The U.S. International Trade Commission released a new report on the Section 201 trade case this week that the Trump administration could use to defend new solar tariffs, if challenged at the World Trade Organization.
Ambassador Robert Lighthizer, head of the Office of the U.S. Trade Representative, requested the supplemental report in November “to assist the president in determining the appropriate and feasible action to take.”
Lighthizer specifically asked the U.S. ITC to identify any “unforeseen developments” that led to crystalline silicon photovoltaic (CSPV) cells and modules being imported in such high quantities as to harm U.S. domestic solar manufacturers.
Suniva and SolarWorld brought the trade petition in 2016 under an obscure section of the Trade Act of 1974 as both companies faced financial collapse. Last fall, the ITC unanimously agreed that imported solar equipment had caused "serious injury" to U.S. manufacturers and proposed three potential remedies. President Trump has until January 26 to determine whether he'll impose new duties.
The latest ITC report bolsters claims that China violated free-trade practices to the detriment of U.S. industry.
It states that China implemented a series of policy measures and government support programs favoring renewable energy product manufacturing, including CSPV cells and modules, that “directly contradicted the obligations that China committed to undertake as part of its WTO accession.”
“The government of China’s industrial policies, plans, and support programs took advantage of the existence of programs implemented by the U.S. government to encourage renewable energy consumption that, consistent with U.S. WTO obligations, did not favor U.S. manufacturers but instead were directed at owners of renewable energy systems,” according to the report.
These actions led to “vast overcapacity in China and subsequently in other countries as Chinese producers built facilities elsewhere, which in turn ultimately resulted in the increased imports of CSPV products causing serious injury to the domestic industry in the United States,” it continues.
The ITC concluded that U.S. negotiators “could not have foreseen” that China would contradict WTO rules. Nor could they have foreseen that China’s policies would lead to excess CSPV manufacturing capacity, and that it would be directed at the U.S. Negotiators also could not have foreseen that “the U.S. government’s use of authorized tools, such as antidumping and countervailing duty measures on imports from China, would have limited effectiveness” -- referring to previous trade cases brought by SolarWorld.
There is no domestic requirement under Section 201 to address whether a surge of imports is “unforeseen,” but it is a requirement at the WTO, said Clark Packard, trade lawyer and policy analyst for the R Street Institute, a free-market think tank.
“To me, it was a positive sign, because it showed that the administration was taking seriously our obligations abroad,” he said. “One of the things us trade wonks are concerned about, based on what the president has said and some of his actions, is that [the administration was] going to thumb their nose at the WTO and potentially ignore rulings from the WTO. It was a relief, in one respect, to see them take those obligations seriously.”
But it's unlikely to be a relief to the solar industry. While the Trump team appears to be honoring U.S. trade commitments, requesting the ITC’s supplemental report shows the U.S. Trade Representative is preparing for a situation where Trump approves new solar tariffs, which are later challenged at the WTO.
Can tariffs survive WTO scrutiny?
Previous Section 201 cases have been struck down specifically because whatever country imposed safeguard tariffs did not address that the issue was unforeseen, said Packard. And the Trump team knows this.
"They see the writing on the wall," said Packard. “You can expect a challenge on this from China and Taiwan and some other countries that will be hard-hit” by U.S. trade remedies.
If that does happen, the challenge could be successful and the tariffs overturned -- despite the ITC’s latest findings.
“This ITC report fails to adequately prove its own conclusion and we do not see it surviving WTO scrutiny, should it come to that,” said Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association. “The current solar market, including its production and trade patterns, was both foreseeable and predicted by experts across the globe.”
“What’s also been predicted are the inevitable job losses in the U.S. and economic harm if tariffs are imposed on one of the fastest-growing industries in America,” she said. “We urge the president to put America first and say no to solar tariffs.”
Solar could be Trump's first tariff opportunity
It’s unknown how Trump will rule on the solar case later this month, but it’s clear that he wants trade action. The president made no secret of his protectionist trade agenda when on the campaign trail last year. His comments since then indicate he’s prepared to follow through.
Axios reported last fall that Trump told his Chief of Staff Gen. Kelly, “I want tariffs. And I want someone to bring me some tariffs." A more recent story claims Trump remains “hell-bent on tariffs.”
Economic advisers Gary Cohn and Steven Mnuchin are seeking to curb the president’s enthusiasm for new tariffs on whole industries by pointing to the stock market’s record-breaking run, Axios reports. But at the same time, Trump’s hawkish trade advisers, Peter Navarro and Ambassador Lighthizer, are pushing to resurrect arcane trade laws to bypass the WTO and unilaterally retaliate against exploitative trade practices, first and foremost from the Chinese.
Solar tariffs probably aren’t Trump’s top priority. The case is complicated by the fact that the U.S. solar industry is growing quickly and supports tens of thousands of jobs outside of CSPV cell and module manufacturing, all of which will be at risk of tariffs go through. It’s further complicated by the fact that bankrupt trade case petitioner Suniva is majority Chinese-owned and backed by SQN Capital Management, which is looking to recover its investment.
Trump media ally Sean Hannity and a Breitbart contributor have both seized on the point that new tariffs would benefit foreign financiers -- to the surprise of many solar advocates on the left. Right-wing free trade advocates at the Heritage Foundation and the American Legislative Exchange Council have also come out against trade remedies.
But it’s unclear if any of that will affect Trump.
“In the president’s mind, he was envisioning tariffs on steel or automobiles or something like that, but based on the schedule and the way these cases have fallen, the first opportunity he’s going to have to impose tariffs will likely be here, on solar products,” said the R Street Institute's Packard. “My sense is it’s pretty likely they’re going to embrace one of the options that the ITC laid out.”
The solar trade case is “part of a larger narrative,” he added. “I think 2018 will be a year of action and aggressive moves by this administration toward China.”