This is an update to our March 9 Client Alert (view here) regarding the March 8 presidential proclamations imposing additional duties on certain steel and aluminum articles imported from all countries, except Canada and Mexico, under section 232 of the Trade Expansion Act of 1962.
On March 22—the day before the section 232 duties on steel and aluminum imports were to become effective—President Trump issued two proclamations effecting a number of important changes to those duties. These proclamations may be viewed here and here. The changes include:
1. Temporary Exceptions for Additional Countries
Most notably, the president extended temporary exceptions from the section 232 duties—previously afforded only to Canada and Mexico—to Australia, Argentina, South Korea, Brazil and the member countries of the EU. These temporary exceptions will expire on 30 April 2018, unless by such date the president "determine[s] by further proclamation that the United States has reached a satisfactory alternative means to remove the threatened impairment to the national security by imports of steel [and aluminum] articles from a particular country listed as excepted…." The proclamations indicate that the United States will "continuing ongoing discussions" with the EU and the other six countries regarding such "satisfactory alternative means."
It appears that South Korea may be the first of the countries to have secured a long-term exception. On Monday, March 26, South Korea's Trade Minister announced in a press briefing that Korea has agreed to a quota of approximately 2.68 million tons of steel exports annually to the US in exchange for the exception from Section 232 tariffs on steel. It is also being reported that Korea has agreed to reduce trade restrictions on automobile exports from the US.
2. Possible Tariff Rate Adjustments
The proclamations also indicate that, if "a satisfactory alternative means is reached such that [the president] decide[s] to exclude on a long-term basis a particular country from the tariff," the president will consider whether to adjust the additional duty rates (the 25% and 10%) to ensure that the desired goal is achieved (i.e., to limit imports sufficiently to allow for domestic production utilization of 80%).
3. Possible Quotas
In order to prevent possible transshipment or excess production, the proclamations also include provisions that discuss the possible implementation of a quota on imports from excepted countries. Quota amounts would take into consideration imports of steel and aluminum articles since 1 January 2018.
4. Admissions to Foreign Trade Zones
The proclamations place restrictions on steel and aluminum articles admitted into Foreign Trade Zones on or after 23 March 2018. Such articles will only be admitted as "privileged foreign status" and all articles admitted as "privileged foreign status" will be subject to the additional duties corresponding to the affected tariff provisions at the time they are entered for consumption.5. Product Exclusion Petitions
Finally, the proclamations provide further detail on the product exclusion petition process, such as factors to be considered (eg, regional availability of an article), as well as retroactive relief for articles entered on or after the date of a request for exclusion. The relief will be effective retroactively to the date on which the request is posted for public comment.
We continue to monitor this matter closely, including issues such as: (i) whether the exceptions from the section 232 duties granted to Canada and Mexico will be tied to the conclusion of the NAFTA renegotiations, (ii) whether countries like Japan will seek long-term exceptions, (iii) whether the granting of long-term exceptions will result in an increase in the duty rates, and (iv) whether any particular voluntary-restraint type agreement/quota will be required in order to obtain a long-term exception.
As previously advised, all companies that utilize steel or aluminum articles (whether imported or domestically-produced) should be taking steps now to review the economic impact the section 232 duties will have on their businesses. Consideration should be given to the impact on long-term supply agreements, whether upstream or downstream (e.g., who bears the cost of increased duties?), and the impact on market competition (e.g., is the product made in the US with imported steel or aluminum, but in competition with finished products produced abroad and imported into the US without being subject to the section 232 duties?).
Baker McKenzie is assisting numerous companies navigate these issues (as well as the product exclusion process) and would be happy to discuss your situation with you.