Tax & Accounting Blog

ITC Recommends Imposing Import Restrictions on Solar Cells and Modules

Blog, Global Trade, ONESOURCE November 10, 2017

The U.S. International Trade Commission (ITC) formally initiated a Section 201 “global safeguard” investigation on May 23, 2017, on crystalline silicon photovoltaic (CSPV) solar cells and modules. A formal complaint was brought about by Suniva, Inc. and SolarWorld, two small U.S. manufacturers that said they were unable to compete with cheap panels made overseas; mainly in Asia. In fact, both Suniva and SolarWorld, filed their petition days after declaring bankruptcy, requesting an investigation and determination on whether a surge in imports of CSPV solar cells and modules is causing or threatening serious injury to this U.S. industry. On the face of it, it would appear that both of these companies felt imports of these items had adversely impacted their ability to run successful businesses.

On October 31, 2017, the ITC issued a preliminary ruling stating that cheap, imported solar panels have in fact been hurting American manufacturers, thereby providing the President authority to impose penalties on the imports of solar products. These recommendations will be forwarded by November 13th to President Trump, who faces a January 12th deadline for making a final decision.

Two Sides to the Story

Suniva and SolarWorld were looking for relief from imports with complaints that a growing wave of cheap solar imports was putting U.S. based solar companies at risk. In Suniva’s original petition, there was a proposal for an additional tariff of up to $0.40 per watt on imports of solar modules and panels and a price floor of $0.78/watt.

However, the Solar Energy Industries Association (the top U.S. solar trade group), and the Energy Trade Action Coalition, declared that any tariffs would be “intensely harmful” to the industry and felt that Suniva’s proposed measures would significantly increase the price of solar products in the U.S.

They lobbied greatly against the proposed import restrictions on the grounds that “they would undermine a 70 percent drop in the cost of solar since 2010 that has made the technology competitive with fossil fuels.” In fact, they argued that such measures would raise prices throughout the supply chain of up to 40%; ultimately reducing more American jobs than they would protect.

Their argument was based on the grounds that ‘cheaper solar products from China have actually helped their businesses and accelerated the adoption of solar energy in the U.S.’ For consideration, they raised issue on behalf of the workers who install solar panels, and the utility companies that purchase the power; arguing that both of these areas could potentially be damaged by the proposed restrictions and increased costs.

These groups went a step further and raised concern of a real likelihood that countries facing tariff increases of CSPV solar cells and modules would probably retaliate by placing tariff barriers in the form of duty increases on imports of U.S. products. Historically there are many examples to back this concern.

U.S. solar factories, or suffer the tariff increase?

Prior to the recommendations from the ITC, several foreign solar cell and module makers said they had been investigating options to avoid the proposed tariff hikes by opening solar manufacturing facilities in the U.S. Perhaps this is a normal course in their global expansion planning, with the proposed Section 201 accelerating the U.S. as an earlier destination in their pipeline.

Investigatory Process

The purpose of a Section 201 safeguard investigation is to provide a domestic industry with temporary relief from imports, so the industry can adapt to increasing competition through imports. These types of safeguard actions are rare in the U.S. with the last Section 201 investigation in 2001. This case was tied to the ITC investigation of imports of certain steel products. That result of that investigation eventually resulted in safeguard tariffs of up to 30 percent on steel imports for two years.

There are two stages involved in the ITC investigation. In the first stage they determine if the claim of imports causing serious injury to an industry are present. If they in fact determine there is serious injury, then the next step is to recommend what are deemed appropriate remedies to the President. The President then has 60 days after the remedy recommendations to make a final decision.

Recommendation

Members of the U.S. International Trade Commission made three different recommendations to restrict CSPV solar cells and modules imports. They gave President Donald Trump a range of choices to address injury to domestic producers. The recommendations range from an immediate 35 percent tariff on all imports for these commodities, to a four-year quota system that allows the import of up to 8.9 gigawatts of solar cells and modules in the first year. The president’s ultimate decision could have a major impact on the price of U.S. power that is ultimately derived from the sun.

The President will have latitude to either do nothing, accept the proposals presented, or come up with his own alternative solutions. His election platform of protecting U.S. manufacturers against low-priced imports with his ‘Buy American’ message may use this case to facilitate his strategy. This case will be a test on his commitment to impose a trade barrier, up until now has only been rhetoric.

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