A Dark Spot for the Solar Energy Industry: Forced Labor in Xinjiang

In February, the CSIS Scholl Chair wrote about the moral conflict between pursuing climate change mitigation objectives and adhering to the rules-based trading system. Environmentalists are calling on the government to subsidize green technology, make exceptions to intellectual property (IP) disputes to facilitate clean energy industry growth and job creation, and use trade agreements to raise global pollution standards. In cases like these, the Biden administration and Congress often must weigh the benefits and consequences of advancing climate priorities versus defending the global rules-based trading system.

Among policymakers, however, there is no moral dilemma when it comes to the question of combatting China’s forced labor practices. There is bipartisan support for legislative and executive action to sanction China and curb imports of products with forced labor in their supply chains. However, there is a practical conundrum. The U.S.—and global—solar panel manufacturing industry is dependent on a supply of cheap critical components that are made in Xinjiang, the region of China where the Chinese government has detained and oppressed the Uighur population, including through forced labor. In this situation, the Biden administration and Congress must navigate carefully to align measures against China’s human rights abuses with domestic support for the U.S. solar industry and consumer market.

Q1: What is happening in Xinjiang?

A1: Xinjiang is an autonomous region in the northwest of China, with a Muslim ethnic minority population of more than 12 million. In 2017, according to the Financial Times, China began extralegally detaining hundreds of thousands of Uighur Muslims and other minorities in internment camps. In late 2018, researchers and media reported that the “job training” programs that put detainees on factory production lines amounted to free or low-cost forced labor systems. The Chinese government, the Chinese Communist Party, and Chinese companies operating in Xinjiang have denied alleged abuses, claiming the “deradicalization centers” are legitimate counterterrorism programs that provide education and vocational training and promote stability and development. China continues to leverage its domestic market to pressure Western brands such as Nike and H&M that have sought to distance their supply chains from Xinjiang, to reject forced labor accusations in Xinjiang.

Q2: To what extent is the solar industry dependent on imports from Xinjiang?

A2: Global solar power capacity has increased due to efficiency gains, lower costs of solar module components, and government support for renewable energy transitions. In the past decade, China has come to dominate world solar cell production.

Residential, commercial, and utility solar panels rely on photovoltaic (PV) cells to absorb and convert sunlight into usable energy. Most PV cells are made with polysilicon components. The polysilicon components are produced through an industrial furnace process that requires extremely high temperatures. Xinjiang, with some of the cheapest power in China thanks to local abundance of coal, has become home to four of the five largest polysilicon factories in the world. Between 2010 and 2020, China’s share of global polysilicon production increased from 26 percent to 82 percent, while the U.S. share decreased from 35 percent to 5 percent. According to Jenny Chase, head of solar analysis at Bloomberg New Energy Finance, “Nearly every silicon-based solar module—at least 95 percent of the market—is likely to have some Xinjiang silicon in it.” In January, a new report explicitly linked solar companies with factories in Xinjiang to the programs accused of forced labor practices.

Source: Arnulf Jäger-Waldau, PV Status Report 2019 (Luxembourg: Publications Office of the European Union, 2019), 5, https://op.europa.eu/en/publication-detail/-/publication/dfa5cde5-05c6-11ea-8c1f-01aa75ed71a1/language-en#document-info.
 

Q3: What executive and legislative actions can the United States take to limit imports of products made with forced labor?

A3: Prior to the emergence of reports of human rights violations in Xinjiang, the United States had already imposed trade remedies on imports of Chinese solar cells and modules. In 2012 and 2015, the Obama administration imposed double- and triple-digit antidumping and countervailing duty tariffs. In 2018, after the International Trade Commission concluded that large quantities of cheap PV cell and module imports, largely driven by Chinese oversupply, led to underinvestment in the U.S. domestic solar manufacturing industry, the Trump administration imposed a four-year safeguard tariff on PV cells and modules from most countries. For some PV modules made in China, the combined tariffs are as high as 239 percent.

