Following the Presidential Proclamations issued April 30, 2018 regarding the imposition of double-digit tariffs on certain steel and aluminum imports (Section 232 tariffs), US Customs and Border Protection published further guidance detailing the implementation of the Section 232 tariffs.
This alert addresses a number of the questions that have emerged from the business community regarding issues relating to these new duties, including timelines, product coverage, application of longstanding preferential trade rates, and more. Given the complexity of these tariffs, and the scrutiny Customs will be applying on all imports of steel and aluminum from all countries in efforts to detect tariff or quota avoidance, importers should consider compliance with these trade actions to be a high-risk area, warranting close review of their internal trade compliance procedures, and should seek expert advice with any questions or concern.
The Section 232 issues addressed below in further detail include:
- Timeline for Country Exemptions
- Quota Provisions and Exclusion Process for Covered Steel Imports from South Korea
- Tentative Quota Provisions for Covered Steel Imports from Brazil, Argentina, and Australia
- Trade Preference Program Eligibility for Goods subject to Section 232 duties
- Additional Information on Various Miscellaneous Entry Issues
For a list of covered products and additional information on the product exclusion process, please see our prior alert.
Unless a country exemption or product exclusion applies, Section 232 tariffs impose a 25% ad valorem rate on covered steel products and 10% ad valorem rate on covered aluminum products. Determining whether a country exemption applies is based on the product’s country of origin, and not the product’s country of export.
The April 30 Proclamations extend the country-wide exemptions granted on March 23, 2018 to products from Argentina, Australia, Brazil, Canada, Mexico, South Korea, and member countries of the European Union until May 31, 2018. The April 30 Proclamations also announce exemptions beyond May 31, 2018 for Argentina, Australia, Brazil, and South Korea. The effective time period of the country exemption varies and may be subject to further change or additional conditions imposed on the particular country (e.g., quotas on imports of steel from South Korea). The current timeline for country exemptions is summarized as follows:
Section 232 tariffs apply to covered steel products from all countries of origin except:
Section 232 tariffs apply to covered aluminum products from all countries of origin except:
Quotas On Covered Steel Imports From South Korea
The Presidential Proclamation issued on April 30, 2018 set an absolute quota for covered steel imports from South Korea. Instructions and other information for importing steel subject to this quota are provided for in the Customs Quota Bulletin, specifically QB 18-118 (May 1, 2018) and QB 18-119 (May 11, 2018).
QB 18-118 lists the specific steel commodities subject to the quota by the eight-digit HTSUS Chapter 99 subheading (i.e., HTSUS subheadings 9903.80.05 through 9903.80.58), along with the corresponding eight-digit HTSUS Chapter 72 or 73 subheadings, and quantitative limitation.
QB 18-118 and QB 18-119 further explains quantitative limitations and additional information relating to the quotas as follows:
- Quantitative Limitation: The aggregate annual quantity of steel imported under a specific eight-digit HTSUS Chapter 99 subheading that cannot be exceeded during the annual quota period starting on January 1, 2018.
- Restraint Levels: Prohibiting additional imports under a specific eight-digit HTSUS Chapter 99 subheading when such imports during set quarterly periods (i.e., January through March, April through June, July through September, or October through December) exceed 30% the total aggregate quantity for the calendar year.
- Options After Reaching Quota Limit: Covered steel imports from South Korea may not be imported into the US for consumption after reaching the quota limit. Options after the quota limit is reached include warehouse, foreign trade zone, exportation, or destruction.
- Reporting Instructions:
- For quota merchandise, use entry type code 02, 06, 07, 12, 23, 32, 38, or 52.
- Merchandise presented shall be reported and released by the Automated Commercial Environment (ACE) until a “hold” status is indicated or quota restraint limit is reached.
- Questions from the importing community regarding this electronic message should be referred to the appropriate CBP port/center.
- The merchandise covered by the quota may also be subject to antidumping and countervailing duties.
- Importers shall report the corresponding HTSUS Chapter 99 subheading (i.e., HTSUS subheadings 9903.80.05 through 9903.80.58) and the relevant HTSUS Chapter 72 or 73 subheading.
- Filled Quotas: As of May 14, 2018, per the Quota Status Report issued by Customs, the following quotas categories, listed by HTSUS Chapter 99 subheadings, have been filled for the quarterly period: HTSUS subheadings 9903.80.16; 9903.80.24; 9903.80.26; 9903.80.31, 9903.80.32; 9903.80.39; 9903.80.41; 9903.80.43; 9903.80.48; 9903.80.50; 9903.80.52; and 9903.80.56.
