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The Sino-European Solar Panel Dispute: China’s Successful Carrot and Stick Approach Towards Europe

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This article considers the Sino-European solar panel conflict, which occurred between 2012 and 2014. The article takes a particular interest in how China and Europe coped with the trade dispute, which arose after several European solar companies filed a complaint in the European Commission accusing the Chinese of unfair trade practices (i.e. dumping and illegal subsidising). An analysis of the internal and external challenges that were decisive for the outcome of the trade conflict is illustrated, after which the article makes some conclusions about the concept of economic statecraft, how it is applied and on the effectiveness of European economic diplomacy in the changing Sino-European trade relationship.
Citation
Pepermans, A. (2017). ‘The Sino-European Solar Panel Dispute: China’s Successful Carrot and Stick
Approach Towards Europe’, Journal of Contemporary European Research 13(4): 1394-1411.
First published at: www.jcer.net
Journal of Contemporary
European Research
Volume 13, Issue 4 (2017)
Research Article
Astrid Pepermans, Vrije Universiteit Brussel
Volume 13, Issue 4 (2017) Astrid Pepermans
1395
Abstract
This article considers the Sino-European solar panel conflict, which occurred between 2012 and
2014. The article takes a particular interest in how China and Europe coped with the trade dispute,
which arose after several European solar companies filed a complaint in the European Commission
accusing the Chinese of unfair trade practices (i.e. dumping and illegal subsidising). An analysis of the
internal and external challenges that were decisive for the outcome of the trade conflict is
illustrated, after which the article makes some conclusions about the concept of economic
statecraft, how it is applied and on the effectiveness of European economic diplomacy in the
changing Sino-European trade relationship.
Keywords
China; Europe; Trade; Economic statecraft; Political economy
In 2007, the Chinese state designated the solar power sector a pillar industry, hoping that China
would become a global leader and exporter of green technologies (Cleantech Scandinavia n.d). And
it did. In less than a decade, China became a huge competitor for Europe, which witnessed a rapid
increase of Chinese solar equipment imports and saw its position as solar power pioneer of the
world seriously challenged. A complaint of several European solar power equipment manufacturers
on Chinese unfair trade practices in the industry led the European Commission to initiate an anti-
dumping and an anti-subsidy case on Chinese solar equipment, which resulted in one of the most
intense trade disputes in the Sino-European economic history (Tenuta 2015: 21).
The outcome of the trade conflict a so-called price undertaking between China and Europe is
widely regarded as a victory for China (Bollen, De Ville and Orbie 2016: 286). The influx of Chinese
solar panels was reduced. However, rather than the result of the MIP (minimum import price), this
reduction was a consequence of the withdrawal of the European energy certificates that had
triggered European demand for solar power in the first place. The MIP did not achieve a recovery in
Europe’s competitiveness in the sector and turned out to be at the expense of jobs in the
downstream part of the solar energy sector. Furthermore, even if the MIP was intended to confine
the application of unfair trade practices, several Chinese solar panel suppliers managed to keep on
exporting their equipment under the MIP by using different loopholes between 2013 and 2016.
Taking these considerations into account, the question remains why the solar panel dispute resulted
in such a contested and inefficient measure.
This article clarifies how both external as well as internal factors were decisive for this outcome.
China used a well-thought out strategy through which it was able to play upon divisions within the
EU and influence the Union’s foreign policy behaviour in the solar panel case (Mastanduno 2008:
226). On the one hand, China answered the European Commission’s accusations of unfair Chinese
trade practices with threats and retaliation. On the other hand, Chinese officials were able to exploit
the competition for Chinese investment between the European member states, facing severe
monetary pressure due to the financial crisis (Hanemann & Huotari 2016: 2).
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Still, China’s carrot and stick strategy might have proved unsuccessful were it not for the internal
fragmentation between the European member states, divisions between the member states and the
European Commission and the different interests within the European solar energy sector. Due to
the Union’s particular nature, which diverges from that of a state and which is recognisable by a
constant tug-of-war between competing priorities and interests, it turned out to be particularly
challenging for the EU to cope with China’s application of economic statecraft (Smith 2001: 789/800;
Garcia 2014).
The article contributes to the literature in two ways. First, by analysing both the internal and the
external factors (i.e. the multiple and diverging interests within the EU and the different tools of
economic statecraft applied by China) that were decisive for the outcome of the trade conflict, it
diverges from existing studies on trade conflicts, which often only provide a partial view (Bollen, De
Ville and Orbie 2016; Plasschaert 2016; Eckhardt 2013; Evenett 2013). Second, within the study of
economic statecraft, there exists a bias towards economic sanctions or negative coercion in
investigating the application of economic statecraft by a nation (Morgan 1999; Pape 1997; Smith
1996). As the article will illustrate, positive coercion or measures to attract and convince - can be
equally useful to influence a foreign actor’s policy behaviour (Reilly 2016: 194; Mastanduno 2008:
235-236).
