Electrical Equipment / Components & Telecoms

Following Xinjiang cotton, on June 24, 2021 local time in the United States, the Bureau of Industry and Security of the US Department of Commerce included five Chinese entities in the entity list on the grounds of so-called “forced labor”, and launched a target for Chinese photovoltaics from the perspective of export control. A new round of crackdowns in the industry. This article will focus on the analysis of the US-related trade compliance risks faced by China's photovoltaic industry, and put forward relevant countermeasures.

1. Overview of the development of China's photovoltaic industry

China's photovoltaic industry is in a leading position in the world

With the current intensification of global warming and the increasing emphasis on environmental issues by countries all over the world, the development of renewable energy that the photovoltaic industry can bring has become a key concern of the world. China PV benefits from cost advantages, policy support, and rapid development of photovoltaic science and technology. At present, its production capacity accounts for more than 70% of the global market. [1] It can be called the global photovoltaic industry manufacturing center. A report from the China Photovoltaic Industry Association shows that even under the impact of the global new crown epidemic, the scale of my country's photovoltaic industry will continue to expand in 2020. The output of polysilicon, silicon wafers, cells, and modules increased by 15.8%, 19.8%, 22.2%, and 26.4% respectively year-on-year. [2] In general, my country's photovoltaic industry has achieved remarkable results. The output of polysilicon for 10 consecutive years, the output of photovoltaic modules for 14 consecutive years, the new installed capacity of photovoltaics for 8 consecutive years, and the cumulative installed capacity of photovoltaics ranks first in the world for 6 consecutive years. [3]

A complete industrial chain with a high degree of autonomy

Compared with the phenomenon that my country’s photovoltaic industry’s raw materials, key technology and equipment, and market demand rely on the "international cycle" more than 20 years ago, my country’s photovoltaic industry has now achieved a "from the outside to the inside, and then to the double cycle" phenomenon. market structure. my country's photovoltaic industry can almost achieve localized supply in the upstream, middle and downstream links, with minimal external dependence and independent control of the industrial chain. Taking the photovoltaic module market as an example, according to the statistics on the import and export of photovoltaic modules in 2020, my country’s photovoltaic module exports are 16.99 billion US dollars, accounting for 86% of the total photovoltaic product exports, an increase of 2.6 percentage points year-on-year; the export volume of photovoltaic modules is about 78.8GW , An increase of 18.3% year-on-year, accounting for about 63.2% of my country's module output. [4] The main export countries of photovoltaic modules are the Netherlands, Vietnam, Japan, Brazil, Australia, Spain and India, but the United States is not included. [5]

U.S. closed-loop suppression and comprehensive restrictions on China's photovoltaic industry

According to incomplete statistics, from 2010 to 2020, China's share of global polysilicon production has risen from 26% to 82%, while the US's share has dropped from 35% to 5%. From the perspective of the United States itself, the majority of polysilicon located in the upstream of the industry is controlled by Chinese companies. This status quo has led the United States to believe that its solar energy supply chain is fragile, and it needs to focus on and look for alternatives in all links of the industrial chain. Biden announced the return of the United States to the "Paris Agreement" on the first day of his presidency. After that, the federal government launched a series of green energy strategy deployment work. At the same time, the current US government has publicly stated that it will compete with China in the global clean energy industry and form its global leadership position. In the future, the United States may suppress and restrict my country's photovoltaic industry from multiple dimensions through a closed-loop approach formed by "think tank + public opinion + policy".

(1) Expanding attention through the fermentation of public opinion

By accusing the so-called "forced labor problem in Xinjiang" in public opinion, the aim is to focus on cracking down on the crystalline silicon raw materials produced in Xinjiang, because China’s Xinjiang region plays a very important role in the global solar energy product supply chain, with nearly 45% of them The raw materials come from the region. [6]

(2) Upgrading sanctions by promoting legislation

On March 30, 2021, eight senators proposed the "Exclude China from Solar Energy Act",[7] prohibiting US federal funds from purchasing solar panels produced or assembled in China. What is even more concerning and worrying is that follow-up sanctions may be further fermented with the public opinion of the United States.

