U.S. and Japan Accord to Ease Section 232 Steel Tariffs

Faegre Drinker Biddle & Reath LLP

On February 7, 2022, the United States announced actions to ease Section 232 tariffs on Japanese-origin steel products in exchange for Japan’s commitments in several key trade areas.

The announcement comes on the heels of a similar, bilateral deal reached in October between the U.S. and European Union  related to U.S. steel and aluminum tariffs — and may be just the latest in a series of Section 232 agreements yet to come. 

Background

On March 8, 2018, then-President Trump issued two presidential proclamations imposing global tariffs of 25% on steel imports and 10% on aluminum imports in connection with investigations initiated by the Department of Commerce pursuant to Section 232 of the Trade Expansion Act of 1962. 

Unlike other affected countries — including Canada, the EU, and Mexico — Japan did not respond with retaliatory tariffs on U.S.-origin goods. Formal discussions between the U.S. and Japan began in November of 2021, after Japan argued that the U.S.-EU deal put its domestic producers at an untenable disadvantage.  

Steel Tariff Rate Quotas (TRQ)

Per the agreement, beginning April 1, 2022, the U.S. will implement a TRQ that will permit Japan to export, duty-free, up to 1.25 million metric tons of steel each year, so long as the eligible steel is “melted and poured” in Japan. For any Japanese steel that exceeds that quota, the U.S. will apply a 25% ad valorem tariff. 

According to Commerce, the TRQ will be administered quarterly and under 54 product categories, with allocations in line with the 2018-2019 historical period and on a “first-come, first-save basis” for each product category. Additionally, like the U.S.-EU deal, the U.S. will conduct annual reviews of the TRQ to calculate the level of U.S. steel demand in the previous year based on data from the World Steel Association, potentially resulting in an increase or decrease of the TRQ based on the calculated level of demand. 

Although many of the terms are similar to those in the U.S.-EU agreement, there are several notable differences, including: 

  1. Omission of Aluminum Tariffs: The most obvious difference is that the U.S.-Japan agreement does not address aluminum products. According to USTR officials, the U.S. remains open to expanding the agreement to cover aluminum, so long as Japan is willing to ensure that its aluminum does not come from non-market sources.  
  2. Allocated Quantity: As noted above, the TRQ product allocations will be in line with the 2018-2019 historical period — as opposed to the 2015-2017 period included in the U.S.-EU deal. As a practical matter, because steel exports to the United States sharply declined following the 2018 implementation of the Section 232 steel tariffs, the 2018-2019-based metrics result in a lower TRQ (as compared to 2015-2017). 
  3. Product Exclusions: In the U.S.-EU deal, the U.S. explicitly stated that imported products subject to a Section 232 exclusion will not count against the TRQ (if eligible). No such language is included in the U.S.-Japan announcement.

In exchange for the easing of Section 232 tariffs, Japan has committed, per a joint statement, to “establish more market-oriented conditions for steel” by implementing “appropriate domestic measures” (e.g., antidumping, countervailing duty and safeguard measures) and to confer with the U.S. on methods to reduce carbon emissions tied to the steel and aluminum sectors. 

Notably, however, the agreement does not indicate that Japan will be joining the U.S. and EU in negotiating a new “Global Sustainable Steel Arrangement.” As further explained in our previous client alert, this arrangement — announced as part of the U.S.-EU deal — aims, in part, to decarbonize the steel and aluminum industries by establishing new standards for “carbon intensity.” 

Other Potential Agreements on the Horizon

The U.S.-Japan agreement is the latest in a line of bilateral deals revolving around the Section 232 tariffs. Australia, Canada and Mexico are now entirely exempted from the tariffs while Argentina, Brazil, the EU, and South Korea have agreed to quotas for their steel and aluminum exports. 

The next potential deal appears to be between the U.S. and the United Kingdom. On January 19, 2022, both countries announced the start of bilateral discussions aimed at achieving a resolution as part of a broader focus on “global steel and aluminum excess capacity.” Although no timeline has been provided, the U.S. and the U.K. have noted their mutual desire for an “expeditious outcome” that includes the “deployment of effective solutions, including appropriate trade measures, to preserve” their domestic industries impacted by excess capacity. Additionally, South Korea has recently made clear its desire to negotiate a new accord.

As highlighted by recent statements issued by United States Trade Representative Katherine Tai and Secretary of Commerce Gina Raimondo following the announcement of the U.S.-Japan deal, the Biden administration views the Section 232 tariff agreements with key trade allies as a step toward achieving broader U.S. policy initiatives, particularly those relating to U.S. competition with China and the global efforts to combat climate change. 

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