Solar Panel: China & EU Trade Allegations of Unfair Practices

Chinese Premier Wen Jiabao must have a diabolic sense of humor. On the same day China hauled the European Union before the World Trade Organization for allegedly unfair subsidies given by governments on the continent to Europe's troubled solar panel manufacturers, the Chinese leader called for closer trade cooperation between Europe and Asia to boost global economic growth.

Perhaps the irony of his comments -- coming on the heels of China's complaint to the WTO -- was completely lost on Wen who "put forward a four-point proposal for promoting steady growth of the global economy" and anchored this on tighter collaboration between Asian nations and the European Union, according to a report by Xinhua News Agency.

Or, as is more likely, Wen knew exactly the implication of everything he said at the Asia-Europe Meeting (ASEM), where he made the observation on Monday. Europe is still battling debt and other fiscal troubles, despite efforts to stimulate growth and arrest problems in several key nations, including Greece, Italy, and Spain. The regional economy is dangling dangerously, and political as well as fiscal leaders have been unable to stabilize the system, as Wen hinted when he talked about China's more successful actions at reigniting local growth. Xinhua reported Wen further said:

China is an important engine for world economic growth and has played a crucial role in driving global economic recovery. Being a responsible country, China has managed its own affairs well and restored its economy to stability and achieved a steady and fairly fast growth in the shortest time possible.

We not only have confidence in meeting the development targets set for this year, but also have confidence, conditions and abilities to achieve development of a better quality, at a higher level and in the longer run.

Ouch! That (intended or unintended) dig at Europe's so far less-successful effort to turn its economy around must have resulted in many red faces at the forum, which was attended by leaders from all across the EU. Wen held meetings at the summit with leaders from Bulgaria, France, and Italy. The Xinhua report said Wen told the forum "free, open and fair international trade is an important driving force for world economic growth."

That would explain China's next action. The ASEM forum wasn't the right place for China to address its concerns about EU subsidies to the region's solar panel vendors, so it filed, instead, a complaint with the WTO. The subsidies, China said, violate "WTO prohibitions on import replacement subsidies, seriously affect Chinese exports, and harm China's rightful interests as a WTO member," according to a report on the BBC.

The story isn't that straightforward, however. China's action followed complaints by the US and the EU alleging Chinese solar panel manufacturers were selling their products in the West at uncompetitive prices (meaning below production cost). As a result, Western manufacturers were losing money, and some were even going out of business, leading the EU to in September initiate anti-dumping investigation on solar panel imports from China.

The EU's action followed complaints from EU ProSun, an industry association that "claimed in its complaint lodged on 25 July 2012 that solar panels and their key components imported from China enter the European market at prices below market value," according to the release from the European Union referenced above. The EU is soliciting comments from industry members and other interested parties ahead of its decision, which won't be until June 2013. China's WTO move was intended to pre-empt further actions by the regional body and the United States.

There's a lot at stake for everyone. Despite the accusations and counter-accusations, the market for solar panels is growing strongly even as pricing comes under pressure. China, which produces "65 percent of all solar panels," exported about 21 billion euro ($27 billion) of the products to the EU in 2011. The EU accounts for "around 80 percent of all Chinese [solar panel] export sales," the regional body said in its press release.

No wonder China isn't waiting until the EU issues a decision on its anti-dumping investigation before heading to the WTO.