Settlement of China-EU solar row speaks volumes

Cui Hongjian, director of the European department in the China Institute of International Studies

There are several reasons underlying the settlement of the China-EU solar panel dispute, which was reached in such a short time.

First, both sides had their own self-interest at stake. China and the EU are part of the same production chain, but in different divisions. There were also two different voices inside of the EU. The European Commission shouldn't have considered one voice only.

Second, more ideas came during the communication process. Most importantly, a new model focusing on high-level conversations between China and the EU was utilized to solve the dispute.

Negotiations in the technical field with consultations among high-level officials from the two sides is expected to be a new model of communication going forward. From the current view, this new model was effective, highlighted by the comprehensive strategic partnership of China and the EU.

Lastly, divergence happened inside of the EU. The European Commission needed support from member countries.

The settlement of the dispute benefits both sides: Karel De Gucht had made it clear the desire to guarantee the safety of the EU industry and restrain the growth rate of rising costs.

As for China, it has to protect the interests of capable photovoltaic companies on one hand. On the other hand, the dispute also provided an opportunity for the industry, which has excessive capacity due to rapid development in the past, to upgrade.

That is to say, the settlement makes it possible for enterprises with core technologies to further develop in terms of size and strength, and enhance their competitiveness, instead of only competing on low prices.

Potential conflict between China and the EU in the future: Bilateral trade volume between China and the EU is so large that later conflicts will not just be in trade, but also in industries.

Future trade friction between China and the EU will not be limited in prices and tariffs. The frictions will develop an industry aspect. Frictions will become normal and occur more and more in high technology industries.

For instance, the EU investigated several Chinese products in the telecom industry. Chinese high-end machine tools are being exported to Europe now, so frictions are possible in this sector in the future. Friction is not something to be afraid of. The important thing is to introduce a set of negotiation mechanisms that are bound up with the times. The negotiation mechanism in solving the solar panel dispute this time will probably improve in the future, creating a combination of technical negotiations and high-level communications.

The importance of the China market: As we can see, during this photovoltaic dispute, countries supporting the European Commission to take tough measures are running trade deficits with China, and vice versa. For example, Germany not only has become an important economy of the EU, but also runs a large trade surplus with China perennially.

Another example is the UK. Despite a trade deficit in cargo trade, it has a sheer surplus with China in service trade. It believes that it still has comparable competitive advantages over China, so they feel highly of growth potential in Chinese markets thanks to its large population, rising income level, and growing purchasing power. Therefore, for countries that boast competitive advantages over China, they will not give up long-term interests for immediate interests in the photovoltaic sector.

Certainly, China is not afraid of trade frictions with the EU, as China has its own coping strategies. There should be strategies available to deal with trade friction. On the one hand, there should be a common view of solving problems by negotiations. On the other hand, having counter strategies is important. As was the case with the investigation of polysilicon, the amounts were not big compared to the sum involved in the photovoltaic case, but cooperation between both sides can be seen in this industry. There was something friendly in the each to the other, which stimulates disruption in European Commission. Take wine as another example. The amounts were also small, but the growth potential was huge, and the EU's future wine market is still in China.