The European Union (EU) has delivered the first stinging blow in a brewing war over solar panels today by imposing hefty tariffs on Chinese products in response to allegations that manufacturers from the south East Asian nation have been selling their products at cutthroat prices on the continent. The “dumping” of solar panels below production costs in Europe has stifled growth and resulted directly in the demise of some local producers, the European Commission (EC) said in a statement.
What this means is that the price of Chinese solar panels and other key components used in the photovoltaic market will go up dramatically in the EU area, and Chinese manufacturers could end up paying as much as 67.9 percent in duties on their products sold in the EU.
Get ready for a slugfest. China had previously made it clear it would retaliate by imposing sanctions on EU products sold in its territory if the EU carried out the threat to slap tariffs on the solar panels. While it’s not yet clear how the Chinese government will react, many in the electronics sector don’t expect a move against the industry itself, but that’s not the case for folks in the wine producing areas of France who believe China could jack up tariffs on French bubbles.
Whether China does the eye-for-an-eye thing by targeting manufacturers in the electronics industry or instead aims its guns at other segments of the European economy, the next salvo will definitely hurt Europe more than the Chinese. For a region that is struggling already to cope with a fiscal crisis, huge unemployment from the UK to Spain and Greece, as well as lackluster consumer sentiments, the specter of an economic clash with China must be quite unsettling.
And yet the EC isn’t shying away from this confrontation, perhaps because the alleged Chinese dumping actions are considered so flagrant that a failure to respond would have left the EU looking wimpy and unable to defend its own laws or protect the interests of its enterprises. It would also have eroded credibility in the EU’s key institutions during a period when many in Europe are questioning the very existence of the regional economic and political community.
Solar panel manufacturers in the European Union have been complaining about the impact of alleged Chinese “unfair trade practices” for several years. The complainants, including EU ProSun, the industry association that first filed a complaint with the EU, said Chinese manufacturers were selling solar panels on the continent at prices well below their production costs.
The EC seems to agree that China-based solar panel and components manufacturers have been acting unfairly and jeopardizing the existence of suppliers on the continent. It said China’s production of solar panels soared more than 700 percent in three years to 55 gigawatt (GW) in 2012 from 6.5 GW in 2009. China alone now accounts for 150 percent of global solar panel demand and the over-production is the main reason the country is selling the products well below cost in the EU, according to the EC statement. The EC said its investigations confirmed the following:
- There is dumping by the exporting producers in China: Chinese solar panels are sold on the European market far below their normal market value, resulting, on average, in dumping margins of 88%, which means that the fair value of a Chinese solar panel sold to Europe should actually be 88% higher than the price to which it is sold. In some cases, dumping margins of up to 112.6% were found.
- Material injury has been suffered by the Union industry concerned translated in loss of market shares in the EU, decrease in sales prices and decrease in profitability leasing to a number of insolvencies of Union producers
- There is a causal link between the dumping and injury found.
- The imposition of measures is not against the Union interest.
The details of the EU’s action indicate the regional body is still hoping cooler heads will prevail. It won’t impose the stiffest fines (almost 68 percent) on Chinese solar panels and components manufacturers for several months, giving them time to “voluntarily” reduce their prices. In the first round of duties, China-based manufacturers will pay only 11.8 percent duties on their products sold in the EU for the first couple of months after which this will gradually rise starting in August to between 37.2 percent and 67.9 percent, the EC said, adding:
Whereas the dumping rate is at 88% on average, the anti-dumping duties imposed will only be set at an average of 47.6%, which is required to remove the harm caused by the dumping to the European industry. . . . The Chinese imports represented over 80% of the Union market in 2011/12. It is likely that Chinese market shares will grow even further if measures are not imposed. Consequently, there is a risk that the Union industry, which held a 13% share of the EU market during the same period, will quickly cease to operate altogether. In 2009, EU producers still had a 19% share of the EU market.
Will China fold or go ahead with a retaliatory strike? The answer depends on how much pressure local Chinese manufacturers put on their own government and whether or not the newly installed leadership in the country can afford to be seen as weak or conciliatory. It may not exactly result in an-eye-for-an-eye move, but few in Europe expect China to simply turn the other cheek.