Canada Wins Solar Safeguard Dispute

The U.S. had no legal standing to impose safeguard tariffs on Canadian solar panels, a USMCA panel ruled in January. The panel report was made public on Feb. 15.

Under both NAFTA and USMCA, Mexico and Canada are supposed to be excluded from global safeguards unless the International Trade Commission finds that the exports from one of those countries "contributed importantly" to the injury to American producers. Canada only accounted for 2% of imports of solar panels in the three years before the investigation began, and was never in the top five exporters of solar panels to the U.S.

Canada had originally sought to challenge what was then 30% tariffs on panel exports (see 1807230029), but since NAFTA allowed any country to block the formation of a panel, the dispute had to wait until the enactment of the USMCA, which made state-to-state dispute settlement binding.

In the dispute, the U.S. had tried to argue that Canada could not bring a case under USMCA, since the tariffs began under NAFTA. Panelists Mario Matus Baeza, Jennifer Hillman and Donald McRae disagreed, and said that the U.S. should remove Canadian goods from the safeguard measure, and bring "its tariff schedule into conformity with its USMCA obligations." The current tariff on Canadian solar panels is 14.75%.

The U.S. already knew that it had lost the case when it announced that it would negotiate with Canada and Mexico on the solar safeguards, and if the administration determines that imports from those countries do not diminish the effectiveness of the tariffs, remove them from the safeguard (see 2202040003).

Canada said that it received the final report on Feb. 1, which would mean that the U.S. has until March 18 to come into compliance. Canada's trade minister, Mary Ng, said the panel "unequivocally confirmed that U.S. tariffs on Canadian solar products are unjustified and in violation of CUSMA." CUSMA is the acronym Canada uses for the trade deal. Canada said "only a full exclusion for imports from Canada, as was originally recommended by the United States International Trade Commission in 2018, can ensure that the United States is compliant with its obligations under CUSMA."

Ng also said, “Canada’s long-standing and close collaboration with the United States on cross-border trade and supply chains is critical to supporting our shared economic recovery, fighting climate change, and ensuring our long-term growth and competitiveness."

That is also what several Democrats from Washington state argued last year (see 2106090066), saying that the tariffs were preventing Canadian Solar from expanding a factory in their state.

A spokesman for the Office of the U.S. Trade Representative did not respond to a request for comment about how the U.S. will change the safeguard in light of this decision.

The panel explicitly rejected arguments from the U.S. that Canadian Solar, since it is a global company, producing solar panel cells in China, could use the NAFTA rule of origin to bring Canadian-assembled panels in with Chinese cells and thereby undermine the trade remedy.

"While it is possible that Canadian Solar could in the future increase its shipment of [crystalline silicon photovoltaic (CSPV)] modules made with imported CSPV cells, such later-in-time imports would not change the fact that Canadian imports were not among the top five suppliers during the period of investigation," the panelists wrote, and said that if there was a surge in imports, the government has a mechanism to deal with that under the safeguard.

"The Panel finds that the United States is not entitled to forego the procedural requirements of the anti-surge mechanism by a post-hoc rationalization that the entire process would provide 'belated relief,'" they wrote.