Quinn Emanuel Urquhart & Sullivan, LLP

New Ruling on Section 232 Steel Tariffs

A major component of President Trump’s trade agenda has been imposing tariffs on steel imports under Section 232 of the Trade Expansion Act of 1962.  Those tariffs have engendered many legal challenges; few have had any success.  That changed on July 14, 2020, when a three-judge panel of the U.S. Court of International Trade ruled that President Trump’s Proclamation 9772, which imposed a 50% tariff on certain steel products from the Republic of Turkey under Section 232, is unlawful and void.  Transpacific Steel LLC v. United States, --- F. Supp. 3d ----, 2020 WL 3979838 (CIT July 14, 2020).  The ruling emphasizes certain procedural and substantive limits on a President’s powers under Section 232 that will likely limit future actions under Section 232.

Section 232 of The Trade Expansion Act of 1962

Section 232 of the Trade Expansion Act of 1962 empowers the President to “adjust the imports” of an article if the Secretary of Commerce finds that importation of the article threatens to impair national security.  19 U.S.C. § 1862.  In 1976, the Supreme Court ruled that Section 232 permits the President to “adjust” the imports of an article by imposing fees, tariffs, and other monetary exactions on the article (which raises the article’s price and thereby lowers demand and imports of it).  Federal Energy Administration v. Algonquin SNG, Inc., 426 U.S. 538 (1976).

Although Section 232 is a potent tool, Presidents have rarely used it.  Before President Trump, the last President to take action under Section 232 was President Reagan in the early 1980s.

A three-step process governs adjustment of imports under Section 232.  First, the Secretary of Commerce, in consultation with the Secretary of Defense, investigates the effects on national security of imports of the article and, within 270 days of initiating the investigation, the Secretary of Commerce must submit a report to the President advising whether imports of the article threaten national security and recommending appropriate action.  § 1862(b)(1)(A), (b)(3)(A).  Second, within 90 days of receiving the Secretary’s report, the President must determine the nature and duration of any action to adjust the imports of the article so that it no longer threatens national security, and, within 15 days of that determination, the President must implement the action.  § 1862(c)(1)(A), (c)(1)(B).  (If the action is to negotiate an agreement limiting importation into, or exportation to, the United States, then the President has additional time.  § 1862(c)(3)(A).)  Third, within 30 days of making the determination, the President must submit to Congress a written statement of reasons for taking the action.  § 1862(c)(2).

President Trump’s Steel Tariffs

Wilbur Ross was sworn in as President Trump’s Secretary of Commerce on February 28, 2017.  Within two months, he initiated an investigation into the effect of imported steel on national security.  82 Fed. Reg. 19205 (Apr. 26, 2017).  On January 11, 2018, Secretary Ross issued a report advising the President that current steel imports from countries around the world, when considered in the aggregate, threaten to impair national security and recommending that the President impose a quota or tariff on all imported steel products.  85 Fed. Reg. 40202 (July 6, 2020).  

In response, President Trump issued Proclamation 9705 of March 8, 2018, which imposed a 25% ad valorem tariff on steel imports from all countries except Canada and Mexico.  83 Fed. Reg. 11625 (Mar. 15, 2018).  Five months later, President Trump issued Proclamation 9772 of August 10, 2018, which increased the tariff on steel imports from Turkey—and only Turkey—to 50%.  83 Fed. Reg. 40429 (Aug. 15, 2018).

The tariffs on Turkish steel remained at 50% until President Trump issued Proclamation 9886 of May 16, 2019, which eliminated the enhanced tariff and reinstated the 25% tariff applicable to steel imports from all countries (other than Canada and Mexico).  84 Fed. Reg. 23421 (May 21, 2019).

Transpacific Steel LLC v. United States

On January 17, 2019, Transpacific Steel LLC, a U.S. importer of steel from Turkey, filed a lawsuit in the U.S. Court of International Trade challenging the legality of Proclamation 9772.  A three-judge panel of the Court (Kelly, Katzmann, and Restani, JJ.), agreed that Proclamation 9772 is unlawful.  Transpacific Steel LLC v. United States, --- F. Supp. 3d ----, 2020 WL 3979838 (CIT July 14, 2020).  

First, the Court held that Proclamation 9772 violated Section 232’s timing requirements.  Id. at *3–4.  Under Section 232, President Trump had only 90 days from receipt of Secretary Ross’s report to determine what action to take, followed by an addition 15 days to implement that action.  The President followed those timing requirements for Proclamation 9705, which imposed the initial 25% tariff on steel from countries around the world.  But Proclamation 9772 came too late.  President Trump did not issue it until August 10, 2018, nearly seven months after he received Secretary Ross’s report.  The U.S. Government argued that Proclamation 9772 was permissible because it merely modified Proclamation 9705, but the Court held that “‘modifications’ of existing Proclamations under the current statutory scheme, without following the procedures in the statute, are not permitted.”  Id. at 4.  

Next, the Court held that Proclamation 9772 violated Section 232’s report requirement.  Id. at 5.  Secretary Ross’s report in January 2018 assessed steel imports in the aggregate from all countries; it did not make any “finding regarding Turkey specifically.”  Id.  Proclamation 9772 mentions “informal discussions” between President Trump and Secretary Ross, but the Court concluded that the President “is not authorized to act under Section 232 based on any off-handed suggestion by the Secretary; the statute requires a formal investigation and report.”  Id.

Finally, the Court held that Proclamation 9772 violated the Fifth Amendment.  Id. at *6–8.  Although the Court found no due process violation, id. at *8, it ruled that Proclamation 9772 violated equal protection by arbitrarily and irrationally singling out steel from Turkey—and only Turkey—for enhanced tariffs, when there is “no apparent reason to treat importers of Turkish steel products differently from importers of similar products from any other country listed in [Secretary Ross’s] Report.”  Id.  Accordingly, the Court deemed Proclamation 9772 to be “unlawful and void.”  Id. at *1.

Ramifications

On August 13, 2020, the United States noticed its appeal to the Federal Circuit, and on October 30, 2020, it filed its opening brief on appeal.  Should the decision be affirmed, it may have far-reaching consequences on the use of Section 232.  By barring the President from modifying Section 232 Proclamations without going through the full three-step process, and by ruling it unconstitutional to single out Turkey for steel tariffs, the Court of International Trade’s ruling makes it significantly harder and more time-consuming for Presidents to modify tariffs and other trade regulations under Section 232.  That, in turn, will likely discourage future Presidents from using Section 232 in the first place.  The main theme of the U.S. Government’s opening brief in the Federal Circuit is that Section 232 bestows “flexibility” on the President to determine the nature and duration of measures taken under Section 232—and thus to modify those measures when the President sees fit.  That kind of flexibility is prized because it enables the President to quickly adjust tariffs up or down for particular goods or countries in response to changes in trade relations and national security.  If, instead, every modification requires a new multi-month or even year-long process of investigation, report, determination, and implementation, then actions under Section 232 become much more sticky and therefore less attractive to Presidents that want to use them as bargaining chips in trade relations.  In the coming months, the Federal Circuit will wrestle with these issues.  Stay tuned.

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