US Department of Commerce Seeks Public Comments on Potential Changes to Section 232 Exclusion Process

On May 26, 2020, the US Department of Commerce, Bureau of Industry and Security (“DOC”) published a Federal Register notice seeking written comments on ways to improve the exclusion process for tariffs and quotas imposed on steel and aluminum imports pursuant to Section 232 of the Trade Expansion Act of 1962 (“Section 232”). In particular, DOC is requesting comments on the appropriateness of the information requested and the factors considered in rendering decisions on requests for exclusions, and the efficiency and transparency of the process employed. The notice establishes a deadline of July 10, 2020 for filing written comments, and DOC has indicated in a press release that it will accept rebuttal comments until August 10, 2020. In a statement concerning DOC’s new inquiry, Secretary of Commerce Wilbur Ross explained that DOC “is continually looking for ways to improve the exclusion process for Section 232 tariffs and quotas…[w]e want these critical national security measures to be applied effectively while avoiding unnecessary impacts on downstream American industries.”

In addition to the above deadlines, the notice sets forth suggested topics for comments to address. We provide an overview of the notice below.

Request for written comments

DOC is requesting that interested parties submit written comments on the appropriateness of the factors considered, and the efficiency and transparency of the process employed, in rendering decisions on requests for exclusions from the tariffs and quotas imposed on imports of steel and aluminum articles under Section 232. Suggested topics for potential comments include the following:

• The information sought on the exclusion request, objection, rebuttal and surrebuttal forms;
• Expanding or restricting eligibility requirements for requestors and objectors;
• The Section 232 Exclusions Portal;
• The requirements set forth in Federal Register Notices 83 FR 12106, 83 FR 46026, and 84 FR 26751;
• The factors considered in rendering decisions on exclusion requests;
• The information published with the decisions;
• The BIS website guidance and training videos;
• The definition of “product” governing when separate exclusion requests must be submitted; and
• Incorporation of steel and aluminum derivative products into the product exclusion process.

DOC also invites comments on potential revisions to the exclusion process, including, but not limited to:

• One-year blanket approvals of exclusion requests for product types that have received no objections as of a baseline date;
• One-year blanket denials of exclusion requests for product types that have received 100 percent objection rates and never been granted as of a baseline date;
• Time-limited annual or semi-annual windows during which all product-specific exclusion requests and corresponding objections may be submitted and decided;
• Issuing an interim denial memo to requesters who receive a partial approval of their exclusion request until they purchase the domestically available portion of their requested quantity;
• Requiring requestors to make a good faith showing of the need for the product in the requested quantity, as well as that the product will in fact be imported in the quality and amount, and during the time period, to which they attest in the exclusion request;
• Requiring objectors to submit factual evidence that they can in fact manufacture the product in the quality and amount, and during the time period, to which they attest in the objection;
• Setting a limit on the total quantity of product that a single company could be granted an exclusion for based on an objective standard, such as a specified percentage increase over a three year average;
• Requiring that requesters citing national security reasons as a basis for an exclusion request provide specific, articulable and verifiable facts supporting such assertion;
• Clarifying that the domestic product is “reasonably available” if it can be manufactured and delivered in a time period that is equal to or less than that of the imported product, as provided by requestor in its exclusion request;
• Requiring that requestors, at the time of submission of their exclusion requests, demonstrate that they have tried to purchase this product domestically;
• In the rebuttal/surrebuttal phase, requiring that both requestor and objector demonstrate in their filings that they have attempted to negotiate in good faith an agreement on the said product.

Finally, DOC also welcomes any specific details about the commenter’s experience with the exclusion/objection process as background to their comment. The notice sets forth a deadline of July 10, 2020 for written comments on DOC’s inquiry. In addition, DOC’s May 22 press release on the inquiry states that “[r]ebuttal comments will be accepted until August 10, 2020,” and that such comments “may only address issues raised in comments filed on or before July 10, 2020.”

