Chinese Solar Makers Shown $55 Million Path to Avoid Tariffs

An investment firm that’s financing a trade complaint against cheap imported solar cells said that case would disappear if Chinese companies bought $55 million in manufacturing equipment.

SQN Capital Management says Suniva Inc., a Georgia-based solar fabricator in Chapter 11 bankruptcy, owes it more than $51 million for the purchase of factory equipment it financed. The firm said it’s bankrolling the U.S. trade complaint by Suniva in a bid to help that company recover.

In a May 3 letter to a Chinese trade group, however, SQN said it wanted to arrange a sale of Suniva’s solar-manufacturing equipment. And if that happened the company’s assets would be liquidated — leaving no one left to pursue the trade complaint.

“The trade case would have to be withdrawn,” SQN president Jeremiah Silkowski wrote in the letter to a Chinese chamber of commerce whose members include solar-cell makers. “SQN would have no interest in providing additional funding to Suniva.”

The letter — filed with the International Trade Commission — is the latest twist in a trade battle that has split the U.S. industry and threatens to throttle the U.S. boom in the renewable energy. Solar installations in the U.S. have soared in large part because of a steep drop in the price of panels, brought about largely by low-cost manufacturing in China.

Suniva, which filed for bankruptcy protection in April, says cheap solar imports have left it unable to compete, and it wants the Trump administration to step in with tariffs to curb imports. The leading U.S. trade group warns that some 260,000 American jobs would be put in danger if the tariffs are put in place.

Read More: U.S. Solar Maker’s Bid for Tariffs Opposed by its Owner in China

“Suniva’s petition appears to be less of an effort to protect a U.S. industry and jobs than a desire by speculators to recoup their failed investment,” solar contractor Swinerton Renewable Energy, which submitted the SQN letter, said in its filing to the commission. “They are fully prepared to shut Suniva as soon as they have their money.”

SQN’s Silkowski said the Chinese industry group contacted him, offering to help arrange the purchase of the machines as a way to head off the trade case.

“They had asked us what would happen if they bought the equipment, and that’s what that letter says,” Silkowski said in an interview. “SQN did not have any intention of selling the equipment because there is a massive credibility gap with the entities behind that. It was an attempt for them to block the trade case.”

SQN is no longer trying to negotiate that sale, he said: “We believe the industry requires protection.” 

Based in Manhattan, SQN lends money to a wide range of manufacturers to buy equipment. When Suniva filed for Chapter 11 bankruptcy, it owed SQN $51 million, making it the solar manufacturer’s largest creditor, according to its filing.

Read More: Solar Jobs Outpace Coal as Trump Assails Clean Power Plan

Silkowski sent his letter to the Beijing-based China Chamber of Commerce for Import and Export of Machinery and Electronic Products, which helps manufacturers ship equipment in and out of China. It has more than 10,000 members, including companies that produce solar cells and components, according to the organization’s website. The group did not immediately respond to a request for comment.

Suniva requested import duties of 40 cents per watt for solar cells produced outside the U.S. and a floor price of 78 cents per watt for panels. If the International Trade Commission opens an investigation, it will do the initial analysis of the complaint, but the final decision on whether to back Suniva rests with President Donald Trump.

“Suniva cannot speak to what actions its creditors may take, but to date, Suniva has not seen anything other than support from SQN for its petition for a global safeguard relief,” Christian Hudson, counsel for Suniva, said in an email. SQN required Suniva to file the trade case as a condition of its bankruptcy financing. The manufacturer’s majority owner, Shunfeng International Clean Energy, opposed the move.

Trade Hurdle

Outside trade lawyers say the letter may undermine Suniva’s case at the ITC by helping the company’s critics prove it’s not “representative” of the larger domestic industry — a key threshold for such cases to advance. If the case will collapse without Suniva’s backing, that wider support may not exist.

“There’s a relationship between their willingness to make the case go away — their ability to make it go away — and the reluctance of the ITC to start a war over one little company having a problem,” said Lewis Leibowitz, a Washington-based trade and customs lawyer.

The Solar Energy Industries Association casts Suniva as an outlier, arguing to the ITC that no other domestic producers support its tariff push and the company’s output is too small to be considered representative of the industry.

Suniva claims that Asian competitors have shifted production around the world to evade existing U.S. trade restraints aimed at Chinese solar manufacturers. The American market for solar cells is “disintegrating” amid a crush of imports, Suniva says, arguing that “this industry simply cannot survive” in a market where foreign imports into the U.S. “have unexpectedly exploded and prices have collapsed.”

Safeguards Rare

Unlike more common cases filed with the ITC, global safeguard investigations like the one Suniva is seeking do not require the commission to conclude there has been some unfair trade practice, such as subsidies or dumping.

But the cases, known as Section 201 safeguards, are also rare — in part because even when the ITC recommends broad tariffs in response, presidents may not go along. But Trump’s “America first” approach could mean he is more receptive to the idea.

“Under past presidents, it was often not a credible threat to file a 201 case, because they’d often say no,” said Michael Moore, an economics professor at George Washington University who is an expert in international trade policy. “With Trump, there’s good reason to think he’d consider it.”

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