Commerce Invites Comments on Proposed Rules Implementing Presidential Emergency Declaration on Solar Tariffs

By Alexander Chinoy, W. Andrew Jack, Carol Browner, Jay Smith, William Isasi & Nicolle Wainer on July 6, 2022

Posted in Regulatory, tax, Trade Agreements

On July 1, 2022, the U.S. Department of Commerce (“Commerce”) issued proposed rules implementing President Biden’s emergency declaration to provide temporary tariff relief on certain imports of solar cells and modules from Cambodia, Malaysia, Thailand, and Vietnam.[1] Commerce has provided the public with a 30-day period to comment on the proposed rules.

If enacted in their current form, the proposed rules would provide meaningful relief and increased tariff certainty to U.S. importers of solar cells and modules from these four Southeast Asian countries. Specifically, under the proposed rules, Commerce will not impose tariffs during the emergency period established by President Biden on imports of solar cells and modules from those countries even if the products are found to be circumventing an existing antidumping (“AD”) or countervailing duty (“CVD”) order. The proposed rules do not affect tariffs on imports that are already within the scope of existing AD/CVD orders on solar cells and modules from mainland China or Taiwan, including in-scope modules that incorporate cells from mainland China or Taiwan but are assembled in a different country.

While the proposed rules would represent a positive development for foreign manufacturers, U.S. importers, and U.S. consumers, including the U.S. solar project development industry, if promulgated in their current form, changes to the rules are possible. It is therefore important for parties with a stake in Commerce’s pending circumvention inquiries to file comments by the August 1, 2022 deadline.

How did we get here?

The U.S. solar project development industry was thrown into an existential crisis as a result of Commerce’s initiation of circumvention inquiries on April 1, 2022.[2] Those initiation decisions threatened the industry with imposition of retroactive and future AD/CVD tariffs on a significant portion of U.S. solar imports. Specifically, the circumvention inquiries threatened solar cells and modules from Cambodia, Malaysia, Thailand, and Vietnam with combined AD/CVD tariffs of nearly 250%, and such tariffs could be applied retroactively to merchandise entering the United States on or after April 1, 2022 (and potentially as far back as November 4, 2021).[3]

The proposed rules directly respond to President Biden’s June 6, 2022 emergency declaration, which found that an emergency exists “with respect to the threats to the availability of sufficient electricity generation capacity” and authorized Commerce to issue a moratorium on tariffs on solar cells and modules from Cambodia, Malaysia, Thailand, and Vietnam for up to a 24-month period.[4]

The Proposed Rules

The proposed rules appear to respond to concerns raised by the solar project development industry about how the emergency declaration would be implemented in the context of existing agency regulations. Commerce has confirmed that it intends to provide for the temporary, duty-free importation of certain solar cells and modules from Cambodia, Malaysia, Thailand, and Vietnam even if Commerce determines that they are circumventing an existing AD/CVD order. In so doing, Commerce has clarified that these new rules—and not the agency’s existing circumvention regulations—will apply to such solar cells and modules throughout the pendency of the emergency period.

The proposed rules would be codified as a new part 362 to title 19 of the Code of Federal Regulations, and they would provide that:

The applicable entries would be those “Southeast Asian-Completed Cells and Modules” that are subject to the solar circumvention inquiries. “Southeast Asian-Completed Cells and Modules” means solar cells and modules completed in Cambodia, Malaysia, Thailand, or Vietnam, using parts and components that are made in China and “subsequently exported from Cambodia, Malaysia, Thailand or Vietnam to the United States.”
The date of termination of the temporary duty-free importation would be June 6, 2024, or the date when the emergency is terminated, whichever occurs first.
Importation of Southeast Asian-Completed Cells and Modules would be “free of collection” of AD/CVD cash deposits until the termination date of the emergency.
In the event of an affirmative preliminary or final circumvention determination prior to the date of termination, Commerce would not direct U.S. Customs and Border Protection to suspend liquidation or collect cash deposits. This means that Southeast Asian-Completed Cells and Modules imported at any time prior to the termination of the emergency would not be subject to AD/CVD duties as a result of an affirmative determination in the circumvention inquiries.
In the event that it issues an affirmative preliminary circumvention determination, Commerce has signaled that it may require certifications for solar cells and modules from Cambodia, Malaysia, Thailand, and Vietnam in order to differentiate between (i) Southeast Asian modules with Chinese cells that are already subject to the existing orders and (ii) Southeast Asian modules using Chinese inputs that would become subject to the existing orders solely based upon an affirmative circumvention finding. This certification process would likely create an administrative burden for U.S. importers.

Comments on the Proposed Rules

As noted above, Commerce has requested that the public submit comments on the proposed rules by August 1, 2022. A member of the U.S. solar cell manufacturing industry, Auxin Solar, Inc., requested the circumvention inquiries and therefore likely has an interest in maintaining high tariffs on the affected imports. We thus expect that at least Auxin Solar (and potentially other U.S. solar manufacturers) will file comments challenging the proposed rules. Commerce has an obligation to consider all comments filed and might make changes to the proposed rules in light of such comments. It is important for the agency to hear from all sides, including those who may support the proposed rules in their current form, so that the agency can fully appreciate the consequences of changing them.

Given its depth of experience in international trade and energy issues, Covington is well-positioned to assist clients that wish to file comments, or that may have questions about how the new rules could impact their business.

[1] Procedures Covering Suspension of Liquidation, Duties and Estimated Duties in Accord with Presidential Proclamation 10414, 87 Fed. Reg. 39,426 (July 1, 2022).

[2] Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled Into Modules, From the People’s Republic of China: Initiation of Circumvention Inquiry on the Antidumping Duty and Countervailing Duty Orders, 87 Fed. Reg. 19,071 (Apr. 1, 2022).

[3] For additional background, please see our June 8, 2022 blogpost entitled President Acts to Prevent Import Tariffs on Solar Cells and Modules from Southeast Asia, available at https://www.insideenergyandenvironment.com/2022/06/president-acts-to-prevent-import-tariffs-on-solar-cells-and-modules-from-southeast-asia/#more-7750.

[4] Declaration of Emergency and Authorization for Temporary Extensions of Time and Duty-Free Importation of Solar Cells and Modules from Southeast Asia, 87 Fed. Reg. 35,067 (June 9, 2022) (Proclamation 10414 of June 6, 2022).