Environment and Energy

Leibowitz: Court Weighs in on Section 232 Steel Slab Exclusions

Written by Lewis Leibowitz

When President Trump imposed steel tariffs in 2018, he included an exclusion mechanism to liberate customers from tariffs on imported products that were not produced domestically. This was to permit steel-using manufacturers to continue to compete. Steel rolling mills that rely on imported slabs were among the largest users of the exclusion mechanism.

IN PROGRESS... Leibowitz:

When regulations were first issued in March 2018, the US Commerce Department estimated that 4,500 exclusion requests and 1,800 objections would be filed. We are now in excess of half a million requests, objections, rebuttals, and surrebuttals. And that does not count the aluminum requests and objections.

Litigation over denied exclusion requests ensued. That should come as no surprise. Exclusion requesters stand to save 25% duties on millions of dollars worth of imported steel, and importers will litigate for stakes that high. Domestic producers of slabs are not active in merchant markets, leaving unaffiliated rolling mills to rely on imports that, without exclusions, all of a sudden were 25% more expensive.

In semifinished steel cases, the Commerce Department was reluctant to grant exclusions for slabs from the steel tariffs because rolling mills compete directly with steel producers that make semifinished steel. Some exclusion requests have been granted after litigation caused a court to remand the denial of an exclusion to the Commerce Department. Several cases have been settled at that point with exclusions approved by Commerce. The terms of the settlements are confidential, although some details of the settlements can be discerned from the public record. The bottom line is that some slab exclusions are approved, which saves the requester considerable sums of money or results in large refunds of duties. But many more are still denied.

NLMK Pennsylvania has filed numerous exclusion requests that have been objected to by domestic steel producers claiming to be able to produce the steel requested or a close “substitute” product. Commerce has denied many of these. In a case filed in 2021, NLMK challenged the denial of 58 exclusion requests as “arbitrary” under the US Administrative Procedure Act. 

In an opinion issued last week, the Court of International Trade ruled that Commerce had not adequately explained the reasons for denying exclusion requests submitted by NLMK In doing so, the Court called into question two important principles that run through numerous exclusion cases.

First, if a domestic producer objects to an exclusion request, it must state whether it claims to be able to manufacture an “identical” product or a “substitute” product. The difference can be important: an identical product meets all the material specifications (chemistry, testing, dimensions), while a substitute does not meet all specifications, but the objector claims that the exclusion requester’s customers can use the resulting product. In the slab cases, for example, if the requester calls for a 250 millimeter (mm) slab, and the objector can make a slab that is 240 mm and 260 mm, Commerce will evaluate whether the similar product will serve the purposes required.

The Court made some interesting rulings. 

First, Commerce had determined in a subgroup of exclusions that the objectors were able to make “identical” slabs. Yet the objections answered “no” to that very question. Those cases were remanded to Commerce to explain why the agency concluded that the objectors could make an identical product when they admitted in the objections that they could not. 

Second, the Court ruled in favor of plaintiff (the exclusion requester) on the question of whose needs mattered in determining whether a “substitute” product could serve the needs of the “end-user.” The Court said that the “end-user” was the exclusion requester, not the requester’s customer. This ruling may also affect a number of exclusion requests. 

Third, the Court found that Commerce relied on a “subject matter expert” (SME) in holding that the substitute product was close enough to the requested specifications to support denial of the exclusion request. SMEs are relied upon in numerous exclusion requests. They are generally, if not universally, not identified by name or expertise in these requests. The Court found fault with that omission. The SME did not discuss arguments of the exclusion requester that contradicted its findings, nor did it explain its choices that slab of different dimensions from the request nevertheless was a “substitute product.” 

The Court remanded the case to Commerce, with instructions to send a revised determination meeting the Court’s requirements within 90 days. Then the parties may file comments with the Court supporting or challenging the revised Commerce determinations.

In some past cases, the plaintiffs and Commerce have reached a negotiated settlement and duty refunds have been given. That may or may not happen here.

The larger issue is whether nonpublic exclusion decisions are now going to be challenged more regularly. Clearly, at least one judge of the Court of International Trade has decided that anonymous and vague conclusions about whether objectors meet the specifications in an exclusion request will not pass muster. That will make exclusion cases more complex, but also potentially more fair. 

There is uncertainty because the Court of International Trade decisions can be appealed to the Federal Circuit, once the remand proceedings have been completed and the Court of International Trade issues a final judgment. A settlement of the case before final judgment will leave these issues unsettled. But important principles about the agency’s determinations are being fleshed out in this and other cases. Stay tuned…

Lewis Leibowitz 

The Law Office of Lewis E. Leibowitz
5335 Wisconsin Avenue, N.W., Suite 440
Washington, D.C. 20015
Phone: (202) 617-2675
Mobile: (202) 250-1551
E-mail: lewis.leibowitz@lellawoffice.com

Lewis Leibowitz, SMU Contributor

Lewis Leibowitz

Read more from Lewis Leibowitz

Latest in Environment and Energy