Exclusion Options from Steel and Aluminum Tariffs
As noted in our recent tax advisory, President Trump Issues Proclamations Imposing Increased Tariffs on Imported Aluminum and Steel, President Trump signed two proclamations imposing tariffs of 25 percent on imported steel articles and 10 percent on imported aluminum articles from countries other than Canada and Mexico. Last week, the president issued further proclamations temporarily exempting Argentina, Australia, Brazil, the European Union and South Korea from the tariffs through May 1. The presidential actions followed the U.S. Department of Commerce's determination that present quantities of steel and aluminum imports threaten to impair the ability of our domestic industries to satisfy U.S. national security needs. These tariffs are in addition to any currently enacted duties and charges applicable to steel and aluminum imports, and remain in effect indefinitely. However, in recent days clarity has been provided regarding how the tariffs will be structured and what strategies companies may implement to avoid increased import costs under the tariffs.
The regulations specifically exclude certain items from the tariffs, such as (i) bars and rods of iron or non-alloy steel that are plated or coated with metal and bards, as well as rods of iron or non-alloy steel that are "further worked than cold formed or cold finished," (ii) angles, shapes or sections of iron, alloy or non-alloy steel, other than those specifically included in the tariffs and (iii) switch blades, crossing frogs, point rods and other crossing pieces. Imports of these specific types of steel products do not fall under the purview of the new tariffs and therefore no action needs to be taken by American companies importing these products.
Moreover, the U.S. Department of Commerce announced a process by which certain steel and aluminum imports may be excluded from the recently proclaimed tariffs. The president authorized the secretary of Commerce, in consultation with other appropriate federal agency heads, to provide relief from the tariffs for any steel or aluminum articles not produced in the U.S. in sufficient quantity of satisfactory quality, or for other "specific national security considerations." Any individual or organization using steel or aluminum articles identified in the proclamations and engaged in business activities in the U.S. may submit exclusion requests. Processing of exclusion requests normally will not exceed 90 days and will be available for public viewing on www.regulations.gov. The potential for exclusion from the tariffs is unknown, although we believe successful exclusion requests will likely require showing more than simply price increases.
There are several strategies businesses can use to mitigate risk of engagement in international trade remedy proceedings. For instance, include explicit contingency measures in long-term supply agreements providing for termination rights or other remedies. Further, take steps to independently follow which goods become subject to new duties given that reliance on statements from customs brokers will not insulate American importers from liability under the tariffs. Companies should also be cognizant of intentional misclassification of goods by exporters claiming to be selling goods that fall outside of tariffs. Duties are paid by the importers of record and not the manufacturing exporter; therefore, any U.S. company suspecting potential circumvention of tariffs should conduct its own due diligence before U.S. Customs and Border Protection intervenes.
Given the volatility of the process through which these tariffs have been enacted, we will continue to issue advisories as the details of the tariffs and their corresponding effects on businesses become more clear. For further information on this topic, contact Jon Bylsma, Chris George, Scott Hill or your primary Varnum attorney.
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