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Tariff Exclusion Requests: A One-Year Update
It has been over a year since the Section 232 steel and aluminum tariffs and their corresponding tariff exclusion process went into effect. Our key findings from the updated tariff exclusion process data are as follows:
1. The US Department of Commerce (Commerce) has increased the number of decisions it makes per month. At the same time, US steel-producing companies have increased their objections. One firm—US Steel Corporation—filed more objections in a recent month than the total number of tariff exclusion requests.
2. Objections appear to be consequential. Less than one percent of steel tariff exclusion requests with an objection have been approved, and just 2.7 percent of aluminum tariff exclusion requests with an objection have been approved.
3. The aggregate volume of steel noted in the objections by each steel company far exceed their annual production, which calls into question their ability to meet domestic demand. The top three firms—Nucor Corporation, US Steel Corporation, and AK Steel Corporation—filed objections with a volume 169 percent above and beyond their combined 2017 production.
4. The approval rates of the exclusion requests continue to vary widely by the country of origin. Concerns about China were a driving motivation for imposing Section 232 tariffs, yet for both steel and aluminum the approved quantity from China is greater than the approved quantity from Canada and Mexico combined.
On March 8, 2018, following recommendations by Commerce, President Trump imposed 25 percent tariffs on steel imports and 10 percent tariffs on aluminum imports. If Commerce does not deem those materials essential for national security and there is no domestic supply of them, then US manufacturers can request an exclusion from the tariffs. Once that request is posted, steel and aluminum manufacturers have 30 days to object to it.
US manufacturers can then file a rebuttal to an objection to their request (within the next seven days), and steel and aluminum manufacturers can file a surrebuttal to a rebuttal (within the next seven days).
As of March 18, 2019, US manufacturers filed 51,345 steel and aluminum exclusion requests (see box 1). These requests have been filed by 905 firms across 46 states plus Puerto Rico, and they include 45,328 tariff exclusion requests for steel and 6,017 for aluminum.
Commerce Has Sped up Decision Making Progress, and Steel Companies Have Sped up Their Objections
The rate of decision-making has increased in recent months. Before the government shutdown, Commerce made an average of 3,236 decisions per month. Following the shutdown, the rate of decisions increased, which corresponds with an increase in resources allocated to the Commerce Department’s Bureau of Industry and Security (BIS). In the first half of March alone, Commerce made 6,334 decisions.
According to the spending bill signed by President Trump on February 15, BIS received an increase in funds of $4.2 million (from $57.7 million to $61.9 million) specifically designated for Section 232-related work.
While Commerce has sped up decision-making, steel companies have also sped up the rate at which they file objections. There have been more objections posted this year to steel tariff exclusion requests than the number of actual requests posted. So far this year, 954 steel tariff exclusion requests have been posted, compared to 4,544 objections by steel companies. One firm, US Steel Corporation, accounted for 1,273 of these objections.
Under Commerce’s objection process, if a US steel or aluminum producer can produce the specific product domestically within eight weeks, then they can file an objection. When multiple manufacturers can produce the product, then an exclusion request may receive multiple objections. For steel, 35.3 percent of exclusion requests with an objection have more than one objection. For aluminum, 18.6 percent of exclusion requests with an objection have more than one objection.
Overall, 71 steel companies have filed a total of 19,543 objections. Four steel companies—Nucor, US Steel, Timken, and AK Steel—account for more than half of these objections. These four companies filed 10,417 objections, or 53 percent of the total (see table 1). For aluminum, 17 firms have filed objections, and just two companies have filed over half of them: Arconic Inc. and Century Aluminum Company filed 592 objections, or 63.32 percent of the total 935 objections (see table 2).
Although Commerce denies exclusion requests based on domestic availability, it is not clear whether Commerce confirms that the steel or aluminum were actually produced and delivered to the US manufacturer that filed (and was denied) the exclusion.
