Traders Must Remain Alert to Antidumping and Countervailing Duty Circumvention Rules on U.S. Imports of Solar Cells and Modules

The complaints filed by Auxin Solar Inc. (Auxin) with the U.S. Court of International Trade (CIT) on November 20, 2023,¹ appealing the final determinations published by the U.S. Department of Commerce (Commerce) on August 23, 2023, in its inquiries concerning circumvention of the antidumping (AD) and countervailing (CV) duty orders on Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled Into Modules, from the People’s Republic of China (Solar I),² mean that U.S. importers of solar cells and modules from Cambodia, Malaysia, Thailand, and Vietnam must remain concerned that their imports of certain products could be subject to AD/CV duties under the Solar I orders.³ More generally, these cases demonstrate that circumvention rules are not straightforward and are constantly in flux, so traders (i.e., producers, exporters, and importers) must be mindful of the ever-changing environment and the latest developments related to AD/CV duty circumvention inquiries, which are increasingly used by trade remedy investigating authorities around the globe.

Background Regarding the Solar I Circumvention Inquiries and Applicable Third-Country Circumvention Rules in the United States

Following requests filed by Auxin, a U.S. producer of solar modules, on February 8, 2022, Commerce initiated circumvention inquiries to investigate whether solar cells and modules completed in Cambodia, Malaysia, Thailand, and Vietnam, using parts and components produced in China have been circumventing the Solar I AD/CV duty orders, such that such imports into the United States should be subject to AD/CV duties under the Solar I orders despite not being products of Chinese origin.
In its final results published on August 23, 2023, Commerce, first, defined the “inquiry merchandise” — that is, the merchandise subject to the circumvention inquiries — as follows:

[T]hese circumvention inquiries cover: (A) crystalline silicon photovoltaic cells that meet the physical description of crystalline silicon photovoltaic cells in the scope of the underlying Orders, subject to the exclusions therein, whether or not partially or fully assembled into other products, that were produced in Cambodia, Malaysia, Thailand, or Vietnam, from wafers produced in China; and (B) modules, laminates, and panels consisting of crystalline silicon photovoltaic cells, subject to the exclusions for certain panels in the scope of the underlying orders, whether or not partially or fully assembled into other products, that were produced in Cambodia, Malaysia, Thailand, or Vietnam from wafers produced in China and where more than two of the following components in the module/laminate/panel were produced in China: (1) silver paste; (2) aluminum frames; (3) glass; (4) backsheets; (5) ethylene vinyl acetate sheets; and (6) junction boxes.⁴

Commerce referred to subclause (B) addressing the solar modules that it considered to be “inquiry merchandise” as the “Wafer-Plus-Three” requirement.⁵

Second, with the exception of certain specified exporters,⁶ based on its investigation of two individual respondents from each of the four targeted Southeast Asian countries, Commerce concluded that U.S. imports of the above-defined “inquiry merchandise” were circumventing the Solar I orders on a countrywide basis and therefore should be subject to AD/CV duties under those orders.⁷

In reaching its conclusions, Commerce applied 19 U.S.C. § 1677j(b), which allows Commerce to find circumvention and include merchandise completed or assembled in a third country within the scope of existing AD/CV duty orders⁸ if the five factors enumerated in 19 U.S.C. § 1677j(b)(1) are satisfied:

A. The third-country merchandise is of the “same class or kind” as the merchandise subject to the AD/CV duty order.

B. The third-country merchandise is “completed or assembled” from merchandise that is either (i) subject to the AD/CV duty order or (ii) “produced in” the country to which the AD/CV duty order applies.

C. The process of assembly or completion in the third country is “minor or insignificant.”

D. The value of the merchandise produced in the country to which the AD/CV duty order applies is a “significant portion of” the total value of the merchandise exported to the United States.

E. Commerce determines that “action is appropriate … to prevent evasion” of the AD/CV duty order.

With respect to the third factor in the above list, the statute further identifies five additional factors in 19 U.S.C. § 1677j(b)(2) to be taken into account for determining whether the process of assembly or completion in the third country is “minor or insignificant”:

A. the level of investment in the third country

B. the level of research and development in the third country

C. the nature of the production process in the third country

D. the extent of production facilities in the third country

E. whether the value of the processing performed in the third country represents a small proportion of the value of the merchandise imported into the United States

Finally, the statute calls on Commerce to consider three additional factors in 19 U.S.C. § 1677j(b)(3) for determining whether to include the third-country merchandise within the scope of an existing AD/CV duty order:

A. the pattern of trade, including sourcing patterns

B. whether the supplier of the merchandise from the country subject to the AD/CV duty order (which is being assembled or completed in the third country) is affiliated with the entity in the third country undertaking the assembly or completion prior to importation into the United States

