A failure by China and the European Union to reach a compromise in August over the solar panel dispute will deal a heavy blow to the global new-energy industry and result in huge losses for solar manufacturers on both sides, a former Chinese trade official said on Tuesday.

"If the high punitive tariffs become a reality, players in the entire solar industry chain, including European companies, will suffer heavy losses," said Long Yongtu, former vice-minister of commerce and the chief negotiator of China's entry into the World Trade Organization.

Brussels has set a deadline of Aug 6 for China and the EU to reach a compromise. If that fails, the EU will raise its temporary anti-dumping punitive tariff on Chinese solar exports from 11.8 percent to 47.6 percent until Dec 6 when the EU will decide whether to extend it to a five-year punishment.

Long said that the EU's targeting of Chinese solar products is wrong, as their low prices are a result of the decreasing costs of raw materials and technology upgrades.

He made the comments on the sidelines of the International Capital Conference in Paris, which gathered European and Chinese entrepreneurs and policymakers to discuss bilateral trade and investment relations.

Long said that European companies must boost their competitiveness to adapt to the evolving international trade situation. "Protectionism will not increase competitiveness. It will only protect backwardness and inefficiency," he said.

Peter Mandelson, former EU trade commissioner, said that the solar panel case is a good illustration of how the international economy is changing and that trade policies should reflect the changing realities of the supply chain.

"The panels which are made in China are actually made from certain elements supplied from Europe and are re-exported to Europe. You can say the solar panels are as much made in the world now as they are simply made in China," Mandelson said. "Therefore, protectionism will be detrimental to the interests of both China and the EU," he added.

Mandelson also noted that the current tit-for-tat measures from both sides will have negative implications on China-EU bilateral trade relations and that both sides should resolve their short-term problems through a voluntary agreement.

"We need each other too much to allow the relationship to weaken," he said. "I don't believe in tit-for-tat measures as such a beggar-my-neighbor approach won't get anyone anywhere."

Cheng Qingtao, vice-president of the China Chamber of International Commerce, said that the challenge to decipher Brussels' position is that Europe does not speak with a unified voice. "There is a lack of unity in Europe because many countries act according to their own interests," he said.