US Steel Companies Continue to Object to Unrealistic Quantities of Steel
The quantities of steel to which US steel companies are objecting exceed the annual production of those companies, which calls into question their ability to meet the demand. As reported in table 1, Nucor’s objections totaled 41.31 million metric tons (mmt), compared to their 2017 production of 24.39 mmt; US Steel Corporation objected to 47.90 mmt compared to their annual production of 14.43 mmt, and AK Steel objected to 30.32 mmt compared to their 5.6 mmt of production (see figure 1).
In aggregate, US steel companies have objected to 149.7 mmt of steel, which is 83 percent greater than their production level of 81.6 mmt in 2017 (the year before the tariffs went into effect). Commerce data show that US steel production has ranged from 59.4 mmt to 88.7 mmt over the past decade, with an annual average of 81.57 mmt.
The Objections Tend to Instigate a Denial or Delay
The objections are important because they appear to be influential in Commerce decisions. Less than one percent of the steel exclusion requests with an objection have been approved. Of the remaining, some have been denied, but most are still pending—89 percent of the exclusion requests that have had an objection are still pending and they were all filed last year, in 2018.
Similarly, Commerce has approved only 2.7 percent of aluminum tariff exclusions requests with an objection. Of the remaining, some have been denied, but 95 percent of them are still pending and they were also all filed last year.
Approval Rates Vary by Country
While China was initially cited as the reason for the tariffs, the approved quantity from China is greater than the sum of the approved quantity from Canada and Mexico combined.
We examine the volume of steel and aluminum in the approved requests by the country of export listed in each tariff exclusion request. We compare that amount to the total subject import volume by country in 2017. For steel, over the past 12 months, the amount of steel imports approved from China is equivalent to 57 percent of the 2017 subject import volume. Specifically, 3,352 requests listing China as country of export have been approved, and the quantity of steel in those approvals sums to 430,444 metric tons (mt), as listed in table 3.
But quantities approved for Canada and Mexico are much lower. For instance, the 890 approvals listing Canada as the country of export represent 134,648 mt of steel, which is equivalent to just two percent of US imports from Canada. The 830 approvals listing Mexico as the country of export represent 190,377 mt of steel, or just six percent of US imports from Mexico.
The total quantity of approved aluminum with China as exporter sums to 654,371 mt, which is approximately 102 percent of the volume of US subject imports from China in 2017 (see table 4). In comparison, approximately 118,950 mt of aluminum from Canada has been approved for tariff exclusion, which is four percent of US subject imports from Canada in 2017. Similarly, for Mexico, 1,483 mt of aluminum from Mexico has been approved for tariff exclusion, which is two percent of US subject imports from Mexico in 2017.
Meanwhile, the tariffs appear to have had a distortionary effect on the sources of subject imports. For instance, US imports of subject steel from Romania totaled 16,313 mt in 2017, compared to 200,276 mt of steel in approved tariff exclusion requests from that country. Similarly, US imports of subject steel from Poland totaled 8,077 mt in 2017, compared to 144,000 mt of steel in approved tariff exclusion requests. In other words, the amount of granted tariff exclusions for steel from Romania and Poland is equivalent to 1,228 percent and 1,783 percent, respectively, of the amount of US imports of subject steel from those countries in 2017. The case is similar for aluminum exclusion requests. Taiwan, Thailand, and Saudi Arabia have had approvals equivalent to 1,593 percent, 2,522 percent, and 2,533 percent, respectively.
Expiring Exemption Requests Will Soon Need to Refile
After Commerce grants a tariff exemption, the exemption is effective for one year beginning on the filing date. This means that US manufacturers will have to refile their exclusion requests that will be expiring or that have not yet even received a decision.
As of April 11, there are 519 expired steel exclusion requests that will need to be refiled (of which 140 were approved, 369 were denied, and 10 were still pending a decision from last year). Similarly, there are 40 expiring aluminum exclusion requests (of which nine were approved and 31 were denied last year). If the Section 232 tariffs are not lifted, the volume of exclusion requests and corresponding filings could easily double. In turn, Commerce will have to reprocess and reexamine each one, along with any objections, rebuttals, and surrebuttals.