July 28, 2013
Representatives of China and the European Union reached a final deal on the solar panel trade dispute, clearly in favour of Chinese firms. Is it a capitulation?
Weekend economic news featured the importance of diversifying your investments and the agreement between China and the EU on solar panel imports in the Old Continent. The deal puts an end – for the moment – on a short but painful trade dispute started by the EU on behalf of European manufacturers. From August, Chinese solar panel producers will be able to export to the EU market 7 Gigawatt (GW) per year of solar products without paying duties, at a minimum price of 56 cents/Wp. Products sold above the quota or below that minimum price will incur in an average of 47 per cent anti-dumping duties.
The total PV capacity installed in 2012 in Europe was 17 GW, which means Chinese firms will be able to cover more than one third of EU’s demand facing little competition from international suppliers. The agreed minimum price is roughly equal to the average Chinese solar module price and the new trade conditions will only protect European manufacturers from the most unfair cases of Chinese pricing but it will not make them relieved. When the dispute began, the European association of PV manufacturers argued that a “fair” price is no lower than 80 cents/Wp. Not surprisingly they reacted badly to the deal and called it “capitulation”.
China played it well and the dividi et impera strategy paid off. The retaliation on wine exports turned France and Italy against the major solar panel producers (mostly Germany) and China managed to protect Chinese manufacturers. Europe is the largest world market for PV but other markets (as China) are expanding faster and Chinese production can easily be turned somewhere else.
I would not label the deal as “capitulation”. The less competitive part of the European PV industry already left the market in the last couple of years and the bloodshed seems to be over because recently market prices stabilized or even increased. At the same time, fast-growing technological progress keeps pushing costs downwards and the current price gap of approximately €0.20/Wp could be reduced in the near future if the minimum price is not adjusted.
European manufacturers might well represent the interest of thousands of workers but it does not exactly match the best interest of other European firms. Given the ambitious climate policy targets in the EU, we need cheap PV modules and European diplomats are well aware of that. Creating a shortage of supply would be silly, especially now that many European producers are already out of the market and little can be done about that.
Pushing China to retaliate on other more important industries would be even sillier: many European countries are slowly recovering thanks to exports to foreign markets such as China. As Dani Rodrik wrote: “it would be far better if concerns about national competitiveness were to lead to a subsidy war, which expands the global supply of clean technologies, rather than a tariff war, which restricts it.” Especially at the moment.Claudio Baccianti