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Contradictory Relationship Between the European Union and China in the Clean Energy Sector

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Table of Contents

List of Figures, Tables and Appendices………………………….

Abbreviation List……………………………………….

1. INTRODUCTION……………………………………

1.1 Problem Statement………………………………………..

1.2 Significance of the Research…………………………………..

1.3 Structure……………………………………………….

1.4 Research Design…………………………………………..

2. METHODOLOGICAL CONSIDERATIONS…………………..

2.1 Case Study Research………………………………………..

2.2 Research Approach…………………………………………

2.3 Data Collection……………………………………………

2.3.1 Qualitative Content Analysis………………………….

2.3.2 Secondary Analysis of Data………………………….

2.4 Theory Selection…………………………………………..

2.5 Structure of the Analysis……………………………………..

2.6 Structure of the Discussion……………………………………

2.7 Core Concepts……………………………………………

2.8 Limitations………………………………………………

3. THEORETICAL FRAMEWORK………………………….

3.1 Social Constructivism……………………………………….

3.2 International Trade Theories…………………………………..

3.2.1 Mercantilist Theories: Green Mercantilism…………………

3.2.2 Classical Liberal Trade Theories……………………….

4. BACKGROUND…………………………………….

4.1 EU-China Trade Relations: An Overview……………………………

4.2 China accession to the WTO…………………………………..

4.2.1 China’s Non-Market Economy Status…………………….

5. ANALYSIS……………………………………….

5.1 EU attitude towards China……………………………………

5.2 Strategic Partnerships……………………………………….

5.3 Trade of Environmental Goods…………………………………

5.4 Case Study: Solar Panel Disputes………………………………..

5.5 Case Study: Wind Power……………………………………..

6. DISCUSSION………………………………………

7. CONCLUSION……………………………………..

REFERENCES………………………………………..

List of Figures, Tables and Appendices

List of Figures

Figure 1: Research Design

Figure 2: China exports by destination (2015)

Figure 3:China imports by main origin (2015)

Figure 4:EU Members State trade in goods balance with China, 2015

Figure 5:EU Member States attitude toward China

Figure 6:China-EU development trends of trade in environmental goods

Figure 7: Annual Solar Photovoltaics Module Production in China, 2007-2013, with Projecton to 2017

Figure 8: Cumulative Installed Solar Photovoltaics Capacity in Leading Countries, 2000-2013

Figure 9: Solar PV Generation Capacity, 2015

Figure 10: Top 10 Cumulative Capacity December 2016

Figure 11: Wind Capacity – Gigawatts, cumulative installed capacity, 2006-2015

Figure 12: Domestic and foreign shares in newly installed wind capacity in China, 2004-2009

Figure 13:China’s Top Import Partners for Wind Technology 2004-2011

 

List of Tables

Table 1: Classification of policies

Table 2: Green Mercantilism: Protectionist measures

Table 3: EU Top trading partners: Total goods, 2016

Table 4: Renewable Energy Industry Support Measures, by Country

Table 5: Estimated Direct And Indirect Jobs In the PVs Sector, By Industry, 2016

Table 6: Estimated Direct And Indirect Jobs In the Wind Power Sector, By Industry 2016

Abbreviation List

EC European Commission
EU European Union
FIT Feed-in tariff
GATT General Agreement on Tariffs and Trade
GDP Gross Domestic Product
GEWC Global Wind Energy Council
GW Gigawatt
JV Joint Venture
LCR Local Content Requirement
MFN Most-favored-nation
MW Megawatt
NDRC National Development and Reform Commission
NME Non-market economy
NTB Non-tariff barrier
NTM Non-tariff measure
SEZ Special Economic Zone
TDI Trade Defense Instruments
UK United Kingdom
UN COMTRADE United Nations Commodity Trade Database
US United States
WFO Wholly foreign-owned
WTO World Trade Organization
R&D Research and Development
SCM Agreement Agreement on Subsidies and Countervailing Measures

1.  INTRODUCTION

M

1.1  Problem Statement

The subject of this paper will be the contradictory relationship between the European Union and China in the clean energy sector. For this reason, the following problem statement has been chosen:

“Why does the European Union cooperate with China in climate change issues, but then using protectionist measures towards China’s green industry?”

Furthermore, following this main study question the following sub-questions have been considered relevant to investigate the main question:

  • How does the EU long term goal set the pace to tackle the climate change issues?
  • Why did the EU attitude change towards China’s exports?
  • What are the reasons for the EU to implement protectionist measures?

1.2 Significance of the Research

The significance of the research stands in China’s growing role in the international arena. Its ongoing economic growth and development has led to enhance closer ties with the European Union in a wide range of field. Specifically, the focus of this thesis will be on the Sino-European cooperation in tackling climate change issues and the development of trade of green technologies between the two trade blocks. At a time when the world is facing both an economic and an environment crisis, the debate on the contradictory interdependency between the two sides cannot be avoided. The EU has long taken the lead in international climate diplomacy, committing to the development of a low-carbon economy. A growing number of European companies have shifted towards the development of green industry, aware of the potential economic opportunities in developing this green economy such as job creation and a higher competitiveness (Graaf, 2013). China is the largest producer of emissions in the world in absolute term (Guo & Sharples, 2015) but has also assumed a leadership role in the production of green technologies. This development requires that China really get involved in climate action in the international arena, enhancing its cooperation with foreign actors. From this point of you, the Sino-European cooperation has gained more importance, but has also opened door for frictions. Nowadays, disputes involving China-EU bilateral trade are a widely discussed topic amongst academics.  On the other hand, China and the EU are critically important actors in the transition towards climate-friendly energy technologies. This paper seeks to understand whether the Sino-European relationship in climate change actions is conflictive or cooperative. Besides the analysis of the strategic partnership between China and EU, the paper will focus on two relevant renewable energy industries which have been promoted by both the sides: wind and solar. Both Beijing and the Union have claimed the urgent need of tackling climate change issues, but the current disputes and concern in renewable energy technologies create a contradictory situation, making the problem statement relevant to understand the current relationship between them.

1.3 Structure

This paper is organized as follow. In the Introduction section the outline of the study is presented, along with the problem statement and the sub-questions. The aim is to introduce the topic of the paper and the significance of the research.

Following the Introduction will be the Methodological Considerations, which provides the methods and methodology applied for this research. In this section, the choice of the theoretical framework and the structure of the analysis and discussion will be included. These elements are all vitally important to answer the problem statement and to build scientific knowledge.

The Theoretical Framework section will follow the Methodological Considerations chapter, with an introduction of the theories contextually used in the analysis of this paper. Specifically, the chapter introduces the Social Constructivism Theory and the International Trade Theories. Two different view on trade will be discussed: The Green Mercantilist Theory and the Classical Liberal Trade Theories.

Next, a Background section will provide a much needed context. The chapter offers a description of the China-EU bilateral trade and presents the implications of China accession to the WTO and its Non-Market Economy Status, from a European standpoint.

Analysis, the main part of the paper, will follow the Background section. The chapter provides the analysis of the data collected, testing them through the theories provided earlier in the paper. The analysis will be broken into two parts, one regarding the sociopolitical cooperation between China and the EU in tackling climate change issues and the other focusing on two specific climate-friendly energy sector. Specifically, the solar photovoltaic sector and the wind power sector will be analyzed.

Following the Analysis chapter, a discussion will take place, wherein more personal take on the issues presented and analyzed earlier in the paper will be discussed. The chapter will focus on whether the Sino-European relationship in clean energy is cooperative or conflictive and try to seek the reasons of this contradictory relationship.

A Conclusions will close this academic paper, where findings from the analysis will be provided and an answer to the problem statement will be presented.

1.4  Research Design

The model below (see Figure 1) displays the structure of the thesis that will be employed in this specific research to answer the problem formulation and to accomplish the goal of the investigation. The aim of the research design is “to ensure that the evidence obtained enables us to answer the initial question as unambiguously as possible” (de Vaus, 2011, p. 9). Presenting the structure, the goal is to enhance transparency of the research process.

Figure 1: Research Design

PROBLEM STATEMENT:

“Why does the European Union cooperate with China in climate change issues, but then using protectionist measures towards China’s green industry?”

SUB-QUESTIONS:

“How does the EU long term goal set the pace to tackle the climate change issues?”

Why did the EU attitudes change towards China’s exports?

What are the reasons for the EU to implement protectionist measures?

THEORY

  • Social Constructivism
  • International Trade Theories (Green Mercantilism, Classical Trade Theories)

DATA

Academic papers, articles, official and scholar statistics

ANALYSIS

China-EU

Strategic partnership

EU

attitude toward China

Case studies:

  • Solar Panel
  • Wind Power

DISCUSSION

CONCLUSION

Source: Author

2.  METHODOLOGICAL CONSIDERATIONS

This chapter shows the basic understanding behind this research. By presenting the analytical procedure of this paper used throughout the research process, the aim is to provide an overview on how the research has been conducted. Furthermore, the methods employed in order to answer the problem statement will be presented. By describing the process of data collection and their analysis, the attempt is to give an overview of the procedure used to reach reliable and valid conclusions in a scientific manner.

2.1  Case Study Research

This project examines why the European Union is cooperating with China in climate change issues, whilst using protectionist measures against China’s green industry. In doing so, a case study research will be applied in order to better understand the current situation regarding the ambiguous relationship between EU and China in climate-friendly energy technologies. Despite a high interdependence between the two trade blocks, recent trade frictions have questioned whether the Sino-European relationship in clean energy is cooperative or conflictive.

A research design refers to the strategy used to links the collected data to the initial problem formulation, in order to accomplish the goal of the research (Yin, 2009, p. 24). According to Yin,

“…a research design is an action plan for getting from here to there, where here may be defined as the initial set of questions to be answered, and there is some set of conclusions (answers) about these questions.”

(Yin, 2009, p. 19)

Under this perspective, the case study is one of the several ways of doing social science research, and  refers to the in-depth analysis of a particular case (Yin, 2009, p. 1). Based on Yin’s definition (2009),

“A case study is an empirical inquiry that

  • investigates a contemporary phenomenon within its real-life context, especially when
  • the boundaries between phenomenon and context are not clearly evident”

(Yin, 2009, p. 13) 

This research will analyze two particular industries: wind and solar. The choice of this case has not been casual, but rather logical. Specifically, the analysis of the former will focus on the photovoltaic solar panels due to the relevance on the matter, since these have generated the most trade frictions between China and the EU. Nonetheless, the wind power sector has been selected as second case study. The choice of these cases have been made due to the growing investments in these sector by both China and the EU (Hill D. , 2016).

