The EU's trade chief will recommend placing punitive import duties on billions of euros of solar panels from China, people close to the matter say, in a protectionist move that risks upsetting Beijing.
The case, the biggest the Commission has launched, is a delicate one for Brussels. Europe wants to protect its manufacturers such as Germany's SolarWorld against cheap imports but also needs China, the EU's second largest trading partner, to help the bloc emerge from recession.
Trade Commissioner Karel De Gucht is expected to tell his fellow EU commissioners on Wednesday that Brussels should levy the tariffs to guard against Chinese production that quadrupled between 2009 and 2011 to more than the entire global demand.
EU producers say Chinese companies have captured more than 80 per cent of the European market from almost zero a few years ago, prompting the European Commission to act against what it terms dumping. Europe accounted for about half of the global solar market last year, which was worth $US77 billion, according to research firm IHS.
"De Gucht is ready to go ahead," said one person close to the decision-making. "The Commission has a very solid case."
SolarWorld's shares closed up 8.1 per cent at 0.68 euro cents while U.S.-listed Chinese solar firms traded lower. China's Trina Solar was down 5.1 per cent at $US5.03, Yingli Green Energy off 5.95 per cent at $US2.37 and Suntech Power Holdings 6 per cent lower at $US0.62 as of 1650 GMT.
The Commission started an investigation in September when it judged there were grounds to take up a complaint by a group of mainly German and Italian companies. They accuse China of subsidising its producers with easy credit to push output to more than 20 times the level of Chinese consumption.
De Gucht now believes there is clear evidence of dumping on the EU market, and following Wednesday's meeting in Brussels, will propose the measures at a gathering of trade specialists from all EU countries. They are expected to back them, diplomats say, allowing the provisional levies to come into force by June 6, the deadline for a decision under EU rules.
However, the move to levy duties would still leave the door open for a negotiated solution with Beijing before December and avoid levies that could be imposed for up to five years.
The United States levied its own duties on Chinese solar energy products last year, arguing that China's rapid expansion into the industry has created a massive oversupply.
Germany, the United States and China are the world's biggest solar markets and companies are in a race to win contracts as countries seek to limit pollution and global warming.
The initial EU duties on Chinese solar panels are likely to be set at 30 per cent and above, which would make Chinese exports far less attractive in Europe, said one person involved.
Prices for Chinese-made panels are as much as 45 per cent lower than those made in Europe, industry executives say.
China, which had barely any solar production capacity a decade ago, exported more than 21 billion euros in panels to the European Union in 2011.
SolarWorld, once Germany's biggest solar group, partly blames Chinese overcapacity for its problems, including 900 million euros ($1.2 billion) in liabilities, while its smaller rival Q-Cells filed for insolvency last year.
"Germany has thrown all its weight behind this case," said another person close to the case. "Germany does not usually do so in trade defence measures, but this is an important industry under attack."
Germany is Europe's largest exporter to China, and Chancellor Angela Merkel has made numerous trips to Beijing, last year striking a conciliatory tone by saying Europe has no interest in starting a trade war over solar panels.
French President Francois Hollande also flew to Beijing last month for a visit to try to increase France's exports.
Europe's stance on solar energy is complicated by the fact that some in the EU solar sector, notably importers and installers, support cheap panel imports from China.
They say EU tariffs would be damaging for efforts to develop clean energy. Some fear retaliation by Beijing.
In April, trade groups representing users of solar panels in six EU member states sent an open letter to De Gucht urging him not to seek duties, saying the prospect of duties on Chinese solar panels had already resulted in cancelled orders.
But EU producers from a range of sectors want protection against Chinese imports, and the European Commission, which handles trade issues for the EU's 27 members, is investigating 30 dumping and subsidy cases, 19 of them involving China.