China-EU Solar Panel Dispute and Negotiations

As argued above, the overhaul of the coal liquefaction projects was a result of an intra- departmental conflict within the NDRC, which has brought very damaging impacts to the prospect of China-EU RE collaboration. The recent Sino-EU solar panel trade dispute has

193 even further worsened the potential for collaboration. This particular dispute has become one of stumbling blocks to overall Sino-EU relations. It is crucial to acknowledge and understand that the lingering Euro sovereign debt crisis is an important cause of the dispute. The media and think tanks from both China and the EU have offered detailed analyses on the economic and business sides of the damages. The vertical division between the EU Trade Commission and the Member states has also been widely exposed and discussed, whereas little focus has been given to the political side of the dispute inside the Chinese policy making apparatus.

This part of the section will discuss two aspects of the dispute which have been under-studied by current policy analyses. Firstly, based on several interviews I conducted in the past few

months, this thesis will argue that the solar panel dispute marks an important shift of China’s,

or the Party’s, strategy towards the EU. The Chinese government has played “a divide and

rule” game between the Commission and the MS when it comes to engaging with the Union. Beijing had engaged with both Brussels and the MS simultaneously until late 2008. However, since 2009 the Chinese government has exhibited a tendency of marginalising the EU institutions, and instead sought to explore greater commercial and political ties with individual MS.

Secondly, various Chinese institutions seized the opportunity in dealing with the trade dispute either to restore their bureaucratic status or to extend their influence within the Chinese foreign policy making process. An intra-departmental conflict, as described previously, has been transformed into an inter-departmental competition.

As referred to in Chapters Two and Three, the Chinese government, or the Party leadership, has always been puzzled by the EU as a Sui Generis entity. As a Chinese scholar asserts,

194 “Beijing has never felt at ease when it only engages with the EU institutions (Chen& Armstrong, 2010: 135)”. Therefore, the Chinese authorities have learnt to interact with the

EU and the MS simultaneously from an early stage of their so-called “strategic partnership”.

During the past eleven years, the Chinese government has witnessed Brussels’ inability to

resolve both domestic challenges, and its failure to extend its influence globally. As a result, China has begun to give a much strong emphasis on cultivating greater bilateral relations with the major MS.

The EU institutions, especially the Commission, realised that it has been sidelined and

ignored by the Chinese authorities. This was illustrated by Beijing’s refusals to attend most of

the Commission’s meeting requests77. Meanwhile, the current Trade Commissioner Karel de

Gucht has been very vociferous in his criticisms of China on an array of trade and

investments related issues. In order to draw the Chinese authority’s attentions back to the EU

Commission, “De Gucht himself launched a flurry of trade investigations against China when he became the Trade Commissioner in 2009, such as an anti-dumping investigation against Chinese telecom manufacturers, and an anti-subsidies case against Chinese high-end paper manufacturers” (Southern Weekly, 2013). Most of his predecessors had only opened cases under the requests of targeted European manufacturers.

Unlike his predecessors, De Gucht initiated these case investigations from the Commission and then collected evidence from individual manufacturers. “The Chinese government was furious by De Gucht’s series of investigations and therefore declined to communicate with

the Commission even further.”78 Instead, the Chinese government under both Wen Jiabao and

Li Keqiang have stressed the importance of sound bilateral relations with the MS and paid

77 Interviews with members at DG Trade in Brussels

195 frequent visits to various European capitals.

According to the observation by some Chinese scholars, “both of them have strengthened and

revived commercial ties with “old” MS such as Germany and France, and harnessed good

relations with Southern and Eastern “New” MS” (Liu,2013; Xu,2014). The Chinese

authorities has also understood that the final decisions on whether to imposes retributive duties to potential recipients has to be decided by Qualified Majority Voting within the EU. Surely, the more MS that have sound economic ties with China, the less likely the MS would

jeopardise their companies’ commercial interests in the Middle Kingdom by voting against

the Chinese solar panel exports.