This study mainly relies on qualitative research. The analysis of the interests of the Chinese
government to develop a strong and internationally competitive solar energy industry are based on
policy papers and scientific literature. This is complemented by data concerning economic profit,
trade and employment, which illustrate the global interests of China’s solar energy companies and
their sudden entrance onto the European area. The Sino-European solar panel trade dispute is a
recent phenomenon. Consequently, scientific literature on the issue is almost non-existent. To clarify
what happened, open sources, such as articles from newspapers like The Financial Times and The
Guardian are used. China’s official stance in the trade dispute is assembled from various public
statements by Chinese officials, such as Li Keqiang, and ministries, such as the Chinese Ministry of
Commerce. These statements can be found in open sources, such as The People’s Daily, The
Financial Times and The South China Morning Post and on the websites of the institutions
concerned.
Six additional in-depth interviews were conducted in order to fill possible gaps in the analysis. An
interview was done with a representative of Aegis Europe, an industry alliance representing 30 key
industries aiming to promote manufacturing investment, innovation, jobs and growth in Europe and
which supports the application of European tariffs on the import of Chinese solar equipment sold at
a price lower than the MIP. A second interview was undertaken with a representative of Solar Power
Europe, a member-led association, which aims to shape the regulatory environment and enhance
business opportunities for solar power in Europe. Contrary to Aegis Europe, Solar Power Europe
never supported the implementation of tariffs and still advocates their removal (Smith 2016). A third
interview was done with a representative of a Belgian company that engineers, installs and monitors
photovoltaic installations and thus prefers the free flow of cheap Chinese equipment onto the
European market.
i
An interview with a Commission official, active at the Directorate General of
Trade, was performed. This interviewee can be considered a representative of the view of the
Commission, which has been in favour of the Sino-European settlement. A fifth interview was
conducted with a representative of Global Bod Group, a Baltic group that manages several
companies of high technologies, some of which are active in the solar industry. A final interview was
done with Safe (Solar Alliance for Europe), a network of companies and associations active in the
solar energy sector that rejects the application of measures against the import of Chinese solar
equipment (Lee 2016).
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The rest of the article unfolds in three sections. The first section explores the theory on economic
statecraft and European economic diplomacy. This is followed by a short description of how China
was able to dethrone Europe as the major solar equipment provider of the world. An analysis of the
Sino-European solar panel conflict follows, after which some concluding remarks are made, which
summarise and hark back to the theoretical debate of the first section.
ECONOMIC STATECRAFT: DEFINITION AND LITERATURE REVIEW
According to Michael Mastanduno, statecraft can be described as the use of policy instruments to
satisfy the core objectives of nation-states in the international system (Mastanduno 1998: 826).
While it has not always been the case, most scholars within the field of International Relations
acknowledge the multi-dimensional nature of statecraft, stressed by writers like Staley (1935),
Hirschman (1980) and Baldwin (1985). Statecraft is not confined to the application of military
instruments to satisfy military objectives, but can involve different types of instruments for a range
of objectives (Staley 1935; Morgenthau 1975: 56; Hirschman 1980; Baldwin 1985: 21; Mastanduno
1998: 831).
The contributions of writers like Keohane and Nye (1997) additionally affected ideas on statecraft.
They questioned the wisdom of making a rigid distinction and hierarchy between low politics
(economic affairs) and high politics (military affairs), arguing we had turned to an era of complex
interdependence, recognisable by a high level of complexity among actors, issues and flows, in
which the importance of economic policies and economic statecraft had risen, while military force,
which traditional IR scholars used to perceive as the dominant source of power, often only played
(and plays) a minor role (Keohane & Nye 1997: 19/22-27; Morgenthau 1975: 56).
In recent years, the literature on economic statecraft has been growing significantly. Numerous
writers have explored how political leaders try to exert influence in pursuit of foreign policy
objectives through the use of economic resources (Huffbauer, Schott, Elliott and Oegg 1990; Smith
1996; Pape 1997; Drury 1998; Morgan 1999; Dashti-Gibson, Davis and Radcliff 2002; Drezner 2003;
Lacy & Niou 2004; Morris 2010). However, when taking a closer look at this abundance of research,
it becomes apparent that positive economic statecraft has received relatively little attention in the
political science literature. As Baldwin (1971: 21-22) puts it: In discussing the role of sanctions in
power relations, the pens of political scientists often slip towards negative sanctions, and almost
never slip towards positive sanctions’. This bias is mirrored in how Daniel W. Drezner defines
economic statecraft (Drezner 2003: 643): The threat or act by a sender government or governments
to disrupt economic exchange with the target state, unless the target acquiesces to an articulated
demand’.
