On March 8, 2018, President Donald Trump issued two proclamations imposing tariffs on imports of certain steel and aluminum products, effective March 23, 2018. The decision was made in response to the Department of Commerce’s findings and recommendations in its reports of its investigations into the impact of imported steel and aluminum on the national security of the United States. Specifically, the Trump Administration has imposed a 25% global tariff on certain imported steel products and a 10% global tariff on certain imported aluminum products.
Canada and Mexico will be exempt from the tariffs at least initially while the three countries continue ongoing discussions, including the renegotiation of the North American Free Trade Agreement (“NAFTA”). President Trump indicated at the announcement of the proclamations that the continuation of Canada and Mexico’s exemptions will depend on the outcome of the NAFTA renegotiations.
The proclamations also recognize the U.S.’s important relationships with certain countries and welcomes any country with which the U.S. has a “security relationship” to discuss “alternative means” to address the national security threat caused by the imports of steel and aluminum from that country. During the announcement of the proclamations, President Trump indicated that United States Trade Representative Robert Lighthizer will begin a process for negotiating possible exemptions with other U.S. allies.
I. Section 232 of the Trade Expansion Act of 1962
Section 232 of the Trade Expansion Act of 1962 authorizes the Secretary of Commerce to conduct investigations to determine the impact of imports of any items on the national security1 of the United States. The Secretary of Commerce may initiate an investigation upon the request of the head of any department or agency, upon application of an interested party (e.g., relevant industries), or upon his own motion.
Once an investigation is initiated, the law requires the Secretary of Commerce to present the Department’s findings and recommendations to the President within 270 days. The law also requires the Secretary of Commerce to notify the Secretary of Defense upon initiation of an investigation. The Secretary of Commerce may consult with the Secretary of Defense regarding methodological and policy questions raised in the investigation and can seek information and advice from other government agencies.
Within 90 days after receiving the report from the Secretary of Commerce, the President must determine:
- whether he concurs with the Department’s finding; and
- if the President concurs, the nature and duration of the action that must be taken to “adjust” the imports of the article and its derivatives so that such imports will not threaten to impair U.S. national security.
If the President determines to act under this section, such action must be taken within 15 days after making the determination. The action will apply to subject products entered, or withdrawn from warehouse for consumption, on or after the effective date. The President has broad authority to impose tariffs and quotas, or a combination of the two (i.e., a tariff-rate quota) in order to “adjust” the imports of the article and its derivatives so that such imports will not threaten to impair national security.
II. Implications of President Trump’s Section 232 Decision on Imported Steel
The Department of Commerce’s report on steel found that the quantities and circumstances of steel imports threaten to impair the national security of the U.S. Specifically, the report found that global excess steel capacity has led to a disproportionate amount of imports of steel into the U.S. that has displaced the domestic steel industry and weakened the U.S. economy, thereby threatening the requirements for U.S. national defense and critical infrastructure.
As a result, the report recommended that the President consider the following actions to address the threat:
- a global tariff of at least 24% on all steel imports from all countries;
- 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
- a quota on all steel products from all countries equal to 63% of each country’s 2017 exports to the United States.
Each of these remedies was intended to increase domestic steel production from its present 73% of capacity to approximately an 80% operating rate.
Ultimately, President Trump decided to impose a global 25% tariff (except for imports from Canada and Mexico), which applies to certain “steel mill products” that generally fall into one of the following five product categories:
- Carbon and Alloy Flat Product (Flat Products): Produced by rolling semi-finished steel through varying sets of rolls. Includes sheets, strips, and plates.
- Carbon and Alloy Long Products (Long Products): Steel products that fall outside the flat products category. Includes bars, rails, rods, and beams.
- Carbon and Alloy Pipe and Tube Products (Pipe and Tube Products): Either seamless or welded pipe and tube products. Some of these products may include stainless as well as alloy other than stainless.
- Carbon and Alloy Semi-finished Products (Semi-finished Products): The initial, intermediate solid forms of molten steel, to be re-heated and further forged, rolled, shaped, or otherwise worked into finished steel products. Includes blooms, billets, slabs, ingots, and steel for castings.
- Stainless Products: 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.
The tariffs will be imposed in addition to any duties already in place from antidumping and countervailing duty orders. As of February 15, 2018, the U.S. has 169 antidumping and countervailing duty orders in place on steel, and there are 25 ongoing investigations.
III. Implications of President Trump’s Section 232 Decision on Imported Aluminum
Similar to its report on steel, the Department of Commerce’s report on aluminum found that aluminum is being imported in such quantities and under such circumstances that weaken the U.S. economy and threaten U.S. national security. The report found that excessive imports threaten the aluminum requirements for U.S. national defense and critical infrastructure, which require aluminum for crucial military capabilities and commercial systems.
In order to remove this threat to U.S. national security, the Department of Commerce recommended that the President consider adopting one of the following actions:
- a global tariff of at least 7.7% on all aluminum imports;
- a tariff of 23.6% on all products from China, Hong Kong, Russia, Venezuela, and Vietnam. All aluminum imports from other countries would be subject to quotas equal to 100% of their 2017 exports to the United States; or
- a quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the United States.
As with steel, each of these recommendations were intended to raise aluminum production from the present 48% average capacity to 80%, which the Department of Commerce believes is a healthy level that would provide the industry with long-term viability.
President Trump ultimately decided to impose a global 10% tariff (except for imports from Canada and Mexico), which applies to aluminum products that fall into the following eight categories:
- unwrought aluminum;
- aluminum bars, rods, and profiles;
- aluminum wire;
- aluminum plates, sheets, and strip (of a thickness of exceeding 0.2mm)
- aluminum foil of a thickness not exceeding 0.2mm;
- aluminum tube and pipe fittings;
- aluminum castings; and
- aluminum forgings.
The aluminum tariffs will also be imposed in addition to any duties already in place from antidumping and countervailing duty orders. As of February 15, 2018, the U.S. has two antidumping and countervailing duty orders on aluminum and four ongoing investigations.
IV. Exclusion from the Imposed Tariffs
The proclamations authorize the Secretary of Commerce to grant exclusions based on a demonstrated:
(1) lack of sufficient U.S. production capacity of comparable products; or
(2) specific national security-based considerations.
In this regard, the Secretary of Commerce is required to establish procedures within 10 days of issuance of the proclamations that will allow U.S. companies to request an exclusion from the imposed tariffs by filing an appeal with the Department of Commerce.
Based on Commerce’s reports on steel and aluminum, which recommended that the President allow for requests for exclusion, this appeal process will include a public notice and comment period on each exclusion request and will generally be completed within 90 days of a completed application being filed.
The Secretary of Commerce will also determine the length of the exclusion, in addition to whether it will be terminated if the conditions that gave rise to the exclusion change.
Should exclusions be granted, the Secretary of Commerce will consider at the time whether the tariff for the remaining products needs to be adjusted to increase U.S. steel or aluminum capacity utilization to the financially viable target of 80%.
1Section 232 does not define “national security.” Instead, the Department of Commerce interprets the term based on a non-exhaustive list of factors, including “national defense” requirements, which encompasses both the defense of the United States directly and the ability to project military capabilities globally. The Department of Commerce also concluded in a 2001 report that national security can be interpreted more broadly to include “critical industries” that are essential to the minimum operations of the economy and government. The Department of Commerce used both interpretations in its reports on steel and aluminum.
ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm of approximately 750 lawyers practicing throughout a network of 14 offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy and technology sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.