Solar Tariff Case May Throw Shade on Growing Solar Industry: Part II

By Lev Blumenstein, Energy Fellow

Image by Tai Viinikka

Back in September, the United States International Trade Commission (ITC) unanimously found that domestic manufacturers of crystalline silicon photovoltaic (CSPV) cells were harmed by imports of cheap solar panels. The  Commission recently delivered its findings and recommendations to President Donald J. Trump triggering sixty-day period for the President to act. Although the full report has not yet been made public, the Commission has released its recommended remedies.

Legal Framework for ITC Remedies

Under Section 201(a) of the Trade Act of 1974, the President may act to protect domestic industries from serious injury caused by large increases in imports of goods. The President is only to take such actions where the economic and social benefits outweigh the costs. Section 203(e) of the Act limits the initial duration of any imposed remedy to four years. The President may, at a later point, extend the duration of the remedies by up to an additional four years if certain conditions are met. The total duration of the imposed remedies cannot exceed eight years. Section 203(e) imposes other restrictions on potential remedies: they cannot be punitive; an imposed tariff cannot exceed 50% of the value of the goods; and imposed cap on imports should not exceed the average imports of the prior three years; and the remedy, if it is imposed for longer than one year, should be phased down annually.

Proposed Remedies

Although the four members of the Commission were not able to agree on a single set of remedies, they all agreed that a remedy should be imposed for the maximum four years and applied to a number of Free Trade Agreement countries, including Mexico and South Korea.

ITC Commissioners David S. Johanson and Irving A. Williamson proposed a 30% ad valorem tariff on imported CSPV modules. This tariff would decrease by five percentage points per year. Individual CSPV cells are treated differently. In the first year, the Commissioners would exempt the first gigawatt (GW) of imported cells from tariffs. Imported CSPV cells above the exemption would be subject to the same tariff as imported CSPV modules. The exemption amount for imported CSPV cells would increase by two hundred megawatts (MW) per year.

ITC Chairman Rhonda K. Schmidtlein’s recommendations were more stringent. For imported CSPV modules, she proposed a 35% ad valorem tariff that would step down one percentage point per year. Instead of allowing an amount of CSPV cells to be imported tariff-free, she proposed that the first five hundred MW of imported CSPV cells be subject to a 10% ad valorem tariff. CSPV cell imports above the five hundred MW quota would be subjected to a 30% ad valorem tariff. The below-the-quota tariff would decrease by one-half of a percentage point per year and the above-the-quota tariff would decrease by one percentage point per year. The Chairman also recommended that the remedy should be applied to imports from Canada.

The final proposal from ITC Commissioner Meredith M. Broadbent is the closest to the recommendations of the Solar Energy Industries Association (SEIA). As noted in an earlier blog post, SEIA opposed the trade case filed by Suniva and SolarWorld. The Commissioner proposed a combined quota of 8.9 GW for imported CSPV cells and modules. The quota would increase by 1.4 GW per year. Mexico would have its own quota of 0.72 GW in the first year. Mexico’s quota would increase by approximately 0.12 GW each year. The quotas would be administered by selling licenses to import the products. Commissioner Broadbent anticipated that licenses would cost one cent per watt. No, CSPV cells or modules could be imported into the United States from certain countries without a license. The Commissioner estimated that the sale of licenses would bring in at least $89 million in the first year. That amount would step up by at least $14 million in each subsequent year. These funds would be used to assist the domestic CSPV manufacturing industry.

Setting aside for a moment the wisdom of imposing any tariff, Commissioner Broadbent’s proposal is the least likely to distort the market for CSPV installations. Unlike the other two ITC recommendations, Commissioner Broadbent does not introduce a cliff at the end of the remedy period. A cliff would cause severe distortions at the end of the remedy period by incentivizing companies to hold back imports of products until the day after the remedy period expires. Furthermore, the combination of high tariffs and low quotas in the other two proposals would stifle the growing solar market at a critical juncture.

If President Trump decides to accept the ITC’s findings and impose tariffs, he should adopt Commissioner Broadbent’s proposal because it will adequately compensate domestic manufacturers while not egregiously distorting the market for CSPV.