Trade Cases

Watchdog Finds Tariff Exclusion Process May Unfairly Favor Objectors

Written by Sandy Williams

A memo from the Commerce Department Office of the Inspector General suggests that the Section 232 exclusion process may be favoring the companies that file objections to exclusion requests. The watchdog agency found evidence of unofficial communications that may be giving objectors undue influence in tariff decisions.

The Bureau of Industry and Security is charged with administering the exclusion review process and procedures for steel and aluminum Section 232 tariffs. On Oct. 29, 2018, the Department of Audit and Evaluation initiated an audit to determine whether the BIS and the International Trade Administration were adhering to the processes in place to review the exclusion requests.

The memo sent to Commerce Secretary Wilbur Ross stated that the audit discovered evidence of an unofficial appeals process; communications with an objector that prompted a change in internal review criteria; and off-record discussions between interested parties and department officials that were not documented.

The review process is supposed to follow a pre-determined sequence. Firms submit an exclusion request to BIS who assesses the request for completeness and accuracy and then posts the request online. The posted request then goes through a three-stage process: (1) allowance for rebuttal and surrebuttal by objectors and requesters, (2) evaluation and a recommendation by Enforcement & Compliance, and (3) a final decision by BIS that is made publicly available.

The OIG found evidence that BIS officials “reconsidered several approved and posted exclusion requests (for which there were no procedural errors) at the request of an objector.”

BIS officials were found to have revised a criterion for reviewing a specific attribute for a product in an exclusion request “within days of receiving a communication from an objector regarding the criterion.”

The OIG also discovered many undocumented discussions between interested parties and officials. “Of the more than 100 meetings and telephone conversations between department officials and interested parties that we examined for the period March 1, 2018, through March 31, 2019, none had an official record of the subjects discussed during the meeting,” stated the OIG auditors in the memorandum. “We also noted that, during these meetings, interested parties sometimes planned to discuss information about pending exclusion requests with department officials that is not part of the official record used in BIS’ or ITA’s review.”

Because of the lack of documentation, said the OIG, “this gives the appearance that department officials may not be impartial or transparent and are potentially making decisions based on evidence not contained in the official record for specific exclusion requests.”

In a statement to Inside U.S. Trade, a Commerce spokesperson said, “The Department takes this alert seriously and looks forward to working with the Office of Inspector General to gain additional information about the underpinnings of their findings.”

Bob Miller, CEO of NLMK USA, tells Steel Market Update that he is not surprised by the IG’s findings. NLMK is one of several companies whose requests for tariff exclusions on imports of semifinished slabs were denied by Commerce officials. “All along we have said this appears to be a very arbitrary decision-making process that ignores all the facts,” he said. “Steel slabs have never been able to be purchased domestically. Even the Commerce Department’s own studies have shown there is no merchant market for steel slabs.”

NLMK paid nearly $170 million in tariffs in 2018. The company no longer sources slabs from its Russian parent company, which has proven uneconomical due to the 25 percent tariff. The reroller has tried to source slabs domestically, with little success, and has maintained operations using slabs imported primarily from Brazil and Canada. The Brazilian slabs are not subject to the tariff, but are restricted by a quota. “At this stage, anybody who is willing to sell slabs that don’t have a tariff on them, we are all ears,” Miller said.

Latest in Trade Cases