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Section 232 – Not All Quotas Are Created Equal

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Since March 2018, when President Trump exercised his authority under Section 232 of the Trade Expansion Act of 1962 to impose a 25 percent tariff on steel imports and a 10 percent import on aluminum, trade partners of the United States have made efforts to receive exemptions from the steel and aluminum tariffs. In several instances, the Department of Commerce used the leverage created by the Section 232 tariffs to negotiate tariff rate or absolute quotas with strategic allies. While Canada, Mexico, and Australia are now exempt from the Section 232 tariffs, the U.S. maintains quota deals with Argentina, Brazil, South Korea, the EU, Japan, and the United Kingdom. Despite all of these countries having quota deals with the U.S., these agreements do have key differences that importers need to understand.

Back in the first half of 2018, the U.S. reached quota deals with Argentina, Brazil, and South Korea as alternatives for the Section 232 tariffs. The tariff quotas were set based on historical average volumes where a subject country’s exports of a particular steel or aluminum product cannot exceed 500,000 kg or 30%” of the annual product-specific quota in a given quarter. Since these are absolute quotas, imports from these countries cannot exceed the quota limit and continue to import by paying tariffs. Imports will be denied entry if the absolute quota is full.

The only way to import Argentina, Brazil, and South Korea products subject to the Section 232 tariffs once the quota is full is by applying for and obtaining a Section 232 quota exclusion from the Department of Commerce. Exclusions are retroactive to the date of their application. When entering those goods with an exclusion, importers should utilize 9903.80.60 in place of 9903.80.05 through 9903.80.58 but continue to reference the appropriate chapter 72 or 73 harmonized tariff schedule (HTS) classification. Quota exclusion entries are charged against the quarterly limit that is in place at the time of entry and count towards the annual limit. This means that entries with exclusions will “use up” quota limits, but they continue to be accepted until the close of the annual quota period regardless of whether the quarterly or annual limits have been reached. Exclusion quantity that is over the quarterly or annual limit is tracked by CBP as “exclusion quota overflow” using the distinct quota ALXC suffix.

In October 2021, the U.S. announced that it would establish a tariff rate quota for steel and aluminum products from the EU in exchange for the EU suspending its retaliatory tariffs. Steel from the EU operates with a quota managed on a quarterly basis with limits and carry forward amounts set by the Department of Commerce. Each quarter has initial limit of 25% of the annual country limit for each HTS group but the unused quota amount from the first quarter of the year will be combined into the third quarter, while the unused second quarter will combine into the fourth quarter. Aluminum from the EU operates on a semiannual and annual quota where no more than 60 percent of the tariff-rate quota to be filled in the first half of the year. Importers can still bring in products from the EU once the quota for that specific HTS is full but will need to pay the Section 232 tariffs for the amount that exceeds the tariffs.

A key difference in the U.S.-EU deal is that entries with exclusions from the Department of Commerce do not count against the quota. Importers holding exclusions a particular HTS can enter goods at any time during the quota year, regardless of whether the tariff rate quota thresholds have been met. In practice, this means that the steel and aluminum quotas for the EU are significantly less likely to fill up compared to the other quota agreements. While Importers using the quota need to file using the appropriate 9903.80.65 through 9903.81.19 quota HTS number, no Chapter 99 HTS number is required when using an exclusion.

The most recent two deals, both of which have a similar structure, are the U.S.-UK and US-Japan agreements. Starting in April 2022, the U.S. announced that Japan can import up to 1.25 million tons of steel duty free under a tariff rate quota. Meanwhile, since June 2022 the U.S. replaced the tariffs on steel and aluminum from the UK with tariff-rate quotas allowing up to 500,000 tons of steel and 12.3 thousand tons of UK aluminum to enter the U.S. duty-free each year. The tariff rate quotas for steel products also function on a quarterly basis with rollover quantities working the same as with the EU deal. Not entries can be made that would exceed the aggregate quantity under the relevant subheading, which means entries must entirely fit under the quota or pay tariffs on the entire volume.

Similar to the Brazil, Argentina, and Korean arrangements, entries that have exclusions from the Department of Commerce will count against the quantitative limitations. As a result, even importers with an exclusion will need to report the relevant chapter 99 quota subheading. This is true even if the quota is already full. The nature of combining a tariff rate quota with exclusions counting against the quota can create tricky situations when attempting to retroactively obtain relief from Section 232 duties. Even if the quota period has ended, importers should have no issues filing a post summary correction (“PSC”) to retroactively claim a Section 232 exclusion and refund on an unliquidated entry (up to 15 days prior to the scheduled liquidation date). 

The snag lies where the original entry was not filed as a quota entry.  Essentially, entries that claim exclusion also must count toward the quota, even though the exclusion continues to apply after the quota is filled.  Therefore, an entry that applies the exclusion subheading code must also be filed as a quota entry, e.g., Type 02 or Type 07.  If the original entry was non-quota (e.g., Type 01), and the importer wishes to apply the Section 232 exclusion HS code retroactively via PSC, this is not possible because the original entry was non-quota.  In that instance, the entry may need to be canceled and re-filed as quota entry that also applies the Section 232 exclusion HTS code. 

For updates on the status of Section 232 quotas, please refer to U.S. Customs and Border Protection’s (“CBP”)  weekly commodity status report.  CBP also maintains quota bulletins that describe in detail the specifics of each Section 232 quota program. This bulletin can be used to identify the quarterly, semiannual, or annual limits set for all Section 232 quotas. Even less than one month in to 2023, certain products such as line-pipe from Italy under subheading 9903.80.81 and cold finished stainless-steel pipe from Japan under subheading 9903.81.57 have already filled their quota. Importers must be diligent in monitoring quotas to avoid having goods stopped at the border, or paying a higher tariff.

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