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One good option for avoiding solar trade war
The European Union, United States and China are most likely to resolve a multi-billion dollar trade dispute over solar power equipment by agreeing on a floor price for Chinese products.
The EU’s executive Commission and the United States Department of Commerce have said that China is selling solar panels and components at far below fair market values and pushing European and U.S. companies into insolvency. Chinese sales to both regions exceeded $30 billion in 2011.
They say the alleged dumping is a result of massive Chinese over-capacity, which is a result of a government-supported investment boom.
The first evidence emerged last week that trilateral talks were proceeding, at least informally.
The United States announced at the end of last year that it would impose anti-dumping and anti-subsidy (or countervailing) duties on Chinese solar modules and cells.
The European Commission is one step behind with the introduction last week of provisional anti-dumping duties on Chinese modules, cells and wafers, and the rate will rise dramatically from Aug. 6.
The Commission is also due to decide on provisional countervailing duties by Aug. 5. These provisional duties are collected only if tariffs are subsequently made definitive and can be back-dated by three months.
EU member states will have to make a definitive decision on both types of tariffs by Dec. 5. If EU countries support definitive tariffs, they would then be implemented for up to five years.
But their likely decision is unclear. Most EU member states, led by Britain and Germany, currently oppose the tariffs, trade diplomats said, due to fears of Chinese reprisals.
The price impact of duties will be considerable.
The average wholesale price for Chinese solar panels is around $0.70 per watt, as reported by module makers.
The United States has imposed final anti-dumping tariffs of around 30 percent on major producers and countervailing tariffs of around 15 percent.
The EU has applied an average provisional anti-dumping tariff from August of 47.6 percent.
The implication is that Chinese imports will be nearly half as expensive again, effectively returning prices to 2011 levels. Average module prices charged by top Chinese producers fell 46 percent last year, manufacturer data show.
Solar panels account for less than half the full installed cost of projects, implying that the overall cost for those who use Chinese panels could rise by nearly a quarter.
There are several ways to mitigate higher prices.
Installers can absorb some of the extra cost, sacrificing their profit margins to maintain demand, and can obtain solar panels from other exporters or from expanded domestic production.
Chinese exporters may avoid U.S. duties through a convoluted outsourcing of part of the supply chain, called a tolling arrangement. The exporter makes solar wafers in China, then pays a producer in another country to make these into solar cells, which it ships back into China for final assembly into solar panels for export.
“Modules, laminates, and panels produced in China from cells produced in a third-country are not covered by these investigations,” the U.S. Department of Commerce said last October.
The EU duties have a wider scope, applying to all imports of solar modules, cells and wafers from China, with no reference to such third-country exceptions.
A more long-term solution is a negotiated settlement.
Talks have started, informally at least, according to Mike Froman, a White House international economic affairs adviser who spoke at a Senate hearing on his nomination to be U.S. trade representative.
“There have been some initial discussions with both the European market and China about how to deal with this on a global basis,” he said on June 6.
The European Commission, when
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