Chinese Solar Panel Manufacturers
Employees carry solar panels at a solar power plant in Aksu, Xinjiang Uyghur Autonomous Region May 18, 2012. Reuters

The European Union has imposed a temporary tariff on Chinese solar panels entering Europe, in a controversial measure to halt cheap Chinese solar panels that undercut fair competition on the continent.

The new duties will be phased in over a six-month period and implemented in two stages, according to a news release.

Until Aug. 6, Chinese manufacturers will be forced to pay 11.8 percent in duty on the value of their solar panel exports into Europe. From August 6 for four months, the rate will rocket up to 47.6 percent of import values.

Member states were split on the decision late last month, with Germany and the U.K. criticizing potential tariffs, even as Italy and France backed them.

The EU maintained that the tariffs were not punitive, and merely leveled the playing field for European solar panel producers. According to the EU, Chinese solar panels are sold 88 percent below fair market value in Europe, and command more than 80 percent of the market there.

The European Commission, the EU’s executive arm, is open to further negotiation with Chinese exporters and the Chinese Chamber of Commerce on withdrawal of the tariffs.

China Premier Li Keqiang has warned of likely retaliation as a response, according to the New York Times, sparking fears of a trade war.

According to the EU, European solar panel firms face bankruptcy because of the unfair Chinese competition, with “25,000 jobs in the EU solar production industry that are likely to be lost forever if measures are not imposed.”

The EU said China annually produces much more double of what the EU demands in solar panels, in a market worth about €27 billiion ($41.3 billion). In 2012, the EU imported Chinese solar panels to the tune of €11.5 billion.

EU trade commissioner Karel De Gucht defended the move against criticisms that it amounts to trade protectionism, calling that description “simply wrong and misleading” in a statement.

She also indicated her preference for negotiations going forward: “Let me be very clear: I want an amicable solution with our Chinese partners; that is also what Europe wants.”

“The ball is now in China’s court,” she said.

If a negotiated solution is not reached by December, the tariffs will extend for an additional five years. One alternative is a commitment by Chinese firms not to sell solar panels below a fixed and agreed-upon price.

Read an EU FAQ on the decision here.