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IB Economics Internal assessment cover sheet

Candidate
name

Muhammad Fahmi Abdul Muin

Candidate
number
000114 - 0002

Teacher John Loughrey



Title of the article


EU Imposes Tariffs on Chinese Solar-Glass Exporters Up
to 42.1%



Source of article








Bloomberg,

http://www.bloomberg.com/news/2013-11-27/eu-hits-chinese-solar-
glass-exporters-with-tariffs-up-to-42-1-.html



Date Accessed: Thursday, 16 January 2014


Date the article was
published

Friday, 1 November 2013



Date the commentary was
written

Monday, 10 February 2014



Word count

740 words

Section of the
syllabus

Section 2: Macroeconomics

EU Imposes Tariffs on
Chinese Solar-Glass
Exporters Up to 42.1%
By Jonathan Stearns Nov 27, 2013 10:50 PM GMT+0100 Bloomberg

The European Union imposed tariffs of as much as 42.1 percent on solar glass
from China to curb import competition for EU producers, heightening trade tensions over
renewable energy.
The duties punish Chinese exporters such as Zhejiang Jiafu Glass Co. and Xinyi PV
Products (Anhui) Holdings Ltd. for allegedly selling glass in the EU below cost, a
practice known as dumping. The glass is used in solar panels, which are themselves the
focus of two European trade probes affecting China.
EU producers suffered material injury as a result of dumped imports from China, the
European Commission, the 28-nation EUs trade authority in Brussels, said yesterday in
the Official Journal. The levies, which took effect today, are for six months and may be
prolonged for five years.
The duties are the preliminary outcome of an investigation that the commission opened in
February after a dumping complaint by a European group on behalf of producers that
account for more than a quarter of EU production of solar glass. The EU solar-glass
market is valued at less than 200 million euros ($272 million), the commission said when
it opened the inquiry.
Chinese exporters increased their share of the EU solar-glass market to 28.8 percent in
2012 from 6.2 percent in 2009, the commission said. The provisional levies range from
17.1 percent to 42.1 percent, depending on the Chinese exporter. Zhejiang Jiafu Glass
faces the maximum rate, while Xinyi PV Products is subject to a 39.3 percent duty.
EU governments, acting on a proposal from the commission, must decide within six
months whether to turn the provisional anti-dumping duties into definitive levies lasting
for five years. The rates for definitive duties can change.
Since last year, the EU has been investigating alleged subsidies to Chinese solar-panel
makers and alleged dumping by them in the blocs biggest trade dispute of its kind. In
August, the commission reached a provisional agreement China that fixed a minimum
price and a volume limit on EU imports of Chinese solar panels until the end of 2015.
The article considers the protectionism measure by the European Union (EU) to reduce
the consumption of Chinese solar glass by enforcing tariffs on imports. The economics concept
discussed is protectionism, a form of barrier by a government that prevent international trade,
in favor of anti-dumping. Tariff is a tax enforced by a government on imports in order to
increase the price of imports.
The EU governments in favor of the tariff claimed that Chinese companies, such as
Zhejiang Jiafu Glass Co., received subsidies to lower production cost of solar glass, enabling
them to sell solar glass in the EU for less than the cost of making them, a practice known as
dumping.














The subsidy has an effect of shifting the supply curve vertically downwards from S1 to
S2, reducing the cost of production and increasing the Chinese output of solar glass from Q1 to
Q2, a movement along the demand curve. The price of solar glass is reduced to P2 from P1. The
revenue (a + b + c) is the subsidy paid by the government and the total revenue for Chinese
producers increases from a+d to a+b+c+d+e. the dead-weight loss b represents the inefficiency
of the Chinese producers.
Quantity of solar glass in 1000s
unit in 2013 (Q)
Q1 Q2
P1
P1
D
S1
P
r
i
c
e

o
f

S
o
l
a
r

g
l
a
s
s

p
e
r

u
n
i
t

(
Y
u
a
n
)

S2
P2
d
a
e
b
1
c
1
0
The lower price of solar glass from China sold in the EU results in material damage,
decreasing amount of solar glass supplied by EU producers and workers being laid off,
increasing unemployment and worsening the living standards of the people in the EU. This also
hinders the economic growth as the people in the EU now have lower average income and
consumption decreases, lowering the gross domestic product (GDP).














Before the enforcement of tariff, the domestic producers are supplying the solar glass at price
Pw and 0Q1 amount, while the foreign producers are supplying at Q1Q2 amount at the same price. The
addition of a tariff will shift the world supply curve for solar glass vertically upwards by the amount of
tariff (between 17.1% and 42.1% depending on the Chinese exporter), increasing the world price from
Pw to Pw+17.1%/Pw+42.1%. Now, the domestic producers are supplying at 0Q3 while the foreign
producers reduced the amount supplied to Q3Q4. The foreign producers will lose revenue from b+c+d+e
to c+d, while domestic producers will gain revenue from a to a+b+g+f. The tax revenue h+I is paid to the
domestic government.
The advantages and disadvantages of tariffs depend on the stakeholders. The domestic
producers will be able and more willing to produce more solar glass at higher price, increasing the
output. This will lead to a higher demand for workers, reducing unemployment rate in the EU, which is
one of the Millennium Development Goals. However, consumers and foreigners will have to pay for the
price. A dead-weight loss will be created in the form of consumer surplus (j). The Chinese manufacturers
j i h g f
1
Quantity of solar glass in 1000s
unit in 2013 (Q)
Q1
Pe
P1
sw
S
P
r
i
c
e

o
f

S
o
l
a
r

g
l
a
s
s

p
e
r

u
n
i
t

(
E
u
r
o
)

S2
Qe
Pw
c
1
0
Pw +17.1%
Pw +42.1%
Q2

Q3
Q4
a
1
b
1
d
1
e
1
Sw + 17.1%
Sw + 42.1%
are now decreasing the supply of solar glass, leading to a lower demand of workers. Unemployment in
China will increase as a result or the wages are decreased, leading to a lower living standard of people in
China. This means that consumption in China will decrease, lowering their GDP and hindering the
economic growth. The tax revenue collected by the EU governments could be used to improve the
standards of living of the people within the EU.
The decision of imposing a tariff may help countries in the EU with high employment within the
solar glass market; since its own inefficient producers might not run out of business, especially for the
sunset industries. This will prevent high levels of structural unemployment as EU producers cannot
compete with the lower prices of the Chinese producers. However, it is likely that such industries will
continue to decline and the tariff will simply prolong the process. It could be better off to let the
resources in the sunset industries to move into other areas of the economy, by providing retaining
programs to the workers, to increase occupational mobility.
Sunrise industries in the EU may also benefit from the tariff imposed, as in the short run they are
able to compete with the highly efficient Chinese manufacturers with hopes that the sunrise industries
will expand. However, there is no guarantee that the industries will become more efficient if the tariff is
not removed when the industries become competitive and viable. This will create a waste of the
resources (g) since more efficient industries in China are able to produce the same amount of solar glass
at lower cost.