Section 232 Investigations

On March 6, 2019, during a meeting of the Foreign Trade Commission of the Mexican Senate, Luz Maria de la Mora-Sanchez, Foreign Trade Undersecretary of Mexico’s Ministry of Economy, announced that the Mexican government is planning to include additional items on its list of U.S. products subject to retaliatory measures, which were originally imposed on June 5, 2018, in response to the U.S. government’s imposition of Section 232 tariffs on certain steel and aluminum imports into the United States (see Trump and Trade Update of June 1, 2018). This additional list of U.S. goods may be finalized by April 2019. On June 5, 2018, the Mexican government published its “Decree modifying Mexico’s Import and Export Tariff, the Decree that establishes the applicable Duty Rate for goods originating in North America and the Sector Promotion Program Decree” (Decree) in the Federal Official Gazette, imposing retaliatory measures with rates ranging from 7 to 25 percent ad valorem on the imports of several U.S. goods as a response to U.S. tariffs imposed on imports of Mexican steel and aluminum products of 25 and 10 percent, respectively. This additional list has been prepared in large part to address the Trump administration’s continuation of these Section 232 tariffs, which both Mexico and Canada expected to be terminated upon the successful conclusion of negotiations last fall among the United States, Mexico and Canada to revise and update the new free trade agreement replacing the NAFTA.

According to the undersecretary, Mexican steel and aluminum exports do not pose a threat to U.S. national security under its Section 232 law, and these U.S. measures were imposed in violation of World Trade Organization rules and harm both regional integration and the development of several North American supply chains. Although Mexican government efforts are focused on the elimination of the Section 232 tariffs on Mexican steel and aluminum and Mexico’s corresponding retaliatory measures, the government of President Andrés Manuel López Obrador is reviewing the list of 71 HTS codes (covering U.S. imports worth approximately $3 billion) currently subject to retaliatory tariffs in order to include new items that could be subject to a 7 to 25 percent ad valorem duty.

On September 27, 2018, Titanium Metals Corporation (TIMET) filed a Section 232 petition alleging that the quantity or circumstances of U.S. titanium sponge imports threaten to impair national security. On March 4, 2019, Secretary of Commerce Wilbur Ross announced that the petition had been accepted and an investigation initiated. Ross sent a letter to Acting Secretary of Defense Patrick Shanahan informing him of the investigation in response to this petition, stating that the Department of Commerce during the course of the investigation would consult with the Department of Defense on methodological and policy issues of national security concern.

In his announcement, Ross stated, “Titanium sponge has uses in a wide range of defense applications, from helicopter blades and tank armor to fighter jet airframes and engines.” Titanium sponge is the primary form of titanium metal from which almost all other titanium products are made. Titanium is used in the production of military aircraft, space vehicles, satellites, naval vessels, missiles and munitions. It is also widely used in critical infrastructure and commercial applications such as civilian aircraft, chemical plants, oil and gas plants, electric power and desalination plants, building structures, automobile products and biomedical devices. According to the Department of Commerce, imports account for more than 60 percent of U.S. titanium sponge consumption. Currently only one facility in the United States has the capacity to process titanium ore into the sponge used in manufacturing. Titanium sponge is difficult to stockpile for long periods as it degrades, rendering the sponge unsuitable for the most demanding military and aerospace applications.

This is the fifth Section 232 investigation initiated by President Donald Trump’s administration; before his administration, the last Section 232 investigation occurred in 2001. A Section 232 investigation is conducted under the authority of the Trade Expansion Act of 1962 to determine the effect of imports on U.S. national security. Once initiated, the secretary of Commerce must prepare a report for the president within 270 days of initiation on whether the importation of the article in question is in such quantities or under such circumstances as to threaten to impair the national security. The president can concur with or reject the secretary’s recommendations and take action to “adjust the imports of an article and its derivatives” or implement other non-trade related actions as deemed necessary.

On February 27, 2019, Ambassador Robert Lighthizer, U.S. Trade Representative (USTR), testified before the House Ways & Means Committee on U.S.-China trade relations. In his brief opening statement, the ambassador stated that the United States “can compete with anyone in the world but we must have rules – enforced rules – that make sure market outcomes, not state-capitalism and technology theft, determine winners.” Due to the Section 301 tariffs implemented on certain imports from China, he said, the United States is “in a position to deal with this problem for the first time after decades of government inaction.” He closed his statement by emphasizing that ongoing negotiations with China are resulting in “real progress” that could help to “turn the corner in our economic relationship with China.”

