Solar Tariffs in the Spotlight – Expiration of Tariff Moratorium & New AD/CVD Petition Heighten Duty Risks

May 1, 2024, Covington Alert

(REF: COV.com)

The international trade landscape will soon become even more challenging for everyone in the solar power ecosystem. On Wednesday, April 24, 2024, a group of seven U.S. solar manufacturers filed antidumping and countervailing duty (“AD/CVD”) petitions with the U.S. International Trade Commission and the Department of Commerce (“Commerce”), alleging unfair trade practices by producers in Cambodia, Malaysia, Thailand, and Vietnam. The petitions were filed approximately six weeks before an existing moratorium on AD/CVD duties on solar cells and modules from the same countries is set to expire. The intersection of these two events creates significant tariff risk, including potential retroactive liability for U.S. importers, as discussed below.

Solar Products Imported Duty-Free During the Moratorium Must Meet a “Utilization Requirement” to Avoid Duties

In June 2022, in the face of proceedings that threatened to extend existing AD/CVD tariffs on Chinese solar products to the same products from Southeast Asia, President Biden issued a Proclamation authorizing Commerce to permit duty-free importation of certain solar cells and modules for an emergency period of up to 24 months. To take advantage of the duty-free treatment for certain solar products that were entered after November 15, 2022, and before the emergency period expires, U.S. importers and Southeast Asian exporters must certify at the time of importation that the solar products will be “utilized within 180 days” after the emergency period terminates. As the moratorium during the emergency period is expected to expire soon, on June 6, Commerce and U.S. Customs and Border Protection may increase their focus on verifying whether imports entered prior to termination of the emergency are ultimately “utilized” as required. This may include requesting submission of supporting documentation that importers and exporters have been required to maintain. If it is determined that the utilization requirement is not met, U.S. importers may face an ad valorem cash deposit rate of up to 254% retroactively imposed on imports they have already made.

While Commerce broadly defined “utilized” as “used or installed in the United States,” the boundaries of the exception remain uncertain, particularly given Commerce’s warning that “{m}erchandise which remains in inventory or a warehouse in the United States, is resold to another party, is subsequently exported, or is destroyed after importation is not considered utilized for purposes of these provisions.” Given the high stakes of a future retroactive duty assessment, companies should proactively consider whether their imports ultimately satisfy this requirement before the deadline for utilization, which is expected to be in early December 2024.

The AD/CVD Petitions Are Likely to Result in the Imposition of AD/CVD Tariffs on U.S. Imports of Solar Cells and Modules in the Next Few Months—and Possibly Earlier

Although the imminent end to the duty-free period during the moratorium may incentivize companies to import solar products from Southeast Asia now, the recently filed AD/CVD petitions create significant additional duty risk for new imports of solar cells and modules from those countries. Under U.S. AD/CVD law, duties typically first take effect on imports occurring approximately four to six months after initiation of AD/CVD investigations, when Commerce publishes a preliminary determination. However, if there is a flood of imports in response to the AD/CVD petitions that would undermine the remedial effect of any AD/CVD orders, duties may be retroactively imposed on imports occurring even earlier, within a month or two of the initiation of the investigations—and potentially even earlier, back to the initiation date. Thus, the recently filed petitions are likely to result in the imposition of AD/CVD duties on U.S. imports of solar cells and modules from Cambodia, Malaysia, Thailand, and Vietnam starting in the next few months, and potentially on imports occurring in just a few weeks, when the AD/CVD investigations are expected to be initiated. 

Intersecting Risks

Commerce is expected to initiate investigations based on the new solar petitions by May 14 (or June 3, if extended). The almost simultaneous expiration of the duty-free moratorium period and initiation of the AD/CVD investigations into solar cells and modules from the same four Southeast Asian countries creates a complicated situation for importers. On the one hand, importers are incentivized to import solar cells and modules now, before the duty-free period is set to expire on June 6. On the other hand, any surge in imports before the moratorium expires could serve as the basis for retroactive application of AD/CVD duties to imports occurring before the issuance of preliminary determinations by Commerce in the new investigations. Companies planning to make shipments within the next few weeks should carefully evaluate their individualized tariff risks (and risk tolerance), including how any supply agreements account for the risk of future AD/CVD duties that may be retroactively imposed. 

The level of tariff exposure will vary depending on the unique facts of your company’s import practices. If your company has concerns regarding potential tariff exposure, Covington is well positioned to assist you in navigating this complex and novel set of overlapping issues. If you have any questions concerning the material discussed in this client alert, please contact the members of our Trade Policy practice.