Specialised wire made in Germany, sold by Zapp to be made into windscreen wipers in Mexico, is available only on import, the US department of commerce has ruled, and has therefore won an exemption. Shaped plates used to repair badly broken bones, however, could in the government’s view be made in the US, so Zapp faces tariffs on those unless it finds a domestic supplier.
The Trump administration in March introduced tariffs of 25 per cent on steel and 10 per cent on aluminium, and also set up a process for US importers to request exclusions. As application for requests on tens of thousands of products have flooded in, many companies said they were finding the bureaucracy frustrating and the decisions bewildering.
Winners and losers are being chosen seemingly arbitrarily by the government, they complain, distorting markets and disrupting supply chains. Meanwhile, a backlog of decisions continues to grow.
“Manufacturing was doing so well,” said Mr Brebrick. “People would like to get back to business as usual. Let us compete on a level playing field and leave us alone. No more regulation, please!”
Zapp, which is German-owned and has its US manufacturing centre in South Carolina, filed more than 30 requests for exclusions and has received just 12 decisions so far. One has been granted, 11 were declined. Mr Brebrick is finding it hard to get explanations for the decisions. He has called the commerce department half a dozen times, using the numbers published for inquiries, and left messages but has heard nothing back.
A Financial Times analysis of the exemption requests filed and published by the government suggests Zapp has been less fortunate than other companies in its hit rate with tariff exclusions. As of the end of Friday, 55 per cent of the 933 decisions announced by the commerce department on requests for exclusions from the steel tariff had been to approve an exemption.
But Zapp’s experience is typical of the daunting bureaucratic complexity of the process and the unpredictability of its results. Officials in the commerce department are being called on to make snap judgments about highly complex questions of industrial capacity.
Companies that want to import products that are not, or cannot be, made in the US, according to the government’s judgment, can be granted selective exemptions. Products deemed to have home-produced alternatives cannot escape.
US businesses are often cautious about discussing the process on the record, not wanting to jeopardise their chances of securing one of the valuable exclusions. But complaints about the process are widespread. As one industry representative put it, there is “a lack of transparency and a lack of consistency”.
The sour joke among opponents of Mr Trump’s strategy is that while his tariffs may do little to bring manufacturing jobs back to the US, he has at least been highly successful in creating work for the federal government.
As of close of business on Friday, more than 16,000 requests for exemptions from the steel tariff had been posted on the regulations.gov website. The commerce department’s Bureau of Industry and Security had granted 516 and denied 417. The total number of requests that have been sent in is thought to be several thousand higher: it can take a few weeks for the department to post the request online.
Companies have taken widely different approaches to requesting tariffs. Voestalpine, the Austrian steel group, has filed more than 3,000 exclusion requests, each covering a particular highly detailed product specification. Other companies have filed much broader requests for general categories.
The decisions made by officials are similarly variable. The notices announcing decisions are brief, giving only a cursory explanation of the department’s reasoning, and have often left companies struggling to understand their thinking.
Product: Seamless stainless steel tubing 3.5 inches outer diameter x 9.2lbs per footSupplier: Nippon Steel & Sumitomo Metal CorporationExemption: GrantedProduct: Seamless stainless steel tubing 4.5 inches outer diameter x 15.1lbs per footSupplier: Nippon Steel & Sumitomo Metal CorporationExemption: Denied
Product: Flat-rolled strip of cold-rolled stainless 13C26 Blade Steel 0.099mm x 14.86mm. Tensile strength: 896-1137 MegaPascalesSupplier: SandvikExemption: GrantedProduct: Flat-rolled strip of cold-rolled stainless AEB — L Blade Steel 0.099mm x 12.09mm. Tensile strength: 862-1068 MegaPascalesSupplier: VoestalpineExemption: Denied
Royal Dutch Shell, for example, applied for tariff exemptions for high-specification steel pipes able to resist the pressures, temperatures and corrosive threats found in deep water oil and gas production, arguing that only Nippon Steel & Sumitomo Metal Corporation of Japan supplied a product that could meet these demands. The commerce department ruled that it accepted the argument for tubing 3.5 inches in diameter — but not for tubing 4.5 inches in diameter.
Sometimes the differences mean varying treatment for competing companies in the same industry. Schick, the razor company, has been granted 16 exemptions for different grades of the steel used to make blades. Gillette, the razor division of Procter & Gamble, which employs about 1,350 people in Massachusetts, has applied for similar exemptions but as of Friday had not received any decisions.
So far, the department seems to be close to meeting its objective of delivering a decision on applications for exclusions within 90 days, but the size of the backlog is raising fears among steel-using industries that delays could start to mount, creating additional problems. Wilbur Ross, commerce secretary, made a request to Congress for more funds to pay for the increased workload, but he was turned down, and the department has been redeploying staff from other activities to help process applications.
The Department of Commerce said that it was making “considerable progress” on the requests for tariff exemptions, adding new decisions daily. The total reached 1,150 on Monday, it said. “We will be posting substantially more in the coming weeks,” a spokesperson said. “We are optimising our efforts with the resources we have.”
Sometimes, officials appear to be denying exemptions for more advanced imported products on the grounds that less sophisticated US alternatives are available.
Plains All American, the US pipeline group, is importing steel pipe from Greece, made using an advanced manufacturing process that it says is not available from US suppliers. The commerce department turned down its request for an exemption from the tariff on the grounds that similar pipe using an older technology was produced in the US.
Lewis Leibowitz, a trade lawyer who represents many companies seeking tariff exclusions, said there was a risk that US steel producers would use the tariffs to protect outdated technologies. “They are saying ‘we are going to stop anybody that tries to bring in a better mousetrap’, and the commerce department has just bought into that. And that is disturbing,” he said.
Plains said the project, a pipeline in Texas to carry oil from the booming Permian Basin shale region, will still go ahead using the imported pipe, which has already been paid for. But it argued that the tariff “risks US energy security and American jobs” and said it was “reviewing our options to challenge this decision”.
Its chief executive will be raising his concerns at a hearing on the exclusion process held by the House Ways and Means Committee on Tuesday.
Under Section 232 of the 1962 Trade Expansion Act, the legal basis of the tariffs, there is no formal process for appealing against a decision. Many of the denials have been issued on the basis that the application was incomplete, offering companies the chance to resubmit requests providing more detail. That restarts the process from the beginning, adding delays and increased paperwork for both the companies and the commerce department, but does at least leave open the possibility of relief. For other companies, the only option seems to be legal action, but that looks like a long and expensive process.
US steelmakers, including US Steel and Nucor, have been active participants in the process, filing hundreds of objections to proposed exclusions. Sometimes they argue they can already supply the product or an equivalent, other times they say they could be in a position to produce it within weeks or months.
The burden is being placed on the Bureau of Industry and Security to decide speedily which side is representing the position most accurately.
Wiley Rein, Nucor’s law firm, has submitted objections to about 10 per cent of the published applications for exemptions from the steel tariffs. Alan Price, a lawyer at the firm, said he thought the bureau had done a good job in setting up a new process for deciding on exclusions so quickly: “In the long run, there is probably some room for improvement. But decisions have not been unduly delayed.”
He added: “If people want to turn this into a legal process to make lawyers rich, they can do that. But Commerce [department] set the process for section 232….and that process is moving forward.”
Some US companies worry, however, that as Mr Trump pushes ahead with additional tariffs, including new measures aimed at China and the threatened charges on imported cars and components, the administrative process will become only more complex.
“You are going to see these same types of issues occur again,” said Alexander Russ of the Association of Equipment Manufacturers. “The problems are going to be compounded.”
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