In the case of the Sino-EU solar panel dispute, De Gucht failed to convince most MS which have had a well-developed and matured solar energy sector to impose retributive duties on China. In particular, Germany as the front runner of world solar energy has opposed the investigation as well as imposing retributive duties. As one world trade expert suggested,

“The German government and the EU Commission appear to be doing their best to undercut

the EU’s ability to wield international influence” (De Jonquieres, 2012). De Gucht’s

initiatives and the German opposition have become an almost open invitation to let China practice “divide and rule” tactics further. These investigations have hardly restored the

Commission’s status as the EU’s “chief executive”79 for the EU’s China strategy. Failure for

such an investigation has further encouraged China to marginalise the Commission, if not the EU institutions as a whole.

Unlike previous Sino-EU trade dispute, the top Chinese leaders have put a strong emphasis

196 on tackling the solar panel dispute. According my interviews in Beijing, the Small Leading Group for External Affairs held two meetings between July 2012 and December 2012 to specifically discuss the dispute and possible solutions. As indicated in interviews, “it has been extremely rare for the Small Leading Group to meet so frequently in such a short period

of time”80. As both my interviewees and a media report pointed out, “the solar panel case had

temporarily become one of the highest priorities in Chinese foreign policy, alongside territorial disputes, because the imposition of a retributive duty would jeopardise the survival of the Chinese solar energy sector, which in turn would cut over 400,000 job opportunities”

(China’s First Financial Daily, 2013b)81. The second aspect of the dispute I will explore is the

roles that the Chinese central governmental institutions have played before, as well as their participation during the dispute negotiations.

In theory, trade disputes and China-EU relations should be dealt by the MOFCOM and the MFA respectively. However, given the emphasis from the Party leadership and the nature of the dispute, a number of institutions have inevitably become involved in disputes negotiations and policy formation. Some of the agencies or ministries are formally located within

Beijing’s FP making process whereas others are not. Two Chinese institutions have used the

solar panel case to restore, or to strengthen, their capacities as two of the most important actors in China-EU relations, namely, the MOFCOM and the MOST.

The MOFCOM has long been the “chief negotiator” of China’s trade related issues and chief executive of China’s foreign economic policy. However, in the past five years, the importance of the MOFCOM has significantly declined. The causes of its decline in power are twofold. First and foremost, the Chinese economy has gradually transformed from an exogenous-

80 Interviews from those who participated in meetings within the Small Leading Group, Jan 2013

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oriented one to an endogenous growth model. In the first five years of the 21ST Century,

China became a member of the WTO and used its export trade volume expansion to boost the economy. The MOFCOM had played a critical part in preventing China from “being

constrained by the relevant international trade treaties and greatly promoted China’s role as a

World Factory”(The Lawyer, 2013).

However, after the 2008 Global Financial Crisis, the external demand has shrunk dramatically. China could no longer rely on producing low value-added manufacture goods alone to sustain its economic growth. Its export volume had fallen drastically after 2008. The Party Leadership had initiated and endorsed a RMB 4 trillion stimulus package, which mainly “concentrated on domestic infrastructure investments to maintain the national employment rate” (Bloomberg, 2008). Correspondingly, the MOFCOM was lowered to a rather embarrassing status as it had little involvement in the domestic economic stimulus. Despite increasing numbers of trade disputes with the US and the EU, none of these disputes were seen as important as rejuvenating the domestic economy in the wake of the global financial crisis. The MOFCOM had been temporarily marginalised.

The second reason was more on a personal level. The former Minister of the MOFCOM, Bo Xilai, now a disgraced Chinese politician, was a strong character who had tried his best to

elevate and extend the MOFCOM’s influence within the overall Chinese FP making process

during his tenure. For example, he insisted on keeping international economic assistance

within the MOFCOM rather than establishing a new Ministry of International Development82

. After his departure, his successors have had much less ambition and personal capacity to

reinforce the MOFCOM’s political status. As a result, MOFCOM has only become one of the

198 many ministries amongst others, rather than a leading actor in Chinese FP.

The Sino-EU solar panel case offered the MOFCOM a unique opportunity to re-gain its bureaucratic importance. This is because “the Party Leadership wants to resolve the disputes as soon as possible” (China First Financial Daily, 2013a). The MOFCOM has therefore naturally harnessed its own expertises in international trade negotiation and previous experiences in dealing with the EU Commission. To do so, the MOFCOM has established a special team consisting of international trade experts, European Law specialists and veteran

trade negotiators to formulate possible solutions to the disputes83 (MOFCOM, 2012a).

