Small and medium-sized enterprises in the steel, aluminum, and copper industries are grappling with confusion following the revisions to the U.S. Trade Expansion Act Section 232 tariffs. Many businesses are struggling to determine which annex their products fall under.
A recent survey by the Korea Federation of Small and Medium Enterprises (KFSME), conducted from April 29 to May 29 and involving 600 companies, revealed that 56.3% of respondents have yet to identify which annex their export items belong to.
Among those who do know their annex positions, the breakdown is as follows: Annex II (16.5%), Annex III (11.0%), Annex I-A (8.3%), and Annex I-B (7.8%).
The survey also found that 20.8% of companies reported higher tariff rates due to the revisions. These firms perceive an average tariff increase of 16.2 percentage points compared to pre-revision rates. In stark contrast, only 2.8% noted a decrease in tariff rates, indicating that the majority of exporting SMEs are facing increased financial pressure.
Future export outlooks varied dramatically based on annex classifications. For companies subject to the 50% tariff under Annex I-A, 40.0% anticipated worsening export conditions. Similarly, 38.3% of those under the 25% tariff of Annex I-B shared these gloomy prospects. On the flip side, companies classified under the relatively lower tariffs of Annex II (67.7%) and Annex III (42.4%) mostly expected no change, highlighting a clear disparity among the annexes.
Companies forecasting a decline in exports identified their most pressing concerns (multiple responses allowed) as deteriorating profitability due to increased tariff burdens (76.1%), followed by buyers demanding changes to pricing and delivery terms (37.3%), and delays and cancellations in transactions (25.4%).
To address these challenges (multiple responses allowed), over half of the companies (52.2%) are exploring options to negotiate pricing and trading conditions with clients. Other strategies include cost reduction efforts (43.3%), discovering alternative markets (18.7%), and finding new local buyers (15.7%).
Companies worried about deteriorating export conditions identified the most urgent government support measures (multiple responses allowed) as developing cost reduction strategies (40.3%) and strengthening negotiations with the U.S. for item reclassification by annex (40.3%), both tied for first place. They also called for support in discovering alternative markets in third countries (22.4%) and expanding consulting support for changes in HS codes (20.1%).
Kim Hee-jung, head of the Economic Policy Division at KFSME, emphasized that the government must intensify negotiations with the U.S. to ensure that high-value component groups are not uniformly classified under the high-tariff zone of Annex I-A based solely on metal content. Instead, he argued for a classification system that reflects the actual pricing structure for a more reasonable reclassification.
Kim further stressed the need for measures to alleviate the burden of rising raw material prices and additional support for logistics costs to maintain company profitability. He also advocated for long-term tariff consulting to help SMEs build the capacity to navigate rapidly changing trade environments.