FeatureChina via AP Images
Employees work in a factory for solar panels and parts, in Jiujiang in central China’s Jiangxi province, January 5, 2021.
A 92-year-old law intended to allow duty-free passage of basic necessities into the country during a national emergency is being used instead to suspend penalties on companies alleged to have violated U.S. trade law on solar panel components.
The Biden administration’s announcement Monday is a big victory for the Solar Energy Industries Association (SEIA), which had been calling for an end to a Commerce Department investigation into the transshipment of solar components from China into four Southeast Asian countries.
The action essentially nullifies the consequences of that investigation for the next 24 months. It will likely allow China to dump cheap solar products in the U.S. by disguising them as coming from these other nations, and furthers the delay of the buildout of a U.S.-based solar industry. A related announcement, employing the Defense Production Act to boost domestic solar, lacks the funding it would need to be successful. “This puts U.S. manufacturing in a precarious position,” tweeted Scott Moskowitz of Q Cells, a Korean company which has recently invested in solar production in the U.S.
SEIA represents the entire solar industry, including installers that favor cheap panels and components from China, as well as the Chinese companies that are the subjects of the investigation. One such Chinese manufacturer, Jinko Solar, paid to be on SEIA’s board of directors in 2019. Two sources told the Prospect that Jinko’s representative remains on the board, even though it no longer is listed on the board’s website. SEIA spokesperson Morgan Lyons insisted that “Jinko is no longer on SEIA’s board because they chose not to renew.” Jinko did not respond to requests for comment.
The emergency declaration could potentially be challenged in court, but trade lawyers who spoke with the Prospect saw that as unlikely. More broadly, they fear that any small company wanting to challenge trade practices that harm its business can now be stymied by a government that doesn’t agree, or a large lobbying campaign that forces the government into doing so. The precedent set by this action goes beyond solar panels, and could infringe on the government’s ability to conduct trade enforcement and industrial policy.
AS THE PROSPECT REPORTED LAST MONTH, Auxin Solar, a small domestic manufacturer, initiated a legal process at the Commerce Department to investigate solar companies in Cambodia, Malaysia, Thailand, and Vietnam.
Imports of solar panels and components from those nations spiked after a 2012 anti-dumping duty was placed on Chinese companies for selling solar components well below cost. The reasonable suspicion was that China was transshipping components to those Asian countries to avoid the duties and maintain dominance over certain solar components like polysilicon.
In the wake of a pandemic that showed the risks of concentrated production, having a solar industry sector controlled by one country poses a clear risk to maintaining an adequate supply of the product.
SEIA has blamed the Commerce investigation for a collapse of large-scale solar installations in the United States, as companies from the four nations have suspended delivery to avoid being hit with retroactive payments. It’s true that many solar projects were delayed or canceled this spring; some lawmakers have openly worried that the U.S. would have difficulty meeting its climate goals and asked to end the investigation. An alarmist SEIA has warned of retroactive duties on solar products as high as 250 percent, though the Commerce Department has set expectations at more like 12–20 percent, and just on the components at issue.
The action keeps in place a long, intermediated supply chain for solar that is susceptible to shortages in the event of disruption.
Stuck between wanting to boost domestic industry and build out renewable energy, the Biden administration struck a compromise. As first reported by Reuters, the administration declared an exemption from the anti-circumvention duties on solar companies in those four Asian nations for 24 months, ending the threat of retroactive duties. It also authorized use of the Defense Production Act for domestic production of solar panels and parts, while using its procurement power to create master supply agreements for domestic clean-energy producers, and apply certain domestic content standards to solar systems.
Of the three actions, the procurement changes offer the most hope for creating a domestic solar market. When the government buys energy, the power purchase agreement has typically not been subject to the Buy American Act, meaning that Chinese panels could be used on a solar project even at a military base. Closing the loopholes would create a preference for domestically made goods. Applying domestic content standards “could also be a valuable tool,” Moskowitz said, “but it must be paired with actions to ensure the Buy American Act can be used effectively for solar.”
White House estimates suggest these procurement changes would only add demand for about 1GW of domestic solar in the near term, less than 5 percent of the total solar capacity expected to come online based on recent announcements. Partnering with state and local governments and municipal utilities, as the administration also announced, could increase the impact.
The Defense Production Act authorization, which has become ubiquitous of late under Biden, makes more sense for sectors where domestic capacity already exists and can be rerouted for a national priority. There is little domestic solar manufacturing, however; domestic producers need capital, not reallocation of inputs. The DPA authorization is mostly unfunded; as Bloomberg reported, there's less than $500 million in the existing account to use, and that would compete with other initiatives. A bill from Reps. Cori Bush (D-MO) and Jason Crow (D-CO) and Sen. Bernie Sanders (I-VT) would add money, but it has not passed. Until it does, it’s hard to see this making much of a difference.
But the most eye-opening part of the announcement was the 24-month exclusion.
THE ADMINISTRATION WENT BACK TO 1930 and a trade law that is popularly known as the Smoot-Hawley Tariff Act to get its authority for the exclusion. In particular, it used section 318(a), which explicitly is to be used in “a state of war” or a similar-sized emergency.