Depending on the specific problem statement, each research strategy may be used for different purposes –   explanatory, descriptive or exploratory – and so does the case study research (Yin, 2009, p. 7-8). Focusing on a why question, this paper will employ an explanatory research which involves developing causal explanation (Yin, 2009, p. 8-10) (de Vaus, 2011, p. 2). As presented by de Vaus (2011, p. 2) “causal explanations argue that phenomenon Y is affected by factor X”. Under this perspective, by analyzing the solar panel disputes between China and the EU, the attempt is to understand which factors lead to greater mutual cooperation or conflicts. A full picture of the reasons why Europe and China have developed this contradictory relationship in the clean energy sector will be developed. In order to answer our problem formulation, the analysis will be divided into two main sections. Through the use of the selected theories, both major strategic partnerships in green technologies as well as the specific cases of solar and wind industries will be presented and analyzed.

In order to answer our problem statement, the historical background of the trade between Europe and China will be taken into consideration, both presenting the liberal positions of the EU and the protectionist actions in general. Considering the international arena, an overview of the implications of China’s WTO accession will be provided, and its meaning for EU-China trade relations. The analysis will span across several years, specifically after the entry of China in the WTO which led to the implementation of trade barriers by the EU. Therefore, longitudinal aspects will be considered. The effort is to develop a full picture of the phenomenon, looking at the issue from different angles and not focusing on a specific year.

2.2 Research Approach

As presented by Bryman (2008, p. 24), two broad methods of reasoning may be employed whilst doing social research: a deductive approach and inductive approach. By analyzing the researched phenomenon from different perspectives, the relationship between theories and research itself change. On the one hand, the deductive strategy involves beginning with the theory, developing hypotheses, collecting data and testing the selected hypotheses through the existing theory. Moreover, this practice employs mainly quantitative data (Bryman, 2008, p. 24) (Asaka, 2016, p. 82). The inductive strategy, on the other hand, begins with empirical observations, seeks patterns in those observations and then theorizes about those patterns (Asaka, 2016, p. 82).

However, in order to overcome the disadvantages of research-then-theory and theory-then-research approaches, a third option is available. Deductive and inductive strategies may be used complementary for a more complete understanding of the phenomenon (Asaka, 2016, p. 82), as in this investigation. As presented by Asaka (2016, p. 82), inductive approaches  may begin with a broad base theory, and then develop new concepts throughout the research process. Based on this principle,

“researchers should enter the field with the deepest and broadest theoretical base possible and develop their theoretical repertoires throughout the research process […] instead of theories emerging from data, new concepts are developed to account for puzzling empirical materials”

(Timmermans & Tavory 2012 cit. in Asaka, 2016, p.82)

Therefore, a hybrid approach will be the foundation of the analysis of this paper. The attempt is to understand the contradictory relationship between the EU and China. Indeed, whilst the EU is pushing for strengthening the cooperation with China in the environmental field, it is then using protectionist measures against China’s green industry. Starting by a broad theoretical framework, collecting data, the goal of this strategy is both testing them through the initial theory as well as develop new concepts which may help to answer the problem formulation.

2.3 Data Collection

Throughout the research process, a substantial amount of data will be analyzed. The focus of the investigation will be on the bilateral relations between China and the EU to promote the clean energy sector and the protectionist measures against China’s green industry, particularly the solar photovoltaic sector and the wind power industry will be analyzed.

The collection of document is based on a selective sampling technique, in order to be able to select data with the most relevant information. As presented by Bryman (2008, p. 418),

Purposive sampling is a non-probability form of sampling. The researcher does not seek to sample research participants on a random basis. The goal of purposive sampling is to sample cases/participants in a strategic way, so that those sampled are relevant to the research questions that are being posed.

(Bryman, 2008, p. 418)

Under this perspective, the selection of documents will be made based on a document review. In doing so, the tools to identify those documents that are suitable for the research goals will be provided. Thus, a documentary research method will be employed, analyzing those documents that contain information about the researched phenomenon.

As presented by Bryman (2008, p. 543), documents may be distinguished in personal documents and official documents. For the purpose of this research only the latter ones will be taken into consideration. Indeed, the attempt is to comprehend the reasons of the ambiguous relationship between the EU and China in the green sector. In doing so, both an economic and diplomatic stance will be taken. Thus, statistics and official documents, such as academic papers, report, and articles, will be considered. By using data from different sources and collected through quantitative and qualitative methods, a triangulation approach will be applied in this project to provide reliable data and to produce valid conclusions (2008, p. 644).

The greatest critic of the case study research argues a lack of rigor of this research design. To fill this gap, several criteria will be considered in order to answer the research question and to reach the conclusion of this inquiry in a scientific manner. Specifically, four criteria which assess the quality of documents will be taken into consideration: authenticity, credibility, meaning and representativeness (Scott 1990 cit. in Mogalakwe, 2006, p. 224).

Firstly, anonymous sources, paper including biased comments and personal blogs will be excluded by our analysis. This allow the researcher to control authenticity and credibility of the documents. A careful control on the authorship and reputation of the documents collected will be employed. To name but a few,

A third criterion for assessing the quality of the documents is made up by meaning. Based on this principle the importance of the comprehensibility and intelligibility of the collected documents is emphasized. ()

Finally, representativeness refers to “whether the documents consulted are representative of the totality of the relevant documents” (Mogalakwe, 2006, p. 225). Being this a sensitive and recent topic, data on the topic are often not published or available. Furthermore, due to the contradictory relationship, the Chinese and European views on the phenomenon may differ. However, the use of different sources will be able to fill this gap.

In this paper, both qualitative and quantitative methods will be applied. Therefore, to investigate the problem statement different methods will be used. Specifically, quantitative content analysis and secondary analysis of existing data.

2.3.1                 Qualitative Content Analysis

Qualitative content analysis has been considered as a suitable method to reach the conclusions of this research. According to Bryman (2008, p. 214), this methods emphasizes the role of the researcher in the process of construction of meaning. From this point of view, the researcher plays a bigger role in the documents’ interpretation, maintaining anyway a scientific stance on the phenomenon. The core of this method is the use of different categories (Flick, 2009, p. 323-324) (Flick, 2014, p. 170) which will set up the guidelines for the investigation.

Since the aim of this paper is to investigate whether the Sino-European relationship in the green sector is cooperative or conflictive and the reasons of this contradiction, the focus will follow different paths. The first part of the analysis will emphasize the strategic partnerships between the two parties, in order to understand the reasons why China and the EU cooperate. Particularly, the analysis will span across the last two decades.

The second section of the analysis will focus on the Sino-European trade of PVs technologies and wind power products, and will try to answer the question “why does the European Union use protectionist measures against China”. In this specific section, the attempt is to analyze the document collected based on specific categories: the protectionist measures used against this sector and the implications. An analysis of the development of the green trade relations is necessary.

In both the sections, the emphasize will be both on the European beliefs and ideology as well as the liberal and protectionist attitude towards trade.

By using different categories, the goal is to focus only on some aspects of meaning of the documents, namely the one related to the analytical concepts mentioned above, and to the overall research question (Flick, 2014, p. 170-171).

2.3.2                 Secondary Analysis of Data

In order to analyze the development of the green trade and disputes, the investigation will take into consideration quantitative data as well. Hence, in this paper, a secondary analysis of data will be employed. According to Vartanian(2011, p. 3), “secondary data can include any data that are examined to answer a research question other than the question(s) for which the data were initially collected”. This research will be based both on official database as well as data collected by other researchers. To name but a few, statistics available on the website of the European Commission, World Trade Organization, International Monetary Fund will be used as main sources.

As already mentioned longitudinal aspects will be taken into consideration. Indeed, in order to understand the development of the use of these protectionist measures against China, different data measured across several years will be considered, starting by China’s accession to the WTO.

2.4  Theory Selection

Due to the dual nature of the research itself, both representative theories in the field of international relations and international business will be employed. By approaching the topic from different perspectives the aim is to develop a full picture of the phenomenon and to answer the problem formulation “Why does the European Union cooperate with China in environment, but then using protectionist measures towards China’s green industry?”. Despite in some instances the identities and interests of the European member states will be analyzed, the project will mainly consider as the EU as a single actor. Throughout the analysis, social constructivism will be employed. The goal is to understand how the European ideology and beliefs influence the relationship with China in climate-friendly energy technologies. This theory has been chosen based on the idea that the reality is social constructed. As presented by Jackson & Sørensen (2013),

“The international system is not something ‘out there’ like the solar system. It does not exist on its own. It exists only as an intersubjective awareness, or a common understanding, among people; in that sense the system is constituted by ideas, not by material forces. It is a human invention or creation not of a physical or material kind but of a purely intellectual and ideational kind. It is a set of ideas, a body of thought, a system of norms, which has been arranged by certain people at a particular time and place.”

(Jackson & Sørensen, 2013, p. 209) 

Therefore, social constructivism may explain how thoughts, ideas and practices of the actors coexist with the system of international relations, influencing the world affairs.

Furthermore, the international trade theories may explain the reasons of the use of protectionist measures against China in green technologies. The effort is to understand whether these measures benefit or harm the European economy and its trade strategy. A core point is the idea that international trade theories have influenced the global economic policymaking and the competitive environment in which international businesses competes (Hill C. W., 2011, p. 159). Two different views on trade have been chosen as theoretical framework of this research. On the one side, theories claiming free trade as best practice based on the European ideology will be employed. On the other side, mercantilist theories will present a different approach to trade. As the research focuses on the development of the Sino-European relationship in environment and green trade, the green mercantilist theory will be highlighted.

By using these theories, the collected data will be tested and a frame of the investigation is provided. As the research is limited by the theoretical approaches, results will be limited within. Thus, by using different theories or employing them in a different way may lead to different results.

2.5  Structure of the Analysis

2.6  Structure of the Discussion

2.7 Core Concepts

2.8 Limitations

The topic of this research may be considered as the main limitation due to the significant complexity of the environmental governance between and within China and the EU. Only the bilateral relations between the two parties are taken into consideration, thus influences from major countries in the international arena are not considered. This means that we only consider information regarding the Sino-European relationships and some implications about their membership into the WTO, which has been considered highly relevant. No matter the outcome of this research, other factors that are not considered here influence the Sino-European relations on the green sector. Furthermore, the choice of the case study research has limited the inquiry. Indeed, only the solar and wind sectors will be taken into account. Furthermore, aware of the wide range of partnerships and agreements, just some of them will be analyzed, based on their relevance. Particularly, the analysis will consider the EU-China Comprehensive Strategic Partnership, the 2006 Global Europe and the EU-China 2020 Strategic Agenda. The goal of this research is not to describe a definite actual scenario, but to understand why the ambiguous relationship in regards of climate-friendly strategies and technologies.

Next, as non-Chinese speakers, the possibility of reading Chinese material has been excluded. This will limit us in the use of potentially relevant material and knowledge, due to language barriers.

Further, the collection of documents and the choice of methods represent another limitation. The purposive sampling may cause the loss of relevant materials and the use of a different method may lead to different results. However, in the selective process, an objective stance has been taken – as much as possible –, avoiding individual interpretations.