These previous measures were introduced to protect U.S. manufacturers from unfair trade practices and overcapacity-caused import surges—not human rights abuses. After the reports of forced labor implications of Chinese solar cell exports, organized labor groups called on the Biden administration to block any solar imports tied to forced labor. President Biden has said “there will be repercussions for China” because of its human rights violations. His February 24 supply chains executive order includes a call for a review of “human-rights or forced-labor risks or other contingencies that may disrupt, strain, compromise, or eliminate the supply chain.” The Office of the U.S. Trade Representative’s 2021 Trade Policy Agenda calls addressing China’s forced labor programs a top priority.

However, the U.S. toolbox for restricting imports is currently limited. Section 307 of the Tariff Act of 1930 prohibits importing any product that was mined, produced, or manufactured wholly or in part by forced labor. Section 307 was designed as a trade measure to protect domestic companies against unfair competition from companies that employed forced labor. Before the “consumptive demand” clause was removed in 2015, Section 307 allowed forced labor imports if no comparable product was made in the United States or the level of domestic production did not meet domestic demand. The removal of the clause makes it easier for the United States Customs and Border Protection (CBP) to enforce the import restriction, but CBP still faces difficulty in assessing whether a product was made with forced labor, especially for downstream products.

In January 2021, CBP issued a region-wide withhold release order (WRO) on imports of all cotton and tomato products originating from Xinjiang. A bipartisan bill, the Uyghur Forced Labor Prevention Act (UFLPA), would ban imports of goods produced by a list of entities with involvements in Xinjiang. A previous version of the bill passed in the House last September by a 403-6 vote, but updated versions have since been reintroduced in the House and Senate with co-sponsors from both parties. Like the WRO issued in January, the UFLPA would establish a statutory presumption that goods produced in part or wholly in Xinjiang are made with forced labor. By reversing the burden of proof from CBP needing to find evidence of forced labor to importers needing to provide evidence of not using forced labor, legislators hope to target human rights abuses more effectively and encourage companies to shift their supply chains out of the region. Some multinational companies with suppliers in the Xinjiang region are lobbying against the UFLPA. Critics of the WRO and UFLPA say that CBP will still face the challenges of identifying and targeting forced labor further downstream in vast and opaque supply chains of final products that arrive as imports.

Q4: How might an import ban on most Chinese PV cells/modules affect the U.S. solar industry?

A4: While the effectiveness of WROs and the UFLPA are debatable, the moral merit of the objective to end forced labor imports is generally unquestioned in the United States. To understand the potential effects of a Xinjiang import ban on the U.S. domestic solar industry, one can look at the effects of the previously enacted duties on Chinese PV products. Supporters of the trade remedies argued that they would boost domestic PV manufacturing. Instead of significantly increasing domestic production of PV modules, the antidumping and countervailing duties imposed in 2012 and 2015 led to a dramatic shift in where U.S. solar cell and module imports came from. In 2012, almost 60 percent of U.S. PV module imports came from China, but in 2019, China represented only 2 percent of total PV module imports. Malaysia, Vietnam, Thailand, and South Korea accounted for nearly 87 percent of PV module imports in 2019. But China has continued to dominate global production of PV cells and modules in the last decade. Furthermore, the duties had an adverse effect on U.S. exports of polysilicon after China implemented retaliatory tariffs on the raw material. Antidumping duties and safeguard tariffs contribute to why solar modules are more expensive in the United States than global average selling prices. For example, solar modules in the United States cost approximately 79 percent more than in major European markets.

Opponents of the tariffs argue that the U.S. solar industry is not heavily involved in component manufacturing, but rather in the design, sales, final assembly, and installation of solar energy systems. The National Solar Jobs Census found that the U.S. solar industry employed approximately 250,000 workers in 2019, with less than 14 percent of these jobs in manufacturing. The Bureau of Labor Statistics expects solar PV installers to be the third fastest growing occupation in the United States over the next decade. U.S. consumer demand for solar energy is price-sensitive, with both fossil fuel and renewable alternatives. Existing tariffs and any potential import restrictions on PV cells would ultimately raise the cost of solar installations, slowing consumer demand and consequently harming employment across the industry.

