Sun War: Suniva vs. The World

By Britta von Oesen, Director, CohnReznick Capital & Jordan Collins, President, TKO Energy

On April 26, 2017, Suniva, a Georgia-headquartered solar cell and module manufacturer, filed a Section 201 Safeguard Petition with the U.S. International Trade Commission (USITC). Suniva’s petition requested relief from all crystalline silicon photovoltaic (CSPV) cells – whether or not assembled into modules – imported into the United States, Canada, and Mexico. The filing came on the heels of the company filing for Chapter 11 bankruptcy one week earlier.

If Suniva’s petition moves forward, the action would be the third trade case brought by a U.S. solar manufacturer in the past five years. However, the process and type of relief requested by Suniva differs dramatically from previously filed cases by Oregon-based SolarWorld USA in 2012 and 2014. What has remained constant is the dire trajectory of the U.S. solar manufacturing industry.

In a plot befitting a House of Cards episode, the Trump Administration could significantly impact the U.S. solar industry and the global solar manufacturing supply chain if it chooses to impose any version of import relief as (1) requested by Suniva, (2) recommended by the USITC, or (3) its own design.

Adding intrigue to the case are a tight review timeline, the inherently political nature of the decision, and the Suniva petition’s proposed use of economic development funds capitalized by existing and future import tariffs to expand the U.S. solar manufacturing base. Recent estimates peg the value of solar duties collected by the U.S. government from Chinese and Taiwanese CSPV manufacturers since 2012 at more than $1 billion.

A major plot twist came when, within two weeks of Suniva filing its Section 201 petition, the European manufacturer SolarWorld AG, whose US subsidiary was the petitioner in the two previous trade cases, filed bankruptcy proceedings in Germany. The bankruptcy signifies that the situation in Europe – even after the imposition of its own tariff regime – is not faring any better than the U.S. when competing against Asian CSPV manufacturers.

While Suniva’s petition has garnered significant press, this article seeks to provide an objective review of Suniva’s case, the unique nature of the relief sought, and the potential outcome of the proceeding.

Section 201 of the Trade Act of 1974 allows the President to impose trade remedies on behalf of the domestic CSPV manufacturing industry. Pursuant to the authority granted by Section 201, the President may “take all appropriate and feasible action within his power which the President determines will facilitate efforts by the domestic industry to make a positive adjustment to import competition and provide greater economic and social benefits than costs.” Examples of the types of relief the President could impose pursuant to a Section 201 case include tariff increases, quantitative restrictions, or orderly marketing agreements.

Suniva will need to establish a burden of proof in its case stipulating that 1) the company is allowed to bring this type of case forward because it sufficiently represents the U.S. CPSV manufacturing industry, and 2) CSPV cells and modules have been imported into the United States in increasingly larger quantities, enabling a substantial cause of serious injury to the domestic CSPV manufacturing industry. ¹

In its filing, Suniva asserts that it meets the industry “representativeness” standard required to file a Section 201 petition on behalf of domestic CSPV manufacturers because, according to SEIA and DOE, it employed 2,000 workers in 2016 representing 0.5% of the industry workforce. That number will undoubtedly inch towards zero in 2017 after the recent string of bankruptcies. In 2016, Suniva accounted for 44.2% of U.S. cell production, 50.6% of U.S. cell manufacturing capacity, and 23.6% of combined U.S. cell and module capacity.

Relating to the second legal standard, Suniva provided evidence of the loss of 4,800 jobs, 2.4 GW of domestic manufacturing capacity, and $3 billion in capital investment since 2012. Its petition stated that CSPV imports were the “substantial cause” of the serious injury which included its own bankruptcy.

Industry observers have noted that, because the scope of Suniva’s case does not include modules and cells utilizing “thin film” materials like Amorphous Silicon (a-Si), Copper Indium Gallium Sulphide (CIGS) and Cadmium Tellurium (CdTe), any combination of new CSPV import duties could benefit non-CSPV solar manufacturers.

At the time of this publication, the next step in the legal process is for the USITC to grant Suniva’s request for a review of its petition. Currently, the USITC is assessing Suniva’s filing for legal sufficiency and compliance with its rules. This decision is anticipated to be rendered within the next few weeks and, if granted, will start the clock on the review timeline. If the USITC declines to initiative a review, the case is over for all intents and purposes. Once USITC has reached a decision on whether to institute an investigation into the claims presented in Suniva’s petition, the Commission will publish a notice of its decision in the Federal Register.

One critical legal test that may lead the Commission to decline initiating an investigation is whether Suniva meets the Section 201 “representativeness” threshold. There is currently no prescriptive percentage that a petitioner must meet to establish the industry “representativeness” standard. However, if SolarWorld were to join the petition, the likelihood that the USITC would not initiate an investigation because Suniva did not meet the “representativeness” test would almost certainly be rendered moot.

Suppose the USITC does initiate an investigation and the results of its review conclude that Suniva’s petition meets the legal and factual prerequisites to recommend the imposition of global safeguards on behalf of the domestic CSPV manufacturing industry. In this case, the Commission has 30 days to develop and transmit its findings and recommendations on safeguards the President should consider.

The USITC’s recommendation to the President may be comprised of all or parts of the enumerated relief requested by Suniva – a four-year import tariff schedule on CSPV cells, module MIPs, and creation of two economic development funds. Alternatively, the Commission may propose alternative safeguard measures it feels would provide more effective relief to the injured domestic CSPV industry.

Upon receipt of the USITC findings and recommendations, the Administration will delegate a review led by the U.S. Trade Representative (USTR). The USTR will provide a recommendation to the President for a decision. However, this recommendation is merely advice. The final judgment on the U.S. government’s response to the U.S. CSPV manufacturing industry’s request lies solely with the President.

