The solar power industry seems to be caught in the crosshairs of competing legislative agendas. The US Inflation Reduction Act (IRA) created incentives to increase solar capacity via tax credits. The Uyghur Forced Labor Prevention Act (UFLPA) creates a rebuttable presumption that any goods that were mined, produced, or manufactured, wholly or in part, in the Xinjiang Uyghur Autonomous Region (XUAR) were made with forced labor, and bars their importation into the United States. More than 90% of the world's ingots and wafers (made from polysilicon) are produced in China, and 80% of solar panels going into both residential and commercial projects in the United States come from abroad. The push for more solar capacity is potentially hindered by supply chain–based trade restrictions, resulting in competing agendas.
Forced Labor Legislation
Trade restrictions related to allegations of forced labor have been in play in the United States for some time. Section 307 of the Tariff Act of 1930 (19 USC § 1307) expanded that prohibition to include the importation of merchandise mined, produced, or manufactured, wholly or in part, by forced labor, including forced or indentured child labor. Merchandise procured by such labor is subject to exclusion from the US and seizure upon attempted entry into the US, and may lead to criminal investigation.
Forced labor concerns are not restricted to one country, though imports from China have been a target of Section 307 enforcement since the 1990s, with renewed emphasis beginning in 2016. The United States has specifically accused China of using forced labor against the Uyghur Muslim minority in the XUAR. In 2021, US Customs and Border Protection (CBP) issued a withhold release order (WRO) against Hoshine Silicon Industry Co. Ltd., a major supplier of polysilicon from XUAR, for using forced labor in its product. The Chinese government strongly opposes and categorically denies the XUAR forced labor accusations and has vowed to respond strongly to the enforcement of the UFLPA, which took effect in June 2022.
Impact of UFLPA on Solar Imports
Eliminating forced labor in the solar supply chain has been a critical focus for the industry as led by Solar Energy Industry Association (SEIA). The solar industry has proactively implemented tracing protocols to keep forced labor out of the supply chain, and is now seemingly the first industry to feel the effects of enforcement of the UFLPA.
According to a January 2023 Axios report, CBP officials have seized around $1.3 billion worth of imports since the UFLPA went into effect in June 2022, the majority of which were solar panels. The president of SEIA said in a statement that many of the IRA’s intended benefits are being undermined by legislation on forced labor and other trade issues. A SEIA report co-authored with Wood Mackenzie states that the United States saw a 17% decrease in additional solar capacity from the same quarter in 2021. The report attributes the decrease to trade barriers and ongoing supply chain constraints.
Commerce Investigation Complicates Trade Issues
An additional trade issue that impacted the solar industry in 2022 was the US Department of Commerce (Commerce) investigation into whether suppliers from four countries in Southeast Asia, some of which are using Chinese wafers, are circumventing antidumping and countervailing duty (AD/CVD) orders on certain Chinese-origin imports.
Following a 2012 investigation, Commerce issued AD/CVD Orders A-570-979 and C-570-980 (see 77 Fed. Reg. 73017-18) (the Orders), which cover crystalline silicon photovoltaic (CSPV) cells, and modules, laminates, and panels consisting of CSPV cells, whether or not they are partially or fully assembled into other products, including, but not limited to, modules, laminates, panels and building integrated materials from China.
On February 8, 2022, Auxin Solar, a US solar panel manufacturer, petitioned Commerce, alleging that manufacturers in Cambodia, Malaysia, Thailand, and Vietnam are circumventing the Orders. Commerce issued a notice on April 1, 2022, that it would be opening a country-wide circumvention investigation. At the same time, the United States has been enacting various trade measures to support increased renewable energy efforts, including by expanding and unburdening importation of solar panels and modules.
On June 6, 2022, President Biden issued Proclamation 10414 declaring an emergency under Section 318(a) of the Tariff Act of 1930 with respect to the threat to the availability of sufficient electricity generation capacity to meet expected customer demand and specifically related to imports of solar cells and modules from Southeast Asia.
On September 16, 2022, Commerce published a final rule to implement Biden’s Proclamation, directing CBP to discontinue the suspension of liquidation and collection of cash deposits based on the circumvention inquiry.
On December 8, 2022, Commerce issued its preliminary determination that imports of certain CSPV cells exported from Cambodia, Malaysia, Thailand, or Vietnam using parts and components produced in China are circumventing the AD/CVD orders on solar cells and modules from China. The circumvention inquiry covers the following:
- CSPV cells, whether or not partially or fully assembled into other products, that were produced in Cambodia, Malaysia, Thailand, or Vietnam from wafers produced in China
- Modules, laminates, and panels consisting of CSPV cells, whether or not partially or fully assembled into other products, that were produced in Cambodia, Malaysia, Thailand, or Vietnam from wafers produced in China and where three or more of the following components in the module/laminate/panel were produced in China: silver paste; aluminum frames; glass; backsheets; ethylene vinyl acetate sheets; and junction boxes
Wafers produced outside of China with polysilicon sourced from China are not considered to be wafers produced in China for purposes of this circumvention inquiry. Commerce issued a negative circumvention determination for the four entities listed in the preliminary determination, finding that they are not circumventing the Orders. Commerce has since clarified that exports from third-party countries such as India and Korea are not covered in the anti-circumvention inquiry or under the Orders even if they include Chinese inputs.
Despite the moratorium, Commerce has now directed CBP to suspend liquidation and collect cash deposits of AD/CVD based on the affirmative preliminary determination for imports that are not entered or withdrawn from warehouse for consumption in the US before the Date of Termination (currently June 6, 2024) and for entries that entered after November 15, 2022 and are used or installed in the United States by the Utilization Expiration Date (currently December 3, 2024). The deadline for use in the United States is intended to prevent stockpiling of imported solar cells and modules.
Commerce’s final determination is scheduled to be issued May 1, 2023.
What to Watch
The issue of forced labor prevention continues to have bipartisan support of the focus on competition with China. We expect to see oversight hearings and other forms of scrutiny in 2023 to explore the effectiveness of the enforcement of the UFLPA.
Solar purchasers and developers need to conduct due diligence on foreign suppliers’ tracing programs, though there are significant challenges with tracing the supply of polysilicon within China. Consequently, many foreign suppliers are trying to allocate or share risk with purchasers/developers through incoterms, specific contractual import responsibilities, and the ability to adjust purchase order pricing based on trade developments with an eye on Commerce’s circumvention inquiry.
Developers and lenders will see forced labor provisions in supply contracts as well as power purchase agreements trying to allocate risk among the parties. Lenders will see similar provisions in business transactions, including a push for representations that imported merchandise has not been procured by forced labor.
Commerce’s final determination, expected in May 2023, will have implications for solar panels imported from Cambodia, Malaysia, Thailand, or Vietnam, particularly after expiration of the moratorium, expected in June 2024. In the interim, importers and exporters must file the required certifications or be subject to the suspension of liquidation and collection of cash deposits on imports of subject merchandise.