In January, Donald Trump sat in the Oval Office next to U.S. Trade Representative Robert Lighthizer and delivered a verdict the solar industry had anticipated for months: A 30 percent tariff would be levied on imported solar products.

After dropping the news, Trump slipped in a vague conciliation. It was easy to miss the implications.

“Today, I’m also directing Ambassador Lighthizer to continue supporting industry discussions to resolve duties on these and similar products in the United States and China,” he said.

Despite the lack of specificity, Francine Sullivan, vice president of business development at polysilicon manufacturer REC Silicon, knew who Trump was talking to.

“We’re hopeful given the president’s words and commitment that we can seek some relief in the future,” she said, referring to the polysilicon sector.

In 2012, the U.S. imposed the first duties on Chinese solar cells, adding additional duties in 2014 to close a previous loophole. That same year, China finalized tariffs on U.S. polysilicon imports, slamming manufacturers such as REC with 57 percent tariffs. U.S. polysilicon manufacturers claim the tariffs were retaliatory, amounting to a full-blown trade war. They’ve been working with the U.S. Trade Representative on a solution ever since.

In the meantime, REC has cut half its workforce. Manufacturer Hemlock Semiconductor, owned in part by Dow Chemical, shuttered a $1.2 billion factory project in Tennessee. The Wall Street Journal reports that between 2010 and 2017, the U.S. share of polysilicon production fell from 29.1 percent to 11.3 percent of the global total.

When the latest Section 201 filing rolled around, polysilicon companies hoped they could finally work out a solution for everyone. Instead they came away with nothing, and the rest of the U.S. solar industry with little else.

“In the end, the poly guys got nothing of what they were looking for. The petitioners didn’t get anywhere near enough relief to come back to health. And the folks opposing the petitioners — the rest of the solar industry — also didn’t get what it wanted,” said one legal source familiar with the solar industry and the negotiations, who asked to speak anonymously. “Pretty much everybody is unhappy.”

But, the source said, polysilicon manufacturers in particular have “really taken it on the chin.”

“They’re the ones that are still searching for some sort of resolution,” said MJ Shiao, head of Americas at GTM Research. “I do think their voice in this has been, unfortunately, not well represented by the ongoing conversation.”

"This has been absolutely devastating”

While the Section 201 complaint got some closure — even if petitioners remain in peril — progress for polysilicon remains at a standstill. That’s significant for the entire U.S. solar industry, as polysilicon once helped define its success.

SEIA and GTM Research data from 2010 showed a record year for PV manufacturing, with $2.5 billion in PV polysilicon feedstock exports leading all export products. That year the U.S. was an exporter of solar products to China by a margin of more than $240 million. Now, the U.S. industry is all but decimated, with just REC, Hemlock and Wacker Chemie AG left.

“The U.S. is at risk of losing this industry altogether,” said Sullivan. “This has been absolutely devastating for us.”

Sullivan said the domestic industry has now lost its edge to China. It’s ironic given Trump’s American dominance rhetoric.

“At the moment the Chinese produce about 70 percent of global polysilicon, which is a dramatic increase since 2010 when it produced hardly any of it,” said Jenny Chase, head of solar analysis at Bloomberg New Energy Finance.

Emails obtained by Greentech Media indicate polysilicon manufacturers had a foot in the U.S. Trade Representative’s door from the start of the Section 201 discussions. Sullivan said REC initially worked to prevent the 201 filing. But once it went through, they hoped it could act as impetus for a global settlement.

“The affected U.S. exporters have been of the view that through government-to-government pressure, that antidumping measures can be made to go away,” said the legal source. “They’ve been working on that for a hell of a long time.”

On the day that Suniva filed its petition, Sullivan emailed Bradford Ward, director at the USTR’s Interagency Trade Enforcement Center, to tell him she was reading the petition and would call to pass on her thoughts. Per the USTR, “ITEC’s mission is to level the playing field for American workers.”

On May 16 of last year, Ward notified his colleagues that Dow’s global trade director hoped to set up a meeting to discuss recent talks between a Hemlock representative, the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME), and the Chinese Ministry of Commerce.

In June, Hemlock sat in on a meeting with SolarWorld.

In the following months, Sullivan said the industry tried to work with the petitioners on a resolution beneficial to all parties.

It was just the latest chapter in years of trade conversations for polysilicon manufacturers. Over the years, they came close to making several deals. The most concrete, according to Sullivan, was in late summer 2015 when the Obama administration prioritized solar issues in bilateral talks with China and made sure polysilicon was included. In the end, though, it fell apart, allegedly due to lack of cooperation on the Chinese side. Other ideas, like distributing the $1.5 billion in duties the U.S. has collected on imported panels to manufacturers, also didn’t win complete approval.

