Customs Classification Ruling May Cost Solar Energy Industry $70 Billion

On September 30, 2009, the New York Times published an article highlighting the importance of a tariff classification ruling issued by Customs and Border Protection's (CBP) Office of Regulations and Rulings, National Commodity Specialist Division in New York, concerning the tariff classification of a solar module consisting of 72 interconnected monocrystalline silcon cells. In the ruling, issued on January 9, 2009, CBP held that the solar module was dutiable at 2.5% ad valorem, and not duty-free as argued. 

The New York Times article states that although the ruling is legally binding on most solar panels imported into the United States, the ruling only came to the attention of the solar energy industry in recent weeks. The articles provides:

The United States exported almost as much solar panel equipment as it imported in the first seven months of this year - $605 million in imports and $555 million in exports, according to Commerce Department data. The Solar Energy Industries Association, a coalition of domestic and foreign companies, argues that American tariffs on solar panels could lead other countries to impose tariffs on American exports. The customs decision is dividing the industry between importers and companies that produce solar equipment in the United States. And with China accounting for a rising share of American imports, the tariff could become a sticking point in bilateral trade relations already troubled by the dispute over tires, autos and chicken parts. Some Chinese solar panel manufacturers are already planning to move final assembly of solar modules to plants in the United States, a step that could allow them to avoid the duty someday, said Rhone Resch, the chief executive and president of the industry association.

The ruling was obtained by the small American subsidiary of a Spanish energy company, GES USA, in preparation for a project that never went through. In the ruling, CBP stated that although the importer argued that the solar module was classifiable under subheading 541.40.6020 of the Harmonized Tariff Schedule of the United States (HTSUS), which provides for "Diodes, transistors and similar semiconductor devices; photosensitive semiconductor devices, including photovoltaic cells whether or not assembled in modules...: Photosensitive semiconductor devices, including photovoltaic cells whether or not assembled in modules or made up into panels...: Other diodes: Other: Solar cells: Assembled into modules or made up into panels," the Explanatory Note (EN) 85.41(B)(i) persuaded CBP that classification under that subheading was inapplicable.

CBP stated that, "EN 85.41(B)(i) states that heading 8541 does not cover panels or modules equipped with elements, however simple, i.e. diodes to control the direction of the current." Because the solar module at issue does contain diodes, CBP stated that the applicable subheading for the product will be HTSUS subheading 8501.31.8000, which provides for "Electric motors and generators: Other DC motors; DC generators: Of an output not exceeding 750 W: Generators," dutiable at 2.5% ad valorem.

Rhone Resch, the chief executive and president of the Solar Energy Industries Association (a coalition of domestic and foreign companies) estimates that the duty would cost the industry $70 million this year, assuming importers will be found negilgent for not properly classifying and paying the duties since January when the ruling was issued and will be assessed the penalty of doubled duties.