Section 232 Update: Challenges to Steel and Aluminum Derivative Tariffs Are Succeeding

Steel and Aluminum Derivative Products

Effective February 8, 2020, the Trump Administration imposed duties on the steel and aluminum derivative products, which we discussed in our previous Commentary, on the basis of a 2018 U.S. Department of the Commerce (the "Commerce Department") report concerning the national security threat posed by imports of steel and aluminum articles. Importers have challenged the derivative tariffs based on the government's failure to adhere to the procedural requirements outlined in Section 232, as well as the president's general authority to issue tariffs under Section 232.

Specifically, Section 232 affords the president 90 days to determine the appropriate action after receiving a report assessing the national security threat posed by imports of a particular product or group of products. The Executive Branch then has 15 days to implement any such action. Alternatively, the president can instruct the United States Trade Representative (the "USTR") to pursue trade negotiations to ameliorate any identified national security threats. If no agreement is reached within 180 days, the president must then decide and publish a decision specifying further action.

Many importers have obtained injunctive relief against imposition of the derivative tariffs on the basis that the president issued the order imposing the tariffs 653 days after the statutory 90-day window closed. Importers have also argued that because the original Commerce Department report is limited in scope to steel and aluminum articles, the Executive Branch is precluded from simply extending the report's findings to cover derivative products absent a separate investigation.

To date, successful challenges to the derivative tariffs have resulted in courts enjoining the challenged tariffs on a company-specific basis. These injunctions have only been issued for the pendency of the litigation, meaning that the duties could be re-imposed if the plaintiffs do not prevail on the merits. Given this success, any company importing products subject to the steel and aluminum derivative tariffs should consider the merits of a court challenge.

Automobiles and Auto Parts

Domestic importers of automobiles and auto parts should also monitor the Trump Administration's actions. The Trump Administration previously launched a Section 232 investigation into foreign automobiles and auto part imports in May 2018, which resulted in a February 2019 Commerce Department report finding that foreign imports weakened the U.S. economy and impaired national security. Specifically, the Commerce Department found that, if unabated, foreign automobile imports "will significantly impede the United States' ability to develop technologically advanced products" to maintain technological superiority and meet defense requirements.

Following the Commerce Department report, President Trump instructed the USTR on May 17, 2019, to pursue negotiations with automobile and auto parts manufacturers from the European Union, Japan, and other countries as appropriate. While the president had threatened tariffs as high as 25% if no agreement could be reached, the Trump Administration did not announce any trade agreement or final decision with respect to potential tariffs within Section 232's 180-day statutory period.

However, in January 2020, President Trump referenced the continued threat of automobile tariffs at the World Economic Forum in Davos, Switzerland. The president did not specify a timeline for a final decision, or whether the tariffs would be imposed in connection with the February 2019 Commerce Department report. Any delayed tariffs will be susceptible to the same procedural challenges that are succeeding for importers of derivative steel and aluminum products.

Titanium Sponge

On February 27, 2020, President Trump issued a memorandum declining to impose Section 232 tariffs on titanium sponge. The decision follows a November 2019 Commerce Department report cautioning that titanium sponge imports could impair national security. The report found that Japan accounted for approximately 94% of titanium sponge imports in 2018, and that the only domestic producer of titanium sponge was at risk of ceasing operations due to financial distress.

Rather than impose tariffs, President Trump signaled that the Commerce Department and U.S. Department of Defense will lead a collaborative effort to ensure continued access to titanium sponge for defense purposes and to resolve other pending national security concerns. The president also authorized the Secretary of Defense to take appropriate action to increase access to titanium sponge for national defense and to support domestic production capabilities.

Section 232 Nondelegation Challenge

On February 28, the Federal Circuit ruled to preserve the Trump Administration's authority to impose tariffs under Section 232 against a claim that the law violates the U.S. Constitution. The American Institute for International Steel ("AIIS") sued in 2018 on behalf of U.S. steel importers following the Trump Administration's imposition of 25% and 10% tariffs on steel and aluminum articles, respectively.

AIIS' principal contention, which the Federal Circuit rejected based on longstanding Supreme Court precedent, is that Section 232 unlawfully cedes Congress's authority to control trade in violation of the U.S. Constitution's nondelegation doctrine. According to AIIS, Section 232 provides the Executive Branch unfettered discretion to impose tariffs without an "intelligible principle" necessary to guide the Executive's decision-making. But the Federal Circuit rejected the nondelegation challenge, considering itself bound by the Supreme Court's 1976 decision in Federal Energy Administration v. Algonquin.

AIIS announced that it intends to seek Supreme Court review of the Federal Circuit's decision. Companies should continue to monitor the outcome of AIIS' appeal, as any refashioning of Section 232 may implicate all current and prospective Section 232 actions moving forward.