July 29, 2013 12:51PM

China–EU Solar Trade Agreement Shuffles Winners and Losers

The European Union has recently agreed to drop antidumping duties on Chinese solar panels and replace them with a voluntary “price undertaking.” In effect, Chinese manufacturers can avoid punitive tariffs if they promise not to sell their products at overly competitve prices. The scheme does not liberalize trade in solar panels or even further a green energy policy agenda. It merely shifts government privilege from one group of special interests to another.

The international solar panel market is a big fat mess. Governments spend billions of dollars in subsidies to make solar panels cheaper and then turn around and impose trade barriers to make them more expensive. Europe imported over $27 billion dollars of solar panels from China last year despite a global epidemic of Solyndra‐​style bankruptcies.

The negotiating dynamic that brought about the current minimum price deal between Europe and China aptly shows just how incoherent solar policy really is and reveals a lot about who the winners and losers are here.

Despite being home to much of Europe’s solar manufacturing, the German government was opposed to any action against Chinese solar panels. As the New York Times reports:

Chancellor Angela Merkel of Germany opposed the trade case from the very beginning, saying that it would be preferable to continue talking with Chinese officials about the issue. Solar panel manufacturers in Germany tend to be independent companies that are not part of the country’s big industrial powerhouses like Volkswagen or BASF.

Germany has had far more success in exporting to China than any other European country, particularly in shipments of factory equipment, and Ms. Merkel has sought to cultivate a special relationship with Beijing. Most big German companies were unenthusiastic about the trade case, fearing that it could lead to a broader trade war that might hurt German exports.

Germany decided which domestic companies it would go to bat for and the solar manufacturers didn’t make the cut. 

Along a similar vein, the agreement has interesting implications for the Chinese industry:

Customers are only likely to pay the new minimum price of 56 euro cents per watt for the highest‐​quality solar panels with the best warranties, giving an advantage to the largest Chinese manufacturers. That is consistent with the Chinese government’s goal of thinning its nation’s solar panel industry to produce a few world‐​leading companies that can set high, profitable prices.

So the agreement benefits large Chinese manufacturers at the expense of smaller ones. But, smaller Chinese companies aren’t left entirely out in the cold:

Out of 140 Chinese solar panel exporters, 50 refused to accept the minimum price, which means that they will face a prohibitive 47.6 percent tariff on any further shipments to the European Union. Since the United States Commerce Department imposed tariffs totaling only 31 percent last spring, the European Union’s settlement could send another wave of extremely low‐​priced Chinese solar panels without warranties toward the United States instead.

Whether you find the idea of cheap solar panels in the United States appealing or appalling, I advise you not to get too excited. The U.S. Trade Representative is also very interested in turning protectionist U.S. antidumping duties into a lobbyist driven price control scheme.

It’s all for the good of the environment, I’m sure.