Department of Commerce Issues Preliminary Countervailing Duty Determination on Crystalline Solar PV Products from China

On June 3, 2014, the U.S. Department of Commerce (the “Department”) announced that  certain crystalline silicon photovoltaic (“CSPV”) products from the People’s Republic of China (“China”) had been produced by taking advantage of subsidies, and that such products could be subjected to countervailing duties when imported into the United States.  Upon publication of the preliminary determination in the Federal Register on Tuesday, June 10, 2014, U.S. importers of such products will be required to make cash deposits of estimated countervailing duties at the time the products enter the United States.

The amounts to be deposited in connection with the entry of subject merchandise depend on the identity of the Chinese exporter.  As detailed in the Department’s fact sheet, which can be found at http://enforcement.trade.gov/download/factsheets/factsheet-prc-crystalline-silicon-photovoltaic-prod-cvd-prelim-060314.pdf, the Department calculated a preliminary subsidy rate for mandatory respondent Changzhou Trina Solar Energy Co., Ltd. and its affiliates of 18.56 percent and a preliminary subsidy rate for mandatory respondent Wuxi Suntech Power Co., Ltd. and its affiliates of 35.21 percent.  All other Chinese producers/exporters were assigned a preliminary subsidy rate of 26.89 percent, which is the average of the rates determined for the two mandatory respondents.  The relevant preliminary subsidy rate is to be multiplied by the value of the subject merchandise being declared to U.S. Customs and Border Protection (“CBP”) to arrive at the amount required to be deposited.  It is important to note that, to date, the petitioner, SolarWorld Industries America, Inc. (“SolarWorld”), has not alleged “critical circumstances,” which, if found to exist, would trigger the imposition of a duty deposit requirement in connection with entries of subject merchandise made during the 90-day period prior to the publication of the Department’s preliminary countervailing duty determination.

The issue of what products are considered to be subject merchandise for purposes of the pending countervailing duty investigation, as well as the companion antidumping duty investigation, has been somewhat controversial.  By way of background, the Department issued antidumping and countervailing duty orders on Chinese-origin CSPV cells in December 2012.  Those orders applied without regard to the country in which such cells were incorporated into modules/panels for export to the United States.  However, based on a scope clarification issued by the Department, the prior orders excluded Chinese-assembled modules/panels incorporating CSPV cells manufactured in third countries.  As a result, many Chinese module/panel producers shifted CSPV cell production away from China, primarily to Taiwan.  Such cells were then returned to China for incorporation into finished modules/panels for exportation to the United States.  SolarWorld sought to close what is perceived to be a “loophole” in the scope of the prior orders by initiating both (i) an antidumping duty proceeding targeting Taiwanese-origin CSPV products, and (ii) antidumping and countervailing duty proceedings targeting, in relevant part, Chinese-assembled modules/panels incorporating third-country CSPV cells that, in turn, incorporated Chinese-origin inputs, such as ingots, wafers, or partially-manufactured cells.  Thus, in the case of the China investigations, a Chinese-assembled module/panel incorporating a Malaysian CSPV cell derived from Chinese-origin wafers would be within the scope the investigation and, therefore, considered to be subject merchandise.  A number of interested parties have cried foul regarding this so-called “2 out of 3” rule, arguing that it is inconsistent with the Department’s scope clarification in the prior investigations, which essentially declared that the origin of the CSPV cell dictates the origin of the module/panel for antidumping and countervailing duty purposes.

While the Department has acceded to SolarWorld’s proposed scope for purposes of the preliminary countervailing duty determination, it has stated that it has received comments on the scope of the investigation from numerous parties and is continuing to analyze these comments.  Please note that there is speculation that the Department’s preliminary acceptance of the controversial “2 out of 3” rule is intended to enable SolarWorld to leverage a more favorable settlement, which is the preferred outcome for the Solar Energy Industries Association, the organization facilitating such discussions, and the Coalition for Affordable Solar Energy.

Furthermore, the Department also noted its intention to implement an importer certification requirement.  The certification, which would be presented to CBP at the time of entry, likely would state that the merchandise being imported is not subject to the pending investigation and the basis for such assertion.  A similar certification scheme was implemented in connection with the prior orders.  We understand, however, that it might be difficult for many importers to execute such a certification because, as has been reported to the Department in connection with the companion antidumping duty investigation, CSPV cell producers do not universally track the origin of their inputs, such that it would be difficult, if not impossible, definitively to ascertain whether a Chinese-assembled CSPV module/panel incorporates a CSPV cell that, in turn, incorporates, for example, a Chinese-origin wafer.

The Department is expected to make its final countervailing duty determination on or about August 18, 2014, although it is likely that the countervailing duty investigation ultimately will be aligned with the companion antidumping duty investigation.  The preliminary determination in the antidumping duty investigation is expected July 24, 2014.

For more information on this development or the international trade practice at K&L Gates, please contact Daniel Gerkin in our DC office at daniel.gerkin@klgates.com or (202) 778-9168.

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