(3) Strive to unite allies to form a siege attack

On June 11, 2021, the United States Advanced Silicon Group Technologies, LLC, in accordance with Section 337 of the "U.S. Tariff Act of 1930", charged specific nano-structured silicon photovoltaic cells and modules that were exported to the United States, imported or sold in the United States And its downstream products infringed its patent rights, requesting the initiation of 337 investigation and issuing limited exclusion order and prohibition order. [8] In addition, the United States may continue to promote "values diplomacy" in the future, uniting a few Western countries to continue to crack down on China's photovoltaic industry on the grounds of so-called "human rights in Xinjiang".

It can be seen from the above that, in addition to the past "337 investigations", anti-dumping and anti-subsidy "dual anti-subsidy" investigations, in the future, Chinese photovoltaic companies must also deal with US export controls, economic sanctions, and restrictions on entry of goods. The relevant preparations for all-round suppression will be carried out.

2. U.S.-related trade compliance risks faced by China's photovoltaic industry

U.S. Department of Commerce implements export controls-included in the list of entities

On June 24, 2021, local time in the United States, the Bureau of Industry and Security (BIS) of the US Department of Commerce updated the Entity List, once again using the so-called “participation in the implementation, acceptance or use of forced labor, engaging in or Promoting activities that violate the interests of US foreign policy" as a reason, five Chinese entities were included in it. [9]

(1) What is an "entity list"

The so-called "entity list" refers to the right to include an entity or individual on the entity list when it determines that an entity or individual is suspected of participating in activities that violate the interests of the United States' national security and/or foreign policy. For entities included in the list of entities, BIS will set specific export license requirements for them, and most of the license approval policies are "Presumption of Denial" (Presumption of Denial). The so-called "presumptive refusal" means that without sufficient reasons, BIS will by default refuse to export controlled substances from US exporters or other suppliers (including domestic suppliers or agents) to enterprises on the entity list. The export license application filed in the item.

(2) What is the impact after being included in the list of entities

Simply put, after the above five entities are included in the entity list, it is actually difficult to obtain high-tech products, materials, equipment, and equipment under the jurisdiction of the US Export Administration Regulations (EAR) through compliance channels. Software and technology. Specifically, whether it is a U.S. manufacturer or its foreign agent, the export, re-export or domestic transfer of the items subject to the EAR (including ECCN items and EAR99 items), hereinafter referred to as “US-related controlled items” Items") need to apply for an export license from BIS. The license review policy for a few items is "case by case review", and the license review policy for other items under the jurisdiction of the EAR is "presumed rejection".

(3) Analysis of potential risks

In recent years, export control has become one of the main methods used by the United States to suppress Chinese companies through "supply chain weaponization." As the photovoltaic industry has the characteristics of interconnected upstream, midstream, and downstream industrial chains, being included in the entity list may cause some key nodes in the photovoltaic industry chain that are highly dependent on US-related controlled items to be interrupted, thereby affecting Serious consequences of the overall development of my country's photovoltaic industry.

At the same time, if we only look at the four upstream silicon material manufacturing companies that have been included in the US entity list this time, we tend to believe that the risk is relatively controllable, mainly for three reasons:

①The effectiveness of the entity list is limited.

According to the relevant regulations of the US EAR, the effectiveness of the list of entities only involves the enterprises themselves included in the list, and does not affect related entities such as their parent companies and subsidiaries.

② Entities included in the list of entities are only restricted in obtaining controlled items related to the United States.

The technology, equipment, and raw materials of silicon material manufacturers in the upstream of my country's photovoltaic industry are not overly dependent on US-related controlled items, so the impact is limited.

③The entity list itself does not restrict other types of transactions.

Restricted transactions of companies included in the list of entities mainly involve the procurement of technology, equipment, raw materials and other items under the jurisdiction of the US EAR. There are no restrictions on the external sales of the companies included in the company’s own business, so except for technology, equipment, and raw material sources Except for companies that are singular and rely too much on purchasing controlled items in the United States, the actual impact on Chinese companies is relatively small.

