Section 232 Investigations

On February 16, U.S. Secretary of Commerce Wilbur Ross released the findings of the Department of Commerce (Commerce) investigations on the effects of steel and aluminum imports on U.S. national security pursuant to Section 232 of the Trade Expansion Act of 1962.

Commerce concluded the present quantities of steel imports are “weakening [the U.S.] internal economy” and threaten to impact the national security of the United States. The same was said of aluminum imports, with the report noting that “recent import trends have left the U.S. almost totally reliant on foreign producers of primary aluminum … that is essential for key military and commercial systems.”

Steel Remedies

In terms of specific remedies, Commerce recommends the President adjust the level of steel imports through quotas and/or tariffs imposed on a broad range of all major categories of steel currently produced in the United States. The relief is intended to ensure that U.S. domestic steel producers maintain a capacity utilization rate of 80 percent or better. The report does not mention the duration of any proposed remedies.

Commerce presented two recommendations:

  • A global quota of 63 percent or global tariff of 24 percent on imports from all countries.
    • Commerce proposes that under this option the President could exempt specific countries by granting them a quota of 100 percent of their 2017 import volumes. Such exemption would be based on an overriding U.S. economic or security interest.
  • A higher overall tariff of 53 percent, but only on a subset of countries (Brazil, South Korea, Russia, Turkey, India, Vietnam, China, Thailand, South Africa, Egypt, Malaysia, and Costa Rica

Under either alternative, quotas and/or tariffs would be imposed on imports of all steel products that fall into one of the following five broad product categories:

Carbon and alloy flat products produced by rolling semi-finished steel through varying sets of rolls, including sheets, strips, and plates;
Carbon and alloy long products that fall outside the flat products category, including bars, rails, rods, and beams;
Carbon and alloy pipe and tube products either seamless or welded pipes and tubes, some of which may include stainless and alloys other than stainless;
Carbon and alloy semi-finished products consisting of initial, intermediate solid forms of molten steel, to be re-heated and further forged, rolled, shaped, or otherwise worked into finished steel products, including blooms, billets, slabs, ingots, and steel for castings; and
Stainless steel products in flat-rolled, long, pipe and tube, and semi-finished forms, containing at minimum 10.5 percent chromium and, by weight, 1.2 percent or less of carbon, offering better corrosion resistance than other steel.

Steel Exclusions

The Secretary also proposes a separate exclusion process through which affected U.S. parties may seek exclusions from the quota or tariff for specific products based on the following: (1) lack of sufficient U.S. production capacity of comparable products; or (2) specific national security-based considerations. Commerce will lead the exclusion appeal process, providing for public comment on exclusion requests and decisions within 90 days of the requests’ filing. Commerce will also consider whether the quota or tariff for remaining products must be adjusted to ensure the domestic industry achieves projected production levels.

Aluminum Remedies

The Secretary determined it necessary to reduce imports to a level that will allow the domestic industry to restart idled capacity of primary aluminum in order to remove the threat of impairment. The Secretary recommends the President impose quotas and/or tariffs on a wide range of aluminum products to ensure that U.S. aluminum producers operate profitably and maintain an average capacity utilization rate of 80 percent. The remedies’ duration is fairly open-ended, as the Secretary recommends that the action taken remain in effect long enough to “stabilize the U.S. industry” by building cash flow to reduce debt and raising capital for plant modernization. (The report mentions that it can take up to nine months to restart idled smelting capacity.)

Commerce presented two recommendations:

  • A global quota of 86.7 percent or global tariff of 7.7 percent on imports from all countries.
  • A higher overall tariff of 23.6 percent, but only on a subset of countries (China, Hong Kong, Russia, Venezuela, and Vietnam).

