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BLAST FROM THE PAST: STEEL AND ALUMINUM IMPORTS FACE TARIFFS AND QUOTAS UNDER A REVIVED TRADE REMEDY

By Mark Ludwikowski
Clark Hill, PLC

On Feb. 16, 2018, the Department of Commerce (DOC) put to use a cold war era trade law to recommend new tariffs and quotas on global imports of steel and aluminum. In both cases, DOC found that imports are weakening the U.S. internal economy, and threaten to impair national security. The DOC’s reports are currently under consideration by President Trump who has until April 11 and April 19, 2018 respectively to decide whether to follow DOC’s recommendations. If the President decides to impose restrictions, he would need to implement such actions within 15 days after making the determination.

The recommended tariffs and quotas could pose serious problems for importers and companies involved in downstream projects that rely on foreign steel and aluminum. Many of the targeted products are already restricted by existing U.S. antidumping (AD) and countervailing duty (CVD) orders. The proposed tariff rates would apply in addition to those orders.

The basis for the DOC’s report to the President is a cold-war era provision known as Section 232 of the Trade Expansion Act of 1962. This law was intended to address perceived weaknesses in the U.S. industrial base at the start of World War II and the Korean War. Until these two actions, the DOC has previously conducted 26 Section 232 investigations since 1964. Section 232 has been invoked only twice since the U.S. joined the World Trade Organization in 1995 – on crude oil imports in 1999 and on iron and steel imports in 2001.

Under Section 232 the President has discretion to adopt the DOC’s proposed remedies or to impose alternatives. For example, other relief considered in the past has included voluntary restraint agreements, implementation of Buy American requirements and research and development funding for the affected industry. In lieu of restrictions, the President also has the option to pursue negotiations with exporting countries to curtail excess capacity (under the law, he has 180 days to reach such an agreement). The President may also determine that no action is necessary to adjust imports because on balance the costs to the economy of an import adjustment outweigh the benefits.

Below are summaries of the recommendations from the DOC’s two reports. According to the reports, the proposed remedies are intended to increase domestic production of steel and aluminum to the minimum operating rate needed for the long-term viability of the industries.   

Recommendations of the Steel Report: Commerce has recommended to the President the following alternatives to address steel imports:

Broad Tariff:  A global tariff of at least 24% on all steel imports from all countries, or

Targeted Tariff:  A tariff of at least 53% on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam), with a quota by product on steel imports from all other countries equal to 100% of their 2017 exports to the United States, or

Quota:  A quota on imports from all countries equal to 63% of each country’s 2017 exports to the United States.

The scope of the steel report covers the following products defined under the Harmonized Tariff Schedule (“HTS”) 6-digit level as: 720610 through 721650, 721699 through 730110, 730210, 730240 through 730290, and 730410 through 730690, including any subsequent revisions to these HTS codes.

Recommendations of the Aluminum Report: Commerce has recommended to the President the following alternatives to address aluminum imports:

Broad Tariff: A global tariff of 7.7% on imports of unwrought aluminum and the other aluminum product categories listed in the scope; or

Targeted Tariff: A tariff rate of 23.6% on imports of aluminum products from China, Hong Kong, Russia, Venezuela and Vietnam. All the other countries would be subject to quotas equal to 100% of their 2017 exports to the United States, or

Quota: A quota on imports from all countries equal to a maximum of 86.7% of their 2017 exports to the United States.

The scope of the aluminum report covers several HTS subheadings under chapter 76, including aluminum ingots and a wide variety of finished products.

The DOC recommends an appeal process by which U.S. companies could seed an exclusion from the tariff or quota imposed. The DOC will lead the appeal process in coordination with the Department of Defense and other agencies as appropriate. The DOC would grant exclusions based on: 1) lack of sufficient U.S. production capacity of comparable products; or 2) specific national security-based considerations.

The appeal process would include a public comment period on each exclusion request, and would be completed within 90 days of the application’s filing with the DOC. There is no set duration for exclusions.  The DOC determines the duration and can terminate the exclusion.  If exclusion is granted, the DOC will consider whether the quota or tariff for remaining covered products needs to be adjusted. 