Some in the U.S. industry felt the Chinese were disinterested in engaging in meaningful discussions. Others in China felt U.S. solar players acted disingenuously about the notion of finding a solution for all parties.

“I think the idea of a negotiated settlement was a lot of talk, but I think it was killed while it was still in the crib,” said a source at one Chinese solar company who asked to speak anonymously. “Industry had a lot of hope. […] But during the whole process, I thought the chance to negotiate a settlement was very slim.”

“People just fight for their own interests”

Up through the summer, emails show the two issues were being discussed in tandem. An email in July from Susan Esserman, a lawyer who leads Steptoe’s international trade policy practice, passed on information from Wacker stating that CCCME wanted to resolve the 201 and polysilicon issues together. That month CCCME also requested a meeting in August to discuss both. But at some point, the two issues became separated.

Legal representative for petitioner SolarWorld Americas, Tim Brightbill at Wiley Rein, said the company was in favor of an all-encompassing resolution.

“We’ve always been open to any kind of solution that might allow them to get rid of those retaliatory cases, or get [U.S. polysilicon] into the Chinese market,” said Brightbill. “But that’s about all I can say.”

Jing Tian, North America president at China-based Trina Solar, said the lack of resolution does not stem from a “lack of effort.” The company supported SEIA’s anti-tariff position as a member of the CCCME.

But SEIA’s priorities are set by its board, now solely comprising solar installers and investors and not one member of the polysilicon industry.

If you ask the polysilicon industry, they feel they've been “bailed on,” according to REC's Sullivan. She said the solar industry wanted to “decouple” the issues to simplify a solution.

“Everyone was in it for their own [ends],” said Sullivan, discussing the most recent round of Section 201 negotiations. “People just fight for their own interests; that’s just natural. The involvement of U.S. polysilicon makes it complicated, I acknowledge that. If I was in a solar developer’s shoes, I would have had the same reaction.”

Post-Section 201, U.S. polysilicon producers are still hanging on for a decision.

“We’ve done a tremendous amount of cost-cutting,” said Sullivan. “The last couple of quarters, we’ve managed to go from a cash-burning situation to an idling situation, but you can’t continue that forever.”

Meanwhile, the Chinese solar industry is comfortable. According to Chase, the back-and-forth tariffs around 2012 coincided with a production ramp-up in China. In 2008, the spot price of polysilicon hovered around $400 a kilogram. Now it's about $15, with prices slightly higher, at $17.60 a kilogram, in China.

Though Tian recognizes that the U.S. is an important market and produces what is generally considered the highest quality product, she said Chinese solar manufacturers will do just fine without U.S. polysilicon imports. Chinese supply means her company won’t “live and die” by a dying U.S. industry. And she doesn’t expect a change in negotiations in the foreseeable future.

“I just don’t see a lot of incentive to move or settle anything right now,” she said. “Right now, we’re just going to be operating business in the new norm. It’s not a top priority.”

Time for tariffs

The Trump administration announced its latest tariffs in March, this time on aluminum and steel imports. While Sullivan said polysilicon producers are wary of more tariffs, they remain optimistic about a solution based on Trump’s desire to tackle trade conflicts.

“Wacker has always maintained that a solar/polysilicon trade settlement benefiting both the U.S. solar and polysilicon manufacturing sectors is the best solution for the U.S. value chain and its American manufacturing workforce,” said Christof Bachmair, a Wacker spokesperson, adding that Trump's directive to Lighthizer provided encouragement. “Wacker strongly believes the best outcome is a resolution of these cases.”

Chase at BNEF said the movement of some module manufacturing outside China, to parts of Southeast Asia for instance, could benefit U.S. polysilicon producers who can sell there. But China still accounts for about 70 percent of global polysilicon demand.

Deciding on a resolution on Section 201 removes potentially integral leverage for working toward a solution allowing Wacker, REC and Hemlock to re-enter that market. At the same time, lobbing more tariffs against China is also unlikely to encourage cooperation.

Since the latest round of tariffs, Sullivan said it's been hard to get the trade representative's attention. Considering the years of failed talks, it’s not surprising for the polysilicon industry.

Still, she said she's hopeful.

“They’re clearly showing a propensity to deal with trade matters,” said Sullivan. “We’re still working on it.”

--

Join us for the 11th annual Solar Summit 2018 in San Diego, May 1-2. Powered by the unique blend of research and economic analysis from the GTM Research team, this year's agenda will feature themes from beyond traditional project finance to innovations in solar and the transformation of electricity.