Under either alternative, quotas and/or tariffs would be imposed on imports of:

Unwrought aluminum (HTS code 7601)
Aluminum castings and forgings (HTS codes 7616.99.5160 and 7616.99.5170)
Aluminum plate, sheet, strip, and foil (HTS codes 7606 and 7607)
Aluminum wire (HTS code 7605)
Aluminum bars, rods and profiles (HTS code 7604)
Aluminum tubes and prices (HTS code 7608)
Aluminum tube and pipe fittings (HTS code 7609)

Aluminum Exemptions/Exclusions

Importantly, Commerce further proposes that under either alternative the President could exempt specific countries either entirely or by granting them a quota of 100 percent of their 2017 import volumes. Such exemption would be based on an overriding U.S. economic or security interest, including the exempted countries’ willingness to help address “global excess capacity and other challenges facing the U.S. aluminum industry.” (Any exemption would require a corresponding adjustment to the final quota or tariff imposed on the other countries.)

The Secretary also proposes a separate exclusion process through which affected U.S. parties may seek exclusions from the quota or tariff for specific products based on the following: (1) lack of sufficient U.S. production capacity of comparable products; or (2) specific national security-based considerations. Commerce will lead the exclusion appeal process, providing for public comment on exclusion requests and decisions within 90 days of the requests’ filing. Commerce will also consider whether the quota or tariff for remaining products must be adjusted to ensure the domestic industry achieves projected production levels.

Deadline for President Trump

President Trump has until April 11, 2018 to determine whether he agrees with the Secretary’s recommendations on steel, and until April 20, 2018 on aluminum.

Ur-Energy and Energy Fuels Resources signed a joint petition on January 16 regarding imports of uranium from state-owned and state-subsidized companies primarily in Russia, Kazakhstan, Uzbekistan, and possibly China. The petitioners claim that “[the United States] cannot afford to depend on foreign sources – particularly Russia, and those in its sphere of influence, and China – for the element that provides the backbone of our nuclear deterrent, powers the ships and submarines of America’s nuclear Navy, and supplies 20 percent of the nation’s electricity.”

The Petitioners have asked the Department of Commerce to expedite the investigation and for the President to impose quota restrictions on uranium products from Russia. Specifically, they seek to reserve 25 percent of the U.S. market for domestic uranium and a requirement for U.S. government agencies to purchase uranium from domestic sources.

Senator John Barrasso (R-WY) also asked for Commerce to launch an investigation under Section 232 on the effects of uranium imports on national security. According to the U.S. Senate Committee on Environment and Public Works, uranium from state-subsidized companies in Russia, Kazakhstan, and Uzbekistan, provides approximately 40 percent of U.S. uranium. Barrasso argues that the United States, however, produces less than 5 percent of the yellowcake (uranium oxide) it consumes, with the majority of U.S. uranium production in Wyoming.

Commerce’s Bureau of Industry and Security (BIS) is still reviewing the petition to determine if it meets the threshold to begin an investigation. If Commerce decides to act, it has 270 days to report their findings to the President. The President then has 90 days to decide whether an article that is imported into the United States has threatened or impaired national security. If the President determines that the article is impairing national security, he has 15 days to implement any potential action. Once the President makes a decision, he has 30 days to write a public statement on why he decided to take (or refused to take) such action.

An investigation on uranium imports would be the third probe under Section 232 of the Trade Expansion Act of 1962 since President Trump took office early 2017. Commerce Secretary Wilbur Ross submitted the Section 232 reports to the White House on steel and aluminum on January 11 and January 22, respectively.

The Department of Commerce submitted its report on the impact of steel mill product imports on U.S. national security to President Trump on January 11.

In a statement on its website, the Department announced that the long-awaited results of the investigation, commonly known as the Section 232 Report, will not be made public until after the President makes his final decision. 

Although the president has 90 days to act, he has the discretion to announce his decision early. 

 

The U.S. Department of Commerce (DOC) has self-initiated an antidumping duty (AD) and countervailing duty (CVD) investigation of imports of common alloy aluminum sheet (common alloy sheet) from the People’s Republic of China (China). So far in 2017, the DOC has initiated 77 AD and CVD investigations in response to petitions filed by the domestic industry. This self-initiation brings the total to 79 – a 65 percent increase from 48 in the previous year. In 2016, imports of common alloy sheet from China were valued at an estimated $603.6 million. This self-inititated investigation is part of the Trump Administration’s continued effort to play hardball on trade issues with China. Further, this investigation is separate from the much broader probe on Aluminum products under Section 232 of the Trade Expansion Act of 1962, which could lead to duties being imposed on aluminum imports from a variety of countries to protect manufacturing interests that are critical to national security.

