China and EU Reach Deal on Solar Panel Trade

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china and the european Union defused their biggest trade dispute by far on July 27th with a deal to regulate Chinese solar panel imports and avoid a wider war in goods from wine to steel. After six weeks of talks， the EU’s trade chief and his Chinese counterpart sealed the deal over the telephone， setting a minimum price for panels from China near spot market prices on.

European solar panel makers accuse China of benefitting from huge state subsidies， allowing them to dump about 21 billion euros （$28 billion） worth of below-cost solar panels in Europe last year， putting European firms out of business.

Other European industries that have accused China of dumping have faced imports of about 1 billion euros a year. Europe planned to impose hefty tariffs from August 6 but， wary of offending China’s lead-ers and losing business in the world’s No. 2 economy， a majority of EU governments led by Germany opposed the plan， which led to the compromise deal.

“We found an amicable solution in the EU-China solar panels case that will lead to a new market equi-librium at sustainable prices，” EU Trade Commissioner Karel De Gucht said the same day when the deal was sealed.

Chinese Commerce Ministry Spokesman Shen Danyang welcomed the deal， hailing a “positive and highly constructive outcome”.

However， some European manufacturers said the minimum price still constitutes dumping. The agreement will allow Chinese businesses to export up to seven gigawatts per year of solar products without paying duties， pro- vided that the price is no less than 56 cents per watt. European solar panel manufacturers had been pushing for a minimum price of 80 cents or more.

ChinaEuropean Union relations

EU-China trade has increased dramatically in recent years. China is the EU’s biggest source of imports by far， and has also become one of the EU’s fastest growing export markets. The EU has also become China’s biggest source of imports. China and Europe now trade well over 1 billion euros a day.

Relations between the European Union and the People’s Republic of China were established in 1975. A major point of contention in relations is the EU’s arms ban to China.

After the end of the Cold War， relations with Europe were not as high a priority for China as its relations with the US， Japan and other Asian powers. However， interest in closer relations started to rise as economic contacts increased and interest in a multipolar system grew. China’s growing economy became the focus for many European visitors and in turn Chinese businessmen began to make frequent trips to Europe. Europe’s interest in China led to the EU becoming unusually active with China during the 1990s with high-level exchanges. EU-Chinese trade increased faster than the Chinese economy itself，tripling in ten years from US$14.3 billion in 1985 to US$45.6 billion in 1994.

The EU is China’s largest trading partner， and China is the EU’s second largest trade partner after the United States. Most of this trade is in industrial and manufactured goods. Between 2009 and 2010 alone EU exports to China in- creased by 38% and China’s exports to the EU increased by 31%.

There have been some disputes， such as the dispute over textile imports into the EU. China and the EU are increasingly seeking cooperation， for example China joined the Galileo project investing 230 million euros and has been buying Airbus planes in return for a construction plant to be built in China； in 2006 China placed an order for 150 planes during a visit by the French President. Also， despite the arms embargo， a leaked US diplomatic cable suggested that in 2003 the EU sold China 400 million euros of “de-fence exports” and later， other military grade submarine and radar technology.

Court challenge

Under the terms of the deal， China will also be allowed to meet about half Europe’s solar panel de-mand， if taken at last year’s levels. EU consumption was about 15 gigawatts in 2012， and China will be able to provide 7 gigawatts without being subject to tariffs under the deal. It did not satisfy some EU solar manufacturers who said the minimum import price agreed still constitutes dumping and accused the European Commission of breaking EU law by failing to protect European industry.

European solar panel manufacturer association EU ProSun said it will go to the European Court of Justice in Luxembourg to challenge the deal： “Even the biggest EU trade conflict ever must still be resolved on the basis of the applicable law，” said EU ProSun’s president， Milan Nitzschke.

However， China has sold solar panels for as little as 0.38 cents a watt， according to the European Commission， which handles trade， issues for EU states， and tariffs would also hurt EU panel installers， who benefit from cheaper Chinese panels.

Chinese manufacturers such as U.S.-listed Trina Solar， Yingli Green Energy and Suntech Power Hold-ings are among those exporting to Europe.

Chinese solar panel production quadrupled between 2009 and 2011 to more than the world’s entire demand as it took advantage of a growing market for renewable energy in the face of concerns about climate change. But the global financial crisis and ensuing euro zone crisis have forced European governments to withdraw generous subsidies for solar energy. That， along with Chinese imports pushing down prices， has sent many European solar companies into bankruptcy and therefore did the German group Conergy file for insolvency in July.

Still， those concerns have become secondary to the much larger EUChina trade relationship at stake over the panels dispute. Europe is China’s most important trading partner， while for the EU， China is second only to the United States. Chinese exports of goods to the bloc totaled 290 billion euros last year， with 144 billion going the other way.

Responding to the EU’s move to impose duties， China launched an antidumping inquiry into European wine sales， which may have led to exporters in France， as well as Spain and Italy， being hit with retaliatory duties. EU and Chinese diplomats now expect that case to be dropped as a goodwill gesture， although officials declined to comment on Saturday the 27th of July.