The US Commerce Department is expected to announce this week that certain Chinese manufacturers are evading tariffs by assembling solar equipment in other Asian countries before shipping it to the US. This development comes after a 17-month investigation that could have far-reaching implications for tens of billions of dollars in trade.
Preliminary findings from the investigation suggest that exporters in Cambodia, Malaysia, Thailand, and Vietnam have been circumventing the tariffs that were implemented about a decade ago to offset unfair pricing and subsidization in China. If confirmed, this conclusion could subject manufacturers in these countries to antidumping and countervailing duties as high as 254% starting from next June.
While there may be some adjustments in the Commerce Department's final ruling for certain countries and companies, trade experts believe that a complete reversal is unlikely. The agency has a reputation for taking protectionist measures and rarely diverges significantly from its preliminary findings.
A final ruling on circumvention is expected to accelerate efforts by renewable energy developers to diversify their supply chains away from China. This move is fueled by concerns over allegations of forced labor used in the production of solar equipment and the application of a US law that has resulted in import detentions related to Xinjiang, a major manufacturing hub. Companies such as First Solar Inc. and Qcells North America, which are expanding their manufacturing capacity in the US, could benefit from this development.
President Joe Biden has already granted renewable energy developers and solar importers a two-year grace period from new duties. This was aimed at supporting domestic solar deployments while US manufacturers and alternative suppliers scale up production. During this period, companies have stockpiled duty-free equipment and made adjustments to their supply chains. Some affected Asian manufacturers have shifted their focus to European markets since US buyers have turned to other suppliers.
However, the US still heavily relies on imports from Southeast Asia, with the targeted countries supplying about 75% of modules to the US market. Relying solely on domestic manufacturing will not be sufficient to fill this gap.
If the Commerce Department's final ruling aligns with the preliminary determination, it could hinder the growth of clean energy in the US, leading to a missed opportunity for job creation and investment. Abigail Ross Hopper, CEO of the Solar Energy Industries Association, emphasized the need to make it easier to invest, secure jobs, and enable ordinary citizens to access clean energy.
According to BloombergNEF analyst Pol Lezcano, there should be enough tariff-free goods from the US, Southeast Asia, and India to meet domestic solar demand between 2024 and 2030, even with expanded duties.
It remains unclear if the Commerce Department will enforce stricter requirements for importing solar modules and cells once the grace period ends. Biden's directive stated that the affected imports should be consumed within the US market within six months after the moratorium expires in early June.
A crucial aspect to watch is how the Commerce Department deals with silicon wafers used in manufacturing cells and modules. Initially, the agency intended to exempt modules made with Chinese wafers from duties as long as no more than two additional key inputs were produced in China. Furthermore, wafers produced outside China but using Chinese-sourced polysilicon were considered beyond the scope of the circumvention investigation.
Senator Sherrod Brown from Ohio has cautioned Commerce Secretary Gina Raimondo against this approach, urging that wafers should not be made with Chinese-produced polysilicon and other inputs. He also advocated for stricter regulations on Chinese state funding for solar product production outside China.
This treatment of wafers has the potential to create a "backdoor" for duty-free imports while undermining investments under the Inflation Reduction Act, which aims to support domestic solar manufacturing. The Coalition for a Prosperous America warns that getting it wrong could render the entire act useless, despite the recent surge in new manufacturing plant announcements.
The outcome of the Commerce Department's final ruling and the subsequent implications for solar trade between the US and China will undoubtedly shape the future of the industry and have a significant impact on the global renewable energy sector.