US President Joe Biden allows duty-free importation of solar panels

US President Joe Biden allows duty-free importation of solar panels

The Proclamation refers to a reliable electric power system as a basic human necessity and critical to national security

The United States President Joe Biden recently issued a Proclamation, citing the Tariff Act Section 318(a), 19 U.S.C. § 1318(a). It temporarily allows the importation of crystalline silicon photovoltaic (CSPV) cells and modules from Cambodia, Malaysia, Thailand and Vietnam free from collection of antidumping and countervailing (AD/CVD) duties or estimated duties.

The Proclamation refers specifically to the circumvention provision (19 U.S.C. § 1677j), new investigations (19 U.S.C. §§ 1671, 1673) and administrative reviews (19 U.S.C. § 1675). It paves the way for imports of CSPV cells and modules free of AD/CVD duties for 24 months (until June 6, 2024).

The President issued the Proclamation as the US Department of Commerce investigated whether to impose AD/CVD duties on imports of solar cells and modules from Southeast Asia. The duties, which could be over 250 percent, originally targeted imports from China, but one module assembler (Auxin Solar) in the US petitioned for the expansion of the China duties.

The petitioner alleged that the Chinese companies set up production in Southeast Asia to circumvent the AD/CVD duties by producing cells and modules with Chinese inputs.

The China duties were imposed in 2012, but since then the supply chains have shifted, resulting in approximately 80 percent of imports originating from Cambodia, Malaysia, Thailand and Vietnam, totaling over $5 billion in trade annually. At the same time, the US cell production has shut down and only solar modules are assembled domestically.

As the US module industry has grown, they remain reliant on imported cells, leading domestic producers to openly oppose the circumvention inquiries that threaten their supply of a key component. The reprieve from the additional tariffs aligns with the Biden-Harris (the United States Vice President Kamala Harris) administration's clean energy agenda.

When President Biden took office in January 2021, one of his first actions as president was to enact an executive order "to supercharge our ambitious plan to confront the existential threat of climate change."

The US Department of Energy issued the Solar Futures Study, setting a goal for solar to power 40 percent of the nation's electricity by 2035. To reach the new US decarbonization targets, the annual solar deployment must double during the early 2020s and quadruple during the late 2020s and beyond. The market-prohibitive tariffs would jeopardize those goals, putting solar out of reach for many developers and consumers.

When the President proclaims an emergency, Section 318(a) of the Tariff Act of 1930 authorizes the issuance of the regulations to allow the duty-free importation of 'food, clothing, medical, surgical, and other supplies for use in emergency relief work.'

This Section has rarely been used, therefore, there is little legislative history to guide the interpretation. Yet, the provision has been successfully invoked (without legal challenge to the President's authority) to allow duty-free imports (of lumber to address the emergency shortage of housing in 1946) or extension of time to pay duties, taxes or fees (during the COVID-19 pandemic in 2020).

Consistent with the statute, the President proclaimed an emergency "with respect to the threats to the availability of sufficient electricity generation capacity to meet expected customer demand."

As factual support, the Proclamation refers to a reliable electric power system as a 'basic human necessity' and 'critical to national security and national defense'; and the 'catastrophic health and economic consequences' of supply interruptions related to Russia's invasion of Ukraine and climate change.

It connects duty-free imports to the emergency by citing heavy reliance on imports for "new solar installations to ensure that there are sufficient resources on the grid to maintain reliable service" and the inadequate domestic production of cells and modules to satisfy the demand.

The Proclamation triggered the 'emergency relief work' provision of Section 318(a). The President specifically, granted the Commerce Secretary the authority to issue regulations to temporarily permit imports of CSPV cells and modules from the four Southeast Asian countries free of AD/CVD duties.

Following the release of the President's Proclamation, the Commerce Department issued a press release, clarifying that it would continue the circumvention inquiries. Currently, foreign producers/exporters are in the process of providing information and data relevant to the Commerce's analysis of the statutory factors in the circumvention provision of the statute. (Tariff Act section 781(b), 19 U.S.C. § 1677j(b).)

Following the opportunities for interested parties to submit their comments, preliminary determinations are due on 29 August 2022. The final determinations are due 0n 26 January 2023. However, it might be extended to 3 April 2023.

Meanwhile, the Commerce Department is preparing regulations to implement the President's action. The administration has not indicated when the regulations would be issued, but it is reasonable to expect the regulations to go into effect before Commerce's preliminary determinations when suspension of liquidation and AD/CVD cash deposits on entries of CSPV cells and modules could begin under the existing regulations.

However, time may be needed to comply with the Administrative Procedure Act. Typically, the new regulations are subject to notice and comment. For example, in 2006, the Commerce Department requested public comments on the new regulations implementing Section 318(a). However, there were exceptions to notice-and-comment rulemaking for a 'good cause.'

The circumstances surrounding the emergency declared by President Biden might themselves justify a 'good cause' exception. There has been no official announcement about how the regulations would be implemented, but the Commerce Department is expected to provide some opportunity for comments.

Nevertheless, the Proclamation applies to entries that are not already subject to an AD/CVD order as of the date of the proclamation, including all entries of CSPV cells and modules from Cambodia, Malaysia, Thailand and Vietnam dating back to before the initiation of the inquiries. No AD/CVD duties, or estimated duties, would be collected until 24 months after the issuance of the Proclamation or until the emergency declared has terminated (whichever occurs first).

The 24-month period is within President Biden's term in office. Given his commitment to clean energy and the development of solar in particular, early termination of the emergency is unlikely.

Concurrent with the Proclamation, President Biden also invoked Section 303 of the Defense Production Act, 1950, 50 U.S.C. § 4533, to accelerate domestic manufacturing of clean energy technologies. He issued a memorandum authorizing the Department of Energy to use the Act to boost American manufacturing of five technologies: solar modules and module components; electrolyzers, fuel cells and platinum group metals; transformers and electric power grid components; electric heat pumps; and insulation.

Among other actions, the Act authorizes the President to make provisions for purchases or purchase commitments by the government and for the development of production capabilities.