Countries also will be able to seek exemptions from the recommended quotas. According to the reports, the President is able to exempt specific countries from the proposed quota (by granting those countries 100% of their prior imports in 2017 or exempting them entirely). Reasons for exemption can include the country’s willingness to work with the United States to address global excess capacity and other challenges facing the U.S. aluminum industry. The DOC recommends that any exemption should be made at the outset and a corresponding adjustment be made to the final quota or tariff imposed on the remaining countries.

Unlike many U.S. trade relief statutes, Section 232 has comparatively little precedent. For instance, if tariffs and quotas are imposed, it is unclear from the DOC’s reports how they will be administered and enforced. Also, there is no set duration period for how long tariffs or quotas would be in place. The DOC, in consultation with other agencies, will monitor the status of the U.S. steel and aluminum industries to determine if the remedies should be terminated or extended. These issues are expected to be further clarified if the President concurs with the agency’s recommendations in April.

Any adopted restrictions are likely to be applied starting on the effective date of the President’s action. Of the two proposed remedies, quotas may have a more immediately felt impact, particularly for products with already limited domestic availability (for example, in the case of aluminum, ultra-thin foil). Most quotas are set on an annual schedule. The DOC and the Bureau of the Census collect specific monthly import information that could serve as reference for establishing such a quota. Customs and Border Protection’s Quota Administration is responsible for tracking quotas. Once the quantity permitted under the quota is filled, no further import entries of products subject to the quota are permitted for the remainder of the quota period. Importers may hold shipments in excess of a specified absolute quota limit until the opening of the next quota period by entering the goods into a foreign trade zone or bonded warehouse. The goods may also be exported or destroyed under CBP supervision.

Given the potential disruptions in supply, U.S. aluminum and steel imports during the next few weeks may very well spike as traders and consumers rush to stockpile inventory before the President’s announcement in April.  

The crucial question now remains whether the President will impose restrictions as recommended by Commerce or take a different course. His recent policy positions may provide some insight. Indeed, during his campaign, then presidential candidate Trump was clear that his administration would make expanded use of trade enforcement tools to curb imports, particularly in disputes with China over steel and aluminum. Since he was elected, the DOC has self-initiated these Section 232 proceedings, the first since 2001, and also a separate AD/CVD case on aluminum sheet. The latter marked the first time in over two decades that the agency has brought its own case against foreign imports. (Typically, it is the domestic industry that files AD/CVD actions).

These cases, as well as the campaign promises and the Administration’s policy positions would seem to suggest that the President may be inclined to implement import restrictions in these Section 232 cases. However, over the next several weeks the President will certainly be advised by experts and stakeholders on both sides of this issue, including those within his Administration. This will involve an ideological battle between protectionists and free-traders. Proponents of the restrictions will cite increased imports as reasons for declining capacity utilization and deterioration of U.S steel and aluminum industries crucial to national security.  Opponents will argue that the DOC’s reports do not properly account for the negative consequences the tariffs and quotas would have on jobs in downstream businesses such as auto suppliers, construction firms or aluminum packaging producers as supplies tighten. They will claim that consumers too will suffer due to increased prices.  

Foreign countries, including the steel and aluminum associations of key exporting parties in the European Union, Japan and Brazil are also expected to voice their disapproval of the proposed measures. South Korea and the EU have already indicated that they will consider challenging any remedies stemming from the Section 232 cases to the WTO. China has also publicly warned that it could retaliate.

So what actions can domestic stakeholders take to help their position? Section 232 proceedings differ in this respect from the AD/CVD cases which were initiated by specific petitions from domestic industry against a limited number of countries. The AD/CVD cases provide interested parties a formal opportunity to participate in the DOC’s decision-making process through written submissions and oral argument. Those parties can also seek judicial review of the agency’s AD/CVD decisions. By contrast, the Section 232 cases arose out of national security concerns and rely on a different process with more limited opportunities for parties to challenge or influence the decisions. However, since Section 232 cases are to some extent politically driven, domestic stakeholders may turn to industry associations and Congressional representatives for support of their positions, as well as to using public relations for broader outreach.  If restrictions are ultimately imposed in April, U.S. companies dependent on imports are encouraged to seek exclusions from the scope of these cases using the appeal process which should be further defined at that point.

Mark Ludwikowski is a partner in the International Trade Practice Group of Clark Hill, PLC and is resident in the firm’s Washington D.C. office. He can be reached at 202-640-6680 and

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