United States Set to Rollback Existing Section 232 Tariffs on Steel and Aluminum from the European Union | Husch Blackwell LLP

[author: Isabella Peek]

On October 31, 2021, the United States Secretary of Commerce and Trade Representative issued a statement confirming that the United States and the European Union (EU) have entered into an arrangement (agreement) that will limit the current Section 232 tariffs on steel and aluminum changes imports.

Section 232 of the Trade Expansion Act of 1962 gives the President the power to impose tariffs on items that the Secretary of Commerce identifies as a national security threat. In March 2018, President Trump issued presidential proclamations 9704 and 9705 on imports of aluminum and steel, respectively, with the power of attorney granted to him by Section 232. Proclamation 9704 established an ad valorem duty of 10% on aluminum articles and Proclamation 9705 established an ad valorem duty of 25% on steel articles. These tariffs continue to apply to imports of steel and aluminum from Europe and other countries. Steel and aluminum from Canada and Mexico are currently excluded.

A leaflet on the agreement can be found here.

The US-EU deal will be a welcome relief for many industries in both the US and the EU. It will replace Section 232 customs regulations for aluminum and steel and stop retaliatory tariffs on US products imported into the EU. The general scope of this agreement is to withdraw the Section 232 duties on EU products through the introduction of a Tariff Quota (TRQ) with a total import quota of 3.3 million tonnes for steel and 18,000 tonnes for aluminum. Once the tariff is reached, EU countries can still import chargeable steel and aluminum into the US, but are subject to the Section 232 tariff of 25% or 10%. The TRQ begins on January 1, 2022. It is “calculated annually and administered quarterly”. The US will hold regular consultations with the EU to resolve any underutilization of the quota. The aggregated quantities of steel and aluminum are allocated to the EU member states based on the historical periods 2015-17 and 2018-19, respectively. For steel imports in particular, a roll-over clearance of 4% per quarter is granted at the end of each quarter. This allowance enables up to 4% of the unused TRQ to be carried over to the quarter after the next (e.g. the allowance for the 1st quarter applies to the 3rd quarter, the allowance for the 2nd quarter applies to the 4th quarter). There is no such rollover allowance for aluminum.

The specific implementation details have yet to be worked out by the USA and the EU. Two main areas identified in the agreement that need to be addressed are the “melt-and-pour” requirement and the exemption of derivatives from 232 tariffs.

Relevant steel items “must be ‘melted and poured’ in the EU according to the current US requirements and rules to implement this agreement.” The current “melted and poured” rule was updated last year and is defined in 19 CFR 103 (c) as :

The field in the license application that requires the country in which the steel used to manufacture the product was melted and cast applies to the original location of the crude steel

(A) First made in a steelmaking furnace in a liquid state; and then

(B) Poured into its first solid form … The first solid state can either take the form of a semi-finished product (slab, billet or ingot) or a finished steel mill product.

…

According to the melting and casting rule, countries must report the melting and casting country when applying for import licenses. The agreement requires importers to submit “relevant documentation to demonstrate compliance” [these requirements]. ”It is already necessary to include the country where steel is ‘melted and poured’ in an import license application so that current practice may not change. However, it is unclear whether this is a further documentation requirement or whether the current documentation requirements are sufficient.

This “melt-and-pour” requirement only applies to steel. A certificate of analysis is required for aluminum. This certificate seems to be commonplace in the industry and doesn’t seem to create any new or additional requirements.

At present, derivatives of steel and aluminum are subject to the tariffs under Section 232. This derived product rule was introduced after Proclamations 9704 and 9705 by Presidential Proclamation 9980 to allegedly circumvent the tariffs under Section 232 by importing items made primarily of steel or aluminum such as strands, nails, cables and parts of engines. In the first US-EU declaration, derivatives made of steel and aluminum are excluded. The Agreement defines derivative products using the same definition as in Proclamation 9980:

For the purposes of this proclamation, the Secretary has determined that an Item is a “derivative” of an Aluminum or Steel Item if all of the following conditions are met:

• the aluminum article or steel article averages two-thirds or more of the total material cost of the derived article;
• The import volumes of such derivatives have increased year on year since June 1, 2018, after the tariffs in Proclamation 9704 and Proclamation 9705, as amended by Proclamation 9739 and Proclamation 9740, respectively, were introduced compared to the import volumes of such derivatives in the 2 previous articles Years; and
• The import volumes of such derivatives after the imposition of the duties exceeded the average increase in the total volume of goods imported into the United States by 4 percent over the same period since June 1, 2018.

This derogation for derived products applies to items such as stranded wires, cables, nails and engine parts that are otherwise not covered by the TRQ. This exemption is separate from the main agreement, which covers 54 different product categories of steel and aluminum, such as cold-rolled steel, hot-rolled steel, billets, aluminum foil, aluminum pipe fittings, etc., which makes it more difficult by Section 232 tariffs. It follows that the transaction would include an exception for these derivatives as EU products are no longer subject to the underlying steel and aluminum tariffs.

Recent reports from the Department of Commerce’s International Trade Administration (ITA) show that Canada, Brazil and Korea are the top three steel suppliers to the United States. However, if the EU were a country, it would be the third largest source of steel and displace Korea. Canada is exempt from Section 232 tariffs altogether, and the United States and Brazil have a TRQ structure in lieu of Section 232 tariffs. Under this agreement, the three most important steel sources for the US will now be exempted or partially exempt from Section 232 tariffs.

According to current reports from the ITA, a similar trend applies to aluminum imports. The three most important countries of origin for aluminum are Canada, the United Arab Emirates (UAE) and Russia. As with steel, however, if the EU were a country, it would be the third largest source of aluminum, displacing Russia. Canada is exempt from 232 tariffs and there is no such agreement with the UAE. Under this agreement, two of the three main sources of aluminum will now be exempted or partially exempted from 232 tariffs. Since the major aluminum and steel sources are covered by either this agreement or other agreements, manufacturers should be able to cut prices, which should cut prices on everything from cars that use steel and aluminum to Building materials such as sheet metal.

This agreement has also opened the door to other negotiations with countries in a similar position such as the United Kingdom (UK) and Japan. On October 31, 2021, the Department of Commerce issued statements that talks are underway with the UK and Japan over similar Section 232 tariff rollbacks. The joint statement by the US and the EU suggests that an informal trading group could emerge. The joint statement said: “The United States and the EU will invite like-minded economies to join the agreements and contribute to the goals of restoring market-oriented conditions and helping to reduce the carbon intensity of steel and aluminum across all modes of production to reach. “However, it remains to be seen which countries will participate.

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https://www.jdsupra.com/legalnews/united-states-set-to-rollback-existing-3339936/