The Biden-Harris administration and US Department of Commerce (Commerce) are investigating solar cell parts from four Southeast Asian countries—Cambodia, Malaysia, Thailand, and Vietnam—to determine if the manufacturers are using parts made in China. If those countries are using solar parts made in China without significantly altering them, it signifies that those companies are circumventing antidumping duty (AD) and countervailing duty (CVD) tariffs.
Given that 85% of imported solar products come from these countries, developers are now facing challenges in finding alternative sources of supply domestically or abroad. Many suppliers in the named countries have completely halted shipments to the United States unless the buyers will accept the market risk of increased AD/CVD duties, which means that current-year solar projects will likely face delays and potential cost increases in reaching operation. Further, lengthy delays are producing a significant impact on the US solar market.
The Auxin Solar case is based on AD and CVD orders currently imposed on solar cells imported into the United States from the People’s Republic of China (China). These AD/CVD orders derived from 2012 Commerce investigations that determined that Chinese producers and exporters sold solar cells in the United States at dumping margins ranging from 18.32% to 249.96%, while also receiving countervailable subsidies of 14.78% to 15.97%.
Commerce’s determination resulted in the Antidumping Duty Order (77 Fed. Reg. 73018) and Countervailing Duty Order (77 Fed. Reg. 73017), which cover crystalline silicon photovoltaic (CSPV) cells, and modules, laminates, and panels consisting of CSPV cells, whether or not they are partially or fully assembled into other products, including, but not limited to, modules, laminates, panels and building integrated materials from China. After the orders were imposed, the supply of solar cells and modules substantially moved from China to the four countries currently under Commerce investigation: Cambodia, Malaysia, Thailand, and Vietnam.
On February 8, 2022, Auxin Solar, a US solar panel manufacturer, submitted a request for circumvention inquiry to Commerce alleging that manufacturers in Cambodia, Malaysia, Thailand, and Vietnam are circumventing the 2012 orders on Chinese solar cells and modules. Auxin’s petition generally alleges that each of the named countries leverages the Chinese supply chain to supply polysilicon ingots or wafers to its minor assembly operations and then imports the assembled panels to the United States.
Commerce initiated a notice on April 1, 2022, that it will be opening a country-wide circumvention inquiry investigation to determine whether imports of CSPV cells, whether or not assembled into modules (solar cells and modules), completed in Cambodia, Malaysia, Thailand, or Vietnam using parts and components from China are circumventing the AD and CVD orders on solar cells and modules from China.
To solicit information for the inquiry, Commerce has issued, and will continue to issue, questionnaires to companies in Cambodia, Malaysia, Thailand, and Vietnam concerning their shipments of solar cells and modules to the United States and the origin of inputs that they used to produce the solar cells and modules.
Opponents argue that there is no evidence of circumvention because Commerce rules specify that country of origin is based on the location of manufacture of the CSPV cell, specifically the location of the formation of the P/N junction. The solar industry has reoriented its supply chain and manufacturing operations over the last 10 years. During this time, solar cells or modules imported into the United States (now totaling $6 billion annually from the four countries under investigation) have not been subject to AD/CVD, so long as the P/N junction was formed outside of China.
Auxin Solar argues that the processing in these countries is immaterial and uses Chinese wafers and other components including silica products that are the product of forced labor in Xinjiang. There is currently a withhold release order (WRO) on Hoshine, one of the major producers of silica products in China, which has resulted in prior imports of CSPV cells being subject to detention by the US Customs and Border Protection.
If Commerce agrees with Auxin and finds affirmatively that there has been circumvention, it could impose retroactive duties going back to as early as November 4, 2021. Most likely, these duties would be applicable to CSPV solar cells entering the United States on or after April 1, 2022, the date the case was officially announced in the Federal Register.
Commerce has issued a memorandum on certification requirements that would allow, in the case of an affirmative determination, the suppliers from these four countries to identify the specific source of Chinese inputs and argue for a lower individual AD/CVD rate based on the source of supply.
The solar industry (including the two leading industry associations, ACP and SEIA; leading importers; major developers including the largest US solar developer, NextEra Energy; and the second-largest US producer, Silfab Solar) is almost uniformly opposed to this AD/CVD circumvention case. The largest US producer, Hanwha Q Cells, appears to be adopting a neutral posture.
Commerce is expected to publish its preliminary determination in the investigation by August 29, 2022, but is under considerable political pressure to issue a result earlier.
In the meantime, the unknown regulatory outcome and timeline, and the uncertainty concerning the range of potential duties, have caused immediate solar panel supply chain disruption as the market is unable to price the risk before Commerce’s preliminary determination is published at the end of August.
While the respondents have argued that Commerce should issue a negative determination and stop the entire case, it is possible that Commerce will issue a split decision by (1) excluding suppliers that have demonstrated material processing in these four countries and (2) issuing an affirmative determination with respect to those suppliers that are using material Chinese inputs and have not demonstrated material processing in these four countries.
On June 6, 2022, President Joseph Biden issued a proclamation declaring an emergency under Section 318(a) of the Tariff Act of 1930 with respect to the threat to the availability of sufficient electricity generation capacity to meet expected customer demand. Citing Russian operations in Ukraine and extreme weather events in connection with climate change as current threats to the US electric grid, President Biden pointed to the importance of solar generation to supply the grid with more than half of the new electric capacity in 2022 and 2023.
The inability of the United States to import solar modules in sufficient quantities has created a risk that the country may not achieve stated climate and clean energy goals, ensure electricity grid resource adequacy, or help combat rising energy prices. The proclamation notes that the domestic manufacturing of solar modules is necessary, but that it will take time to accomplish.
The proclamation directs Commerce to provide relief from the emergency by permitting solar cells and modules exported from Cambodia, Malaysia, Thailand, and Vietnam to be imported free from the collection of duties and estimated duties for a period of 24 months, or until the emergency ends. Pursuant to the proclamation, Commerce will issue regulations to temporarily permit duty-free access to solar cells and modules from the named countries.
Despite the president’s proclamation, the anti-circumvention investigation will continue uninterrupted, and Commerce’s determination will apply once the emergency period is over. However, the proclamation does not affect the existing duties on Chinese and Taiwanese imports of solar cells and modules—these still remain in effect.