Certain Chinese producers of crystalline solar panels and cells are evading more than decade-old tariffs on imports from China by routing their supply chains through factories in Cambodia, Malaysia, Thailand and Vietnam, according to the US Commerce Department's final decision in a closely watched trade case.
"After our fact-intensive, thorough investigation of eight companies across these four countries, we found that five of these companies are attempting to bypass US duties by engaging in minor processing in Southeast Asian countries before they're coming into the US market," a senior Commerce Department official said during a media briefing the day before the decision was released Aug. 18.
The four Southeast Asian countries at the center of the probe, prompted by allegations from California-based module manufacturer Auxin Solar Inc. in early 2022, account for a large share of the photovoltaic panels and cells supplied to the import-reliant US solar market. Cambodia, Malaysia, Thailand and Vietnam together made up 80.3% of US solar panel imports in the second quarter of 2023, according to the S&P Global Market Intelligence Global Trade Analytics Suite.
The US imported 19.5 GW of photovoltaic modules from those four countries in the first half of 2023. S&P Global Commodity Insights forecasts nearly 36 GW of installed US solar capacity this year.
The Commerce Department's final decision is "identical" to a preliminary determination issued in December 2022 in all ways but one, the official said.
As in the preliminary decision, the Commerce Department investigation, which included onsite audits, found that affiliates of BYD Co. Ltd., Canadian Solar Inc., Trina Solar Co. Ltd. and Longi Green Energy Technology Co. Ltd. are circumventing tariffs, while subsidiaries of Hanwha Solutions Corp., Jinko Solar Co. Ltd. and Boway Group are not avoiding tariffs.
Different than in the preliminary finding, New East Solar (Cambodia) Co. Ltd. was also found to be evading tariffs.
"They wouldn't let us in the door," the Commerce Department official said. "They wouldn't let our verifiers in the door."
New East Solar did not immediately reply to a request for comment.
Trina Solar (U.S.) Inc. President Steven Zhu refuted Commerce's conclusions in an Aug. 18 emailed statement.
"We take issue with the Commerce Department's circumvention finding," Zhu said. "The work we are doing in Thailand and Vietnam is not minor or insignificant and this decision conflicts directly with its decision in the original case that cell production is the most significant production step."
The company has invested "hundreds of millions of dollars" in cell and module factories in the two countries in addition to a new wafer factory in Vietnam, Zhu added.
Zhu called the decision "legally questionable" and said it would increase the cost of US-bound solar products.
BYD, Canadian Solar and Longi did not immediately reply to requests for comment.
A host of additional companies did not respond to the agency's requests for information, leading it to determine that they also are circumventing tariffs, the official said, without citing an exact number. However, the preliminary decision named 22 "non-cooperative" companies that failed to respond to information requests and were found to be evading tariffs. The agency's findings are being applied on a "countrywide" basis, the official added.
'Bad for business'
"This provides US solar importers with sufficient time to adjust supply chains and ensure that sourcing is not occurring from companies found to be violating US law," the Commerce Department said in its Aug. 18 statement.
But Trina's Zhu and other industry representatives voiced concern that the decision could complicate an unprecedented resurgence of US solar manufacturing, fueled by valuable manufacturing incentives in the Inflation Reduction Act of 2022.
The decision "makes it harder, not easier, to establish a US supply chain and a homegrown American workforce," Zhu said. "By undermining the significance of cell production and cutting off supplies and disrupting US demand for solar as it is ramping up, Commerce has made it much harder for companies to predict how the US market will function going forward."
"This tariff case is bad for business and American workers," Abigail Ross Hopper, president and CEO of the Washington, DC-based Solar Energy Industries Association, said in an emailed statement. "More than 13 years of tariffs have failed to deliver even a fraction of the solar manufacturing investments we've seen in the last year."
Some US solar manufacturers, however, have outright supported the investigation and its findings.
"We believe that the department's investigation is a step in the right direction and sends a clear signal that the United States remains committed to the rules of international trade law and to trade that is both free and fair," Mark Widmar, CEO of US thin-film solar panel maker First Solar Inc., said on an earnings call in July.
Still, it is not completely clear what the full impact of the decision will be.
Speaking with S&P Global Commodity Insights at an industry event in San Francisco in June, Hopper said the "vast majority of supply chain has navigated around the risk" and that a finding of circumvention would not be detrimental.
As in its preliminary decision, Commerce's final determination found that circumvention was occurring with cells that contain a made-in-China wafer and with modules that contain Chinese wafers and three or more additional components from China, the department official said.
Based on that, some industry analysts believe the industry can adapt without major disruption. Analysts at Roth Capital Partners, who called the preliminary decision "better than expected" for the industry, reiterated their upbeat view in an Aug. 16 note to clients. If the final determination were to largely follow the initial findings, "we continue to feel the same," they said.
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