As Michael Mastanduno claims, and as will become clear throughout the case study in this article,
positive coercion or measures to attract and convince - can be an equally useful means of
economic statecraft and therefore should not be neglected when analysing the outcome of a dispute
or a negation procedure (Reilly 2016: 194; Mastanduno 2008: 224/227; Baldwin 1985: 42-43). This is
not to say that negative coercion is irrelevant. As Mastanduno rightly stresses: Economic pain may
force the target government directly to reconsider its behavior or may create political divisions
within the government which lead to policy change(2008: 228). Still, the art is to combine positive
and negative coercion to such an extent that the coerced power has little option left than to
compromise. The following case study illustrates how China was able to apply such a carrot and stick
strategy.
Within the field of positive economic statecraft, a second important distinction should be made.
While positive tools of economic statecraft can be applied in order to trigger an immediate change in
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policy behaviour (this is referred to as tactical linkage, carrots or specific positive linkage), a second
type of positive statecraft, (the so-called general positive linkage, long-term engagement or
structural linkage) is another way of reconfiguring the balance of political interests within the
counterpart. In this case, the sanctioning state expects that sustained, long-term economic
engagement with the target state eventually achieves the desired transformations in the latter’s
behaviour (Mastanduno 2008: 235; Mastanduno 2000: 304). This deserves a mention as the solar
panel case study demonstrates how Chinese statecraft is not confined to short term economic
incentives but also involves long-term promises and projects, which steadily mould member states’
positions on Europe’s trade policy.
To give an example, from the start of the solar panel conflict, Germany was not prepared to start a
fight with China over solar power material (Chaffin 2013a). Rather than a consequence of specific
Chinese economic triggers, this reluctance is a result of what has been called Germany’s ‘special
relationship’ with China, which had emerged over the last decade. As Kundnani and Parello-Plesner
mention, this kind of economic connectivity implies the risk that a country like Germany puts its
bilateral relationship with China before the defense of the European Union’s strategic interests,
which in turn opens the door for Beijing to treat Berlin as a proxy for Brussels (Kundnani and Parello-
Plesner 2012: 2).
This discussion about tactical and structural linkage suggests that there can be a fine line between
‘conscious acts of coercion’, or rather less conscious, even direct consequences of an increased level
of economic interdependence (Smith 2014: 41; Meunier 2013). While researchers like Knorr deny
that purely economic exchange involves politics or power, examples in the past have shown that
economic transactions can be considered attempts to influence (Knorr 1975: 311; Baldwin 1985: 44).
Whether the Sino-German interdependence has been consciously created by China is beyond the
scope of this article. However, that the Chinese are well aware of the vulnerability created by this
interdependence and tend to use it for their ‘divide and rule’ policies is certain (Smith & Xie 2010:
441).
EUROPEAN ECONOMIC DIPLOMACY
There exists a range of papers, articles and books on how a lack of EU cohesiveness often comes at
the expense of the EU's bargaining leverage over market access and its ability to shape international
norms (Garcia 2014; Meunier 2013; Fox & Godement 2009; Kerremans 2006; Meunier & Nicolaidis
1999). This difficulty is inherently connected with the assumption that the EU has to provide some
‘state functions’, such as mustering coherent commercial strategies, but has to cope with an internal
structure which strongly differs from that of a state (Smith 2011: 196). Consisting of 28 European
member states and three different institutions (the European Parliament, the Council of Ministers
and the European Commission), it hardly needs saying that finding a general consensus on trade
policy within the EU is a hard endeavour.
The Lisbon Treaty was designed to tackle exactly this shortcoming as it promises to overcome the
institutional divisions that have been a stumbling block when it comes to Europe’s strategic
diplomacy (European Union 2007; Meunier 2013: 997; Woolcock 2011: 8). However, evidence has
shown that implementing the treaty has been easier said than done and the internal divisions, for
example between the European Council and the Commission, continue to stand in the way of unified
European external policies (Smith 2014: 39; Woolcock 2011: 4; Smith & Xie 2010: 444). Moreover,
the issue is not confined to fragmentation between the different member states’ interests and
between the different European institutions. In the area of trade politics, the EU is confronted by the
complexities of relationships between importers and exporters, producers and consumers (Smith
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2011: 195). As the case study below indicates and similarly to comparable anti-dumping and anti-
subsidy cases, such divisions within the European industry hence complicate Europe’s economic
diplomacy further (Smith 2014: 43; Eckhardt 2013; Evenett 2013). Moreover, these internal tensions
are exacerbated by the 2008 financial crisis, which was not only a major economic blow for Europe
but also intensified competition with the BRICS, China in particular (Smith 2013: 12-17). As Smith
and Xie mention (2010: 445): The changing structure of the global arena, recognized by the rise of
some emerging powers, can complicate the performance of unified and strong European economic
diplomacy’.