C. whether imports into the third country of the merchandise from the country subject to the AD/CV duty order (which is being assembled or completed in the third country) have increased after the initiation of the investigation that resulted in the AD/CV duty order

Commerce’s determination of whether circumvention is occurring is to be based on a holistic examination of all these factors, with no single factor controlling the outcome. The statute, however, does not provide much definition or guidance for many of these factors. Therefore, in its analysis in the Solar I circumvention inquiries, Commerce invoked its broad “discretion” for how to evaluate these factors in circumvention inquiries, particularly as to the five factors for evaluating whether the process of assembly or completion in the third country is “minor or insignificant” under 19 U.S.C. § 1677j(b)(2).⁹

Summary of Auxin’s Complaints

Auxin’s complaints to the CIT appealing Commerce’s Solar I Final Circumvention Determinations generally challenge three aspects of those determinations that, if successful, could significantly expand the group of solar cells and modules subject to those determinations: (i) Commerce’s definition of “inquiry merchandise”; (ii) Commerce’s authority to exclude certain merchandise through its certification regime; and (iii) Commerce’s circumvention analysis under 19 U.S.C. § 1677j(b), and particularly its analysis of the “minor or insignificant” factors under 19 U.S.C. § 1677j(b)(2).

First, Auxin argues that Commerce’s definition of “inquiry merchandise” was unreasonable, not supported by substantial evidence, and otherwise not in accordance with law. Specifically, Auxin challenges Commerce’s “Wafer-Plus-Three” requirement defining which solar modules are considered “inquiry merchandise,” asserting this requirement (i) is inconsistent with Commerce’s prior interpretation of the Solar I AD/CV duty orders, (ii) undermines Commerce’s affirmative circumvention findings by allowing solar modules that source the three cheapest inputs from non-Chinese sources to continue to engage in circumvention, and (iii) is inconsistent with Auxin’s circumvention requests.¹⁰ If successful, Auxin’s appeal could modify the current definition of “inquiry merchandise” that allows solar modules made with four of the six enumerated inputs of non-Chinese origin to be imported into the United States without being subject to the Solar I AD/CV duty orders.

Second, Auxin challenges Commerce’s authority to exclude certain merchandise using a certification regime through which exporters and importers could certify to “non-circumventing material” and thus have merchandise excluded from the application of the Solar I AD/CV duty orders.¹¹ This certification regime covers not only the solar modules that do not satisfy the “Wafer-Plus-Three” requirement but also the solar cells that are produced from non-Chinese-origin wafers. Therefore, if successful, Auxin’s appeal could undermine all parties’ ability to use the certification regime that allows for imports of solar cells and modules that fall out of the definition of “inquiry merchandise.”

Third, Auxin argues Commerce’s analysis of the “minor or insignificant” factors under 19 U.S.C. § 1677j(b)(2) in each of its determinations with respect to Cambodia, Malaysia, Thailand, and Vietnam was not supported by substantial evidence and otherwise not in accordance with law in several respects. In short, Auxin asserts that Commerce’s analysis conflicts with Commerce’s prior practice in a number of ways, improperly takes into account affiliation (which is a factor under 19 U.S.C. § 1677j(b)(3)) in the “minor or insignificant” analysis under 19 U.S.C. § 1677j(b)(2), and does not properly account for the entire production process of solar cells and modules beginning with the refinement of polysilicon.¹² If successful, Auxin’s appeal could affect the circumvention determinations with respect to individual respondents.

Conclusions and Recommendations

Auxin’s complaints make clear that U.S. importers of solar cells and modules must remain vigilant in regard to which solar cells and modules may eventually be subject to AD/CV duties under the Solar I orders as a result of Commerce’s Solar I circumvention inquiries. If Auxin succeeds in broadening the definition of “inquiry merchandise,” such as to include any solar module consisting of solar cells produced from wafers produced in China regardless of the origin of other components in the solar module, then far more U.S. imports of solar cells and modules will be subject to AD/CV duties under the Solar I orders. Moreover, if Auxin succeeds in overturning Commerce’s use of discretion in its “minor or insignificant” analysis, Commerce’s findings that certain specific exporters were not circumventing may be reversed. U.S. importers of solar cells and modules that participated in Commerce’s Solar I circumvention inquiries may therefore wish to intervene in Auxin’s CIT appeals to protect their interests and should do so within 30 days of the November 20, 2023, service of Auxin’s complaints, which falls on December 20, 2023.

