A glance into the Sino-EU solar panel dispute

In our previous article, delved into the China-EU solar panel dispute. As promised, we would now like to give our readers a glimpse into the topic. In 2012, several European companies operating in the solar sector accused Chinese companies of unfair trading practices, namely dumping and alleged illegal subsidies. Regarding some of them, these contested trade conducts were deeply affecting the EU solar power sector and causing distortions in the local market. Growing tensions led the two economic powers to the brink of a trade war which negatively impacted the Sino-EU trade relationship, and brewed scepticism around Chinese cross-border economic activities. The friction intensified quickly and resulted in one of the most intense trade disputes in the history of Sino-European bilateral trade. Some observers also point out that the dispute adversely impacted the development of Europe’s photovoltaic market, hindering efforts toward a low-carbon future for the continent.

The dispute over solar panels traces its roots back to 2007, when the Chinese government announced its Medium-and Long-Term Plan for Renewable Energy Development, with the intention of making the solar panel sector a pillar industry (SEI). To this end, several internal electrification projects were launched. These, coupled with export-stimulating policies, such as tax rebating and the dual exchange rate system, caused many Chinese solar panel manufacturers to turn to the European market. The latter was experiencing a huge surge in demand in the solar energy sector at the time. As a result of a quickly developing renewable energy industry, the Chinese government started challenging EU pioneering roles in the production of photovoltaic modules and components, capturing more than 80% of the European market in less than six years. This allegedly led forty European solar product firms to insolvency between 2009 and 2012. Chinese exports of photovoltaic devices, however, experienced a significant drop after this period.

In this context, multiple European solar power equipment manufacturers decided to file a complaint, leading the European Commission to initiate an anti-dumping and anti-subsidy case on Chinese exports. The trade investigation was aimed at restoring fair competitiveness for EU companies in the sector and thus reduced the influx of solar modules. But, mainly due to European countries diverging interests in the conflict, the action has often been seen as a defeat for the bloc. In fact, according to many observers, it hasn’t been able to hold a hard stance on the matter and didn’t optimally tackle the spiral of insolvencies of EU producers and related loss of jobs in the sector. Once the dispute arose, the Commission consulted the member states about preliminary duties to be applied on Chinese exports. During the investigation, up to 17 governments, including Germany and the UK, showed their dissent towards the action. In response to the investigation, the Chinese government started its own trade action into polysilicon manufacturing, an important material to create photovoltaic cells. The move especially affected German suppliers whose main customers were Chinese companies. On an official visit to Europe, Chinese Prime Minister Li Keqiang commented on the proposed duties:

“We don’t agree with this decision and emphatically reject it.”

German Chancellor Angela Merkel also took a side in the dispute:

“Germany will do all it can so that this won’t lead to import tariffs … That’s not something we believe in.”

The trade action was concluded in 2013 when an “amicable solution” was agreed upon. So, the preliminary duties were abandoned and instead the EU imposed a Minimum Import Price (MIP) which was set at 56 cents per watt and was enforced until 2015.

Apparently, the settlement of a MIP broke off the negative spiral on prices in the EU solar energy market. However, a full restoration of competitiveness never occurred. For example, the total European solar panel industry output decreased by almost 20% between 2014 and 2015. Since 2013, further insolvencies of EU producers have been registered. The public opinion is divided on the matter. The solar panel dispute gave rise to criticism on the ground that the preliminary setting duties on Chinese exports and consequent conflict bore a detrimental effect on the production of green technologies in Europe. Some claimed that China could unfairly rely on government subsidies to boost its competitiveness in the solar panel industry, others instead argue that European countries should have made good use of China’s comparative advantage to expand photovoltaic panels production and build a steady industrial base to tackle the climate crisis globally.

In this view, a neomercantilist approach and the politicization of the issue are at odds with the creation of a global photovoltaic industry. Even after the setting of a MIP, the competitiveness of the EU solar panel industry never fully recovered. The dilemma of conflicting interests in protecting European industry and taking full advantage of cheaper renewable technology imports is yet to be solved in a fully satisfactory way, and Chinese technology continues to get cheaper as its production capacity grows. This issue will thus continue to present itself to European policymakers going forward.

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