Comments will be placed in the investigation docket (BIS-2020-0012) and will be open to public inspection, except for business confidential information (BCI). Materials designated as BCI will be exempt from public disclosure as provided for by part 705.6 of the NSIBR. Parties submitting business confidential information must clearly identify the business confidential portion of the submission, file a statement justifying nondisclosure and referring to the specific legal authority claimed, and provide a non-confidential version of the submission which can be placed in the public file.

Written comments may be submitted to the Federal rulemaking portal: http://www.regulations.gov (docket BIS-2020-0012). Commenters should refer to RIN 0694-XC058 in all comments and in the subject line of email comments.

Outlook

The impetus for DOC’s inquiry is not explained in the notice, but the Section 232 exclusion process has faced criticism from both requesters (i.e., US importers and consumers of steel and aluminum products) and domestic steel and aluminum producers.

• Requesters have cited, among other complaints, the burdensome nature of the process for composing and submitting exclusion requests; the lengthy waiting period for DOC’s decisions (which has exceeded 90 days in many cases); the allegedly arbitrary nature of DOC’s acceptances and denials; the lack of clarity regarding approved exclusions’ terms; and the perception that, when a US steel or aluminum producer objects to an exclusion request, DOC generally defers to the objection. Some stakeholders also have proposed changes to the exclusion process aimed at addressing these concerns. For example, some Members of Congress have urged DOC to allow a broader range of products to be included in a single exclusion request, and to make groups such as trade associations eligible to file requests. In addition, DOC’s practice of making exclusions available only to the requesting entity (rather than all importers of the product at issue) is currently the subject of a legal challenge at the US Court of International Trade. DOC’s notice solicits comments on some of these topics (e.g., expanding or restricting eligibility to submit exclusion requests and changing the definition of a “product” meriting a separate exclusion request), but does not expressly contemplate changes to the requester-specific nature of exclusions.
• By contrast, US producers of steel and aluminum products have expressed concern that the current exclusion process undermines the effectiveness of the Section 232 measures and the competitiveness of the domestic industry. For example, in an April 22 letter to Secretary Ross, the US Aluminum Association alleged that the exclusion process as currently administered “is hurting the competitiveness of the U.S. aluminum industry and incentivizing imports of aluminum products,” and that “the Department continues to grant exclusions from the Section 232 tariffs on massive volumes of aluminum flat-rolled products (including imports from China).” As an example, the letter states that DOC in 2020 “has granted exclusions for nearly 5 billion pounds of aluminum can sheet,” and that “[t]hose granted exclusion requests cover more aluminum can sheet than the entire U.S. market consumes in a year and dwarfs historical import trends for that segment.” The letter further notes that there have been a number of exclusions for flat-rolled products granted this year “despite domestic producer objections.” The letter proposes several reforms to the exclusion process aimed at addressing these concerns, including (1) reviewing all exclusion requests to ensure that volumes identified in each request are proportional to historical US import volumes, and applying “heightened scrutiny” to requests that exceed the requestor’s historical volume of imports; (2) restricting eligibility for exclusion requests from importers who are not manufacturers “so that only importers who are in some way transforming the aluminum are eligible for an exclusion”; and (3) limiting exclusions only to those products outside of the capability of domestic producers or for which there is no US production.

Given the importance of the Section 232 exclusion process and the competing views regarding potential reforms, it is expected that many importers and domestic producers of steel and aluminum products will respond to DOC’s request for public comments with specific proposals – particularly given that the Trump administration appears to have no intention of terminating the Section 232 measures in the near term. However, DOC’s notice provides only a brief window of 45 days before comments are due, even though changes to the exclusion process could have substantial and longstanding implications for US producers and importers, as well as global trade patterns. It is therefore critical for interested parties who wish to have their views on the record in this proceeding to begin working now to prepare their written submissions.

DOC’s notice can be viewed here.

DOC’s press release on the inquiry can be viewed here.

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