Analysis by Energy Workforce President Tim Tarpley
Late on Friday of last week, the US Department of Commerce posted the initial BIS decision on the pending 232 inclusion requests for derivative steel and aluminum products that we have been watching very closely. In the background, as part of the regulatory structure for 232 tariffs on imported steel and aluminum, there is a process where domestic manufacturing companies can petition to have “derivative products” included under the 232-tariff schedule. If Commerce accepts these petitions, these derivative products are added to a list and (at least in respect to the portion of the product consisting of steel and aluminum) now enter the country at the 232-tariff rate, which is currently set at 50%. This rate will be on top of any other tariffs that the product could face for the non-steel and aluminum portions of each particular product.
US manufacturers filed 467 petitions for products to be included in the derivative product list. Many of these petitions include products that are part of the OFS supply chain and/or imported by EWTC companies. Of the 467 products that were petitioned for inclusion, 407 were accepted and 60 were denied. Many of the products that were accepted are critical OFS components. A list of relevant products can be found here. Additional details on steel and aluminum inclusions can be found here.
It is important to consider the full impact of this decision. The listed products have been subject to a 50% tariff rate starting on August 18th. While the 50% tariff rate will only apply to the steel and aluminum portion of the product, the remaining portion will be subject to the reciprocal or other negotiated tariff rate from the country of origin. This will apply to all countries unless the country negotiates a separate steel and aluminum tariff rate or quota with the administration. So far, the only country that has successfully done this is the United Kingdom, which has negotiated a 25% steel and aluminum tariff rate. Also, based on current guidance, there is not a USMCA exemption for 232 tariffs for Canada and Mexico as there is with the IEEPA tariffs; however, it is always possible that this could be negotiated at a later date.
Additionally, it is important to remember that 232 is a separate tariff legal structure from the IEEPA tariffs (also referred to as reciprocal or “liberation day”). The legal backing for 232 is strong, and they are doubtful to be successfully challenged in court. So, in the scenario where the IEEPA tariffs are successfully challenged in court, the 232 tariffs will remain. Also, as of yet, the administration has not announced plans for an exclusion process on these goods. In prior uses of 232, a process was put in place in which entities could challenge inclusions of certain products either by showing that the domestic supply was either unavailable or of a substandard quality. This petition process currently does not exist, and there has yet to be an indication of such a process to be in the works. Until this exclusion process is created, there are very few legal recourses to remove products. EWTC is strongly advocating for Commerce to create such a process quickly.
EWTC and many of our member companies have significant concerns with this process and the likelihood that it will lead to increases in the cost of the OFS supply chain. We are also concerned that the price of production of our products, and ultimately the cost of producing energy itself in the United States, will go up. EWTC will continue to work with the Administration and Congress to ensure that domestic manufacturing is encouraged, but in a way that protects the OFS supply chain, which is vital to energy expansion. EWTC has created a tariff task force to work on this important issue. If you or anybody would like to join this task force, please sign up here.
Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.
