EU, China should use summit to avoid trade collision

BEIJING - When Chinese Premier Wen Jiabao arrives in Brussels Wednesday for an annual summit with European Union (EU) leaders, the recent trade friction over China's solar panel products is expected to feature on the agenda.

The case involves more than $20 billion of Chinese exports, the biggest so far, and constitutes a test of the EU's commitment to free trade.

Despite Beijing's urge for dialogue, the European Commission initiated an anti-dumping investigation into China's solar panels on September 6, based on accusations by German firm SolarWorld and several other European companies that Chinese solar makers received illegal subsidies and sold their products below market value in Europe.

The accusations are untenable. For a start, it is the significant drop in the costs of raw materials, not government subsidies, that has driven down the price of China's solar products.

For example, the price of silicon wafers, a basic ingredient of solar cells and accounting for more than 20 percent of the product's total costs, has fallen from $30 to $18 per kilogram since the beginning of 2012.

China has also embarked on a campaign geared toward intensive production to improve manufacturing efficiency and sharpen the industry's competitive edge, further contributing to lower prices.

Ironically, SolarWorld itself has received support from the German government, totaling about 137 million euros from 2003 to 2011, according to the German Center for Solar Research, a Berlin-based solar industry research institute.

The European Commission should be careful about its investigation and avoid rushing to slap tariffs on China's solar panel products, a move likely to set off a trade war which would be no good to either side.

Punitive tariffs would not only hurt Chinese manufacturers, but also trigger a backlash for European companies, which would suffer declining demand for relevant raw materials and equipment worth tens of billions of US dollars from Chinese enterprises.

On top of that, the photovoltaic power system installation industry in Europe, which has created 200,000 jobs, would also be in for layoffs.

The upcoming China-EU summit is a golden opportunity for the two sides to seek a proper solution to the latest trade dispute, which is particularly important in the current economic environment.

At a time when Europe is struggling with a sovereign debt crisis and its trade with China has already suffered, the first step in the right direction is not to set up trade barriers, but to tap the full potential of bilateral cooperation.

The EU, for its own good, should not give in to protectionism and should honor its commitment to free trade.