PV-Talk: Finlay Colville on EU-China trade dispute

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As the EU and China announce they have settled their long-running solar trade dispute, details are still hazy and many more questions remain. PV-Tech put some of those questions to Finlay Colville, VP of the industry analyst firm NPD Solarbuzz.

Which side will be happier with the reported price of €0.56 per Watt (US$0.74)?

I think the issue isn’t so much on what the price is. A lot is being made of that but I think it’s a bit of a red herring. The big thing is that there isn’t going to be a duty applied.

There is only going to be a duty applied to the Chinese companies that do not participate in the negotiated deal with the EC. They will get the full 47% tariff, which is unworkable. So we can assume that the companies that supply in Europe won’t have the duty applied to them.

That’s more important because the price level will be acceptable for basically all the Chinese firms. They don’t just sell modules. When they do business with Europe there’s a lot more going on than selling a module. People are looking at this as being singularly about module sales and that is not how the PV business works any more.

Who’s the winner overall from these talks?

It’s a really massive victory for the Chinese, the fact there is not going to be an anti-dumping tariff applied. That’s the biggest victory for them. Whether the price was €0.50 or €0.55 or €0.60, I personally don’t think it makes that much of a difference. They are not just selling modules, they are supplying project finance, mounting, inverters…it’s a lot more complex than just supplying modules on their own. It’s not that black and white. It might have been a problem for them if it had been €0.86! But anything in the range of €0.50-0.60 is absolutely workable.

If a duty had been applied, there would have been an automatic benefit to the European manufacturers because they wouldn’t have that duty. That advantage is not there for them now.

So the European project developers will be happier today than the European manufacturers?

Undoubtedly. They’ll be working on establishing contracts with the key Chinese suppliers now for the next 12 months. The nightmare scenario for everyone was an anti-dumping duty. That would have landed a direct hit on the downstream margins. Compared to that scenario, the downstream project developers could have had it an awful lot worse.

Will the cap be a more significant number for the Chinese manufacturers than the price?

It’s a bit unclear how the cap is going to work. There’s an issue about how this is going to be policed and administered. Who is counting the numbers? Who knows what the market will look like ahead of time. It’s a little bit scary that the EC is forecasting demand for Europe now going out two years. This problem will not go away and people will be questioning this constantly. With regard to the supply and the cap and the size of the market as policies change in countries, it will be hard to monitor, very complicated.

If the cap is 7GW and the EU wants closer to 60% than 80%, for the Chinese if they have got clarity on that they will be happy. The market is still there for them. This year Europe represents 33% of the global market, next year it could be a quarter, regardless of anti-dumping, so whether it’s 60% or 80%, it’s less of an issue than it was previously.

A lot of Chinese manufacturers are setting up operations outside of China anyway. There are more trade cases coming up with so they can easily supply the 7GW and then supply another 2GW from non-Chinese-based manufacturing plants and bring it back up to 80 or 90%.

How does the US case compare?

The US was quite clear in terms of how they did their anti-dumping countervailing case, what they put in place, what was included and what wasn’t. Since they did that the US market has gone on increasing state-by-state, prices are going down.

What now for the Chinese manufacturers, will they look to make up for the lost European business in other markets?

Whether there was an anti-dumping case in Europe or not, wherever there is an emerging market, the major manufacturers, including the Chinese, will be in it. What’s happened in the EU anti-dumping case will make no difference to the Chinese going after other markets. It’s been on their radar for years.

The other thing to note is that the European market going from 33% to 25% did not happen because of dumping, it was about policy changes in Germany, Spain and Italy.

Is the agreement a bigger deal for Europe than the Chinese?

If Europe had done a carbon-copy of the US approach and thrown on a severe anti-dumping tariff it would have set a precedent for everyone else to do the same, there would be cases in India, the Middle East…they would have two solid precedents to put anti-dumping measures on the Chinese.

So China will be relieved that Europe has not put on a duty, not because of the effect on European demand but because manufacturers in other countries would have submitted complaints in the hope their government would also establish anti-dumping tariffs.

How would a variable minimum import price work and is it necessary?

There has to be some sort of mechanism to make sure Europe doesn’t get left behind in global improvements in cost reduction. The pricing we see today, regardless of what anyone says, is to do with overcapacity, competition for business and strong cost reduction by the manufacturers. The worry about setting a price now is that in 18 months, if the manufacturers have reduced costs even further, the costs outside Europe could decline significantly below that €0.56 level. That opens up markets beyond Europe and leaving it stuck on this fixed level. It absolutely needs some kind of a set period for €0.56 level is applicable for and there needs to be a mechanism to adjust that as people improve their processes. Two years in the solar industry is a long time. Two quarters is a long time and €0.56 for two years is in no one’s best interest. How it would work in practice? Who knows. It comes back to who polices this process, it’s a full time job for a whole bunch of people, full-time.

Once the details of this agreement are settled, will it be the end of the matter?

No. It’s going to run and run and grow like a snowball for the next two years. Fundamentally, the European Commission had to do something once it said dumping was going on. They had two choices, apply a percentage tariff and walk away. That was the simple option. Or they could conjure up something with pricing and a cap. Now they are trying to administer something from the political stage onto a highly turbulent rapidly changing PV industry and applying to deals between two companies, selling through supply chains to different markets in different structures of deals. I can’t see how this can be effectively administered so it will run and run. There’s no precedent. This isn’t a happy ending. We’re just starting.

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