Leibowitz on Trade: New Rules for Product Exclusions

Interim rules take effect when they are published.  Normally, new regulations are published in proposed form, with an opportunity for public comment before being finalized.  In this case, Commerce had a good reason to put the rules in place immediately.  There will be a 60-day period for public comment, after which Commerce may modify the rules. 

There were good reasons for these reforms by Commerce, and for their taking effect immediately.  The exclusion process has come in for heavy criticism since its inception.  The presidential Proclamations on steel and aluminum imports mandated a process for exclusion of specific products “determined not to be produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality…”  The procedures established in March and the manner of their implementation created a great deal of uncertainty.  Objections to the decision-making criteria, the nature of objections (and the fact that objections were never rejected, according to news reports) raised serious questions of fairness and transparency.  When Senator Elizabeth Warren requested that the Inspector General of the Commerce Department initiate an internal investigation about potential conflicts of interest in decided exclusion requests, that may have been the last straw. In any event, new rules on exclusions for products from quota countries (Argentina, Brazil and Korea, in steel, Argentina in aluminum) and today’s revised rules followed quickly. 

Just last month, Commerce was instructed to develop exclusion criteria for countries subject to import quotas (three countries for steel, one for aluminum).  Back in June, Commerce issued a ruling that the presidential Proclamations did not permit product exclusions for countries subject to an import quota.  This was a rather startling ruling which came as quite a surprise to many companies that had already requested exclusions for Brazilian slab and Korean OCTG, for example.  There were reports that the Brazilian and Korean governments were also surprised that the quotas they agreed to were not subject to enlargement by exclusions based on short supply in the United States.  In late August, President Trump issued a new Proclamation stating that exclusions could be received for products from quota countries. 

The new rules make several other important reforms to the product exclusion process.  First, any objections to a request are limited to companies that profess to manufacture the particular product involved.  Several steel and aluminum companies objected to requests covering products that the producers did not make and had no plans to make and offer for sale, including semifinished products.  Second, objections will be open to “rebuttal” by the company requesting the exclusion, and those rebuttals will be open to “surrebuttal” by the objecting companies.  This will lengthen the process, but perhaps not by much. 

Third, important procedural reforms were announced, such as a procedure for handling requests that receive no objections during the 30-day comment period.  These will not necessarily be automatically granted, but Commerce specified that they would be approved “expeditiously” if U.S. Customs and Border Protection had no problems administering the exclusions.  This could be a big “if” but we will have to wait and see.

Fourth, Commerce clarified some important definitions.  For example, a steel or aluminum producer objecting to an exclusion request must now state that it can meet the needs of the requesting party “immediately”—defined as being able to produce and deliver product within eight weeks of order placement. 

Fifth, Commerce increased retroactive relief for requestors receiving an exclusion.  Under the previous rules duties were refunded for entries on or after the date the exclusion request was posted online.  Effective Sept. 11, duties will be refunded back to the date the request was submitted by the requesting party, which may be three weeks or more earlier. 

A number of problems remain.  The issue of short supply (products that are made in the United States but in inadequate amounts) is still a raging controversy, because many steel and aluminum products are produced in sufficient quantities for individual customers, but not sufficient for all domestic customers.  The Department has taken this issue under advisement, according to the new rules, but does not have any comprehensive solution yet.

In addition, the Department has rejected price as a relevant consideration in granting exclusions.  The Department claimed that the Proclamations did not mention price as a criterion; however, the Proclamations mentioned factors that make a product not “reasonably” available.  Price, in a market economy, has to be such a factor: can steel or aluminum that costs more than the market price for a processed product be “reasonably available?”  Commerce appears to have fallen into the controversy that plagues antidumping cases.  While price is relevant to antidumping (which is related to price differences between national markets), it should not be off-limits in national security cases; if imported products are sold at lower-than-fair prices, why not make the antidumping law the remedy? 

The many substantive and procedural changes in the new rules are much more extensive than a short article can describe.  On the whole, the changes give downstream users more hope that exclusion decisions will be made on the basis of specific facts and evidence, and should create a reasonable expectation of prompt and reasonably objective decisions.  Much depends on the way the new rules are administered.  

Lewis Leibowitz

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