The traditional definition of an ‘international actor’ is an entity that is able to formulate purposes
and make decisions (Holslag 2011: 310). A strategic actor is assumed to be monolithic, possessing a
unified set of preferences and hence capable of producing unified actions (Smith 1998: 80). Every
situation in which Europe fails to act as a mature strategic actor is an opportunity for China and its
companies to turn the European weakness to their advantage. In this sense, it needs to be reiterated
that both internal as well as external challenges have to be taken into account in the following solar
panel case’s assessment. On the one hand, the Union’s inability to speak with one voice provides an
avenue for those who might want to play upon its internal divisions, thus weakening the EU’s
position in the world political economy. On the other hand, the fragmentation within the EU reflects
external partner’s strategies. As already mentioned by some scholars and as demonstrated by the
following case study, the external and internal issue go hand in hand. Therefore, a distinction
between them no longer holds in many areas of commercial policy-making (Smith 2011: 192).
CHINA’S INDUSTRIAL POLICY AND ITS IMPACT ON EUROPE
As early as 1996, China launched several electrification projects to introduce the use of solar energy
in the country (Zhao, Wan and Yang 2014: 180). Nevertheless, it was only from 2007 on (when the
European demand for solar energy boomed as a result of different market-stimulating measures
launched by European countries from 2000 onwards) that the Chinese government included the
industry in its list of strategic emerging industries (SEI) and spurred up the development of
photovoltaic power (Zhang, Andrews-Speed, Zhao and He 2013: 3; MIIT 2014, 2010). China saw the
growing European market as a perfect outlet for the huge amounts of solar cells and modules of
which Chinese manufacturers could not dispose in China. This resulted in export-orientated
government policies which made the export value of Chinese PV products increase at a tremendous
speed between 2008 and 2011, when the export value peaked at 35.82 billion USD (Zhao, Wan and
Yang 2014: 183).
One consequence of these export-orientated state policies, combined with stimulated western
demand, was that in 2006 and 2009 respectively, China sold 97.5 and 96 per cent of its solar
modules to foreign buyers. Considering its solar cell production, China was able to increase its global
market share from 16 to 60 per cent between 2006 and 2012 (Yu, Popiolek and Geoffron 2014: 9-
10). The number of Chinese jobs in the sector more than doubled between 2008 and 2011 and the
price of solar systems took a tremendous dive of around 70 per cent. In 2015, the world’s top ten
solar module manufacturers still covered 52 per cent of the global market share and included seven
Chinese companies, which together covered 44 per cent (Statista 2015).
As Chart 1 illustrates, Europe was barely able to profit from the world’s rising demand for
photovoltaic devices between 2007 and 2014. China on the other hand, climbed its way to the top in
no time. The chart also shows that, even after the economic crisis and the western anti-dumping
cases against China in 2013, the country was able to consolidate its global market shares with a
value of more than 19 billion USD in 2014 (Clover 2014).
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Chart 1: European and Chinese exports of photosensitive/photovoltaic/LED semiconductor devices
Source: Comtrade 2016.
The mass entry of Chinese solar products into overseas markets had consequences for Western solar
producers, unable to offer the low prices that their Chinese counterparts provided. Between 2009
and 2012, forty European solar product firms became insolvent (EU Prosun 2012, 2013). Whereas in
2008, the European solar industry accounted for 179,000 jobs, only 109,000 of them were left in
2014. As demonstrated in Chart 2, in Germany especially - the country that was considered the solar
energy pioneer of the world (Plasschaert 2016: 3) - the sector suffered a severe dent, as 80 per cent
of the German jobs provided by the industry disappeared between 2008 and 2014 (Solar Power
Europe 2015: 12).
The Eurocrisis forced European officials to withdraw the generous FIT policies (feed-in tariff) that
had created the European demand for solar energy equipment in the first place. At the same time,
China kept on speeding up its production of solar products. As a representative of Aegis mentioned
(interview Aegis May 2016): The thing is that Chinese solar companies can almost not go bankrupt
as China’s state banks keep on granting them loans’. This exacerbated China’s already existing
problem of excess capacity. The increased pressure on the European solar panel market eventually
moved some European solar energy companies to raise the alarm over the way Chinese unfair trade
practices were disturbing competition conditions and upsetting the balance in the market.
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Chart 2: Jobs in the European PV sector in 2008 and in 2014
Source: Solar Power Europe 2015: 12.
THE SINO-EUROPEAN SOLAR PANEL DISPUTE
On June 25 2012, several EU solar groups, led by Germany’s Solar World, lodged a complaint at the
European Commission against potential Chinese dumping of solar panels onto the European market
(Chaffin 2012a). The argument went that China was able to capture more than 80 per cent of
Europe’s market in less than six years due to dumping practices and illegal subsidisation of Chinese
solar panel manufacturers by the Chinese government (Bondaz 2013). Given the high amount of
insolvencies suffered in Germany in 2012, the complaint was initiated mainly by German producers.
