Leibowitz on Trade: Update on Product Exclusions

In the last two weeks, the steel and aluminum exclusion process has come under new scrutiny. As I’ve mentioned in previous updates, several members of Congress have questioned the Commerce Department’s standards and decision-making on product exclusions. The Government Accountability Office is currently analyzing the Commerce procedures as a result of congressional questions.

Just last week, the Commerce Department Inspector General released a memorandum critical of the steel and aluminum exclusion process under Section 232. The Bureau of Industry and Security (BIS) handles exclusion requests. Routinely, BIS consults with Commerce’s International Trade Administration, which, among other duties, handles antidumping and countervailing duty cases. This responsibility gives ITA a great deal of experience in steel and aluminum matters due to the large number of these cases in the investigation and review stages.

The IG reported three incidents which, according to the memo, create the impression that undue influence and disregard of established rules may be part of the exclusion process. For example, the IG reports that: (1) there is evidence that an “unofficial appeals process” for exclusions exists; (2) an attribute relating to specifications on the exclusion request form was changed after an informal communication from an objector to a request, without notice of the change to the public or an opportunity for interested parties to comment; and (3) BIS has had numerous meetings with interested parties concerning exclusion request procedures, but Commerce has made no record of what was discussed, leaving open the possibility that specific exclusion requests were discussed with BIS by interested parties.

These incidents have attracted the IG’s attention as the “watchdog” of the Department of Commerce. Over the next few months, additional findings and recommendations will come from the IG. This could lead to changes in the exclusion process.

In addition, Congress is looking into exclusion request procedures for Section 232 products. I’ve mentioned before Representative Jackie Walorski (R-Indiana) and her detailed questions that point out apparent inconsistencies and arbitrary decisions in exclusion cases. Commerce recently responded to her latest letter without genuinely addressing her concerns. There will be more questions and hopefully more answers soon.

Finally, the JSW (USA) court case is proceeding apace. The plaintiff’s motion for judgment in its favor is due in mid-December and the government’s response is due in February 2020. The case alleges unsupported rejections of 12 exclusion requests by JSW (USA) for imports of semifinished steel products.

There is no apparent slowdown in exclusion requests, which now top 100,000. Part of the reason for this huge number is that each separate specification or set of dimensions must be requested separately. Moreover, if two companies need an exclusion for a particular product, each must file a separate request. This contrasts with the China exclusion requests. An exclusion granted under the China tariff provisions may be claimed by any importer that meets the requirements of a particular request. Perhaps for this reason, the number of exclusions for China products is a fraction of the number for steel or aluminum.

Next week, I’ll look into new developments on exclusions for China. Have a good week!

Lewis Leibowitz

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