​EC neo-protectionism threatens European producers and consumers

Jodie Keane and Sheila Page
7 August 2013
Comment

Globalisation is in a process of transition. Five years after the global financial crisis erupted, some areas of ‘globalisation management’ – notably the financial sector – have been closely scrutinised, resulting in new regulation. Institutions like the World Trade Organization (WTO), and the global trading system more broadly, have received praise for helping to avoid the same degree of protectionism that undermined global efforts to recover from the great depression of the 1930s.

However, some regimes are still following pre-crisis-era agendas. The recent decision of the European Commission (EC) to apply temporary anti-dumping duties on imported solar panels produced in China is a case in point – and one that has adversely affected EU producers and consumers. Covering EU imports of crystalline silicon photovoltaic modules or panels, and the cells and wafers used inside them (shipments valued at EUR21 billion – $27.4 bn – in 2011), it weakens efforts to mitigate climate change in Europe through the use of the best available (and lowest cost) technology to produce solar energy. And it furthers sours trading relations with a major world trader at a time when multilateralism remains within crisis.

So why would the EC do this?

China is the world's largest producer of solar panels, and the recent case against these products is the biggest ever undertaken by the EC – although the first complaint was raised by a German company, Solarworld. The measures fall under the category of ‘anti-dumping duties’ – trade defence measures, which are allowed by the EU, so long as sufficient evidence of the following elements have been proven:

(i) product dumping (i.e. the selling of imported stock at a lower price than it could be sold for in the exporting country – or at below cost price);

(ii) a material prejudice against the importing country's industry in that product;

(iii) a causal link between the dumped imports and the harm caused to the industry; and

(iv) anti-dumping measures must not be against the European Community interest.

As a result of its investigations into the pricing of Chinese exports, the EC subjected imports of Chinese solar products to a punitive duty of 11.8% until 6 August 2013. After that, the duty would have been raised to 47.6%, if a provisional agreement had not been reached through negotiations. The EC investigation found ‘material injury’ as a result of dumped imports from China; namely, it estimated that up to 25,000 jobs in EU solar production were likely to be lost without the extra duties. The European Trade Commissioner, Karel De Gucht, has stated that the measures will give ‘life-saving oxygen to a business sector in Europe that is suffering badly from this dumping’.

Is this job-loss scare valid?

A number of European photovoltaic companies are concerned that the anti-dumping decision made by the EC was reached on a sample of only seven companies. Those concerned responded in Brussels at a hearing organised by the Alliance for Affordable Solar Energy (AFASE), which represents over 740 companies in Europe. The resultant job losses estimated by the AFASE from the imposition of the measure could be as high as 65,000 – considerably more than the number assumed to be protected by the EC as a result of its intervention. Other independent studies have estimated numbers to be much higher: up to 240,000 jobs should the higher duty have been approved by the European Council. In addition, China could retaliate with its own duties; if retaliation had gone ahead in this instance, more European jobs would have been lost.

Or is the motivation to put pressure on China? 

The majority of firms operating within the solar panel sector – and the majority of EU member states, including Germany – opposed or questioned the anti-dumping measures, calling into debate how far they are actually in the ‘European Community interest’, as required in the rulebook. But what rules specifically? Commissioner De Gucht stated quite clearly that the AD actions are not about protection, but rather ‘about ensuring international trade rules also apply to Chinese companies’, which is problematic, given that the EU considers China to be a non-market-economy.

In response to the strong opposition – and pressure from the European Parliament – the European Commission has decided not to impose provisional duties. A trade compromise has been reached that will allow China to continue to access the European market for solar supplies at an agreed minimum price – at least until December, when the final decision will be made by the EC. This decision could remain in place for up to five years. The risk of retaliatory measures by China may have been averted temporarily, but it is clear that damage has already been done to EU industry, to the EU’s energy policy, to relations with a major trader and to the global economy, which is now deeply connected through trade and investment ties.

There remain other concerns: the compromise reached in the settlement in effect amounts to a form of voluntary export restraint: ‘price undertaking’ means that Chinese companies agree to a minimum price for their product to avoid an anti-dumping duty. This represents a step backwards and a return to the type of protection used in the 1970s, which has all of the negative effects of the initially proposed anti-dumping measures (such as loss of efficiency, high prices, anti-green credentials, and antagonising China), but not the extra tax revenue that would have resulted.

The EC seems increasingly to be choosing a more protectionist stance over trade policy, which will hamper the global economy and the economies of developing countries. Although transparency has been termed the ‘best insurance policy against protectionism’ by the WTO Director Pascal Lamy, the approach of the EC Directorate General on trade has not seemed to heed this advice.

As the EU-China case shows, within an already tense global arena, the credibility of the rules and the practice of anti-dumping measures need to be reassessed at the trade negotiation table. The risk, if not, is that the rule-making, enforcement and supervisory role of the WTO – which is vital for influencing 21st-century trading patterns in development-friendly ways – could be undermined.

Jodie Keane and Sheila Page