Germany’s Q-Cells and Conergy went bankrupt and Solar World lost around 500 million EUR in 2012
(Chaffin 2012b, 2013b).
On September 6 2012, the Commission accepted the complaint and decided to start an
investigation. That the stakes were high - the value of Chinese exports of these products to the EU
had reached 21 billion EUR in 2011 - became very clear when Li Keqiang, then Prime Minister of
China, reacted as follows ‘We don’t agree with this decision and emphatically reject it(Kirschbaum
2013). Chinese officials also anticipated the solar case by warning that they would launch their own
investigation into polysilicon, an important product to manufacture photovoltaic cells. This move
was especially targeted at German suppliers for whom China is an important costumer. In 2011,
China imported European polysilicon worth 870 million USD (Hook 2012).
However, Karel De Gucht, former Commissioner of Trade, was convinced to maintain a firm stance in
the issue. He stated: ‘It’s clear that the dumping of these Chinese solar panels is harming the
European solar panel industry. This jeopardizes at least 25,000 current jobs’. He recommended that
such products should face duties averaging 47 per cent (Peel & Chaffin 2013). Moreover, the
Commissioner was not planning on giving in very easily as he said of the Chinese: They are not going
to impress me by putting pressure on member states’ (in Evenett 2013). As the price at which
Chinese solar panels were sold in Europe lay 88 per cent too low, the Commission decided to impose
provisional duties from June 2013 on. Initially, they would average 11.8 per cent, but after two
months the duties would rise to 47.6 per cent if no compromise with China was agreed upon by then
(Walker 2013). As mentioned by a Commission official (interview Commission official May 2016):
020000 40000 60000 80000 100000 120000 140000 160000
UK
Spain
France
Italy
Germany
Jobs in the European PV sector in 2008 and in 2014
2014 2008
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This arrangement was necessary to give the Chinese the time to come up with a proposal for what
they always want, namely a settlement’.
Nevertheless, it soon became clear that, whereas the Chinese may not have been able to impress
the Commissioner, they certainly impressed several national capitals, especially when China’s
threatening language was followed by action. The Chinese Ministry of Commerce announced that it
would launch an official trade probe into European polysilicon (Hook 2012). Wacker Chemie,
Europe’s biggest polysilicon supplier immediately pleaded to Brussels to hold fire. Rudolf Staudigl,
Wacker’s Chief Executive, stated: If tariffs are implemented, Europe will be damaged more than
China’ (Chaffin 2013c). Phillipe Rösler, Germany’s Economy Minister backed this statement and
urged Mr De Gucht to negotiate a solution. From the start of the solar case, Germany was not
prepared to start a fight with China (Chaffin 2013a). Prior to the initial Commission investigation in
2012, Angela Merkel did not hide her reluctance to support a trade action against China. She
communicated the German position during a delegation to Beijing, which was aimed at confirming
the Sino-German ‘special relationship’ and which resulted in 18 bilateral agreements (Hille & Chaffin
2012). The Chinese announcement about the polysilicon case accelerated German opposition in the
panel case.
But China did not only target the opponents of European countermeasures. China launched a well-
targeted probe on the imports of European wine (FT 2013; Mofcom 2013). Moreover, an editorial in
the People’s Daily, the Chinese Communist party’s mouthpiece, warned Europeans that China still
had plenty of cards to play (Phillips 2013). No sooner said than done, China threatened an official
complaint over luxury cars imported from the EU, again pointing the gun at Germany. A
representative of Solar Power Europe commented (interview Solar Power Europe May 2016):
Anti-dumping is phenomenally political. If the Chinese want to get the attention of
Angela Merkel, all they have to do is pull out the car card. While the German guys
on the desk wanted a vote in favour of measures, a call came through from Merkel
saying that they should vote against the measures. That is how political cases like
these get.
As European carmakers (most of them German) exported almost 500,000 passenger cars to China in
2012, the European car industry association pressed the Commission to refrain from imposing
tariffs: ‘Clearly it is in all interests that an amicable solution to current trade tensions can be found’,
the industry group said in a statement (Foy & Fontanella-Khan 2013).
Besides using sticks, China also used carrots to turn different member states against the
Commission. At the time, China’s GDP was still growing by nine percent annually while Europe
suffered from severe financial problems, giving the Chinese an additional advantage in the issue
(Cleantech Scandinavia n.d). Many European governments were rather focused on attracting
lucrative investments and on helping their constituents to win commercial contracts in China than
on the principle of a united EU trade policy (Chaffin 2013d). The agreements that were made during
the Sino-German meetings in 2012 are just one of the many examples. 2011 was the first year that
Chinese outward foreign direct investment to Europe increased at a tremendous speed; whereas in
2010, China invested around 2 million EUR in the EU, by 2012, this figure rose to 1 billion EUR. The
national capitals badly needed this kind of money and did not have the stomach to fight China on
the solar panel issue (Hanemann & Huotari 2016: 4).
