EU solar duties targeting China could backfire

EU commissioners backed a proposal to levy punitive duties on Chinese solar panel manufacturers on Wednesday, with many believing that the move will protect Europe's economic interests.

But the results could prove otherwise.

Anti-dumping duties on imports of Chinese solar panels that will come into effect after the European Commission publishes the decision in its Official Journal, will range from 37 to 68 percent, according to media reports.

The EU's tariff proposal came after the 27-member bloc accused Chinese solar companies of selling panels below cost in Europe in an effort to gain market share, an accusation that has been rejected by Chinese solar panel makers.

A complaint was lodged by EU Pro Sun, an ad hoc association representing more than 20 European solar panel producers.

However, many of these companies have simply made mistakes in judging market trends.

When the global photovoltaic industry saw its golden days at the beginning of 2008, many European companies signed fixed-price supply contracts with Chinese solar panel exporters with terms as long as 10 years, fearing that they would have to endure high prices in the future.

But the European sovereign debt crisis led to sharp cuts in government subsidies for the solar energy sector in Europe and sent polycrystalline silicon prices down to 50 to 100 U.S. dollars per kg.

The EU's protectionism sends the wrong message to the business world, particularly at a time when Europe is still struggling.

China, which is now EU's second-largest trade partner, could certainly join the endeavors to help pull the bloc out of recession with the power of its massive demand. China-EU trade stood at 168.16 billion U.S. dollars in the first four months of 2013, topping China's trade with the United States and Japan.

However, the punitive duties could open a Pandora's box that would derail Europe's solar energy efforts and damage China-EU trade relations.

A study by independent research institute Prognos showed that duties of 60 percent would cost Europe up to 242,000 jobs and 27 billion euros (35.5 billion U.S. dollars) over the next three years.

The Alliance for Affordable Solar Energy, a coalition of more than 450 European photovoltaic companies, called the proposed punitive tariffs "extremely disturbing," saying they would cause "irreversible damage" to Europe's entire photovoltaic value chain.

The notion that China will do nothing and quietly accept the duties is unrealistic.

China will likely retaliate unless both sides can sit down and figure out a feasible way to avoid a trade war. The duties will only create a lose-lose situation for both sides.