EU and China resolve solar panel dispute

By Fiona Baker

china eu flag slThe Chinese solar panel industry has been struggling for the past year and things have become increasing difficult with the EU Trade Commissioner enacting steep provisional tariffs on Chinese manufactured solar panels.  It was welcome news for Chinese manufacturers to learn than an agreement had been reached in the end of July.  China’s ten largest solar panel companies have an enormous cumulative debt of USD 27.7 billion. Global prices for solar panels have been driven down by over production.  The demand for solar modules was approximately 36 GW, which was dwarfed by global production of approximately 70 GW.  In 2011, the oversupply of solar panels led to a 40% decrease in panel price.

Spurred on by government subsidies, many Chinese entrepreneurs entered into manufacturing solar panels.  From 2009 to 2011 Chinese production of solar panels quadrupled.  Similar to global demand, China’s domestic demand for solar panels was greatly outpaced by production.  China over relied on external markets as a means to get rid of excess production.  To help absorb some of the excess solar panels, China has announced their goal to increase solar electricity production to 35 GW by 2015.  In 2012, China had 8.3 GW of solar generating capacity.  To reach the goal, China will add approximately 10 GW per year from 2013 to 2015.    

The tariffs were the EU’s response to China selling solar panels at less than it costs to manufacture them, in a process known as “dumping”, and undercutting their EU rivals.   Currently the tariffs are provisional and are set at 11.8%.  This is not the first time that tariffs have levied against China for dumping solar panels.  Last year the Obama administration imposed tariffs up to 4.73% on Chinese manufactured solar panels.   The US tariffs are less aggressive compared to the provisional tariffs put in place by the EU.  The addition of the provisional tariff means that China’s panels are no longer the cheapest in the European market and are more expensive compared to panels from Taiwan and Republic of Korea.
The announcement of tariffs has sparked a tit-for-tat response from China, who has opened inquires on red wine and high-end automobile imports.  The resolution reached at the end of July prevented tariffs jumping up to a range of 37.2% to 67.9% on August 6th. A December 6, 2013 vote to turn the provisional measures into a definitive 5-year measure is no longer necessary.  It is unclear if member governments would approve the long-term tariffs.  Germany has spoken out against the tariffs, while France is in favor.   To work around the tariffs Chinese manufacturers are investigating the possibility of moving production to other countries.  The Chinese manufacturers are viewing foreign production sites, as a back-up plan should the tariffs last for 5 years.  The agreement reached means that manufacturing can remain in China.    

After six weeks of negotiations between Beijing and the EU an agreement has been reached.  Both sides were motivated to reach an agreement; for the EU solar energy is an integral part of reaching their C02 emission targets and China to improve their solar industry. Chinese manufacturers are allowed to sell up to 7 GW per year of solar products, provided that the price is no less than 56 cents per watt.  Any products sold above the 7 GW or below the price floor will be subject to anti-dumping duties.  The agreement will remain in effect until the end of 2015.  Approximately 90 companies have signed on to the voluntary agreement.  The price floor is well below the 80 cents per watt that European manufacturers deemed to be a reasonable price when they filed their original complaint.  The signing of this agreement does not represent the end of tensions between China and the EU.  The EU will continue to investigate the possibility that Beijing granted illegal subsidies to its solar manufacturing.

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