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Steel and Aluminum Tariffs – Section 232 Exclusion Primer

By Mark Ludwikowski
Clark Hill, PLC

Is globalization entering a new phase? Recent U.S. trade actions and threats of retaliations from other countries suggest that global trade is experiencing new headwinds. Signals of this shift appeared in the 2016 Brexit referendum and Donald Trump’s presidential campaign in which he repeatedly promised tougher measures on imports to protect U.S. industries. Hence the imposition of tariffs on global steel and aluminum imports and on as much as $60 billion worth of Chinese goods may not come as a surprise. But the impact is already being felt by importers and consumers, leaving many to seek ways to minimize their exposure. 

The broad economic implications of these actions may take months or years to manifest themselves. Meanwhile, affected companies may consider practical steps to improve their situation. One approach is to seek exclusions from the tariffs. For users of imported steel and aluminum, recently published exclusion guidelines provide such an opportunity.[1] However, since the exclusions may be granted on a first-come first-serve basis, time will be of the essence in completing the applications and receiving expeditious review by the Department of Commerce (DOC) as soon as possible.

On March 23, 2018, global tariffs of 25% on steel and 10% on aluminum went into effect pursuant to a Section 232 national security investigation completed in February by the DOC.  These tariffs cover a broad range of steel and aluminum products, and as described below carve outs for specific products will need to meet certain criteria. The tariffs are in addition to any duties that would otherwise be owed (e.g., antidumping or countervailing), and are not cumulative. In other words, the Section 232 tariffs would be calculated on the base dollar value of the importation without consideration of any other duties.

A separate process for exempting countries from the tariffs will be handled by the office of the United States Trade Representative. Based on the March 8 Presidential proclamations, Canada and Mexico were already excluded, and in a March 22 statement the White House also added exemptions for Argentina, Australia, Brazil, member countries of the European Union and South Korea. These exemptions are in effect until May 1, 2018, pending “discussions of satisfactory long-term alternative means to address the threatened impairment of U.S. national security.”

Comments on the Process

In a way, the Section 232 tariffs are uncharted territory for many of the parties involved.  This law is a relic of the Cold War which has only been used on just 26 previous occasions, and only twice since 1995.  The sub-agency within the DOC which is assigned to administer this proceeding is the Bureau of Industry and Security (BIS).  BIS’s normal role is to regulate products subject to export controls. It has not previously had to consider these types of product exclusions from Section 232 tariffs.  Moreover, given the broad application of the tariffs, BIS will certainly be hit with a multitude of product exclusion requests, which may add to processing delays.

Likewise, this is a fairly new area for Customs and Border Protection (CBP) which will have to enforce the tariffs.  Importers can expect increased scrutiny from CBP on whether tariffs are properly being paid.  CBP has indicated that it will be closely monitoring compliance and that companies will be responsible for paying the tariffs while their exclusion request is under consideration. This may lead CBP to send more Form 28s to importers for additional information as the agency will be paying attention to misclassifications, undervaluing or transshipment through exempted countries.  

Since the DOC’s notice includes interim rules, interested parties will have an opportunity to comment on them by May 18, 2018.  Comments may be used to solicit clarification from the DOC on questions that arise from the interim rules. For example, one open question is what sort of information will importers have to provide to CBP to prove that their import is not subject to the tariffs (either due to a country exemption or product exclusion)? Can a country of origin certification suffice? Will this information need to be included with the shipment documentation or will it have to be submitted as part of a CF 28 request for information?

Another potential issue concerns how the Section 232 tariffs be applied to products entering a foreign trade zone (FTZ) for further processing. Will those products need to be placed into “privileged foreign” status or other designation upon admission to the FTZ?

Still another concern is how the DOC intends to handle retroactivity for tariff exclusions. For example, if a product is found on July 1, 2018 to be excluded from tariffs, will the importer be able to seek refunds of duties paid on the subject merchandise since the tariffs’ effective date of March 23? If so, what will be the process?

What if the exclusion request is denied? How will the appeal process look? This is another clarification that the DOC should be asked to provide in the final rules.

Other questions involve the technical aspects of the application process. The rules indicate that the application can be filed by individuals or organizations that use the imported steel or aluminum in their activities. In that sense, the mechanics of the application form are very company-specific. But will industry groups, such as trade associations, be able to participate beyond an advisory role and in a more direct way in the exclusion process on behalf of their U.S. members?  

Also, the form instructions indicate that the information submitted will be available for public disclosure, but confidential treatment can be requested for supporting documentation. A practical question for the DOC would be on whether a specific protocol needs to be followed by the applicant to ensure that their confidential information be granted proprietary treatment.

In the meantime, the announced rules are in effect and provide instructions on how to apply for exclusions from the tariffs. The application process is the same for both steel and aluminum products.

Applications

  • The DOC is authorized to grant exclusions from tariffs if the steel or aluminum products are determined not to be produced in the United States in a sufficient quantity and reasonably available amount or of satisfactory quality, or based upon specific national security considerations. To be successful, applications will need to provide sufficient supporting information covering these factors.
  • Applications for exclusions must be submitted using forms available on the DOC’s website at:

https://www.bis.doc.gov/index.php/232-steel

https://www.bis.doc.gov/index.php/232-aluminum

A separate exclusion request must be filed for each distinct type or dimension of imported steel or aluminum product.

  • Only individuals or organizations operating in the United States that use the subject steel or aluminum in their business activities can submit the applications. The forms require information that is specific to the applicant, including the importer of record, parent company, business activity, shipment details, product chemistry and specifications, and industry standards, among others.
  • Parties considering exclusions are advised to coordinate between importers of record and end users to determine who is in the best position to file the application(s).
  • Exclusions will be made on a product basis and will be limited to the applicant, unless the DOC broadens the exclusion to include other users. The DOC has indicated that it will give blanket exclusions to all affected importers for particular products if the circumstances are warranted.
  • The submitted applications will be made available to the public. Applicants that submit confidential information with their requests will need to specifically request proprietary treatment. Exclusion requests are limited to 25 pages.
  • Application reviews will normally not exceed 90 days. But given the expected high demand for exclusions, this review period may be longer.
  • Approved exclusions will be effective five business days after the DOC’s determination. They will generally be approved for one year.
  • The DOC will issue an identifier for each approved exclusion request to CBP. Importers will need to present these identifiers with the shipment documentation to CBP to determine if the shipment qualifies for exclusion from the tariffs.
  • The DOC has indicated that it plans to allow for retroactivity for tariff exclusions and has asked CBP to use “an escrow account” similar to the process used for collection of antidumping and countervailing duties.

Objections

The interim rules also provide an opportunity for interested parties to submit objections to the exclusion requests within 30 days of their filing. These objections can be submitted through separate DOC forms and will be available for public disclosure.

As of March 22, 2018, we understand that the DOC had already received over 100 exclusion requests. Since exclusion determinations will be made on a rolling basis, applicants are advised to submit thoroughly documented requests as early as they can.  They may also be able to gain additional support through industry associations, as well as political and public relations outreach.

Mark Ludwikowski is a partner in the International Trade Practice Group of Clark Hill, PLC and is resident in the firm’s Washington D.C. office. He can be reached at 202-640-6680 and

[1] https://www.federalregister.gov/documents/2018/03/19/2018-05761/requirements-for-submissions-requesting-exclusions-from-the-remedies-instituted-in-presidential.

 

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