Jan 28, 2019

Growing Backlog, Inconsistent Rulings Cast Doubt over Tariff Exclusion Request Process

Christine McDaniel Senior Research Fellow , Danielle Parks Research Assistant

With the US Government in partial shutdown for over a month, during which time the Department of Commerce did not accept or process any further tariff exclusion requests, a bad situation just got worse. Below, we present an update of the tariff exclusion request data and process.

Our key findings are:

  1. Tariff exclusion requests are taking longer than expected to process. Commerce expected a 90-day waiting period, but 76 percent of steel requests have taken longer than that.
  2. Over half of tariff exclusion requests are still pending a decision. The shutdown began December 22 and lasted over a month. As a result, the existing backlog and wait times are expected to increase.
  3. The exclusion request process lacks transparency and firms are often left with uncertainty about the status of their claims. Documents are delayed several days before they are publicly posted, supporting documents have different identification numbers than the exclusion request, and there is no notification system in place.
  4. Rulings on approvals cast doubt on the need for tariffs in the first place. While concerns about China were a driving motivation for imposing the Section 232 tariffs, the approval rate for tariff exclusion requests listing China as the country of export is relatively high compared to other countries. Also, the amount of imported steel (and aluminum) in approved requests is a much higher share of China’s imports than other countries’.
  5. Meanwhile, US manufacturers face higher steel prices and a time-consuming tariff exclusion process, which puts them at a competitive disadvantage in US and global marketplaces. 

When announcing the system, Secretary Ross said he expected a total of 4,500 steel and aluminum tariff exclusion requests to be filed—yet the number of requests filed is over 10 times that. As of December 20, 2018, a total of 50,402 tariff exclusion requests have been filed, with 30,232 (60 percent) pending a decision, 15,218 (30 percent) approved, and 4,952 (10 percent) denied.

Participants cannot track their filings through the process or follow the progress of their requests. It takes an average of 21 days for a filed request to appear publicly on regulations.gov, and while the requests are filed under a single docket, every corresponding objection, rebuttal, sur-rebuttal, and decision memo has a different identification number. The lack of transparency is a hindrance on time-sensitive steps, such as filing rebuttals within seven days of an objection.

Adopting a more transparent and efficient docket system could help. For instance, the US International Trade Commission’s Electronic Document Information System (EDIS) is a repository for all documents filed in relation to a case or investigation, which automatically posts submissions publicly and allows firms to track the progress of the case.

Commerce also underestimated the amount of time it would take to process a request. 

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Commerce also underestimated the amount of time it would take to process a request. Commerce initially predicted a 90-day processing time for a request. For the decisions that have been made to date, the waiting period has exceeded that prediction for over 76 percent of steel exclusion request decisions (there are 1,599 steel exclusion requests filed in April that are still awaiting a decision). With the government shutdown for 35 days, the backlog and delays will likely increase. Commerce receives an average of one thousand tariff exclusion requests per week. At this rate, there will be roughly 5,000 additional requests as the government reopens. 

Imports of steel—particularly those from China—were cited as a national security threat and key reason for the tariffs. Yet we examined approval rates by the country of export listed on the steel tariff exclusion request (table 1), and the approval rate for China as the country of export has been relatively high compared to other countries. Requests with China as the country of export have had a 39 percent approval rating. In comparison, requests with the country of export as Canada, Spain, and the United Kingdom—countries rarely even cited in trade remedy cases—have had approval ratings of 27, 6, and 30 percent, respectively.

Japan is the most often listed country of export, representing 9,166 steel tariff exclusion requests with 3,480 (38 percent) approved, 1,488 (16 percent) denied, and 4,198 (46 percent) pending. Requests with Slovenia as the country of export have had the highest approval rating at 68 percent (ignoring Serbia with a 100 percent approval rating on a single exclusion request). The approval rating for requests listing South Korea as the country of export was eight percent, which reflects the period before a quota arrangement went into effect.

In table 2, we examine the approval rates by the country of export listed on the aluminum exclusion requests. When China is listed as a country of export, the approval rate is again relatively high. Canada, India, and China are the most commonly listed export countries in the exclusion requests; however, both Canada and India have a three percent approval rate while China has a 15 percent approval rate.

We also examine the volume of steel and aluminum in the approved requests and compare that to the total volume imported from each country in 2017, the year before the steel tariffs went into effect. As shown in table 1, of the requests that have been approved, the total quantity with China as exporter sums to 303 million kilograms, which is approximately 40 percent of US imports of subject steel from China. In other words, in the six months from March to August, the amount of steel imports approved from China is equivalent to 40 percent of what came in during the previous year (2017). In contrast, the volume of steel in the approved requests with Canada as exporter sums to 107 million kilograms, which is less than two percent of US imports of subject steel from Canada.

The total quantity of aluminum (table 2) that has been approved with China as exporter sums to 641 million kilograms, which is approximately 86 percent of the 2017 US imports of subject aluminum from China. In comparison, the total volume of aluminum in the approved requests with Canada as an exporter is 5 million kilograms, which is 0.2 percent of the 2017 US imports of subject aluminum from Canada.

Many of these manufacturers are still waiting on a decision by Commerce.

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Greater-than-expected demand for tariff exclusion requests reflects the need of US manufacturers for globally competitive priced inputs like steel and aluminum. The vast majority of tariff exclusion requests are coming from manufacturing-heavy areas (figure 1). These tariff exclusion requests have been filed by 901 firms in 303 congressional districts across 46 states plus Puerto Rico. Many of these manufacturers are still waiting on a decision by Commerce.

Steel Exclusion Requests Filed in Each Congressional DistrictData collected from Regulations.gov (docket BIS-2018-0006), districts for 115th Congress. Updated December 20, 2018.

Aluminum Exclusion Requests Filed in Each Congressional DistrictData collected from Regulations.gov (docket BIS-2018-002), districts for 115th Congress. Updated December 20, 2018.The tariff exclusion process appears plagued with delays and uncertainty. As the government reopens, Commerce will face an even larger backlog, making a bad situation worse. Given the relatively large amounts of approved tariff exclusion requests on imports from China, these findings cast doubt over the administration’s assertion that imports of steel and aluminum were a national security threat.

FileDownload Tables 1 and 2

View more data and interactive maps at QuantGov.org/tariff-exclusion

Photo credit: Whitney Curtis/Stringer/Getty Images

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