The motor vehicle industry of the 21st Century is in the midst of massive technology shifts and changes in consumer demands. Automation, electrification, and shared mobility will dramatically alter Americans perception and use of vehicles. These changes will impact our domestic manufacturing base as well as our global supply chain.
At the same time, the industry is facing a series of challenges in the trade policy arena. President Donald Trump’s new trade agenda has as its cornerstones a re-negotiated agreement between the U.S., Canada, and Mexico (USCMA) and likely imposition of 25 percent tariffs on virtually all Chinese imports. And, in two separate significant moves the President has implemented tariffs on imported steel and aluminum and is considering tariffs on virtually all imported autos and motor vehicle parts.
The U.S. industry has depended on a global supply chain to provide raw materials and finished goods in order to compete in the rapidly evolving mobility space. This global supply chain has in turn created almost 900,000 direct supplier jobs in an overall industry that supports over 10 million American job. Make no mistake about it, the global supply chain has been good for this industry but it has also been good for the U.S. economy and American workers. In fact, it has helped make the United States a center of industry innovation in areas like automation.
The President’s tariffs on steel and aluminum and potential tariffs on autos and parts has focused on a previously little used or understood section of the 1962 Trade Expansion Action – Section 232. The basis for a Section 232 action is a finding by the Department of Commerce that the importation of a raw material or finished good causes a national security risk. Yet nothing could be further from reality in our industry. Importation of steel, aluminum, autos and parts from allies like Canada, the EU, Japan and Mexico is not a national security risk. The integrated global marketplace provides economic viability for an industry that contributes 3.5% of the total U.S. GDP.
When steel and aluminum tariffs were implemented starting in March 2018, an exclusion process was announced. Yet, this process has been woefully inadequate and has failed the consuming industry. Manufacturers throughout the country have filed almost 130,000 steel exclusion requests. In one year, the Department of Commerce has only acted on 37,000 of these requests. This includes 24,000 exclusion approvals and over 12,000 exclusions denied. During this same period, suppliers have seen a price increase of almost 50% for steel purchased in the United States. This increased cost has weighed particularly heavy on smaller, domestic manufacturers.
Seventy percent of supplier employment comes from smaller suppliers located throughout the United States. These suppliers often have a limited number of manufacturing facilities in the U.S. and perhaps one outside of our country. They are the backbone of our successful domestic industry and are often the major employer in small and medium sized communities throughout our country.
But here lies the difficulty. These suppliers have two major costs – raw materials and employees. The increased cost of steel and aluminum has left them with few resources to find alternative sources of raw materials. In order to continue operations, these suppliers have had no choice but to reduce worker hours and not fill open positions.
While the strong U.S. economy may mask the overall impact of these decisions, it cannot alter the impact these decisions have on individual Americans and their communities that depend on these manufacturers. Moreover, our domestic industry will ultimately be weakened and become less globally competitive.
However, this summer, the industry is facing an even bigger potential challenge. One year ago, the President ordered the Department of Commerce to investigate the national security risk posed by importing autos and parts. Unlike many other controversial issues facing this country, the Trump Administration did not hear from any stakeholder in favor of imposing wide scale tariffs on imported autos and parts. The industry – auto manufacturers, dealers, suppliers, and the aftermarket all agree that the importation of autos and parts does not impose a national security risk and the imposition of tariffs will have a significant negative economic impact. We are in fact working in a “Driving American Jobs” coalition to prevent imposition of tariffs. Recently 160 Members of Congress sent a bipartisan letter in support of perspective. And there is no doubt, that the imposition of these tariffs will increase the consumer prices, cost jobs and reduce industry sales. All of this would lead to reduced investment in the U.S.
According to the Center for Automotive Research (CAR), 25 percent across the board auto tariffs would increase the price for consumers of a typical motor vehicle by $2750, eliminate 367,000 U.S. jobs and cut sales by 1.3 million units. (CAR, February 2019)
Yet the President has on his desk a report by the Department of Commerce that could do just that. Although this report has not been made public, Japan, and the EU are pursuing trade negotiations with the U.S. to forestall the possibility of wide scale tariffs.