3.  THEORETICAL FRAMEWORK

This chapter presents the theories that are applied in the analysis of this thesis in order to provide a theoretical foundation for the paper. Theories are a set of assumptions, propositions and/or accepted facts that “try to go beyond the phenomena to seek general principles and logical frameworks which can serve as a guide to the understanding of actual events”(Gandolfo, 2014, p. 4).

Due to the dual nature of this paper, the use of several theories will be required. The chapter will first introduce the theory of social constructivism, and thereafter international trade theories relevant for this topic will be undertaken. In the research process, social constructivism has been chosen as a representative theory to explain the states’ action in the international arena, both at an economic and political level.  As fundamental concepts in this paper, several theories of international trade will be presented in order to gain a thorough insight on the matter. The goal is to give a general overview of the political-economic doctrine of global free trade and protectionism, presenting both arguments in favor as well as against the two different approaches to the policymaking process.

3.1  Social Constructivism

This section provides an overview of the concept of social constructivism from an international relations standpoint. This term refers to a set of assumptions on how to study a social science, and thus international relations. As presented by Jackson & Sørensen (Jackson & Sørensen, 2013, p. 229), differently than realism, constructivism argues against a materialist view of the world, and emphasize the social construction of reality. Under this perspective, human relations as well as international relations are not based on material forces, but otherwise on ideals and identities (Jackson & Sørensen, 2013, p. 229). However, constructivists do not totally reject the importance of the material reality. Rather, the theory introduces the idea that materialist concepts and categories result from social processes and interactions, which contribute to the social construction of meaning (Hurd, 2008, p. 313).

According to Barkin (2010, p. 26), intersubjectivity and co-constitution are the two fundamental components of this approach. The former term refers to “collective knowledge and understandings”, thus conventions widely accepted that exist beyond the individuals and contribute to build the reality (Barkin, 2010, p. 26). This research focuses on the neoclassical variant of constructivism, which address intersubjectivity meanings to social sciences, considering both philosophical and empirical issues before inaccessible. Co-constitution, on the other hand, means that “people and  society construct, or constitute, each other” (Barkin, 2010, p. 28). In other words, constructivists believe that agents and structures need to be seen as a whole in the study of politics, and not as separate parts. As presented by Jackson & Sørensen (2013, p. 210),the concept structuration is a starting point of the constructivist paradigm.

Structures do constrain actors, but actors can also transform structures by thinking about them and acting on them in new ways. The notion of structuration therefore leads to a less rigid and more dynamic view of the relationship between structure and actors.

(Jackson & Sørensen, 2013, p. 210) 

Thus, a mutual relationship exists between agents and structures. As structures exist due to the reciprocal interaction between actors, actors may change them over time through social practices (Jackson & Sørensen, 2013, p. 217). According to constructivists view, people build the social world, thus the reality cannot be considered as given and independently of the ideas of men and women (Jackson & Sørensen, 2013, p. 211).

Several approaches to constructivism exist. On the one hand, systemic constructivists emphasis the role of the international environment in shaping state identities. Other constructivists, on the other hand, believe that the domestic environment is responsible of the national identities (Jackson & Sørensen, 2013, p. 223). In this research, the latter approach has been considered appropriate to answer the problem statement. From this point of view, identities, interests, practices and ideas of individuals shape the international agora: “They include ideas that are intersubjective (that is, shared among people) and institutionalized (that is, expressed as practices and identities)” (Hurd, 2008, p. 301). As intersubjective and institutionalized, ideas cannot be merely attribute to individual minds (Hurd, 2008, p. 301). In the international systems, the theory explains that shared meanings by people and states need to be understand in order to gain a whole understanding of the arena of international relations. Specifically,

It means beginning from the assumption that how people and states think and behave in world politics is premised on their understanding of the world around them, which includes their own beliefs about the world, the identities they hold about themselves and others, the shared and the shared understandings and practices in which they participate.

(Hurd, 2008) 

Constructivism has been criticized on various grounds. The main intellectual opponent of social constructivism may be considered realism which stress the misleading importance given to norms by constructivists, at an international level as well. From a realist point of view, these norms exist but continually change based on the interests of powerful states (Jackson & Sørensen, 2013, p. 225). The analysis of change, however, may be considered as a strength due to the given possibility to have a view on the whole social processes and reality.

Constructivism has been here selected as the main suitable theory due to its nature and to the goal of this research. Particularly, the belief is that history, culture and national identity of any state influences its actions, interests and foreign policy, at a political, diplomatic and economic level. The frame of the analysis, thus, is based on the idea that the world of international affairs is socially constructed and influences the way that international relations are carried forward.

3.2 International Trade Theories

As presented by Irwin (2001)the theory of international trade is one of the oldest branches of international economics. An ongoing debate is whether international trade benefits or harms nations. Through centuries, intellectuals have developed a dual view on the topic: on the one hand, some proponents claim the desirability of free trade between countries; on the other hand, others advocate trade protectionism and/or economic isolationism as a better course of action for nations.

Depending upon the weights put on the overall gains from trade or on the losses of those harmed by imports, different analysts have arrived at different conclusions about the desirability of having free trade.

(Irwin, 2001)

Therefore, the economic arguments surrounding the advantages and disadvantages of adopting free trade or protectionist measures are primarily based on gains and losses of the productivity of domestic industries and the welfare of consumers (Irwin, 2001).

In the next sections, an overview of international trade theories will be explored and defined, presenting the ideological continuum of free trade and protectionism.

3.2.1                 Mercantilist Theories: Green Mercantilism

Starting in the late Middle Ages, international trade has played a central role in shaping the global economy. During the seventeenth and early eighteenth, the growth in global trade led to the development of the first economic philosophy on international trade: mercantilism. This doctrine was a non-systematic set of thoughts which favored state regulations and centralization of economic activities, including foreign trade. Mercantilist argued for close government regulations of international trade in order to maintain a surplus status of gold and silver in the country, precious metals also known as specie (Hill C. W., 2011, p. 162). The principle assertion of mercantilism was that gold and silver reserves were the measure of a country’s wealth, prestige and power, and were essential to vigorous commerce (Hill C. W., 2011, p. 162) (Krugman, Obstfeld, & Melitz, 2012, p. 514). Through government intervention, the aim was to both restrict the quantity of imports into the domestic market as well as maximize net exports and income, producing many things as possible within its own country’s borders (Hill C. W., 2011, p. 162) (Krugman, Obstfeld, & Melitz, 2012, p. 514). In its book England’s Treasure by Foreign Trade (1664), the mercantilist Thomas Mun well describes the core idea behind mercantilism:

The ordinary means therefore to increase our wealth and treasure is by foreign trade, wherein we must ever observe this rule: to sell more to strangers yearly than we consume of theirs in value.

(Mun, cited in Hill, 2011, p. 162)

In order to exercise control over foreign trade and to achieve maximum trade surplus, mercantilists advocates the use of different policy instruments by governments: import regulations such as quotas and tariffs to protect domestic markets, and export subsidies to support foreign exchanges. Through the use by states of forms of interventionism, the goal was to discourage foreign manufactories from competing with local players. Based on this doctrine, trade was a zero-sum game, meaning that a country’s gain results necessarily in a loss by another (Hill C. W., 2011, p. 163). Some mercantilists advocated economic autarky, meaning economic self-sufficiency and almost totally independence in trade. However, the Industrial

Revolution brought structural changes both at socio-economic level, which reduced governments power and influence on foreign trade (Czinkota, Ronkainen, & Moffett, 2011, p. 64). Despite the development of a liberal approach to trade, protectionist measures are on rise across the world. The 20st century saw a worldwide return to protectionism, and many nations have adopted neo-mercantilism as trade strategy. As the ancestor, neo-mercantilism aims to increase national wealth and foreign reserves, boosting exports and reducing to an absolute minimum any reliance on foreign imports (Hill C. W., 2011, p. 163). The new class of mercantilism argues that barriers must again increase, trying to make everything within a country’s borders in order to achieve the goal of increasing a nation’s wealth. The purpose of trade barriers, in this view, is to protect domestic industries by foreign competition, which challenges and impacts local competitiveness.

Under this perspective, during the last decade a new form of mercantilism concerning the clean energy economy developed, also known as green mercantilism. According to Stepp & Atkinson (2012, p. 1),

“Green mercantilism” – the adoption of policies that give countries an unfair advantage to boost exports and limit imports of clean energy technologies – is a major departure from rules-based clean technology trade. It’s represented by “beggar-thy-neighbor” policies, including lax IP enforcement, forced technology transfer, export subsidies, discriminatory standards, barriers to imports, and preferential treatment of domestic firms by their parent governments”

(Stepp & Atkinson, 2012, p. 1)

Therefore, green mercantilism may be defined as a discriminatory and unfair strategy employed by governments in order to boost domestic production of clean energy goods, especially in the short-term, hurting otherwise other nations (Stepp & Atkinson, 2012, p. 3).  As presented by Stepp & Atkinson (2012, p. 3-4) governments may implement four different type of policies which may have different impacts on both the world and the country itself (see Table 2). “Good policies” benefit both the world and the country. “Self-destructive” policies harm the country but benefit the rest of the world. The green shading categories denotes instead green mercantilist policies, namely “ugly” and “bad” policies. Based on this classification, green mercantilist measures benefit the country but damage the rest of the world (bad “policies”) or harm both of them (“ugly” policies) (Stepp & Atkinson, 2012, p. 4).

Table 1: Classification of policies

../../../../Desktop/Schermata%202017-04-16%20alle%2022.13.5

Source: (Stepp & Atkinson, 2012, p. 4)

As mercantilism, green mercantilist policies advocates thus government intervention through the use of several protectionist measures. The aim is to incentives the domestic production, whilst reducing imports, in order to gain from the clean energy economy.

Next paragraph will briefly introduce protectionist measures used in international trade, from a mercantilist standpoint.

Green Mercantilism: International Trade Measures

The governments can adopt several instruments to conduct international trade. Particularly, protectionist measures may be broken down into two main categories: tariffs and non-tariff measures (NTMs), also known as non-tariff barriers (NTBs). As tariffs, NTMs are measures which aim at restricting trade among countries. As presented by the WTO (2017), using tariffs a country imposes customs duties on import services and goods. Doing so, the nation give a price advantage to domestic producers whilst rising the government revenues as well. With the decrease of use of tariffs at a global level due to several round of negotiations in the WTO, NTMs have gained importance as measure of protection in international trade tools (WTO, 2017).  The table below shows Stepp and Atkinson’s categorization of green mercantilist measures employed by nations in international trade  (see Table 3) (Stepp & Atkinson, 2012).

