United States importers and purchasers of crystalline silicon photovoltaic cells and modules ("solar cells") now face increased prices when sourcing their supplies from China. A recent order issued by the Department of Commerce's International Trade Administration ("ITA") imposing an antidumping ("AD") duty rate of 250% tariff against the Chinese solar cell industry generally, and a lower but increased "separate rate" of 31% tariff on 61 named Chinese manufacturers and exporters, is starting to be felt by the U.S. solar energy construction industry. Although the order, dated May 25, 2012 ("May Order") was widely reported in the U.S. solar industry press, many overlooked its retroactive effect to 90 days prior to the May Order—February 25, 2012. It was an unwelcome surprise to some U.S. solar equipment importers, lenders, installers and others involved in the financing and construction of solar energy projects when the Department of Homeland Security's Customs and Border Protection agency ("CBP") began issuing notices of additional duties owed and started collecting the difference between the prior regular duty rate of up to 3.5% of the import price and the 31% or 250% tariffs imposed by the May Order. This means that solar cells imported into the United States and subject to the May Order will be charged either an additional 31% or 250% of their value. Many U.S. buyers who received shipments or placed orders for Chinese-made solar cells and related equipment between February 25 and May 25 were not expecting the significant increase in cost due to the new tariff rates.
The Solar Cells at Issue
The goods involved are solar cells and modules, laminates and panels incorporating solar cells, whether or not fully or partially assembled into other products including building integrated materials. The target solar cells will generally have a thickness of or greater than 20 micrometers and include such cells, whether finally processed for use in the collection of photovoltaic energy or requiring further preparation before installation and use. Excluded are thin-film photovoltaic cells produced from other materials and crystalline silicon cells not exceeding 10,000 mm2 in surface area that are permanently integrated into a consumer good that functions other than as a power generation device. The goods at issue are currently classified under U.S. Harmonized Tariff Schedule subheadings 8501.61.0000, 8507.20.80, 8541.40.6020, 8541.40.6030 and 8501.31.8000.
In October 2011, a U.S. solar cell manufacturer filed petitions with the U.S. International Trade Commission ("ITC") and the ITA, seeking a review of the pricing practices of Chinese solar cell manufacturers and alleging that such goods were both unfairly subsidized and sold into the U.S. market at "less than fair value." In other words, the petition claimed that Chinese solar cells were "dumped" on the U.S. market and Chinese manufacturers benefitted from unfair Chinese government subsidies to help them lower their prices.
U.S. law generally follows the guidelines on AD and countervailing duty ("CVD") remedies set forth in GATT. The U.S. agencies involved in the investigations are the ITC, which investigates whether a domestic U.S. industry has been harmed, and the ITA, which assesses whether prices charged for the accused goods are the result of "dumping" practices or unfair subsidies. Both agencies must make an affirmative finding before a remedy can be imposed and enforced, i.e., there must be a finding both that U.S. parties were harmed by price competition and that such price competition was unfair.
Although the AD duties of 250% attracted the most attention, there were actually two orders issued to increase duties on Chinese solar cells.
- On March 26, 2012, the ITA issued a preliminary affirmative CVD determination and imposed CVD rates of 4.73% and 2.90% ad valorem against eight companies deemed to receive Chinese government support and 3.61% for the rest of the industry, and ordered the CBP to suspend entry of all covered goods until the additional duties were collected. The ITA made the duties retroactively applicable to a date 90 days prior to the order—December 27, 2011. (77 Fed. Reg. 17,439)
- On May 25, 2012, the ITA issued a preliminary determination in the AD investigation, finding that the prices of such Chinese-origin solar cells were sold in the US market at "less than fair value," and imposed a compensating tariff rate for the Chinese industry of 250% or 31% on certain named manufacturers and exporters who participated in the ITA investigation. The ITA ordered the CBP to suspend entry of all covered goods until the additional duties were collected and made the duties retroactively applicable to a date 90 days prior to the order—February 25, 2012. (77 Fed. Reg. 31,309)
- On December 5, 2011, the ITC issued a preliminary determination that there is a reasonable indication that the U.S. solar cell manufacturing industry had been materially injured by competition from lower-priced Chinese-origin solar cells imported into the United States. (See 76 Fed. Reg. 76,313 (Dec. 16, 2011).)
Both the ITC and ITA must issue a final order to confirm the preliminary findings. Final orders are expected in October and November 2012, and the increased duties could be reduced, but the industry does not expect the preliminary AD rates of 31% and 250% to change.
All goods entering the United States must be cleared through U.S. Customs. The clearing process is typically done by a Customs broker or other agent acting for the importer of record. The importer of record may or may not be the ultimate purchaser or consignee, but the importer of record is responsible for the payment of all applicable duties and taxes on the imported goods, including any additional duties and taxes that may be assessed after the goods have been released, or "liquidated," by the CBP. Importers are required to obtain a Customs bond from a surety party that is available to the U.S. government should the importer fail to pay all required duties and taxes. All this information—the country of origin of the goods and the duties and taxes owed and paid—is listed on entry forms typically completed by a broker or freight forwarder. Such information is entered into Customs databases and can be retrieved and tracked easily. So, for those importers who received goods after December 27, 2011 for CVD rates and after February 25, 2012 for AD rates, but did not pay the increased tariff rates, it may only be a matter of time before CBP sends you a notice.
While U.S. solar cell manufacturers cheer the rulings, U.S. solar equipment installers and builders are reviewing their options. Some will replace the Chinese equipment sources with products from the United States, Europe or other Asian countries. Chinese solar cell manufacturers and exporters are also reviewing their export strategies, and China has voiced concern over the U.S. process and indicated it is considering its options to clear up the "misunderstanding" of the United States in calculating prices and benefits. China is also said to be investigating the prices of polysilicon material, an essential element in the manufacture of solar cells and a key export of the United States to China. Moreover, in response to petitions filed in the European Union, the E.U. announced earlier this month its own investigation into the price of Chinese solar cells.
Global interdependence of the solar energy market, the large supply capacity of solar cells and the varying market demands for this alternative energy source all spin a complex trade web, and such interdependence is emphasized by the U.S. trade remedies imposed in this case. The ITA remedies will be subject to review when final through governmental trade negotiations, or whenever a petition for review is filed with evidence to support a finding that Chinese prices are fair or that the U.S. industry no longer needs protection. For now, the U.S. solar equipment installation and construction industry should evaluate its supply sources and plan accordingly.
- One legal issue of concern to some companies in the supply chain will be how their purchase contracts and import arrangements allocate liability for any unexpected increases in costs of goods subject to the new tariffs.
- Another legal issue is how importers can allocate cost or percentage of price to the Chinese-origin cells and equipment in a mixed item with cells from different countries not subject to the tariffs.
- A third legal issue is how to limit the tariffs to only the value of the Chinese cells in a bundled item such as some integrated building materials, with a value based only in part on the value of the solar cells included.
- A final issue is the type of proof needed to show that certain Asian-made equipment contains no Chinese solar cells or that equipment produced in China using third-country solar cells is exempt from the increased tariffs as stated in the May Order.