In its petition, Suniva outlines several U.S. solar industry trends to bolster the merits of its case and for global safeguards against foreign CSPV manufacturers.

First, it notes that the U.S. solar market grew by $4 billion over the last four years (from $6 billion to $10 billion) but over that same time frame – which saw the introduction of several tariffs against CSPV imports from China and Taiwan – the domestic CSPV manufacturing share of the U.S. installed capacity dropped from 21% to 11%. In 2016, imported CSPV modules and cells are expected to satisfy 90.3% of domestic demand.

Second, Suniva highlights the growing supply/demand imbalance in the industry. The size of the global CSPV solar market is projected to reach 72 GW by 2018 as global CSPV manufacturing capacity reaches or exceed 100 GW during the same period. Suniva also notes that the export market for U.S. CSPV products is essentially non-existent at $140.3 million.

Finally, Suniva advises that the U.S. Department of Labor has indirectly confirmed that increased CSPV imports are causing job losses in the domestic CSPV industry based on its employee assistance certifications under Trade Assistant Adjustment (TAA) program.

Most reviews of the Suniva case focus on the four-year tariff and minimum import price (MIP) levels requested. This began at $0.40 c/w levied against imported CSPV cells and $0.78 c/w for imported CSPV modules in 2017. This pricing uncertainty will impact each stage of solar development – from negotiation of energy procurement contracts to tax equity financing to concerns over retroactivity. However, several additional components of the relief requested in the Suniva petition are novel. They seek to direct existing and prospective duties collected on CSPV imports towards investment in the U.S. solar manufacturing supply chain.

First, Suniva requests that tariffs levied under existing CSPV AD/CVD orders be distributed on a pro rata basis to domestic CSPV cell manufacturers (25%), module manufacturers (25%), and polysilicon producers (10%). As noted earlier, the duties collected by previous AD/CVD solar duties is estimated to exceed $1 billion over the past four years and are essentially in escrow under normal federal duty collection processes. ²

Second, Suniva is requesting that 20% of the value of any CSPV duties collected under current AD/CVD orders be transferred to an economic development fund managed by the U.S. Department of Commerce (DOC). This funding would be made available to existing U.S. CSPV polysilicon, cell, and module manufacturers to invest in the “re-initiation of manufacturing capacity that was idled between March 2013 and the imposition of any [Section 201] safeguard measures.” Any additional funds, currently unaccounted for in Suniva’s petition, would likely be returned to the general fund of the U.S. Treasury.

Third, Suniva is requesting the creation of a second DOC-managed economic development fund. This fund would be capitalized by duties collected pursuant to Section 201 safeguard measures. Its purpose would be to spur investment in new or additional domestic CSPV manufacturing supply chain capacity including polysilicon and wafer production. The funding would be available to any foreign or domestic entities wishing to invest in the U.S. CSPV industry.

The inclusion of polysilicon producers as beneficiaries of existing and prospective tariff distributions under the proposed economic development funds is both strategic and significant. China levied retaliatory tariffs against U.S. polysilicon manufacturers in the wake of prior AD/CVD orders. Additionally, previous trade case settlement negotiations failed, in part, due to the U.S. government’s request that any CSPV settlement agreement provide relief to the U.S. polysilicon industry.

Making funding available to any investors in the U.S. CSPV manufacturing supply chain, Suniva argues, should reverse the trend of Chinese CSPV manufacturers shifting their investments in CSPV manufacturing capacity to countries not subject to existing AD/CVD orders. That circumvention and re-importation strategy resulted in CSPV imports to the U.S. from Malaysia, Korea, Mexico, Vietnam, Singapore, and Thailand to grow exponentially over the past four years.

The Suniva and SolarWorld bankruptcies in the spring of 2017 as well as Suniva’s Section 201 filing highlight the grave state of the U.S. solar manufacturing industry. It is on the verge of extinction. The statistics cited in Suniva’s petition present a credible case for the USITC finding that global CSPV imports have substantially caused serious injury to domestic CSPV manufacturers.

This is not big news. The U.S government did find, in two previous AD/CVD cases brought by SolarWorld, that Chinese CSPV manufacturers had violated international trade law. However, actions taken by Asian manufacturers have proven effective in mitigating the impact of any government trade remedies. The percentage of CSPV imports to the U.S. is rapidly approaching 100%.

Even if the USITC’s findings support the imposition of safeguards, the Commission’s recommendations may not be embraced by the Trump Administration. An additional layer of political uncertainty could impact the outcome of this case. The U.S. Trade Representative (USTR) will serve as the key leader of that negotiation, playing a role in deciding this case that may be more consequential than the President’s.

A tea leaf that may offer insight on the Administration’s disposition toward the merits of Suniva’s request can be found in the USTR’s 2017 Trade Policy Agenda. The policy document emphasized that the use of Section 201, “can be a vital tool for industries needing temporary relief from imports to become more competitive.”

It is also worth noting that Suniva’s request for two economic development vehicles, funded by foreign CSPV exporters for investment, is a unique form of safeguard measure under a Section 201 case. If adopted, it would align with the Administration’s pro-manufacturing economic agenda and aggressive trade posture toward Asia.

Handicapping the outcome of Suniva’s case and the future of the U.S. solar manufacturing industry is tied to the unpredictable nature of the current Administration. This is nothing new for the U.S. solar industry. The extension of the ITC established a brief window of certainty that fueled the 2016 boom of solar growth and a 25% increase in U.S. solar jobs. Doubts surrounding tax reform and the Suniva filing are bringing uncertainty back to project economics. What is certain is that the solar industry will be paying close attention to the proceedings and must prepare itself for a variety of contingencies.