These AD and CVD investigations will proceed like any other trade remedy investigation. If the DOC determines that common alloy sheet from China is being dumped into the U.S. market, and/or receiving unfair government subsidies, and if the U.S. International Trade Commission (ITC) determines that dumped and/or unfairly subsidized U.S. imports of common alloy sheet from China are causing injury to the U.S. industry, the DOC will impose duties on those imports in the amount of dumping and/or unfair subsidization found to exist. The estimated dumping margin is 56.54 to 59.72 percent.

The ITC will make its preliminary determinations on or before January 16, 2018. If the ITC preliminarily determines that there is injury or threat of injury then the DOC investigations will continue, with a preliminary CVD determination scheduled for February 2018 and a preliminary AD determination scheduled for April 2018 – unless these deadlines are extended.

During the DOC investigation, the ITC will conduct its own investigations into whether the U.S. industry and its workforce are being injured, or threatened with injury, by such imports. If the DOC preliminarily determines that dumping or unfair subsidization is occurring, then it will instruct U.S. Customs and Border Protection (CBP) to start collecting cash deposits from all U.S. companies importing the subject aluminum sheet from China.

The merchandise subject to investigation is common alloy aluminum sheet, which is a flat-rolled aluminum product having a thickness of 6.3 mm or less, but greater than 0.2 mm, in coils or cut-to-length, regardless of width. Common alloy aluminum sheet is typically used in building and construction, transportation, basic electrical applications, appliances, etc. It may be made to ASTM specification B209-14, but can also be made to other specifications.

Common alloy sheet is currently classifiable under HTSUS subheadings: 7606.11.3060, 7606.11.6000, 7606.12.3090, 7606.12.6000, 7606.91.3090, 7606.91.6080, 7606.92.3090, and 7606.92.6080. Further, merchandise that falls within the scope of these investigations may also be entered into the United States under HTSUS subheadings 7606.11.3030, 7606.12.3030, 7606.91.3060, 7606.91.6040, 7606.92.3060, 7606.92.6040, 7607.11.9090. Although the HTSUS subheadings are provided by the DOC for convenience and customs purposes, the written description of the scope of these investigations is dispositive.

Final determinations by the DOC in these cases are scheduled for April 2018 for the CVD investigation, and July 2018 for the AD investigation, but those dates may be extended. If either the DOC finds that products are not being dumped or unfairly subsidized, or the ITC finds in its final determinations there is no harm to the U.S. industry, then the investigations will be terminated and no duties will be applied.

In May and June, the U.S. Department of Commerce held hearings and accepted hundreds of public comments for its investigations under section 232 of the Trade Expansion Act of 1962 to determine whether U.S. imports of steel and aluminum threaten national security.

DOC missed its self-imposed deadline of June 30 to release its reports and recommendations to President Trump as to what, if any, action to take to “adjust imports”. The delay was due to increased pressure from Capitol Hill and important members of the Trump administration (including Treasury Secretary Mnuchin, Defense Secretary Mattis, and National Economic Council Director Cohn) against any broad import restrictions due to concerns over supply chain disruptions and retaliation from major trading partners.

U.S. trading partners at the G-20 Summit in Germany last week reiterated their concerns over possible section 232 actions and promised swift retaliation against politically-sensitive U.S. exports (agricultural products and bourbon were specifically mentioned) and challenges at the World Trade Organization.

