What to expect if you are thinking of filing a 232 Product Exclusion Request
At a recent trade conference, White House officials described the Administration’s trade policy as “bold, creative and disruptive.” President Trump’s use of Section 232 of the Trade Expansion Act of 1962 to impose tariffs and quotas based upon national security concerns is one example of this new approach. Using this tool, on March 8, 2018, President Trump fulfilled a promise and imposed, effective June 1, 2018, a 25% duty on imports of steel products from all countries of origin except Argentina, Brazil and South Korea, which capitulated to quotas. He also imposed a 10% duty on imports of aluminum products from all countries, except for Argentina which also agreed to quotas. Australia was the only country spared tariffs or quotas on their metals. Details on the 232 tariffs appear on the Customs & Border Protection (CBP) website.
There is a process to ask for an exemption from these onerous taxes. It is neither quick nor easy but it is an available avenue of relief. The Bureau of Industry and Security (BIS) at the Commerce Department set forth rules on March 19, 2018 (83 Fed. Reg. 12106) for requesting product-specific exclusions and for filing objections to such requests. The process was revised on September 11, 2018, to permit rebuttals to objections and surrebuttals. (83 Fed. Reg. 46026). These changes were made after various members of Congress and industry expressed concerns. For example, on April 19, 2018, then Senate Finance Committee Chairman Orrin Hatch (R-UT) and ranking member Ron Wyden (D-OR) wrote a letter to Commerce Secretary Ross demanding changes to the process claiming that it lacked “basic due process and procedural fairness for stakeholders.”
Only individuals or organizations using steel and aluminum articles in business activities (e.g., construction, manufacturing, or supplying steel/ aluminum to users) in the United States may make requests. That may mean that the requester is not the importer of record. If a non-importer user is the requester, the user will have to work with the actual importer, often the supplier or distributor, to collect the information, regarding the importation of the product, such as tariff classification, country of origin, ports of entry. Sometimes, the product description details are proprietary to the customer or supplier. This poses special challenges for the requester, not usually privy to such information. In such situations, a general description can be given with a notation that the details are proprietary and unavailable to the requester.
Generally, exclusions will be made on a product basis and will be limited to the individual or organization that submitted the specific request. The regulations were also revised on September 11, 2018, to allow for requests based on size ranges within the same Harmonized Tariff Schedule (HTS) code to reduce the unanticipated volume of requests experienced by BIS. (83 Fed. Reg. 46026). This has been a useful change reducing the need to make multiple requests. The revised regulations also provide a “streamlined review” for requests with no objections. Unfortunately, there is still a huge backlog of requests. It also provided criteria for evaluating U.S. product availability to meet the requester’s product need. For example, it defined “immediately” as meaning whether a product is currently being produced or could be produced “within 8 weeks” in the amount needed in the business activities of the user.
BIS forms must be used for requests. They are available on BIS’s website. Requests are filed on www.regulations.gov referencing BIS-2018-0006 for steel and BIS-2018-0002 for aluminum. Requests are made public on the website but the requester may provide additional proprietary information separately in support of the request. BIS lists in its FAQs the most common errors companies make in submitting exclusion requests that result in requests not being posted for public comments.
A product exclusion will be granted if the product is not made in the U.S. (1) in a sufficient and reasonably available amount; (2) satisfactory quality; or (3) there is a specific national security consideration warranting an exclusion. Many requests are based on the grounds that the product is not made in the U.S. in a sufficient and reasonably available amount of satisfactory quality.
A common reason for denial of request is the use of the wrong HTS code. In such case, the requester should ascertain the correct HTS classification because it is important that they classify their merchandise properly for customs compliance. However, in cases where the user is not the importer of record the requester does not control the tariff classification. This can pose an obstacle to obtaining relief.
There have been various concerns raised by industry groups and members of Congress about the fairness of the process, especially to U.S. manufacturers and small businesses. The costs of the tariffs themselves as well as the time, effort and professional services needed to make exclusion requests has even been covered in the mainstream press, including these articles from NPR and NPR Illinois.
Timeliness in rendering decisions has been a nagging problem and so has the process itself, which is clunky and difficult to use. For example, on March 11, 2019, Congresswoman Walorski (R-Ind.) sent Commerce Secretary Ross a second letter about the product exclusion process, stating “it has been a master class in government inefficiency and plagued by maddening inconsistency.” She raised a myriad of issues “in hopes of working with you to improve its fairness, transparency, and efficiency for all participants.”
The current portal for filing requests on www.regulations.gov makes it difficult to track requests and comments thereto. There is no unitary docket for such filings. Each filing is given a different tracking number, which is followed by a BIS identification number. The posting of filings, whether initial requests, objections, rebuttals or sur-rebuttals is not immediate so timing of the posting is unpredictable, making it even harder to track requests and determine deadlines.
In response to a request made by Senators Toomey, Jones and Carper, the Government Accountability Office (GAO) is reviewing the steel and aluminum tariff exclusion process. In a December 19, 2019 statement, Senator Toomey specifically noted the flawed product exclusion process.
BIS tested a new portal in December that it said “will streamline the process for external parties” by allowing them to view all documents for a given request in one place. This would be a much welcome change. Unfortunately, the new portal for filing requests is still not up and running. The latest word is that the portal will go live 15 days after a Federal Register notice is posted. It is anticipated that this might happen within the next 90 days.
You may ask why bother given all these problems? While not quick or easy, it is still important that companies make the effort to avoid these onerous duties. Exclusions are in fact granted. Even if not granted the first time, corrections can be made and requests refiled. Given the Congressional oversight and industry pressure, hopefully there will be improvements. It is thus important to keep your representatives in Congress informed as to your experience. There are also resources to benchmark your company’s experience. For example George Mason University Mercatus Center has been collected data on the exclusion process. Finally, companies that have been granted exclusions should be mindful of the need to seek renewals since approvals are only good for a year.