China Divides European Union in Fight Over Tariffs

HONG KONG — Adroitly alternating the threat of a trade war with the lure of its huge import market, China appears to have driven a deep wedge between Germany and the rest of the European Union. And it may even have caused a rift within the German business world.

As Chinese and European trade officials stare each other down over next week’s scheduled imposition of big tariffs on the $27 billion worth of solar panels China sells to Europe each year, Germany has come down on China’s side.

Notably, Berlin is backing Beijing, even though Europe’s biggest producer of solar equipment, SolarWorld, is a German company that desperately wants the European Union to impose tariffs on the Chinese equipment. Unless the bloc backs off under German pressure, tariffs of up to 50 percent would go into effect June 5, to punish China for the ostensible “dumping” of solar panels at below cost in Europe.

“Europe cannot succumb to blackmail — dumping is illegal, and the E.U. is obliged to defend itself by applying the international trade law,” said Milan Nitzschke, a spokesman for SolarWorld and the president of ProSun, a lobbying group for the European solar energy industry.

But many other German companies, which rely more heavily than other European manufacturers on China as a significant market for their exports — whether Volkswagen cars or Siemens factory equipment or various other goods — fear that the dispute over solar panels could lead to an all-out trade war with China, which would be disastrous for their businesses. So far, the German government appears to agree.

And little wonder. Germany is China’s most important trading partner in Europe and China is Germany’s leading partner in Asia. The Federation of German Industry estimates that one million German jobs are dependent on exports to China. Of those, the German solar industry has about 99,000.

For half a century, Germany has been one of the most loyal and enthusiastic supporters of European unity. And since the advent of the European Union in 1992, Berlin has advocated giving Brussels greater scope in the range of issues it handles. But the solar tariff showdown illustrates the way domestic priorities can sometimes trump pan-European loyalties.

Chancellor Angela Merkel of Germany played host last weekend to Prime Minister Li Keqiang of China. More than a dozen trade agreements were signed, including between VW, Siemens, BASF and their Chinese partners, all supporting further expansion for German industry in the Chinese market and further investment by the Chinese in Germany. Special privileges that China offered German companies in its agricultural and recycling industries were clearly aimed at trying to win Berlin’s support.

After her meeting with Mr. Li, Ms. Merkel told reporters on Sunday that her government would lobby against the solar tariffs, saying the situation was “rather complicated.”

“Germany will do everything possible to resolve the conflicts that we have in trade,” Ms. Merkel said, “through as many discussions as possible to prevent it from falling into a sort of conflict that ends in the raising of tariffs from both sides.”

Germany’s economics minister, Philipp Rösler, said Monday that Germany had told the European Commission in Brussels that it was voting against the imposition of preliminary tariffs on Chinese solar panels. While the commission routinely consults member countries on preliminary tariffs, in the past that has tended to be more of a formality, and opposition has been infrequent.

But on Tuesday, a trade official in Europe with direct knowledge of the matter said it appeared that a majority of the governments were officially opposed to preliminary tariffs on Chinese solar imports. And yet, the European commissioner for trade, Karel De Gucht, could still go ahead on June 5 and impose the preliminary duties without any further approvals. That deadline was established at the opening of the commission’s investigation in September.

Whether Mr. De Gucht proceeds with the preliminary duties remains to be seen. But he “will not be intimidated in any way” and “will not bend to external pressure,” Mr. De Gucht’s spokesman, John Clancy, said at the commission’s daily news conference Tuesday.

Preliminary tariffs, which would last six months, in the past have tended to be imposed as a negotiating ploy before the European Commission decides whether to impose so-called final tariffs that last for five years. A voting majority of member nations could overturn the preliminary tariffs, although such a move would be unprecedented.

Melissa Eddy reported from Berlin. James Kanter contributed reporting from Brussels and Chris Buckley from Hong Kong.