Now that the President has made his determination on the tariffs to be applied as a result of the Section 232 investigations of certain imports of steel and aluminum products, boardrooms around the globe are pondering the short and long-term implications to their corporate bottom lines.
At this stage, companies likely have more questions than answers. Every CEO understands the need to manage risk and responding to short-noticed actions. Arent Fox is committed to providing you with the latest intelligence from Washington, DC, and in assisting companies to navigate these developments. So we start here by helping a company ask the right questions to the right people at the right time.
Section 232 investigations have been rare and so scant legal precedent is available for guidance. That noted, it may be helpful for our readers to begin by considering the ten questions below. For ease of reference, we have attached an appendix (Appendix A) that lists the products covered by the investigations and their import classification codes as noted in the Department of Commerce report issued on February 19, 2018.
1. What is the amount of the Section 232 tariffs that will be applied to my goods?
The President has announced that, after consideration of the various recommendations offered by the DOC, he has determined that tariffs in the amount of 25% ad valorem will be applied to the covered steel products, and that tariffs in the amount of 10% ad valorem will be applied to the covered aluminum products.
2. Do these two investigations apply to my company? My customer? My supplier?
If your company manufactures, exports and/or imports into the United States any of the “covered” products cited in either of these two investigation reports, the answer is likely yes.
See Appendix A for a complete listing of the products cited in these investigations. If your company supplies these products and/or imports them to the United States, then you, as well as any US customers, may be adversely affected, depending on the exact scope of the remedy that is implemented.
3. If so, which specific products manufactured, imported, or sold by my company are implicated (“covered”)?
Only those products described and cited in these two investigations are currently covered by the investigation, and thus it is likely that these are the products that will affected by the announced remedy. However, the final list of products subject to the Section 232 tariffs will appear in the Presidential proclamations when they are issued. In addition, only those products imported from certain countries would be covered, unless the remedy is applied globally – which now appears more likely unless country exclusions are granted. In order to determine whether exclusions should be sought, or to apply any country exclusions that might be provided, it is critical to determine the true county of origin of your “covered” products. If a rule of origin is not defined in the proclamation, determining the “country of origin” could require an extensive understanding of the rules of origin that may be applicable to the import.
However, it is important to note that further manufactured products incorporating these products are currently not covered by the potential new trade constraints.
4. Are other products contemplated, e.g. further manufactured products?
At this time the proposed restrictions appear to cover primary steel and aluminum products only. Note that the restrictions could lead to shortages of certain steel or aluminum grades and will certainly increase prices of both metals. They could also lead to downstream import competition as production shifts overseas where the metals are available.
5. Who in my company would have the import data needed?
The company’s trade compliance or logistics team should have access to the Automated Commercial Environment (ACE) administered by the US Customs and Border Protection. ACE serves as the single window system through which the trade community reports imports and exports and the government determines admissibility.
6. How can I determine if my company is the actual “US importer of record”?
The importer of record is liable for payment of all duties and meeting all statutory and regulatory requirements incurred as a result of importation, as described in 19 C.F.R. § 141.1(b). The parties who are permitted to be the importer of record are the owner or purchaser of the goods, or when designated by the owner, purchaser, or consignee, a licensed customs broker. A review of the company’s ACE data should provide information on whether or not the company is the IOR.
7. How would these new tariffs apply to the current duty rates on covered products?
The Section 232 tariffs would be cumulative ad valorem duties which are applied in addition to the duties otherwise in place, including antidumping and countervailing duty rates. For example, if a company imports aluminum wire under HTSUS 7605.19.0000 which has a duty rate of 4.2% and the Section 232 is an ad valorem of 10%, a total of 14.2% ad valorem duty would be due at importation.
Tariffs may be avoided if steel or aluminum is entered into a bonded warehouse, as long as it never enters the United States for consumption or does not enter until after such tariffs are removed (note: the date of withdrawal from the warehouse for consumption into the United States determines whether or not the tariffs apply). Use of a bonded warehouse is generally an expensive alternative for anything but a short period as the cost of the bonded warehouse increases with the potential duty liability involved. Temporary Import Bonds (TIB’s) should be available to avoid the duties, but only to the extent a TIB normally would be allowed for the specific transaction (e.g., goods must be coming into the United States for one of the reasons specified in the TIB provisions).
If the merchandise qualifies for preferential tariff treatment, the importer would still be responsible for the Section 232 ad valorem duty rate. Based on the example in question 6, the aluminum wire imported under HTSUS 7605.19.0000 would not have a duty rate of 4.2%, but would still be responsible for the Section 232 ad valorem duty of 10% for a total of 10% duty rather than 14.2% duty without the preferential tariff treatment claim.
8. Should my company consider seeking a product exemption from these new trade constraints?
Yes. If the imported product is not made in the United States, US producers do not have the capacity to ship sufficient amounts, or if there is a specific national security need, a party may be able to get an exemption. We expect more guidance when the Presidential proclamations are issued.
9. When should my company start worrying?
Now. The President announced his determination on March 1, 2018. Based on past cases, restrictions will go into effect no later than 15 days after the Presidential proclamations are issued.
10. Looking ahead, how are the company’s short and long-term contractual obligations affected?
In the short-term, the Presidential Proclamation providing official notice of the specific actions determined by the President will be issued shortly. That document should detail exactly when the tariffs will go into effect and any other details concerning the assessment of the tariffs. In the long-term, there could be retaliatory action from US trading partners.