In 2011, China launched the 16+1 platform, a new forum for cooperation with Central and East
European countries (CEEC), which includes eleven EU member states. In 2012, former Chinese
Premier Wen Jiabao recommended twelve proposals to promote ChinaCentral Eastern European
(CEE) economic cooperation and friendship, Beijing pledged 10 billion USD to fund projects under
Volume 13, Issue 4 (2017) Astrid Pepermans
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the China and Central and Eastern European Countries initiative. EU member states contest with one
another to attract foreign investment. In pursuing this goal, they often override one of the flagship
objectives of the EU, which is the development of a market-led, yet rule-based global economic
governance system. Hence, the internal competition for Chinese investments creates the risk that
the eleven countries in the 16+1 forum, also members of the EU, form a pro-China lobby and thus
influence policymaking in Brussels (Fallon 2015: 145). A representative of Global Bod Group
mentioned (interview Global Bod Group June 2016): We know that Chinese ambassadors went to
local politicians and stake-holders to understand and influence a country’s position regarding the
solar case. This has been communicated to our industry association by several politicians in Central
and Eastern Europe’. A Commission official confirmed (interview Commission official 2016): China
worked on the member states and some member states had their own convictions, which influenced
the Commission’s decision in the solar panel case’.
Eventually, China had been able to convince 18 out of the then 27 member states to oppose the
tariffs. The Commission found itself under pressure by the Council of Ministers, which was, at that
time, able to reject final tariffs with a simple majority. As a Commission official confirmed (interview
Commission official May 2016): It was a matter of political rationale to say that, in order to avoid
that the Council defeats the entire case, it is better to have a price undertaking in place’. Moreover,
this pressure was increased by the downstream sector, which did not welcome final duties either. As
a representative of Safe mentioned (interview Safe June 2016):
Safe is against dumping and illegal subsidisation and supports each country’s right to
protect itself against unlawful business conduct. In the case of solar, Safe appeals to
European politicians to act upon the global, European and national renewable
energy and climate protection goals and support solar energy.
A Europe Solar World member confirmed (interview Europe Solar World May 2016): Tariffs do not
create new jobs in the upstream sector but on top of that put the jobs in the downstream part of the
value-chain at risk.
Hence, the possibility of imposing a MIP an undertaking which was proposed by the Chinese
government and the Chinese Chamber of Commerce two days before the provisional measure of 47
per cent between effective - rather than tariffs became the most probable outcome of the case. Mr
De Gucht initially claimed to set this MIP at 58 cents per kwh, but the Chinese insisted on accepting
no more than 50 cents (Chaffin 2013e). At the end of July 2013, an amicable solution was agreed
upon. 90 Chinese solar companies agreed not to sell their products in the bloc below a price floor of
56 cents per watt. The agreement covered up to seven gigawatts of production of the EU market
and the measure would remain in force until 2015. China was clearly satisfied with the agreement
and immediately put its retaliatory cases on hold, which sent relief throughout Europe (Chaffin
2013f).
THE MIP, A CHINESE VICTORY
Nevertheless, the Sino-European settlement provoked outrage among several associations. Milan
Nitzschke, EU ProSun’s President stated: This agreement is not a solution but a capitulation’ (Chaffin
2013g). A Commission official explained how the effects on the market of the MIP are still under
investigation (interview Commission official May 2016): Current figures show how the negative
spiral of the prices has stopped and that there are signs of consolidation on the EU Market.
However, a restoration of competitiveness did not occur’. Module sales of the EU solar industry have
decreased significantly (1.7 GW in 2014/15 compared to 2.4 GW in 2012) and studies have shown
that European module manufacturing capacity reduced by almost 20 per cent between 2014 and
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2015. Since 2013, further insolvencies of Union producers have occurred (ISE 2016; interview Safe
June 2016).
But, as Karel De Gucht claimed, the case was not only about solar panels. It was considered a test of
whether the EU is able to maintain a unified front behind a trade policy orchestrated by Brussels,
even in the face of intense national lobbying by Beijing that heightened fears of a costly backlash. If
this was indeed the case, the EU clearly failed this test. The initial idea of Europe to stamp out unfair
trade practices was not carried out, as the MIP was a watered-down version of the Commission’s
intention to pressure Beijing to dismantle a system of dumping and illegal government subsidies.
The divisions among the member states left Europe with no option than either imposing a weak
measure, to which each of the member states could subscribe, or ending up with no measure at all.
A Commission official confirmed (interview Commission official May 2016): The Commission knew
that if it did not agree with the Chinese to have a price undertaking, there was a risk that there
would be no measure at all’.