However, it should be noted that under the background that the United States plans to conduct a full-scale crackdown on my country's photovoltaic industry, it does not rule out the possibility that it will continue to choose to crack down on mid- and downstream companies in the photovoltaic industry chain, or further upgrade the cracking means to economic sanctions. . At the same time, attention should also be paid to strictly complying with the requirements of China's countermeasure laws and regulations with the Anti-Foreign Sanctions Law as the core. [10] Therefore, how to effectively prevent risk escalation and make compliance responses should attract sufficient attention from my country's photovoltaic industry.

U.S. Customs and Border Protection issues a temporary detention order-detaining goods

On June 24, 2021, local time in the United States, the Customs and Border Protection (Customs and Border Protection, CBP) issued a Withhold Release Order to a company located in the Xinjiang Uygur Autonomous Region of China.[11] The so-called reason is The company uses silicon-based products produced by forced labor, and it requires all personnel at US ports of entry to immediately start detaining goods containing silicon-based products[12] produced by the company and its subsidiaries. The suspension order applies to silicon-based products produced by the company and its subsidiaries, as well as materials and commodities (such as polysilicon) derived or produced from such silicon-based products.

(1) What is a temporary detention order

Article 307 of the U.S. Tariff Act of 1930[13] stipulates that all goods, articles, articles, and commodities mined, produced or manufactured by forced labor abroad, in whole or in part, shall not have the right to enter any port in the United States and are prohibited import. CBP is responsible for investigating allegations of forced labor in the US supply chain and issuing temporary seizure orders. When CBP has reasonable grounds to believe that goods produced by forced labor are being or may be imported into the United States, it will issue a temporary seizure order instructing port of entry staff to detain goods that are suspected of being produced by forced labor.

(2) What is the impact after the temporary detention order is issued?

The goods under the temporary detention order will be detained, but the importer has the opportunity to re-export the detained goods at any time before being seizure or deemed abandoned (deemed to have been abandoned); [14] In addition, the detention order It is not completely prohibited, it can be modified or revoked. Importers can apply to CBP to modify or revoke the suspension order in accordance with Article 19.43 of the Code of Federal Regulations.

For the production that is determined to be forced labor, and the evidence provided by the exporter in accordance with Article 19, Article 12.43 of the Code of Federal Regulations is insufficient to prove the acceptability of the goods (ie, products that are not forced labor) or fail to submit proof materials in a timely manner , The port secretary seized the goods and began the confiscation process.

(3) Modification and revocation of suspension order

As long as there is sufficient evidence that the relevant goods are not produced using forced labor, are no longer produced using forced labor, or are no longer being imported or may be imported into the United States (no longer being, or likely to be, imported into the United States.), they will be temporarily detained The order can be modified or revoked. [15]

Modification of temporary detention order: If CBP determines that a foreign entity involved in the temporary detention order has rectified all 11 forced labor indicators determined by the International Labor Organization[16], the temporary detention order against the foreign entity will be implemented temporarily.

Suspension order cancellation: CBP determines that a foreign entity is not engaged in forced labor and will exclude the foreign entity from the scope of the suspension order.

According to Article 19.43 of Title 19 of the Code of Federal Regulations,[17] If the importer believes that the goods are not produced or manufactured using forced labor, they shall report to the port commissioner at the place of entry within 3 months from the date of import of the goods. (Port director) or CBP commissioner to submit relevant evidence (including the certificate of origin provided by the seller).

CBP recommends that the applicant provide specific information when submitting a modification/revocation request. In addition, the applicant needs to provide evidence that all forced labor indicators determined by the International Labor Organization have been rectified. Useful information includes but is not limited to:

① Evidence that refutes each of the established indicators of forced labor;

②Prove that policies, procedures and control measures are in place to ensure that forced labor conditions are remedied;

③ Evidence of the implementation of rectification measures and follow-up verification by an independent third-party auditor;

④Supply chain map indicating the locations of manufacturers, factories, farms and processing centers

After receiving the application, CBP will evaluate the application materials and conduct a remedial dialogue with the applicant by asking questions or requesting additional information. If the forced labor indicator is resolved and the rectification is in place, CBP will decide to modify or revoke the suspension order. [18]

