Section 232 Steel Product Exclusion Process Will Be Determined by Participation of U.S. Steel Mills

News & Insights
Apr 4, 2018

Following its investigation of the effects of steel imports on national security, the U.S. Department of Commerce’s Bureau of Industry and Security (Commerce) recommended that the Administration take action to limit those imports such that, when combined with “good management,” it would “enable U.S. steel mills to operate at 80 percent or more of their rated production capacity.” President Trump subsequently proclaimed the imposition of a 25 percent ad valorem tariff on steel articles, explaining that the trade measure would “help our domestic steel industry to revive idled facilities, open closed mills, preserve necessary skills by hiring new steel workers, and maintain or increase production . . . .” These statements demonstrate that a central objective of the steel tariffs is to facilitate the re-capture of sales lost to import competition by U.S. steel manufacturers.

Consistent with this objective, Commerce has explained that it can grant exclusions from duties for steel articles if these products are not “produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality or based upon specific national security considerations.” Last month, Commerce published its procedures regarding the submission and consideration of requests for product exclusions, as well as the steps for opposing such requests. Exclusion requests are submitted using a form available through the website. Once a request is posted on the docket, “any individual or organization in the United States” has thirty days to submit an objection using another form available through that website.

Despite the agency’s detailed explanation of relevant procedures, however, the standard by which Commerce will weigh exclusion requests against any opposition is unclear. In the absence of clear standards, there is little to discourage a consumer or importer of foreign steel from seeking an exclusion to preserve current supply chains.

Early indications suggest that exclusions will be pursued for products that are clearly available from U.S. producers. Of the seven requests that have been released publicly (four for aluminum and three for steel, two of which were withdrawn for “technical review”), only two assert that there is no domestic production of the article. For one such request, Winter-Wolff International, Inc., asked for an exclusion of aluminum foil sourced from Switzerland used “to build capacitors for the transmission and distribution of electricity.” Winter-Wolff claimed that no U.S. producer could make the foil at “the needed 4.0 micron thickness and laser slitting.” Similarly, although it is not clear that the product at issue would be subject to these tariffs in the first place, Zapp Precision Wire requested an exclusion for coated flat wire imported from Germany and shipped to Mexico with the assertion that “[t]here are no manufacturers of this product form . . . in the United States and none that have package of equipment capable of producing this unique product.” In contrast, the three other exclusion requests for aluminum products, each submitted by the U.S. affiliate of a Russian manufacturer, U.C. Rusal, made no effort to demonstrate a lack of domestic production of the article. Rusal concedes that the aluminum wire products for which it seeks exclusion are available from Alcoa as well as Canadian suppliers, but asserts, without any apparent support, that “the U.S. can only supply approximately 20% of the overall U.S. demand.” At the same time, Rusal’s requests do not identify any attempt to obtain these products from any U.S. producer.

One of the three steel exclusion requests that had been released – filed by Midas International Group, Inc., for stainless steel sheet imported from Taiwan – conceded that the product was widely available. Midas acknowledged that the stainless steel sheet it was importing was also available from suppliers in Korea and the European Union. Still, Midas asked for the exclusion of one container of stainless steel sheet due to arrive in Los Angeles on March 26th, arguing that a grace period should be implemented and claiming that “[w]e know that some importers that have exactly [the] same situation were approved two months ago.”

Another steel exclusion request explained that the requestor, Exco Extrusion Dies, Inc., also sourced the same product (“H13 Tool Steel – Round Bar”) from German and Brazilian manufacturers. Exco Extrusions further acknowledged that a steel manufacturer in Pennsylvania could supply the product and, in fact, had previously sold the same steel to the requestor, but had “lead times [that] are too long to meet our demand” and lacked “capacity to meet our volume.” Exco Extrusions reported that the U.S. producer had participated in the company’s “blanket order negotiations in past years, but in 2017 they withdrew from negotiations citing price.” Exco Extrusions additionally observed that they contacted the U.S. producer “several times” in March 2018 but that the steel mill had “no significant inventory to meet our demand.”

Although the sample size is limited, the exclusion requests released for public review thus far would, on their face, undermine the effectiveness of the trade measure. In five of the seven requests, there does not appear to be any dispute that the product could be sourced from a domestic supplier. Rather, in each of these cases, the requestor expresses a preference for their current suppliers.

Commerce may elect to reject these and similar requests out-of-hand without regard to whether objections to the requests have been received. However, the pursuit of these types of exclusions underscores the importance of domestic producer participation in the exclusion process. As of April 4, 2018, the docket for steel exclusions indicates that 543 comments had been received. This reporting implies that hundreds of steel exclusion requests have been submitted to Commerce and are awaiting public release. Commerce’s administrative capacity to evaluate and analyze these requests in a timely manner will be severely tested. In these circumstances, assistance from U.S. steel mills in determining whether an exclusion would run contrary to the express purpose of the Section 232 steel tariffs should prove invaluable to achieving the Administration’s objectives.