Kim Van der Borght on the China-EU solar panel dispute

(Dr. Kim Van der Borght is Visiting Professor, Shanghai Institute of Foreign Trade; Professor of International Economic Law, Vrije Universiteit Brussel; and Reader in Law, University of Westminster.)

Q：How do you see the solar panel dispute in the relationship between China and the European Union?

A：The solar panel anti-dumping dispute opposes two friendly nations in a common battle with shared objectives.

The European Union aims to develop an economic policy with balanced international trade that promotes growth in Europe and creates employment in a period that is economically and financially challenging for the Union. It aims to do so with a concern for the environmental consequences of its economic development and with the aim of ensuring an increasing independence from carbon energy forms both for environmental and for security reasons.

China faces an ever greater challenge to maintain its economic growth to allow it to bring millions of citizens out of dire poverty by creating employment and promoting economic development ever deeper into the mainland. The challenges it faces with the environmental and health problems caused by its rapid industrialization are clear for anybody to see; they can be tasted by breathing in the air of Beijing.

Both China and the European Union have developed economic policies that are embedded in broader policy goals and strategic objectives. The governmental policy on solar energy is not a simple assessment of profit and loss of private companies. For China, it is a conscious decision to develop its solar energy production to claim a global leadership role in this area. For Europe, solar energy is a vital element in the strategy to achieve its objectives in terms of its environmental policy as well as its security policy. These elements are relevant for the European Union and its member states but the weighting given to the elements is different in the various member states. 

Q：What do you think of the imposition of sanctions on Chinese solar panel imports into the EU? Is this a correct decision?

A：Turning to the anti-dumping duties imposed by the European Union on the importation of solar panels from China, we have arrived at a legal decision purportedly taken on the basis of an economic assessment. I am a legal scholar with a specialization in international trade law so it should not be a surprise if I write that law is important in international relations and that the rule of law should be the basis of the international trading community. From a legal perspective, I see no objections against this decision. I think the decision is legally correct but is it wise?

Anti-dumping assessments are taken on the basis of objective factual assessments of costs and price. The idea is simply to avoid companies destroying their competition by systematically undercutting them by offering products at a cost lower than the production costs and a reasonable profit margin. This is considered an unfair trade practice and is therefore illegal in international trade law. The situation is more complicated for Chinese companies by the fact that China is classified as a non-market economy by the World Trade Organization. For non-market economies, the assessment of dumping does not have to use the actual data from the companies under investigation. This alternative methodology recognizes that economic policy in a non-market economy is not solely driven by economic concerns and interests but that a planned economy has greater concerns than the immediate effects of profits and loss; the creation of profit and efficiencies are only part of the picture. 

Q：The decision is announced as a legal action. But what has driven this decision? Why do we see different statements from leaders from different EU Member States?

A：In the European Union the legal decision to impose was not pure legal decision.  Solar energy touches on a variety of policy areas that are important to the European Union and its member states. The decision to impose anti-dumping duties has led to division of views among European members states as strategic priorities have different weightings in various member states.

An example would be Germany. The country has made a decision to phase-out nuclear energy production and aims to move towards independent energy production through the use of a mix renewable energy production, solar energy production being an important component.  German companies have moved ahead quickly in the development of the technology associated with solar energy but for Germany to be successful in its renewable energy strategy, access to cheap solar panel is important. The strategy envisages decentralized energy production where production and consumption of energy are geographically adjacent: homes produce their own electricity for which low-threshold access to technology is vital. Cheap solar panels are a key component for this strategy. The production of energy at an industrial level will require different products that are currently being developed and tested. Here Germany will have a lead over China in terms of cutting-edge technology and high value-added production.

A second example could be Belgium where regional governments have heavily subsidized the purchase and installation costs of solar panel by both consumers and industry and were the availability of cheaper Chinese imports have made solar energy feasible without a massive governmental subsidy. But the limitation on governmental support has an impact of domestic producers of solar energy products who needs to adapt to new commercial realities.

The importation of solar panels from China has thus had a beneficial impact on the European markets in terms of increasing the affordability of solar energy products for European consumers. It has ensured that domestically produced in Europe increase their efficiency in order to compete with the cheaper imports from China. The Chinese imports have had a beneficial impact on the European market and indirectly on achieving environmental objectives of the EU and its MS.

Q：How would you assess the EU decision in broader policy terms?

A：So why may the legal decision from the European Union not be wise? I believe the answer is not to be found in a legal decision because it distracts the European Union and China from appreciating each other’s position. Between friends, empathy goes further in solving a dispute than legal analysis.

The European Union and China are quite different in nature. China is a centralized country with a single economic vision and a clear plan for the country. I am struck with awe at the way this country is implementing its economic and political reforms and development plan. The European Union is an assembly of states that are struggling to create an ever closer union based on peace and economic prosperity. I am proud of the achievements of the European Union but I am not blind to its weaknesses and flaws. The European Union is in many ways a weak international actors as it develops its abilities on the international stage.

The legal route in this dispute is a lose-lose situation. Although anti-dumping levies will offer relief for embattled European producers who cannot rely on the support and protection of a single-minded centralized government, it will have detrimental effects on European environmental and energy policy. For China, it will mean a severe impact on producers of solar energy products with the possibility of some companies not being able to survive the implementation of the full anti-dumping levies. This leads to a contradictory situation where China will face a choice of creating a non-market response to support these companies or to let these companies collapse as the sunset of its non-market economy status comes into sight.

Admitting defeat as a legal scholar, I have to conclude that the application of dumping law is not the answer in this dispute. The only pathway to a fruitful outcome for both sides is through negotiations, negotiations based on reciprocal empathy and understanding.