The U.S. government on June 24 said it will block imports from one of the solar industry's biggest raw-material suppliers over allegations the company uses forced labor at its facilities in China's autonomous Xinjiang region.

The White House said U.S. Customs and Border Protection ordered officers to immediately detain shipments containing silica-based products from Hoshine Silicon Industry Co. Ltd. and its subsidiaries and to screen them for connections to forced labor. Hoshine is the world's top producer of metallurgical-grade silicon, or silicon metal, according to the Critical Raw Materials Alliance. Silicon metal is a key ingredient in polysilicon, which, in turn, is an essential feedstock in most solar panels.

Troy Miller, the senior official performing the duties of the commissioner for Customs and Border Protection, or CBP, said at a news conference that the agency has evidence that workers at Hoshine facilities in Xinjiang were subjected to threats and intimidation as well as restriction of movement.

"CBP investigates allegations of forced labor in U.S. supply chains and will continue investigating allegations in the polysilicon industry and other industries in Xinjiang and elsewhere," the White House said in a statement.

Hoshine did not respond to a request for comment.

A spokesperson for China's Foreign Ministry on June 24 said Beijing "strongly condemns the sanctions that the U.S. imposes on Chinese companies based on lies and disinformation."

'Turmoil' for the US solar market

According to Johannes Bernreuter of Bernreuter Research, Hoshine's customers in the polysilicon sector have a combined global market share of more than 90%. "This will cause turmoil [in] the U.S. solar market," Bernreuter said in an email.

Philip Shen, a senior research analyst at Roth Capital Partners, said the import restriction could have "a significant negative impact on the whole U.S. solar industry."

"Access to solar modules in the U.S., in our view, could be severely limited by this order as we believe isolating and tracing [silicon metal] through the supply chain could represent a significant challenge," Shen said in a June 23 note after Bloomberg News reported that the U.S. government planned to target imports linked to Hoshine.

Customs and Border Protection Executive Director Ana Hinojosa said at the news conference that the agency is still investigating connections between Hoshine and U.S. importers and end-product manufacturers "to determine what additional targeting" is needed at U.S. ports.

During the past two-and-a-half years, the U.S. imported approximately $6 million of goods directly from Hoshine and its subsidiaries and $150 million worth of products that contain material from the group, Hinojosa said, citing an initial assessment by CPB. That represents a small fraction of the country's solar market, though Hinojosa added the agency's numbers are "evolving." During the first quarter of 2021, the value of all U.S. solar panel imports was $2.14 billion, according to the U.S. Energy Information Administration.

"I think the only safe way to interpret this measure is this is an opening salvo. [It] is something that is going to continue to draw attention and action," Nathan Picarsic, co-founder at Horizon Advisory, a consulting firm that has investigated China's solar industry for labor abuses, said June 24 on a conference call hosted by Roth Capital Partners. "It's going to take a little bit more digging, but they'll find the rest of the tentacles that reach out from Hoshine."

Hinojosa declined to comment on the agency's investigative activities.

John Smirnow, general counsel and vice president of market strategy at the Solar Energy Industries Association, or SEIA, said in a statement that the trade group supports U.S. efforts to eliminate forced labor from the solar supply chain. "The fact is, we do not have transparency into supply chains in the Xinjiang region, and there is too much risk in operating there," Smirnow said. "SEIA will continue to work with the administration and our partners to stand against forced labor and build a clean energy future we can all be proud of."

SEIA began urging companies to pull their supply chains out of Xinjiang in October 2020 in response to questions from S&P Global Market Intelligence about the industry's deep ties to polysilicon producers in the region. In April, the group issued guidance to help companies trace their international supply chains and to try to prevent products made with forced labor from entering the country.

"Most of the industry has really been focused on polysilicon, because that was where the main concern was," Smirnow said in early June. "But if you implement the [tracing] protocol, you'll be able to capture silicon metal, and you'll be able to show where the silicon metal came from."

But 'not a big obstacle'

Andy Klump, CEO of Clean Energy Associates LLC, a China-based consulting firm specializing in solar supply-chain issues, said the outlook for the U.S. solar market is not as "negative as what may have been thought at first."

"The entire market doesn't all go through Hoshine," Klump said on the call that Roth hosted, adding that the industry is already learning how to deal with higher costs. "We've seen this happen already with COVID. We've seen this happen with polysilicon cost increases ... we've seen that with the shipping costs increase and logistic challenges. So, this is not a big obstacle in terms of the industry moving forward."

Elise Shibles, an attorney with Sandler, Travis and Rosenberg who specializes in trade issues, said the full impact on the solar industry will depend on how Customs and Border Protection enforces the import restriction. "How do they target incoming shipments, and how do they allow other shipments that they're not concerned about to move freely?" Shibles said on the Roth call. "I think it's to be seen what their targets are and what percent of trade that covers."

The allegations of labor abuses in China's solar industry pose a potentially serious challenge to President Joe Biden's efforts to limit climate change. China shipped 62% of the world's solar cells and panels in 2020, according to Paula Mints, chief analyst at SPV Market Research. Including capacity that Chinese manufacturers have moved to other parts of Asia, the country's share of global shipments rises to more than 80%. During the first quarter, approximately one-third of the solar panels imported to the U.S. came from China and Hong Kong, according to research firm Panjiva.

"The environmental goals are a priority for this administration," Department of Homeland Security Secretary Alejandro Mayorkas said at the June 24 news conference. However, "our environmental goals will not be achieved on the backs of human beings in a forced-labor environment."