Table 2: Green Mercantilism: Protectionist measures

Boosting Exports and Reducing Imports Discriminating Against Foreign Firms
Currency Manipulation 

Unfair Subsidies and Domestic Content

Requirements

Export Dumping

Tariffs and Customs Duties

Technology Transfer

  • IP Theft
  • Forced Technology Transfer
  • Limits on Foreign Investments and Ownership
Restricting Access to the Domestic Market: 

  • Standards and Technical Barriers
  • Restricting the Export of Critical Materials
  • Limiting Government Procurement to Domestic Firms

Source: Authors

(Stepp & Atkinson, 2012)

Based on this classification, green mercantilist policies aim at growing the green sectors of the country through the use of several protectionist measures. Boosting exports and decreasing imports, the attempt is to acquire high levels of trade surpluses. On the other hand, the use of a discriminatory treatment towards foreign companies seeks to give advantages to domestic firms (Stepp & Atkinson, 2012, p. 8).

3.2.2                 Classical Liberal Trade Theories

By mid-eighteenth century, a shift towards more liberal approach to international trade happened. The philosophy of mercantilism begun its intellectual decline with the publications of Adam Smith’s “An Inquiry into the Nature and Causes of the Wealth on Nations” in 1776. The two foremost contribution to international trade by Adam Smith are the concepts of absolute advantage and division of labor (Czinkota, Ronkainen, & Moffett, 2011, p. 67).

Firstly, Smith argued that countries naturally have absolute advantages in producing certain goods and it is national interest to focus on such strengths (Hill C. W., 2011, p. 163). As nearly every other economic theory, the doctrine of absolute advantage is interested in increasing a country’s wealth. In contrast to mercantilism, Smith observed that trade protectionism is not the best option for any countries to grow wealthy. The heart of his theory is the idea that a nation’s best practice is to specialize in area where they have the greatest advantage, then trade with others to satisfy their remaining needs (Hill C. W., 2011, p. 163) (Czinkota, Ronkainen, & Moffett, 2011, p. 67). As presented by Smith, “It is the maxim of every prudent master of a family, never to attempt to make it home what it will cost him more to make than to buy”(Smith, 1904)From this point of view, exchanging products with lower production costs for the ones with higher production costs would be beneficial for both trade blocks (Czinkota, Ronkainen, & Moffett, 2011, p. 67). Secondly, Smith claimed the efficiency of division of labor. Instead of one person being responsible of all production stages, the production of goods should be divided in different stages, performed by different individuals separately (Czinkota, Ronkainen, & Moffett, 2011, p. 67)

Smith’s theory demonstrates that trade is a positive-sum game (Hill C. W., 2011, p. 163) (Czinkota, Ronkainen, & Moffett, 2011, p. 67): optimally employing labors and capital in those sectors where countries have an absolute advantage would benefit all nations. The core idea of his theory was that governments should not interfere with the economic affairs of a country and pure market forces were the foundation of international trade. These principles were later adopted by the laissez-faire economists during the 19th century. Despite his “invisible hand theory”, the economist Adam Smith was not against states’ interventions as a whole. Indeed, whilst reducing imports tariffs as much as possible and step out of the way, the governments should also recognize those sectors with the national advantage and assisting the education of the workforce.

David Ricardo further developed Smith’s theory of absolute advantage. In his book “On the Principles of Political Economy and Taxation” (1819), Ricardo explored the idea of comparative advantage, analyzing the case when nations have more than one absolute advantage. Based on Ricardo’s theory a nation needs to specialize in the production of those services and goods which produces more efficiently and more cheaply than other countries, whilst trading for the others (Czinkota, Ronkainen, & Moffett, 2011, p. 67) (Hill C. W., 2011). As Smith’s theory, Ricardo explained trade as a positive-sum game for those countries in the process. Based on the Ricardian theory, international trade benefits the welfare of nations and their population, increasing consumption levels beyond the one of the domestic production (Hill C. W., 2011, p. 233) (Czinkota, Ronkainen, & Moffett, 2011, p. 72).

Critics of the comparative advantage theory stress the incompatibility of this doctrine in the current global economy (Hill C. W., 2011, p. 237). According to Paul Samuelson (Hill C. W., 2011, p. 237), the theory do not take into consideration the structural changes in trade relationships among countries in the era of globalization. Nowadays, in a free trade regime, production factors may be easily relocated across international borders and move where most productive and with a low-cost of the workforce. The critique claims that this situation may create a gap between rich countries and developing countries and it would cause a win-lose situation. This term, the comparative advantage of several countries may be undermined (Hill C. W., 2011, p. 237).

4.  BACKGROUND

The following section provides a broader perspective of the EU-China trade relations alongside China’s opening up policy. Firstly, the development of the Sino-European economic and trade relations and their strategic partnerships will be briefly presented. Then, it will be presented the meaning of the access in the WTO for China and its impact with the global economy.

4.1  EU-China Trade Relations: An Overview

Before the 1980s China’s economy was a relatively closed economy, despite trade relations with Communist Party-led countries and the Soviet bloc during the 1960s (Naughton, 2007, p. 379). However, as presented by Lu et al. (Lu, Yan, & Deng, 2014, p. 1), during the third plenary session of 11th central committee of CCP held in 1978, Chinese central government decided to reform its economic system, quitting the idea of “economy being subordinated to politics”. Therefore, beginning in 1978 several reforms have been undertaken, and China’s economy has opened itself to the outside world, contributing to its economic boom. Under the open-door policy China has taken several measures aiming at encouraging foreign capital, establishing special economic zones (SEZs) and expanding foreign trade (Fang, Yifu, & Yong, 2009, p. 404).

By acting as a component of the world economy, China has experienced an increase in its share in global trade, both in term of exports as well as imports. Particularly, trade liberalization has been a major goal during China’s transition process towards a market-driven economy  (Naughton, 2007, p. 377). Due to the insufficient domestic demand, the export oriented strategy has been considered by the central government as a primary source for its economic development (Lu, Yan, & Deng, 2014, p. 1). Whilst in the early 1970s China’s total goods trade (exports plus imports) amounted only 5% of GDP, in 2005 China was the largest trading country worldwide, and its total trade accounted 64% of GDP (Naughton, 2007, p. 373; 377).

Currently, China is the second exports economy and the third imports economy worldwide (Lu, Yan, & Deng, 2014, p. 1-2). Furthermore, China’s principal trading partners are especially advanced country markets, complying the laws of comparative advantage (Rumbaugh & Blancher, 2004, p. 3) (Fang, Yifu, & Yong, 2009, p. 408). Indeed, China’s comparative advantage of labor force lead the country to trade with those regions with a higher income level, which have a relative abundance of capital and a shortage of labor force (Fang, Yifu, & Yong, 2009, p. 408). The figures below (see Figure 1 and Figure 2) show the top trading partners with China.

Figure 2: China exports by destination (2015) 

Source: Author

(WTO, 2016)

Figure 3:China imports by main origin (2015) 

Source: Author

(WTO, 2016)

 

EU has been an important exports destination and source of imports of China. In 2015, exports to the EU represented about 15.6% of China’s total exports, following the US. On the other hand, EU is the largest trading partner of China, accounting 12.4% of China’s total imports. Therefore, over the past decades, trade between China and Europe has increased sorely.

Nonetheless, taking into consideration the European perspective, China has become the second trading partner for the EU (EC, 2017a). Particularly, as presented by the table below (see Table 4), China has become the largest source of imports of the EU.

Table 3: EU Top trading partners: Total goods, 2016

../../../../Desktop/Schermata%202017-04-09%20alle%2010.29.4

Source: (EU Directorate-General for Trade, 2017)

Nowadays, China has become one of the major challenge as well as opportunity for the European Union. Particularly, European are now echoing concerns about China’s trade surplus, which results in a significant trade deficit in goods (Garcia, 2014, p. 323). As presented by Fox & Godement (2009, p. 11), in 2008 EU’s trade deficit reached €169 billion and the global financial crisis did not reverse the trend. As presented by the figure below (see Figure 3), in 2015 only Germany and Ireland had a positive goods balance with China, among the others 26 countries.

Figure 4:EU Members State trade in goods balance with China, 2015

Schermata%202017-04-23%20alle%2000.09.22.png

Source: (Eurostat, 2016, p. 3)

Therefore, whilst the unquestionable benefits for Europe from the Chinese economic growth, competition from China has raised serious concerns to the EU, especially in regards of some specific industrial sectors (Lu, Yan, & Deng, 2014, p. 13). Still, the European Commission  (2006, p. 3) believes that there is an ample interest for mutually beneficial trade partnership between China and Europe, enforcing its attitude toward China: “Closer Partners, Growing Responsibilities”. However,

“one of the preconditions for EU and China to maximize their benefits from trade and economic partnership is that both sides must open their markets and ensure fair competition”

(Lu, Yan, & Deng, 2014, p. 13)

However, China’s export capacity jeopardizes the EU and other trade partners, due to this trade deficit. As a result, protectionist measures towards China by its key partners such as EU arises, aiming at stemming the deficits (Garcia, 2014, p. 323) The relationship between the two parties is still shaped by frictions and trade disputes from both sides. Particularly, in pursuing the relationship, the EU is still concerned by several structural elements of the Chinese economy (EC, 2017a), such as:

  • Insufficient protection and enforcement of IPR in China
  • Discrimination against foreign companies VS preferential treatment towards domestic firms
  • Strong degree of government intervention
  • Lack of transparency

4.2 China accession to the WTO

On the 11th of December 2001 Chinabecame a formal member of the WTO, after 15-year effort and a long negotiation process (Fang, Yifu, & Yong, 2009, p. 425). Indeed, China firstly applied to rejoin the GATT in 1986 (Naughton, 2007, p. 389), an international multilateral agreement and forerunner of the WTO. China’s accession to the WTO represents a major step for the integration of the country into the global economy.

The WTO is an intergovernmental organization which regulates trade among member states. The organization was established in 1995 in response to the GATT Uruguay Round, with the aim of adapting to the new global economy. As the GATT, the goal of the WTO is to reduce trade barriers and tariffs, to enforce trade rules and to settle policy disputes, whilst enforcing rules of the trading system under the framework of five basic principles (Fang, Yifu, & Yong, 2009, p. 426) (WTO, s.d.):

  • Non-discrimination principle;

Based on this principle, WTO members cannot perpetuate discriminatory treatments towards both their trading partners (most-favored-nation – MFN – principle) as well as their domestic market (national treatment principle).

  • Open market principle;

 The principle aims to create a more integrate global economy. Lowering trade barriers and opening their markets, WTO members aim at implementing freer trade among trading partners, through negotiations.

  • Fair competition principle;

 The principle claims the importance to have a fair and undistorted trading system and competition, allowing the use of tariffs and certain protectionist tools in order to protect member states.

  • Balanced right and obligations;

Based on this principle, member states need to improve transparency, stability, and predictability within their business environment.

  • Granting favorable and discriminatory treatment to developing country;

The principle encourages economic development and reforms in developing countries and transition economies, members of the WTO. The organization provides a special treatment for those countries, allowing more flexibility in the implementation of WTO rules and commitments.

Based on the WTO principles, member states need to meet the above requirements, and so dues China. China’s entry into the WTO required radical changes in the economic structure of the country, in order to further liberalize its economy. Over the past decade, China has made progress in implementing the WTO commitments. However, as presented by different authors (EC, 2017a) (Fang, Yifu, & Yong, 2009, p. 426), outstanding issues still shape China’s economy and jeopardize its fulfillment of the WTO requirements.

