The European Union said it will impose anti-dumping levies on imports of Chinese solar panels, in a move that could trigger a trade war between two of the world’s largest economies.

The 27-nation bloc will impose a tariff of about 12 percent on the import of solar panels, cells and wafers this week, EU Trade Commissioner Karel De Gucht announced on Tuesday. That will increase to an average of 47 per cent in August unless a settlement is reached with China in the next 60 days.

China, the world’s largest producer of solar panels, is accused by the EU of dumping them, or selling at improperly low prices, and hurting European competitors. Its exports of solar panels to Europe totalled 21 billion euros in 2011.

According to EU calculations, a fair sale price for Chinese solar panels should be 88 per cent higher than what they are currently being sold for.

“It has the potential to destroy an important industry in Europe if we don’t act today,” said Mr. De Gucht in Brussels. He said more than 20,000 jobs in Europe are at stake.

The Chinese Ministry of Commerce rejected the European measures and expressed hope for a settlement through consultations.

“The Chinese side expresses its resolute opposition,” said a ministry statement on Wednesday. “We hope the European Union will further show sincerity and flexibility and a mutually acceptable solution can be found through consultations.”

The brief statement made no mention of possible concessions or other details.

The EU is China’s biggest trading partner, with total 2012 imports and exports of about $546 billion, according to Chinese government data. Solar panel exports in 2011 stood for about 7 percent of China’s total exports to the EU.

The EU decision is another blow to Chinese government efforts to promote an industry that it sees as a future source of better-paid technology jobs. Last year, the U.S. imposed anti-dumping duties on Chinese solar products.

The EU Commission, the bloc’s executive arm, has decided not to slap a punitive 47 per cent tariff on all solar panel imports straight away in an attempt to avoid an escalating trade war, where each side engages in tit-for-tat tariffs and boycotts. Instead it is looking for a negotiated solution- Beijing now has 60 days to reach a settlement with the Commission.

“The ball is now in China’s court,” Mr. De Gucht said. “This is a one-time offer to the Chinese side to negotiate.”

The trade row between the EU and China is the world’s biggest anti-dumping case by sales volume, according to EU officials.

“The Commission is making a gesture in order to avoid an all-out trade war,” said leading conservative European Parliament lawmaker Daniel Caspary, adding that is now China’s turn to show equally responsible behaviour.

“China has to show it is willing to stick to the rules of a globalized economy,” he said.

The global solar panel market is suffering from significant overcapacity, which has led to falling prices throughout the industry and stiff competition that has forced several European manufacturers out of business.

One of China’s largest producers, Suntech, filed for bankruptcy in March, while several other manufacturers there have reported heavy losses.

A coalition of European solar producers, EU ProSun, which was among the complainants that sparked the EU’s investigation nine months ago, welcomed the new levies as a step to counter China’s “flagrant violations of international trade law.”

“Dumping is fraud and harms the future of solar energy and must be relegated to the past,” the group said.

Mr. De Gucht added that to reach a settlement, Chinese manufacturers would have to agree to increase their prices and accept a lower market share quota. Chinese solar panels’ share of the EU market has risen to 80 percent over recent years.

If an agreement can’t be reached, the final anti-dumping tariffs, valid for five years, would require approval by a majority of the EU’s 27 member states six months from now. If the EU governments were to reject the tariffs, the money collected between now and the vote would be returned to China.

Several EU nations, including heavyweight Germany, have spoken out against imposing special duties and urged the Commission to reach a settlement with China.

Germany has the bloc’s biggest solar industry, but Berlin fears imposing special duties could provoke Chinese retaliation on imports of European goods, which would harm German exporters.

Mr. De Gucht sought to dispel fears of retaliation measures, rejecting such questions as “hypothetical.”

Chinese Premier Li Keqiang warned last month that imposing punitive tariffs would hurt European consumers and might encourage trade protectionism although he stopped short of threatening retaliation.

The U.S. last year imposed punitive tariffs of up to nearly 250 percent on Chinese-made solar panels after finding Beijing was improperly subsidizing companies that were flooding the U.S. market. Solar panel and cell imports to the U.S. in 2011 totaled $3.1 billion, the Commerce Department has said.