Trump Administration Initiates Review of Steel Imports under National Security Law

On April 19, 2017, the Department of Commerce (DOC), through its Bureau of Industry and Security, self-initiated an investigation into the effects that steel imports may be having on U.S. national security interests. The investigation was initiated under a rarely-used statutory authority, Section 232 of the Trade Expansion Act 1962 (19 U.S.C. § 1862).

Section 232 investigations can be initiated in one of three ways: upon a request by the head of any department or agency, upon an application by an interested party, or by self-initiation by the DOC. Because Section 232 investigations focus on harm to national security, the statute requires the Department of Defense to be notified of the initiation of such an investigation and consulted regarding any methodological or policy questions that may arise. The Department of Defense may also provide an assessment of the defense requirements of an article that is the subject of an investigation. DOC normally must make a recommendation to the President for action or inaction within 270 day of the initiation, and the President then has another 90 days to determine whether to concur with the recommendation.  The President can decide to “adjust” imports of the articles in question or take non-trade related actions.  On the day following the DOC initiation of the section 232 investigation, President Trump signed a Presidential Memorandum requiring DOC to expedite the investigation. In his remarks made in relation to signing the Memorandum, the President indicated that the agency may conclude its review within an aggressive timeline of 30 to 50 days.

There are already in place a number of antidumping and countervailing duty orders on a number of types of steel products from a number of countries, which impose high tariffs on imports from the targeted countries. Statements made by the Trump Administration indicate that its goal is to determine whether further steps should be taken to assist the domestic steel industry, with a view to improving its financial performance, capacity utilization and long-term investment.

There have been over a dozen Section 232 investigations since the 1970s, but only two since 1995 (the year the United States joined the newly-established WTO with its enhanced dispute settlement procedures). The prior investigations covered products such as glass processing equipment; metal machine tools; nuts, bolts, and screws; anti-friction bearings; plastics injection molding machinery; uranium; gears and gearing products; ceramic semiconductor packaging; and crude oil and petroleum products. The last Section 232 investigation, which was conducted in 2001, investigated iron ore and semi-finished steel. In that instance, DOC did not recommend any action be taken against imports. President Nixon imposed a surcharge on oil imports in 1971, and President Ford relied on Section 232 to impose licensing fees on oil in 1975, but there have been no other actions taken under Section 232 to restrict imports.

The statute and implementing regulations do not define “national security,” but provide a list of factors that should be considered in determining when imports may be having an effect on national security. These factors include (i) domestic production needed for projected national defense requirements (ii) capacity and projected growth of domestic industries to meet projected national defense requirements and (iii) availability of human resources, products, raw materials, equipment and facilities essential to national defense. DOC may also consider such factors as the impact of foreign competition on the economic welfare of the domestic industry, displacement of domestic products causing substantial unemployment, a decrease in government revenues, loss of investment or specialized skills or productive capacity, and any other factor causing a weakening of the national economy. DOC has previously indicated that national security would be considered impaired if imports fostered “U.S. dependence on unreliable or unsafe imports” or would “fundamentally [threaten] the ability of U.S. domestic industries to satisfy national security needs.”

The countries that were the largest exporters of steel to the United States in 2016 include Canada, the EU, Brazil, Korea, Mexico, and Turkey. (Canada and Mexico are the largest markets for U.S. exports of steel.) Although there is widespread concern over the impact of Chinese overcapacity in steel production on world markets, imports of steel from China recently have comprised only between 2 and 3 percent of all U.S. imports of steel.

In the 2001 Section 232 investigation of iron ore and semi-finished steel, imports from some of the same countries, i.e., Canada, Mexico and Brazil, were seen as imports from “safe” foreign suppliers and DOC concluded that imports of these products did not threaten U.S. national security. Specifically, DOC, found that there was no evidence to suggest that the United States was dependent on unreliable foreign suppliers, or that such imports fundamentally threatened the ability of domestic producers to satisfy national security requirements. Also, during that review the Department of Defense indicated that its needs for finished steel were projected to be low and that demand could be supplied by the U.S. domestic industry. It is not clear if there have been changes in these basic parameters.

The Trump Administration has not indicated what specific actions it may seek to take if the investigation determines that imports are affecting national security. The implementation of new duties or quotas could raise questions about their consistency with U.S. obligations under trade agreements.  The adoption of new subsidies or tax breaks for the domestic industry would be another option.

DOC has announced that it will hold a public hearing on May 24, and that public comments on the investigation are due by May 31.