China's divide and conquer approach looks to be paying off in deal on solar panel dispute

China and the EU have finally reached a deal to settle their trade dispute over solar panels, which has lasted for almost an entire year and has escalated significantly over the past few months.

In the end it seems that China’s divide and conquer approach may have won out. The key details of the deal are as follows:

• Price floor of 56 euro cents per watt on European imports of Chinese solar panels. Broadly seen to be around the average price which Chinese solar panel producers have been selling out over the past two years and well below the 80 cents which EU ProSun, the group which launched the complaint, were seeking.
• A limit of 7 gigawatts in capacity imported from China. The total capacity of the European market is thought to be between 10 – 12 gigawatts, of which China currently controls a sizeable majority. This may provide some limit to Chinese control of the market and carves out a chunk for European producers.
• China has agreed to freeze its investigations into European wine and polysilicon according to European officials.

Given the original size of the proposed tariffs (50%+) it does seem that the EU’s Trade Commissioner Karel De Gucht has softened his stance substantially (although this has been happening for some time). This is likely due to the erosion of support for the case in some of the key member states – first Germany (which was never particularly enthused by the idea) and then the Mediterranean states (once China launched its investigation into European wine exports). 

China’s agreement to drop its (largely) retaliatory disputes provide little cover for the aforementioned change in position. It seems the most important factor for EU officials was the cap on the capacity which can be sourced from China. This could prove to be important, but it still allows China to maintain control over a large majority of the market. It also suggests an implicit assumption that European producers can control the rest of the market (far from guaranteed if other emerging market producers see an opportunity to fill the gap created by the cap) and that the market will continue to grow, which European producers will be able to take advantage of – again far from guaranteed with the eurozone crisis and a struggling renewables sector in Europe.

This may though not be the last word in this dispute, after EU ProSun said it will challenge the deal at the European Court of Justice (ECJ). This could take some time to run its course, but as we noted when the dispute started, ostensibly, Chinese solar panel producers do receive huge government subsidies. By the letter of the law then, its possible the ECJ could side with the European producers.

Despite these issues, it’s clear that neither side could really afford to continue with this dispute. The more interesting question now is where this leaves the remaining 17 EU trade disputes which involve China. Has the balance of power shifted? Has De Gucht’s position been undermined by intergovernmental disputes? Ultimately, this may be determined by progress in a new investigation into Chinese dumping in the telecoms market. Watch this space.

China launches official investigation into EU wine subsidies

Trade-war back on.

Well, in fairness, we’re not sure it ever went away. It did seem like relations were improving, however, with EU Trade Commissioner Karel de Gucht saying (following a meeting with his Chinese counterpart):

“I believe that both sides have now engaged in a sincere way to work towards an amicable solution. That is the good news…Let be me very clear again here today in Beijing: Europe wishes for an amicable solution.”

The rest of the speech continued in much the same way, striking a very conciliatory tone. For his part, Chinese Minister for Commerce Gao Hucheng said that the talks had been “positive”.

This all helped raise hopes that a deal could be reached ahead of the August deadline meaning the EU tariffs on solar panels could be (largely) avoided and Chinese retaliatory tariffs on wine would never be more than an empty threat.

Unfortunately, that no longer looks to be the case. The Chinese government has now officially accepted the complaint from its wine industry regarding illegal dumping and subsidies from the EU to its wine producers, saying:

"China's investigation department will strictly abide by China's relevant laws and regulations and meet the demands of relevant World Trade Organization rules…In the investigation process, the Ministry of Commerce will follow the principles of openness, fairness and transparency, fully respect all parties' legal rights, and make a fair ruling based on objective fact and the relevant laws and regulations."

We’re not sure that will provide much comfort to France and other countries which fear the imposition of tariffs.

Needless to say then, it seems whatever talks have been going on behind the scenes have not been fruitful. This spat looks set to escalate, not least because the WTO is likely to turn into a battleground with two of the largest economies trading blows and trying to garner support. With the August deadline just over a month away hopes for an “amicable solution” look to be fading.

Le Monde's 'Up yours Delors' moment: Barroso is 'a 57-year-old chameleon in search of a good job at NATO or the UN'

As we reported in our daily press summary, European Commission President José Manuel Barroso has drawn criticism from the French government after he described France's insistence to exclude the audio-visual industry from EU-US trade talks as "completely reactionary". Now, the French press has caught up as well.

And it's pretty harsh.

