On January 23, 2018, the White House released its long-awaited decision on safeguard measures to limit imports of solar cells and modules.1 The President’s decision follows the US International Trade Commission’s (ITC) unanimous decision under Section 201 of the Trade Act of 1974 that imported crystalline silicon photovoltaic (CSPV) cells and modules are the “substantial cause” of serious injury or the threat of serious injury to the US industry that manufactures solar cells and panels. As noted in prior alerts,2 the US solar industry has been anticipating higher tariffs on imported solar panels. The President’s decision implements these safeguard measures in the form of a tariff-rate quota that will last for four years. But the possibility exists for the measures to be modified, including through a procedure for obtaining product exemptions and legal action by opposing nations and stakeholders.
What is the legal basis for the President’s decision?
On May 23, 2017, the ITC initiated an investigation under Section 201 of the Trade Act of 1974 into whether imported solar panels are the “substantial cause” of serious injury or the threat of serious injury to the US industry that manufactures solar panels. Following the ITC’s affirmative injury finding in September 2017, the ITC sent the President three different recommendations for remedies in November 2017. The United States Trade Representative (USTR) reviewed these recommendations and requested a supplemental report from the ITC to identify any “unforeseen developments” that had resulted in solar cells and modules being imported in such high quantities as to harm US domestic solar manufacturers. In January, the ITC released its supplemental report, noting that China’s policies and actions “directly contradicted” China’s obligations as a member of the World Trade Organization (WTO). The USTR concluded that the United States could not have foreseen that China would not follow WTO rules, that China’s policies would lead to such high solar cell production in China, or that the US antidumping and countervailing duty measures previously imposed would have limited effectiveness.
What did the President decide?
Effective from February 7, 2018 through February 6, 2022, the United States will apply the following safeguard measures in the form of a tariff-rate quota on solar cells and modules, levying increased duties on all imported solar cells after the first 2.5 gigawatts of solar cells imported into the United States:
The increased tariffs will not apply to developing countries that are members of the WTO, as long as imports from each individual country remain below 3% and collectively all developing country imports do not exceed 9% of total imports into the United States. If developing country imports exceed these thresholds, then the safeguard tariffs will apply to those imports that exceed the specified thresholds.
Will there be more to come on solar safeguard measures?
The measures described above may not be the final word because the tariff-rate quota could be modified in the future. The White House has directed the USTR to publish in the Federal Register by February 23 procedures for parties to submit requests for exclusion of particular products from the safeguards. If the USTR, in consultation with the Department of Energy, decides to grant an exclusion request, the agency will publish a notice in the Federal Register exempting that specific product from the safeguard tariffs and will not count imports of exempt products toward the import quota.
Nations opposing the US safeguard measures can challenge them before the WTO, and China and South Korea have initiated steps to bring such challenges under the WTO’s Safeguard Agreement. The European Union and Taiwan have also requested consultations with the United States on the safeguard measures, but unlike China and South Korea, have not suggested that they would consider imposing trade sanctions against the United States. In the past, the WTO has struck down Section 201 safeguard measures on the grounds they were not a response to “unforeseen developments,” a finding that the WTO requires before members implement such tariffs. The White House expressly declared that the safeguard measures on solar cells and modules were a response to unforeseen developments, focusing in particular on the ineffectiveness of the existing antidumping and countervailing duties aimed at addressing imports from China.
Opposition to the safeguard measures has also come from Canadian companies that manufacture or export CSPV modules Silfab Solar Inc., Heliene Inc., and Canadian Solar Solutions Inc., along with its distributor in the United States, Canadian Solar (USA) Inc. These companies filed a complaint with the US Court of International Trade (CIT) alleging that because none of the ITC recommendations were supported by at least three commissioners, there was no official ITC recommendation, and therefore the safeguard measures are invalid. They also allege that the safeguard measures violate the North American Free Trade Agreement (NAFTA), which they argue requires the ITC to make a finding about specific threats caused by imports from Canada or Mexico for the safeguard tariffs to validly apply to them. The companies note that a majority of the ITC commissioners had expressly found that Canada does not account for a substantial share of imports of solar cells and modules or “contribute importantly to the serious injury, or threat thereof, caused by imports.” The companies also requested the CIT to enjoin enforcement of the safeguard measures.
The first 2.5 gigawatts of CSPV cells imported starting February 7 of each year will not be subject to the higher tariffs. Solar cells and modules imported after the 2.5 gigawatt threshold is reached will be subject to the higher tariff specified in the chart above. Although the tariff-rate quota initially lasts for four years, it potentially could be extended for up to another four years. Accordingly, the President’s decision could profoundly affect existing supply chains for US solar projects. Solar developers should review how their existing and potential projects will be impacted by the new trade restrictions and consider whether to take advantage of the anticipated USTR process for requesting product exemptions from the safeguard measures.