Q5: How can the United States target forced labor while also protecting the domestic solar industry?

A5: A number of companies and industry associations urged President Biden in a letter to end the existing Section 201 tariffs on PV cells, arguing the tariffs added costs to solar projects and slowed opportunities for job creation and emissions reductions. Some of these same companies, however, have also pledged to actively ensure that forced labor is not in their solar supply chains, which could further contribute to higher costs of solar modules in the United States relative to other markets that continue to import components from Xinjiang. Industry analysts say the U.S. government needs both demand-side and supply-side policies to facilitate greater demand and domestic production of solar equipment to achieve President Biden’s ambitious goals for job creation and decarbonization of the electricity sector by 2035.

On the demand side, as part of the December 2020 $2.3 trillion coronavirus relief and government funding bill, Congress extended investment tax credits for residential and commercial solar projects for two years. President Biden’s $2 trillion infrastructure plan also calls for a 10-year extension of investment and production tax credits on renewable energy generation and storage. The federal government, as the largest energy consumer in the country, also has the ability to increase solar energy demand through procurement. President Biden’s recent directive to transition the federal, state, and tribal government vehicle fleets to zero-emission vehicles is an example of the White House’s power to boost demand for renewable energy consumption.

On the supply side, the White House infrastructure plan pledges $100 billion toward modernizing the nation’s electric grid, with a goal of achieving a carbon-free electricity grid within 15 years. In 2020, fossil fuel sources accounted for more than 60 percent of U.S. utility-scale electricity generation, while solar energy only accounted for 2.3 percent. The U.S. Department of Energy recently announced $128 million in funding to reduce costs, improve performance, and speed the deployment of solar energy technologies, as a first step toward putting the country on track to meet President Biden’s goal of 100 percent clean electricity by 2035. The funding also includes investments in research and development of alternatives to polysilicon-based PV cells for solar energy capture. More broadly, Senate Majority Leader Chuck Schumer is planning a comprehensive investment package led by his bipartisan-introduced Endless Frontier Act aimed at enhancing U.S. competitiveness with China in 10 priority areas, including energy technology.

Q6: How will U.S. actions to combat China’s forced labor affect the global market for solar PV cells?

Q6: While the Biden administration’s approach to supporting the domestic solar industry and consumer market will support the growth of solar power in the United States, import restrictions such as those proposed in the UFLPA will still disrupt the global PV cell market that is heavily tied to Xinjiang production. U.S. subsidies may offset the increased costs to its own domestic solar firms, but China has repeatedly warned that it will retaliate against any trade measures or sanctions over Xinjiang allegations, which could, on balance, harm U.S. manufacturers of solar panels.

Still, unlike with the previously imposed ongoing trade remedies on PV cells, the U.S. government is compelled by law and policy to address China’s forced labor practices. Rather than push China to end its abuses, import restrictions—or voluntary rerouting of supply chains—could result in a shift of Xinjiang-produced components to the Chinese domestic market and foreign markets without human rights-driven import restrictions. Trade restrictions might not only fail to slow abusive practices but could make U.S.-made solar equipment more expensive relative to foreign-manufactured equipment with Chinese components. Increased costs could have an adverse effect on domestic solar demand and U.S. solar equipment exports serving a growing global demand for renewable energy sources. According to the World Trade Organization, the United States was the third largest solar goods exporter with a 10 percent share of $300 billion of world merchandise exports of solar-energy powered goods and related products in 2019—behind China (28 percent) and Japan (10 percent).

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Seán Arrieta-Kenna is an intern with the CSIS Scholl Chair.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s). 

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