A main pillar in China’s membership into the WTO is its status as a non-market economy, which will be further developed in the following paragraph.

4.2.1     China’s Non-Market Economy Status

The Chinese accession into the WTO have strengthened the implementation of its integration into the world economy. As presented by the EC (2017a), both China as well as the other member states have benefited from the entry of China in the global arena. However, its membership has also opened up the possibility to bring disputes to the WTO when China does not comply with WTO rules (EC, 2010). Specifically, the Chinese WTO accession protocol allows other member states to treat China as a NME, using thus “simpler calculations in anti-dumping dumping investigations and therefore makes it easier to impose duties (EC, 2010). This imply that “domestic prices cannot be used as a reference point and make it much easier to reach a positive finding in an antidumping investigation” (EC, 2010).

However, under the WTO agreement, China’s NME status may expire after 15 years following accession: on the 11th of December 2011:

In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession. In addition, should China establish, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector, the non-market economy provisions of subparagraph (a) shall no longer apply to that industry or sector.

(WTO, 10) 

The EU currently has definitive anti-dumping or anti-subsidy measures against 50 Chinese products. Overall anti-dumping duties affect less than 1% of EU trade with China. This is normal given the volume of trade, and the EU uses Trade Defense Instruments less than the US and India. Still, China considers it excessive and criticizes the number of TDI cases.

5.  ANALYSIS

The analysis of this research aims at answering the problem statement “Why does EU cooperate with China in environment, but then using protectionist measures towards China’s green industry?”.

5.1 Strategic Partnerships

This section analyzes the EU-China strategic partnerships in tackling change issues and their implications on the trade in green technologies between the two parties. The EU has constantly worked in order to develop a low-carbon economy and put in place several policies to reduce the ongoing environmental degradation at a global level (EC, 2014, p. 7).

Since the early days of the EU, the free trade principle occupied a significant position in shaping the relationships of EU with its trade partners. The trade regime that the EU is based on find inspiration in the liberal economic ideas of the classical trade theories. However, despite similarity, the free trade system has emerged in Europe with some peculiarity. Nowadays, the European economic system stresses the importance of a liberal approach at an international level, but allowing government interventions in order to maintain a domestic economic growth and social security.

“(Most) Europeans believe that the EU has benefited greatly from international trade, however they are less confident about the future as (again most) think that trade will benefit more than emerging economies (…) in the coming years. These views may lead to protectionist tendencies, if Europe’s openness is perceived as being matched by EU’s strategic trading partners with ‘behind-the border’ policies acting as de facto discriminatory trade barriers.”

(Siles-Brügge, 2013, p. 605) 

An increasing number of people and political actors are experiencing a reversing trend in the attitude towards trade policies, resulting in mercantilist ideologies.

By 2006, Europe has set a more aggressive trade policy based on the 2006 Global Europe trade strategy. The aim of this strategy is to adapt to the new challenges coming from the globalized world in order to maintain fair trade and competitiveness amongst foreign countries (EC External Trade, 2006, p. 2). The strategy abovementioned set as goal the development of these values, in order to adapt  to the changes in the new global economic order (EC External Trade, 2006, p. 3). This term, competitive markets, openness and social justice are core principles of the European Union. Firstly, the EU strategy stresses the importance of creating a single market in order to create globally competitive companies within the EU borders (EC External Trade, 2006, p. 4). Secondly, despite the foreign competition, openness is vital for the European economy, creating jobs and stimulating companies. According to this principle Europe must reject protectionism, but otherwise imposing restrictions in order to defend European interests against unfair trade (EC External Trade, 2006, p. 5). Finally, according to the strategy, Europe must ensure protection for some regions and workforce, jeopardized by the market opening into the global economy. The core point of the paper is the idea that there is a link between a more open market economy and the GDP growth, justifying the choice of EU for a liberal approach towards trade. Indeed, further market opening would lead to “greater consumer choice and lower prices, and more employment in Europe”(Garcia, 2014, p. 331)in accordance with the classical trade theories presented.  From this point of view, Europe and China may be an opportunity for each other, from a political, social, and economic perspective.

“China is the single greatest test of Europe’s capacity to make globalization an opportunity for jobs and growth. Europe must get China right, as an opportunity, a challenge, and prospective partner.”

(EC External Trade, 2006, p. 13)

As presented in the Background sections, since China’s opening up strategy diplomatic ties were established between the European Union and China, especially due to the creation of the EU-China Comprehensive Strategic Partnership in 2003 (EEAS, p. 2). China and Europe have become highly interdependent, deepening their cooperation in a wide range of areas.

The world of today is experiencing profound and complex changes. As important actors in a multipolar world, the EU and China share responsibility for promoting peace, prosperity and sustainable development for the benefit of all. They agree to continue to consolidate and develop their strategic partnership to the benefit of both sides, based on the principles of equality, respect and trust. The EU reaffirms its respect for China’s sovereignty and territorial integrity. China reaffirms its support to EU integration.

(EEAS, p. 2)

Alongside strategic development plans within their borders, both China and Europe are committed to enhance cooperation. Therefore, EU-China Comprehensive strategic Partnership has become a centenary goals for both the parties, being considered as a win-win strategy (EEAS, p. 2).  According to the constructivist theory, it may be argued the two sides have put forward this strategic cooperation as a result of their identities and beliefs. Therefore, the European identity and its values matters in developing its relations in the global arena as well as with China.

As stated in the Treaty of Lisbon (EU, 2007),

“The Union’s action on the international scene shall be guided by the principles which have inspired its own creation, development and enlargement, and which it seeks to advance in the wider world”

(EU 2007, Art. 22)

Further, the EU leaders have committed to achieve new goals for 2020, including China in the strategy. Specifically, Europe 2020 aims at the economic development of the country in all the areas “for a smart, sustainable and inclusive growth” (EC, 2014, p. 7), both at a domestic level and at an international level. A major task is the sustainable development goal in both the parties,

addressing climate change, protecting the environment, promoting transparent international energy markets and facilitating resource-efficient, far-reaching, socially inclusive and low-carbon development policies”

(EEAS, p. 9)

As green sectors highly contribute to sustainable development, green technologies are, thus, a cornerstone of the strategic EU-China cooperation (EEAS, p. 9) (Garcia, 2014, p. 331). Both sides have significant interests in maximizing the mutual partnership. On the one hand, China has interest in developing its ecological sensitivity; Europe, on the other hand, may benefit for the development of its resource efficiency agenda (EEAS, p. 9).

Being inspired by the Lisbon Strategy, which aimed at creating a competitive knowledge-based economy in the world, Europe 2020 aims at further increasing exports of high-value-added high technology and services, protection of IP and boosting innovation and education (Garcia, 2014, p. 331). Furthermore, a key goal rely on increasing the use of renewable energy within its own borders (Garcia, 2014, p. 331).

Despite trade policies seem to be highly relevant to achieve the goal of creating a low-carbon economy, and the EU is working at an international level for gaining opportunities for these targeted sectors abroad as well (2014, p. 331), as previously mentioned protectionist measures against China are on rise.

Until the financial crisis, Europe was the world leader of the green sector. The country as a whole as well as its member states has encouraged the development of this industry. The reasons of the EU efforts in developing the green sectors are various. From a climate action stand point, a major use of climate-friendly goods may result in a reduction of emission targets agreed internationally (Garcia, 2014, p. 331). At an economic level, on the other hand, the green technologies firms may reduce dependency on energy imports and maintain control over volatile global prices (Garcia, 2014, p. 331). Furthermore, promoting clean energy and energy efficiency, may sustain the development of innovative low-carbon technologies, cornerstone of the EU strategy. However, since the global financial crisis, the perceived potential of the clean-energy sector to create local jobs has led several countries to rise protectionist measures and policies aimed at protecting the domestic industry (OECD, 2015). Furthermore, globalization have challenged the EU’s leadership in the clean-energy sector, rising discontent within the border of the EU member states. Aiming at increasing profitability and market share, European green technologies companies have moved production to other countries, with lower labor costs. Whilst the strategy has risen unemployment rates within the EU in the sector, lower labor costs helped to reduce prices of climate-friendly goods. The Chinese marketplace has been a strategic partner in carrying on the action, due to the favorable environment. Indeed, China’s government promoted these types of investments so as to facilitate technology transfers” (Garcia, 2014, p. 331). Next, the increase demand for green power supplies in the global arena has increased the number of foreign companies in the energy field. The higher number of players resulted in a drop of global prices for climate-friendly goods in recent years, facilitating the development of the technology among consumers. (Garcia, 2014, p. 331) Whilst these variables have led to a rise in the employment rates in the sector in Europe, “lower prices and increased competition from manufacturers abroad, particularly in China, have caused strife in the manufacturing sector within Europe” (Garcia, 2014, p. 331).

Particularly, wind and solar panel has experienced several frictions between the two trade blocks, being encouraged by the domestic policies of various EU member states (Garcia, 2014, p. 331). By cherishing its principle of non-interference in domestic affairs in neighbouring states, China has been surprised by the increasing criticism about trade in green technologies in the EU (Umbach, 2010, p. 69).

As stated by Miguel Arias Canete, EU Commissioner for Climate Action and Energy,

“Europe has already gone through many of the problems which China is experiencing now – air pollution, environmental degradation, deforestation, urban mobility challenges… and as a result we have extensive experience that we can share with China”

(Xinhua, 2015)

5.2 EU attitude towards China

The relations between China and the European Union are made even more complicated due to the very nature of the EU and the process of integration of European countries. As presented in the Methodological section, in this investigation the EU will be treated as a single actor. However, in some instances identities, interests and beliefs of the member states will be analyzed. Indeed, the restrictive measures have to be undertaken by the European Commission’s Trade Commissioner, which acts on behalf of all members states, representing the EU as a whole (Garcia, 2014, p. 325). What makes the case complex is the heterogeneity of attitudes amongst member states,

which translates into divergent preferences that must be reconciled into one policy to be executed by the European Commission (DG Trade) on behalf of the Union in regards state preferences towards China

(Garcia, 2014, p. 325)

The figure below shows a classification of the attitudes of EU countries towards China (see Figure 4).

Figure 5:EU Member States attitude toward China

Schermata%202017-04-15%20alle%2013.50.07.png

Source: (Fox & Godement, 2009, p. 4)

Based on this classification, state members may be divided into four categories: Assertive Industrialists, Ideological Free-Traders, Accommodating Mercantilists and European Followers.

The Assertive Industrialists is a small group of counties that do not agree that the Sino-European relations should be shaped by market forces. This group is ready “to pressure China with sector-specific demands, to support protective “anti-dumping” measures against unfairly subsidized Chinese goods, or to threaten other trade actions” (Fox & Godement, 2009, p. 6).

