The German and Chinese heads of state called for a truce Sunday on a festering trade row over solar panels.
China is accused of flooding Europe with underpriced photovoltaics that undermine its domestic manufacturers – a problem German Chancellor Angela Merkel says can be resolved with a negotiated settlement instead of punitive tariffs.
The dynamic is playing out elsewhere in the world as China asserts itself as a global leader in photovoltaic manufacturing. The United States, the European Union, and other nations have grappled with how to capitalize on the benefits of cheap Chinese solar panels while still protecting the interests of domestic manufacturers.
Companies in mainland China and Taiwan made up 61 percent of global solar photovoltaics production in 2011, up from 50 percent in 2010, according to Ren21, a Paris-based renewable energy policy firm. Europe’s share of the market dropped to 14 percent in 2011 while the US made up only 4 percent.
The boom in China's solar production has led to a dramatic drop in the price of photovoltaics – helping to boost growth in solar installation in many parts of the world. The US saw solar installations grow by 76 percent in 2012, according to the Solar Energy Industries Association, a Washington-based trade association.
Not everybody is happy with the price drop. In 2011, several major US solar manufacturers filed a trade complaint, accusing the Chinese government of subsidizing Chinese manufacturers to "dump" cheap solar panels into the US market. A year later the US imposed tariffs of some 24 to 36 percent on most Chinese solar panels.
Facing similar trade pressure, the European Union's executive body has proposed tariffs averaging 47 percent on Chinese solar panels. But on Sunday, German Chancellor Angela Merkel came out against that plan.
“Germany will use its influence to ensure that very intensive talks are held, that it doesn’t come to permanent import tariffs,” Ms. Merkel said during a news conference with Chinese Premier Li Keqiang in Berlin, as reported by The Wall Street Journal. “I will get involved to make sure that soon there are intensive negotiations with the Chinese side about all upcoming questions.”
Merkel is not the only one hoping for a settlement with China. Germany, Britain, and the Netherlands are among at least 14 EU member states opposing the tariffs, diplomats told Reuters. The fear is that China would respond with tariffs of its own, putting a crimp on European exports.
An international group of solar industry trade associations has also called for a settlement. The Solar Energy Industries Association, the Asia PV Industry Association, and other groups signed an agreement in Shanghai last week encouraging the US, China, the EU and other nations to engage in multilateral trade negotiations.
“There is clear evidence that disputes within one segment of the industry affect the entire solar supply chain," John Smirnow, vice president of trade and competitiveness for SEIA, said in a statement. "What’s more, they cause a ripple effect throughout the economies of the United States, Asia and Europe. In addition to resolving current disagreements, we hope this process will also lead to the creation of a pro-competitive, collaborative framework for preventing future trade conflicts and ensuring the adoption of balanced and equitable agreements in the future."
In March, China's photovoltaic industry showed signs of stress when China-based Suntech Power Holdings, one of the world's largest solar-panel manufacturers, filed for bankruptcy after defaulting on $541 million in bonds. The collapse was part of a larger consolidation of the oversupplied global photovoltaic market, but US tariffs likely played a role.
The European Commission has until June 6 to decide whether to go forward with temporary tariffs, which it can do without the support of member states. Permanent tariffs require the approval of a majority of EU member states. The EU's trade chief Karel De Gucht of Brussels has led the push for tariffs, with support from France, Italy, and other nations.