This article is part of our special report Sunlight at the end of the tunnel?.
The European Commission is pushing for EU leaders to back stricter trade defence instruments against countries such as China at their summit in Brussels today (20 October).
Yesterday, the executive published a communication calling for stronger shields against unfair trade. It wants the heads of state and government to endorse the plan at the summit, before a November meeting of EU trade ministers.
“The Commission has been doing its part, deploying trade defence instruments to their full force. But we have reached the limit of what is feasible under the existing legislation,” Commission President Jean-Claude Juncker said.
The EU accounts for 15% of world imports, second only to the United States, but its trade defence measures are imposed on just 0.21% of imports.
The communication comes after accusations that Chinese steel overcapacity was seriously damaging the European steel industry. Juncker, whose father was a steelworker, has pushed for a robust response to the issue.
He said, “Some EU industries have lost thousands of jobs. We cannot stay idle. The EU’s trade defence rules require an urgent update.”
The Commission has asked for national governments and the European Parliament to quickly adopt a proposal it first tabled in 2013. It advocates changes to the so-called “Lesser Duty Rule”.
Current rules cap the levels of anti-dumping duties through the Lesser Duty Rule. This cap, according to the executive, means that some products, like Chinese rolled steel, face a 21.1% duty in the EU. In the US, which doesn’t have the rule, the average duty is 265.8%, the executive said.
While the tougher measures will be welcomed with some, other stakeholders may be concerned about what they could mean for anti-dumping measures on Chinese solar imports.
Industry and NGOs have warned that continuing those existing measures on those imports will make the EU’s fight against climate change far more expensive. They will be reviewed in March next year.
“Removing the LDR and applying astronomical tariffs on Chinese solar will only hurt the consumer, who is meant to be at the heart of the Commission’s Energy Union strategy,” said James Watson, CEO of SolarPower Europe, the European Photovoltaic Industry Association.
Member states are divided over the rule, with some countries traditionally in favour of free trade having supported it historically.
But European Commission Vice-President Jyrki Katainen said he was confident those historic differences could be overcome.
“Everybody agrees that overcapacity is a cancer in the world of free trade,” he told reporters at the launch of the communication.
“Everybody, including China, knows what we are trying to oppose, and they will take it positively.”
The communication also suggests a new methodology “to capture market distortions linked to state intervention in third countries”.
The measures on Chinese solar products were imposed after accusations that producers were benefitting from state subsidies and selling their products for lower than what they would cost on the domestic market.
It means that the communist country will have to be treated as a free market equal when settling trade disputes.
That poses a problem for the EU, as it can currently use a different methodology to find anti-dumping than it could if China had the status. If the 11 December deadline passes without action, China could sue the EU in the WTO.
The proposed changes would respect WTO rules and allow the EU to impose higher anti-dumping changes in some instances, the Commission said.
They will also allow deal with any “forthcoming changes to the legal framework of the WTO”, the Commission added.
"We are concerned that under the proposed new regime, dumping margins may be so low as to not offer any effective protection against flagrant dumping and state subsidies, making elimination of the Lesser Duty Rule largely symbolic,” said Milan Nitzschke, spokesperson for AEGIS Europe, a group of industrial associations.
The European Commission decided in 2013 to impose punitive import duties on solar panels from China in a move to guard against what it sees as dumping of cheap goods in Europe.
Chinese solar panel production quadrupled between 2009 and 2011 to more than the entire global demand.
EU producers say Chinese companies have captured more than 80% of the European market from almost zero a few years ago, exporting €21 billion to the European Union in 2011.
As a result, Chinese-made panels are as much as 45% cheaper than those made in Europe, industry executives say.
Marking an escalation of the dispute, China hit back a few months later by launching a probe into the EU wine sector.
While some European and US manufacturers would welcome EU action, installers and prospective purchasers of solar technology are concerned that such a move will drive up the cost of solar panels, leading to a slowdown in the deployment of the technology and job losses across the industry.
German Economy Minister Philipp Roesler said the European Commission made a "grave mistake" by agreeing to duties on solar panels from China and urged the Commission to work to prevent the eruption of a trade conflict.
Brussels and Beijing finally reached an "amicable solution" in July 2013, agreeing to a minimum price for solar panel imports.
Some angry European solar panel makers blasted the deal as "unacceptable and completely against European interests,” vowing to take their case to the European Court of Justice.
The European Commission proposed in April 2013 to limit the use of the so-called "lesser duty rule" as part of a wider package to modernise the EU's trade defence instruments. The ‘lesser duty’ rule keeps the additional tariff within the limit of what is strictly necessary to prevent an injury for EU industry.
Following the Commission’s footsteps, the Parliament adopted its position on the modernisation of the trade defence instruments in April 2014, including the limitation of the lesser duty rule.
Yesterday, the executive called for the proposal to be adopted by member states as quickly as possible.