It has been almost three years since the 25% duties on steel imports and the 10% duties on aluminium imports pursuant to Section 232 of the Trade Expansion Act 1962 were first imposed by Presidential Proclamation 9705 and legal challenges are proliferating and there is renewed legislative interest in Section 232 reform.(1) For those looking for any signs of a swift removal of the duties, the wait continues.
The administration's rapid decision to reinstate the Section 232 duties on aluminium imports from the United Arab Emirates within 13 days of their removal by President Trump upon leaving office shows no haste to change the status quo,(2) and the comment by the new Secretary of Commerce that the duties have been "effective" signals no imminent decision to change.(3) The government continues to actively defend these broad duties before the reviewing courts and at the World Trade Organisation (WTO) in scores of cases questioning various aspects of their legality.
Following the victory of Transpacific Steel LLC, which successfully struck down a presidential proclamation doubling the national security duties on steel imports from Turkey (for further details please see "Transpacific Steel secures trade court win for security tariffs on steel from Turkey"), interested parties have filed Court of International Trade (CIT) challenges on a range of issues stemming from the additional duties, including:
- the extension of the duties to derivative products of steel and aluminium;
- the exclusion process managed by the Commerce Department; and
- the Commerce Department's treatment of Section 232 duties in anti-dumping proceedings.
As some cases reach inflection points and a narrowing of the issues, this article highlights legal challenges worth following, including a trio of recent decisions by the CIT that reviewed the Section 232 duties from different vantage points. It also provides an update on the status of WTO litigation and recent legislative proposals for Section 232 reform.
United Steel Products provides context: the CIT continues to knock down broad challenges to presidential action under Section 232 but, for now, remains consistent in its hesitancy to allow the president unfettered, unending discretion
Section 232 of the Trade Expansion Act 1962 authorises the president to adjust the imports of an article and its derivatives that are being imported into the United States in such quantities or under such circumstances as to threaten to impair national security.
The statutory and constitutional challenges to the Section 232 duties brought by various importers have faced a high hurdle at the CIT. Recently, the CIT rejected the arguments by Universal Steel Products, Inc, PSK Steel Corporation, Dayton Parts, LLC, Borusan Mannesmann Pipe US, Inc and Jordan International Company that the Section 232 duties violated the statute. Universal Steel Products shows that, at least at the CIT, broad challenges to the president's authority under Section 232 are likely to fall flat. The CIT rejected each of the plaintiffs' arguments, holding that:
- the commerce secretary's report was not reviewable by the court;
- the president's conclusion that imports pose a national security threat under Section 232 is not reviewable by the court; and
- the duration and timing of the duties imposed by the president were in accordance with the statute.
The only challenge in Universal Steel Products to survive judicial review at the CIT was the count relating to imports from Turkey, which is stayed pending the outcome in Transpacific. In Transpacific, a three-judge panel of the CIT held that the president's modification of Proclamation 9705 to double the duties on Turkish steel imports violated Section 232 because the statute does not permit such modifications after the statutory deadlines without a new formal investigation and report from the commerce secretary.(4) Additionally, the CIT held that the president's action to double the duties on imports from Turkey alone violated the importer's equal protection rights under the Constitution. The government's appeal of Transpacific is before the Court of Appeals for the Federal Circuit. Universal Steel Products et al have also appealed to the Federal Circuit.
Challenge to Section 232 duties on derivative products survives motion to dismiss
Digging deeper, the CIT in PrimeSource Building Products analysed presidential discretion with respect to the derivatives of an article and again held that presidential power cannot extend past the statutory time limits
PrimeSource Building Products challenged the Section 232 "derivatives proclamation", Presidential Proclamation 9980, which imposed 25% duties on imports of certain articles made of steel, including steel nails, on both statutory and constitutional grounds. A three-judge panel of the CIT dismissed all claims except PrimeSource's claim that Presidential Proclamation 9980 is invalid because it was issued after the authority delegated to the president by the statute expired, mirroring one of the claims made in Transpacific. The CIT held that the time limitations in Section 232 "expressly confine the exercise of the President's discretion regardless of whether the President determines to adjust imports only of the 'article' named" or the "article and its derivatives" named in the commerce secretary's report. In other words, the CIT held that the president does not retain power to take additional steps to adjust imports of articles unnamed in the original action, or their derivatives, indefinitely. The CIT's decision follows its findings in Transpacific, where it also denied the government's motion to dismiss the lawsuit. In Transpacific, the CIT then also found, on the merits, that although "Section 232 grants the President great, but not unfettered, discretion", the president had acted outside the defined period to do so.
