Members of the European Union have ratified an agreement with China to resolve the trade dispute over the alleged dumping of Chinese solar panels into the European market. The deal, which was first proposed in July, would allow participating manufacturers to avoid paying anti-dumping and anti-subsidy duties if they set a minimum price on their products sold in Europe while also restricting the volume of imports. This decision would end the two inquiries that began over a year ago and will be effective from December 6 onwards. ((Bloomberg)) We believe that these developments are positive, particularly for tier-one Chinese solar companies, since it would allow them to continue business in Europe without significantly increasing the landed cost of their panels. The agreement is also likely to come as a shot in the arm for European downstream solar companies who had been contending that tariffs would be detrimental to their business.
Details Of The Deal
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Chinese panels would have to be priced at a minimum of 0.56 euro (about $0.76) per watt in order to qualify for the duty exemption, with a cap of 7 gigawatts (GW ) of solar panels being exempt per year. After this volume limit is exceeded, panels would attract anti-dumping duties that range from 27.3% to 64.9% as well as anti-subsidy duties that would range from 3.5% to 11.5%, depending on the manufacturer. There are a total of nearly 90 Chinese companies – including Yingli Green Energy (NYSE:YGE) and Trina Solar (NYSE:TSL) – that will be participating in this agreement. The anti-subsidy and anti-dumping protection would be in place for two years, which is less than the typical five year term that the E.U. normally offers. 
Tier-One Chinese Manufacturers Could Benefit At The Expense Of Smaller Producers
Chinese solar manufacturers have been reporting average selling prices of roughly $0.65 per watt over the last quarter, which is around 17% below the base price set by the E.U. We believe that the move to set a pricing floor in the European market could bode well for some tier-one Chinese manufacturers such as Trina Solar and Yingli Green Energy, who could benefit at the expense of small and medium-scale producers. Tier-one companies are likely to be in a position to compete head-to-head with European manufacturers given their differentiated products and technology. On the other hand, we believe that smaller producers, whose products are less differentiated, could suffer as they would have to price lower quality products at the minimum price.
Despite the agreement, it is still likely that a significant portion of Chinese panels exported into Europe will face duties. Total new solar installations in Europe stood at around 17 GW in 2012 and Chinese players held close to 80% of the market, translating to over 13 GW of shipments.  Assuming that installations and market share stay relatively flat or even decline modestly going forward, it would still mean that the total volumes of Chinese panels sold would exceed the 7 GW limit, therefore attracting duties.Notes: