China Won't Impose Tariffs On EU Polysilicon: Solar Trade Tensions Cool

Includes: CSIQ, TSL
by: Doug Young

After months of heated rhetoric, the voice of reason is growing between Europe and China as they seek to end their dispute over Beijing's state support for its solar panel sector. In the latest sign that a potential agreement to resolve the dispute could be near, Beijing has decided not to levy punitive tariffs against European polysilicon, the main ingredient used in making solar panels. Many had seen China's launch of an anti-dumping investigation into European and U.S. polycilicon imports last year as a retaliatory move for similar U.S. and European investigations into Chinese solar panels.

Of course, the big question now is whether this positive move by Beijing will be followed by the more important step that will see an agreement to end EU punitive tariffs that took effect in June. The signing of such an agreement could also pave the way for talks between the U.S. and China, which could reach their own deal to end similar punitive tariffs.

The latest media reports cite a German government official saying that China won't impose punitive tariffs on European polysilicon, at least not for now. China had opened the investigation into European polysilicon last October. The wording used by the official from Germany's Economy Ministry seems a bit unusual, since she doesn't say the polysilicon dispute has actually been resolved permanently. That seems to imply that if the two sides don't reach a deal on the broader solar panel issue, then perhaps China could reopen its investigation into European polysilicon.

This latest move by Beijing comes as media have reported that China and the EU are close to such a broader deal that would end the dispute. According to those reports, such a deal would see Chinese solar panel makers agree to a minimum price for their products above their production costs. The two sides opened their negotiations two weeks ago, following more than a year of acrimony between China and both the U.S. and Europe. Western governments accuse China of unfairly supporting its solar panel makers through measures like tax rebates and cheap loans, which has undercut many of their North American and European rivals.

Beijing denies providing such unfair support, and has launched a number of its own retaliatory probes in response to the U.S. and European tariffs. In addition the probe against polysilicon makers, China has also recently launched an investigation into unfair support for European wine makers (see previous article), and is reportedly considering another investigation into European luxury cars.

These latest reports indicate that after the months of angry rhetoric, both sides are finally realizing that the developing series of trade wars would benefit nobody and could deal a serious blow to the important alternative energy sector. It appears as if both sides agree that the solution for now is for Chinese panel makers like Trina Solar (NYSE:TSL) and Canadian Solar (NASDAQ:CSIQ) to raise their prices to levels that would be more comparable with rivals in Europe and North America.

More long term, Beijing should work with local governments to try to end strong state support policies that are common in China and often result in this kind of global trade dispute. I do expect that we'll probably see a resolution to the current conflict in the next few weeks, and that China could quickly drop its wine investigation after that. If Beijing is smart, it will take advantage of momentum from such positive developments to open similar negotiations with Washington to try and end the U.S. punitive tariffs. If all goes well, perhaps we could see all of these solar disputes resolved by the end of the year, allowing everyone to return to the more important business of developing alternate energy sources to traditional fossil fuels.

Bottom line: Beijing's dropping of a probe against European polysilicon is the latest sign of progress in the two sides' talks to end their solar panel dispute.

This article was first published on as "China Won't Impose Tariffs On EU Polysilicon: Solar Trade Tensions Cool."