For the temporarily seized goods that have not been exported within 3 months from the date of import, the Director of the Port Authority will determine whether or not to submit the certification documents in accordance with Title 19, Article 12.43 of the Code of Federal Regulations within the specified time. If the proof is not submitted in time, or the CBP Commissioner recommends that the relevant documents of the Port Authority cannot prove the acceptability of the goods, the Port Authority shall immediately notify the importer that the goods are not allowed to enter the country. At the expiration of 60 days from the date when the Secretary of the Port issues or mails the above notice, the goods will be deemed abandoned and will be destroyed. [19]

(4) Analysis of potential risks

In July 2020, the four U.S. agencies jointly issued the "Xinjiang Supply Chain Business Advisory" (Xinjiang Supply Chain Business Advisory),[20] sending a signal to the outside world to crack down on Xinjiang's supply chain. The CBP’s issuance of a temporary seizure order for silicon-based products produced by one of these companies is another example of a multi-sectoral joint effort by the United States to suppress my country’s Xinjiang products’ competitiveness in the global supply chain on the grounds of so-called “human rights” and “forced labor”. One move. It can be seen from this that if products produced in Xinjiang are frequently issued with temporary detention orders on this ground, the importer needs to apply to CBP for the cancellation and modification of the temporary detention order, which increases the burden on the importer and adds extra burden to both parties of the transaction. Time and economic costs may also cause delays in the delivery of goods and trigger contract disputes.

Although the effect of the suspension order mainly involves importers in the United States, and does not directly affect Chinese enterprises as producers or exporters, it can be seen from the documents that the U.S. importer needs to submit when applying for the revocation of the suspension order to CBP , Which inevitably involves situations that require Chinese companies to provide information overseas. At the same time, in the current complex international environment, my country's national security issues have received increasing attention. Especially with the formal implementation of the "Data Security Law", for the documents and information submitted by the parties to foreign government agencies in the process of cross-border investigations, it is necessary to strictly comply with the requirements of the "Data Security Law" and other relevant laws and regulations, [ 21] Make a national security risk assessment in advance. In this context, Chinese companies are responding to investigations by U.S. government agencies including the CBP suspension order.

Or when providing information and data to the outside world, the awareness of maintaining national security should be raised, a corresponding risk assessment mechanism should be established, and a report should be made to the national security authority in accordance with the law, and relevant legal procedures should be performed.

The U.S. Department of Labor included polysilicon in the "List of Products Produced by Child Labor or Forced Labor"

On June 24, 2021 local time, in addition to the suspension order for silicon-based products issued by the Department of Homeland Security CBP, the Department of Labor also added polysilicon, an important material for the production of solar panels, to “child labor or forced labor”. In the list of products produced by labor”, it is specifically indicated that the place of origin is only China. [22] In addition to polysilicon products, Xinjiang-related products in the list also include: cotton, clothing, footwear, electronic products, gloves, hair products, textiles, thread/yarn and tomato products.

(1) Basis and reasons for being included in the list

According to the Trafficking Victims Protection Reauthorization Act of 2005 (TVPRA)[23] and subsequent reauthorization laws, the Bureau of International Labor Affairs (Bureau of International Labor Affairs) of the U.S. Department of Labor every two The “List of Goods Produced by Child Labor or Forced Labor” (List of Goods Produced by Child Labor or Forced Labor) will be published once a year, which will include products produced by child labor or forced labor in violation of international standards.

Regarding the main purpose of setting up the list, the so-called official explanation given by the US Department of Labor is to "raise public awareness of the incidence of child labor and forced labor in the production of commodities in the listed countries, and promote efforts to eliminate such practices." The inclusion of polysilicon produced in China on the list is a response of the U.S. Department of Labor to the so-called human rights violations in Xinjiang. The list may also be used by the U.S. government to take other measures against so-called forced labor and human rights violations in Xinjiang in the future. Basis and foundation.