Le Monde has a tough editorial under the headline, "Monsieur Barroso, you're neither loyal nor respectful!" We thought it was worth translating it almost in its entirety. Here goes,

For once, the Europeans were united vis-à-vis the Americans […] The President of the European Commission, José Manuel Barroso, has torpedoed this unity by stating, right before the start of the [G8] summit, that France’s position on the cultural exception was “reactionary”. 

It is of little importance to know whether France is [reactionary]. Or whether or not one needed to exclude, in the name of the cultural exception, audio-visual services from the negotiating mandate handed to the European Commission. In order to be ready, the 27 [EU member states] negotiated at length and until late at night on Friday, 14 June. France ended up imposing its views and scored a political victory.

And whether Mr Barroso was satisfied with this outcome or not is of little importance, too. He’s the President of the Commission and is bound by the mandate he’s been given by the [member] states. By denigrating the agreement the day after it was concluded, Mr Barroso is not acting as the guardian of the [EU] Treaties, as his mandate requires.

[…]

The Trade Commissioner, Belgium’s Karel De Gucht, has adopted a comparable attitude. He didn’t manage to impose his views. A bad gambler, he pretends that it will be possible to re-introduce audio-visual services in the negotiation. That’s empty talk: everything is possible under unanimity. In reality, France retains its veto on the issue. But Mr De Gucht has an excuse: he will negotiate with the Americans and is afraid that the latter retaliate by excluding from the negotiations some domains that are strategic for the Europeans. He wants to be able to go back to the 27 [EU member states] to amend his negotiating mandate, if necessary.

Mr Barroso, on the other hand, seems to pursue far more personal ambitions. During eight years, the President of the [European] Commission has stood out for his ductility. Defender of small states as Portuguese Prime Minister, a liberal at the time of his appointment in Brussels ahead of the 2008 crisis, pro-Sarkozy during [former French President] Nicolas Sarkozy’s presidency, and incapable, since, of taking the smallest political initiative to revive the Union, he has accompanied the decline of the European institutions.

Today, aged 57, this chameleon is searching for a future. In search of a good post, at NATO or the UN – who knows? – he has chosen to pander to his Anglo-Saxon partners, the British Prime Minister and the US President. At the head of the Commission, Barroso has been a good reflection of Europe: a decade of decline. 

This is "Up yours Delors" territory - and arguably the strongest attack on Barroso until date.

A European Commission spokesman was quick to point out that Barroso didn't have France in mind when he made his remarks. There are several layers to this episode, but if anyone thought that the French are becoming any less sceptical of the Commission, they are mistaken. If anyone thought that turning the Commission into an all-powerful eurozone budget police was only one German election away, that is...

The China-EU trade war begins, China adopts divide and conquer approach

As expected, China did not take the new tariffs on its exports of solar panels to the EU lying down, nor did it see it simply as an ‘opportunity to negotiate’ as the Commission suggested.

China has announced that it is investigating illegal EU subsidies to the EU wine industry. The rational is, as the Chinese Commerce Ministry put it, because, "Wine imports from the EU enter our market via dumping, subsidies and other unfair trade practices, and have hit our wine production."

Our headline is of course exaggerated for effect but the main point stands. This dispute has escalated significantly with the retaliation now raising the prospect of a tit-for-tat trade dispute.

It’s also been well documented that the EU is divided on this issue, with quite a few countries (led by Germany) openly expressing their opposition to the Commission’s tariffs. Other more traditionally protectionist countries have been decidedly less vocal. With this in mind, it’s interesting that China has launched an investigation which focuses on a sector heavily located in France and the Mediterranean rather than one in Germany. This could be a mere coincidence, but then it could not.

AFP reports that French President Francois Hollande has called for an EU-27 meeting to be convened to discuss the issue and create a united EU position on it (possibly to counter such a divide and conquer approach).

There are a few other interesting points to note with this investigation:

• The Chinese do have a case given the influence of the CAP, which still provides significant subsidies to farms including vineyards.
• It’s hard to say exactly how large the subsidies are. Under the reformed CAP programme in 2008, National Support Programmes for wine growers totalled €2.8bn.
• As with much Chinese data it’s hard to pin down the exact size of the market. The Commission notes that in 2011 China and Hong Kong together accounted for €1.47bn in wine exports from the EU. This has certainly increased since then as China represents one of the largest growth markets for wine. Reuters suggests that Chinese imports of wine amount to €1bn from France alone.
• Whatever the size, this market is smaller than the solar panel one. EU imports of solar panels from China amount to around €21bn.

EU offers China “window of opportunity” to settle solar-panel row but proceeds with watered down tariffs

Soon to be more expensive?

