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Implementation of metals tariffs remains muddled days before they take effect

Implementation of metals tariffs remains muddled days before they take effect
Steel coils produced at the NLMK Indiana steel mill are prepared for shipping this month in Portage, Ind. (Scott Olson / Getty Images)

As the Trump administration barrels ahead with its plan to apply stiff tariffs on imported metals starting Friday, governments and businesses across the globe are in a fog as to what is happening and are bracing for at least a short-term hit because of what many criticize as the administration's slapdash process.

When President Trump made his official announcement of the tariffs March 8 — 25% on steel and 10% on aluminum — he exempted Mexico and Canada, at least temporarily, and said that other nations could negotiate with the White House to get out of paying duties on tens of billions of dollars of imports.

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But the administration still has not spelled out in any detail what trading partners must do to secure a country exemption. And with just a few days before the tariffs take effect, the void has left many companies and governments frustrated and concerned that the trade action could spiral into a global crisis.

Trade ministers from Europe and other countries have been scrambling to meet with Trump officials in recent days, even as they and business groups in the U.S. and abroad have been waiting for the administration to clarify what it will take for nations to get tariff exemptions. "Clear as mud," said one diplomatic official in Washington of the process.

"If we want to negotiate something, we need more time," said Gabriel Felbermayr, director of Ifo Center for International Economics in Munich. Some people in Germany, he said, are so baffled by what's happening that they hope the whole undertaking by Trump can be postponed.

"The entire process, the tone, time schedules — all these elements — are annoying people here and harming the image of the United States in an unnecessary fashion," he said.

It isn't winning fans at home, either. Late Sunday night, Commerce Secretary Wilbur Ross announced procedures on how U.S.-based importers or users of foreign steel and aluminum could apply for tariff waivers on specific products that may not be available domestically. In the past, companies have been able to get product waivers before such tariffs were implemented.

That's impossible this time around. It was only on Monday that an online form was made available for companies to file for product exclusions, and the Commerce Department said it would take 90 days to review the detailed application — meaning that U.S.-based car producers, appliance makers and other firms will have to pay the hefty tariffs and hope that they will get reimbursed if they later receive exemptions.

"There's just too many questions on retroactivity," said Brett Guge, an executive vice president at California Steel Industries, which processes imported steel from Brazil, Mexico and Japan. Guge said his Fontana company will work on the product-exclusion application this week. "It is what it is, as far as the timeline," he said. "Doesn't matter what we think. We don't have a lot of time."

In issuing the tariffs, Trump moved to fulfill a campaign promise to aid domestic steelworkers and get tough on trade rivals, whom the president blames for America's industrial and economic troubles. He surprised his own staff in previewing the tariffs March 1, saying they would apply to all countries, only later to temporarily exclude Canada and Mexico on the condition that they renegotiate the North American Free Trade Agreement to Trump's satisfaction.

Trump charged ahead with the formal tariff orders, which he justified on the basis of national security, even before his administration could prepare the necessary rules and procedures for countries and companies seeking exemptions for steel and aluminum products.

Trump assigned his chief trade official, U.S. Trade Representative Robert Lighthizer, to negotiate requests from other countries for exemptions. But there's been little information released on what the USTR is seeking, beyond the tariff proclamation's general clause indicating that a country must provide a "satisfactory" alternative.

On Monday, the USTR office declined to comment on whether such clarifying rules would be forthcoming. Nor would it confirm that Australia had been granted a countrywide exemption. Australia's prime minister, Malcolm Turnbull, tweeted a week ago that he had received a "commitment" from Trump that the duties would not apply to Australia.

But Australia accounts for only a tiny share of all U.S. imported steel — $380 million, or just 1.3%, in 2017. The U.S. imports about triple that amount each from Japan, South Korea and Germany — also countries with military agreements with the U.S.

All three countries, as well as others, have called on Trump to exempt their countries from the tariffs. And many have urged Trump to work cooperatively with other nations to address a steel problem rooted in massive overproduction in China, instead of pushing through blanket tariffs and then looking for bilateral negotiations with countries wanting out of them.

Analysts, however, doubt that wholesale tariff waivers for any single nation will be provided, apart from Canada and Mexico. And what's more, Germany along with the United Kingdom, Sweden and others in Europe are trying to negotiate an EU-wide exemption.

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China accounts for only about 2.5% of U.S. steel imports, but Trump administration officials and tariff supporters have argued that Chinese-made steel makes its way to America through other nations. U.S. officials and industry representatives suspect that such circumvention is happening particularly through Turkey, South Korea and Vietnam, but there's been no definitive study confirming that.

Imports make up about one-fourth of U.S. steel consumption. Trump's tariff orders affect semifinished steel, such as ingots and slabs, as well as many kinds of finished steel products, including pipe and tubes, cold and flat rolls, bars and rods.

Analysts say it's hard to know which specific products will qualify for tariff exemptions. Guge of California Steel Industries said the slabs that his company needs are not routinely available or are prohibitively expensive. He reckons the company will seek exemptions for most of what it imports.

The Commerce Department regulations indicate that product exemptions would be based on availability, quality and national security considerations. Dan DiMicco, the former chairman of steel maker Nucor who served as a trade advisor to Trump during the campaign and is familiar with the administration's thinking, doesn't see the Commerce Department granting tariff exemptions on many products.

"It's going to take a lot to get an exclusion," DiMicco said.

The procedure for obtaining an exclusion may be a hurdle in itself. The five-page online form made available Monday shows companies will have to file a laborious application for each type of product, listing in detail aspects of the imported metal, whether there might be a suitable substitute, and why an exclusion should be granted, among other information.

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After a form is submitted and publicly available, any individual or organization also can file an objection to that exclusion request within 30 days.

The Commerce Department said it would take 90 days to review an application, including any objection.

Over the course of a year, the agency said, it expects to receive an estimated 4,500 applications for product exclusions and 1,500 forms filed objecting to them.

The department's procedures and regulations on product exclusions that were promulgated Monday in the Federal Register were called an "interim final rule" to allow for a 60-day public comment period on these rules. Trade lawyers said that typically, public comment and a final rule are issued before tariffs are implemented. But there wasn't enough time because the administration bypassed the normal process, and now the duties are set to take effect Friday.

"The key thing is you should have done this in advance," said a Washington trade lawyer, referring to the rules and process for exclusions, who did not want to be identified criticizing the administration.

He added that it's going to be very difficult for the Commerce Department to process 4,500 exclusion petitions in a timely manner.

"This is designed to make it hard to get an exclusion," he said.

Follow me at @dleelatimes

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