China's envoys have agreed central elements of a deal with the European Union that may yet avert punitive duties on Chinese solar panels the bloc plans to impose next month, sources on both side said yesterday.

The conflict, the biggest trade dispute between the European Union and China, has prompted Beijing to threaten duties on European wine exports and risks sparking a trade war or creating barriers to EU companies trying to expand in China.

China has denied a European Commission claim that the world's second-largest economy is flooding Europe with cheap panels sold at below the cost of production. The commission has imposed low tariffs that will jump on August 6 if a deal is not reached.

After six weeks of talks, negotiators are close to agreeing a minimum price at which Chinese solar panels must be sold in the 28-nation bloc, and an annual quota for Chinese imports.

"Chinese negotiators went back to Beijing on Monday evening and when they left Brussels, only a few numbers had not yet been settled," said a Chinese source close to the talks.

Negotiators are not expected to return to Brussels and final discussions are being carried by telephone at the highest political level, mostly between EU trade commissioner Karel De Gucht and Chinese commerce minister Gao Hucheng. European negotiators have told their Chinese counterparts that Brussels needed two weeks prior to August 6 to implement any deal, meaning Tuesday was the last day to agree a deal to avoid tariffs of 47.6 percent coming into effect.

However, EU diplomats said there was time to avoid the damaging impact of tariffs on China's 21 billion euros (US$28 billion) of solar sales to Europe because Chinese producers could freeze imports for a brief period until the deal was done.

Amicable solution

"We are very close. Both sides want a deal," said one European source. "Even if an agreement is not in place on August 6, Chinese producers could choose to hold back their imports until there is agreement because we are so close."

The commission declined to comment on the details but John Clancy, the EU's trade spokesman, said: "Discussions are ongoing at the highest level, as both sides seek an amicable solution."

Chinese solar panel production quadrupled between 2009 and 2011 to more than the entire global demand. EU producers say Chinese companies have captured more than 80 percent of the European market from almost zero a few years ago.

But Britain and Germany are worried about angering China with tariffs on manufacturers such as Trina Solar, Yingli Green Energy and Suntech Power Holdings, damaging ties with the EU's second-largest trading partner.

As higher duties would effectively lock Chinese producers out of the EU market, there are also fears that the European installers who buy their products may go out of business.

Sources on both sides say Brussels and Beijing are converging on a minimum price for Chinese photovoltaic modules in Europe of 0.55 euros per watt of capacity, which is near the average price for Chinese modules since November last year.

The average price of German solar panels on the international spot market was 0.77 euros per watt in June.

The commission has also proposed allowing China to meet 60 percent of EU consumption, down from 80 percent today. That is still an open issue, sources said, as is the duration of the deal, but these are lesser issues than the price.

European anti-dumping duties normally apply for up to five years but China wants the agreement to expire by the end of next year. Brussels has proposed the end of 2015 as the expiry date.