The decision to impose these tariffs or other measures lies squarely with the President. MEMA and the entire industry have vigorously opposed the imposition of tariffs and we see Congress considering action to limit the President’s authority to impose tariffs. Chairman Chuck Grassley (R-IA) of the Senate Finance Committee is working with Senator Rob Portman (R-OH), Senator Pat Toomey (R-PA) and others on legislation to curtail the President’s ability to impose 232 tariffs. The entire auto industry supports these efforts to reassert Congressional authority on trade. Under Article 1, Section 8 of the U.S. Constitution, Congress has the power to “regulate Commerce with foreign Nations.”
In the meantime, the auto parts sector faces increasing uncertainty caused by the tariffs that are already in place. Of course, production and sales of motor vehicles in the U.S. peaked a year and a half ago, as part of a general economic cycle. New auto 232 tariffs could start the process toward greater economic difficulties.
The automotive industry provides jobs, investment, and the vehicles consumers love to drive. While the industry strongly supports the President’s goal of a fair-trading system for all Americans, tariffs will weaken our domestic supply chain, decreasing jobs and investment, and increasing consumer costs while limiting choice. We know there is a better way.
U.S. Boating Bears the Brunt of the Trade War
by Nicole Vasilaros, Senior Vice President of Government and Legal Affairs
for the National Marine Manufacturers Association
An America first trade policy shouldn’t be putting one of our country’s core industries last. Yet the ongoing global trade war continues to wreak havoc on the recreational boating community, an industry that builds 95 percent of boats sold in the U.S. and has been a net exporter for many years. What’s more, boats are the only recreational product facing retaliatory tariffs from several top trading partners, including Mexico, the European Union, and China.
That’s why the National Marine Manufacturers Association (NMMA) and the broader manufacturing industry have made trade policy a top priority and worked tirelessly over the past year to urge the administration and members of Congress to reach commonsense solutions.
For more than a year now, the industry has been facing a range of compounding tariffs – antidumping and countervailing duties on aluminum sheet, Section 301 tariffs on hundreds of commonly used marine products and materials, and worst of all, Section 232 tariffs on aluminum and steel, which have resulted in retaliatory tariffs on U.S. boats from our industry’s top export markets. These tit-for-tat tariffs are hitting the recreational boating industry on multiple fronts, causing the price of marine materials and parts to rise and decimating U.S. boat exports.
Section 232 tariffs on all aluminum – coupled with the effects of the administration’s antidumping and countervailing duties on Chinese aluminum sheet – have caused the price of the material to spike, even for domestically produced aluminum. Since nearly all marine manufacturers source their aluminum domestically, there’s nothing they can do to offset these additional costs. Aluminum boats represent 44 percent of new boat sales each year and account for $3 billion in retail sales – a lack of recourse from these harmful tariffs negatively impacts our industry’s bottom line and jeopardizes our economic contributions.
Not only have these tariffs hurt the economy, they have also threatened the livelihoods of 22,000 Americans whose jobs are tied to the aluminum sector of the marine industry. These products are manufactured across the U.S., with heavy concentrations in states such as Arkansas, Florida, Indiana, Michigan, Minnesota, Missouri, and Washington.
To add insult to injury, Canada, the European Union, and China, which collectively account for 70 percent of U.S. boat exports each year, responded to the global aluminum tariff by retaliating against boats. These punitive tariffs have essentially closed off markets that purchased a combined $2 billion in U.S. boats and marine engines last year, and several manufacturers have seen millions of dollars of orders canceled as a result. Put simply, it now costs significantly more to manufacture boats, and there are fewer global customers able to buy them.
Fortunately, Canada removed its retaliatory measures on U.S. boats last month, marking the most positive development our industry has seen since the trade war began. But there is still more work to do on the retaliation front.
With the administration considering new Section 232 tariffs, NMMA and a coalition of manufacturing partners sent a letter to President Trump last month, urging him to refrain from imposing automobile tariffs using Section 232 of the Trade Expansion Act of 1962 – the same authority the president exercised to impose tariffs on aluminum and steel. If the administration chose to levy Section 232 tariffs on automobiles and vehicle parts from Japan, Europe, and other nations, it would subject even more marine and engine parts to these detrimental tariffs.
