European Union Backs Down on China Tariffs

BRUSSELS — The European Union’s trade chief on Tuesday sought to ease trade tensions with China by lowering tariffs on the $27 billion worth of solar panels that China sells to Europe each year.

Germany had warned against imposing preliminary duties in the case, which risked inflaming trade relations with China.

Karel De Gucht, the European trade commissioner, had recommended average duties as high as 47.6 percent to last for up to six months. Those duties will be set at the far lower level of 11 percent until August, an official said ahead of a formal announcement later on Tuesday.

Mr. De Gucht is expected to warn China that he will ratchet up the levels dramatically in August if the government in Beijing does not address charges that Chinese firms sell solar panels in Europe below the cost of making them, a practice known as dumping.

Earlier, the trade commissioner had indicated he would stand firm in order to defend the credibility of European Union trade rules. But pressure had been mounting on him to back off.

Premier Li Keqiang of China bypassed Mr. De Gucht during a visit to Germany last week and persuaded Chancellor Angela Merkel to call for further negotiations. He then went over Mr. De Gucht’s head on Monday night with a phone conversation with the European Commission president, José Manuel Barroso.

Mr. Li warned that China was ready to retaliate if the European Union took action. The state-run Xinhua news agency said that Mr. Li had warned Mr. Barroso that “there would be no winners in a trade war.”

The solar panels represent one of the largest categories of Chinese exports to the European Union, worth more than 6 percent of China’s exports to the Continent.

Western governments and trade associations have long contended that Beijing has helped several Chinese industries take over global markets through a combination of huge loans from state-owned banks, extensive government research programs, protection of the domestic Chinese market from imports and sometimes even industrial espionage.

China’s rapid expansion in renewable energy, a national priority, has long been cited as an extreme example.

China went from a negligible player in the solar panel industry as recently as 2006 to the dominant world producer now, with two-thirds or more of global manufacturing capacity in the sector following $18 billion in loans from state banks.

That expansion contributed to the bankruptcy of or capacity cutbacks at a score of American and European solar companies in the last three years. Chinese solar panel companies have also suffered lately from overcapacity, with Suntech Power of Wuxi, China, putting its main operating unit into bankruptcy in March.

Li Junfeng, a senior Chinese government energy policy maker who is also the president of the Chinese Renewable Energy Industries Association, expressed delight when told that the European Union had sharply lowered its target for the preliminary tariffs.

“That’s really good news,” said Mr. Li, a senior energy official at the National Development and Reform Commission, China’s main economic planning agency. “At 11 percent, the Chinese companies can do very good business — it doesn’t affect them very much.”

The European Union’s decision to impose much lower initial duties than expected could greatly reduce the incentive for the Chinese government to offer concessions in further negotiations.

Yet individual Western companies, in the solar industry and other sectors, have been very wary of taking any public stand against China, which has become the world’s largest market in industries ranging from steel to cellphones to automobiles. Chinese officials have considerable discretion in issuing factory permits, export licenses and even visas for visiting executives, making most companies leery of publicly voicing any criticism whatsoever of China or any support for trade actions against it.

Mr. De Gucht has become so frustrated with the unwillingness of European companies to publicly support any trade action against China that he said last month that he was prepared to launch a trade case against China on certain kinds of telecommunications equipment even without the public support of any European companies in the sector.

SolarWorld, a German company, has brought anti-dumping and anti-subsidy cases against China in the United States and the European Union in the past two years. But its executives waited to file the cases until the company was already financially struggling. SolarWorld is also unusual in that it is not a diversified company but dependent on a single narrow sector in which China’s market is still a small although growing share of global demand.

Keith Bradsher reported from Hong Kong.

Article source: http://www.nytimes.com/2013/06/05/business/global/european-union-backs-down-on-china-tariffs.html?partner=rss&emc=rss