On August 28, 2023, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) proposed new rules to streamline and strengthen the Section 232 Exclusions Process for Steel and Aluminum imports. The proposed rules will build on the five existing interim final rules and respond to public comments received by BIS since February 2022. BIS is proposing these revisions almost a month after the U.S. Government Accountability Office (“GAO”) released a report calling for increased enforcement on Section 232 Exclusions. The rules seek to make four primary changes: 1) Modifies the existing certification language and introducing new certification requirements for exclusion requests relating to finding alternate suppliers from certain U.S. allies; 2) Requires similar certification language on the objection form to further ensure objectors can supply comparable quality and quantity steel or aluminum; 3) Proposes a more efficient General Approved Exclusions (“GAE”) process by changing the criteria; and 4) Introduces a “General Denied Exclusions” (“GDE”) process to limit further exclusions on products which have consistently been found to be manufactured in the United States. The public can submit comments on these regulations until October 12, 2023.
The new certification language in the proposed rules both increases the threshold for demonstrating reasonable efforts to source the product elsewhere and requires burden of proof for sourcing efforts. If the proposed changes are implemented, before filing an exclusion request, requesters would also need to certify that they first made reasonable efforts to source their product from the United States and then, if unsuccessful, that they made reasonable efforts to source their product from a country with which the United States has arrived at a satisfactory alternative agreement. The list of countries that meet that requirement includes Argentina, Australia, Brazil, Canada, the European Union, Japan, Mexico, South Korea, and the United Kingdom. Requestors will need to provide documentation demonstrating that an attempt was made to first procure from those partner countries. If the sourcing attempts evidence is not provided simultaneously with the request submission, then the request will be rejected.
These new requirements from BIS would significantly increase the burden on importers of steel and aluminum products from outside the list of approved countries. Reaching out to suppliers in the U.S. will no longer be sufficient and contacting supplies in foreign countries could be difficult without knowledge of those foreign markets. Even if an adequate supplier from another country is found, importers may still need to go through the exclusion process or risk running into issues with a quota. Furthermore, BIS has not yet clarified what documents will be required to prove sourcing attempts were made. At this moment, Crowell recommends keeping email records or notes from phone calls for any sourcing or validation efforts. Should a domestic producer object to a Section 232 exclusion, the best argument for importers is make is to have already tried sourcing from that entity.
In addition to new requirements for importers, BIS is proposing additional certification language on the objection form for domestic producers. Objectors would need to certify that they can supply comparable quality and quantity steel or aluminum and make it “immediately available” to requestors in line with the applicable standards (“immediately available” means within eight weeks). Along with the new certification, objectors would be required to simultaneously file evidence that they have commercially sold the product at issue within the last 12 months, or evidence that it has engaged in sales discussions with this requesting company or another company requesting the same product within the last 12 months. Domestic producers will need to closely review the product in the Section 232 exclusion request to ensure it is the same or substitutable with what they currently offer. Importers should be aware that submitting an exclusion request with too broad or generic of a product description could lead to a greater chance of objection.
In an attempt to reduce the quantity of exclusion requests received, BIS proposes changing the criteria that has generally been used for General Approved Exclusions (“GAE”). BIS currently focuses on whether an HTSUS code has received objections however this is problematic since this accounts for objections regardless of the merits of those objections. According to BIS, this “undermines the effectiveness of the Section 232 exclusions process, creates unnecessary burdens on BIS and industry, and reduces the fairness and efficiency of the process.” New GAEs will instead be decided upon an analysis of objections which most likely signifies that BIS will look closely at whether domestic actually produces products under certain HTSUS codes. In the Federal Register notice, BIS estimates that this change could result in up to a twenty percent reduction in the total number of exclusion requests submitted. Importers should monitor the list of GAEs to save time and money on submitting Section 232 exclusions.
Relatedly, the proposed rules also seek to establish a list of General Denied Exclusions” (“GDE”) to cutdown on the number of exclusions. BIS will use a similar analysis to the GAE to create a list of HTSUS codes where an existence of U.S. industry has been repeatedly proved. GDEs will generally be implemented if the HTSUS codes have very high rates of successful and substantiated objections. Exclusion requests filed with products of HTSUS codes on the GDE will automatically be rejected. If importers believe they have a product on the GDE that cannot be manufactured in the U.S. then the importer will want to submit comments to BIS to have the HTSUS removed from the GDE.
The proposed regulations serve two overall purposes: 1) to create additional burdens of proof on importers for sourcing efforts and manufacturers for production capacities; and 2) reduce the volume of exclusion request through the improvement of the GAE list and creation of a GDE list. Overall, these changes would make a more efficient and equitable Section 232 exclusion process, however the need to document sourcing attempts from third-countries could prove overly burdensome for importers. Comments can be submitted on docket number BIS–2023–0021 or RIN 0694–AJ27, through the Federal eRulemaking website: http://www.regulations.gov.