At the end of last week, Secretary of Commerce Wilbur Ross launched an investigation on all foreign steel imports under what is known as a Section 232 Investigation of US trade law. The next day, President Trump signed a memorandum directing Secretary Ross to conduct his investigation as quickly as possible.
This rarely-used statute based on US national security interests has only been pursued twice since the US joined the World Trade Organization (WTO) in 1995: in an investigation of crude oil in 1999, and iron and steel in 2001. In both cases, the Commerce Department recommended that the president not take action under Section 232, with the then-president concurring. The use of Section 232 has, therefore, surprised onlookers in the international trade community and raised questions of what will happen next.
The Basis of Section 232 Investigations
Section 232 investigations are conducted under the authority of the Trade Expansion Act of 1962 with the aim of examining the effect of particular imports on national security – in other words, excessive reliance on imports from unreliable sources or damage to a domestic industry such that it cannot meet US defense needs.
Once an investigation is initiated, the Secretary of Commerce has 270 days – roughly nine months – to present the Commerce Department’s findings and recommendations to the president. If the Commerce Secretary finds that imports threaten to impair national security, the president then has 90 days to determine if he agrees with the secretary’s findings and whether to use his statutory authority to adjust imports.
Section 232 investigations require that the Commerce Department consult with the Department of Defense. Other government agencies, such as the departments of State and Labor, can also participate in interagency working groups based on their relevant expertise or interest. During the course of the probe, the Commerce Department may provide the public with an opportunity to comment.
Given the consultation process and analysis required, these sorts of investigations generally require the full statutorily allotted time to complete – over a year including the president’s timeline of responding to the findings. Indeed, US trade authorities are generally hard pressed to do the needed fact and merits analysis within the tight statutory deadlines set by US trade law. President Trump, however, wishes to complete the whole process in 50 days.
The Bureau of Industry and Security at the Commerce Department appears to be at least initially sticking with Trump’s timeline, given that they quickly posted a notice of a public hearing on May 24, 2017 (with written requests to appear due a week earlier). It is therefore possible that we will see an expedited and shortened Section 232 probe completed within that timeframe.
Possible actions include new tariffs and quotas limiting importation of certain steel. If President Trump decides to seek negotiation to limit or restrict imports deemed to threaten national security, an effective agreement must be reached within 180 days. Otherwise, the president may take such any other actions he deems necessary to adjust steel imports.
There is not the first time in recent history that a president has tried to adjust steel imports. In June 2002, President George W. Bush signed a proclamation imposing increased tariffs on certain steel products under Section 201 of US trade law, where the US International Trade Commission finds that increased imports are a substantial cause of serious injury (to threat thereof) to a domestic industry. Other countries responded in kind by themselves restricting steel imports including from the United States. President Bush was forced to lift the tariffs the following December to avoid over $2 billion in foreign retaliatory tariffs from the European Union alone, which was approved by the WTO in a case brought by the European Union.
It was initially thought that the Trump Administration might choose a Section 201 route to restrict steel imports. However, framing it as a national defense issue, Section 232 allows President Trump to avoid the Section 201 threshold requirement for import restraints that the ITC first find the requisite injury from imports. That said, Section 232 action might well face the same WTO, foreign retaliation, and reciprocal responses that the Bush Section 201 action before it did.
The Trump administration could face political pressure to act in support of the domestic steel industry. On the other hand, any Section 232 actions risk major protests by foreign governments and even retaliatory measures on US exports. Foreign countries could also challenge the action at the WTO and major US corporations that use steel may also protest on concern that increased steel prices harm their competitiveness.
It is therefore unclear how much political leverage there is for Trump to act on this issue, and the ultimate impact this issue for the WTO more broadly. (Other countries might similarly be motivated to use a national security rationale to restrict trade.) While no one can predict the ultimate outcome of this Section 232 action, as the Trump administration itself initiated this probe, some type of action might be expected.
Frank Samolis is a partner and co-chair of the International Trade Practice, Peter Koenig is of counsel in the International Trade Practice, and Ludmilla Savelieff is an associate in the International Public Policy Practice at Squire Patton Boggs.