The long-awaited 232 polysilicon proclamation issued. There has been much coverage of it already in relation to the US solar industry (see, e.g., NRF, Troutman, White & Case, etc.). I want to cover several important potential “nuclear bombs” built into the Proclamation that much of the industry may be underemphasizing and that I have not seen adequately covered in this first wave of industry commentary.
The bottom line is that “legacy” contracts signed before the Proclamation might not be able to hold their pricing for anything imported on or after December 4, 2026, because even though the minimum import price technically doesn’t apply, (1) the tariff bite could be too much; and (2) the “fixed terms” requirement in the Proclamation further complicates the issue when one considers the practical reality of how module supply agreements are structured and amended. I hedge my language a bit here because I don’t know the outcomes for certain. But let me lay out what people should be thinking about, and what they should be talking to their lawyers about.
First, a very quick summary of the 232 Proclamation to ground the discussion, see the above-cited articles if you want more background. The Proclamation announced a minimum import price (“MIP”) on imports of polysilicon and imports of specified derivative products along the supply chain. The MIPs are as follows, beginning December 4:
$21/kg for polysilicon
$100/kg for ingots and wafers
$0.22/W for cells
$0.38/W for modules
While it is called an “MIP,” technically it is also a quasi-minimum sales price (“MSP”). This nuance is important, and I’ll cover it in follow-on posts. Importers must certify at import entry beginning December 4 that either: (1) the first arm’s-length U.S. sale of the products will occur at or above the MIP, or (2) the sale of the product being imported is pursuant to a “fixed terms” contract entered into before August 6, 2026 (i.e., before the date the Proclamation was signed).1
But besides the MIP there is also a tariff. This is where people should look at the Proclamation very closely. Beginning December 4, there is at least an additional 15% ad valorem tariff that will be applied to imports of ingots, wafers, cells, and modules (with some country-specific exceptions I won’t cover).
I believe “at least” is the way people should think about this for the moment, especially when it comes to “legacy” contracts (the term I will use for contracts signed before August 6). Many contracts are “legacy”, but will have imports into the US after December 4. This would be the case for many utility-scale module supply agreements for delivery in 2027 and beyond, which are signed with relatively long lead times.
To me, the underemphasized clause is 2(c) of the Proclamation, which states:
(c) For importers that submit the documentation referenced in subclause (a) of this clause, in the event that the entered value on the entry summary of the imported merchandise is less than the MIP, the imported merchandise shall be subject to a specific tariff equal to the difference between the entered value on the entry summary and the MIP.
It’s important to note that, on its face, this clause above applies even to instances where the importer has certified it has a legacy contract.2 This could mean that the goods subject to a legacy contract could get a tariff that is much higher than just 15% ad valorem.
It may be easiest to use a rough example to see the potential practical bomb hidden here. Let’s assume that an importer is importing modules after December 4, pursuant to a legacy “fixed terms” contract with a buyer, where the purchase price is $0.28/W DDP. Because the importer and buyer signed the contract before August 6, the $0.38/W MIP does not apply to those modules, so it is acceptable under the Proclamation if this contract has a sales price of $0.28/W rather than $0.38/W.
But the importer must enter the goods at a declared value pursuant to applicable customs law, which could be around ~$0.28/W.3 If so (and before you listen to me you should consult a trade lawyer on this point), then the importer could face:
(1) a tariff of 15% ad valorem (the tariff announced in the Proclamation: ~$0.042/W in this example) but also
(2) an additional “specific tariff” of ~$0.10/W under Clause 2(c) of the Proclamation (the difference between the declared value and the MIP for the module).
If this is true, then the total new tariff burden to the importer selling under a legacy contract at ~$0.28/W could be roughly ~$0.142/W. That amount of tariff on a $0.28/W DDP sales price will be untenable for an importer to bear. Tariff change renegotiation contract clauses are likely triggered here in many cases (which is the second time bomb that we’ll discuss below).
To generalize the above example for the potential implication: under the Proclamation, valid “legacy contracts” with “fixed terms” don’t have to sell at the MIP of $0.38/W for modules, even if the imports under those contracts come into the US after December 4. But the problem is not the MIP, it is the tariff that would apply to those modules: if the importer of modules under those contracts has to declare a customs entered value well below $0.38/W, then the tariff under the Proclamation isn’t just “15%.” Under what I think is a plain reading of Clause 2(c) of the Proclamation, the tariff is then the combination of the 15% ad valorem tariff plus the Proclamation Clause 2(c) tariff.
