U.S. to Block Some Solar Goods Made in Xinjiang Region

(Bloomberg) --

The U.S. is poised to bar some solar products made in China’s Xinjiang region, according to several people familiar with the matter, marking one of the Biden administration’s biggest steps yet to counter alleged human rights abuses against the country’s ethnic Uyghur Muslim minority.

Xinjiang -- where advocacy groups and a panel of United Nations experts say Uyghurs and other minorities have been subjected to mass arbitrary detention and forced to work against their will -- produces roughly half of global supply of polysilicon, a material critical for solar panels and semiconductors. China has denied the allegations, saying they’re an attempt to undermine successful businesses.

The move targeting Chinese manufacturer Hoshine Silicon Industry (Shanshan) Co., Ltd., which is expected to be announced Thursday, has implications for solar’s supply chain and could force U.S. companies to find material elsewhere. It comes after both the Trump and Biden administrations accused China of “genocide” in a campaign to erase the culture of the predominantly Muslim Uyghurs.

A White House spokeswoman had no immediate comment. Details of the plans were described by people who asked not to be identified prior to the announcement. The Chinese Foreign Ministry didn’t respond immediately to a request for comment sent outside of office hours.

Under the “withhold and release order” the Customs and Border Protection is expected to announce Thursday, imports from Hoshine would be blocked from entry at U.S. ports and only released if they can prove the goods are not made with forced labor.

Hoshine fell as much as 10% in Shanghai trading Thursday.

Separately, the Commerce Department will add five Chinese entities to its export blacklist. According to a notice set to be published in the government’s Federal Register on Thursday, they are Hoshine; Xinjiang Daqo New Energy Co. Ltd; Xinjiang East Nonferrous Metals Co. Ltd.; Xinjiang GCL New Energy Material Technology, Co. Ltd; and Xinjiang Production and Construction Corps., which has previously been sanctioned. American companies that sell to those entities will then require approval from the U.S. government.

Hoshine, East and GCL-Poly didn’t immediately reply to emailed requests for comment. Daqo could not comment on the issue, head of investor relations Kevin He said in a text message.

One of the people familiar with the planned move said the administration is responding to what it sees as forced labor practices that run counter to U.S. values and force American companies to compete on an uneven playing field by allowing Chinese firms to artificially suppress wages.

While the narrow reach of the administration’s steps falls short of a broader ban that had been sought by some activists, organized labor and lawmakers, the person said that further actions may follow and investigations are ongoing.

In May, U.S. climate envoy John Kerry said officials “believe in some cases” that Chinese solar products are being produced by forced labor and confirmed the administration was mulling restrictions.

But Group of Seven leaders clashed earlier this month over how strongly to rebuke China over alleged forced labor practices. In the final communique, the G-7 called “on China to respect human rights and fundamental freedoms, especially in relation to Xinjiang.”

U.S. solar companies, which rely heavily on imported photovoltaic panels, had already begun shuffling supply chains in anticipation of the action. And at least one polysilicon producer in Xinjiang -- Daqo New Energy Corp. -- had opened itself to the possibility of audits and outside scrutiny in a bid to shield itself from U.S. sanctions.

The Solar Energy Industries Association, a Washington-based trade group, which recently unveiled a traceability tool aimed at helping solar importers and manufacturers track the supply of materials, said it supported the planned action. “The fact is we do not have transparency into supply chains in the Xinjiang region, and there is too much risk in operating there,” the association’s general counsel, John Smirnow, said in an emailed statement.

Still, the Biden administration’s move “could have a significant negative impact on the whole U.S. solar industry,” Roth Capital Partners LLC said in a research note for clients. “If implemented, module imports would need to prove that there is no content from Hoshine in order to enter the U.S.”

Hoshine is a major supplier of metallurgical silicon, the raw material used to create solar-grade polysilicon, producing about 800,000 metric tons annually, according to Roth. “Access to solar modules in the U.S., in our view, could be severely limited by this order as we believe isolating and tracing MG-Si through the supply chain could present a significant challenge,” Roth said.

While Xinjiang is a major polysilicon hub, the material is sent for further processing in factories in other parts of China and other countries before it’s ultimately assembled into the solar panels that are shipped to the U.S. That creates additional challenges and would mean supply chain verification efforts would almost certainly require the cooperation of Chinese manufacturers.

A 1930 trade law bars the importation of goods that are mined, produced or manufactured by forced labor -- and empowers the federal government to seize the products or block their entry into the U.S. Under former President Donald Trump, the U.S. Customs and Border Protection in January issued a withhold release order targeting cotton and tomato products produced in Xinjiang

(Updates with share price move in sixth paragraph)

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