EU-China solar trade war “casting a shadow” over Doha talks

A year-long trade battle has badly damaged both China’s solar photovoltaics (PV) industry and the EU’s solar panel supply chains, casting a shadow on the ongoing UN climate talks.

The solar photovoltaics (PV) industry has taken off over the last decade. In 2010, more solar PV capacity was installed in the EU than new wind power – a historical moment.

And it is cheap and reliable solar cells imported from China, which have spurred that rapid growth, by quickly bringing down the costs of solar power in countries such as Germany.

The EU’s request for an investigation into the export or “dumping” of below market price solar products from China, goes against the EU’s own overall interests. The EU, as shown by Germany, is entering an era of commercially viable solar power. But without cheap Chinese products, the cost of end-user solar installations will rocket. This will impact on those purchasing the electricity and delay EU nations from hitting their renewable energy targets.

Although the move may bring about an extra 10,000 jobs in EU firms in the middle of the supply chain, according to reports, the impact on upstream and downstream EU firms – through reduced exports of equipment and silicon and other raw materials, and the increased costs of building solar power stations – may result in the loss of 300,000 jobs.

There have long been trade wars fought over allegations of dumping. However, as Mustapha Jallab from the UN Economic Commission for Africa, has argued, investigations are not always launched to oppose unfair trade – often the motive is to prevent competition.

Of all the anti-dumping investigations instigated by the EU between 1998 and 2001, the economic basis of more than two-thirds of decisions are questionable, suggests Jallab. Some investigations are merely retaliatory.

The link between trade frictions and the state of the solar power industry in the EU, as shown in Figure 1, can provide some illumination: In 2007 and 2008 the EU manufactured roughly as much solar capacity as China. But in 2009, as market growth slowed and China’s output grew quickly, EU protectionism started to rear its head, with calls for an investigation. In 2010, the market was stronger and business was good for all, but by 2011 things had changed and again there were calls in the EU for an anti-dumping investigation.

Assuming a stable market size, trade wars are a zero-sum game between importers and exporters – but the consumers always lose.

The use of WTO mechanisms to challenge state support for renewable energy is a common example of the clash between trade rules and climate governance. For example in 2010 and 2011 Japan and the EU brought a case against rules under Ontario’s green energy law; Japan also complained about Ontario’s policy on prices paid for electricity from renewable sources; while the US brought a case against China’s funding for wind power.

Recently the relationship between trade mechanisms and climate governance has again been demonstrated by the EU-China frictions over PV solar panels. In trade terms, the dispute is nothing unusual. But when considered in a climate change context, it is not just consumers that lose out – the common global interests of climate protection are at stake.

Although there are sometimes conflicts between the aims of free trade and climate protection – for example over green trade barriers such as carbon tariffs – both are closely aligned when it comes to renewable energy. If we are to realise global climate governance, to improve the goals of the international trade system, and to promote sustainable development, a series of issues arising from the relationship between climate change and trade need to be resolved at the system level.

In climate negotiations, the stance of the EU and China on climate protection and their levels of mutual trust are crucial. New scientific evidence continues to confirm a link between human carbon emissions and the rising temperature of the planet – but negotiations have not kept pace with the science, and have even fallen far behind.

International climate change negotiations have been at an ebb since the farce of Copenhagen, with little progress and greater uncertainty. Political and economic changes – including new leaderships in key nations and global economic and financial recession – have made progress more problematic.

At COP17 in Durban last year consensus was reached on a post-2020 climate mechanism, providing a new opportunity for action. International influence and the size of both emissions and economy mean that the US, EU and the BASIC (Brazil, South Africa, India and China) bloc of nations will determine the ideology, scope and effectiveness of future climate change mechanisms.

As the domestic politics of the US mean there is unlikely to be any change in that country’s stance in the coming years, the responsibility for establishing that new system falls to the EU and the BASIC nations. Within the BASIC nations, China’s economy and role as a mediator give it a crucial role. This all means that China-EU relations are absolutely crucial for international climate negotiations.

Climate negotiations

Both China and the EU have repeatedly said they will play a constructive role in establishing a good climate regime, and both have taken strong domestic action on combatting climate change. The renewable energy industry is a good example of this, with both China and the EU having played a leading role in development of the industry globally.

At the same time it is necessary and possible for the two to be closer during negotiations – but little hope of this happening. The current dispute over solar cells is one example of protectionism worsening disagreements and resulting in a loss of trust and goodwill.

Better global climate and trade governance needs positive dialogue between China and the EU, with stronger communication and cooperation at the government, business and civil society levels, discussion and resolution of disagreements, and a firm grasp of the global climate change issue, a long-term, urgent and common goal.

The Joint Press Communique from the 15th EU-China Summit sent a clear signal on a stronger strategic partnership and cooperation on trade, climate change, energy and innovation. Both parties agree open trade, investment in the environment, and opposition to all forms of protectionism are vital for an economic recovery. They stressed international cooperation to respond to climate change, and agreed to further policy dialogue and practical cooperation under the China-EU Partnership on Climate Change framework.

However, the summit did not pay enough attention to the crossover of trade with climate and energy issues. We believe that there is an urgent need to establish a working group on renewable energy and trade, within the framework of high-level talks on energy and the economy, to discuss and agree on mechanisms for negotiation on WTO disputes. That process should allow for participation of interested parties from both China and the EU, in search of a win-win solution.