Some recent developments have been encouraging, such as the elimination of Canadian countermeasures, the completion of the U.S.-Mexico-Canada-Agreement (USMCA), and negotiations with Japan, the European Union, and the U.K. And the industry is advocating strongly for the ratification of USMCA, negotiations with top trading partners, and a resolution to the conflict with China.
Congress has stepped in to alleviate some of these negative impacts, and recently introduced three pieces of legislation intended to curb the effects of the global trade war for American businesses. The Bicameral Congressional Trade Authority Act of 2019 and Trade Security Act of 2019 would provide Congress with a renewed mandate to review tariffs that pertain to national security. Additionally, the proposed Import Tax Relief Act of 2019 would create an exclusion process for companies that have been affected by the 10 percent tariff on $200 billion in Chinese goods on the third Section 301 list.
However, despite this progress, more must be done to ensure the recreational boating industry can continue to bolster America’s economy. In its seventh consecutive year of growth, our $39 billion industry supports 35,000 business and 691,000 American jobs in every state. All of this could be at risk without swift solutions to all trade related issues.
If the trade war continues to persist, marine manufacturers could be forced to consider scaling back operations, including jobs, and some have already frozen plans for expansion. For the sake of our industry – and the broader American economy – we will continue to encourage the U.S. government to drop its tariffs first policy and strike free- and fair-trade agreements with our valued trading partners. U.S. trade policies shouldn’t hurt one of our most uniquely American industries.
What to expect if you are thinking of filing a Section 232 Product Exclusion Request?
by Evelyn M. Suarez, Esq., The Suarez Firm, PLLC and Past WIIT President
|At a recent trade conference, White House officials described the Administration’s trade policy as “bold, creative and disruptive.”President Trump’s use of Section 232 of the Trade Expansion Act of 1962 to impose tariffs and quotas based upon national security concerns is one example of this new approach. Using this tool, on March 8, 2018, President Trump fulfilled a promise and imposed, effective June 1, 2018, a 25% duty on imports of steel products from all countries of origin except Argentina, Brazil and South Korea, which capitulated to quotas. He also imposed a 10% duty on imports of aluminum products from all countries, except for Argentina which also agreed to quotas. Australia was the only country spared tariffs or quotas on their metals. Details on the 232 tariffs appear on Customs & Border Protection (CBP) website. https://www.cbp.gov/trade/remedies/232-tariffs-aluminum-and-steel.
There is a process to ask for an exemption from these onerous taxes. It is neither quick nor easy but it is an available avenue of relief. The Bureau of Industry and Security (BIS) at the Commerce Department set forth rules on March 19, 2018 (83 Fed. Reg. 12106) for requesting product-specific exclusions and for filing objections to such requests. The process was revised on September 11, 2018, to permit rebuttals to objections and surrebuttals. (83 Fed. Reg. 46026). These changes were made after various members of Congress and industry expressed concerns. For example, on April 19, 2018, then Senate Finance Committee Chairman Orrin Hatch (R-UT) and ranking member Ron Wyden (D-OR) wrote a letter to Commerce Secretary Ross demanding changes to the process claiming that it lacked “basic due process and procedural fairness for stakeholders.”
Only individuals or organizations using steel and aluminum articles in business activities (e.g., construction, manufacturing, or supplying steel/ aluminum to users) in the United States may make requests. That may mean that the requester is not the importer of record. If a non-importer user is the requester, the user will have to work with the actual importer, often the supplier or distributor, to collect the information, regarding the importation of the product, such as tariff classification, country of origin, ports of entry. Sometimes, the product description details are proprietary to the customer or supplier. This poses special challenges for the requester, not usually privy to such information.In such situations, a general description can be given with a notation that the details are proprietary and unavailable to the requester.
