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Auxin Solar tariff petition: What’s next for solar’s dark cloud

Auxin Solar tariff petition: What’s next for solar’s dark cloud

International trade attorney Tim Brightbill, an expert on solar tariff cases, joined Episode 47 of the Factor This! podcast to break down the road ahead for the Auxin Solar tariff petition. Subscribe wherever you get your podcasts.

Hurry up and wait.

The solar industry had hoped that May would, for better or worse bring finality to the Auxin Solar tariff petition. For more than a year, the Commerce Department's investigation has cast a dark cloud over projects, and dimmed the glow of the world's most significant clean energy law.

But that didn't happen. Commerce delayed its final determination in the Auxin Solar case to August.

So, what's next for the solar industry's prolonged panic attack?

Tim Brightbill has seen this movie before. He represented domestic solar manufacturers in 2012 in the first round of solar anti-dumping and countervailing duty actions against China, and again in 2015 when penalties were expanded to Taiwan.

Brightbill, a partner and co-chair for the international trade practice at D.C. law firm Wiley Rein, and an adjunct law professor at Georgetown, joined the Factor This! podcast from Renewable Energy World to break down the path forward in the Auxin Solar tariff petition, his predictions, and what the solar industry can expect from Commerce's final ruling.

"The Commerce Department has a big job," Brightbill said. "This is certainly one of the most complex circumvention investigations they've ever done and, of course, it does have huge ramifications for the companies involved and for the industry as a whole."

Solar Tariffs 101

Courtesy: Martin Magnemyr/Unsplash

Countervailing duties boil down to government subsidies, including outright grants, discounted loans, discounted raw materials or materials provided by state-owned companies.

Antidumping: In the eyes of U.S. trade law, a company is dumping a product when it is selling in the U.S. for less than its home market or less than its full cost of production.

While that assessment is fairly straightforward, China complicates the investigation due to its non-market economy—its prices and costs are distorted by government support. Solar, for example, has been highlighted in China's five-year economic development plans as a targeted industry for years.

The U.S. doesn't use Chinese prices and costs when calculating dumping margins. Instead, the Commerce Department uses a surrogate country with a similar gross domestic product for comparison.

"That's something that China doesn't like very much, but that is permitted under (World Trade Organization) rules," Brightbill said. "And it is absolutely the way the Commerce Department does this for all China cases."

In dumping cases, Commerce evaluates all sales, production costs, and input costs during a given period, and determines a weighted average dumping margin based on the companies investigated and assigned to the rest of the country's industry.

Dumping margins tend to be higher for China because other countries are used to calculate production costs. It's an imperfect science, but a necessary process given China's industry support.

A subsidy margin or a countervailing duty is imposed at the border by Customs and Border Protection, with the goal being to offset the amount of unfair trade. The International Trade Commission then looks at whether the domestic industry is injured and whether the dumped and subsidized imports are at least a reason for that.

The ITC determined unanimously in 2012 that dumped and subsidized solar products from China, valued at about $3 billion, were injuring the domestic industry.

Circumvention is a process where the Commerce Department looks to decide whether or not Chinese producers are avoiding paying the dumping duties or subsidy margins by taking a product that is mostly made in China with only minor assembly or alteration in a third country, and therefore claiming it to be a product of a different country.

The Auxin Solar tariff petition alleges that manufacturers in China are using Cambodia, Thailand, Malaysia, and Taiwan as conduits to avoid U.S. tariffs.

If the Commerce Department determines that circumvention is occurring, then the products will be considered products of China and thus subject to duty rates.

A history of American solar tariffs

2012: Obama administration implements anti-dumping and countervailing duties based on Chinese solar manufacturers, linking the AD/CVD to the origin of the cells, not the module. Cells were offshored out of China, primarily to Taiwan, while modules were still produced in China with components subsidized by the Chinese government.

