Steel and aluminium Section 232 determinations: boardroom angst

Introduction
What are the Section 232 tariffs amounts that will be applied to goods?
Who will these two investigations apply to?
If so, which specific products manufactured, imported or sold by the company are implicated (ie, covered)?
Are other products contemplated (eg, further manufactured products)?
Which individuals within a company have the import data needed?
How can companies determine whether they are the actual 'US importer of record'?
How would these new tariffs apply to the current duty rates on covered products?
Should companies consider seeking a product exemption from these new trade constraints?
When should companies start worrying?
Looking ahead, how are the company's short and long-term contractual obligations affected?

Introduction

Now that President Trump has made his determination on the tariffs to be applied as a result of the Section 232 investigations of certain imports of steel and aluminium products (for further details please see "Commerce Department issues Section 232 national security investigation reports on steel and aluminium"), boardrooms around the globe are pondering the short and long-term implications to their corporate bottom lines.

At this stage, companies are likely to have more questions than answers. Every chief executive officer understands the need to manage risk and respond to short-noticed actions. In order to help companies navigate these developments, this update aims to help companies ask the right questions to the right people at the right time.

Section 232 investigations have been rare and thus little legal precedent is available for guidance. That said, it may be helpful to consider the 10 questions below.(1)

What are the Section 232 tariffs amounts that will be applied to goods?

After consideration of the various recommendations offered by the Department of Commerce, the president has determined that tariffs in the amount of 25% ad valorem will be applied to covered steel products, and that tariffs in the amount of 10% ad valorem will be applied to covered aluminium products.

Who will these two investigations apply to?

If a company manufactures, exports or imports into the United States any of the covered products cited in either of these two investigation reports, these investigations will likely apply.

See Appendix A for a complete listing of the products cited in these investigations. If a company supplies these products or imports them to the United States, then it, as well as any US customers, may be adversely affected, depending on the exact scope of the remedy that is implemented.

If so, which specific products manufactured, imported or sold by the company are implicated (ie, 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 be 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 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 apply to the import.

However, further manufactured products incorporating these products are currently not covered by the potential new trade constraints.

Are other products contemplated (eg, further manufactured products)?

At this time, the proposed restrictions appear to cover only primary steel and aluminium products. Note that the restrictions could lead to shortages of certain steel or aluminium 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.

Which individuals within a company 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.

How can companies determine whether they are 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 CFR § 141.1(b). The parties 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 the company is the importer of record.

How would these new tariffs apply to the current duty rates on covered products?

The Section 232 tariffs would be cumulative ad valorem duties applied in addition to the duties otherwise in place, including anti-dumping and countervailing duty rates. For example, if a company imports aluminium wire under Harmonised Tariff Schedule of the United States (HTSUS) 7605.19.0000, which has a duty rate of 4.2%, and the Section 232 rate 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 aluminium 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 (notable, the date of withdrawal from the warehouse for consumption into the United States determines whether 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 (TIBs) should be available to avoid the duties, but only to the extent that a TIB normally would be allowed for the specific transaction (eg, 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 aluminium 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.

Should companies 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. More guidance is expected when the presidential proclamations are issued.

When should companies 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.

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.

For further information on this topic please contact John Gurley, David R Hamill, Matthew Nolan or Nancy A Noonan at Arent Fox LLP by telephone (+1 202 857 6000) or email ([email protected], [email protected], [email protected] or [email protected]). The Arent Fox LLP website can be accessed at www.arentfox.com.

Endnotes