The G-20 Leaders declaration issued on July 8 called for the Global Forum on Steel Excess Capacity “to fulfill their commitments on enhancing information sharing by August 2017, and to rapidly develop concrete policy solutions to reduce steel excess capacity” with a “substantive report with concrete solutions by November” of this year. Arising out of last year’s G-20 summit in Hangzhou, the Global Forum is facilitated by the OECD and includes major steel producing nations. Leaders like Angela Merkel seek to invigorate the forum as a means of pressuring China on its excess capacity while warding off unilateral measures like those contemplated by the U.S. However, it has been slow in starting as it was only formally established last December. It is also important to note any recommendations arising from the forum would be non-binding.

Friday, July 7, brought two new developments which could cause further delays in the release of the section 232 reports. First, Politico reported Defense Secretary Mattis directed the Defense Logistics Agency to undertake a 60-day review of steel use in U.S. defense applications. Second, the U.S. International Trade Commission released its comprehensive study “Aluminum: Competitive Conditions Affecting the U.S. Industry”, conducted pursuant to Congressional request.

As of Monday, July 10, no section 232 reports or recommendations have been released. There have been many rumors regarding what measures DOC will recommend and President Trump will take under section 232, ranging from across-the-board import duties on all steel and aluminum from all sources, as well as tariff rate quotas, to exemptions for NAFTA and European sources, or certain types of steel and aluminum either not produced or available in sufficient supply domestically. The latter option could include an exemption/exclusion request and analysis period after the reports are issued, but no such process is required under the statute.

Until the reports are issued, companies should continue to monitor developments, advocate for desired outcomes, prepare for possible exclusion processes, and review their supply chains and contracts to be ready to deal with any broad section 232 action(s).

In addition to likely challenges by foreign governments at the WTO, companies and trade associations will likely challenge any adverse section 232 measures in U.S. court. Both WTO and U.S. challenges would raise novel questions regarding import restrictions taken in the name of “national security.”

Below are the remaining deadlines based for the two section 232 investigations, though action is expected well before these dates.

Steel 232 Investigation

Event Allotted Time No Later than Date
DOC Report Submitted to President 270 days from Initiation January 15, 2018
Presidential Decision Whether to Act 90 days from DOC Report April 15, 2018
Presidential Action 15 days from Determination April 30, 2018
President Must Inform Congress 30 days from Determination May 15, 2018

 

Aluminum 232 Investigation

Event Allotted Time No Later than Date
DOC Report Submitted to President 270 days from Initiation January 21, 2018
Presidential Decision Whether to Act 90 days from DOC Report April 21, 2018
Presidential Action 15 days from Determination May 6, 2018
President Must Inform Congress 30 days from Determination June 5, 2018


For more information, contact: Jeff Snyder; Robert Holleyman; Dan Cannistra; Bob LaFrankie

STEEL

A Federal Register Notice published on April 26 provided additional information to industry on the Department of Commerce’s investigation of steel imports and U.S. national security.

We learned a three-hour public hearing will be held on May 24 at DOC and that interested parties must request to speak by May 17. The requests need to include a written summary of the planned presentation. Written comments will also be accepted until May 31.

DOC provided a list of criteria it is interested in learning about, as they relate to national security:

  • Quantity of steel or other circumstances related to the importation of steel.
  • Domestic production and productive capacity needed for steel to meet projected national defense requirements.
  • Existing and anticipated availability of human resources, products, raw materials, production equipment, and facilities to produce steel.
  • Growth requirements of the steel industry to meet national defense requirements and/or requirements to assure such growth.
  • The impact of foreign competition on the economic welfare of the steel industry.
  • The displacement of any domestic steel causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects.
  • Relevant factors that are causing or will cause a weakening of the U.S. national economy.

Five general categories of steel are being looked at: flat products, long products, pipe and tube products, semi-finished products, and stainless products. The notice also refers to “specialty steel alloys that require unusual production skills and are used for armor, vehicles, ships, aircraft, and infrastructure.”

