At the beginning of the month, the European Commission imposed provisional anti-dumping duties on Chinese solar panels, the biggest anti-dumping case the EU has ever undertaken. The escalating trade conflict over solar panels has triggered a series of disputes concerning other products that have sparked fears of retaliation and trade war.

China’s photovoltaic industry is being accused of selling their products below the production cost in an attempt to gain unfair advantage in the solar panel market by driving rivals out of business, a practice known as “dumping.” An official investigation and report is still pending, but the Commission has the authority to impose temporary trade restrictions even before the official investigation is finished. Despite opposition from a majority of member states, the Commission decided to levy initial punitive tariffs of 11.8%, which will rise to 47.6 % on August 6 if no agreement is reached with the Chinese government. The provisional tariff may be removed in December if desired by the member states; otherwise, it will apply for up to five years. Karel De Gucht, the EU’s trade Commissioner, said that the imposition of the tariff is intended to ensure that Chinese companies follow international trade rules and preserve the rule of law.

However, the Commission’s decision was opposed by the majority of the member states, led by Germany, the EU's biggest exporter, fearing a wider impact on trade relations with China. Within days after the Commission announced Chinese solar tariffs, China launched an investigation into the dumping of French wine. Soon afterwards, Beijing announced plans to punish luxury German car imports. China is targeting products from specific EU countries in order to drive a wedge between EU member states. Solar industry experts warn that the duty will increase prices, severely damaging the already vulnerable solar market and derailing Europe’s clean energy efforts. The EU itself has a history of heavily subsidising its own solar panels, and taking other actions to promote the positive externalities that come from distorting the market in favour of low-carbon energy. It is thus hard to accept the Commission’s claim that the natural price of Chinese solar panels should be 88% higher, as green energy policies necessarily lower the price of solar panels below what it would otherwise be in a competitive market. Critics say that the Commission is placing special interests—the European solar panel industry, which already benefits enormously from government largess—above the EU’s commitment to lower carbon emissions, and the needs of European consumers sensitive to energy prices.

The EU's decision jeopardises important but vulnerable EU-China trade relations. Europe’s economy is currently in a struggle exacerbated in part by shrinking domestic demand, and the last thing the EU needs is a trade war with its second-largest trade partner. China’s market for EU goods is huge and is rapidly expanding. EU exports to China reached €190 billion in 2010, more than four times the figure a decade before. Since Europe depends on exports to fight the recession and stimulate recovery, protectionism can only make the situation worse as infamously occurred during the Great Depression. China is unlikely to back down, for reasons of national pride, because of perceived EU hypocrisy, and because its 80% share of the EU solar market is at stake. The Commission should take a more pragmatic approach to deal with the trade dispute. Mutually open markets should be a common goal for both parties.

This coming fall marks the 10th anniversary of the EU-China “strategic partnership.” However, the relationship can be rocky. Moreover, bilateral trade agreements between China and individual member states have overshadowed attempts to pursue joint EU interests. Germany is currently the most important strategic partner for China in the EU. Significant Sino-Maltese relations are at least 40 years old. On June 4, Malta and China signed an agreement to harmonize academic standards, deepening the relationship. Ironically, this was the same day that the EU announced anti-dumping tariffs on Chinese solar panels. The EU as a whole needs better trade relations with China. Malta in particular is relies heavily on international trade, and Maltese geography puts our country in a position to benefit from less expensive solar energy.