2015: Obama administration adds follow-up AD/CVD against China and AD against Taiwan to address the cell/module workaround. AD/CVD is attached to the solar module's origin, regardless of where the cell is produced.

2018: Trump administration establishes Section 201 safeguard and quota. The tariff rate is implemented on all solar module imports, regardless of origin, with a duty-free importation of 2.5 GW of cells for domestic module manufacturing.

2022: Biden administration extends Trump-era Section 201 safeguards for another four years, but expands the cell import quota to 5 GW and exempts bifacial solar modules.

Catch up quick: Auxin Solar tariff petition

Nov. 10, 2021: Commerce Department rejects an antidumping circumvention tariff petition brought by a group of anonymous domestic solar manufacturers against solar modules imported from three Southeast Asian countries.

Feb. 10, 2022: San Jose, Calif.-based solar manufacturer Auxin Solar alleges unfair trade practices from Chinese solar module suppliers and circumvention by four countries, and asks Commerce to intervene.

March 28, 2022: Commerce initiates an investigation into the Auxin Solar tariff petition.

June 6, 2022: Following a $5 million pressure campaign from the solar industry, President Joe Biden issued a two-year pause on new solar tariffs through June 2024. The moratorium alleviated fear that Commerce's investigation could result in retroactive tariffs— a threat that brought many projects to a halt.

Aug. 16, 2022: President Joe Biden signed into law the Inflation Reduction Act, which devoted $369 billion to clean energy and climate change mitigation.

The law included historic incentives for domestic manufacturing with the goal of reducing the solar industry's dependence on suppliers from China and Southeast Asia.

Dec. 1, 2022: A preliminary determination issued by Commerce found that the Thailand operations of Canadian Solar and Trina Solar, as well as BYD Cambodia and Vina Solar Vietnam (LONGi), have circumvented U.S. tariffs.

Other companies also under investigation — New East Solar Cambodia, Hanwha Q CELLS Malaysia, Jinko Solar Malaysia, and the Vietnam operations of Boviet Solar — were found not to be violating AD/CVD rules.

Jan. 26, 2023: A bipartisan group in Congress filed a bill that would undo President Joe Biden's two-year pause on new solar tariffs. The group aimed to use the Congressional Review Act to reverse the moratorium, raising fears that retroactive tariffs could again be on the table.

April 24, 2023: White House officials told Reuters that President Joe Biden would veto a bill attempting to override his two-year pause on new solar tariffs, which ultimately passed in the House and Senate without two-thirds majorities to override executive intervention.

Officials added that Biden does not intend to extend the tariff pause when it expires in June 2024 due to "strong trends in the domestic solar industry."

April 26, 2023: Commerce extends the deadline for a final determination in the Auxin Solar petition investigation from May 1, 2023 to Aug. 17, 2023, citing "complex" and "extensive" responses to the case.

Predicting the Auxin Solar tariff outcome

Commerce Sec. Gina Raimondo testifies before a Senate Committee on Appropriations subcommittee on May 11, 2022.

There's little to glean from the Commerce Department's decision to delay its final determination in the Auxin Solar tariff case, Brightbill said, other than that it’s a highly-complicated investigation that needs more time.

Brightbill predicts a "mixed bag" conclusion from the Commerce Department.

It's important to note, he added, that many of the manufacturers based in China are not paying anywhere near the 200% dumping rate imposed on some Chinese producers.

"I expect, barring any huge shift, that there will be a mixed bag with most companies found to be circumventing, and some companies found not to be circumventing," Brightbill said. "Even while the case is going on, some companies are moving more of their operations away from China and trying to engage in legitimate production in the four countries (in Southeast Asia)."

Brightbill said the ruling could have an initial impact, but could "diminish over time" as circumventing companies shift their operations out of China.

In its final determination, Commerce will list the companies that are found to be circumventing, and is likely to identify those that are not circumventing at all, Brightbill added. The agency will then provide certification forms for buyers that are importing solar modules into the U.S.