Meanwhile, the MOFCOM has kept in close communication with Chinese major solar panel companies, such as Suntech, Yingli and Trina, to investigate the prices Chinese manufacturers

offer in the EU market and their sales volume in each MS84. The MOFCOM has used this

opportunity to establish itself as the central player of settling disputes both inside the Chinese FP making process and externally to the rest of the world.

The author conducted archival survey to all published documents from MOFCOM related to the Sino-European solar panel dispute. After reviewing all related documents, the author discovered that the MOFCOM has kept the State Council and the Premier himself updated on a weekly basis regarding the progress of negotiations internally. In order to prevent competition from other ministries, the MOFCOM sought support from the State Council and asked the Premier “whether the MOFCOM could be the chief negotiator of the dispute

settlements amongst various equal politically ranked ministries”85. “The State Council

endorsed the MOFCOM’s request and offered the authority of coordination to the MOFCOM” (MOFCOM, 2012b). As a result, the MOFCOM managed to by-pass the NDRC,

83 Interviews with members of MOFCOM, Beijing December 2012

84 Confirmed by interviews with the Head of Government Relations at Trina Solar, Zurich, 2013

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which is the chief player in making China’s RE policy. The MOFCOM has indeed utilised its

expertise and experience to expand its autonomy and influence, when it deals with the EU Commission on solar panel disputes.

Externally, the MOFCOM has also successfully managed to marginalise the MFA during the Solar panel disputes settlements. The MOFCOM has updated the progress of the negotiations through its press office and spokesperson on a weekly basis between September 2012 and

January 2013 whereas the other ministries involved have not done so (MOFCOM, 2012b;

Ibid, September 2012). The MOFCOM’s press conference arrangements signal its success in

side-lining the MFA during the disputes settlements. The MFA’s press conference should

have been the most important one in regards to China’s external affairs, regardless of the

nature of the subject. However, despite the political importance of the solar panel case, the MFA press conference has rarely mentioned solar panel disputes and its related negotiation progress.

According to my archival survey, the MOFCOM and the MFA had held 8 and 20 press conferences respectively between September and December 2012. The MOFCOM mentioned and updated news of the solar panel disputes 25 times out of its 8 press conferences. Whereas the MFA had merely mentioned the dispute 5 times by making the same statements as the

MOFCOM had made86. By calculating those numbers, one can conclude that the MOFCOM

has managed very well to maintain its status as the chief negotiator and coordinator of the dispute from China’s side.

Consequently, the MOFCOM has successfully managed to restore its bureaucratic status as

200 the chief player in Chinese foreign economic policy formation and implementation. Surely, the MOFCOM, like any other players in the game of bureaucratic conflicts, viewed the institutional competition with the MFA as a zero-sum game. It had tried its best to

marginalise the MFA’s involvement in solar panel disputes even through the MFA is also well

equipped, with a substantial number of international treaty experts and veteran negotiators.

More impressively, the MOFCOM had prevailed in turf wars with the NDRC during the disputes. As stated extensively in earlier discussions on the role of the NDRC, it is the single

most important and powerful institutions in the realm of China’s environment and energy

policies. Most documents related to the Sino-EU collaborations were signed by the head of

the NDRC (NDRC 2011; Ibid, 2012; Ibid, 2014). However, the NDRC has played only a

minor role in settling the Sino-EU solar panel dispute. According to a professional consulting

service firm’s data, NDRC’s failure is mainly due to the fact that “the NDRC has become a

victim of its own success through implementation of the 4 trillion stimulus package” (Roland Berger, 2009).

The MOFCOM accused the NDRC of being “the creator of the solar panel disputes”87. The

NDRC let the scale of Chinese solar panel production expand enormously without

considering the actual consumer demand from both in China and abroad. The NDRC’s solar

energy sector expansion plan was simply designed to implement part of the stimulus package. According to the “Regulation of Implementation Stimulus Package”, both central and provincial government should give priority to the examining and endorsing of the development of renewable energy, including: solar, wind, nuclear, hydro and biomass. Following this regulation, the NDRC and provincial governments had encouraged the