The Ideological Free Traders, contrarily, stresses the importance of not restricting trade with China, whilst creating pressure to combat political issues (Fox & Godement, 2009, p. 7).

The Accommodating Mercantilists are the largest group and agree to maintain good political relations with China in order to have good commercial relationships then. However, this group sees “anti-dumping measures as a useful tool and oppose awarding China market economy status” (Fox & Godement, 2009, p. 7).

Finally, the last category is made of the European Followers; These countries rely mainly on the EU in managing the relationship with China, which is not considered as a core factor in the EU’s foreign policy (Fox & Godement, 2009, p. 8).

These discrepancies amongst member states in the attitude towards China causes the weakening of the EU as a whole. Indeed, several national interests and attitudes coexists, creating a non-linear European strategy. As presented by Fox and Godement (2009, p. 3), once a neo-authoritarian Chinese academic, Pan Wei, stated:

“The EU is weak, politically divided and militarily non- influential. Economically, it’s a giant, but we no longer fear it because we know that the EU needs China more than China needs the EU.”China knows its strength and no longer bothers to hide it.

(Fox & Godement, 2009, p. 3)

5.3 Trade of Environmental Goods

This section seeks to analyze trade of environmental goods between China and the European Union focusing on the solar panel sectors, highlighting both frictions and advantages of the Sino-European cooperation in the green economy.

There is no definition that is internationally agreed on environmental goods, due to the complexity of environmental activities. Indeed, many environmental goods are dual-use products, meaning that serve both environmental and non-environmental uses (EC, 2017b).

However, this research refers to the one proposed by the European Commission, such as:

“Environmental goods and services are those produced for the purpose of environmental protection (I.e. preventing, reducing and eliminating pollution and any other degradation of the environment) as well as resource management (i.e. preserving and maintaining the stock of natural resources and hence safeguarding against depletion)”

(EC, 2017b) 

Based on this definition, environmental goods and services are those production outputs which aim at reducing, eliminating or preventing any form of environmental degradation.

According to OECD (1999, p. 11), environmental goods may be divided into three main categories:  pollution managementcleaner technologies and products and resource management. Firstly, the pollution management group comprehend those goods and services which have direct impact in reducing negative environmental impact. The cleaner technologies and products group and the resource management group comprises instead those products and services which are address to other than environmental proposes, but otherwise have a positive impact on the environment.

Over time, China has increased gradually its presence in the environmental industry worldwide. Alongside the development of its green sector, trade in environmental goods with other nations has become a key element for its political and economic strategy, especially with EU countries.

As presented by Qu & Zeng (2016, p. 28-29), data based on the United Nations Commodity Trade Database – UN COMTRADE – show that trade value in environmental goods has increased of an annual growth of 120% between 1996 and 2011, although a drop in 2012 (see Figure 5).

Figure 6:China-EU development trends of trade in environmental goods

Schermata%202017-04-22%20alle%2016.22.25.png

Source: (UN COMTRADE database cit. in Qu & Zeng 2016, p.29)

The growth may be a result of the establishment of several policies which encourage the environmental goods industry both at a national and international level (Qu & Zeng, 2016, p. 29).

In 2012, the Danish Minister for Trade and Investment Pia Olsen Dyhr stated:

“All governments distort the green economy in some way, for example with subsidies. All are convinced of the benefits of green trade liberalisation, but all want to protect their industry too. That’s why the WTO [World Trade Organisation] process is so difficult”

(EPC, 2012) 

 

 

Table 4: Renewable Energy Industry Support Measures, by Country

Support Measure Countries Where Utilized
Feed-in Tariff EU: 

Austria; Bulgaria; Croatia; Cyprus; Czech Republic; Denmark; Estonia; Finland; France; Germany; Greece; Hungary; Ireland; Italy; Latvia; Lithuania; Luxembourg; Malta; Netherlands; Portugal; Slovakia; Slovenia; Spain; United Kingdom.

China

Direct capital subsidy, grant, rebate, or favorable loan EU: 

Austria; Bulgaria; Croatia; Cyprus; Czech Republic; Denmark; Finland; France; Germany; Greece; Hungary; Italy; Luxembourg; Malta; Netherlands; Norway; Poland; Portugal; Slovakia; Slovenia; Spain; Sweden; United Kingdom.

China

Local Content Requirement EU: 

Croatia (Wind/Solar/Others, 2012); France (Solar, 2012); Italy (Solar, 2011); Spain (Wind, 1994)

China (Wind, 1997)

Financial or Tax Incentives for Local Manufacturing EU: 

UK (Green Products, 2009)

Use of Customs Duties/Import Tariffs to Favor Domestic Goods or Promote Domestic Manufacturing China (Wind, multiple years)
Export Credit Assistance EU: 

Denmark (Wind, various years);

OECD (All RE, 2012)

Research, Development and Demonstration Support for Domestic Companies EU: 

Denmark (Wind, various years); Germany (Wind, Solar, various years)

China (Wind, Solar, various years)

Source: Author

(Lewis, 2013, p. 6) (RES LEGAL Europe, 2017)

5.4 Case Study: Solar Panel Disputes

Over time, the EU has significantly improved its commitment toward cleaner-energy technologies, becoming a worldwide model for the use of clean energy. With Europe 2020, the Union has set high goals, aiming at developing a low-carbon economy based on renewable energy. The objective is to increase the current share of the EU’s energy consumption from renewable sources of 7%, up to a binding target of at least 20% (EU ProSun). According to EU ProSun data (EU ProSun),  the development of the renewable energy sector has created  300,000 jobs in the last decade, rising the employment rate within the EU. Specifically, the photovoltaic sector is the largest renewable energy employer sector, accounting around 2,8 million jobs globally. In 2015, the country with the highest number of jobs in the PV manufacturers was China, with 1,7 million jobs, whilst the EU accounted for 145,000 jobs (IRENA, 2016, p. 2) (see Table 4).

Table 5: Estimated Direct And Indirect Jobs In the PVs Sector, By Industry, 2016

  World   European Union
  China Germany France Rest of EU
Solar Photovoltaic 2,772 1,652 38 21 84

Source: Author

(IRENA, 2016, p. 17)

As presented in the Background section, China is a major trading partner of the EU and by far the most targeted country of protectionist measures by the EU, especially anti-dumping and anti-subsidies. According to the figure below (see Figure 3) Chinese solar panels experienced a boom in the production between 2009 and 2013, accounting in 2014 for 64% of global solar production with an expected upward trend in the next future (Roney, 2014a).

Figure 7: Annual Solar Photovoltaics Module Production in China, 2007-2013, with Projection to 2017

../../../../Desktop/Schermata%202017-05-05%20alle%2012.11.4

Source: (Roney, 2014a)

Data from Earth Policy Institute (Roney, 2014b) shows that China’s PV installed capacity has grown substantially starting by 2010, nearly ninefold. The fact reflects the Chinese commitment to move towards cleaner-energy technologies and environmental protection. Figure 7 illustrates the relatively high concentration of installed solar photovoltaics capacity in just few leading countries. Despite European countries, such as Germany and Italy, dominate this sector and represent a major actor of the global PVs installation, China has made significant progress (Graaf, 2013, p. 4). According to IEA (2016, p. 13), in 2015 the European total cumulative installed capacity represented approximately 42% of the global installed PVs capacity, whilst in 2011 the European global new installation stood at 75% (EU ProSun). This negative trend will probably continue in the coming years, due to the global competition coming particularly from Asian countries. Indeed, Asian countries are experiencing a growing installed capacity, particularly China. The country has now broken the record as highest capacity installed, surpassing the European countries (see Figure 9) (IEA, 2016, p. 5). (using social constructivism)

Figure 8: Cumulative Installed Solar Photovoltaics Capacity in Leading Countries, 2000-2013

../../../../Desktop/Schermata%202017-05-05%20alle%2015.05.1

Source: (Roney, 2014b)

Figure 9: Solar PV Generation Capacity, 2015

Analisi/solar%20capacity.png

(BP, 2016)

China has therefore experienced a drastic changing trend in the last few years. In 2010 China PVs production stood at 45% of solar panels globally, although only a fragment was installed domestically. This contributed to fuel trade disputes between China and Europe, the most important trade partner of solar PV cells. Indeed, during the last decade the EU has experienced a surge of imports of such goods from China. Nowadays, China’s production of solar panels is around 65% of the global production, despite in 2011 its production capacity was 20 times higher than the domestic demand (EU ProSun). As a result most of its PVs has been exported, particularly to the EU market – around 80% totally (EU ProSun). The majority of solar panels were exported outside the Mainland, “where consumer demand has often been artificially inflated through various support schemes” (Graaf, 2013, p. 7). The Sino-European strategic partnership in this sector, thus, has gained of importance, creating space for cooperation as well as conflicts. In 2011 “Chinese companies have captured more than 80% of the European market from almost zero a few years ago” (Roney, 2014b), becoming a major challenge for EU solar manufacturers. Furthermore, aligned with the Ricardian theory, as a result of the growing production of PVs and the advantages from low labor and raw material costs, in 2014 China’s solar panels were  almost 45% cheaper than the one produced in Europe (Roney, 2014b). As a result, frictions arose between the two parties. Starting by 2012, the European Union and China began a tense dispute about trade in solar energy field, especially of solar panel. The EU-located producers have claimed the unfair trade of the Mainland, requesting the use of trade defense instruments from the European Commission.

 “The duties will be imposed in two stages, starting with 11.8% for the first two months and followed by 47.6% for another four months to alleviate the harm that is caused to the European industry by this unfair trade practice, dumping.”

(EC, 2013) 

However, after imposing punitive import duties on solar panels in 2013, an “amicable solution” on the dispute was reached with China agreeing to reduce exports to the EU and adjusting prices to minimum levels for solar panels imports (Plasschaert, 2016, p. 2). In return, the companies involved in the dispute did not have to pay the anti-dumping duties of 47.6%. Despite a common wish to promote clean energy at home, growing trade conflicts in the green sector results due to conflicts with rules and regulation of the international trade regime. From a green mercantilist point of view, the clean energy sector is viewed by both the parties as a zero-sum-game, rather than a positive sum game (Graaf, 2013, p. 14).

“In the US and the EU, there is growing paranoia about Chinese clean energy. Fears of China have translated into calls for “green protectionism,” and new trade frictions. Anti-dumping investigations are met on the Chinese side with counter-investigations.”

(Graaf, 2013, p. 14)

The EU fears the huge Chinese green market. As presented by Graaf (2013, p. 14), this may result in an overuse of green protectionist measures and trade disputes and create a tit-for-tat pattern. As in the solar trade disputes, a series of investigations and counter-investigations happened, causing trade wars over renewables.

According to the green mercantilist theory, several strategies may be employed in order to grow the green sector of the country. Throughout the analysis of the solar trade disputes between China and the EU, the goal is to understand which protectionist measures are used by the two trade blocks and thereafter to understand the reasons of such measures.

