China and the European Union defused their biggest trade dispute by far yesterday 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.

European solar panel makers accuse China of benefitting from huge state subsidies, allowing them to dump about €21 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 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 number two economy, a majority of EU governments – led by Germany – opposed the plan, which was what 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 what he called a “positive and highly constructive outcome”.

An EU diplomatic source said that in the solar agreement, the agreed price was 0.56 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 seven gigawatts without being subject to tariffs under the deal, the EU source said.