Solar Panels and Modules Trade Decision Creates New Uncertainty for Purchasers

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The announcement of the Office of the U.S. Trade Representative (“USTR”) on January 22, 2018, that the Trump Administration is granting relief for the domestic solar panels and modules industry under section 201 of the Trade Act of 1974, confirmed the fears of many consumers that substantial additional duties would be imposed on those products. USTR announced that the relief would come in the form of a tariff increase of 30% in the first year, decreasing to 25% in year two, 20% in year three, and then to 15% in year four. On January 23, 2018, President Trump signed the Proclamation implementing the relief. The relief will go into effect on February 7, 2018.

Despite the above tariffs, the relief announced provides that the first 2.5 gigawatts of imported cells are excluded from the additional tariffs. The use of the exemption for the first 2.5 gigawatts makes the relief a form of a “tariff rate quota,” meaning that tariffs only apply if imports rise above a certain quota amount. This type of relief has been imposed in the past, including on certain steel products. The ITC Commissioners made various recommendations to the President in this case, some of which included types of tariff rate quotas.

The nature of the relief will mean that exporters now are likely want to rush to import their products in order to be within the 2.5 gigawatt exclusion. The Proclamation states that the quota of 2.5 gigawatts “shall be allocated among all countries except those countries the product of which are excluded from such tariff rate quotas…” While this statement seems to imply that there will be a base time period used to determine different market shares within the total quota for different countries, our discussions with government officials indicate that this was not what was intended. Instead, the intention was to have one worldwide quota of 2.5 gigawatts that will apply to all countries, without any allocation among countries. Regardless of whether allocations are made among countries or there is just one overall quota, if shipments are made in the hope that they will fall within the exclusion but the 2.5 gigawatt quota already is filled at the time of entry, the 30% tariff that then will be applied may change the economics of a deal if the possibility of a tariff has not been taken into account. It is not clear at this time whether there will be some kind of pre-clearance for such imports before the time of exportation, or whether there will be a free-for-all at the time of entry.

The Proclamation addresses, in part, the issue of exclusions for countries with free trade agreements with the U.S., as well as certain other countries. The exclusion decisions announced in the Proclamation were that: (1) Canada and Mexico are included in the relief; and (2) countries that are eligible for the General System of Preferences (GSP) benefits (some less developed countries) are excluded if they account for less than 3% of total imports of the solar panels and modules. There are numerous countries in this category but among the most important are Brazil, India, Indonesia, South Africa, and Turkey. However, Thailand and the Philippines, which otherwise would be exempted as GSP countries, are being included in the relief because they exceed the 3% threshold. However, the press release also states the Korea is included in relief while the Proclamation does not address Korea at all. Moreover, it is not entirely clear what decision was made with regard to certain other free trade agreement countries (e.g., certain Central American countries, Israel, Singapore) because the Proclamation does not address them, although it seems likely that those countries are being included in the relief.

There also are likely to be questions as to whether certain components of solar panels or modules are covered. To provide for this possibility the Proclamation states that within 30 days of the date of the Proclamation, USTR will publish procedures in the Federal Register for requests for exclusion of particular from the relief.

Thus, the basic outlines of the relief now are in place. However, as each company considers its own situation it will need to assess any latent ambiguities in the relief provisions and address them with counsel or other advisors.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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