According to the green mercantilist theory, boosting export and reducing imports is one of the main strategy employed by green mercantilist countries. Doing so, the goal is to either artificially raising the prices of imports whilst reducing the price of exports (Stepp & Atkinson, 2012, p. 8). Both parties employ different mechanism in order to protect and somehow hurt the other economy. From this point of view, as presented in the background section, the EU criticizes China due to several structural elements of the Chinese economy, such as strong degree of government intervention. This term, a major green mercantilist practice consists in the unfair subsidies. China has used this strategy in order to increase its global share of its solar panel. Chinese solar panels were accused of flooding the European market and being produced through the use of unfair subsidies by the government. As presented by Stepp and Atkinson (2012, p. 8): “under the WTO, subsidies can be considered harmful if it is proven that the subsidy distorts international trade”.  Therefore, subsidies are not always mercantilist in nature. Based on the theory, this mechanism may help green technologies to gain market share, whilst, on the other hand, give an unfair export advantage on the clean-technology goods. Under this perspective,

“China utilizes subsidies to not just expand energy access to its citizens, but to also unfairly gain global market share for its clean energy producers by leveraging its first- generation technologies, like crystalline solar panels, as a market leader not on merit, but on subsidized price.”

(Stepp & Atkinson, 2012, p. 8)

Therefore, an “ugly” green mercantilist policy is employed by China. Indeed, the country has used this mechanism both to benefit its own population increasing the level of energy, but also to gain global share in the solar panel industry. By using mercantilist subsidies, China is able to gain a price advantage against foreign competitors, damaging their market. Under this perspective, the European Commission carried on the solar dispute as it found that Chinese panels were entering the European market at an 88 per cent price reduction, damaging the financial and operational performance of European producers in the solar panel manufacturers (EC, 2013). The Industry Trade Advisory Committee Member Timothy Brightbill once stated,

[China’s] rapid and unprecedented expansion [of its solar industry] was the direct result of the Chinese government’s support, including its granting of an extraordinary range and amount of subsidies to the industry. Some companies in China’s solar industry are SOE’s; many others are effectively state-controlled because of close connections to the government, or because they are dependent on the government for subsidies.”

(Brightbill, 2012, p. 8) 

By explicitly subsiding domestic manufacturers or by absorbing losses of SOEs, the Chinese government aims to lower the production costs of green technologies, such as PVs. Doing so, the country is able to sell solar panels at a lower price than foreign competitors. Export dumping, thus, is a green mercantilist strategy which aims to sell green products at below-market prices in order to undercut competitors and dominate foreign markets (Stepp & Atkinson, 2012, p. 8).

With apparent tit-for-tat, China responded to the EU questioning the legitimacy of renewable energy feed-in tariff (FITs) programs. The FITs were accused to be inconsistent with the WTO rules in certain EU member states, particularly against Greece and Italy. FITs are widespread policy tools employed to promote renewable energy with a premium electricity price on to renewable energy producers. The objective of this policy instruments is to foster a low-carbon economy, making “renewable energy more economically attractive and competitive against fossil fuels” (Kulovesi, 2014). The complaint focused on the local content requirement of those tariffs, which violated the WTO non-discrimination principle and equal treatment among trade partners. Indeed, “the payment of the feed-in tariff to renewable energy producers is linked to requirements that they use locally produced components” (Graaf, 2013, p. 11) (Garcia, 2014, p. 333). China accused certain EU member states of an unfair use of these schemes, mainly employed to promote local solar manufacturers and job creation in the sector. Under this perspective China claimed the use of green mercantilist measures against its companies by the EU member states. Simultaneously, China filed a WTO trade complaint over European exports of polysilicon to China. The material, used in solar panels, came under anti-dumping and anti-subsidies investigation.

5.5 Case Study: Wind Power

In the annual report by the Global Wind Energy Council (GWEC, 2017) is shown a significant growth of the wind power industry worldwide. Leading the increase of the global cumulative capacity was China, followed behind by the United States, India and certain EU member states – specifically Germany, Spain, the United Kingdom, France and Italy which performances accounted for 22.4% of the total share (see Figure 10). In 2016, together these five countries accounted for 76,9% of the global wind turbines installed capacity.

Figure 10: Top 10 Cumulative Capacity December 2016

../Analisi/5_Top-10-cumulative-capacity-Dec-2016-1.jpg

(GWEC, 2017)

As stated by the GEWC Secretary General Steve Sawyer, China has played a major role in the development of the total cumulative capacity in 2016, although a decrease in the installed wind power capacity compared to the previous year.

“Chinese installations were an impressive 23,328 MW, although this was less than 2015’s spectacular 30 GW, which was driven by impending feed-in tariff reductions. Also, Chinese electricity demand growth is slackening, and the grid is unable to handle the volume of new wind capacity additions; although we expect the market to pick up again in 2017.”

(Sawyer 2017 cit. in Hill, 2017)

The feed-in tariff programs which were introduced in 2009 have significantly contributed to the development of the industry in China. (Theory) The figure below (see Figure 11) illustrates the development of China’s domestic wind power capacity.

Figure 11: Wind Capacity – Gigawatts, cumulative installed capacity, 2006-2015

../Analisi/Schermata%202017-05-09%20alle%2022.17.10.png

(BP, 2016)

The wind technology sector has rapidly grown over the last decade in the P.R.C., experiencing more than a 20-fold increase in the wind cumulative installed capacity between 2006 and 2015 (Graaf, 2013, p. 4). As the solar photovoltaic industry, the wind power sector has contributed to create new jobs worldwide (EU ProSun). In 2015 the sector accounted 1 million jobs globally. The country with the highest number of jobs in the wind power manufacturers was China, with 507,000 jobs, followed behind by the EU with 331,000 jobs (IRENA, 2016, p. 2) (see Table 13).

Table 6: Estimated Direct And Indirect Jobs In the Wind Power Sector, By Industry 2016

  World   European Union
  China Germany France Rest of EU
Wind Power 1,081 507 149 20 162

Source: Author

(IRENA, 2016, p. 17)

Furthermore, as presented by Graaf (2013, p. 5) until 2005, the wind power  market was highly dependent on foreign production. Thereafter, a shift toward Chinese local producers has been experience by the country, reducing its reliance on foreign turbine manufacturers: “By 2009, the market share of local enterprises increased to 87 percent” (2013, p. 5) (see Figure 12).

Figure 12: Domestic and foreign shares in newly installed wind capacity in China, 2004-2009

Source: Author

(Li et al. 2010 cit. in Graaf, 2013 p. 8)

The rapid shift towards a development of the domestic wind energy firms was facilitated by several domestic policies and regulations, some of which collides with the established principles of international trade law and may be questioned under the WTO rules.  China has, indeed, employed different green mercantilist measures in order to boost the domestic market such as joint ventures and technology transfer, customs duties and import tariffs, local content requirements and wind-power related subsidies (Graaf, 2013, p. 7).

Firstly, since the second half of the 1990s China has considerably encouraged the wind power industry as an area of investment. Although China allows foreign companies to establish in its domestic market as wholly foreign-owned enterprises – WFOs –, several foreign companies choose to enter into joint ventures with domestic firms (Wrest, 2016). The choice is a result of the fact that domestic companies have the monopoly in the wind power market, as presented in the figure above (see Figure 12). Pursuing joint ventures partnerships, however, does not imply the violation of international trade law. In certain cases, the creation of joint ventures has been permitted in exchange for technology transfer of foreign turbine technologies to local companies. Transfer of foreign state-of-art technologies is one of the pillars of China’s strategy towards becoming an innovation-driven economy by 2020 (EU SME Centre, 2014). The Chinese government has stimulated the innovation of the local wind power industry through incentives to innovate locally and absorb foreign technologies, based on the principle catching up first and then competing. As a pre-condition for doing business in the Chinese wind sector, this strategy may be questioned under WTO rules (Graaf, 2013, p. 8) (Lewis, 2013, p. 2). Joint ventures are attractive for Chinese companies, since the partnership involves new and complex technologies.

Figure 13:China’s Top Import Partners for Wind Technology 2004-2011

../Schermata%202017-05-10%20alle%2011.46.44.png

(Gandenberger, Unger, Strauch, & Bodenheimer, 2015)

Figure 14 shows the leading import partners from which China received wind technologies between 2004 and 2011. Throughout this period, whilst U.S. maintained a leadership position almost every year, the contribution of the other country significantly changed from year to year. However, certain EU member states such as Czech Republic, Spain and Italy have been major trade partners as well. According to Gandenberg et al. (2015, p. 23), the significant variation of trade partners from year to year does not allow China to absorb tacit knowledge from other countries. From this point of view, joint ventures assume considerable importance in the knowledge spillover. Under the “Ride the Wind Program” of 1997, the Chinese government has privileged countries which allowed the transfer of state-of-art technologies in the wind power industry. The Spanish Made and the German Nordex wind companies were among the first to establish joint ventures with local Chinese enterprises, respectively Yituo and Aero Engine Cooperation (Lewis, 2013, p. 2). The foreign companies agreed to transferred wind turbine technologies in exchange for getting access to the Chinese market and financial support by the government technology funds (Lewis, 2013, p. 2) (Graaf, 2013). However, as presented in the EU SME Centre guidelines (2014, p. 2), “sharing technology and producing locally will not automatically open doors to the Chinese market – in particular, not in economic sectors that depend on government procurement.

Along with joint ventures and technology transfer, an important industrial policy to support the Chinese wind industry customs duties and import tariffs on wind turbines. As the previous one, this policy support mechanism which in certain cases collide with the international trade law. China has adjusted import tariffs and custom duties alongside the development of the wind sector. Whilst in the early years of wind energy development, between 1990 and 1995, customs duties and import tariffs were low and in some cases also duty-free, since 1996 the tariffs were adjusted to support local enterprises (Silva & Klagge, 2014) (Graaf, 2013, p. 8) (Lewis, 2013, p. 3). The goal of this strategy was to promote the domestic wind power market, boosting the economy through foreign production facilities. By 1996, China has set the tariffs rate at 12% on imported turbines and a lower duty of 6% on important components in order to encourage the local industry (Graaf, 2013, p. 8). After a revision process, in 2008 restricted the high duties on import turbines with a capacity lower than 2.5 MW (Silva & Klagge, 2014). However, current customs duty regulations vary significantly across the import components of the wind-power related products and are applied differently based the different ownership structures of the firms (Lewis, 2013, p. 3).

“The aim of this differentiation is to explicitly reserve the market for smaller wind turbines to domestic manufacturers and at the same time open up the market “for important technological equipment” such as larger high-output turbines”

(Silva & Klagge, 2014)

Again, the discriminatory treatment toward foreign companies contribute to perpetuate barriers to international trade, violating the WTO principle of non-discrimination on the basis of nationality.

