China, EU Solar Talks Less Cloudy

Doug Young

After a disastrous round of talks last month that broke down almost as soon as they began, China and Europe look set to try again with a new round of negotiations to resolve their dispute over the EU’s claims of unfair state-support for Chinese solar panel makers. Much has changed since the failed round of talks in late May, including a growing number of individual European leaders who want to resolve this dispute through negotiations rather than trade wars. As a result, this new round of negotiations will take place between top-level government officials, an important change for both practical and symbolic reasons that I’ll explain shortly.

While it’s obviously still too early to say what the result of these new talks will be, the latest signs of a growing desire to solve this crisis through dialogue should give these new negotiations a good chance of success, perhaps around 70 percent. The sudden change to a more positive approach marks a distinct break with the past, when similar disputes most often saw western countries take unilateral punitive actions, evoking angry responses from Beijing. Accordingly, I’m cautiously optimistic that this new formula could emerge as a template for helping the west solve some of its larger trade disputes with China without having to resort to the usual trade wars.

Let’s take a look at the latest headlines, which have media reporting that the EU’s top trade official will travel to Beijing on Friday to discuss the dispute. At the heart of the matter is China’s strong state support for its solar panel sector, which it provides through means such as cheap loans and low-cost land use rights. The talks will be attended by the EU’s top trade official, Karl DeGucht, and Gao Hucheng, the top official at China’s Ministry of Commerce. (English article)

The location for and participants in these latest talks contrasts sharply with what we saw in the failed negotiations last month. Those talks took place in Europe, and involved lower-level EU trade officials and the top official from China’s main solar panel industry association. (previous post) I previously said that China made a big mistake by sending such a low level, inexperienced negotiator to those earlier talks, and I also faulted the EU team with failing to explain the process properly to its Chinese counterparts.

After those talks broke down, the Chinese negotiator returned to Beijing and held an angry press conference blaming the Europeans. The EU negotiators defended their position by saying the talks were only informal preliminary discussions. Afterwards, first Germany and then a number of other European leaders stepped up and said the matter needs to be resolved through negotiations, rather than through punitive tariffs that Europe is proposing.

This time I wouldn’t expect to see any of the angry rhetoric, since both De Gucht and Gao are experienced negotiators with strong diplomatic skills. The moving of talks to Beijing is also important both practically and symbolically. On the practical level, it means that Gao can easily consult with other government agencies and industry groups as he tries to address some of the EU’s concerns about ending unfair state support. Symbolically, the move to Beijing also helps China to save face, as it shows the Europeans are coming to China this time rather than forcing the Chinese to come to Europe.

I do have to stress that all of these positive developments are largely procedural, and that any deal could still be difficult for the simple reason that many of Chinese government’s state-support policies may be hard to dismantle. But at least this shows that both sides want to try negotiations, marking an important shift in tone to a more positive approach to reach an amicable agreement.

Bottom line: New talks between top EU and Chinese officials to end their solar dispute reflect a new positive approach, and could stand a 70 percent chance of success.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.