PrimeSource also argued that:
- the Secretary of Commerce violated its regulations and the Administrative Procedure Act when conducting its assessments;
- Proclamation 9980 was in violation of the time limits specified in Section 232;
- its due process rights under the Fifth Amendment had been violated when it was not provided notice or an opportunity to comment before Proclamation 9980 was issued;
- Section 232 is unconstitutional as an over-delegation of legislative power to the president; and
- the commerce secretary had acted unlawfully in making certain assessments and determinations provided to the president, resulting in Proclamation 9705.
The CIT dismissed all but the second argument above, holding that:
- the first argument did not assert a valid cause of action;
- PrimeSource had no constitutional right to due process;
- the Supreme Court had already decided that broad delegation of legislative authority from Congress to the president is acceptable; and
- Section 232 does not allow for judicial review and there is no final action by the Department of Commerce that is reviewable under the Administrative Procedures Act.
PrimeSource's appeal is now ripe for a judgment on the merits.
Exclusion process draws legal challenges from importers and US producers
Despite acknowledged concerns regarding the exclusion request process, broad constitutional and statutory challenges at the CIT face an uphill battle
Shortly after the Section 232 duties took effect in March 2018, the Department of Commerce announced a process through which US parties could request an exclusion from the additional duties. To date, more than 200,000 requests have been filed by US companies seeking an exclusion from payment of the additional duties on steel and aluminium products determined to be unavailable in the United States.
Since its implementation, the Section 232 process has received criticism from users due to a lack of transparency and the Department of Commerce's inability to efficiently process the volume of requests received. Problems with the Section 232 exclusion process have been echoed by the Department of Commerce's own inspector general, which has publicly expressed concern regarding the handling of exclusion requests on two occasions in October 2019 and again in January 2021.
Given the systemic issues with the exclusion request process, both importers and domestic steel producers alike have challenged various facets of its legality with the CIT. First, on 10 March 2021 the CIT addressed a challenge filed by Thyssenkrupp Materials NA Inc and other importers of steel and aluminium questioning the Department of Commerce's process of granting exclusions to specific requesters on an application basis, rather than to all importers on a product-wide basis. Specifically, Thyssenkrupp argued that the Section 232 exclusion process:
- violates the uniformity clause of the Constitution because it results in a 'dis-uniform tax' where individual importers pay different duty rates on the same merchandise;
- untimely modifies the authorised presidential action under Section 232; and
- is arbitrary, capricious, contrary to presidential instruction and not in accordance with law because it does not provide automatic product-based exclusions once an exclusion has been granted to an importer for a particular product category.
Although the CIT found that Thyssenkrupp had experienced economic injury necessary to establish standing, it rejected each of Thyssenkrupp's challenges to the exclusion request process, finding that it does not violate the uniformity clause because it:
- is defined in non-geographic terms with no resulting geographic discrimination;
- does not alter the process in a material way and is a permissible modification to the timely presidential action under Section 232; and
- is based on a reasonable interpretation of the presidential proclamations implementing the duties and the Section 232 statute.
Other challenges to the Section 232 exclusion request process have been filed on the basis that the Department of Commerce's denial of exclusion requests without any evidentiary or reasoned basis via the same boilerplate decision memoranda is arbitrary, capricious, an abuse of discretion or otherwise a violation of mandatory requirements under the Administrative Procedure Act. To date, at least three such challenges filed by JSW Steel (USA) Inc (Court 19-133), Borusan Mannesmann Pipe US, Inc (Court 20-12) and NLMK Indiana, LLC and NLMK Pennsylvania, LLC (Court 20-50) have been stipulated for judgment, with the Department of Commerce agreeing to a full and complete settlement of all claims by refunding the Section 232 duties paid with interest, but without admitting liability. A fourth challenge on the same basis was filed on 5 March 2021 by voestalpine High Performance Metals Corp and its wholly owned subsidiary Edro Specialty Steels, Inc, importers and distributors of high alloyed specialty steel.
Court affirms use of Section 232 duties to prop up anti-dumping duty rates
The CIT has upheld the deduction of Section 232 duties from US price in anti-dumping cases involving steel products for now, but more challenges are expected
For US importers of steel products originating in countries with anti-dumping duty orders, Section 232 duties could mean higher anti-dumping duty rates. Under current precedent from the Court of Appeals for the Federal Circuit, 'special' duties such as safeguard duties and anti-dumping duties are treated differently from ordinary customs duties;(5) while the former are not deducted from US price used in anti-dumping calculations, the latter are deducted.(6) The Department of Commerce's position has been that Section 232 duties are more similar to ordinary customs duties and therefore deductible from US price. In practical terms, a higher US price would typically result in a lower anti-dumping margin; therefore, the decision to deduct the 25% duties can turn negative anti-dumping margins into positive margins.