- Exclusion Process: Exclusion requests are no longer being processed for South Korea. Once the quota for a particular category of steel is reached there will be no further imports allowed during the calendar year.
- Aluminum Imports from South Korea: Unlike covered steel imports from South Korea, a quota is not in effect for imports of covered aluminum products from South Korea. Importers of aluminum from South Korea may still receive a quota hold message for such imported articles, but there is no applicable quota for these products. As of May 1, 2018, covered aluminum products are subject to the 10% ad valorem Section 232 aluminum tariffs as of May 1, 2018.
Tentative Quotas on Covered Steel Imports From Brazil, Argentina, and Australia
It appears that Brazil, Argentina, and Australia have each reached an “agreement in principle” with the United States that will impose quotas on covered steel imports from Brazil, Argentina, and Australia.
The official quota terms for these agreements are still pending, but the initial reports are as follows:
- Quota for Covered Steel Imports from Brazil:
- Covered steel imports from Brazil, consisting of semi-finished products, are subject to an absolute quota based on 100% of the average of the semi-finished products exported to the US during 2015, 2016, and 2017.
- Covered steel imports from Brazil, consisting of finished products, are subject to a quota of 70% of the average of the finished products exported to the US during 2015, 2016, and 2017.
- Quota period is annual and starting from January 1, 2018.
- Quota for Covered Steel Imports from Argentina: Covered steel imports from Argentina appear will be subject to a quota of 135%, however additional details are still pending.
- Quota for Covered Steel Imports from Australia: Additional details are still pending.
Absolute Quota Information Notice Relating to Quotas Imposed By Section 232 Measures
On May 10, 2018, Customs announced and published an absolute quota information notice relating to the upcoming quota changes in the Automated Commercial Environment (ACE) that will be updated by Customs on May 31, 2018. This information notice indicates that the update will provide new ACE Cargo Release status messages for pending, rejected, accepted, and reserved quotas. The information notice also states that goods subject to an absolute quota “will be held in a Quota Pending status until the Quota batch job runs each evening. Once the batch job has completed Quota will be allocated and statuses will be updated. Details related to specific timing of the batch job and the Quota Pending Status will be published once available.
Trade Preference Program Eligibility
Generalized System of Preferences (GSP) or African Growth and Opportunity Act (AGOA) claims cannot be made for goods subject to Section 232: Steel and aluminum goods that are eligible for duty preference treatment under the GSP or AGOA, and which are also subject to Section 232 tariffs, will not receive GSP or AGOA duty preference upon importation into the United States.
Goods subject to Section 232 may still benefit from other trade programs: While goods subject to Section 232 are ineligible for GSP and AGOA benefits, preferential treatment claims under other applicable trade programs, including Free Trade Agreements (FTA), can still be made for such steel and aluminum products. This allows eligible goods to continue receiving the preferential duty rate and any MPF exemption that may apply under the particular FTA or other preferential trade program. However, Section 232 tariffs are still due on covered products even if an applicable trade preference is properly claimed.
Applicable Rules of Origin: As discussed above, determining whether the Section 232 duties, a country exemption, or the South Korean quota applies, is based on the product’s non-preferential country of origin. Unless otherwise provided, Customs determines the non-preferential country of origin by applying the rules of origin set out in 19 C.F.R. Part 134, which may utilize a substantial transformation analysis for non-NAFTA goods or the NAFTA Marking rules for NAFTA goods. For other purposes and programs, the specific rules of origin provided for that purpose need to be used for determining the product’s origin. For instance, determining whether a good is eligible for preferential trade benefits depends on whether the good meets the applicable preferential rule of origin in the FTA or other preferential trade program.
Enforcement of Section 232 Tariffs: Customs has already indicated it will take a strong enforcement approach to detect Section 232 tariff avoidance. This includes the creation of a new trade remedies team focusing on the enforcement of Section 232 measures as reported by Customs officials.
Customs officials have also noted the agency’s powerful technology resources, as well as its depth of regulatory auditors, import specialists, and National Commodity Specialists that are engaged on the matter. Customs officials have specifically pointed to the agency’s ability to identify such tariff evasion efforts by focusing on the imported product’s declared HTSUS classification, valuation, and country of origin, which are traditional areas of customs expertise.
Customs has number of tools that can be used to enforce the Section 232 tariffs. Such enforcement measures may include the issuance of Request for Information forms (also known as CBP Form 28s), Focused Assessments (FA), and other import surveys, including the Quick Response Audit (QRA), as well as monitoring import data at its import targeting centers and use of the e-Allegation reporting system.
