Three months after taking office, as part of his “America First” policy, President Trump directed U.S. Department of Commerce Secretary, Wilbur Ross, to undertake an investigation under Section 232 of the Trade Expansion Act of 1962, as amended, of whether imports of steel and aluminum (including downstream products) threaten the national security of the United States. Secretary Ross complied with the directive and, in a rare move, the Department of Commerce self-initiated the Section 232 investigations.
In the history of the legislation, only 26 such investigations have been undertaken previously. Only in two instances – oil embargoes against Iran (1979) and Libya (1982) – have there been trade actions taken. The last Section 232 investigation was conducted in 2001, focusing on iron ore and semi-finished steel, with the Commerce Department concluding that imports of those commodities did not threaten U.S. national security.
The Commerce Department’s Bureau of Industry and Security (BIS) launched the investigations of steel and aluminum in April 2017. According to President Trump and Secretary Ross, the investigations were fast-tracked and to be completed by the end of June 2017. Instead, BIS released public versions of its Section 232 reports on February 16, 2018. In the interim, the U.S. saw a surge in imports as producers, exporters and importers hurriedly sought to beat the expected results of the Section 232 investigations – recommendations for tariffs and quotas – which many around the world believed were pre-determined based on public statements by both the President and Secretary Ross.
As expected, in both Section 232 investigations, the Commerce Department concluded that imports of steel and aluminum threaten national security. With respect to aluminum, Secretary Ross recommended either global or targeted trade actions: a worldwide quota of 86.7 percent of each export country’s 2017 levels, or a 7.7 percent global tariff on imported products investigated; or a 23.6 percent tariff on imports of aluminum products from China, Hong Kong, Russia, Venezuela and Vietnam. With respect to steel, Secretary Ross recommended a global quota of 63 percent on each country’s 2017 exports to the U.S., or a tariff of 24 percent on all steel imports; or a targeted tariff rate of 53 percent on steel imports from Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam, and a quota on imports from other countries of 100 percent of their 2017 exports to the U.S.
In response to the Section 232 reports, U.S. Department of Defense (DoD) Secretary, James Mattis, issued a memorandum to Secretary Ross. Secretary Mattis stated “DoD believes that the systematic use of unfair trade practices to intentionally erode our innovation and manufacturing industrial base poses a risk to our national security. Secretary Mattis went on to state, however, that the BIS reports found that the military requirements for steel and aluminum is only about 3 percent of domestic production; therefore, the findings do not affect DoD’s ability to acquire steel or aluminum necessary to meet national defense requirements. Secretary Mattis also reiterated DoD’s concerns that the recommended measures could negatively affect relationships with key U.S. allies.
Interestingly, in his memo, Secretary Mattis noted the overarching trade issues that exist regarding steel and aluminum, referring specifically to China’s overproduction and the “issue of Chinese transshipment.” He concluded by emphasizing it is “critical that we reinforce to our key allies that these actions are focused on correcting Chinese overproduction and countering their attempts to circumvent existing antidumping tariffs – not the bilateral U.S. relationship.”
Despite Secretary Mattis’ findings, concerns and recommendation for an inter-agency group to refine targeted tariffs, on March 1, 2018, President Trump announced that global tariffs on steel and aluminum would be imposed at rates of 25 percent and 10 percent, respectively, without exemption, exceeding the rates in the Department of Commerce reports.
On March 8, the President followed through on that announcement and signed Presidential Proclamations imposing global tariffs of 25 percent and 10 percent on steel and aluminum, respectively, but initially exempting Canada and Mexico. The Proclamations state that the tariffs will be assessed on products entered or withdrawn from warehouse for consumption, as of 12:01 a.m. Eastern Daylight Time, March 23, 2018.
In apparent recognition of points raised by Secretary Mattis and leaders of several U.S. allies, each Proclamation contains a provision that welcomes “any country” with which the U.S. has a “security relationship” to discuss “ways to address the threatened impairment of the national security caused by imports from that country…” and if “satisfactory alternative means to address the threat” are agreed upon that convince the President that such a country does not threaten to impair U.S. national security, the country may enjoy an exemption. As of this writing, the European Union (EU), Japan and the U.S. were meeting to discuss possible exemptions, and it was reported that Australia may be in discussions as well. The prospect of the UK seeking an exemption separate from the EU is already leading to heated rhetoric and tensions.
Determining the Impact and Possible Relief
Assuming they go into effect, steel tariffs will apply to products under the following subheadings of the Harmonized Tariff Schedule of the United States (HTSUS):
- 7206.10 through 7216.50
- 7216.99 through 7301.10
- 7302.40 through 7302.90
- 7304.10 through 7306.90
Aluminum products subject to tariffs are classified under these headings and subheadings of the HTSUS:
- 7601 (unwrought aluminum)
- 7604 (aluminum bars, rods and profiles)
- 7605 (aluminum wire)
- 7606 and 7607 (aluminum flat rolled products)
- 7608 and 7609 (aluminum tubes, pipes and fittings)
- 76220.127.116.11 and 7618.104.22.168 (aluminum castings and forgings)
The Section 232 tariffs are in addition to any existing antidumping and countervailing duty orders in effect.
Finally, each Presidential Proclamation provides that within 10 days, Secretary Ross is to issue procedures for possible product-specific exclusions from these tariffs. Requests for exclusions will be limited to parties that are located in the U.S. and “directly affected” by the tariffs. This limitation suggests importers of record with a physical presence in the U.S. may submit a request, while non-resident importers, exporters, foreign manufacturers and ultimate consignees will not be able to file requests for product exclusions.
Additionally, the bases for requesting product exclusion are limited to items determined (1) not to be produced in the U.S. “in a sufficient and reasonably available amount or of a satisfactory quality,” and (2) “specific national security considerations.” It is expected that the period to request an exclusion will be relatively short.
Overall, companies will need to quickly assess the possible impact of the Section 232 tariffs on their steel and aluminum imports and determine whether requests for exclusion from the tariffs may be possible.