Opinion

Chinese solar panels – economics or politics?

Unless appropriately managed, the ongoing row on the proposed EU tariffs on solar panel imports from China has the potential to lead to a serious trade dispute between Brussels and Beijing. 

By: Date: June 6, 2013

Unless appropriately managed, the ongoing row on the proposed EU tariffs on solar panel imports from China has the potential to lead to a serious trade dispute between Brussels and Beijing. The Chinese delegation to the EU has not only put out a tough response, it has also arguably mobilised as many as 18 of the EU’s 27 member states led by Germany to oppose the provisional and temporary six-month punitive tariffs averaging 47 percent proposed to be imposed on imports from Chinese solar producers to combat allegedly unfair competition from China.

Under EU rules, the Commission has the authority to determine whether the provisional duties are enacted. But opposition from member states would weaken Commissioner De Gucht’s hand as the investigation moves toward a conclusion in December, when they can ultimately block his proposal. The Commission is investigating alleged dumping of Chinese solar panels and also whether subsidies provided by the Chinese government to the Chinese solar industry amount to an unfair trade practice. The recent imposition of anti-dumping duties ranging from 18.32 percent to 249.96 percent on solar-energy cells imported from China by the U.S. Commerce Department supports the EU Commission’s case.

As in the case of any dumping dispute, reactions vary between the affected units bemoaning loss of competitiveness, profitability and jobs and those of consumers and producers benefiting from the lower priced imports; given the modern distributed production chains across countries, import content of exports is about 40 percent today while the share of intermediate goods in trade has risen to 50-60 percent of global merchandise trade.

The former group usually supports turning to trade instruments to offset the consequent competition effects in the affected economic sector, while the latter also fear economic consequences on other sectors and cross-sectoral efficiency issues. Furthermore, research on average efficiency and costs in the US/European solar manufacturing vis-à-vis production in Chinese facilities do indicate that about 18-30 percent of the price advantage in Chinese solar cells do emanate from cost efficiency of vertical integration, economies of scale, and negotiated discounts from vendors of intermediate inputs, and machinery and equipment. These are in addition to the advantages from lower Chinese labour costs and cheap trade credit availability.

But how, if at all, does this row impact the other Asian giant focused on renewable energy as a means of decarbonising its current and future GDP growth? Several analysts have bridged India into the picture by arguing that India will be a beneficiary as anti-dumping duties on Chinese manufacturers will lead India to become an “alternative manufacturing destination” for companies. The Commission is also assessing the dumping investigations by comparing the prices Chinese companies charge for their photovoltaic products in Europe with those they charge in India, where they are much higher than in China.

The expected gains for India are however contestable, as India’s ability to capture vacated Chinese manufacturing space is a function of ease of doing business in the country, physical infrastructure necessary for manufacturing and domestic policy environment (other than the much disputed labour laws), all of which are not yet amenable for large scale manufacturing processes and units a la China. Despite the local content requirements under the National Solar Mission (NSM), industry experts contend that it is the lack of direction and policy support from the Indian government that is currently holding back solar manufacturing in India.

Additionally, the said local content requirements under NSM are now being subjected to a US-led dispute consultation at the WTO (WT/DS456/1). According to the US, the benefits for solar power developers, contingent on their purchase and use of domestic solar cells and solar modules, would include subsidies through guaranteed, long-term electricity rates, and hence contravenes the TRIMS and SCM obligations of India to the WTO. This is sure to have implications for the NSM provisions as well as the domestic anti-dumping case that India initiated late last year on solar PV imports from Malaysia, China, Taiwan and USA. One also wonders whether the US request for consultation is a retaliatory measure against India’s anti-dumping investigations.

Thus, in view of the protracted slowdown in trade growth below their long-term average rates worldwide and particularly in Europe, it is unclear whether it is the economics or the politics that is motivating these safeguard actions. In fact, research has indicated that advantages from Chinese industrial policy and state subsidy account for only about 3-5 percent of the total price competitiveness. It is uncertain yet how the safeguard actions will redress the relative competitiveness and cost efficiency concerns which is essential for a longer term and viable resolution of the problem.  


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

Topics

Comments

Read article More on this topic More by this author

Blog Post

Alicia García-Herrero

Why is China finding it hard to fight the markets?

Sitting on a pile of debt, China’s only way out is to deleverage: more pain now for sustainable growth later.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: August 31, 2015
Read article More on this topic More by this author

Blog Post

Jérémie Cohen-Setton

The global trade slowdown puzzle

What’s at stake: This week’s data renewed concerns about developments in global trade as it showed for the last 6 months the biggest contraction in global trade since the end of the financial crisis. While cyclical factors may be at play, trade specialists have also advanced a host of structural explanations to explain the decline in the trade elasticity, ranging from a shift in the composition of trade to limits in the fragmentation of world production.

