9 june 2013

A trade escalation perilous for Europe

De Gucht should back down in the solar panel dispute

The Financial Times, June 10, 2013

The authority of Karel De Gucht, EU trade commissioner, to impose trade sanctions without full support from member states is meant to protect Europe from divide-and-rule tactics. Yet that is just what the escalating dispute over Chinese solar panels has produced.

After an anti-dumping investigation spearheaded by SolarWorld, a German solar panel maker, Mr De Gucht has threatened tariffs of up to 47 per cent on Chinese panels. This was opposed by other companies, including German groups, which supply high-tech materials to targeted Chinese producers, and by Berlin and other governments worried about broader trade relations should Beijing retaliate.

China duly retaliated, with a diplomatically well-targeted investigation against European wine sales. The EU’s biggest wine producer – France – supported Mr De Gucht. The counter-sanctions are also personal: it turns out Mr De Gucht himself moonlights as a vintner.

Trade restrictions are rarely a good idea, especially when protectionist attitudes are gaining strength, though they can sometimes be a necessary evil to extract concessions from difficult trading partners. In this case, Mr De Gucht picked a particularly bad cause. Europe finds renewable energy a sufficiently high priority for many countries to subsidise it at high rates. At the same time to make solar panels dramatically more expensive is self-defeating at best. Added to that are the usual costs of tariffs – to European consumers, suppliers to China, and the innocent victims of retaliatory actions.

After only 12 years in the World Trade Organisation, Beijing has quickly learnt how to use international trade dispute rules to its advantage. By retaliating, it is flexing its muscle in a way intended to put Europe in its place. An editorial in the People’s Daily, the Communist party’s mouthpiece, points out global “shifts in power” and warns Europeans that China has “plenty of cards [to] play”.

The EU may have little hope of making Beijing like its complex decision processes. Chinese leaders’ preference for dealing with single centres of power was on display in last week’s summit with the US. But Europe can resist China’s desire to treat it the same way. That is why Mr De Gucht’s independence is crucial, and why picking the wrong fight was so damaging. The best course now would be for the trade commissioner to back down on his own initiative – which would be better than being strong-armed by member states – and to base any future actions on more solid grounds.

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