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Leibowitz: Don’t Just Stand There, Do Something!

Written by Lewis Leibowitz

These days, there seem to be many emergencies. The impulse of government leaders often is to declare a crisis and then succumb to a dangerous tendency — don’t just stand there, DO something!

Last June, the President issued a proclamation on imports of solar panels and cells, declaring a national emergency on the supply of components for solar projects. There was, the President declared, a shortage of equipment for solar projects. Solar cells and panels were needed for building renewable energy projects, and domestic production was inadequate to meet the need. On top of that, a small solar energy producer filed a petition to expand the reach of antidumping and countervailing duties on Chinese products to solar arrays from four Asian countries — Cambodia, Vietnam, Malaysia, and Thailand.

balanceThis new “circumvention” proceeding turned off imports from those countries and made the shortage all the more acute. Solar project chieftains claimed that their projects would die without adequate supply.

The culprit, of course, was the antidumping and countervailing duty laws themselves. These laws are effectively privatization of tariff policy, allowing the private sector to choose which products they would like to tax. This was one of many cases where government priorities ran headlong into private ones. Normally private priorities prevail because the government does not disagree too strenuously with private goals. But occasionally, the two are in conflict.

Rather than look at the laws themselves as the source of the problem, the administration applied a “patch.” The Biden administration set up an exemption for solar panels and cells for two years. The circumvention proceeding would not mean more duties for these four new countries for two years or the termination of the emergency, whichever comes sooner. And, importantly, the circumvention investigation would continue.

On Friday, the Commerce Department issued preliminary determinations on the “anticircumvention” investigations on the four countries. It seldom fails to find circumvention in these cases, but here, the preliminary result was a bit of a mixed bag.

In these investigations, Commerce looked at specific companies in each of the four countries, and some were found not to have tried to side-step the antidumping and anti-subsidy (countervailing duty) tariffs on China, which are huge — a combined duty cash deposit rate of more than 250% of the Customs value of imports of covered imports. That means that an import shipment valued at half a million dollars would require, as a condition of entry into the US, $1.25 million in AD/CVD cash deposits. That is more than enough to deter almost all imports.

In a normal circumvention case, these duty deposits will kick in when the preliminary decision is published in the Federal Register. That usually happens within seven days after the determination is issued. That catches inbound shipments that left Asia a month ago or more, potentially devastating or even destroying US importers. In addition, entries after the initiation of the investigation (April 1, 2022) are subject to similar treatment.

Because of the proclamation, however, the requirement to post huge cash deposits may not take effect until 2024, because President Biden arranged to suspend antidumping and countervailing duties on the four countries facing circumvention investigations. The international trade laws do not give the President this power — but he exercised it under a blanket “national emergency” statute. The Commerce Department, which administers these, often Draconian laws, was told to “consider” suspending any cash deposits or tariffs for two years, or (if sooner) the end of the national emergency in electric generation. The lifting of these duties may violate trade laws, but there is, after all, a national emergency. The administration threw in some financial assistance for beefing up domestic production of solar cells (otherwise known as a “subsidy”). This might work if no one sued to overturn the forgiveness of potentially ruinous duties.

So far, no one has. The proclamation was issued on June 6, and the Commerce Department published regulations to implement the suspension of antidumping and countervailing duties in September. The preliminary determination on Dec. 2 creates plenty of uncertainties for importers, and these uncertainties can discourage imports.

A quick check on imports from the four countries under circumvention “watch” shows that imports from Malaysia fell dramatically in September, which corresponds with the publication date of the new regulations that created much of the uncertainty. Imports from the other large exporter of solar cells and panels (Vietnam) have so far held steady.

One uncertainty for importers is the coverage of shipments that are eligible for exemption from the duty requirements. There are too many uncertainties to mention in a short article, so I’ll limit myself to one, which is new in the annals of circumvention cases: the “Utilization Expiration Date”.

The new rule, effective since Nov. 15, requires that Customs entries exempt from the normal cash deposit requirements must be used in the United States in a solar project within 180 days after the termination of the national emergency or June 6, 2024, whichever comes first (assuming the June 6 date is not extended).

One of the core concepts of Customs law is that the name and character of an entered product are determined by the form in which it was entered. That is a generally sound policy because Customs is ill-equipped to determine what happens to a product after importation into the United States.

Here, the new rule indicates that, if a cell or module is not going to be utilized in the US by the “utilization expiration date,” it will (retroactively) be subject to antidumping and countervailing duties under the circumvention case. For the moment, that only applies to products covered by the proclamation (“photovoltaic cells and modules”). But there is a danger that this “utilization expiration date” concept could be applied to other products, such as steel or softwood lumber.

The rule provides no information about how or when the Commerce Department will determine whether these products will be “utilized” in the US by the “utilization expiration date.”

This uncertainty will put importers in danger because they will not know whether the products they import will be subject to potentially ruinous duty deposit requirements and duties because of what happened to them (or didn’t happen) after importation. Importers are liable for these duties, even if they imported and sold the product long before. That is a powerful disincentive to import.

The proclamation and the circumvention proceeding are still a work in progress. The final determination is due within a few months.

Commerce does not want to frustrate the rollout of renewable energy. But this desire runs headlong into trade laws, which are there to discourage imports of products that are “dumped” or subsidized. The proclamation recognized that conflict and came down on the side of rectifying the shortage of domestic production of solar cells and modules, requiring reliance on imports for the time being. But to reconcile two conflicting policies, the government has created tremendous uncertainties.

As an example of presidential leadership, this one has important lessons to be learned. The trade laws need reform to balance the needs of producers and consumers. This particular “adaptation” is an effort to delay the day of reckoning. The “fix” may not be a fix at all and may make the domestic shortage of solar equipment worse. It may also be challenged in court, either by disappointed domestic producers that want to keep imports out and raise the prices for solar equipment; or the suit may come from importers who could be required to pay enormous retroactive duties.

I doubt that we’ve seen the end of this battle.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
5335 Wisconsin Avenue, N.W., Suite 440
Washington, D.C. 20015
Phone: (202) 617-2675
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Lewis Leibowitz, SMU Contributor

Lewis Leibowitz

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