Steel and Aluminum Update: Section 232*

Following recommendations from the U.S. Department of Commerce, President Trump announced on March 8, 2018, that the U.S. would impose 25 percent tariffs on all steel imports and 10 percent tariffs on aluminum imports. The only countries exempted from these tariff hikes are Argentina, Australia, Brazil, Canada, EU Member States, Mexico, and South Korea. which are currently working alongside the U.S. to modernize the North American Free Trade Agreement. Countries exporting into the U.S. can negotiate exemptions with the Commerce Department, and as of March 19th, companies that rely on imported steel and aluminum can file exclusion requests to exempt imported products from these tariffs.

 However, on May 31, Trump announced that Mexico, Canada, and EU member states would not be exempt from the tariffs. All three countries plan to retaliate with their own tariffs. Beginning July 1, Canada will enact tariffs on $12.8 billion in US exports. Mexico announced that it intends to place penalties on American lamps, pork, fruit, cheese, and flat steel. Europe plans to begin the process for enacting retaliatory tariffs, but did not specify any details.

The Trump Administration is authorized to impose these tariffs under Section 232 of the Trade Expansion Act of 1962 (“the Act”). The Act was initially designed as a forward-looking piece of legislation granting the president unprecedented authority to negotiate substantial tariff reductions of up to 80 percent. However, Chapter 4 of the Trade Expansion Act of 1962, the “National Security” chapter, contains two sections relating to trade and national security, which grant the president authority to adopt protectionist trade measures when national security is at stake. Section 232 has seen very little use, having been invoked only 26 times since the Act was signed into law. Nearly half of Section 232 investigations were launched during the Reagan era, and it was widely believed that the statute would become obsolete following the launch of the World Trade Organization.

Section 232 is authorized under General Agreement on Tariffs and Trade (“GATT”) Article XXI, the WTO’s national security exception, which grants states broad authority to adopt import restrictions when imports are found to endanger national security. Under GATT Article XXI(a), member states are not required to “furnish any information the disclosure of which it considers contrary to its essential security interests.” GATT Article XXI(b) allows any contracting party to “take any action which it considers necessary for the protection of its essential security interests.” Although technically consistent with the GATT and WTO agreements, the Trump Administration’s present use of Section 232 is likely to face several challenges at the WTO from allies and adversaries alike.

            Past American steel protections were indeed challenged—and defeated—at the WTO. In 2002, the Bush Administration imposed 8-30 percent tariffs on steel imports after the U.S. International Trade Commission found that steel imports had caused the domestic industry “serious injury” under Section 201 of the Trade Act of 1974. Bush’s move resulted in swift condemnation from the international community. The European Community filed suit against the U.S. claiming that the tariffs violated Member State commitments to free trade, and the WTO’s dispute settlement body agreed. The U.S. incurred a WTO penalty of $2 billion if it failed to remove the tariffs—the largest ever penalty of a WTO member state. Bush failed to act, and the European Community almost instantaneously threatened a trade war. Bush eventually relinquished and removed the tariffs. The WTO does allow Member States to enact certain escape clause remedies, although the U.S. has yet to submit a formal notification to the WTO announcing the current steel and aluminum tariffs.

            The tariffs are likely to face legal complaints from numerous countries, and it is highly unlikely that the WTO will rule in favor of the U.S. However, following the initial filing of a suit, decisions at the WTO typically take a year or more to materialize. In the meantime, if your company is affected by these tariffs, the best course of action is to file a product exemption request with the Department of Commerce. Sequoia Legal, LLC has experience filling these types of requests and can help you determine the best course of action to keep your company running effectively and efficiently. 

 

*This publication does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice.  www.sequoialegal.com