US solar market after the final ruling of Commerce’s anti-circumvention probes

On August 18, 2023, Commerce issued final rulings, affirming previous findings in most respects, concluding some manufacturers operating in Cambodia, Malaysia, Thailand, and Vietnam circumventing the AD/CVD duties on a country-wide basis.

Products subject to the final circumvention determinations are:

（A）Cells within the scope of AD and CVD Orders, produced in Cambodia, Malaysia, Thailand, or Vietnam, and comprise China-origin wafers.

（B）Modules comprising cells produced in Cambodia, Malaysia, Thailand, or Vietnam and three or more of the following BOMs are produced in China: (1) silver paste; (2) aluminum frames (3) glass; (4) backsheets; (5) ethylene vinyl acetate sheets; and (6) junction boxes

（C）For its final rulings, Commerce used adverse inference against manufacturers who refused to provide information upon Commerce’s requests. These manufacturers do not apply to the two exemption conditions below.

To sustain supply in the U.S., manufacturers listed circumventing are still allowed to export to the U.S. market to sustain market share, so long as they provide certification attesting that they are not circumventing. There are three types of certifications:

1. Manufacturers certify that their cells and modules are “entered into the United States, or withdrawn from warehouse, for consumption before the Date of Termination;” for entries before November 15, 2022, are used and installed in the U.S. by the Utilization Expiration Date (the date 180 days after the Date of Termination).

2. The three manufacturers found not to be circumventing, Hanwha Q CELLS, Jinko Solar, and Boviet Solar, must certify that they use wafers from certain exporters to produce cells and modules.

3.  All manufacturers (except those who did not respond to Commerce’s information request) certify that their Southeast Asian-made cells and modules are not subject to anti-circumvention investigations, that is:

（A）Not produced from China-origin wafers (China-sourced polysilicon is allowed).

（B）Produced from China-origin wafers but no more than two of the aforementioned six BOMs are produced in China.

Manufacturers qualified for any of the three certifications can apply through importers and exporters. Imports accompanied by a certification will be exempted from anti-circumvention tariffs, while those do not will be subject to suspension of liquidation and cash deposit requirements after the Date of Termination on June 6, 2024. 

The final ruling sheds light on the industry’s concern over the determination of wafer’s country of origin (COO). For purpose of Section 781 (b) (1) (B) (ii) of the Omnibus and Trade Act of 1988, Commerce concluded that the country where the final manufacturing step occurs, transforming “raw materials [i.e. polysilicon, ingot] into the part or component [i.e. wafer] that is sent to the third country for assembly into fished products [i.e. cell, module]” shall be determined as where the merchandise is “produced in”. Therefore, the place of wafer slicing is the COO of wafers.

According to the final ruling:

（1）Wafers processed outside of China from ingots made of Chinese polysilicon are found not circumventing.

（2）Wafers processed in China from ingots made of non-China polysilicon are found circumventing.

Analysis

Final rulings are very close to preliminary findings. Variations are the result of manufacturers failing to cooperate with investigations, leading to the “adverse inference” determination of circumventing. The imposition of anti-circumvention duties will have little impact in the short term, largely due to the two-year waiver President Joe Biden provided on June 6, 2022, for cells and modules from Cambodia, Malaysia, Thailand, and Vietnam. Therefore, PV products may cross the U.S. border free from the payment of AD/CVD duties until the end of the grace period on June 6, 2024, or earlier if Biden terminates the national emergency. The grace period allows ample time for manufacturers to adjust supply chains and understand the criteria of anti-circumvention inquiries to keep themselves free from future investigations.

The final rulings declare that no retroactive tariffs will be imposed on products imported during the two-year tariff suspension. The final decision and preliminary findings are very much alike. For now, the biggest hurdle for exporting modules from Southeast Asia to the U.S. market remains tracking the COO of polysilicon.

Stockpiling during the tariff window is not a concern, given the UFLPA and the Utilization Expiration Date mandated in Commerce’s final rule. InfoLink expects manufacturers to prepare stocks rationally rather than hoarding. Therefore, the end of the window will modestly affect market demand.

After the Date of Termination, manufacturers must use non-China wafers or satisfy BOM requirements to ship products to the U.S. There are Currently, there are less wafer capacity outside China. Some manufacturers have been planning to establish wafer capacity in Southeast Asia or other regions since the Commerce published preliminary findings. In its final ruling, Commerce clarifies that the COO should be the place where the final manufacturing step occurs, namely where ingots are sliced into wafers, making it easier to access non-China wafers. However, due to policy volatility, no manufacturer considers establishing slicing capacity overseas. Most of them prefer setting up comprehensive wafer capacity in Southeast Asia or other regions.

Without upstream capacity outside of China, mid and small-scale module makers must increase local content ratio through BOMs. Therefore, the supply of non-China BOMs will have strategic importance in the future. BOM production expansions in Southeast Asia are underway. Presently, aluminum frame and junction box supplies are tight.  Manufacturers are advised to secure production in advance.

The U.S. emphasizes local manufacturing, prompting manufacturers to relocate overseas. Given the time project planning takes and the consistency of policies under the IRA, manufacturers are cautious about expansion in the U.S. For now, few manufacturers consider setting up upstream manufacturing capacity in the U.S., while confirmed expansion projects are mostly module capacity. Since Southeast Asian cells must be produced from non-China wafer to avoid circumvention, sufficient cell supply after the Date of Termination is decisive.

Anti-circumvention tariffs against the four Southeast Asian countries will resume after the Date of Termination. By then, manufacturers must provide certifications proving they are not circumventing, or face lofty duties. Commerce’s final rulings will have long-term impacts, reforming the source of supply in the U.S. market.