Trade Cases

Leibowitz on Trade: Mercatus Report on Steel Exclusions Process Finds Worrisome Trends

July 9, 2019

Trade attorney and Steel Market Update contributor Lewis Leibowitz offers the following update on events in Washington:

Companies have filed thousands of requests seeking exclusions from the Trump administration’s Section 232 tariffs on steel imports, claiming the products they require are not available from domestic sources in the quantities or qualities required. The steel product exclusion process has come under increased scrutiny revealing noteworthy inconsistencies in Commerce’s decision-making and procedures. The Mercatus Center at George Mason University in Virginia has studied the steel exclusion process and decisions through exhaustive analysis. They have calculated the amount of steel products that large domestic producers have claimed the ability to produce. In one instance, with respect to Nucor, George Mason determined that the company objected to exclusion requests totaling 41.31 million metric tons, but that their annual production amounted to a bit more than 24 million metric tons. AK Steel objected to requests for over 30 million metric tons, but only produces about 6 million. Yet only 1 percent of exclusion requests receiving objections are approved by Commerce.

Clearly, if the exclusion process is intended to permit steel users to use imported steel, tariff- and quota-free, when domestic producers are unable to produce sufficient quantities, some method of verifying the ability of objecting producers would be desirable. Trade associations of steel users and their supporters in Congress are increasing their criticism of the exclusion process. A recent article in the newsletter Inside U.S. Trade detailed their complaints.

The process is characterized by delays (most exclusion requests that receive objections remain undecided for months, costing steel users in tariff payments and uncertainty) and minimal analysis. A typical denial decision recently stated, as the sole basis for decision, “ITA recommends finding, based on all of the evidence presented, that the product referenced in the above-captioned exclusion request is produced in the United States in a sufficient and reasonably available amount and of a satisfactory quality, and recommends denying the request for an exclusion.”

In some instances, requests are considered “not complete” because U.S. Customs claims that the tariff classification claimed is incorrect. There is minimal analysis of these claims, as well. For example, one denial stated that the dimensions claimed for the product were not consistent with the requirements of the particular ten-digit classification. Others have been denied because Customs claims the product is “non-alloy” steel rather than “alloy” steel. These are often details that are not relevant to the ability of domestic producers to make the product.

There has not been a legal challenge yet to the process or the legality of some denials. The amount of discretion claimed by Commerce in making these decisions is almost unbounded, making a legal challenge based on abuse of discretion difficult. However, particularly in semifinished steel cases, which have been denied in virtually every case, members of the steel industry itself are being rendered uncompetitive. I expect there will be more complaints about exclusions.

Lewis Leibowitz

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Lewis Leibowitz

Lewis Leibowitz, owner of the Law Office of Lewis E. Leibowitz, practices in the areas of international trade law, customs law, and international commercial transactions. He represents clients before all federal courts and agencies dealing with international trade matters. Mr. Leibowitz advises and assists clients in diverse matters including trade remedies, customs, foreign-trade zones and free trade agreements, trade negotiations, and related matters. He can be reached at lewis.leibowitz@lellawoffice.com.