(2) Analysis of potential risks

As mentioned above, the U.S. Department of Labor has included polysilicon produced in my country in the "List of Products Produced by Child Labor or Forced Labor." It may also cause international customers to have doubts about the use of polysilicon produced in my country, and there may even be cases in which mid- and downstream companies in the foreign photovoltaic industry refuse to use polysilicon materials derived from my country. This substantially weakens the competitiveness of polysilicon produced in my country in the international market, and may lead to the exclusion of polysilicon produced in my country from the global supply chain of the photovoltaic industry. Chinese photovoltaic companies should face up to a series of legal and commercial risks arising from this, and make reasonable commercial arrangements in advance on the premise of strict compliance and law-abiding.

3. Checklist for compliance response and risk prevention

In view of the current complex situation of Sino-US relations, it is recommended that Chinese photovoltaic companies should establish a bottom-line mindset as soon as possible, pay full attention to the legal risks of US-related export control and economic sanctions, and also strictly abide by the requirements of my country's national security and anti-sanction laws and regulations. Business characteristics and links in the industry chain, orderly carry out risk self-inspection, internal control system improvement, and emergency response plan formulation and other related work. The following work list is for reference only:

(1) Establish a special class for response

It is suggested that companies should set up a special US-related sanctions response team composed of responsible leaders from key core departments such as procurement, production, sales, human resources, and marketing to comprehensively coordinate and lead the emergency response work of the company.

(2) Main reasons for investigation

It is recommended that companies should investigate and confirm the main reasons for their blacklisting or other potential risks that may lead to escalation of sanctions as soon as possible based on the relevant information publicly obtained, with the guidance and cooperation of professional lawyers, and check whether there are other similar risks. .

(3) Choose a solution

Based on the results of the self-examination, two solutions are selected: one is to apply to the US government agency for removal from the list. The second is to prepare to file a lawsuit in the United States and seek judicial relief. However, the realistic possibilities of the two schemes also need to depend on the complex internal and external environments.

(4) Assess the possibility of substitution

Organize a comprehensive investigation of the US-related controlled items on which production and operation activities are maintained, and evaluate the possibility of substitution of these items during the transition period, paying particular attention to whether the technical needs are met after the substitution, and if necessary, it can be contacted in advance. Downstream customers communicate and sign relevant supplementary agreements to avoid future disputes.

(5) Improve the internal control management system

In accordance with the requirements of U.S. export control and economic sanctions laws and regulations, and in conjunction with China’s Anti-Foreign Sanctions Act, the Measures for Blocking Foreign Laws and Measures Improper Extraterritorial Application, and the Provisions on the List of Unreliable Entities, and other relevant counter-control laws and regulations, Further improve the internal control system of corporate trade compliance, and draft a trade compliance commitment statement or reply letter in advance based on questions or inquiries that partners may raise, so as to avoid unnecessary misunderstandings and even risk escalation.

(6) Strengthen national security compliance management

It is recommended that companies firmly establish and improve the national security awareness of all employees, strengthen internal national security compliance management, regularly carry out legal risk education, and establish a national security risk assessment mechanism for data, information and materials to be provided to the outside world, and encounter major sensitive issues Communicate and report with the competent national security department in a timely manner to avoid major legal risks or public opinion risks involving national security.

Fourth, the conclusion

Compared with other industries, Chinese photovoltaic companies that have experienced the US "dual anti-dumping" and EU anti-dumping investigations can be said to have accumulated a wealth of practical experience in responding to various restrictions or investigations in the United States. However, this time, unlike the past, photovoltaic companies’ export controls to the United States are still relatively unfamiliar; at the same time, with the implementation of China’s anti-sanctions supporting laws and regulations, coupled with increasing attention to national security issues, these may be Photovoltaic companies under the legal battles between China and foreign countries have brought more issues in compliance with the law. Therefore, it is recommended that photovoltaic companies should pay close attention to the international situation and changes in Chinese and foreign laws, establish risk warning mechanisms and emergency response plans as early as possible, and continuously strengthen and improve their own trade compliance management and control systems to adapt to the current complex and changeable international economic environment. Develop and strive to achieve "success in stability".