In Borusan Mannesmann Boru Sanayi Ve Ticaret AS v United States, the CIT affirmed the Department of Commerce's treatment of Section 232 duties as US import duties. It was by no means a ringing endorsement of the Department of Commerce's recent practice. The CIT remarked that it was an issue of first impression and found that the Department of Commerce's interpretation of the ambiguous term 'US import duties' to include Section 232 duties was reasonable. The CIT considered the factors used by the Department of Commerce to distinguish Section 232 duties from safeguard duties – namely, whether:
- the duties are remedial;
- the duties are temporary; and
- deducting the duties from US price would result in an impermissible double remedy.
The CIT found that the Department of Commerce met the first factor above (even though the reasoning was "not the strongest") and that the second factor was not a viable reason to distinguish Section 232 duties from safeguard duties since both are temporary in nature. The decision turned on the third factor, with the CIT finding that the Department of Commerce's reasoning was not "so lacking in merit that the court must say it is arbitrary". As the Department of Commerce's practice of deducting Section 232 duties from US prices is being applied in several proceedings involving steel and aluminium products, more challenges on this issue can be expected.
Canadian importer takes different tack on Section 232 challenge
Cases are still being filed at the CIT over the Department of Commerce's treatment of the Section 232 duties. Currently before the CIT is Maple Leaf Marketing's challenge to the imposition of Section 232 duties on goods imported from Canada. The government has moved to dismiss certain counts included in Maple Leaf Marketing's complaint relating to:
- the president's authority to impose duties on steel articles from Canada;
- the liquidation of its entries by US Customs and Border Protection; and
- the president's authority to encompass goods covered by Chapter 98 of the Harmonised Tariff Schedule of the United States.
Oral argument is expected on 12 April 2021.
WTO will have its say on national security rationale for Section 232 duties
Aside from litigation in the domestic courts, the administration will reach a decision point on Section 232 later in 2021 in the context of WTO dispute settlement. The dispute over the Section 232 duties at the WTO is complex, with the United States appearing as a respondent in seven cases and as a complainant in five proceedings.
The European Union, India, Russia, China, Turkey, Norway and Switzerland claim that the additional 25% and 10% duties on imports of steel and aluminium products (respectively) are inconsistent with the WTO's General Agreement on Tariffs and Trade (GATT) 1994 and the Agreement on Safeguards.(7) Among other claims, the complaining parties argue that the duties on steel and aluminium are safeguards in disguise for which WTO rules require compensation and that the United States' national security rationale is not valid. The US cases against the European Union, China, Turkey, Russia and India(8) challenge the retaliatory measures taken by these countries as inconsistent with the GATT 1994 because the Section 232 duties are not safeguards and retaliation was not justified.
In several respects, the two sets of challenges are the mirror image of each other with the national security rationale for the duties and the GATT's national security exception at the centre of the debate. With the 12 panel rulings expected to be issued in the second half of 2021, the choice on whether to continue Trump's Section 232 duties becomes more pressing.
Legislative proposal would strengthen process for imposition of Section 232 duties
In the midst of these legal challenges, Congress is looking to reform Section 232 by revitalising legislation first introduced in 2018. Senator Portman has reintroduced the Trade Security Act, which would require a report by the Department of Defence identifying whether imports of a certain good threatened to affect national security. Then, the president could ask for a report from the commerce secretary and the United States trade representative. The Trade Security Act would also expand Congress's role, allowing lawmakers to reject trade restrictions by passing a joint resolution of disapproval on any product (currently, Congress can do so for petroleum products). Senator Toomey has reannounced competing legislation (the Bicameral Congressional Trade Authority Act), which would require lawmakers' prior approval of all presidential action taken pursuant to Section 232.
Endnotes
(1) Further information is available here.
(2) Presidential Proclamation 10144 of 1 February 2021 reinstating the Section 232 duties on aluminium imports from the United Arab Emirates that were terminated by Proclamation 10139 of 19 January 2021 and replaced with a quota.
(3) "The data show that those tariffs have been effective," said Commerce Secretary Gina Raimondo in an interview with MSNBC.
(4) See 415 F Supp 3d 1267, 1273–76 (CIT 2019); see also Transpacific Steel LLC v United States, 466 F Supp 3d 1246, 1253 (CIT 2020), appeal docketed, 20-2157 (Fed Cir, 17 August 2020).
(5) Wheatland Tube Co v United States, 495 F3d 1355 (Fed Cir 2007).
(6) Deductions from US price are provided in the anti-dumping laws at 19 US Code Section 1677a(c)(2)(A).
(7) See, for example, United States – Certain Measures on Steel and Aluminium Products (China) (DS544).
(8) See, for example, European Union – Additional Duties on Certain Products from the United States (DS559).
