* Chinese fiberglass prices less damaging than first thought

* Tariff cut will help European wind power, vehicle sectors

BRUSSELS - The European Commission plans a significant cut in the punitive tariffs it imposed last year on Chinese-made fiberglass used in the clean technology sector, EU diplomats and people close to the issue told Reuters on Friday.

The Commission, the European Union's executive, plans to reduce the anti-dumping tariffs to less than 14 percent by mid-March from a 43.6 percent temporary rate set in September 2010.

"The new plan for duties is quite a bit lower than originally, which reflects the opposition to the original duties," a person familiar with the case told Reuters.

The duties aim to counteract what the EU says is illegal market dumping by Chinese producers.

If approved by a majority of EU states, the new rate will apply for up to five years.

The radical cut in the tariffs reflects concern that the higher rate will limit the supply of the lightweight material used in wind turbines, cars and ship hulls at a time when the EU is trying to curb its energy consumption, diplomats say.

"We welcome any measure that reduces trade barriers for clean energy technologies. This will ultimately help the wind industry grow faster, accelerate the uptake of wind energy globally and reduce costs for consumers,' said Steve Sawyer, secretary general of the international industry group, the Global Wind Energy Council.

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The planned cut also follows new evidence that Chinese exporters are undercutting market prices less drastically, and doing less damage to their European rivals, than originally thought, people familiar with the case told Reuters.

The tariff has divided the 27-member bloc and highlights its struggle to reconcile its desire to promote high-tech champions with protection for more traditional upstream manufacturers.

The issue pits European fiberglass producers such as PPG Industries against users such as wind turbine producer Vestas.

"The anti-dumping measures on carbon fibers are literally shooting the European wind industry in the foot, and we are thus eager to see them go away," said Peter Brun, Senior Vice President at Vestas.

"Any kind of trade protectionist measures are literally poison for this expanding industry, which is now becoming a global industry with a mission to make a significant contribution to fighting the climate change challenge." The plan to impose high tariffs last year prompted a near-rebellion among EU members, and 12 of the EU's 27 states opposed the Commission's proposal.

A vote on the lower tariff is scheduled for this week.