NEW YORK — The American Institute for International Steel (AIIS) blasted the chaotic and uncertain roll-out of the Section 232 exemption process in a webinar for members held on Thursday March 22.
This is an “anxious” time to be a steel importer, trade and customs lawyers affiliated with the Alexandria, Virginia-based AIIS noted. They addressed a crowd of roughly 100 webinar attendees, to advise on 232 exemptions for individuals and organizations - and how to obtain one.
As of the afternoon of Monday March 26, no such exclusion requests had yet been filed, according to a government website.
Members of the steel trade association include steel importers and logistics providers, among others.
Still, the battle to secure exemptions will be tough, according to attorneys Lawrence Hanson and Gary Horlick, who run their own separate law firms. Government officials are inclined to deny such requests, and several pitfalls are built into the process, they said.
But citing “national security” could be the key to obtaining relief, they told AIIS members.
Exemption petitions must show that the item an applicant wants to import isn’t made in the US, the two attorneys said. And it may not be enough to show that no US mill currently makes the product - applicants also must arguably prove that mills could not produce the item within eight weeks, Horlick warned.
Exemptions only apply going forward and could take up to 90 days to obtain, with no retroactive relief now in place, the attorneys said. So even if an exclusion is granted, any articles landed before then would be subject to the 25% tariff, they noted.
Lessons from the past
In past steel tariff scenarios, people could apply for exemptions before tariffs were imposed - both in the Section 201 action of the early 2000s and with voluntary restraint agreements negotiated in the mid-1980s, the lawyers said.
That indicates that this exemption process may not be run “honestly,” with the political agency in charge, the US Bureau of Industry and Security (BIS), inclined to reject exemption requests, they said. The BIS is unsuited because it has a “tiny” staff and little experience in this matter, relative to the US Commerce Department’s Enforcement and Compliance Division staff, who’ve handled such issues previously.
“The betting, of course, on this process is that it’ll be run politically, not honestly,” said Horlick, who’d secured exemptions for clients in the last two rounds of US steel safeguards. “Let’s all hope that common sense prevails. But don’t count on it.”
The BIS didn’t immediately comment. The agency handles US national security and its defense industrial base, as well as export controls, and is housed under the Commerce Department. It had 367 full-time staff in 2017, a far cry from certain other Commerce sub-agencies, according to the latest department budget document.
Exemptions only last one year and must be renewed, the lawyers said. Petitioners must give details like their annual steel consumption, requested exemption tonnage, and details about specific deals and attempted purchases from US mills.
Because the BIS won’t be able to handle the process easily, especially if it is “awash” in petitions, securing exemptions will be a politicized process. AIIS members were advised to lobby Congressmen, but will need formidable experts on their side because their petitions and exclusion requests could go against the interests of US mills, Horlick noted.
“You’re going to have to do the politics better than U.S. Steel does,” he said after the two lawyers pointed out that domestic mills can object to exemption requests.
“This is not a form you fill in and hope for the best,” Hanson added, recounting recent advice he’d given to potential clients on this matter. “Your form by itself will go to a political agency, which is designed to say no. There will be a presumption of denial of anything you say here.”
There likely will not be a months-long “in-depth review” based on the merits of each case, they said. The form is also about four times more complicated than the exemption form used in 2003, they noted.
This whole exemption process represents “uncharted territory,” with significant uncertainty even among the Customs and Border Protection staff in charge of implementing the tariffs, according to the attorneys, who work with the government agencies and steel importers regularly.
AIIS blasts 232
The two attorneys and AIIS executive director Richard Chriss also blasted the 232 itself, voicing wide-ranging criticisms on the call. They attacked the unpredictable country exemptions and said the tariffs would have little positive impact.
The 232 won’t stop China from making a single additional ton of steel, while the safeguards are simply a ruse to get President Donald Trump re-elected, AIIS and its affiliated lawyers contended. Those claims echoed earlier market commentary on the controversial 232, especially from those who oppose the policy.
“These new trade measures, these steel tariffs, will not affect China’s use of state-owned enterprises in any degree whatsoever,” Chriss said, referring to China’s continued “prolific” use of subsidies. “This is really a mismatch in terms of policy tools. It’s the wrong tool employed at the wrong time, for the wrong reasons.”
More jobs will be destroyed than created in the steel supply chain, and US mills could well lobby to place even more steel products under the blanket 232 protections, they said. US manufacturing industries may move offshore to secure cheaper steel, mirroring the impact of disastrous US tariffs previously enacted on the sugar, candy and cookie industries.
Notably, the United Kingdom is still considered part of the European Union until it formalizes its departure from the bloc. That exit that is now set for March 29, 2019, the lawyers said in response to questions.
And if Trump grants exemptions to the EU and even South Korea, exclusions for other allies and top steel exporters - such as Japan - will likely follow.
“How do you say no to Japan when you just excluded the EU and Korea, right? ... But if you take out Japan, how do you say no to [anyone else]?” Horlick asked rhetorically.
“At the end of the day, the only reason for this 232 is to get Trump re-elected,” he argued. “And if [Trump] really excludes more than half the steel [imports], it’s going to have the opposite effect.”
Market participants also questioned the Section 232’s impact on bonded warehouses and foreign trade zones, as well as imported steel designed for re-export.