The EU-China trade row over cheap Chinese solar panels flooding the European market has been raging on for several weeks now and is threatening to escalate into a full blown trade dispute. 

On one side, the EU has firmly maintained that it will impose anti-dumping tariffs. On the other, China has postured that any such move will lead to economic retaliation.

Meanwhile, somewhere in between, a number of EU member-states (led by Germany) have come out supporting China, fearful the row could hamper national trade-interests with the Asian monolith.

Against this increasingly tense background, EU Trade Commissioner Karel De Gucht today presented the Commission’s provisional findings in the anti-dumping case on solar panel imports from China, key points from his press conference below.

• There will be temporary tariffs imposed, which will play out in two phases: 11.8% from 6 June, and 47.6% from 6 August.
• De Gucht maintained that this was a “reasonable” decision that had nothing to do with protectionism. He said that Chinese “overproduction” of solar panels had allowed it to flood the European market with a cut-price product, which, he estimated, should cost 88% more.
• So in the short term, the Commission sees the tariffs on China, in De Gucht’s words as an "emergency measure to give life-saving oxygen" to a threatened EU solar industry. In the long term, the Commission says it is upholding to the principles of fair trade.

Open Europe’s take on the decision:

Although De Gucht is probably correct to say he is simply applying the rules as written, we ultimately believe applying the tariffs at such a high level is the wrong decision for a number of reasons:

• Firstly, solar (and renewable energy generally) is subsidised everywhere to some extent. If it didn’t need to be it would be the obvious energy resource for the whole world. This makes it very difficult to judge what the ‘fair’ level of subsidy is or how the market would look without them.
• In this vein, the whole EU market arose due to significant subsidies and would be unlikely to continue without them in some form (see our previous post for more detail). This makes the claim of protecting jobs and the EU solar industry a bit of a misnomer.
• Consumers will lose out as prices could well rise from this. At the very least they will be presented with less choice.
• Many producers and services built around the wider solar industry could struggle as they have become reliant on the cheap Chinese imports.
• These nuances could show that some competition laws (and not just in the EU) need to be reassessed to account for complex and global markets.
• The potential for retaliation remains concerning. This could cause harm to the EU's significant trading relationship with China at a time when Europe can least afford it.
• As De Gucht himself seemed to note, no decision is made in isolation and the political implications of such a decision should be taken on board. There is also an inherent tension here given that, although the power to judge Competition Policy has be passed onto the EU, Foreign Policy and international relations remain very much in national hands (as they should). Policies which cross this boundary must take account of national preferences in this area.

Where do we go from here?

All that said, the Commission has thankfully left itself with an ‘out’ and rowed back significantly on its original hard line position. Using the staggered tariff rate and the two month period for negotiation eases the impact of the decision. Although, relations will likely be tense in the immediate aftermath.

The Commission insistence that the ‘onus’ is now on China will probably not go down well. Whether China will play ball and reach an ‘amicable’ agreement as the EU wishes remains to be seen. It will certainly make for an interesting summer of negotiations.

Letting the cat out of the bag

Update 2.15pm:  At least two more European Commission spokespersons have denied Commissioner de Gucht's claim. After Mina Andreeva (see below), Olivier Bailly tweeted,

The European Commission denies firmly being working on exit scenario for Greece. The Commission wants Greece to remain in the euro area.

Then Simon O'Connor tweeted,

We're not working on the basis of a scenario of Greek exit.

So it's settled then...

Here's our original blog post:

It's Ascension Day today, and the EU institutions are closed. Still, someone at the European Commission felt the need to say something on Greece.

In an interview with Belgian daily De Standaard, EU Trade Commissioner, Belgium's Karel de Gucht, said,

"A year and a half ago maybe there was a risk of a domino effect. But today, there are [people] in the European Central Bank, as well as in the Commission,  working on emergency scenarios if Greece shouldn't make it."

He also added,

"A Greek exit does not mean the end of the euro, as some claim."

De Gucht's comments were not appreciated by his colleagues at the Commission, however. Within hours, European Commission spokeswoman Mina Andreeva moved to deny the existence of any such plans, saying,

"[The European Commission] is working on scenarios to keep Greece within the eurozone, not to make it leave."

According to the spokeswoman, Commissioner de Gucht was speaking "in his personal capacity". This isn't the first time Karel has annoyed colleagues by letting the cat out of the bag (well, on a potential Greek exit, the cat wasn't exactly in the bag). He was the first one to admit, 

"We knew that Greece was cheating [on its public accounts]."

That was in May 2010.