Canada: Implications Of CBSA’s Recent Imposition of Duties On Chinese Solar Imports

The Canadian Border Services Agency (the "CBSA") has imposed duties on Chinese-produced solar modules, which may dampen the downward slide of solar module prices in Canada, at least temporarily.

On March 5, 2015, the CBSA released its preliminary determination that certain photovoltaic ("PV") modules and laminates exported from China are being subsidized and/or dumped on the Canadian market. It set provisional duties that range from as low as 9.14 percent for one Chinese exporter to 286.1 percent for others. A final decision on duties can be expected by July 3, 2015.

The investigation was initiated after four Ontario photovoltaic module and laminate producers filed a complaint with the CBSA last year, alleging that state-subsidized Chinese imports were damaging the solar PV market in Canada for domestic manufacturers. The import duties follow similar moves in other countries, including the United States, to fight the flood of cheap imports.

Impact on Ontario Renewable Energy Sector

The imposition of import duties on solar modules will have differing impacts for the renewable energy sector in Ontario, as detailed in our Renewable Energy Outlook last month.

On the one hand, duties level the playing field for domestic manufacturers. Around the world, state-subsidized Chinese production has pushed prices down, squeezing domestic firms and prompting the imposition of duties in other countries. The imposition of duties in Canada could be a significant boost to manufacturers, just as the eighty cent Canadian dollar makes Canadian panels relatively more attractive to both domestic and foreign purchasers.

At the same time, the duties may dampen the downward trend in module pricing that has helped lower costs for purchasers of solar modules. For developers, installers, and investors, subsidized Chinese supply may have helped lower costs and boost returns. Some purchasers may be more affected than others by these new duties, largely depending on how diverse their supply chains are with respect to Chinese production. Modules from other countries, and from Ontario producers, will now look more economical.

The impact on the cost of equipment is only part of the story for developers and their financiers. The Independent Electricity System Operator ("IESO") ratcheted down the price paid to solar projects under Ontario's Feed-in Tariff ("FIT") program in September 2014, in part in response to declining equipment costs. The reduction in FIT pricing was welcome news for ratepayers. However, it may squeeze margins for developers, particularly to the extent that the FIT pricing was established with reference to module pricing before the duties were imposed. The next review of FIT pricing, which may account for the duties, will be conducted later this year and is expected to take effect in January 2016. The IESO is also proposing changes to the FIT that will introduce a competitive element to pricing for small projects and is rolling out the Large Renewable Procurement ("LRP") process which will see applicants bid their pricing for large projects. Both will put more downward pressure on the price paid for solar energy and will therefore require careful consideration of trends in module pricing.

Developers with projects in the pipeline will therefore need to monitor the final determination of the duties, consider the implications of these duties on their financial models, and plan their FIT and LRP bid strategies, financing and module procurement accordingly.

Look for Final CITT Decision This Summer

Anti-dumping and countervailing duties are governed by the Special Import Measures Act ("SIMA"). Administration of SIMA is shared between the CBSA and the Canadian International Trade Tribunal (the "CITT"). The CITT ruled in a preliminary inquiry last month that there was "evidence that discloses a reasonable indication that the dumping and subsidizing of the subject goods have caused injury or are threatening to cause injury to the domestic industry." The CBSA's own determination imposes provisional duties accordingly. Importantly, the level of those duties is still very much subject to change through the subsequent assessment process. The CBSA will now conduct a final determination, to be released by June 3, 2015, regarding whether dumping and subsidizing is occurring and, if so, to what extent.

Ultimately, the final decision on the imposition of duties rests with the CITT. It commenced its final injury inquiry the day after the CBSA's decision, and has until July 3 to reach a final decision.

The CITT will reach one of three conclusions: there is an injury, there is a threat of injury, or there is neither. If there is an injury or threat of injury, the duties will be in place for five years. Notably, provisional duties that have already been paid by importers will be refunded if the CITT concludes that dumping and/or subsidizing has not caused an injury, even if it finds there is a threat of injury.

Interested individuals and organizations have until March 23 to file for party status in the CITT proceedings. Only parties are entitled to make submissions, which will likely be scheduled for May and June, and to appeal the CITT's final decision to the Federal Court of Appeal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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