EU watchers await the sequel: SolarWorld vs. China, part II

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Jesse Pichel, equity analyst for Jefferies, commented on the reason for the call: "There are a number of moving pieces at this point," he said, "however, we see an anti-dumping duty as more than a remote possibility, which will remain an overhang on Chinese module producers." He added today, July 2, that chairman of Bosch group, Franz Fehrenbach, recently showed his support for an EU trade case. "With Bosch we [Jefferies] believe SolarWorld will have the necessary support to move forward with its dumping case. We believe the case will likely move to the next stages which will remain an overhang on Chinese module producers."

Manufacturer backing

During the conference call held on June 28, Pichel introduced EU trade law expert, Jennifer Paterson, who works in Belgium for the practice, Herbert Smith LLC, and who explained that, in order for a complaint to move forward in the EU, it must have backing from manufacturers that in toto represent at least 25 percent of production of the goods involved in the dispute.

In addition, several factors specific to the EU Commission could determine acceptance of the complaint for consideration, as well as the level of possible penalties levied as a result.

  • Injury margin: Instead of looking solely at the dumping margin, as is done in the United States, the EU also calculates an "injury margin" – any final duty imposed represents the lower of the two.
  • Community interest: Rather than considering only the alleged injury to a defined industry, as is done in the United States, the EU Commission investigates whether the decision would be detrimental to the "community interest" as a whole. This enables upstream and downstream companies, as well as consumers, to exert greater influence over complaints in Europe than in America.
  • Market economy treatment: While the United States is treating China as a non-market economy, the EU allows Chinese companies to request market-economy treatment (MET). Between 2005 and 2010, roughly 20 percent of the requests to the EU Commission for MET have been successful; however, according to Paterson, more recently, there has been a tendency to grant MET less frequently.
  • Single authority: The United States has a bifurcated system, with both the Department of Commerce and the International Trade Commission (ITC) involved in the findings. By contrast, the EU has one investigating body: the EU Commission.
  • Transparency: Unlike the United States, the EU does not provide lawyers with access to non-confidential data on either the industry in question or other respondents. They must seek out pricing and production data on their own.

Due process

An antidumping case in the European Union follows a set process and timeline. After a complaint is filed, the EU Commission has 45 days to initiate an investigation, provided that it has been presented with sufficient evidence of malfeasance and that at least 25 percent of the total production capacity supports the complaint.

If an investigation is initiated, the Commission has between 60 days and nine months to reach a preliminary determination; and the final determination must be completed within 15 months of complaint initiation.

Paterson said she believed that this complaint would move forward following the 45-day investigation, because, "In this case, the [European Commissioner for Trade] Karel De Gucht of Belgium, is sympathetic to dumping allegations.

"The nationality of the presiding commissioner can and does have a lot of impact on the outcome of the case," she said, explaining, "In the past, the presiding commissioner was from the United Kingdom, which meant that a lot of cases were terminated instead of tried, because he was for free trade."

As for the magnitude of the AD duty, Paterson opined that, "If duties are imposed, EU duties are generally less than those imposed in the United States. Statistically, EU AD duties are roughly one-third of duties in the States. But the amount may not matter, because even small duties could eliminate the Chinese cost advantage and spur the need for Taiwanese or EU-made products."

Finally, are the Chinese prepared? "At this point," said Paterson, "the Chinese companies definitely are aware that the case is pending and they are thinking about how they are going to complete their market-economy application. That’s a long form, and it takes time to fill out, but it’s due shortly after the complaint is made."

By contrast, in the European Union, Paterson noted, "Generally speaking, there’s a cooperating company duty and a non-cooperating company duty. The Chinese will cooperate and get investigated, because otherwise their penalties could be greater."

AD complaint

This AD complaint will be pursuant to the case made in October 2011 by the company’s subsidiary, SolarWorld Industries America of Hillsboro, Oregon. At that time, SolarWorld and its six fellow U.S. solar manufacturing complainants brought their allegations to the U.S. Commerce Department and the U.S. International Trade Commission, and in 2012, their petition resulted in the preliminary imposition of duties on shipments of solar products from China.

Commenting on the disposition of that case in late May, SolarWorld CEO, Frank Asbeck told Bloomberg that the U.S. decision represented "a first step so that we can return to fair competition based on technology….It’s a signal for Europe, where we plan to file a similar complaint at mid-year."

And during the past four weeks, the rhetoric has ratcheted up a few extra notches:

  • On June 3, WirtschaftsWoche, a business magazine, ran an interview in which Germany’s new Environment Minister, Peter Altmaier insinuated that the government might back a trade action, following the insolvency of at least five domestic solar companies since last December;
  • On June 4, SolarWorld’s Asbeck said that, while the company had not (yet) filed a complaint with the European Commission, the proceedings also could be initiated by individual European Union (EU) members or the Commission, itself; and
  • On June 6, SolarWorld announced that it would slash 250 to 300 jobs in Germany, as a result of government subsidy cuts and alleged dumping of Chinese solar products on the European market.

Many industry insiders expected word of the complaint to break during Intersolar Europe, June 13-15, in Munich, but the prime movers remained mum.

Edited by Becky Beetz.