Leibowitz on Trade: Steel & Aluminum Product Exclusions—Are Duty Refunds Tied Up?

Section 301 (China)

Product exclusions have been provided for in each of the first four product lists of imports from China. There was a limited window for filing exclusion requests: Oct. 9, 2018, for List One; Dec. 18, 2018, for List Two; Sept. 30, 2019, for List Three; and Jan. 31, 2020, for List Four-A. Only List Four-A remains open to exclusions at present. 

List Four-B (10 percent tariffs starting Dec. 15) does not have an exclusion process yet. List Four-B could be postponed if there is an agreement between the U.S. and China on resolving their trade issues.

Exclusions that have been granted are open to any company that imports goods that are described in an exclusion. There are numerous lists that have been published beginning in December 2018. If any company imports an excluded product, it may claim a refund of duties already paid as well as avoiding tariffs in the future. 

The tariffs and product exclusions are administered by the Office of the U.S. Trade Representative and applied by U.S. Customs and Border Protection (CBP).

Steel and Aluminum Tariffs (Section 232)

Contrast Section 301 tariffs on imports from China with the steel and aluminum Section 232 tariffs and quotas. The exclusion process is administered by the Department of Commerce rather than USTR. CBP administers the imports subject to exclusions. An exclusion from tariffs or quotas may be submitted at any time—there is no deadline for exclusions.

However, an exclusion may only be used by the company that filed for it. The specific product must be identified, and the exclusion may only be used by the importer of record listed on the particular exclusion request. This means, in practice, that the identical product may be the subject of a potentially unlimited number of exclusion requests. 

Problems with Requests

Evidence of problems with exclusion requests have been reported in news articles and in congressional letters. As I’ve noted before, the office of Representative Jackie Walorski (Republican of Indiana) has taken the lead in identifying questions and insisting on answers from the Department of Commerce. 

On steel and aluminum, the following problems have been noted: Many thousands of requests remain undecided after months of waiting. There is no mechanism for considering objections—if a request attracts an objection, it seems unlikely to be granted, regardless of how credible the objection is. Also, CBP has rejected exclusion requests on the ground that the tariff classification (the 10-digit classification code under the Harmonized Tariff Schedules of the United States) is incorrect. Even if CBP does not reject classifications, there have been reports that CBP will not permit an exclusion to be claimed if it disagrees with the tariff classification. If an importer is uncertain about the correct tariff classification of a product, the company may request a ruling. However, the steel and aluminum product exclusions are effective only from the date the request is formally submitted—waiting for a ruling to confirm the classification can take a month or more, during which the tariffs cannot be recovered. Note also that the exclusions are only valid for one year from the date of approval. Thousands of requests are expiring and they need to be renewed. A new request could attract an objection. 

Concerning China product exclusions, some have been denied for rather dubious reasons: the product is part of a “made in China 2025” initiative, or the exclusion is objected to by CBP because it is unable to administer the exclusion effectively (for example, the product description is not adequate). These objections can be ill-considered. But there is no provision for protesting an erroneous denial of an exclusion. 

To maximize the chances that an exclusion will be useful, consider carefully the product description and specifications, as well as the tariff classification. Consulting with an expert concerning these issues can prevent problems. It is also important to prevent opposition if at all possible. Domestic companies have been known to object even if they cannot (or don’t want to) make the product your company needs. Drawing precise specifications can help prevent objections.

Finally, the issue of Customs administration has come up in several cases—I have seen steel users obtain an exclusion but fail to get Customs to honor it. Customs may claim (sometimes erroneously) that the tariff classification is incorrect or that the imported product does not exactly meet the product specifications in the exclusion request. If this happens, a protest after liquidation is one way to address this problem. Approval of an exclusion request may not guarantee a refund or trouble-free importing in the future.

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