Preceding Lighthizer in the hearing was House Ways & Means Committee Chairman Richard Neal, D-Mass., who acknowledged in this opening statement that “China has been good for some but also very bad for others.” He added that “[w]hile this Administration confronts the same challenges with China that previous administrations faced, it has chosen to use tactics and tools that previous administrations – of both parties – did not. The Trump Administration tariffs have been sweeping, disruptive, controversial, and painful. The Administration’s promise is that its high-risk approach will yield high rewards.” He closed his statement by claiming that “the future of America’s economic prosperity is at stake.” Ranking Minority Member Kevin Brady, R-Texas, stated in his opening statement that he was “hopeful that the substantive talks under way … will produce meaningful commitments from China that lower trade barriers, achieve structural reforms and establish a new era of fair trade.”

Under questioning by the committee members concerning ongoing U.S.-China trade negotiations, Lighthizer indicated that while progress was being made, much work still needed to be done before an agreement could be reached. He cautioned that even once a deal was reached, there would continue to be trade friction, stating “I’m not foolish enough to think there is going to be one negotiation with China that’s going to change all their practices.” Given concerns about China’s past lack of compliance with its WTO and other trade-related commitments, the ambassador acknowledged that any enforcement tools would have to be “very specific” and “have layers,” but that the United States would be able to “act proportionately but unilaterally to insist on enforcement” if a disagreement remains. Lighthizer insisted that any agreement reached with China will not be submitted to Congress for approval, despite President Trump’s claim that he wanted a “trade agreement” and not a series of memoranda of understanding (see Trump and Trade update of February 25, 2019). Instead, Lighthizer indicated that any agreement would be an “executive agreement” not requiring congressional approval.

Concerning current Section 301 tariffs on imports of Chinese products, Lighthizer testified that an exclusion request process would be instituted on the third tranche of Chinese products valued at $200 billion only if those existing tariffs of 10 percent were increased to 25 percent. Despite Congress’ instruction in the recent appropriations law funding the federal government through September that such an exclusion request process be implemented (see Trump and Trade update of February 19, 2019), he indicated the Office of the USTR would institute such a process if the tariffs are raised to 25 percent, but “[s]hort of that I sort of want to see where we are” and to see if U.S. companies seeking such exclusions are considering “ways to manufacture more in the U.S.”

At times, the questions by House members focused on topics other than trade with China, such as the proposed United States-Mexico-Canada Agreement (USMCA). In response to questions on this trade agreement, Lighthizer repeatedly called for its approval by Congress. Failure to do so, he argued, would leave the United States without a trade agenda “for the next several years” and indicate to other countries that “we don’t have a consensus.” “If the Congress doesn’t see fit to pass that, then everything else is kind of like a footnote,” he stated, adding that if the USMCA does not pass, “We can’t do trade deals.”

Several questions concerned the continuing Section 232 tariffs on imports of steel and aluminum. On this issue, the ambassador noted that the Trump administration wants “very much to work out a deal” and that they especially want a deal with Canada and Mexico. Numerous members of Congress from both parties have made clear their position that they will not approve the USMCA until the Trump administration removes these tariffs for Canada and Mexico.

On February 15, 2019, President Trump signed the Consolidated Appropriations Act, 2019 (Act) that fully funds the government for the remainder of the fiscal year ending on September 30, 2019. With Congress and the president agreeing on these appropriations, a second partial government shutdown was averted. Included in the Act is a provision authorizing additional funding for the Department of Commerce’s Bureau of Industry and Security (BIS) to support the Section 232 steel and aluminum product exclusion request process. $4.55 million in funding has been designated through September 30, 2019 for contractor support for the review and processing of the overwhelming number of product exclusion requests that have been filed in these investigations. Further, in the explanatory statement accompanying the Act, BIS will now be required to provide quarterly reports to relevant congressional committees providing updates on the implementation of the exclusion process. These reports must include:

  1. the number of exclusion requests received;
  2. the number of exclusion requests approved and denied;
  3. the status of efforts to assist small- and medium-sized businesses in navigating the exclusion process;
  4. department-wide staffing levels for the exclusion process, including information on any staff detailed to complete this task; and
  5. department-wide funding by source appropriation and object class for costs undertaken to process the exclusions.

