Preliminary Determination of Circumvention Regarding Solar Energy Products from SE Asia

On December 8, 2022, the U.S. Department of Commerce (“USDOC”) published its preliminary determination that certain manufacturers of solar energy products¹ in Malaysia, Vietnam, Thailand, and Cambodia that rely on Chinese-origin inputs are circumventing U.S. antidumping and countervailing duties relating to crystalline silicon photovoltaic cells and modules of Chinese origin.² If this preliminary determination is affirmed in the final determination, many solar energy panel manufacturers that use these Chinese-origin components may have to re-evaluate their supply chains and how they supply the U.S. market.

The preliminary determination imposes important certification obligations. To avoid collection of AD/CVD cash deposits on covered imports from Malaysia, Vietnam, Thailand, or Cambodia, importers and exporters must certify that the covered imports (i) qualify for the two-year duty waiver implemented by the Biden Administration, (ii) are not covered by the circumvention determination, or (iii) are not within the scope of the circumvention inquiry. For covered imports entered between April 1, 2022 and December 8, 2022, such certifications must be completed and signed no later than January 23, 2023. Certifications for covered imports entered after December 8, 2022 must be completed, signed, and dated by the time the entry summary is filed for the associated entry.³ Failure to complete the certifications can lead to the assumption that any uncertified goods are subject to the antidumping and countervailing duty orders.

Background

The Department of Commerce determined in 2012 that China was unfairly subsidizing its solar energy product manufacturers, and that Chinese manufacturers were selling their products for less than fair value into the United States.⁴ In response, the United States enacted countervailing and antidumping duties on Chinese-made solar energy product imports.⁵ Since the imposition of the AD/CVD orders, approximately 80% of solar entered products subject to these orders have been imported from Malaysia, Vietnam, Thailand, and Cambodia, generally as downstream products that incorporate Chinese-origin inputs.⁶

In February 2022, a U.S. solar panel maker, Auxin Solar Inc., petitioned the Department of Commerce to investigate solar energy product manufacturers in Malaysia, Vietnam, Thailand, and Cambodia, alleging that Chinese manufacturers were using Southeast Asian manufacturers as pass-through entities in an attempt to evade U.S. tariffs.⁷ According to Auxin, Southeast Asian solar energy product manufacturers were adding relatively minor manufacturing value and making only minimal improvements to products that were mostly made in China and that would otherwise be subject to U.S. import duties.⁸

During the course of Commerce’s investigation of Auxin’s claims, the Biden Administration in June 2022 invoked the Defense Production Act to take several actions aimed at “accelerat[ing] [the] domestic production of clean energy technologies.”⁹ As part of this initiative, Biden announced a two-year tariff exemption period for solar energy imports from Malaysia, Vietnam, Thailand, and Cambodia.¹⁰ In the context of the Auxin inquiry, this meant that even if Commerce concluded that China was using the Southeast Asian manufacturers to evade U.S. trade regulations, entries of covered products from those Southeast Asian manufacturers would be eligible for a waiver of the otherwise applicable AD/CV duties until at least June 5, 2024.

Commerce’s Preliminary Determination

On December 2, 2022, the Department of Commerce announced the preliminary determinations of its investigations into Auxin’s claims.¹¹ To begin, Commerce reached a general finding that “circumvention was occurring through each of the four Southeast Asian countries.”¹² In addition, as part of its investigation, Commerce had selected two solar energy product manufacturers from each of the relevant countries – i.e., Malaysia, Vietnam, Thailand, and Cambodia.¹³ According to Commerce’s preliminary findings, four of the eight companies had circumvented U.S. trade regulations by selling solar energy products in the United States that had insufficient processing to meet the anti-circumvention test.¹⁴

Because Commerce preliminarily found that circumvention was occurring through each of the four Southeast Asian countries, Commerce issued a “country-wide” circumvention finding. This means that each of the countries is being designated, for all manufacturers, as conduits for circumvention. The only exceptions are for specifically investigated companies that Commerce determined are not circumventing the orders. As a result, Commerce is placing the burden on individual importers bringing in products from these countries to certify that their products are not circumventing, through implementation of a certification process.

The Department of Commerce will conduct in-person audits to verify its preliminary findings, as well as solicit comments on its findings, before issuing its final determination. Commerce’s final determination is currently scheduled to be issued on May 1, 2023.¹⁵

Key Takeaways

Assuming the results of Commerce’s preliminary findings are upheld in the final determination, once the Biden Administration’s two-year tariff waiver for covered goods coming from Southeast Asia expires in June 2024, manufacturers of solar energy products in Malaysia, Vietnam, Thailand, and Cambodia will be required to pay AD/CVD duties on most imports of solar energy products from these countries.

To ensure proper administration of the preliminary determinations in light of the Biden Administration waiver (and to avoid cash deposits of AD/CVD duties on covered products entering the United States in the interim), importers and exporters of the covered products will be required to prepare certifications stating that their products either qualify for the waiver or are not subject to the AD/CVD orders.

Specifically, importers and exporters seeking to avoid the cash deposits will be required to certify entries in one of the three formats specified in the Appendix IV of the Preliminary Determination Notice filed in the Federal Register on December 8, 2022.¹⁶ A manufacturer can file a certification on the basis that:

1.  the specific entries qualify as “Applicable Entries” under the Biden Administration waiver;
2.  that Commerce already investigated the specific manufacturer and made a “not circumventing” determination; or
3.  that the entry consists of products falling outside the scope of U.S. AD/CVD orders on Chinese solar energy products.¹⁷

For prior entries of covered products that were imported into the U.S. between April 1, 2022 and December 8, 2022, importers and exporters must complete and sign certifications (or a joint certification applying to multiple entries) no later than January 23, 2023. For covered imports entered after December 8, 2022, importers and exporters must complete, sign, and date a certification for the entry by the time the entry summary is filed for the associated entry, as well as upload these certifications to the ACE system as part of the entry process.

Foley & Lardner’s Government Enforcement Defense & Investigations practice can help companies navigate complex trade regulations like these.

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