On Feb. 16, 2018, the Department of Commerce (DOC) issued lengthy reports recommending large-scale restrictions on the imports of aluminum and steel pursuant to Section 232 of the 1962 Trade Expansion Act, the national security provision of the U.S. trade laws.1 These reports had already been forwarded to President Donald Trump on Jan. 11 (steel) and Jan. 17 (aluminum).
The DOC’s recommendations propose a very aggressive use of this little-known statute, and they contrast starkly with past national security investigations, in which the President either declined to impose remedies (e.g., semifinished steel products and iron ore, in 2002) or did so on a narrowly targeted basis (e.g., restrictions on oil imports from Iran and Libya, in 1979 and 1982 respectively). In fact, since the enactment of Section 232, there have been only 26 investigations, and the President determined that action was necessary in only five.
In the steel and aluminum investigations, the DOC carried out required consultations with “appropriate officers of the United States,”2 including a range of government agencies, such as the Departments of Defense, State, Treasury and Labor and the U.S. Trade Representative. Notably, the Department of Defense directed its Defense Logistics Agency to undertake a review of steel use in U.S. defense applications. Some saw this review as an attempt by the Defense Department to apply more rigor to the DOC’s investigation.3
Aluminum and Steel Recommendations
The DOC’s recommendations on the restriction of aluminum and steel imports are intended to increase domestic production to an 80 percent average capacity utilization rate from the current rates of 48 percent for aluminum and 73 percent for steel. For each product, the DOC issued several alternative proposed recommendations to the President with the intent that he will select one.
With respect to aluminum, the DOC recommended:
- a country- and product-based quota on all imports from all countries equal to a maximum of 86.7 percent of their 2017 exports to the United States, or
- a tariff of at least 7.7 percent on all aluminum exports from all countries in addition to any antidumping or countervailing duty (AD/CVD) collections applicable to any imported aluminum product, or
- a tariff of 23.6 percent on all aluminum imports to the United States from five countries (China, Hong Kong, Russia, Venezuela and Vietnam) in addition to any AD/CVD collections applicable to any imported aluminum product, combined with a quota on imports from all other countries equal to 100 percent of their 2017 exports to the United States.4
With respect to steel, the DOC recommended:
- a quota on all steel imports from all countries equal to 63 percent of each country’s 2017 exports to the United States, applied on a country- and product-specific basis, or
- a tariff of at least 24 percent on all steel imports from all countries in addition to any antidumping or countervailing duties applicable to any such product, or
- a tariff of at least 53 percent on all steel imports to the United States from 12 countries (Brazil, China, Costa Rica, Egypt, India, Korea, Malaysia, Russia, South Africa, Thailand, Turkey and Vietnam) in addition to any AD/CVD duties applicable to any such products, combined with a quota on imports from all other countries equal to 100 percent of their 2017 exports to the United States.
The President is considering these recommendations. According to the statute, within 90 days after receiving the DOC’s reports (i.e., by April 11 for steel and April 19 for aluminum),5 the President may decide to take no action, implement one of the proposed recommendations or impose a modified version of the DOC’s recommendations.6 As an aspect of his decision, the President may exempt imports from individual countries entirely. If the President does so, however, the DOC recommends that he adjust the quotas or tariffs imposed on the remaining countries to ensure that overall the import quantities remain at or below the targeted level. Once the President has made a determination, he will then have 15 days to implement his decision.7
A Recommended Appeal Process
As part of its reports, the DOC also recommends that the President set up an appeal process to allow companies to seek product- or country-specific exclusions from the tariffs or quotas. The DOC would grant requests from U.S. companies to exclude specific products (1) if the United States lacks sufficient domestic capacity of comparable products or (2) for specific national-security-based considerations. The appeal process would include a public comment period and generally would be concluded within 90 days of the filing of a completed application. The appeal process would be coordinated with the Department of Defense and other appropriate agencies.
Bilateral and Multilateral Responses
Should President Trump implement the DOC recommendations or similar restrictions, the United States will risk retaliation from major trading partners, particularly those singled out for severe restrictions. For example, the European Union (EU) has already noted that it is prepared to impose countermeasures. Jean-Claude Juncker, president of the European Commission, has stated that the EU would react “within a few days” in response to any action taken to protect the U.S. steel industry.8
Challenges before the World Trade Organization (WTO) Dispute Settlement Body may be considered as well. Article XXI of the General Agreement on Tariffs and Trade 1994 includes a national security exception that authorizes a member to take action inconsistent with certain of its WTO obligations “which it considers necessary for the protection of its essential security interests ... taken in time of war or other emergency in international relations.” However, the contours and extent of this exception have not been tested in dispute settlement, and questions will inevitably arise as to whether the United States’ actions regarding aluminum and steel fall within the scope of Article XXI. The controversy arising from such a dispute is likely to be fierce.
Finally, the trading community should note that the DOC has requested a budget increase to support additional national security investigations under Section 232. The budget request expressly predicts that “[t]here will likely be additional 232s initiated either at the request of industry petitions filed with the Department or initiated by the Secretary.”9 This formerly obscure statute may play a more prominent role in the implementation of U.S. trade policy in the coming years.