President Trump's 232 Exclusion Proclamation Includes a Surprise for U.S. Manufacturers

The market is still absorbing and trying to understand what the new proclamation will mean to their businesses. The legality of the 232 tariffs based on “national security” is already being challenged in court. SMU saw the filing by one Russian-owned Swiss steel exporter who brought a federal complaint in Manhattan at the U.S. Court of International Trade. Other trading companies, manufacturers and distributors are working through the impact of 232, and SMU advises you to make sure you stay on top of day-to-day events.

The Thursday evening announcement contains a big change affecting U.S.-based manufacturing companies that many in the press have overlooked or don’t understand. To be honest, Steel Market Update’s team is not filled with lawyers, so when we read the following in the proclamation we did not think about it as a major change in the way major manufacturing companies operate in the United States:

“(5) Any steel article that is admitted into a U.S. foreign trade zone on or after 12:01 a.m. eastern daylight time on March 23, 2018, may only be admitted as ‘privileged foreign status’ as defined in 19 CFR 146.41, and will be subject upon entry for consumption to any ad valorem rates of duty related to the classification under the applicable HTSUS subheading. Any steel article that was admitted into a U.S. foreign trade zone under ‘privileged foreign status’ as defined in 19 CFR 146.41, prior to 12:01 a.m. eastern daylight time on March 23, 2018, will likewise be subject upon entry for consumption to any ad valorem rates of duty related to the classification under applicable HTSUS subheadings imposed by Proclamation 9705, as amended by this proclamation.”

However, trade attorney Lewis Leibowitz sent SMU a note pointing out this specific revision and the change in “Free Trade Zones” (FTZs). Here is what he had to say on the subject:

“For foreign trade zone admissions, effective March 23 at 12:01 a.m., all covered steel and aluminum products (Chapter 72, 73 and 76) must be admitted in ‘privileged foreign’ status. This means that goods used in manufacturing in FTZs will pay duty on steel and aluminum products when entry is made into the United States, regardless of the tariff classification of the finished goods (e.g., automobiles, tractors, photographic plates, etc.)”

This evening we spoke with Leibowitz further on the subject. He told us factories in the United States are being treated worse than those in foreign countries. When a car is manufactured in Japan and then exported to the United States, the Japanese car company only pays the 2.5 percent duty due on automobiles coming into the United States.

That same Japanese car company may have a manufacturing plant in the United States located (as most foreign-owned car companies are) in a Free Trade Zone. That plant can no longer claim “non-privileged status,” which allows the company to bring in steel or parts made from steel from Japan or other countries to use in the manufacture of their vehicles. Prior to Section 232, there was no tariff on foreign steel and aluminum unless it was from a country affected by antidumping or countervailing duties (such as China). As of 12:01 a.m. on March 23, they will have to pay the tariffs being charged on steel coming from non-excluded countries (Japan is not excluded at this time).

Quotas are now also on the table for those allowed to ship steel into the United States. This continues to be a very fluid situation. We will have more on the Section 232 tariffs, as well as any potential quotas, and their impact on the steel and manufacturing business as changes are made.