Because the scope remains overly broad, the Section 201 Steel Safeguard of 2001-2002 may serve as a general guide. The following categories of products were targeted in that proceeding:

  • Certain carbon flat-rolled steel, including carbon and alloy steel slabs.
  • Plate (including cut-to-length plate and clad plate).
  • Hot-rolled steel (including plate in coils).
  • Cold-rolled steel (other than grain-oriented electrical steel.
  • Corrosion-resistant and other coated steel.
  • Carbon and alloy hot-rolled bar and light shapes.
  • Carbon and alloy cold-finished bar.
  • Carbon and alloy rebar.
  • Carbon and alloy welded tubular products (other than oil country tubular goods).
  • Carbon and alloy flanges, fittings, and tool joints.
  • Stainless steel bar and light shapes.
  • Stainless steel rod.
  • Carbon and alloy tin mill products.
  • Stainless steel wire.

The measures imposed were subject to significant product exclusions. Pursuing a similar product-exclusion strategy in the new Section 232 proceeding will likely be important for affected companies.

The timeline for the steel proceeding is shown below.

Request to Appear at Public Hearing

May 17

Public Hearing

May 24

Submission of Post-Hearing Comments or other Written Comments

May 31

Completion of DOC investigation

January 15, 2018*

Presidential Determination

April 16, 2018*

President Informs Congress

May 16, 2018*

* At the latest

ALUMINUM

On April 27, President Trump directed an investigation into the impact of aluminum imports on U.S. national security.

This investigation is being held under the same authority as the previously announced probe on steel, section 232 of the Trade Expansion Act of 1962 (19 U.S.C. § 1862). As with steel, DOC is charged with determining whether aluminum is being imported into the U.S. in such quantities or under such circum­stances as to threaten to impair national security. DOC has 270 days to conduct its investigation and prepare a report on its findings for submission to the president.

The next step will be a Federal Register Notice providing information about the upcoming public hearing.

For more on section 232 investigations, please see Crowell’s Client Alert from the steel case.

For more information, contact: Dan Cannistra, Alan W.H. Gourley, Alex Schaefer, Jeff Snyder, John Brew, Bob LaFrankie, Charles De Jager

Commerce Recommendation Expected By End Of June

The Department of Commerce held a public hearing on its Section 232 National Security Investigation of Imports of Steel on May 24. The hearing was chaired by Commerce Secretary Wilbur Ross, who stayed for the majority of the 37 witnesses’ remarks. The balance of the panel included representatives from Commerce’s Bureau of Industry and Security, Commerce’s International Trade Administration, the Department of Defense, and the Office of the U.S. Trade Representative. 

Congresswoman Marcy Kaptur from Ohio’s 9th District was the first witness. In her testimony, she urged the panel to stop the “flood” of dumped and subsidized steel imports entering the U.S. market and recommended relief in the form of (1) bridge financing to allow the industry to modernize; (2) “addressing” overcapacity in general and Chinese overcapacity in particular; and (3) exploring ways to “neutralize” the Value Added Tax (VAT) prevalent in steel-producing countries.

In closing, she reminded Secretary Ross of President Trump’s request that the investigation be handled expeditiously. In response, the Secretary indicated he had “no intention” of taking the full 270 days permitted by statute for the conduct of the investigation, but rather expects to issue a recommendation by the end of June. 

The Congresswoman’s remarks set the tone for much of the remainder of the proceeding. Of the 36 speakers who followed, only about a half dozen expressed any opposition to relief. Notably, most of this group were not expressing opposition to relief in principle, but rather were arguing for the exclusion of specific products not domestically available. For instance, the U.S. Tire Manufacturers’ Association witness testified that no U.S. producer has the technology to produce the high-quality tire cord currently sourced from Japan, and that as such it should be excluded from any relief the government ultimately grants.

That testimony prompted one of the few remarks from the panel, as one of the Commerce representatives requested that the domestic producers comment on whether they do or can produce the products for which exclusion is sought.

Aside from the handful of witnesses seeking carve-outs, and the few opposing relief entirely, the balance of speakers were steel company executives requesting relief from imported steel.  Although they represented discrete industry segments, as a group they sought to address two potential analytic vulnerabilities.

