In its preliminary countervailing and antidumping duty determinations, the Department of Commerce ruled that the origin of the solar panels under investigation was that of the country in which the cell is manufactured. Accordingly, if the cell is made in a third country and incorporated into the panel in China, the final product is of third-country origin, not Chinese. Conversely, if the cell is made in China and the panel assembled in a third country, the final product is of Chinese origin.

This ruling created consternation among the U.S. solar panel industry, which has argued that a solar panel assembled in China should keep its Chinese origin even if the cell was made in a third country. In particular, the U.S. industry alleges that only a small percentage - estimated at around 20% – of the value of the panel occurs during the cell manufacturing stage. Therefore, the U.S. industry argues that the Department of Commerce’s ruling opens the door to the circumvention of the countervailing and antidumping duties because solar panels that have 80 percent of their value added in China would fall outside the scope of the higher tariffs.

The U.S. industry is already pointing out the plans made by Chinese solar manufacturers to circumvent the higher duties by shifting the production of the cell to third countries. Under this scheme, the Chinese producers would produce the wafer in China, ship it to the third country for conversion into solar cells and ship the cells back to China for further manufacturing into the solar panels.

This dispute concerning the scope of the products covered by these investigations further escalated when several members of the U.S. Congress recently sent a letter to the Acting Commerce Secretary, Rebecca Blank, to push for the adoption of a broader scope that would include Chinese solar panels made with third-country’s solar cells. The U.S. industry has thus succeeded in politicizing this issue at the opportunistic time of the presidential election. The Department of Commerce is now under political pressure to review its preliminary ruling and to expand the scope of these investigations.

The Commerce Department can certainly reverse its preliminary ruling by deciding that the value added in China is sufficient to confer Chinese origin to the solar panel even if the cell was made in a third country. Under its own rules and precedents, the department has considered the percentage of value added in a country as an important factor in determining whether a product is within the scope of its orders. However, this factor has been used to assess whether further processes performed in a third country were sufficient to confer third-country origin in order to exclude a product from the scope of an order.

Here the department’s preliminary determination is logical in as much as it rules that solar panels assembled in third countries with cells manufactured in China retain Chinese origin and are thus within the scope of the investigations. Should the Commerce Department adopt the value-added test suggested by the U.S. industry, then solar panels assembled in a third country with cells made in China would take the third-country origin and be excluded from the scope of the higher tariffs. Consistency requires that the same test be applied to panels assembled in China, as well as to panels assembled in third countries.

At this time it is difficult to predict what position the Department of Commerce will adopt in its final determination, given the current political climate towards China and the U.S.-Sino trade frictions. U.S. producers and importers, as well as Chinese exporters, can submit their views to the department on this issue. It is important that whatever ruling the department makes in its final determination, it lays out clear and consistent factors for determining what products are subject to the countervailing and antidumping duties.