Solar Tariff Recommendations Submitted to President, Final Decision Expected Jan 12

On October 31, the United States International Trade Commission (ITC) announced its recommendations for trade restrictions on imported crystalline silicon photovoltaic (CSPV) cells and modules, the components of solar panels. Two domestic manufacturers of CSPV products, Suniva and SolarWorld, petitioned the ITC in May 2017 for import relief under Section 201 of the 1974 Trade Act. In September, the ITC voted unanimously in favor of the petitioners, despite strong opposition from the Solar Energy Industries Association (SEIA), the national trade association of the solar industry.

Section 201 allows for temporary trade restrictions when a domestic industry has suffered “serious injury” from rival imports. If the ITC determines injury, it must recommend a “remedy” to the President, who has broad authority to execute, alter, or disregard these recommendations as he sees fit. In this case, the four members of the ITC produced three different recommendations for President Trump to consider. The details of each recommendation vary, but remain closely aligned with the language in Title II of the Trade Act, which limits the duration and magnitude of import relief. In accordance with the statute, commissioners recommended restrictions that would be incrementally reduced over a four-year period in order to re-establish competition. The recommendations also include exemptions for several countries who share free trade agreements with the United States, although each recommendation treats Mexico and Canada differently.

ITC Chairwoman Rhonda Schmidtlein proposed the most stringent policy. She recommended a tariff-rate quota that would impose a 10 percent tariff on imported CSPV cells within a quota of 0.5 gigawatts (GW) of electric-generating capacity and a 30 percent tariff on imports in excess of this quota. Commissioners David Johanson and Irving Williamson issued a joint-recommendation for a similar, slightly less stringent, tariff-rate quota. Together they recommended a 30 percent tariff on imports in excess of a 1 GW quota. The tariff rate would decrease 5 percent per year over the four-year life of the policy while the quota would increase 1.2 GW per year. Commissioner Meredith Broadbent issued the most market-friendly recommendation. She recommended an import cap at 8.9 GW in the first year, increasing by 1.4 GW in subsequent years. This cap is consistent with projected demand and probably would not disrupt the market in a significant way. In lieu of a tariff, Broadbent recommended an import licensing system in which foreign manufacturers would purchase the rights to sell their goods in the United States. These import licenses would be auctioned at a minimum price of $0.01 per watt, generating at least $89 million in government revenue in the first year.

The commissioners also suggested economic policies beyond import relief. Schmidtlein urged the President to engage in international negotiations to address the oversupply of imports. Broadbent recommended that the license revenues in her plan be reinvested in development assistance for domestic manufacturers to improve their competitiveness. Johanson and Williams encouraged the President to direct the Department of Labor and Department of Commerce to grant Trade Adjustment Assistance (TAA) to downstream industries in the solar energy sector, such as installation, that could lose business if the cost of solar panels rises. TAA is a federal aid program that serves American workers who experience pay cuts or layoffs as a result of foreign trade. With more than 260,000 Americans employed in the solar energy sector, these details matter.

All the recommendations by the ITC are considerably milder than the remedies proposed by Suniva and SolarWorld. In their petition, the companies called for a tariff of $0.40 per watt and a price floor of $0.78 per watt. These rates would slash demand for solar in the United States by about 50 percent over the next five years. In contrast, the tariffs recommended by the ITC would increase the cost of solar by only $0.04-$0.12 per watt between now and 2022, according to analysis by GTM Research. A 30 percent tariff would likely reduce projected demand for solar by 9-10 percent. This impact is much smaller than the impact of the tariff proposed by the petitioners, but still significant—especially for the competitive utility markets that will be most affected. Seventy-six percent of growth in the utility solar sector in 2016 occurred outside of binding renewable portfolio standards and 35 percent of utility solar expansion was completely ‘voluntary,’ meaning it was not backed by a regulatory mandate. In these markets, cost-competitiveness determines solar deployment. Emerging utility solar markets in Florida, Utah, and Texas are particularly at risk if tariffs are implemented.

Despite winning their trade case, Suniva and SolarWorld were disappointed by the ITC’s recommendations. Suniva said in a statement, “The ITC’s remedy simply will not fix the problem the ITC itself identified, and with it, we’ll see very shortly the extinction of what remains of this manufacturing sector and the jobs of American workers.” SolarWorld expressed similar dissatisfaction. SEIA responded to the recommendations with modest praise, saying, “The commissioners clearly took a thoughtful approach to their recommendations and it’s worth noting that in no case did a commissioner recommend anything close to what the petitioners asked for. That being said, proposed tariffs would be intensely harmful to our industry.”

The ITC submitted official recommendations to the President on November 13; he now has 60 days (until January 12, 2018) to decide whether to accept, alter, or discard the proposed remedies. The solar tariff is unpopular across the political spectrum, uniting environmental advocates and free-market conservatives in opposition. Fox News host Sean Hannity recently made scathing comments towards tariff advocates, saying, “American solar can compete just fine on its own.” Despite criticism from Trump allies, tariff supporters may prevail by appealing to the President’s protectionist values. As the ITC hands off the decision-making power to the President, a lobbying frenzy is expected to take place behind closed doors.

 

Author: Beatrix Scolari