  • In anticipation of the argument that the industry has already been granted significant relief in the form of dozens of Antidumping and Countervailing Duty (AD/CVD) orders over the last several years, the executives made a point of saying that “the trade remedies laws aren’t enough” because the rates are too low to lock out imports effectively and because foreign producers “cheat” by circumventing existing orders and/or moving production to non-subject countries.
  • In anticipation of the argument that everything sold to the Department of Defense already must be of U.S. origin as a matter of law, the executives argued that actual defense sales are only a small portion of their overall customer base, and that it is not sufficient to offset the impact of imports on their base businesses. They also made a concerted effort to include non-defense sectors within the rubric of “national security” – they variously argued critical infrastructure, food packaging (which consumes tin mill products), energy (which consumes oil country tubular goods and line pipe), power generation and transmission (which consumes grain-oriented and non-oriented electrical steels), and the automotive sectors all contribute to U.S. “national security.”

The executives repeatedly pointed out that there is significant global overcapacity, and that over half of that overcapacity is in China alone. For the most part they did not provide specifics on the type of relief, although a few suggested that if quotas are to be established then they should be indexed to 2010-2011 import volume levels. 

Comments, which were due on May 31, may be found here.

The next step is waiting to see what action, if any, the department will recommend to the president.

For more information, contact: Dan Cannistra, Alex Schaefer, Jeff Snyder, John Brew, Bob LaFrankie, Charles De Jager

Commerce Secretary Wilbur Ross has initiated an investigation under section 232 of the Trade Expansion Act of 1962 (19 U.S.C. § 1862) to determine whether steel is being imported into the U.S. in such quantities or under such circum­stances as to threaten to impair national security. The Department of Commerce (DOC) now has 270 days to conduct an investigation and prepare a report on its findings for submission to the president.

In the event action against steel imports is found to be necessary on the basis of DOC’s report, the president has authority to take action to “adjust imports” of steel. The potential remedies available to the president in this context include changing the rate and form of import duties on steel without apparent limitation, as well as limiting or restricting steel imports, including through the negotiation of an agreement to that effect.

If, as a result of its investigation DOC finds that action is required, the president then has 90 days to determine (i) whether he agrees and, if so, (ii) the nature and duration of the action necessary to adjust steel imports. Such action must then be taken no later than 15 days after the president’s determination. Within 30 days of making his determination, the president must inform Congress in writing of the reasons for his determination.

In the course of its investigation, DOC must consider not only the quantities of steel being imported and other circumstances related to steel trade as they affect the state of the domestic steel industry, but also national security requirements related to steel, including the following:

  1. Domestic production needed for projected national defense requirements.
  2. The capacity of domestic industries to meet projected national defense requirements.
  3. The existing and anticipated availabilities of human resources, products, raw materials, production equipment and facilities, and other supplies and services essential to the national defense.
  4. The growth requirements of domestic industries to meet national defense requirements and the supplies and services including the investment, exploration and development necessary to assure such growth.
  5. Any other relevant factors.

In addition, DOC must also consider the following elements regarding the quantity, availability, character, and uses of imported steel:

  1. The impact of foreign competition on the economic welfare of any domestic industry essential to U.S. national security.
  2. The displacement of any domestic products causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects.
  3. Any other relevant factors that are causing or will cause a weakening of the U.S. economy.

The Secretary of Commerce must consult with the Secretary of Defense during DOC’s investigation and may request of his counterpart an assessment of the defense requirements for steel. The communications DOC receives from other U.S. Government agencies such as the Department of Defense are not available for public inspection. In the course of its investigation, DOC may also solicit additional information from other sources through the use of questionnaires or other means.

Interested parties will only be afforded an opportunity to present information and advice relevant and material to the investigation (e.g., written comments, opinions, data, information or advice) if DOC determines that it is appropriate. Such an opportunity would be announced in due course in the Federal Register. Similarly, a public hearing allowing interested parties the opportunity to submit oral or written information may only be held if DOC deems it appropriate and would also be announce in the Federal Register.