The climate crisis is definitely a kind of emergency. However, the authorities under 318(a) are limited. After making the declaration, a president can “permit … the importation free of duty of food, clothing, and medical, surgical, and other supplies for use in emergency relief work.”
You might be able to call solar deployment a response to an emergency of global warming, but it’s very hard to characterize the components themselves in this fashion. “It’s unclear whether solar modules count as emergency relief supplies,” said Nick Iacovella of the Coalition for a Prosperous America, which supported the Commerce investigation.
What is clear is that the announcement neutralizes the investigation. While Commerce will continue its work and make a decision on whether foreign solar companies violated trade law, there will be no penalties until June 2024, and by then the companies involved could change their production process to avoid the duties, or lower prices to compensate.
That keeps in place a long, intermediated supply chain for solar that is susceptible to shortages in the event of disruption. It also means that the mode of production of these energy-intensive products, currently made in China with coal-fired energy, is likely to continue.
The 1930 Trade Act has seldom been used in this way, and almost never this broadly. The Trump administration used it in April 2020 to temporarily extend deadlines for importers to make payments on things like personal protective equipment for the COVID pandemic. But that didn’t extend to trade enforcement.
The Biden executive order references the possibility of dire consequences for interruptions in electricity service, but that’s not really happening on a daily basis in America. It references the war in Ukraine, in which the United States is not a direct combatant. It also mentions extreme weather events, but those happen on a case-by-case basis, and unless the emergency is only about modular solar that can be brought into a disaster zone, it would seem not to apply.
Mamun Rashid, CEO of Auxin Solar, called the action “unprecedented—and possibly illegal” in comments to The Wall Street Journal. He added that Biden “has opened the door wide for Chinese-funded special interests to defeat the fair application of U.S. trade law.”
Other domestic manufacturers expressed similar concerns, and complained that the president didn’t consult with any of them before making the announcement. It remains to be seen if there will be any litigation from domestic solar producers, who might have standing to sue. But the other potential benefits announced for their industry could cut against that possibility.
Rashid was clearly placing blame on SEIA, as did Samantha Sloan of First Solar in a statement. “This sends the message that companies can circumvent American laws and that the U.S. government will let them get away with it as long as they’re backed by deep-pocketed political pressure campaigns,” Sloan said.
SEIA’s victory again brings into focus its relationship with the companies under investigation in this matter. The Commerce Department has sent letters to eight companies suspected of circumventing the anti-dumping duties; seven of them have U.S. affiliates that are members of SEIA.
One of them is Jinko Solar, which joined the board of directors at SEIA in 2019. A board seat is a paid benefit at the “Terawatt” level of membership in SEIA; it promises “voting authority to directly guide the policy choices of the association.” SEIA does not disclose how much companies pay to have a board membership.
When Jinko announced its board membership, it memorialized it in its Securities and Exchange Commission filings (Jinko trades on the New York Stock Exchange), suggesting that it saw it as a material change to the business. But Jinko has never stated in financial disclosures that it did not renew its membership. Indeed, in its most recent filing, Jinko still mentions that “we joined the board of directors at the Solar Energy Industries Association.”
Two sources told the Prospect that Jinko remains on the board, something that SEIA refuted. Jinko has not cleared up the matter by responding to the Prospect’s queries. It did, however, request an extension to June 27 to respond to the Commerce Department’s queries.
THE BIDEN ADMINISTRATION’S INTERVENTION could serve as a test run for how it handles the Uyghur Forced Labor Prevention Act, which passed Congress almost unanimously. Key components of solar panels originate from the Xinjiang region of China, and companies have had their products stopped at the border under suspicion of their being made by Uyghur slaves.
If the Biden administration is using a sketchy emergency declaration to stop tariffs and penalties on parts originating from Xinjiang, critics argue, it could use the same concept to override U.S. law on slave labor from China, or on transshipping those components through the Asian countries getting their goods into the U.S. without duties.
The bigger fear from trade experts is how Biden’s action on solar could chill trade enforcement. It’s already difficult for small domestic companies at risk of survival because of foreign trade violations to find the resources to call for an investigation. This announcement applies only to solar, but with this precedent, any Commerce investigation could be overridden by the White House if they deem it not in their interest. By law, anti-dumping investigations are not supposed to take the public interest into account; they’re just supposed to determine whether trade laws were violated.
This puts all anti-dumping trade enforcement effectively in the hands of whoever has a big enough megaphone to persuade the government. Most likely, that will mean that large companies that can influence the government will get their investigations through, and small companies won’t.
Undermining the integrity of trade enforcement may make sense to environmentalists for the purposes of building out the green transition. But it could also strangle a lot of domestic manufacturing, by allowing politically favored outsourcing a way to avoid scrutiny. It could make it harder to advance an industrial policy based on creating good jobs and expanding resiliency in U.S. supply chains.
The Biden administration has moved relatively hesitantly on promulgating executive actions, mindful of the legal risk of overstepping executive power. That caution was not in evidence on facilitating Chinese dominance in the solar industry, however, regardless of how it is produced and who produces it. We’ll see if throwing caution to the wind only applies to bettering the prospects of solar installers and the Chinese companies that supply them, or for patients needing intervention to lower the cost of prescription drugs, or young people burdened by student debt.
