightrope over economic sanctions. The issue of anti-dumping is competing with that of political peer pressure. Clearly, the European Commission does not want to be seen to be acting against the interests of major member states. Equally clearly, Brussels wants to put its own message across to China, ensuring that international trade rules apply to any economic transaction between the two.  Whether Brussels will be able to negotiate its way out from between a rock and a hard place remains to be seen.

 

 

 

 

 

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