On April 26, 2017, Suniva, Inc., a U.S. producer of solar cells and modules, filed a petition with the U.S. International Trade Commission (ITC) under Section 201 of the Trade Act of 1974 seeking temporary import relief against imported solar cells and modules. This latest development in the lengthy dispute involving imported solar equipment has the potential to cause uncertainty and further disruption in the U.S. industry. If the case proceeds, this would be the third round of U.S. trade actions involving imported solar cells and modules but a materially different chapter than the first two rounds.
Section 201 has been rarely used in recent years, although historically it has been a vehicle for some of the most significant international trade investigations. For those who may not be familiar with this particular import relief measure, this alert provides answers to some key threshold questions.
What Is Section 201?
Section 201 is a fundamentally different import relief measure than the antidumping and countervailing duty laws that have been the bases for prior actions imposing additional duties on solar cells and modules from China and Taiwan. The antidumping and countervailing duty laws require a showing that imports are unfairly priced. In contrast, Section 201 is a “safeguard” action and requires no demonstration that importers are engaging in unfair trade practices. Section 201 simply authorizes temporary import relief for a U.S. industry that has been harmed by import competition. Safeguard provisions such as Section 201 exist because of an international consensus that countries are entitled to adopt short-term measures to support the adjustment of a domestic industry that is suffering from import competition. Under Section 201, any relief adopted is temporary and, even if the ITC finds that relief is warranted, the Commission merely makes a recommendation to the President that a legal basis exists for taking action against imports. The President makes the final decision, taking relevant economic and policy factors into account, as to whether relief is appropriate and determines the type of relief. Accordingly, Section 201 proceedings have an inherently political aspect.
What Is Suniva’s Claim?
Suniva alleges that despite two rounds of successful antidumping and countervailing duty actions, the U.S. solar equipment industry remains vulnerable and has been severely harmed by import competition. It emphasizes that an imbalance between global supply and demand for solar cells and modules has led to a collapse in prices. Suniva further contends that, in response to antidumping and countervailing duties on solar cells and modules from China and Taiwan, manufacturers from those countries have evaded duties by establishing or utilizing production facilities in third countries in Asia or Eastern Europe. Solar cells and modules imported from countries other than China and Taiwan are not subject to U.S. antidumping and countervailing duties.
What Does Suniva Have to Prove?
In order for the ITC to make an affirmative finding that relief is justified under Section 201, it must be shown that products covered by the scope of the investigation are being imported in such increased quantities that they are the “substantial cause” of serious injury or the threat of serious injury to the domestic industry. In this context, “substantial cause” means that imports must be a cause at least as important as any other cause. In effect, Suniva will have to prove that imports are a primary cause of injury and that there is no more important cause of injury. If the ITC agrees, it will then recommend a remedy to the President. It is important to note, however, that such a recommendation does not guarantee success, as the final decision remains with the President.
What Relief Has Suniva Requested?
In its petition, Suniva seeks four years of relief consisting of two elements: (1) an initial duty rate of $0.40/watt; and (2) an initial floor price on modules of $0.78. These measures would apply to imports from all countries, and, under Section 201 practice, could be reduced during the four-year initial relief period. It is, however, also possible that the period of relief could be extended up to a maximum of eight years.
What Is Likely to Happen Next?
The ITC is still considering whether to initiate an investigation in response to Suniva’s petition. Questions have been raised as to whether Suniva truly represents the U.S. industry, and the petition has been the subject of vigorous opposition by other members of the U.S. solar industry. For example, the Solar Energy Industries Association formally opposes the institution of an investigation, contending that Suniva lacks standing to bring the action. The division within the U.S. industry is reminiscent of the lack of industry consensus during the prior antidumping and countervailing duty investigations, when different industry factions had opposing views on the merits of import relief. If the ITC does initiate an investigation, it will schedule a hearing at which all interested parties will have an opportunity to present their views to the Commission. The ITC would normally complete the injury phase of a Section 201 investigation within 120 days after the petition was filed. In this case, that means the Commission would make its injury determination in late August.
What Are Some of the Risks for Solar Developers?
The most immediate risk is disruption of the market and existing supply chains. If Section 201 relief is imposed, it would impact the cost at which imported cells and modules would be available under both existing and new purchase contracts. Even if U.S. developers respond by purchasing more domestic cells and modules, the limited capacity of domestic producers means that developers will still have to buy significant volumes from abroad and pay any additional duties. These developments could undermine the economics of current and future solar energy projects.
If Suniva is successful, the market price of solar cells and modules for U.S. developers will rise. Whether the relief Suniva requests will ultimately preserve the U.S. industry over the long term remains to be seen because of the significant global production capacity that already exists and the limited number of remaining U.S. producers.