It is clear that there was one player who benefited from this case; China. First of all, it was able to
maintain its market share in the EU. This is not to say China did not suffer from the shrinking
European market as a consequence of the removal of European subsidies. As Chart 3 demonstrates,
the withdrawal of green energy certificates in Europe in 2011 had a chilling effect on Chinese
exports to the Union. Still, China was able to remain the dominant player in the European market
and especially in the global market. As a representative of a European PV installation firm mentioned
(interview representative May 2016): There are no new European entrants in the solar panel market
because nobody is crazy enough to compete against these Chinese solar giants’. Internationally, it
gives China the possibility to provide for the globally rising demand of solar energy without facing
many competitors.
Chart 3: European imports of Chinese photosensitive/photovoltaic/LED semiconductor devices.
Source: Comtrade 2016.
Second, even if the MIP was imposed to stop the Chinese from selling at destructive prices, it
remains an enormous challenge to enforce such a measure, a Commission official explained
(interview Commission official May 2016): It is very difficult to control whether the material is
indeed sold at the correct price or whether, in reality, a lower price, a retransfer or a reimbursement
on a certain service is offered by the Chinese’. A representative of a European PV installation firm
0
5
10
15
20
25
2007 2008 2009 2010 2011 2012 2013 2014
European imports of Chinese photosensitive/photovoltaic/LED
semiconductor devices (billion USD)
Volume 13, Issue 4 (2017) Astrid Pepermans
1405
confirmed (interview representative May 2016): It soon became apparent that the Chinese found
ways to by-pass the MIP by offsetting the increased cost through some kind of hidden
compensation’.
By exporting through third countries like Malaysia and Taiwan, Chinese firms succeeded in bringing
in material without having to take into account European measures. Chart 4 shows how Malaysian
and Taiwanese exports increased very quickly from the moment the MIP was imposed (Eurostat
2016). In 2015, the Commission imposed additional measures to sanction these practices (Beetz
2015). Still, this can be considered shutting the stable door after the horse has bolted. Between 2014
and 2016, several solar panel companies committed fraud, covering hundreds of millions of euros
(Clerix 2016). The European firm representative explained how his company now works with
material imported from Turkey, at a price far below the MIP, provided by Chinese companies
(interview representative May 2016).
Chart 4: European imports of Malaysian photosensitive/photovoltaic/LED semiconductor devices.
Source: Comtrade 2016.
One of the frequent comments arguing in favour of China offering cheap solar equipment on the
European market is that European employment in the sector shifted from making PV panels to
installing them. Another argument for cheap Chinese solar panels is that they benefit the European
population as it is good for the consumer’s purchase power. However, these comments miss the
point in four respects. While it is true that the influx of cheap material created a surge in the
employment provided by the downstream sector, mirrored by the job creation in the British solar
power sector between 2008 and 2014 (Chart 2), this can hardly be called ‘a shift’ as the gain of jobs
in the downstream part of the industry is still small compared with the losses that the upstream part
of the sector had to suffer. Second, whereas in the short term the availability of cheap Chinese solar
material can be good for the European consumer, the monopolistic position of a handful of (often
financially troubled) Chinese solar companies in the world is likely to increase the prices again in the
long term. Moreover, the lack of competitive pressure can reduce the appetite for innovation, a
factor that is crucial for the further development of an advanced technology industry like the
cleantech sector. Third, the argument that cheap material is to the advantage of European
consumers does not alter the fact that selling goods for a price far below the market price (i.e.
dumping) is not consistent with international trade rules, created to guarantee fair competition
0
0.5
1
1.5
2
2.5
2006 2007 2008 2009 2010 2011 2012 2013 2014
European imports of Malaysian
photosensitive/photovoltaic/LED semiconductor devices
(billion USD)
Volume 13, Issue 4 (2017) Astrid Pepermans
1406
between nations all over the world. Last but not least, being ignorant of dumping and illegal
subsidising practices and replacing the local European production base of solar power equipment for
the import of Chinese products purely on the basis of price goes against the quest for a more
balanced Sino-European trade relationship, which has become an increasingly pressing need within
the framework of the Sino-European strategic partnership (Smith & Xie 2010: 439).
CONCLUSION
In 2007, the Chinese government included the solar energy sector in its list of SEIs with the aim of
turning China into a global leader in one of the most auspicious and up-and-coming sectors of this
era. On the basis of an intensive governmental policy-mix, China surpassed Europe in no time and
became the largest producer and market in solar power. While it can be considered an enormous
achievement, this development also had a down-side. It resulted in Chinese overreliance on exports
to the West and a huge overcapacity of Chinese solar cells and modules, which was exacerbated in
2011 due to the withdrawal of European consumption-motivating subsidies. Prices of solar power
equipment tumbled, which led to the disappearance of several European solar panel producers,
unable to offer the prices their Chinese counterparts were selling at.
