China and the European Union are closer to reaching an agreement to resolve their row over European claims of Chinese firms dumping solar panels, according to officials from both sides.  The deal could possibly involve setting a quota for Chinese panel exports into Europe in addition to0 fixing a base price for panels so that the higher anti-dumping duties could be avoided.
We believe that a potential deal would benefit the Chinese solar companies we cover given their heavy dependence on the European market, and this would help to defuse tensions in what is now one of the world’s largest trading relationships.
The Case So Far
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Chinese solar companies expanded rapidly into the European solar market and held as much as 80% market share in 2011. Total Chinese solar exports to Europe stood at around $27 billion in 2011, up from almost nothing a few years ago. However, the flood of cheap solar panels hit European manufacturers hard, resulting in many failures and bankruptcies. This led to complaints from European panel manufacturers represented by trade group EU ProSun, alleging unfair trade practices. This prompted the European Commission to undertake an investigation into whether Chinese manufacturers have been selling their panels in the European market below cost and also whether they received unfair subsidies from the government. The Chinese government retaliated accusing European wine exporters of selling their produce in the Chinese market at below cost and is also considering imposing tariffs on luxury cars manufactured in Europe. 
Chinese solar panels began attracting preliminary anti-dumping tariffs of around 11.8% in June after the European Commission said that it had found evidence that Chinese manufacturers were selling their panels at below cost in the E.U. This rate is slated to increase to punitive levels averaging around 47% beginning in August. The period of the preliminary tariffs is intended to give both parties some time to negotiate a solution.
The Possible Solutions And Their Impact
While the details of a potential deal remain fluid, it could involve setting a minimum price for Chinese panels sold in the European market and may also entail a quota for Chinese panels imported to Europe. Panels sold in excess of this quota would be subject to duties.
Some news outlets have reported that China has offered a minimum price of 0.50 euros (around $0.65) per watt with an annual volume of panel exports of up to 10 GW of modules.  These terms could still be unacceptable to European regulators since European solar installations could shrink this year following subsidy cutbacks in some of the largest markets such as Germany and Spain, and the import quota could still account for as much as 80% of the European market. The pricing also may be seen as too low by European regulators as we estimate that the average selling price for Chinese panels last year was between $0.70 and $0.80 per watt while European panels are sold at over $1 per watt.
Since the proposed punitive tariffs are prohibitively high (47% on average), we believe that reaching an agreement to circumvent them would be very beneficial to Chinese solar players since it allows them to continue their European business without driving up the landed cost of their panels. An agreement would also be beneficial to European downstream solar companies and installers.Notes: