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Trump Officials Oversee Trade Rules Gamed by Former Clients

By Lachlan.Markay@thedailybeast.com (Lachlan Markay)
Illustration by Lyne Lucien/The Daily Beast/Getty

A former steel industry lobbyist overseeing President Trump’s crackdown on steel imports has been placed in charge of an industry-driven system for adjudicating trade disputes that his former clients have used to attempt to kneecap their foreign competitors.

Gilbert Kaplan was confirmed last year to be the Commerce Department’s undersecretary for international trade despite a lengthy track record as a lobbyist for the industries he was put in charge of regulating. Kaplan was a Commerce trade official in the Reagan administration before a long stint as an industry lobbyist, during which he represented some of the nation’s largest steel and aluminum companies and trade associations—some of which are now using the bureaucracy that Kaplan oversees to ensure that Trump administration tariffs are imposed on potential competitors.

The arrangement has drawn scrutiny from Sen. Elizabeth Warren (D-MA), a candidate for the 2020 Democratic presidential nomination. Warren wrote to Commerce ethics officials last week with a number of probing questions about Kaplan’s position atop the department’s International Trade Administration (ITA), and other potential conflicts involving Nazak Nikakhtar, the acting head of Commerce’s Bureau of Industry and Security (BIS) and a former steel industry lawyer.

“It is disturbing that the head of ITA and the Acting head of BIS are former industry insiders who either represented or lobbied for companies in the steel industry and that these two individuals are now responsible for steel tariff decisions worth millions of dollars that involve former clients or clients of their previous employers,” Warren wrote in a Thursday letter shared with The Daily Beast.

Commerce confirmed that it received Warren’s letter but disputed her characterizations of potential ethics violations. “Both Acting Under Secretary Nikakhtar and Under Secretary Kaplan are in compliance with their ethics agreements,” a department spokesman told The Daily Beast in an email.

Warren’s concerns center on a bureaucratic process for exempting certain products from Trump administration tariffs imposed against steel and aluminum imports in the name of national security. The March 2018 presidential order imposing those tariffs allowed Commerce to exempt specific products if those products are insufficiently available domestically and if their importation does not threaten national security.

The order directed Commerce to set up a systematized way for companies to lodge exclusion requests and for the department to adjudicate them. That system was unveiled a day before Kaplan officially joined the department. It allowed for companies to submit official requests for exclusion, which would then be granted or denied by BIS, in consultation with ITA.

The system quickly went off the rails. Commerce expected about 4,500 total exclusion requests. In the first year, it received more than 78,000, creating a huge backlog. The partial government shutdown in December and January exacerbated the problem; Commerce stopped processing exclusion requests altogether as huge segments of its staff were furloughed.

The backlog created a need to streamline the process, and Commerce came up with a system that, while designed to reduce the agency’s workload and hence its backlog of requests, effectively allows industry to scuttle requests to exempt certain products regardless of the merits of the requests.

“The process for awarding exemptions appears to be arbitrary, opaque, and subject to political favoritism,” according to Warren.

That process allows for official objections to exclusion requests. Requests that don’t receive objections proceed immediately to a decision process on the request. Those that do receive objections have to undergo an additional period of examination, during which Commerce officials ostensibly weigh the merits of the objection and the underlying exclusion request. Those findings then inform a final decision on the exclusion.

That additional examination frequently means that decisions on exclusion requests are put off for months, if they’re made at all. Commerce’s inspector general examined the exclusion objection request process starting late last year. In a report issued this month, the IG found that simply lodging an objection often creates enough red tape to hamstring an objection request, while those that do not receive an objection are processed and approved at a far higher rate.

“In fact,” as Warren summed up the findings, “the IG found that completed requests without objections were over 11 times more likely to receive an approval than requests that received an objection and that less than half a percent of requests with an objection received an approval.”

Put simply, the process has allowed industry representatives to prevent or significantly delay exemption requests simply by submitting an objection. The cumbersome bureaucratic process created by Commerce to administer tariff exclusions can therefore be extremely beneficial for companies that submit those objections, regardless of their merits.

Kaplan’s ITA is in charge of reviewing objections and sharing its recommendations with Nikakhtar’s BIS, which then decides whether to grant an exclusion. It’s therefore noteworthy, Warren wrote, that thousands of objection requests have been lodged by companies and organizations previously represented by both of those officials.

Upon taking office, Kaplan, a former lobbyist with the firm King & Spalding, signed an ethics agreement stipulating that he would not “participate personally and substantially in any particular matter involving specific parties in which I know King & Spalding is a party or represents a party,” unless he received a waiver of applicable ethics rules.

According to documentation on file with the Office of Government Ethics, Kaplan had not received such a waiver as of May 2018. But as he administers the system for tariff exclusions and objections to those exclusions, King & Spalding has continued lobbying for steel pipe manufacturer Zekelman—also a high-dollar donor to a leading pro-Trump political group—on issues including “Section 232 investigation on steel.” Section 232 refers to the national security tariff authority under which Commerce has imposed steel and aluminum tariffs.

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Meanwhile, Zekelman has filed “almost 400 objections—for over 800 million kilograms of potential steel imports,” according to Warren’s letter, through the precise Section 232 exclusion objection process that Kaplan’s agency is overseeing. And while those objections have the effect of gumming up the bureaucratic machinery, often to the benefit of companies filing objections, Kaplan has also proactively ruled in favor of at least one of Zekelman’s exclusion objections.

The single largest source of those objections, according to Warren’s letter, has been the company U.S. Steel, which is responsible for about 20 percent of all Section 232 objections submitted to Commerce since last year. And Cassidy Levy Kent, the law firm at which Nikakhtar was a partner prior to joining Commerce, represents U.S. Steel in legal matters involving federal trade policy. 

Nikakhtar’s ethics agreement contains language similar to Kaplan’s with respect to her prior employer. And as with Kaplan, there is no record of her receiving any waiver that would allow her to circumvent that pledge.

Warren’s letter to Commerce was based on her office’s investigation of the public record of tariff exclusions and objections to them. But the letter also highlights how Trump administration policies have prevented the public and congressional overseers from gleaning information about the ethics rules governing former industry officials that land in important policymaking roles.

A week after taking office, Trump issued an executive order imposing a new ethics pledge on all incoming administration officials. It was largely modeled off of a similar pledge imposed by President Obama. But it also differed in significant ways that have allowed industry insiders to assume senior administration positions. Under the Obama version, for instance, no one who lobbied a given federal agency could, for two years, seek or accept employment at that same agency. Trump’s ethics pledge omitted that provision entirely.

The Obama administration also made a point to post publicly copies of ethics pledge waivers granted to senior administration officials. The Trump White House has posted waivers granted to West Wing employees on its website, but there is no central repository of waivers granted to officials at other federal agencies.

That makes questions such as Warren’s necessary to understand the full extent to which Trump has circumvented his own pledge to “drain the swamp.” Among her questions to Commerce are whether Kaplan or Nikakhtar have received waivers since last year—information that, under Trump’s predecessor, would already have been public.

Read more at The Daily Beast.

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