Grumbling All Around After Solar Panel Deal

http://www.nytimes.com/2013/07/29/business/global/grumbling-all-around-after-solar-panel-deal.html

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HONG KONG — China’s victory over the weekend in its solar panel dispute with the European Commission has exposed glaring gaps in European unity on trade issues. And it casts a harsh light on the prospects for the United States and Europe to cooperate on trade policy.

On Saturday trade officials for Europe said they had reached a settlement over exports of low-cost solar panels that set a minimum price for sales of Chinese panels in the European Union. The agreement staved off punishingly high tariffs that the European trade commissioner, Karel De Gucht, had threatened to impose, beginning early next month.

But though Mr. De Gucht described it on Saturday as “an amicable solution,” very few others seem happy about the outcome.

The case underscores the difficulties of hammering out trade accords in an increasingly global marketplace, when even the parties on the same side of the bargaining table may have conflicting goals and agendas.

European makers of solar panels were furious at what they considered a capitulation to China and vowed to sue the European Commission to void the deal. The agreement sets a minimum price for Chinese panels of €0.56, or $0.74, per watt. That is actually 25 percent lower than what the products were selling for last year when the industry complained to the commission that the Chinese makers, heavily subsidized by state-owned banks, were dumping them on the market at prices below their actual cost.

The European settlement also undermined Obama administration officials, who have taken a tough stance toward China on solar trade and have been trying for several months to persuade European leaders to side with them. Nearly a dozen U.S. makers of solar panels have gone bankrupt or closed factories, unable to compete with low-cost Chinese imports.

The Obama administration issued a thinly veiled criticism late Saturday afternoon of Europe’s decision to cut its own deal. “We believe there needs to be a global solution, consistent with our trade laws, that creates stability and certainty in the various components of the solar sector,” Michael Froman, the U.S. trade representative, said in a statement.

The European Union’s retreat on solar panel trade with China could make it much harder for the United States to negotiate a trans-Atlantic trade agreement with Europe, for which talks began this month. The European Commission is supposed to negotiate on behalf of all member countries. But in the solar case, it was pressure from Germany that derailed Mr. De Gucht’s tariff plans. That suggests that individual countries in Europe may also have the power to undo any concessions that Brussels might make in the complex bargaining needed for a broad U.S.-Europe trade agreement.

Even among the dozens of companies in China that make solar panels, the deal will be divisive. It is likely to benefit only the few big players, like Trina, that can compete globally on the quality of their products and the warranties they can afford to offer, while making things even more difficult for the many more smaller, struggling companies with little to distinguish themselves other than low prices they will no longer be able to legally offer to European customers.

China has captured close to 80 percent of the European market for solar panels over the past several years, with exports reaching $27 billion in 2011, before the trade battle began. Industry executives expect China’s market share to fall to between 60 and 70 percent as a result of the deal struck Saturday.

The politics of the solar trade case within Europe had been highly unusual from the start. In most European trade cases against an imported product, the main country in Europe that makes the same product will push for protection from subsidized imports. Other European countries, meanwhile, tend to like the low-cost imports and are less enthusiastic about imposing tariffs.

For solar panels, many of the main European manufacturers are German. As China expanded its solar panel industry from almost nothing in 2007 to more than two-thirds of world production by last year, financed by big low-interest loans from state-owned banks and other incentives from government agencies, Germany’s solar industry crumbled.

EU ProSun, the industry coalition that persuaded Brussels to start its trade case a year ago and is now promising to sue the European Commission for settling the case for so little, is led by SolarWorld of Germany. According to the group, two-thirds of the 15,000 solar jobs already lost in Europe have been in Germany.

But from the outset the German government opposed confronting China on solar panel exports. Solar panel makers in Germany tend to be independent companies, in contrast to the country’s big industrial powerhouses like Volkswagen or BASF.

Chancellor Angela Merkel, fearing Chinese retaliation that could harm the many big German companies doing a brisk export business to China, urged Brussels to discuss its solar differences with Beijing rather than resort to the threat of high tariffs. Most big German manufacturers were equally unenthusiastic about the solar trade case.

“A tit-for-tat policy will more destabilize than help us,” Martin Brudermüller, vice chairman of the German chemicals giant BASF, said at a news conference in Hong Kong last month.

Mr. De Gucht, the European trade commissioner, filed the case last September anyway, after trade analysts in Brussels concluded that China’s support for solar panel exports had been particularly blatant.

In the months that followed, the German government not only opposed the case but rallied other European governments to do so. China helped Germany do so by threatening to impose tariffs on imports of European wine if the European Commission levied the solar tariffs — a warning that appalled France.

There is also the fact that within the larger scheme of international trade, solar panels are not widely seen as vital products.

It is true that inexpensive solar panels from China have helped the solar industry survive cutbacks of subsidies by cash-strapped governments in the West that had initially encouraged consumers to adopt solar energy. But the pricing effect has been a relatively small factor, because solar panels in a solar-energy system now account for as little as one-sixth of the total cost. Permits and installation charges represent most of the rest of the cost of a solar system, and those have stayed high.

Solar power still accounts for only 0.25 percent of electricity generated in the United States and only somewhat more in Europe. It had grown rapidly over the past decade, before flattening last year and this year as government subsidies have dwindled.

If anything, the European Commission’s deal with China could now result in even more cheap panels flooding into the United States, if anyone is willing to buy them.

Out of 140 Chinese solar panel exporters, 50 refused to accept the European Commission’s minimum price, industry executives said. That means they can either not sell the panels in Europe, or do so and incur the prohibitive 47.6 percent tariff that Mr. De Gucht has set.

That would be far higher than the 30 percent tariffs the U.S. Commerce Department imposed in the spring, after determining that the Chinese industry was subsidizing and dumping its panels in violation of World Trade Organization rules.

“The terms may be set with the E.U., but we all know that China’s excess production will continue to be targeted at other markets — the U.S. and elsewhere,” said Michael Wessel, a longtime trade lawyer in Washington who has advised the United Steelworkers union on solar panels. “Rather than abide by the terms of its W.T.O. commitments, once again, China has bullied others into submission.”