Aluminum Association calls for reform on Section 232 tariff exclusion process

In a recent letter to Commerce Secretary Wilbur Ross, the Aluminum Association, Arlington, Virginia, calls for significant reforms to the Commerce Department’s Section 232 aluminum tariff exclusion system. Under current rules set by the department, importers can request an exclusion from paying the 10 percent Section 232 tariff on specific aluminum products entering the United States. The Commerce Department has granted tariff exclusions for what the Aluminum Association says are “huge volumes of aluminum can stock, plate, sheet, foil and other products--far exceeding historical import volumes and U.S. market demand.” The organization adds that this creates a market dynamic that gives foreign competitors an unfair advantage over domestic producers.

The Aluminum Association describes the current system as “a threat to the health of domestic aluminum manufacturers as the entire aluminum value chain is responding to the unprecedented impact of the COVID-19 pandemic,” noting that aluminum production, recycling and fabrication have been recognized as essential in guidance issued by the Department of Homeland Security’s Cybersecurity and Infrastructure Agency (CISA) as well as by most states.

“As resources are already strained with aluminum producers making the products to support health care, transportation, construction, defense, packaging, water purification, infrastructure and many other critical segments of the U.S. economy, firms are instead being forced to dedicate personnel to monitor and respond to a constant flow of Section 232 exclusion requests,” says Tom Dobbins, president and CEO of the Aluminum Association. “At a time when the U.S. is looking to shore up domestic manufacturing supply chains, the Commerce Department’s current approach encourages the opposite.”

Since the beginning of the program in 2018, the Commerce Department has granted more than 20 billion pounds of aluminum product exclusion requests, the Aluminum Association says, many of them over the objection of U.S. aluminum producers with the capability to make the product in question. Already in 2020, the Commerce Department has granted nearly 5 billion pounds of aluminum can sheet exclusions, including a sizable portion from China. The department has granted more than 8 billion pounds of can sheet exclusion requests since the program began. For context, the entire size of the domestic U.S. can sheet market is only about 3.8 billion pounds of which domestic producers have historically supplied about 97 percent. The exclusion system is encouraging increases in imports of flat-rolled aluminum products in particular, the organization adds.

The Commerce Department has granted product exclusion requests for imports coming from China totaling more than 4.5 billion pounds, by far the most exclusions granted for any single country. More data is available in the Aluminum Association’s latest “Trends in 232 Product Exclusions” report.

“The current Section 232 exclusion process actively incentivizes companies to turn first to import aluminum products like sheet, plate and foil that are manufactured in abundance in the United States,” says Lauren Wilk, vice president for policy and international trade at the Aluminum Association. “Importers do not pay the regional transaction premium embedded in the cost of U.S. aluminum products, meaning every successful exclusion request forces a U.S. producer to compete for that sale with a foreign producer who suddenly has a built-in advantage. There is a level of gamesmanship happening—importers are asking for huge volumes of exclusions, which are so large that no single domestic producer could possibly meet, and then using the granted exclusions as leverage in negotiations. U.S. aluminum manufacturers are now competing with both real and phantom imports. The system urgently needs reform.”

The Aluminum Association says it has provided detailed recommendations to the Commerce Department over the past two years to initiate a variety of reforms to improve the Section 232 exclusion system:

• Subject all exclusion requests to a comprehensive evaluation, including market analysis, to ensure that exclusion volumes requested are not disproportionate to historic import volumes.
• Restrict eligibility for exclusion requests from importers who are not manufacturers, so only importers who are in some way transforming the aluminum are eligible for an exclusion.  
• Adopt a stance of presumptive denial for aluminum and aluminum products manufactured in nonmarket economy countries like China.
• Allow exclusions only for products outside of the capability of domestic producers or for which there is no U.S. production.  
• Allow domestic producers (and trade associations) to oppose exclusion requests on these grounds (disproportionate volumes or nonmarket economy country).
• Analyze use of granted exclusion requests to understand the extent to which importers are using the granted exclusions and whether the volumes identified are unnecessarily large.
• Implement various technical fixes to ease use and analysis capabilities of the Commerce Department’s exclusion request web portal.

“President Trump and Secretary Ross have repeatedly made clear their commitment to strong domestic aluminum manufacturing and pushing back on China’s industrial policies that hurt American workers,” Dobbins says. “Unfortunately, the Section 232 product exclusion system, as currently implemented, is actively undermining these goals. While we have long opposed the use of across-the-board tariffs on aluminum, we clearly should not be in the situation we are today where the policy is actively hurting the industry it is intended to help. The good news is that, with these reforms, the program can better achieve its stated policy goal of supporting U.S. manufacturing.”