By: Jérémie Cohen-Setton Topic: Global Economics & Governance Date: August 31, 2015
Read about event More on this topic

Upcoming Event

7 
Sep
2015
15:15

Emerging markets and Europe: time for different relationships?

Now that Europe can focus on medium-term issues rather than crisis management, it is the right time to reassess relations with the emerging markets. While the US seems to be betting on Asia, through its famous “pivot” and TPP, Europe is far from having a clear strategy. This session will explore how to create a mutually beneficial relationship between Europe and the emerging markets.

Speakers: Muhamad Chatib Basri, Kemal Dervis, Alicia García-Herrero, André Sapir and Javier Solana Topic: Global Economics & Governance
Read article More on this topic More by this author

Opinion

Ashoka Mody

The Rolling Global Crisis Will Come Home

When productivity growth slows down, there are two choices: to invest in the future or to live within one’s means. Instead, policymakers preoccupied with short-term goals have sought easy growth elixirs and soothing words.

By: Ashoka Mody Topic: Global Economics & Governance Date: August 26, 2015
Read article

Blog Post

Guntram B. Wolff
Thomas Walsh

The dragon sneezes, Europe catches a cold

European stock prices, financial contagion and the trade exposure to China. How the turmoil in China’s stock market is affecting European stock markets through Europe's trade exposure to China

By: Guntram B. Wolff and Thomas Walsh Topic: Finance & Financial Regulation, Global Economics & Governance Date: August 26, 2015
Read article Download PDF More on this topic More by this author

Working Paper

The grand divergence: global and European current account surpluses

The grand divergence: global and European current account surpluses

This Working Paper assesses various explanations for the EU’s increased current account surpluses.

By: Zsolt Darvas Topic: Global Economics & Governance Date: August 13, 2015
Read article More on this topic

Blog Post

Ashoka Mody

Delhi’s children deserve quality education

Money has not held up educational advancement in Delhi or in India more generally. Delhi’s education budget has risen steadily. And the worry is that the increased budget will once again be hijacked by glamorous but wasteful projects, including in higher education.

By: Ashoka Mody and Ritika Katyal Topic: Global Economics & Governance Date: August 4, 2015
Read article More on this topic More by this author

Opinion

Alicia García-Herrero

Europe must wake up before Iran falls into the arms of Russia and China

European leaders seem to have been caught somewhat off-guard by the Iran deal. The Greek saga alone could explain this. The problem is that other competitors —Russia and China— are one step ahead.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: August 3, 2015
Read about event More on this topic

Upcoming Event

5 
Oct
2015
09:00

Secular Stagnation in Europe and Japan

This is the 3rd conference in a series of events jointly organised by Graduate School of Economics, Kobe University and Bruegel

Speakers: Toshiki Jinushi, Guntram B. Wolff, Coen Teulings, Natacha Valla, Yoichi Matsubayashi, Masahiko Yoshii, Rainer Münz, Paul Swaim, Atsuko Ueda, Grégory Claeys, Naoyuki Yoshino, Juan F. Jimeno, Ryuzo Miyao, Xavier Ragot and Philipp Hartmann Topic: Global Economics & Governance
Read article Download PDF More on this topic

Working Paper

Europe's exports superstar - it's the organisation!

Europe's exports superstar - it's the organisation!

What explains Germany’s superb export performance? Is Germany’s export behaviour very distinct compared to other European countries?

By: Dalia Marin, Jan Schymik and Jan Tscheke Topic: Global Economics & Governance Date: July 14, 2015
Read article More on this topic More by this author

Blog Post

Georg Zachmann

Kosten uns die Russland-Sanktionen wirklich 2 Millionen Jobs?

Vor zwei Wochen hat ein Bericht des Österreichischen Institut für Wirtschaftsforschung (WIFO) zur Wirkung der Russland-Sanktionen auf die europäische Wirtschaft eine hohe mediale Aufmerksamkeit erzielt. Es ist nun möglich, Medienberichte und die Studie zu vergleichen, und die der Studie zugrundeliegende Methodik zu hinterfragen. Haben die Ökonomen in Wien  die Auswirkungen der EU-Maßnahmen auf Handel, Wachstum und Beschäftigung übertreiben?

By: Georg Zachmann Topic: Global Economics & Governance Date: July 14, 2015
Read article More on this topic More by this author

Blog Post

Jérémie Cohen-Setton

Restructuring in the US currency union

On June 28, the governor of the Commonwealth territory announced that it would not be able to repay its debt. Puerto Rico has since asked Congress to change the law to make the tools that U.S. municipalities can use to restructure their debt through Chapter 9 available to its territory. 

By: Jérémie Cohen-Setton Topic: Global Economics & Governance Date: July 12, 2015
Load more posts