China Launches Solar Case Against EU at WTO

7 November 2012

China has filed a WTO complaint over local content requirements under renewable energy feed-in-tariff programmes in certain EU member states, officials announced earlier this week. The surprise move comes just days after Beijing launched anti-dumping and countervailing duty investigations domestically over EU exports of solar polysilicon components to the Chinese market.

On the Chinese Ministry of Commerce website, ministry spokesperson Shen Danyang said that the People's Republic had requested consultations with the EU and certain member states - including but not limited to Italy and Greece - under the WTO's dispute settlement proceedings regarding allegedly unfair EU trade practices in the solar sector. According to Shen, electricity produced by EU-made solar components benefited from favourable feed-in tariffs in some countries, which in turn hurt the interests of Chinese producers locked out from such subsidies.

Along with citing the WTO's Agreement on Subsidies and Countervailing Measures, China's consultations request also claims that the measures at issue are inconsistent with the General Agreement on Tariffs and Trade (GATT) and the Agreement on Trade-Related Investment Measures (TRIMS).

Notably, the complaint shows similarities with an earlier WTO challenge filed by the EU and Japan against local content requirements in a renewables feed-in tariff scheme in the Canadian province of Ontario. Sources told BioRes last month that a confidential interim report showed that the WTO panel has sided with the EU and Japan in its ruling. (See Bridges Trade BioRes, 15 October 2012)

The EU will now have 60 days to respond to China's request for consultations; should the two sides not reach an agreement in that time, Beijing will have the right to officially request the establishment of a dispute panel to review the case. The consultations request was not publicly available as Bridges went to press on Wednesday evening.

Competition in the solar sector is fierce, and profits have dropped sharply at a time when green subsidies are being cut back. The 40 percent drop in the global price of solar panels between 2006 and 2011 has largely been attributed to huge growth in Chinese solar panel production. Some analysts say that oversupply by Chinese solar panel manufacturers is to blame for damage to profits of their European and US counterparts, with share prices experiencing a similar plunge. In 2011, China exported 60 percent of its solar products to the EU, which represented seven percent of China's overall exports to the trade bloc.

China responds to EU with apparent tit-for-tat

Over the last few years, solar producers in the EU and US have accused China of unfair trade measures in order to let the sector grow, and both the EU and US have launched anti-dumping and - in Washington's case, also anti-subsidy - investigations against Chinese imports. The practice of "dumping" involves companies selling their products abroad at prices below their fair value, causing harm to the domestic industry of the importing country.

In October, the US Commerce Department announced final duties on imports of Chinese solar cells, following a year of investigations. (See Bridges Weekly, 10 October 2012) The US International Trade Commission voted earlier today in favour of applying the anti-dumping and anti-subsidy duties determined by Commerce, which range from 18.32 percent and 249.96 percent in the case of the former and 15.78 to 15.97 percent for the latter.

In September, the European Commission launched similar investigations into allegations of Chinese solar panel manufacturers benefiting from illegal subsidies and dumping their products onto the EU market, with a ruling expected in late 2013. (See Bridges Weekly, 12 September 2012)

On Thursday of last week, China's Ministry of Commerce (MOFCOM) announced that it was launching its own anti-dumping and anti-subsidy investigations focusing on solar-grade polysilicon, a key component of solar panels, from the EU. Among the companies requesting the probe were Jiangxi LDK PV Silicon Technology Co., China Silicon Corp, Jiangsu Zhongneng Polysilicon Technology Development Co., and Daqo New Energy Corp. Reportedly, polysilicon production has fallen by 25 percent while imports have grown by 30 percent, and only a fraction of the 43 manufacturers in China were operating in 2012.

"The announcement is more a response to the EU probe and the result will be highly dependent," cautioned Wang Xiaoting of Bloomberg New Energy Finance in Beijing. "If tariffs are imposed on the US and EU imports, the entire downstream of Chinese photovoltaic manufacturing will face a more difficult situation."

China's current investigations of EU exports will be processed together with similar anti-dumping and countervailing duty probes into US and Korean exports to the country, "to evaluate the accumulated impact of products from the three regions," according to MOFCOM. The previous cases were launched in July, and the probe is expected to finish by the beginning of November 2013 with the possibility of a six-month extension.

Greater focus on domestic market in China?

Besides the WTO complaint and MOFCOM anti-dumping and countervailing duty investigations, China has recently chosen to boost its internal market for photovoltaic technology by improving conditions to connect to the national grid. Until now, the Chinese solar sector has been highly export-oriented.

According to Chinese state-owned news agency Xinhua, the State Grid Corporation of China (SGCC) is implementing a set of measures - including technical assistance and waiving connection charges for small solar installations - in order to make it easier to access the national grid.

"The need to nurture domestic demand for solar panels cannot be overstated," said Wang Sicheng, a researcher with the Energy Research Institute of the National Development and Reform Commission. According to a recent government white paper cited by Xinhua, China plans to grow its solar power generation capacity seven-fold by 2015.

ICTSD reporting; "China challenges EU solar power subsidies at WTO," REUTERS, 5 November 2012; "China launches trade probes on EU solar products," REUTERS, 2 November 2012; "Xinhua Insight: Fresh air for China's solar industry," XINHUANET, 2 November 2012; "China Probes EU Solar-Silicon Imports for Dumping, Subsidies," BLOOMBERG, 1 November 2012.

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