China, Europe share the same value chain of pv products; should agree on optimum division

At least 18 EU member states voted against the European Commission's proposal of a preliminary 47.6 percent tariff rate on photovoltaic imports from China, to start on June 6. This proves that the EU tariffs on Chinese PV products will hurt not only China, but also the EU economy.

Premier Li Keqiang, who was in Europe this week, has made it clear that China opposes the EU's anti-dumping tariffs on Chinese PV products. The China Chamber of Commerce for Machinery and Electronic Products Imports and Exports dispatched a group to Brussels in a final effort at conciliation, with a commitment on the quantity and minimum price levels of Chinese PV exports to the EU. But the EU Commission rejected the proposals.

The way the commission has approached the issue of Chinese PV products and anti-dumping and countervailing duties has been wrong in several ways. It has not published a full list of the complainant companies and their share of the EU PV manufacturing, nor has it publicized a questionnaire regarding Indian companies (the reference country, as China is not regarded as a market economy), which violates World Trade Organization rules.

The EU's claims of Chinese PV subsidies are also dubious because its member states greatly subsidize their PV sectors as well.

More importantly, Chinese PV products shipped to the EU are in fact a mix of both Chinese and EU components and process, or they share the same value chain. China imports polycrystalline silicon and PV manufacturing equipment from the EU, makes PV cells and modules, then ships them to the EU for final assembly and installation, distribution and service.

If EU anti-dumping and countervailing duties measures are applied, they will hit Chinese PV products exported to the EU, which were worth $21 billion (16 billion euros) in 2011, and involving 400,000 jobs in China. On the other hand, the import of PV modules accounts for only 30 percent of the whole EU PV value chain, with the rest created in the EU by importers, wholesalers and retailers, and installation and maintenance and service companies. If hefty duties are imposed on Chinese PV imports, only 30 percent of the value chain may be protected (or may not, because other suppliers from Japan and South Korea will fill the gap) at the cost of the remaining 70 percent.

Prognos, a Swiss research institute, estimated in a recent study that the anti-dumping and countervailing duties measures on Chinese PV products will result in between 115,600 and 240,000 jobs being lost in EU countries, and a loss of between 4.74 billion euros and 27 billion euros. The Alliance of Affordable Solar Energy sent a letter to the EU trade commissioner on April 8 with 1,024 signatures expressing strong opposition.

EUProSun, the European PV manufacturers alliance that applied to the EU Commission last year for anti-dumping and countervailing duties measures against the Chinese, has said the action will create jobs, but there is no evidence supporting that.

I experienced the Bush administration's steel imports surcharge in 2002 when I was the economic and commercial counselor at the Chinese Consulate General in New York. As the surcharge was in direct violation of WTO rules, the EU, Russia, Japan, South Korea and China sued the WTO, with the latter ruling against the US.

However, equally important, this action aroused vehement opposition in the US as well. Delaware Port Authority said restricting steel imports would lead to more than 10,000 job losses in that port, only to save 7,000 jobs at US Steel, AK Steel and others. The surcharge also pushed up steel sheet prices in the US and forced a 10 percent price rise on downstream auto makers, resulting in more job losses and consumer complaints. The Bush administration later had to revoke the decision.

At present the position of some EU member states on the issue is unclear. Britain and Sweden have announced opposition to the measures. Germany, the EU's largest economy and Solarworld's home country, is in a difficult position. The German Chancellor, Angela Merkel, has indicated that she favors negotiation. Phillip Rosler, the deputy chancellor and economic minister, has called the action a serious mistake. BDI, the German Federation of Industries, and BGA, the German Federation of Importers and Wholesalers, have also stated their opposition. Under EU rules, 15 votes need to be cast against the proposed measures for them to die.

However, the European Commission is empowered to post this preliminary duty even with majority member states voting against it. The vote only binds on it in the final decision in December. However, even if the commission takes the action, it will also fail when they come to the final decision in six months. Then what is the point of the preliminary duty?

The thinking is that there could be a trade-off with China, for more benefits in other sectors, including Chinese market access in telecommunications and finance. The commission came out with a new proposal for initiating a EU-China bilateral investment agreement just a few days ago. It seems in no hurry to compromise with China on the PV case, leaving it to the final ruling in December, bargaining with China for other benefits over the next six months, with the Chinese PV products as a hostage.

But the commission's way simply will not work. China will take counter measures in the anti-dumping case on EU polycrystalline silicon and other related products. The preliminary duty, if applied on June 6, will result in 100,000 job losses in the EU by December, aggravating its economic recession.

The EU commission needs to adopt a long-term view on PV trade. Solar energy for power and heating has a huge, boundless future in the EU, and indeed the world. The International Energy Agency says alternative energy, including solar, accounted for only 0.9 percent of total world energy supply in 2010. By 2060 solar energy alone may account for one third of world energy supply. In theory, 60 minutes of sunshine on earth could satisfy world energy needs for a whole year.

It is with this prospect in mind that many countries are stepping up PV and concentrated solar power production. The EU has envisaged 20 percent of its total energy supply being alternative energy, compared with 12.7 percent at present. That immense potential for growth should be incentive enough for China and Europe to work together.

Moreover, exports to China from the EU, hit by the prolonged economic downturn due to the debt crisis, have fallen for the past 16 months. With sustained fast economic growth, China will offer the world import markets opportunities worth more than $10 trillion over the next five years. The EU should not risk losing that vast opportunity.

China and the EU share the same value chain of PV production and application. Both sides should reach an optimum division in this chain. China will commit to a certain quantity and minimum price levels in its PV products sales to the EU.

Explosive growth in exports and falls in prices at the same time, as has occurred in the past, is unlikely to be repeated.

For its part, the EU should upgrade its competitiveness in PV manufacturing and support China's investment in the EU PV sector, ranging from new products and solutions research and development, manufacturing and distribution, to be complemented by imports from China, and create new markets in Europe and third countries, so as to help meet the goal of alternative energy accounting for 20 percent of energy use by 2020.

China should also encourage EU PV investment in China, and involvement in improving state grid mechanism facilitating the application of solar power in the country.

Consultation should continue even if the temporary 47.6 percent duty is imposed. While taking reasonable counteractions, China should insist on dialogue with the EU Commission, EU member states and businesses, convincing them that finding a solution to this issue is in everyone's interest.

The author is co-director of China-US-EU Study Center of the China Association of International Trade. The views do not necessarily reflect those of China Daily.

(China Daily European Weekly 05/31/2013 page12)