A complaint from several European solar firms against Chinese dumping and illegal subsidising
moved the European Commission in 2012 to initiate an official anti-subsidy and anti-dumping case
against China, which resulted in one of the most intense Sino-European confrontations so far
(Tenuta 2015: 21). While the European Commission was initially convinced to tackle unfair Chinese
trade practices, it soon became clear that this would be easier said than done. China used a well-
targeted carrot and stick approach to persuade the member states to vote against protective trade
measures. A combination of attractive Chinese investments and retaliatory threats convinced 18 out
of the then 27 European member states to refrain from supporting the Commission in the solar
panel case. As punitive tariffs would have been a no-go for the Council, the remaining options for
the Commission were limited and in 2013, a Sino-European price undertaking based on a proposal
from the Chinese Chamber of Commerce - was agreed upon.
The way in which the solar panel case evolved might have been different had it not been for the
internal European divisions when it came to coping with the Chinese pragmatism described above.
Once the European Commission tried to create a level playing field for the European solar
equipment firms, the great heterogeneity in the relations of EU member states with China proved
very difficult to reconcile into a unified trade policy. Within the industry there was no consensus
either as the upstream and downstream parts of the sector had contradictory preferences when it
came to import subsidies against Chinese products. This amalgamation of different interests gave
the Commission no choice but to accept China’s proposal to impose an amicable price undertaking.
The article contributes to the literature in two ways. Contrary to existing studies on trade conflicts, it
analyses both the internal and the external factors (i.e. the multiple and diverging interests within
the EU and the different tools of economic statecraft applied by China) that were decisive for the
outcome of the trade conflict (Bollen, De Ville and Orbie 2016; Plasschaert 2016; Eckhardt 2013;
Evenett 2013). Second, the literature on economic statecraft often remains limited as to whether
and how negative economic coercion works. Without underestimating the validity of this scientific
work, this case study shows that positive attraction or carrots also play a part in how certain states
successfully influence the behaviour of others to get a desired outcome. In his article, The power of
economic sanctions, Baldwin wonders whether one can influence more flies with honey or vinegar
(Baldwin 1971: 19). This case study demonstrates that both methods can be efficient. In fact,
combining these strategies can enhance the chance of being able to achieve your goal.
Volume 13, Issue 4 (2017) Astrid Pepermans
1407
At the pinnacle of the dispute, when the Chinese government threatened to launch retaliatory
measures against German polysilicon, Mr Rudolf Staudigl, CEO of the biggest polysilicon producers in
Europe said: In this trade war, nobody wins(in Chaffin 2013c). However, this case study comes to a
different conclusion. The minimum import price turned out to be a weak and inefficient measure.
First of all, the European solar equipment industry was not able to recover, let alone to regain its
level of international competitiveness. Second, even if the MIP was intended to put a damper on the
Chinese equipment sales in Europe, it seemed rather difficult to enforce it, as China’s solar giants
soon found several back doors through which they could avoid the measure. Mr Staudigl might have
a point when he says that it is difficult to appoint a true winner in the solar panel case China lost
European market share mostly due to the European withdrawal of demand-supportive green energy
certificates. But identifying the true loser in the case is less difficult, and it certainly was not China.
CORRESPONDENCE ADDRESS
Astrid Pepermans, Political Science Department, Vrije Universiteit Brussel, Pleinlaan 5 1050 Elsene,
Belgium [Astrid.pepermans@vub.be].
ENDNOTES
1
This interviewee explicitly requested the name of the company concerned not be mentioned.
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... Two controversial trade defence cases during De Gucht's mandate would confirm his frustration about the difficulties for the EU to react strongly against China with existing trade defence instruments. The first concerned solar panels (see Pepermans 2017 for an elaborate analysis of the case). In June 2012 the EU solar panel production sector, led by the German firm Solar World, launched an anti-dumping investigation with the European Commission against Chinese imports. ...
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Observers of the European Union's (EU) trade policy have recently noticed a change in its vocabulary, with much stronger emphasis on being "no longer naïve" and the need for more "reciprocity" in trade relations with third countries. This change is widely seen as a response to the challenge to the European economy posed by China's economic rise. Yet, this paper shows that this rhetoric is not so new. What is truly different, however, is which actors support a more assertive EU trade policy vis-à-vis China. A remarkable turnabout in this has occurred in recent years. Demand within the EU for a strong response to "unfair" competition from China has travelled north, with Germany as the most significant example. This transformation can be explained by the changed nature of the interaction between the Chinese economy and the different European economies within the Union, made salient by a number of events involving German firms. However, this changed interaction has equally altered the perception in southern Member States of their interests with regard to economic relations with China, in a more positive direction. The opposite evolution keeps the EU internally divided and sustains China's ability to exploit the Union's internal differences.
Conference Paper
Full-text available
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Chapter
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Thesis
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