China and the European Union defused their biggest trade dispute by far on Saturday with a deal to regulate Chinese solar panel imports and avoid a wider war in goods from wine to steel.
After six weeks of talks, the EU's trade chief and his Chinese counterpart sealed the deal over the telephone, setting a minimum price for panels from China near spot market prices.
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European solar panel makers accuse China of benefitting from huge state subsidies, allowing them to dump about 21 billion euros ($28 billion) worth of below-cost solar panels in Europe last year, putting European firms out of business.
Other European industries that have accused China of dumping have faced imports of about 1 billion euros a year.
Europe planned to impose hefty tariffs from August 6 but, wary of offending China's leaders and losing business in the world's No. 2 economy, a majority of EU governments - led by Germany - opposed the plan, which led to the compromise deal.
"We found an amicable solution," EU Trade Commissioner Karel De Gucht said. "I am satisfied with the offer of a price undertaking submitted by China's solar panel exporters," he said, referring to the minimum price for China's imports.
Chinese Commerce Ministry Spokesman Shen Danyang welcomed the deal, hailing a "positive and highly constructive outcome".
An EU diplomatic source said that in the solar agreement, the agreed price was 0.56 euro cents per watt, near the spot price for Chinese solar panels in July in Europe, according to solar exchange pvXchange.
Under the terms of the deal, China will also be allowed to meet about half Europe's solar panel demand, if taken at last year's levels. EU consumption was about 15 gigawatts in 2012, and China will be able to provide 7 gigawatts without being subject to tariffs under the deal, the EU source said.
That did not satisfy some EU solar manufacturers who said the minimum import price agreed still constitutes dumping and accused the European Commission of breaking EU law by failing to protect European industry.
European solar panel manufacturer association EU ProSun said it will go to the European Court of Justice in Luxembourg to challenge the deal.
"Even the biggest EU trade conflict ever must still be resolved on the basis of the applicable law," said EU ProSun's president, Milan Nitzschke.
However, China has sold solar panels for as little as 0.38 cents a watt, according to the European Commission, which handles trade issues for EU states, and tariffs would also hurt EU panel installers, who benefit from cheaper Chinese panels.
Chinese manufacturers such as U.S.-listed Trina Solar , Yingli Green Energy and Suntech Power Holdings are among those exporting to Europe.
Chinese solar panel production quadrupled between 2009 and 2011 to more than the world's entire demand as it took advantage of a growing market for renewable energy in the face of concerns about climate change.
But the global financial crisis and ensuing euro zone crisis have forced European governments to withdraw generous subsidies for solar energy. That, along with Chinese imports pushing down prices, have sent many European solar companies into bankruptcy.
German group Conergy filed for insolvency this month.
Still, those concerns have become secondary to the much larger EU-China trade relationship at stake over the panels dispute.
Europe is China's most important trading partner, while for the EU, China is second only to the United States. Chinese exports of goods to the bloc totaled 290 billion euros last year, with 144 billion going the other way.
Responding to the EU's move to impose duties, China launched an anti-dumping inquiry into European wine sales, which may have led to exporters in France, as well as Spain and Italy, being hit with retaliatory duties.
EU and Chinese diplomats now expect that case to be dropped as a goodwill gesture, although officials declined to comment on Saturday.
(Additional reporting by Martin Santa in Brussels; Editing by Louise Ireland)