EU and China settle trade fight over solar panels

Price undertaking is on terms favourable to Beijing

The EU and China have settled a trade fight over solar panels that upset relations between two of the world’s largest economies and threatened to spread to other industries in a spiral of tit-for-tat retaliation.

The settlement – known as a price undertaking – is on terms favourable to Beijing. It will allow Chinese companies to export to the EU up to 7 gigawatts per year of solar products without paying duties, provided that the price is no less than 56 cents per watt.

Any products sold above the quota or below that minimum price will be hit with anti-dumping duties rising to an average of 47 per cent from August 6.

The minimum price – the most contentious issue in the negotiations – is in line with recent averages for Chinese producers. It is well below the 80 cents or more the European solar manufacturers that filed the original complaint had deemed reasonable, based on the provisional findings of an anti-dumping investigation by the European Commission.

Karel De Gucht, the trade commissioner, welcomed the settlement, which required nearly two months of often intense negotiations.

“We are confident that this price undertaking will stabilise the European solar panel market and will remove the injury that the dumping practices have caused to the European industry,” Mr De Gucht said. “We have found an amicable solution that will result in a new equilibrium on the European solar panel market at a sustainable price level.”

But EU ProSun, which represents European manufacturers said the terms of the settlement were not consistent with EU trade law, and that it would be “a logical step” to challenge it at the general court in Luxembourg. Milan Nitzschke, the group’s president, added: “This agreement is not a solution but a capitulation. Under tremendous Chinese pressure the EU commission decided to sell the European solar industry to China.”

EU officials have defended the settlement by noting that prices have collapsed in the European solar industry since the beginning of the investigative period in mid-2011. As such, they argued, what seemed like a reasonable minimum price then may not be the case today – or in the future.

Mr De Gucht’s hand was also weakened in dramatic fashion two months ago when a majority of EU governments – led by Germany – signalled their opposition to provisional duties.

The settlement is expected to last until the end of 2015. About 90 Chinese solar manufacturers have signed up to it. Those that do not will be forced to pay the full duties.

The solar case was the EU’s largest ever trade investigation, based on more than €20bn in solar products that Chinese companies shipped to the EU in 2011.

This agreement is not a solution but a capitulation. Under tremendous Chinese pressure the EU commission decided to sell the European solar industry to China

Milan Nitzschke, EU ProSun

The commission took up the case at the behest of a group of manufacturers, led by Germany’s SolarWorld, after Chinese competitors grew in just a few years from bit players to capturing about 80 per cent of the EU market – the world’s largest.

The case has served as an unintended contest of wills between a rising China and a crisis-hit EU.

It has also sparked fears of a wider trade war, with Beijing launching its own investigation into imported European wine and polysilicon and threatening another against European luxury cars.

Brussels had been hoping those related cases would be dropped as part of a settlement. Their fate was not immediately clear on Saturday. One EU official believed these were still alive – contrary to some press reports.

Meanwhile, the EU will also continue a separate investigation on possible illegal subsidies granted by Beijing to its solar manufacturers. Beijing had been hoping to close that case as part of a settlement to avoid any potentially damaging disclosures, according to EU officials.

Even though the solar case has been resolved, the EU and China are still facing trade tensions. Mr De Gucht has been threatening to launch an investigation into Chinese-made telecommunications network equipment that is arguably even more incendiary.

While some trade lawyers believe the solar settlement reveals a weakened EU trade commissioner, others believe it will now free his hand to pursue the telecoms case.

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