More generally, Commerce’s Solar I circumvention inquiries and Auxin’s complaints demonstrate that circumvention rules are complex and difficult to navigate, especially given that many statutory terms are undefined and Commerce retains significant discretion in its circumvention analysis in each case. This is in fact true for AD/CV duty circumvention inquiries not only in the United States but also around the globe, where such circumvention inquiries have become the proceedings du jour in the trade remedies sphere as shortcuts for domestic industries to have imported products brought within the scope of existing AD/CV duty orders without the rigor of full AD/CV duty investigations.

Sidley attorneys have the expertise to help companies navigate the complex AD/CV duty circumvention rules in such major jurisdictions as the United States and European Union generally as well as to help any U.S. importers that may wish to intervene in Auxin’s CIT appeals specifically.

¹ See Auxin Solar Inc. v. United States, CIT No. 23-00223, Complaint of Auxin Solar Inc. with Respect to Cambodia, dated Nov. 20, 2023, ECF No. 10 (Auxin Cambodia Complaint); Auxin Solar Inc. v. United States, CIT No. 23-00224, Complaint of Auxin Solar Inc. with Respect to Malaysia, dated Nov. 20, 2023, ECF No. 10 (Auxin Malaysia Complaint); Auxin Solar Inc. v. United States, CIT No. 23-00225, Complaint of Auxin Solar Inc. with Respect to Thailand, dated Nov. 20, 2023, ECF No. 9 (Auxin Thailand Complaint); Auxin Solar Inc. v. United States, CIT No. 23-00226, Complaint of Auxin Solar Inc. with Respect to Vietnam, dated Nov. 20, 2023, ECF No. 9 (Auxin Vietnam Complaint).

² See Antidumping and Countervailing Duty Orders on Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled Into Modules, From the People’s Republic of China: Final Scope Determination and Final Affirmative Determinations of Circumvention With Respect to Cambodia, Malaysia, Thailand, and Vietnam, 88 Fed. Reg. 57419 (Dep’t of Commerce Aug. 23, 2023) (Solar I Final Circumvention Determinations) and accompanying Issues and Decision Memoranda with Respect to Cambodia (Cambodia IDM), Malaysia (Malaysia IDM), Thailand (Thailand IDM), and Vietnam (Vietnam IDM).

³ Several respondents have also appealed the Solar I Final Circumvention Determinations to the CIT. These respondents’ appeals are not addressed in this alert. If successful, these respondents’ appeals may further limit which solar cell and module imports from Cambodia, Malaysia, Thailand, and Vietnam are subject to AD/CV duties under the Solar I orders.

⁴ Solar I Final Circumvention Determinations, 88 Fed. Reg. at 57420.

⁵ See Cambodia IDM at Comment 24; Malaysia IDM at Comment 21; Thailand IDM at Comment 19; Vietnam IDM at Comment 22.

⁶ The exceptions were for exports of “inquiry merchandise” by Hanwha Q CELLS Malaysia Sdn. Bhd. (Hanwha) and Jinko Solar Technology Sdn. Bhd./Jinko Solar (Malaysia) Sdn. Bhd. (Jinko) from Malaysia and by Boviet Solar Technology Co., Ltd. (Boviet) from Vietnam, using wafers produced in China that were exported by certain specified entities. See Solar I Final Circumvention Determinations, 88 Fed. Reg. at 57420, 57425.

⁷ Solar I Final Circumvention Determinations, 88 Fed. Reg. at 57420.

⁸ Circumvention through completion or assembly in a third country is only one method of circumvention contemplated under 19 U.S.C. § 1677j. The other possible methods of circumvention are completion or assembly in the United States under 19 U.S.C. § 1677j(a), minor alternations of merchandise under 19 U.S.C. § 1677j(c), and later-developed merchandise under 19 U.S.C. § 1677j(d). Each method has its own unique set of rules and criteria for Commerce to find that circumvention exists. This alert addresses only circumvention through completion or assembly in a third country under 19 U.S.C. § 1677j(b).

⁹ See, e.g., Cambodia IDM at Comment 4; Malaysia IDM at Comment 4; Thailand IDM at Comment 4; Vietnam IDM at Comment 4.

¹⁰ See Auxin’s Cambodia Complaint at Count 1; Auxin’s Malaysia Complaint at Count 1; Auxin’s Thailand Complaint at Count 1; Auxin’s Vietnam Complaint at Count 1.

¹¹ See Auxin’s Cambodia Complaint at Count 2; Auxin’s Malaysia Complaint at Count 8; Auxin’s Thailand Complaint at Count 2; Auxin’s Vietnam Complaint at Count 8.

¹² See Auxin’s Cambodia Complaint at Counts 3-7; Auxin’s Malaysia Complaint at Counts 2-7; Auxin’s Thailand Complaint at Counts 3-8; Auxin’s Vietnam Complaint at Counts 2-7.