A third dubious industrial policy to support China’s wind industry is the local content requirements, in place in China for a long time. Borrowing the OECD definition, “LCRs are a type of localisation barrier to trade that requires solar- or wind-energy investors to source a certain share of inputs locally, to be eligible for public support” (OECD, 2015). During the Ninth Five-Year Plan, in the years between 1996 and 2000, a wind-farm related project was approved by the National Development and Reform Commission – NDRC –, requiring a 40% of LCRs for wind turbine products purchased. Starting by 2003, the LCRs have been growing first with 50% local requirement, then moving to 70% local content. The increase in the LCRs was a result of a program launched by the NDRC, which started to auction off the right to develop large wind firm. The LCRs was a key determinant to evaluate the feasibility of the project and to select the winning bids for these concessions (Graaf, 2013, p. 8) (power-technology, s.d.). Later in 2005, the requirement was extended not only on government-run wind manufacturer, but to all type of wind farms in China (Graaf, 2013, p. 8) (Lewis, 2013, p. 3). The main aim of this strategy was to encourage the domestic production of wind power equipment. Indeed, the major obstacle in the development of this industry was the high dependence on imported wind turbines. Reducing the dependence on import of wind-power related goods have allowed an increase in the domestic production and a development of technical expertise of local players (power-technology, s.d.). In 2009 China eliminated the LCRs, even though the local content is still a main factor in the selection process for awarding the Wind Concession (power-technology, s.d.). Due to the requirement, foreign companies face difficulties in establishing and receiving wind farm concessions. Consequently, several international manufacturers have developed different strategies in order to meet these requirements (Lewis, 2013, p. 3). Despite the positive impact on the domestic market, this supportive measure is dubious under international trade law, and violate Article III: 4 of the GATT:

 “The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.”

(General Agreement on Tariffs and Trade, 1994) 

Under WTO rules, members cannot grant any subsidies which encourage export performance and its clean energy producers to the detriment of imported goods. With China’s accession to the WTO, the country agreed to remove all prohibited subsidy programs.

A policy instrument which have played a critical role in the development of the Chinese wind industry are wind-power related subsidies, including “direct subsidies for government capacity building, subsidized R&D, tax-related incentives, and pricing incentives” (Lewis, 2013, p. 4). Again, some of these subsidies may be questionable under WTO law and contested as non-tariff barriers. Indeed, whilst certain government subsidies are equally available for both foreign and Chinese producers, others targets specifically Chinese wind turbine manufacturers, such as the ones related to research and development (Lewis, 2013, p. 4) (Graaf, 2013). Furthermore, certain green technology subsidies have promoted locally produced technology, damaging foreign wind manufacturers. China’s green technology subsidies are comparatively high compared to the rest of the world, accounting for almost half of the total green energy stimulus spent globally(power-technology, s.d.), resulting in a negative impact for green energy firms in other countries. Indeed, by using subsidies, Chinese manufacturers have increased their market share, gaining a price advantage against foreign companies and leading to an increase of the trade imbalance in the green sector.

 “As a result, green energy firms in other countries […] have suffered a decline in their export businesses, job losses, decreases in domestic market share and a fall in market-driven prices, thereby largely affecting their profit margins.”

(power-technology, s.d.) 

Form this point of view, wind-power related subsidies are questionable under WTO law, violating Article V of the Agreement on Subsidies and Countervailing Measures: “No Member should cause, through the use of any subsidy […], adverse effects to the interests of other Members” (SCM Agreement, 1999).

Surprisingly, the EU has not pursued any action against the above China’s industrial policy.  As stated by Keith Bradsher,

 “Companies like Gamesa have been so eager to enter the Chinese market that they not only bow to Beijing’s dictates but have declined to complain to their own governments, even when they see China violating international trade agreements.”

(Bradsher, 2010) 

Prior 2005, European wind firms had a significant share in newly installed wind capacity in China. The rate has decreased alongside the development of the Chinese wind power market. Nowadays, European wind companies face difficulties in entering the market, due to the numerous trade barriers mentioned above. Once European enterprises access the Chinese high-end wind energy equipment market, they do not want to lose out the attractive market.

6.  DISCUSSION

Throughout the research projects, several aspects were analyzed in order to reach a conclusion and to answer the initial problem statement:

 “Why does the European Union cooperate with China in climate change issues, but then using protectionist measures towards China’s green industry?”

In order to answer the problem formulation, three different sub-questions have been developed:

How does the EU long-term goal set the pace to tackle the climate change issues?”

Why did the EU attitudes change towards China’s exports?”

What are the reasons for the EU to implement protectionist measures?”

In the analysis chapter it has been discussed separately about the EU member states attitudes toward China and how the Sino-European strategic partnership in tackling climate change issues has developed throughout the last century. Furthermore, the analysis of two case studies has been considered has a suitable strategy in order to understand the reasons of the current European protectionism in the green technologies market. Specifically, the solar trade industry and the wind power industry have been analyzed. This chapter will argue the findings of the analysis, discussing the possible reasons of the ambiguous strategy employed by the EU. Furthermore, the weaknesses and strengths of the European attitude toward China will be discussed.

Firstly, the Sino-European strategic partnership in setting the pace to tackle the climate change issues will be debate, highlighting the motivations of the two parties in carry on the cooperation.

Despite divergences in some area such as China’s government intervention in economic, social and political affairs, China is a natural strategic partner for the EU. During the last century, China and EU have developed closer ties in a wide range of areas both at the bilateral and multilateral levels. Particularly, the China-EU Comprehensive Strategic Partnership in 2003 have led the two parties to become more interdependent, deepening their cooperation in order to promote prosperity and sustainable development at a global level. The engagement towards a sustainable economy and green energy has been taken by both sides through international cooperation as well as domestic strategies, such as the EU 2020 Strategy and China’s 12th Five Year Plan. Thus, the partnership seems to offer mutually beneficial outcomes, both economically and politically. Indeed, climate change may cause extreme economic losses and a reduction in the general well-being of the world population. As a result, both China and EU has listed the shift towards climate-friendlier technologies as a main objective in their political agenda. From this point of view, the EU and China are critical actors in the transition towards the development of low-carbon economy and green technologies. On the one hand, the EU has long set the pace in tackling international climate change issues and has taken a leadership role in developing an international climate change diplomacy. China, on the other hand, is the world’s largest polluter in absolute term, but its engagement to build a harmonious society has now led the country to take the lead in lowering the level of pollution domestically and globally. The country has assumed a leadership role in the production of green technologies, such as wind-power related technologies and solar photovoltaic panels. According to the analysis, China has increased its cumulative installed capacity of green technologies over the past decade. Whilst in the previous year China’s green market was mainly based on production and exports of green technologies, over the past decade China has become an important buyer and consumer of clean energy, reducing its reliance on foreign technologies.

According to the findings of the analysis, however, despite strategic partnerships between the two sides, the Sino-European relations have been jeopardized by the EU’s valued approach to dealing with China, with a principled, practical and pragmatic engagement (Saarela, 2017). The EU attempt to influence the Chinese domestic policy in the green energy field have challenged the Sino-European cooperation. The core idea is that China’s environment issues does have historical parallels with Western countries as well as European member states. Basically, China is now at a certain stage of its industrialization, which has been already experienced by those states. Under this perspective, Europe is trying now to influence Chinese domestic policy in order to have a control on the outcomes, whilst it may be more fruitful to build common interests with the country. The strategy collides with the Chines principle of non-interference in domestic affairs in neighbouring states, creating a growing number of frictions between China and the EU. The Union expects China to assume responsibilities in the area of climate action not only locally but also in the international arena, whilst supporting the rule-based international order. The EU strategy on China is based on the concept of normative power. As presented in the analysis, this principle has contributed the development of the EU’s policy toward China in four key area of interests: global governance, trade and investments, technical assistance and political and social changes. China seems to have committed itself with the Union in order to achieve sustainable development and prosperity, which has become a main pillar of the Sino-European bilateral relationship.  The cooperation on climate change between Beijing and Europe has been mainly based on the principle of promoting sustainable development through interdependent global governance. In line with the strategy, policy tools In trade and investment and technical assistance have been employed in the cooperation in renewable energy. From a European standpoint, global integration into economic, political and social affairs is a main pillar of its strategy toward China. Arguably, the Sino-European relationships have been developed over time on this principle. Since the 1990s, the Union has employed a non-confrontational engagement strategy with China, in order to promote its participation into the world economy. In line with this strategy, the EU has long supported China’s accession in the WTO, moving toward a more constructive engagement between the two trade blocks. As normative power, EU had interest in promoting China’s deepening economic reform. Arguably, a more globalized economy in line with international trade law would have created a spillover effect in other area of interests, such as the promotion of a more sustainable environment. This confluence of ideas led the Union to establish a comprehensive strategic partnership with Beijing in 2003. However, the EU’s engagement with China contrast with China’s national interest. Indeed, a major European goal is to engage China into the international market, whilst promoting EU’s value and enforcing existing rules. Against China non-interference principle, the EU seems to have focused more on influencing China’s domestic arena, rather than promoting mutual interests. China primary interest, on the other hand, is to develop the country’s economy in order to catch up the other world power and establish rule which are in favor of China’s strategy itself. This term, the European value-based engagement mismatched with China’s priorities and interests, leading the two countries to experience fictions. It may be argued that a shift away from a values-based approach to an interest-based approach is needed, in order to promote interdependence between the two trade blocks.

Since the EU-China bilateral trade has experienced several disputes, the Sino-European clean energy relationship may be even considered as conflictive, rather than cooperative. Throughout the analysis both the solar photovoltaic sector and the wind power market have been taken into consideration. The analysis highlight that both the trade blocks have implemented over time different measures and regulations to promote the domestic market and safeguard their economy. Thus, China is no by means the only country to implement protectionist measure in the clean energy sector. The main objective of implementing green mercantilist measures is to spur green industrial innovation, although some of this mechanism and measures clash with the international trade law. According to our findings, things are made even more complicated due to the very nature of the Union. Whilst China is a superpower, the Union has more complex institutional settings, being and international organization sui generis. This unique nature has provided fertile ground for divisions among member states, resulting in policy incoherence and a lack of a strategy vis-à-vis with China. Furthermore, the complexity of the Union has challenged the Chinese government, which has always been puzzled by the EU’s unique nature. As a result, Beijing has developed greater bilateral relationship with major states. Despite the main goal of the European commission is to protect its own market and to ensure fair trade with China, several member states have developed a great mutual interest with Beijing, and prefer not to enter in conflict with the Chinese government. For instance, during the solar trade disputes a shift from an punitive approach toward a more flexible one has happened once member states’ interests interacted with the dispute. In the case of the solar trade dispute, Germany has played a major role, being against such punitive measures. Indeed, despite the negative impact of importing cheap PVs, Germany main interest was to protect its own market and diplomatic relationships. Unsurprisingly, thus, EU has not initiated any disputes with China’s wind power sector. According to our findings, several EU multinational corporation have struggled to enter the market and have high interest to maintain their favorable treatment within the country, even if Chinese measures may be questionable under international trade law.

7.  CONCLUSION

REFERENCES



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