Leibowitz: A New Hint on Biden Trade Policy—Safeguard Measures on Solar Panels

First, a bit of background. The Trump-era tariffs began in January 2018 with decisions under the safeguard law (Sections 201-204 of the Trade Act of 1974) on solar cells and panels as well as on large residential washing machines.

This law permits the president to declare temporary import measures if the U.S. International Trade Commission (ITC) determines that an industry in the United States is suffering or is threatened with “serious injury” caused by imports of competing products. The law limits relief to no more than eight years in total.

The ITC started its investigation of solar cells and panels in June 2017. The ITC determined that imports of solar cells and panels were a “substantial cause of serious injury” to the domestic industry, giving the president new authority to restrict imports of those products. The ITC recommended four years of relief from imports after a hearing in November 2017.

President Trump decided to impose import restrictions for a period of four years in January 2018 after a series of hearings by the Office of the U.S. Trade Representative (USTR). The tariffs were scheduled to expire on Feb. 6, 2022.

The various players with a stake in the outcome went to work last year, asking the ITC to recommend extending the import measures to the fullest extent permitted by the statute—that is, to Feb. 6, 2026. The ITC made that recommendation last November. (The import restrictions on washing machines were extended in by President Trump in January 2021 for two years.)

On Friday, with two days to spare on solar cells and panels, President Biden announced his decision to extend the safeguard measures for four years, as recommended. However, there were three provisions that reduced the impact of the import restrictions.

First, the tariffs on imported cells would apply to fewer imports of solar cells. The tariff-rate quota (TRQ) will apply to imports over 5.0 gigawatts of electricity capacity. The in-quota quantity in the first four years was 2.5 gigawatts. The tariff-free quantity of imports thereby doubled.

Second, the tariffs on above-quota imports of panels and cells (originally set at 30%, declining by 5 percentage points per year to 15%) would decline during the extension – but only by 0.25 percentage points per year, a minor reduction.

Third, a controversial exclusion for “bifacial” panels (those with cells on both sides) would continue. This is important because the Trump administration had granted this exclusion back in 2019 but then revoked it under pressure from the domestic industry. The portion of the solar industry that installs solar modules went to court to challenge the revocation of the exclusion. They prevailed in the Court of International Trade. The Biden administration recently appealed that ruling, but the administration continued the bifacial panel exclusion on Friday—a mixed message to be sure.

Fourth, the administration commenced negotiations with Canada and Mexico to arrive at an agreement that would exempt imports from those countries from the safeguard restrictions. Canada and Mexico have urged this course for some time. The outcome is not certain, but what is certain is that U.S. solar manufacturers are very concerned about a carve-out that would increase foreign competition in the U.S. market.

The extension left more hole and less donut in the import measures. Such a mixed bag reveals some intense differences of opinion regarding the protection of the domestic industry producing solar modules. At present, there is no substantial production of solar cells in this country. But many in Congress are very interested in restarting production of solar cells.

The domestic producers of solar modules are facing intense foreign competition from China and Vietnam, to name two sources. In addition to the safeguard action that was just extended, the domestic industry is protected by antidumping and countervailing duty orders on China and Taiwan.

Despite all this protection, production of solar cells in the United States has not taken off and has now ceased. Partly, the dependence on imports of cells stems from the production process. A key ingredient is polysilicon, in which the United States used to be a leader and innovator. But, beginning in 2018, China imposed retaliatory tariffs on U.S.-origin polysilicon, which China relied on to make solar cells. China concentrated on developing domestic production, using sand from Xinjiang Province in western China, home of the now-famous Uighur Muslims. Now China supplies 80% of the world’s polysilicon. But it has been implicated in alleged forced-labor production in Xinjiang. The irony of protective tariffs fostering a new industry that may rely on forced labor is truly mind-bending.

Two key administration imperatives are at work, and they illustrate how complicated trade policy is. The first imperative is addressing climate change. Solar energy is a key component of this strategy. To increase the share of solar energy in the U.S., ramping up solar capabilities is crucial. The domestic industry cannot meet climate change priorities without domestic production of solar cells and weak production of modules made from solar cells. Due to reliance on imports of cells and modules, the climate change faction argues, tariffs will frustrate our response to global warming.

On the other side of the fence, forces eager to foster domestic production for reliability of supply argue that protection from imports is vital to prevent surrender of the production side of solar to China. Relaxing tariff protection will mean perpetual dependence on unreliable trading partners.

Many in Congress wrote to the President arguing both sides of the issue—the political class is closely divided on this one. Both sides are right, and both are wrong. A balance of interests is necessary.

Faced with a hard deadline for action and contentious divisions, the Biden administration behaved like Solomon. Tariffs will continue at essentially their current level for four more years. The exclusion for bifacial panels (useful for utility-scale rather than residential applications) will continue while the administration appeals the adverse court decision – opening the possibility for change if and when the Court of Appeals for the Federal Circuit rules on the issue of presidential authority to revoke the exclusion. (That process will take at least a year.)

Most significantly, the expected sharp increase of solar energy capacity will be fueled by imports, which are the only near-term supply source. Antidumping duties on China and Taiwan will protect the domestic industry a bit, but solar is complicated because cells from China can be used to make modules in third countries that might escape AD/CVD duties on China.

The current trade remedy situation is very complex. Import restrictions apply to solar panels and cells, to large residential washing machines (Section 201), to steel and aluminum (Section 232), and to most products from China (Section 301). And that’s not to mention intellectual property cases as well as AD/CVD actions on many other products.

The president claims broad authority to manage import restrictions under Section 201, Section 232 and Section 301. The limits of presidential authority under these statutes have given rise to court cases working their way through the legal system.

The solar cells and panels example shows the intense rivalry between those who favor protection to foster domestic production and those who have a priority to clean up the planet. Those issues extend to many other industries – such as steel, aluminum, automotive, trucking, capital equipment and energy. All of them could find themselves fighting for conflicting policy choices that work at cross-purposes for a long time to come.

It’s an interesting time to be a trade lawyer.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
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