That combination of tariffs I think will be high enough that it makes the “legacy contract” concept in the Proclamation basically useless for most (all?) legacy contracts that have imports entering into the US after December 4 - which has to be, by my estimation, many GW’s across the industry.
Obviously, this example turns on two pillar questions: (1) “Does the specific tariff in Clause 2(c) of the Proclamation apply to legacy contracts?”; and (2) “Does the importer have to declare well below $0.38/W for such legacy contracts?” If the answer is “yes” to both questions, as I fear it could be, then an importer would have to declare a value for a legacy module contract well below $0.38/W and then pay a ~$0.15/W tariff on a contract that has a DDP sales price sub $0.30/W.
Those economics don’t work, and I can’t see how those contracts aren’t effectively dead. That’s a BFD.
Somewhat related to that, here’s a second potential time bomb for legacy contracts: what exactly does “fixed terms” mean? I have seen no deep commentary dig into this point to date, but this is a critical item, in my view.
Most contracts with a longer horizon for delivery have tariff-change clauses in them. Sometimes the contract might say that the seller and buyer will automatically share a “small” tariff – let’s say they automatically share a small tariff increase 50/50. Sometimes one side or the other may bear a “small” tariff increase. But if the tariff increase is “large,” then often the contracts contain a clause where the parties come back to the table to renegotiate the deal, and there can be termination rights if the parties cannot reach a new deal.4
But if an importer faces a ~$0.15/W tariff on a sub-$0.30/W sales price legacy contract, that is definitely a “large” tariff. So perhaps that tariff could still be renegotiated and reallocated? First, note that those numbers put the effective price change above the $0.38/W MIP itself if such tariff amount were all allocated to the buyer.
Even if you could split any tariff change here with rational economic efficiency to both parties, here’s the next practical problem: does the very act of amending the contract to change the price after August 6 (e.g., to allocate the new tariff amounts imposed) mean that such contract loses legacy status?
Could that same logic carry over to any contract amendment made to a legacy contract where the amendment occurs on or after August 6?
Put another way: if you have a legacy contract signed before August 6, and the parties amend it on or after August 6 (even to just make a minor tweak to the quantity or delivery schedule, as often happens, or to allocate the tariff change in accordance with a typical tariff change clause), does that cause the contract to lose legacy status, because the contract terms are no longer the terms that were “fixed terms” entered into prior to August 6? This is why I think parties to a legacy supply agreement may want to be cautious whether to make any amendment to a legacy contract if the intent is to preserve such legacy status.
In my mind, this is clear as mud in the Proclamation, because the phrase “pursuant to fixed terms in a contract” is not defined. It’s another reason why I think the legacy/grandfathering contract concept may not offer the industry much, if any, protection from prices resetting for any goods imported on or after December 4, whether those goods are being imported pursuant to a legacy contract or not.
The 232 Proclamation leaves a lot to grapple with, and these are just some of the initial questions. If I have time, we’ll do some follow-on posts covering other issues:
pricing dynamics between overseas and US-assembled modules under the 232 regime
rhe blurring lines that will be created around what is effectively not just an MIP, but an MSP
what trade lawyers are saying about the “anti-stockpiling” provision
the fact that the Proclamation could be changed at any time
how I and others were wrong in certain predictions about the 232 from a year ago, and what we could learn from that
Have a good weekend.
Len Conapinski is a partner of DCH Law LLP. All thoughts are my own personally, and not of DCH or of any client of DCH. The lawyerly disclaimer that this is not legal advice definitely applies here - if you were interested enough on this topic to read this far, talk to a lawyer as needed. These are just musings that might be worth about the price you paid for them.
Technically, they don’t have to certify to this, but if they don’t they will face a punitive tariff that makes the import/sale uneconomic.
That’s the reference to subclause (a), which has the legacy contract certification option.
My example is oversimplified to keep the math easy. For example, the declared value might be slightly lower, net of freight costs that would be baked into DDP price.
Of course, what is a “small” tariff increase and what is a “large” one can be negotiated and can vary by deal, but the general concept is a useful heuristic.