Generally, exclusions will be made on a product basis and will be limited to the individual or organization that submitted the specific request. The regulations were also revised on September 11, 2018, to allow for requests based on size ranges within the same Harmonized Tariff Schedule (HTS) code to reduce the unanticipated volume of requests experienced by BIS. (83 Fed. Reg. 46026). This has been a useful change reducing the need to make multiple requests. The revised regulations also provide a “streamlined review” for requests with no objections. Unfortunately, there is still a huge backlog of requests. It also provided criteria for evaluating U.S. product availability to meet the requester’s product need. For example, it defined “immediately” as meaning whether a product is currently being produced or could be produced “within 8 weeks” in the amount needed in the business activities of the user.
BIS forms must be used for requests. They are available on BIS’s website. https://www.bis.doc.gov/index.php/all-articles/224-232-investigations/1449-232-faq. Requests are filed on www.regulations.gov referencing BIS-2018-0006 for steel and BIS-2018-0002 for aluminum. Requests are made public on the website but the requester may provide additional proprietary information separately in support of the request. BIS lists in its FAQs the most common errors companies make in submitting exclusion requests that result in requests not being posted for public comments. https://www.bis.doc.gov/index.php/all-articles/224-232-investigations/1449-232-faq
A product exclusion will be granted if the product is not made in the U.S. (1) in a sufficient and reasonably available amount; (2) satisfactory quality; or (3) there is a specific national security consideration warranting an exclusion. Many requests are based on the grounds that the product is not made in the U.S. in a sufficient and reasonably available amount of satisfactory quality.
A common reason for denial of request is the use of the wrong HTS code. In such case, the requester should ascertain the correct HTS classification because it is important that they classify their merchandise properly for customs compliance. However, in cases where the user is not the importer of record the requester does not control the tariff classification. This can pose an obstacle to obtaining relief.
There have been various concerns raised by industry groups and members of Congress about the fairness of the process, especially to U.S. manufacturers and small businesses. The costs of the tariffs themselves as well as the time, effort and professional services needed to make exclusion requests has even been covered in the mainstream press. https://www.npr.org/2018/07/22/631254971/missouri-nail-factory-manager-on-steel-tariffs https://www.nprillinois.org/post/exemptions-steel-tariffs-are-still-limbo#stream/0
Timeliness in rendering decisions has been a nagging problem and so has the process itself, which is clunky and difficult to use. For example, on March 11, 2019, Congresswoman Walorski (R-Ind.) sent Commerce Secretary Ross a second letter about the product exclusion process, stating” it has been a master class in government inefficiency and plagued by maddening inconsistency.” She raised a myriad of issues “in hopes of working with you to improve its fairness, transparency, and efficiency for all participants.”
The current portal for filing requests on www.regulations.gov makes it difficult to track requests and comments thereto. There is no unitary docket for such filings. Each filing is given a different tracking number, which is followed by a BIS identification number. The posting of filings, whether initial requests, objections, rebuttals or surrebuttals is not immediate so timing of the posting is unpredictable, making it even harder to track requests and determine deadlines.
In response to a request made by Senators Toomey, Jones and Carper, the Government Accountability Office (GAO) is reviewing the steel and aluminum tariff exclusion process. In a December 19, 2019 statement, Senator Toomey specifically noted the flawed product exclusion process. https://www.toomey.senate.gov/?p=op_ed&id=2316
BIS tested a new portal in December that it said “will streamline the process for external parties” by allowing them to view all documents for a given request in one place. This would be a much welcome change. Unfortunately, the new portal for filing requests is still not up and running. The latest word is that the portal will go live 15 days after a Federal Register notice is posted. It is anticipated that this might happen within the next 90 days.
You may ask why bother given all these problems? While not quick or easy, it is still important that companies make the effort to avoid these onerous duties. Exclusions are in fact granted. Even if not granted the first time, corrections can be made and requests refiled. Given the Congressional oversight and industry pressure, hopefully there will be improvements. It is thus important to keep your representatives in Congress informed as to your experience. There are also resources to benchmark your company’s experience. For example, George Mason University Mercatus Center has been collected data on the exclusion process. https://www.mercatus.org/bridge/commentary/growing-backlog-inconsistent-rulings-cast-doubt-over-tariff-exclusion-request
Finally, companies that have been granted exclusions should be mindful of the need to seek renewals since approvals are only good for a year.