U.S. Department of Commerce Makes Substantive Changes to Section 232 Steel and Aluminum Tariff Exclusions Process
The U.S. Department of Commerce (Commerce) has announced upcoming changes to improve its Section 232 exclusion process. The initial rollout of the Section 232 exclusion process via the Federal eRulemaking website was superseded by the creation and implementation of a dedicated “portal” for interested parties to file exclusions. Subsequently, Commerce sought further public comment on the revised exclusion process. Based on additional comments received, Commerce has now proposed an interim rule that makes three major changes to the process. These changes are: (1) implementation of “General Approved Exclusions” (GAEs); (2) volume certifications; and (3) clarifications on objector standards for delivery. The interim rule becomes effective on December 14, 2020, with the exception of the GAEs, discussed in further detail below. The GAEs will become effective December 29, 2020. Comments to Commerce on this interim final rule are due by February 12, 2021.
(1) General Approved Exclusions
A long-requested modification to the exclusion process, the GAEs are intended to create a more efficient method for approving exclusions of articles that have not received objections in the past. Effective December 29, 2020, the GAEs will permit importers to enter the enumerated items free from Section 232 duties without applying for an exclusion. These exclusions may be used by any importing entity and, unlike the importer-specific exclusion requests previously granted by the Bureau of Industry and Security (BIS), the GAEs do not include quantity limits. Commerce estimates this will lead to an immediate decrease of approximately 5,000 exclusion requests annually.
As part of the latest rulemaking, Commerce has already approved GAEs for a mix of steel and aluminum products. Some eligible articles are designated at the 10-digit Harmonized Tariff Schedule of the United States (HTSUS) statistical reporting number. Still, others are more narrowly defined at the product level. Of note, Commerce has left the door open for future exclusions to be added to this list, but has not created a formal process for advocating for a GAE. Accordingly, it is unclear what process will be followed for companies to request the addition of GAEs in the future. It seems likely that Commerce intends to initiate and implement any additional GAEs based on patterns that may show up in future exclusion requests (such as repeated exclusion requests for the same imported article that receive no objections from domestic producers).
(2) Volume Certifications
In an attempt to limit a trend whereby exclusion requesters may have requested more volume than they need compared to past usage, Commerce has implemented a new certification requirement. Specifically, requestors must now certify that they:
Do not intend to use the requested exclusion, if granted, solely to hedge or arbitrage the price;
Expect to consume, sell, or otherwise use the total volume of product across all their active exclusions and pending exclusion requests in the course of their organization’s business activities within the next calendar year;
Either imported the full amount of their approved exclusion(s) last year, or intended to import the full amount but could not due to a listed legitimate business reason;
Have requested a quantity that is in line with what their organization expects to import annually based on their current forecasts; and
Will provide upon request documentation that justifies their assertions in the certification regarding past imports of steel or aluminum articles and projections for the current year.
The volume certification marks a win for domestic objectors that have been forced to expend resources objecting to hundreds of identical exclusion requests that appear to exceed any reasonable volume amounts from the same requester. In a system where Commerce’s ultimate determination often depends on whether or not an objection was filed, this placed a heavy burden on domestic producers to monitor the exclusion process to prevent even a single exclusion from being filed without objection.
Even with such new volume certification requirements for exclusion requests, it is likely that domestic objectors must still take on a policing role with respect to exclusion requests. Commerce nonetheless has concluded that the steeper consequences associated with the certification will help to curtail such actions by requesters and assuage domestic objectors’ concerns. Under the new regime, Commerce reminds requesters that a false statement to the U.S. government, such as materially misstating past import volumes, is potentially a criminal offense (18 U.S.C. § 1001). At the same time, the certifications are likely to frustrate requesters who may find it difficult to predict their volume requirements over the annual period covered by most exclusion requests. In the past, some requesters have complained that the delays by BIS regarding the timing for reviewing and granting exclusion requests make it difficult to adequately forecast volume requirements.
(3) Objector Standards for Delivery
The interim rule also makes changes to the information that domestic producers must provide concerning their ability to “immediately” meet the requester’s requirements for the product that is subject to the exclusion request. Some domestic producers have objected that the previous interpretation of “immediately” required them to prove that they had the ability to provide the subject material within eight weeks, whereas foreign suppliers were not held to the same standard and could take much longer. Thus, while the interim rule retains the “immediately” language regarding ability to supply, it clarifies that foreign suppliers and U.S. objectors are held to the same standard.
What Is Not Addressed?
The December 14, 2020, interim rule is intended to address some of the substantive issues identified by comments with respect to the Section 232 exclusion process. However, many comments are not addressed by this latest rulemaking. For example, some commenters have proposed ways in which the portal and the overall exclusion process could be improved through technical changes, such as allowing interested parties to submit confidential information via the portal (now done by email) and improving the search and notification functionality of the portal platform. In the latest interim rule, Commerce announced that these comments are still being evaluated and it will address them and potentially implement additional changes at a later date. Commerce has not provided a time frame as to when these additional concerns may be addressed.
Commerce has also not yet addressed criticism from some interested parties regarding what they view as the outsized influence of objections in the 232 exclusion process. However, recent litigation indicates that Commerce may need to tread lightly in future decisions with respect to balancing the weight given objections and meeting its statutory procedural obligations. Other comments have requested that Commerce give preference to granting exclusions on products that are used in downstream U.S. manufacturing. These comments also remain under review by Commerce at this time.