Entry Summary Filing Instructions: On the entry summary form required for importations into the US (CBP Form 7501), importers must report the following when importing products subject to the Section 232 tariffs:
- Steel Products: HTSUS Subheading 9903.80.01 and the relevant HTSUS Chapter 72 or 73 subheading;
- Steel Products from South Korea: The corresponding HTSUS Chapter 99 subheading (i.e., HTSUS subheadings 9903.80.05 through 9903.80.58) and the relevant HTSUS Chapter 72 or 73 subheading; and
- Aluminum Products: HTSUS Subheading 9903.85.01 and the relevant HTSUS Chapter 72 or 73 subheading.
HTSUS Chapter 98: HTSUS Chapter 98 subheadings can be transmitted up to the eight-digit level on an entry summary line along with the HTSUS subheading subject to Section 232 tariffs.
As addressed by Presidential Proclamation, goods subject to Section 232 and imported under HTSUS Subheading 9802.00.60 (covering certain articles of metal, which are manufactured or subjected to a process of manufacture in the US, exported for further processing, and then returned for further processing) shall be assessed the corresponding Section 232 tariff based upon the full value of the imported article.
Drawback: As addressed by Presidential Proclamation, no drawback shall be available with respect to the Section 232 tariffs imposed on any aluminum or steel article.
US Foreign Trade Zones (US-FTZ): Except those eligible for admission under “domestic status,” any good subject to Section 232 that is:
- Brought into a US-FTZ on or after March 23, 2018 (beginning on 12:01 am EST ), must be admitted as “privileged foreign status”; and
- Admitted into a US-FTZ as “privileged foreign status,” either before or after March 23, 2018, will be subject to any ad valorem duty rate of the applicable HTSUS subheadings, including any Section 232 tariffs, upon entry for consumption into the United States.
As addressed by Presidential Proclamation, aluminum or steel articles shall not be subject upon entry for consumption to Section 232 tariffs, merely by reason of manufacture in a US-FTZ. However, except for certain cases involving recoverable waste, articles admitted to a US-FTZ in “privileged foreign status” shall retain that status, even if changed in form by manipulation or manufacture within such US-FTZ.
This means that the merchandise is treated for tariff purposes and for assessing Section 232 duties in its condition at the time it is brought into (admitted) to the US-FTZ. The merchandise is subject to tariff classification according to its character, condition, and quantity when admitted into the US-FTZ. For example, steel subject to Section 232 duties is used to make an automobile part in a US-FTZ that is not subject to Section 232 duties. When the automobile part is withdrawn from the US-FTZ into the United States, the importer must pay Section 232 duties on the equivalent Section 232 steel that was used to make the part.
The merchandise covered by the additional duties and quota may also be subject to antidumping and countervailing duties.
Effective Date of Duty Calculations on Consumption and Immediate Transportation (IT) Entries: Entries covered by an entry for immediate transportation, and with a country of origin and HTS classification subject to the Section 232 tariffs shall be subject to the duty rates in effect, including applicable Section 232 tariffs, when the immediate transportation entry was accepted at the port of original importation.
For information on the effective date for entries subject to Section 232 tariffs (March 23, 2018), please see our earlier alert.
Classifications under HTSUS Subheading 7616.99.51 subject to the Section 232 Tariff: As addressed by Presidential Proclamation, only the following two 10-digit level tariff items under HTSUS Subheading 7616.99.51 are subject to Section 232 tariffs:
- HTSUS Tariff Item 7618.104.22.168 (e.g., aluminum castings not provided for in other HTSUS tariff classifications); and
- HTSUS Tariff Item 7622.214.171.124 (e.g., aluminum forgings not provided for in other HTSUS tariff classifications).
The other 10-digit tariff items under HTSUS Subheading 7616.99.51, ending in statistical suffix -20, -30, -40, -50, -75, or -90, are not subject to Section 232 tariffs
As noted above, Customs has indicated it will use all the tools available to enforce the Section 232 tariffs, including issuing CBP Form 28s on specific shipments/entries, sending importer questionnaires on a range of imports, monitoring import data at targeting centers, and use of the e-Allegation reporting system. Given the complexity of these actions, and the increased scrutiny Customs will be applying on all imports of steel and aluminum from all countries in an effort to detect violations of these measures, we are urging the business community to review their internal trade compliance procedures and seek expert advice with any questions or concern.