While the Office of the U.S. Trade Representative (USTR) received no additional funding in the Act for its review and processing of the Section 301 China-related tariff exclusion request process, the explanatory statement requires USTR to initiate an exclusion request process for the third round of tariffs implemented on September 24, 2018 involving $200 billion in Chinese products imported into the United States (see Trump and Trade Update of September 19, 2018). In stating that “[i]t is concerning that there is no exclusion process for goods subject to tariffs in round 3 of the Section 301 proceedings, as was done in the first two rounds,” Congress notified USTR to “establish an exclusion process” for these tariffs within 30 days of enactment of this Act (i.e., by March 17, 2019). Congress instructed USTR to follow the same procedures established for the exclusion request process of the prior two lists of China tariffs. USTR is also required to consult with relevant congressional committees concerning the nature and timing of this exclusion process and the status of the process.

The Congressional Research Service (CRS), a nonpartisan staff to congressional committees and Members of Congress, has released an overview report, International Trade and Finance: Overview and Issues for the 116th Congress, in which it offers a brief review of President Donald Trump’s first two years in office and policy issues that the new 116th Congress may address. The policy issues include: the impact of trade and trade agreements on the U.S. economy; the causes and consequences of the U.S. trade deficit; the implications of technological developments for U.S. trade policy; and the intersection of economics and national security.

The report acknowledges that the president has focused his trade policy on “reevaluating many U.S. international trade and economic policies and relationships.” The report also notes that members of Congress “exert significant influence over U.S. economic and trade policy and its implementation through their legislative, appropriations, and oversight roles” and that “[g]iven current debates, fundamental questions about the future direction of trade and international economic issues may be key areas of interest for the 116th Congress.” Some of the trade issues discussed in the report are:

  • Tariff Actions Undertaken by the Trump Administration – summarizing imposed and/or increased tariffs under: (1) Section 201 of the Trade Act of 1974 on U.S. imports of washing machines and solar products; (2) Section 232 of the Trade Expansion Act of 1962 on U.S. imports of steel and aluminum, and potentially autos, auto parts and uranium; and (3) Section 301 of the Trade Act of 1974 on U.S. imports from China; and retaliatory tariffs implemented by other countries.
  • U.S.-China Trade and Key Issues – summarizing China’s economic rise and increasing U.S. tensions over various economic and trade issues “stemming largely from China’s incomplete transition to an open-market economy,” including: (1) China’s industrial policies and Made in China 2025 initiative; (2) China’s policies on technology, innovation, and intellectual property and its economic espionage; and (3) China’s Belt and Road Initiative.
  • U.S. Bilateral and Regional Trade Agreements and Negotiations – summarizing a number of trade actions and negotiations the Trump administration has undertaken concerning free trade agreements, including: (1) the U.S.-Mexico-Canada Agreement (USMCA); (2) modifications to the U.S.-South Korea (KORUS) free trade agreement; (3) ongoing U.S.-European Union trade negotiations; (4) U.S.-Japan trade negotiations; and (5) the call for launching U.S.-United Kingdom free trade agreement negotiations.
  • The World Trade Organization – summarizing the state of affairs and growing challenges facing the World Trade Organization (WTO) and calls for reforms of its functions, including: (1) the lack of any modernization of its rules since 1995 despite numerous multilateral and plurilateral negotiations; (2) the entrenched differences in priorities among leading emerging market economies, developing countries and advanced economies; and (3) skepticism over the WTO’s dispute settlement system.

In addition to these high-profile trade matters, the CRS report also provides details on more general trade issues such as intellectual property rights, labor and environmental conditions in trade agreements, and select U.S. import policies. It concludes with an overview of foreign direct investment in the United States and a review of international financial institutions and markets relied upon to discuss and coordinate economic policies.

International trade matters, at times, dominated the 2018 political landscape. Those of us at Trump and Trade expect 2019 to be no different. While the CRS report offers a broad overview of the policy debates that remain, we recommend a quick review of it. The report itself concludes that these issues “provide the backdrop for a potential robust and complex debate in the 116th Congress over a range of trade and finance issues.”

