China hopes EU Commissioner De Gucht drops super anti-dumping tariff on solar panels

Visit of Antonio Tajani, Vice-president of the European Commission (on the left), and Janez Potočnik, Member of the European Commission (not pictured), to China. Here Tajani meets Miao Wei, Chinese Minister for Industry and Information Technology (EC Audiovisual Services 18/7/2013).

With EU – China bilateral trade volume at more than €1 billion a day and both ways investment flows at around €20bn a year, accusations and complaints over state subsidies, dumping and other trade distorting practices exchanged between the two giant partners seem unimportant. Yet the recent proliferation of the anti-dumping and anti-state-subsidies measures adopted mainly by the European Union and the People’s Republic of China against each other, threaten to poison the good relations between the two sides.

There is information though that the EU Trade Commissioner De Gucht may be convinced to drop the 47.6% super anti-dumping levy on Chinese solar panel imports, scheduled to be impposed as from 6 August. If this proves to be the case, the EU-China trade relations will be greatly upgraded at least from Beijing’s side. The Chinese administration could value this EU decision much more than Brussels think. But let’s take one thing at a time.

Anti-dumping

If the commercial skirmishes between EU and China seem not of crucial importance compared to their huge overall economic and otherwise relations, there are other concrete facts or threats from the future indicating a worsening climate between the two sides. Apart from the newly introduced by Brussels anti-dumping investigations on Chinese exports of powdered carbon (08 July 2013) and steel fasteners (6 June 2013), the Commission has initiated some weeks ago more action of the same nature on solar glass (27 April 2013) and agglomerated stone (28 June 2013).

Now enter the threats from the future. With the Chinese car industry advancing at a breath-taking tempo Europe must be already feeling unease. Given that the automotive industry is the powerhouse of Europe’s export machine, whichever threat, even a very distant cloud in the horizon, is taken very seriously in Brussels and the other EU capitals, more so in Berlin and Paris. Up to now Chinese car exports are targeting markets in Asia and Africa.

More worries

New car building factories however sprout continuously all over China and quality is improving fast. Bit by bit Chinese car exports are targeting developed markets. Some analysts see many similarities between solar panels and cars in China. What they predict is that in a few years time car production in this vast country will reach over-capacity exceeding by far home market needs. As a result they foresee that Chinese producers will be obliged to cut down prices and imitate the solar panel manufacturers in following aggressive marketing practices all over the world. Understandably those marketing strategies will be spearheaded by low prices. In such an environment the European car industry will feel rather depressed and consequently will ask for protection not only in its home market but elsewhere too.

This is not the end of the Brussels complaints against Beijing. The EU is also worried about the Chinese export restrictions on raw materials – such as rare earths – which are identified by the Commission as a major trade obstacle. The EU Ambassador to the World Trade Organisation Angelos Pangratis in his intervention during the Fourth Trade Policy Review of China, which took place between 12 and 14 June, summed up Europe’s grievances.

Pangratis said that, “The EU regrets to note that, despite some incremental progress in certain sectors, most of our concerns highlighted during the last review in 2010 are still pertinent today – and some have even become more acute”. Starting from a general level the EU representative in the WTO insisted that China must change its overall economic strategy and base its growth model more on domestic demand than exports. Then he pointed out to the discriminatory practices within China on three very crucial fronts, credit, state procurement and technical standards. On all three accounts he observed that foreign or foreign invested companies are openly discriminated. Last but not least, he raised the issue of the direct and indirect government backing to Chinese state enterprises.

China answers criticism

China has answers for all those claims. Starting from the burning issue of solar panels, the Chinese side fought its case in technical-level negotiations seeking an amicable settlement. Contacts began in Brussels towards the end of June and then negotiations continued in Beijing. As everybody knows the Chinese producers offered to substantially increase solar panel selling prices, but their proposal was not accepted by the EU Commission. As things stand now a 47.6% provisional anti-dumping levy is supposed to be imposed on EU imports as from 6 August. There is more to it however.

Towards the last week of June when the two sides were negotiating, EU Trade Commissioner, Karel De Gucht, went to Beijing for the 27th EU-China Joint Committee. Along with De Gucht the Chinese and the EU technical negotiators also flew to Beijing. The target was to achieve an agreement during the 27th EU-China Joint Committee. De Gucht however didn’t seem to agree with this. While the negotiations were still going on and were expected to be concluded within a day or two he commented negatively upon this prospect. In reality he ‘ordered’ the EU negotiators not to accept the Chinese offer. Let’s see how.

The EU Trade Commissioner speaking in Beijing on 21 June on the occasion of the EU-China Joint Committee said plainly “…a word of caution. It is early days in the negotiation process. This kind of issue is rarely solved overnight. Everyone should be very careful not to jump to any conclusions – one way or the other – simply because there is no hard news on this issue today”. The result is known, no agreement was reached and the anti-dumping levy is now imminent.

Beijing reacts

Beijing thought has more options in dealing with European Union’s trade threats. On 1st July the Chinese Ministry of Commerce  (MOFCOM) issued a decision saying that, “In accordance with the examination results above and the provisions of Article 16 of the Regulations of the People’s Republic of China on Anti-dumping, the Ministry of Commerce decided to initiate an anti-dumping investigation against imports of wines originated in the EU starting from July 1, 2013”. The Ministry also noted “it had received a formal petition for anti-dumping investigation from China Alcoholic Drinks Association on behalf of domestic wine industry, in which the petitioner requested to initiate anti-dumping investigation against imports of wines originated in the EU and they provided the relevant evidence”. This procedure is similar to the one followed by the European Commission, but why the wine now? Simple, it is an easy target as many other EU agricultural products.

In the case of wine and all the other EU agricultural products which are favoured by a common market organisation, subsidies and other kinds of aid is the name of the game for many decades now. It’s not news that the EU subsidises heavily its agricultural and animal products. Beijing might have avoided to initiate this anti-dumping procedure on EU wine exports now, if the EU has settled the solar panel case. There is no question that China is ready to negotiate with the EU. But it is also ready to reciprocate. If the tactics of the two sides continue like that, the future will not be so bright for anybody.

Both sides have to think twice before raising the stakes in this confrontation. EU exports in goods to China in 2012 reached €143.8bn while the Chinese exports to the EU were more than the double at €289.7bn. During the same year the bilateral trade in commercial services was €44.5bn. The EU is China’s biggest trading partner and China is the EU’s second biggest trading partner (after the US).

It is more than evident that the two sides gain a lot from this huge trade wealth, in terms of jobs,  business profits and in many other ways. The question is whether their strategy will remain anchored on the same good old principles which brought todays’ success. Only yesterday European Commission Vice-President Antonio Tajani, Commissioner for Industry and Entrepreneurship, and Janez Potočnik, Commissioner for Environment, went to China to promote the Green Growth prospects. In reality the EU Commissioners went to China to open the way for the European SMEs which specialise in green products. China may be an Eldorado for EU’s SMEs, if they manage to overcome the problems behind the border. At this point however the Chinese authorities must be very active in creating a level playing field. In conclusion, if the two sides show the same eagerness they had so far in promoting mutual growth, then the sky is the limit, given their huge size.