A petition recently filed with the International Trade Commission by an Atlanta-based solar manufacturer could cause solar prices in the United States to skyrocket, raising thorny questions for those who care about free trade, reducing carbon emissions, or both.
The petition by Suniva — filed in April, shortly after the company also filed for Chapter 11 bankruptcy — isn't a standard anti-dumping or illegal government subsidy case. Rather, Suniva, which has facilities in Michigan, relied on Section 201 of the Trade Act of 1974. Such filings, known as "safeguard" cases, are used when a domestic industry is seriously injured or threatened by imports.
The ITC has until Sept. 22 to make an affirmative injury determination, which could come with recommendations to the president of tariffs or restrictions to protect the petitioning industry. If imposed, these temporary tariffs or restrictions would apply to imports from all countries, not just one specific country.
Safeguard determinations are almost always met with challenges at the World Trade Organization and, in this case, likely would spark retaliation from China and India. In 2002, then-President George W. Bush acquiesced to the domestic steel industry's demands for stiffer tariffs on imported steel. The order was successfully challenged at the WTO by the European Union and China, among others, and the United States withdrew the tariffs in 2003. It was an unnecessary fight that was driven largely by electoral considerations — attempting to pave the way for blue-collar workers in Pennsylvania, West Virginia and Ohio to vote for Bush's re-election in 2004.
In its petition, which was joined by another domestic solar company, Suniva is asking for initial duties on solar cells of $0.40 per watt and an initial minimum price of $0.78 per solar module, which would decline slightly over the four years of requested relief. If implemented, these duties would roughly double the price of solar, leaving the U.S. with the highest priced solar in the world.
This is a perfect storm for the Trump administration, which has promised to step up "enforcement" of trade rules. In its 2017 Trade Policy Agenda, President Trump's U.S. trade representative called Section 201 safeguard proceedings a "vital tool for industries needing temporary relief from imports to become more competitive." Rising solar prices would offer the added political bonus of benefits for one of the Trump administration's core political constituencies: the coal industry.
Competition between the U.S., China, and India in the solar industry has led to increased production and falling prices. This is a good thing for solar consumers and those who want to see market-driven responses to reduce carbon emissions. Much of this positive trend could be undone with the Suniva case. Like every trade enforcement action, one particular set of companies may benefit from higher tariffs or other import restrictions, but users of the product suffer from higher prices.
To add another wrinkle, the president of Suniva's largest creditor in its Chapter 11 bankruptcy reorganization, SQN Capital Management, recently wrote an unseemly letter to the Chinese Chamber of Commerce suggesting that Suniva's ITC petition could disappear in exchange for what amounts to a payoff: having some Chinese interest buy Suniva's manufacturing equipment for $55 million.
"Suniva would no longer be an industry participant as it was wound down and would be disqualified from being a petitioner," the SQN president noted, adding that the company would not have the necessary funds to pay its legal fees in the ITC case. Moreover, he wrote, the USTR, which can self-initiate Section 201 safeguard cases, "could not put forth the case on its own without meaningful industry representation." In short, were Chinese solar interests to pay off Suniva's creditors, the prospect for expensive trade enforcement litigation and the potential of stiff tariffs slapped onto their products imported to the U.S. would disappear.
While the solar market is rife with subsidies, both domestically and abroad, the increase in solar usage in recent years is a net positive. Regrettably, the Suniva petition could change the dynamic by artificially raising prices for domestic solar users. The safeguard process is always a fairly extreme measure to restrict all imports of a particular product. In this case, it could also be the first step toward a solar trade war.
Clark Packard (@clark_packard) is a contributor to the Washington Examiner's Beltway Confidential blog. He is an outreach manager and policy analyst for the R Street Institute.
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