Biden Administration Announces Exemption from New Tariffs on Solar Cells and Modules Exported from Cambodia, Malaysia, Thailand and Vietnam
On June 6, 2022, the Biden administration announced a temporary exemption of up to two years from the application of any new tariffs on solar cells and modules from four Southeast Asian nations — Cambodia, Malaysia, Thailand, and Vietnam. President Biden implemented this action by declaring a state of emergency “with respect to the threats to the availability of sufficient electricity generation capacity to meet expected customer demand.” The emergency declaration was issued pursuant to Section 318(a) of the Tariff Act of 1930, as amended (19 U.S.C. § 1318(a)), which allows the president to invoke the use of certain emergency powers during a national emergency. The declaration is part of the Biden administration’s effort to encourage solar energy development in the United States.
In February 2022, U.S.-based solar panel company Auxin Solar Inc. (“Auxin”) filed a petition with the U.S. Department of Commerce alleging that Chinese companies are circumventing antidumping tariffs that apply to Chinese companies by laundering solar equipment through neighboring countries. Specifically, Auxin’s petition alleged that Chinese companies are sending near-finished solar cells and modules to Cambodia, Malaysia, Thailand, and Vietnam for eventual export to the United States in an effort to avoid existing tariffs. Several weeks later, the Commerce Department granted Auxin’s request for an inquiry into the alleged conduct, and began its investigation. The Department has until August 29, 2022, to issue its preliminary determination, and until January 19, 2023, to issue its final determination (subject to a one-time extension of 65 days).
The Commerce Department’s decision to launch an investigation created uncertainty in the solar industry regarding the possible retroactive application of antidumping and countervailing duties on solar equipment imported from the potentially affected countries (Cambodia, Malaysia, Thailand, and Vietnam), and reportedly slowed the development, construction, and financing of solar projects in the United States. According to solar industry experts, the four countries at issue accounted for approximately 85 percent of all solar panels imported into the United States in 2021. In January and February of 2022, their total share of imports was reportedly as high as 99 percent.
The Emergency Declaration
Recognizing the adverse impact of the Commerce Department investigation on solar projects in the United States, the Biden administration issued the emergency declaration to ensure “access to a sufficient supply of solar modules to assist in meeting our electricity generation needs.” The emergency declaration directs the Secretary of Commerce “to permit, until 24 months after the date of this proclamation or until the emergency declared herein has terminated, whichever occurs first, . . . the importation, free of the collection of duties and estimated duties” of certain solar cells and modules exported from Cambodia, Malaysia, Thailand, and Vietnam.
The emergency declaration is not retroactive and thus does not affect solar cells and modules that are subject to an antidumping or countervailing duty order as of June 6, 2022. Additionally, existing duties on Chinese and Taiwanese imports of solar cells and modules remain in effect.
Initial Market Reactions and Likely Next Steps
Early reactions to President Biden’s emergency declaration have varied. Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association (“SEIA”), applauded President Biden’s “thoughtful approach to addressing the current crisis of the paralyzed solar supply chain.” In contrast, as quoted by the Washington Post on June 6, 2022, Auxin criticized the emergency declaration for “open[ing] the door wide for Chinese-funded special interests to defeat the fair application of U.S. trade law[s].”
Notably, the language of President Biden’s emergency declaration does not guarantee a two-year reprieve. In particular, if the underlying emergency is terminated before June 6, 2024, the Commerce Secretary’s authority to permit duty-free imports will expire. This uncertainty as to the ultimate duration of the exemption is reflected in a statement by the Assistant Secretary of Commerce for Enforcement and Compliance, who remarked that “the Department of Commerce will issue regulations to temporarily permit for up to 24 months duty-free access to solar cells and modules from Cambodia, Malaysia, Thailand, and Vietnam.”
While the emergency declaration may temporarily alleviate some of the prior uncertainty regarding the status of solar equipment from Cambodia, Malaysia, Thailand, and Vietnam, further developments will be monitored closely by market participants. One such development, which was announced concurrently with the emergency declaration, is the Biden administration’s invocation of the Defense Production Act to authorize the Department of Energy to expand U.S. manufacturing of solar panel components. Potential legal challenges to the Biden administration’s emergency declaration may also affect the landscape. Finally, as the Assistant Secretary of Commerce for Enforcement and Compliance commented, the ultimate conclusion of the Commerce Department after its investigation of Auxin’s allegations will apply once the short-term emergency period ends.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.