As reported in our post of January 25, 2019, members of the 116th session of Congress are seeking ways to address President Donald Trump’s authority to unilaterally impose tariffs under various statutes. This trend continued on January 30, 2019, with the bipartisan introduction of the Bicameral Congressional Trade Authority Act. Introduced by Sens. Mark Warner (D-VA) and Pat Toomey (R-PA), this bill would restore to Congress its Article I constitutional authority over foreign trade and commerce, specifically focusing on tariffs implemented under the claim of “national security.” The senators stated that recent Trump administration Section 232 actions have been economically disruptive and have damaged U.S. relationships with its allies, including Mexico, Canada, Japan, the EU and India. Continue Reading Additional Legislation Introduced in Congress Seeks to Curtail Executive Branch’s Authority to Implement Section 232 Tariffs

International trade and international trade disputes were a predominant focus of President Trump and his trade officials throughout 2018. Thompson Hine’s Trump and Trade team has prepared a slide presentation to provide our readers with a broad overview of the most significant trade actions taken by the Trump administration last year. From the renegotiation of the North America Free Trade Agreement (NAFTA), which is now the U.S.-Mexico-Canada Agreement (USMCA), to the many ongoing trade actions involving imports of steel, aluminum and products from China, it was a busy year. This overview concisely presents details and the current status of the president’s primary trade activities.

The presentation includes information on the current status of President Trump’s major trade actions, including NAFTA/USMCA negotiations, the U.S.-Korea Free Trade Agreement, and other bilateral trade negotiations with Japan, the European Union and the United Kingdom. It also provides details on major trade and tariff actions occurring in 2018, such as the Section 232 steel/aluminum tariffs, the Section 232 automobile and automobile parts investigation, and the Section 301 China-related tariffs.

We invite you to stay abreast of continuing developments in 2019 via our blog, TrumpandTrade.com. To receive an email notification whenever a new post is published, please subscribe to the blog.

Happy new year!

With growing congressional and business concerns over the backlog of Section 232 product exclusion requests and the lack of transparency in the review and decision-making processes of the Department of Commerce (Commerce), U.S. Senators Pat Toomey, Doug Jones and Thomas Carper submitted a letter November 26, 2018, to the Government Accountability Office (GAO) requesting a formal review by this government agency as to how Commerce has been granting these tariff exclusions. Among the issues the senators asked to be evaluated are:

  • What criteria are used to make a determination to approve or deny a request, and how does Commerce adjudicate rebuttals?
  • What steps is Commerce undertaking to improve the timely processing of exclusion requests?
  • How does Commerce ensure transparency and adequate communication with parties who have filed requests?
  • How has Commerce trained staff to properly evaluate petitions?

On December 12, the GAO responded to this request, confirming that it will conduct such an analysis and study. While this announcement will no doubt please trade practitioners and U.S. businesses that have been frustrated by the Section 232 product exclusion request process, the results of any such analysis – much like decisions resulting from the Section 232 product exclusion request process itself – are months away. The GAO informed the senators that staff will be available to initiate a review in approximately three months. The final findings of any GAO report will most likely not be presented to the Senate until mid-2019, at the earliest.

The U.S. International Trade Commission (USITC) determined December 7, 2018, by a 5-0 unanimous vote of its commissioners that U.S. industry is materially injured by reason of imports of common alloy aluminum sheet from China. This finding follows the determination of the U.S. Department of Commerce’s International Trade Administration (ITA) in early November that such imports are subsidized and sold in the United States at less than fair value. (See Trump and Trade Update of November 9, 2018.) These are the first trade remedy cases that the Trump administration has “self-initiated,” starting a process that usually begins with a petition from the domestic industry. It’s been more than 25 years since the last self-initiated trade remedy case.

As a result of the USITC’s final affirmative injury determination, the ITA will now issue antidumping and countervailing duty orders on imports of common alloy aluminum sheet from China. The USITC, however, made a negative finding concerning critical circumstances as to imports of this product from China. As a result, imports of common alloy aluminum sheet from China will not be subject to retroactive antidumping or countervailing duties.

The USITC’s public report, Common Alloy Aluminum Sheet from China (Inv. Nos. 701-TA-591 and 731-TA-1399 (Final), USITC Publication 4861, December 2018), will contain the views of the USITC and information developed during the investigations. The report will be available by January 11, 2019; when available, it may be accessed on the USITC’s Official Publication Log.

With the international trade community’s focus on China (tariffs) and Mexico/Canada (NAFTA negotiations), it would be easy to forget another significant trade matter that the Trump administration has been seeking to finalize. According to reports, the revised Korea-U.S. Free Trade Agreement (KORUS) will be signed today after President Trump and South Korean President Moon Jae-in meet in New York City, where both are attending the start of the United Nations’ General Assembly plenary session. Continue Reading Revised Korea-U.S. Free Trade Agreement to Be Signed