EU tariffs for Chinese PV panels: Haven't we been there before?

The European Commission is addressing complaints from European solar manufacturers alleging that Chinese rivals are benefiting from unfair subsidies. But are import tariffs the answer?

The world has just gone into a major economic depression, Europe is considering raising trade boundaries, a major power is seeking to boost its domestic industrial output to encourage economic growth, trading blocs are disintegrating and there is trouble in the Middle East. Does all that sound familiar to you?

I know what you’re thinking: 1930s Europe, the post 1929 Wall Street crash... or perhaps you were thinking of 2010’s financial crisis and the post sub prime mortgage crash?

In reality the issue about market dumping and trade wars, encouraged by governments’ nationalistic agendas is nothing new. All has been played out before on the world stage, recently in the 2004 "Bra Wars" with China, but I think it would be helpful and informative to look back to the 1930's, just 10 years after Einstein's pioneering paper on the photovoltaic effect.

Back in the 1930s, the nations looking to boost their economies were Germany, Russia and Italy. All had different motives but their primary focus was to challenge the hegemonic system run by the British, French and Americans of free trade and the Gold Standard. All had general motives in wanting to increase their independence from this hegemonic trading block to allow them to pursue different political goals at the time; Germany was controlled by the Nazi’s who wanted to restore German pride and build a 1000 year Reich. The Stalinist Russians were building the communist world order and the Italians were trying to create the new Rome led by Mussolini.

The subsequent tit for tat, trade treaties and embargoes, political duplicity and sabre rattling that eventually led to war are well documented, but the carefully understood policies of these countries in this time is known by an anachronistic political term. Today we talk about globalization, interconnectivity and free trade as great political neo liberal buzz words with many and varied meanings, but in the 1930s, political commentators were using terms like autarky, economic nationalism, and national socialism to refer to the economic and political maneuverings.

Economic nationalism is very simply the strategic nurturing of domestic industries, to allow greater political maneuver on the world stage. In the 1930s, aviation, automobiles, shipbuilding and railways were key strategic industries to protect and nurture, all key to the challenges on the world stage of trade maximization, preparedness for security and support of population. Today the global challenges are different, as are the industries, so today we are looking at energy production, computing and biomedical science.

Autarky is another term which I have seen popping up from time to time recently, especially regarding energy independence. Literally it means self reliance. On one hand this is a good thing, that countries and groups take responsibilities for their own energy use and therefore are more careful with consumption, leading to less climate damaging activities. On the other hand it can be seen as a means to an end, to allow greater political capital for the countries involved, allowing them to get away with worse international misdemeanors and be a bit naughty. This is because it helps eliminate some of the hold that other countries can hold over a nation.

For example Russia’s recent cutting of oil and gas supply lines to Ukraine in 2009. It could be argued that if Ukraine were energy independent it would be less vulnerable to the whims of Russia. How it would get to that position, however, could lead to some very bad decisions in terms of effective use of resources. For example in the 1930’s Germany manufactured petrol out of coal in a very wasteful manner at low efficiencies, known as the Bergius Process.

There are pros and cons to autarky but the challenge that we have of reducing global carbon emissions should be approached internationally. Some countries simply don't have vast supplies of fossil fuels or limited national resources to turn into a sustainable energy strategy, because simply they aren't very big, or that they are in inconvenient positions geographically. The interconnected web of the global energy supply is too tangled, so I hope for now that autarky is left on the shelf as a policy.

So what should we do now?

As China’s government directs great resources and effort into boosting its PV industry, and indeed many other strategic industries, what should the EU and US do to maintain stability in their markets? What they shouldn’t do is erect trade barriers based on cost and subsidy, as this will only lead to increased Chinese costs and reciprocal blocking of markets in China for European goods. A country with the economic might of the US, second only to China, might manage this successfully, but the European Union, weakened by the Euro crisis, large levels of debt, domino effect bankruptcies and political fracturing would need a great deal of concerted effort that it cannot afford to put in place.

In some ways the Chinese government’s strategic bankrolling of PV companies has had positive influences. It has driven a race to the top of tier one modules and a drive for product innovation to gain the edge in the solar market can only be a good thing. Chinese manufacturers have striven to match the manufacturing quality and warranties offered by European and American manufacturers (who are often themselves using Chinese components and only assembling them in Europe, or using Asian located factories).

As the solar market moves forward globally and European manufacturers wish to have some protection, a rise in the quality required by manufacturers of imports would aid established European manufacturers and give customers greater confidence; bolstering the market and creating a barrier to trade to those who do not meet the new required standards. This will still lead to some ‘dumping’ of Chinese modules into the European trade area, but at least they will be of good quality. Eventually this will stop as the substandard modules won’t get into the market and go elsewhere. Eventually the high quality modules will find their way into other global markets in Asia, Africa and South America as consumers become more selective in their module choice and aren't prepared to invest in lower quality products.

Pollution and accountability of production should be countenanced and recorded too. There are some very light attempts at accountability currently, like the Silicon Valley Toxics Coalition, but, if the European Union is careful, they could craft a robust approach to ensuring that both its own manufacturers and foreign imports will work to the highest standards in both their manufacturing processes, wastage, and disposal. This will ensure that PV manufacturers will not leave a deceitful environmental legacy and guarantee that they will make material, genuine contributions to decarbonising electricity production and addressing climate change.

Another barrier to entry that the EU could look at is the instance of good labor standards and transparency of production. The EU has some of the most forward looking countries in the world that pioneered labour law, union rights, health and safety and social responsibility. If the EU is to erect barriers to entry for Chinese, or indeed any manufacturers, then let the barriers be demanding social responsibility, workers rights and fair pay, not tit for tat trade wars.

The EU's previous attempts at trade barriers and economic incentives at a large scale have had some success, but also large failures. Under the current uncertainty over the presence of some EU countries liquidity, the urgent need for the reduction of CO2 emissions and China's determined, strategic goals of subsidizing of their PV markets, let’s not push against the tide. Lets try to divert it towards something that the EU is built upon, liberal support of domestic markets. If we fail to stop subsidized Chinese modules entering Europe currently and the tide still comes and PV is installed at a growing rate. But those panels are made slightly more environmentally friendly, with better workers' rights and conditions, to a better standard, as matched in Europe, then, the policy can only be seen as a success. History shows that a tit for tat trade war is unproductive and wasteful, when strategic goals of large nations are at stake. In a capitalist, globalized, neo liberal economy we should utilize the liberal socialism that European markets operate on, excel at and can control internally at will.

This was published on the www.2degreesnetwork.com and the original can be seen here: 

http://www.2degreesnetwork.com/groups/renewable-power-for-business/resources/eu-china-pv-trade-war-havent-we-been-there-before/