June 9, 2017
On May 24, 2017, representatives of steel companies, manufactures, trade associations, several sovereign countries, and the U.S. Department of Commerce (Commerce) Bureau of Industry and Security (BIS) participated in a relatively rare event, a Section 232 investigation public hearing (Public Hearing). Section 232 of the Trade Expansion Act of 1962 (TEA) permits the Secretary of Commerce to initiate an investigation into the effect of imports on national security.
The investigation is important to follow for a few reasons. First, if the Secretary of Commerce finds that imports are undermining U.S. national security, the TEA authorizes the President to make adjustments to steel imports, including tariffs, quotas, and other measures. If the President were to take such actions, the remedies could result in temporary relief for primary producers in the U.S. steel industry, but could also increase the price of any intermediate and finished goods for downstream buyers. Second, and especially on the heels of the U.S. withdrawal from the Trans-Pacific Partnership and its request to renegotiate NAFTA, any such moves are likely to be perceived by other countries and affected industries as yet another salvo in an "America First" trade policy and is likely to spur retaliatory measures against other economically and politically sensitive industries.
This alert provides an introduction to the Section 232 investigation and provides a summary of issues and arguments raised at the Public Hearing.
Under Section 232 of the TEA, the Secretary of Commerce is to consider a range of factors in determining whether imports are negatively impacting national security and require further governmental action. These include
Section 232 also directs the Secretary of Commerce to examine links between economic welfare and national security. Among these are the potential impact of foreign competition on the welfare of domestic industries, unemployment, the loss of skills or investment, or other effects caused by the displacement of any domestic products by excessive imports.
Commerce is required to complete its review and to submit a report of its findings to the President within 270 days of initiating the investigation. The President then has 90 days to decide whether to accept or reject Commerce’s findings and has authority to make adjustments to steel imports. Within 30 days of his decision, the President must submit a report to Congress outlining his reasons for any actions taken.
Since enactment of the TEA in 1962, there have been only 26 Section 232 investigations. Only two of these investigations (involving oil imports) found that foreign imports were undermining U.S. national security. However, the large number of past anti-dumping and countervailing duty orders issued in the steel industry and the strong focus of the President and his Administration on providing relief to particular voting constituencies, including those in the Midwest, may tilt the Secretary of Commerce and the President toward an affirmative finding that steel imports are undermining national security and trade adjustment actions. Although the TEA provides Commerce with 270 days to complete its review, Secretary of Commerce Wilbur Ross expressed his hope at hearing that Commerce will complete its review by the end of June 2017.
During introductory Secretary Ross framed the investigation with the following questions:
These were the same questions on the minds of many of those who provided comments at the hearing, and the range of arguments made both for and against the President taking actions to curtail imports illustrate a complex set of tradeoffs the Secretary of Commerce and the President will need to make. Thirty-seven speakers presented at the public hearing. The vast majority were in favor of some action by the President to limit imports and to protect American steel producers, though few described what precise type of remedy or action they would prefer. Most of those opposed to broad-based action by the United States argued for particular exceptions or exemptions related to their domestic manufacturing needs. Only the Chinese representative, a representative from the Port of New Orleans, and a representative from an international steel trade association, argued explicitly against applying any form of expanded protection for American steel producers.
There were several themes in the comments of those who favored steel import restrictions. First, a number of speakers argued for a broad conception of national security, to encompass not only uses of steel for direct military or defense purposes but also steel’s role in other critical infrastructure, like transportation, the energy sector, and construction.
Second, some argued that any U.S. actions should include steel products that do not have clear defense uses because the general commercial viability of American steel producers is critical in order to maintain capacity to invest in and respond to the defense needs of the United States. This continual investment is not possible, several suggested, without greater strength—and profits—on the commercial, non-defense side.
Third, several speakers argued that any import controls should extend beyond primary steel production to finished products due to the interconnected nature of primary steel and secondary steel production in international markets. For example, a major steel pipe manufacturer representative noted that imposing import controls on only primary steel products would cause non-U.S. producers to redirect steel to third countries, driving down the cost to produce finished products in those markets, and enabling finished product manufacturers in these third countries to flood U.S. markets. Especially when coupled with rising steel coil prices due to tariffs or quotas, the representative noted that gluts of finished steel product imports like steel pipe could drive American steel producers out of business.
Fourth, while a number of importing countries—including Turkey, Korea, and Vietnam—were mentioned as concerns by different speakers, over a dozen speakers mentioned China as a concern with regard to steel imports. Several speakers referenced an OECD estimate concerning the scope of China’s overproduction, suggesting that China’s steel industry contributes to more than half of the excess steel capacity in the world. Terms like "market-distorting," "state-owned," "state-supported," and "subsidized," were used to describe the Chinese steel industry in particular, but also steel production in other countries like Korea and Turkey. Another suggested that both U.S. and global steel markets were being warped by the excess capacity and expressed a related concern that countries may be able to outflank any trade adjustments made by the U.S. by exporting to the U.S. through third countries.
Those who opposed to any restrictions on imported steel made both general and specific arguments. Some argued against restricting trade and imports entirely. Others made more specific arguments against restricting imports of particular components or types of steel products or against unilateral American action in the field.
Against any restrictions, the Port of New Orleans representative noted the broad negative economic impact that import restrictions would have on that port, given that 35% of its cargo revenue currently comes from steel imports. Russia’s representative suggested that the Department should use caution so that Russian steel imports would not face redundant or excessive penalties, and further limitations would be unnecessary for American national security. Similarly, the Chinese representative argued that there was no evidence that Chinese steel imports threatened American national security, with only 3% of U.S. steel mill production going to national defense or homeland security uses, and with a substantial decline in imports from China since 2015. Finally, another speaker warned that import controls would lead countries to retaliate against other important American economic interests, including arms exports and agricultural exports and that the success rate for such protective measures has been low historically
More specific arguments were made several others. The European Steel Association (EUROFER) cautioned that any trade adjustment actions should be taken collectively with American allies like the European Union in order to create a durable solution across the global steel industry. Ukraine’s representative argued for a specific exemption for his country, stating that no national security threats arise from the relatively low level of Ukrainian steel exports to the U.S. While the United Steelworkers were strongly in favor of protections and some form of trade adjustment action, it sought an exemption for Canada, as the union has Canadian members as well as American members.
Additionally, several speakers representing a range of steel buyers asked for specific exemptions concerning the importation of steel products used in their company’s or industry’s manufacturing. These exemption requests included template steel for cans; tire cord quality wire rod for automobile tires; light-gauge steel for air conditioners; low-value raw steel for use in metal building products; tin plates for coating in America; a particular high-quality steel from Japan; and welded steel pipe for oil country tubular goods. These speakers argued either that the steel products necessary for their manufacturing were no longer available from American steel suppliers, or were only available at unsustainable prices. Additionally, several speakers suggested or implied that broad-based restrictions on imports would lead to the loss of jobs in America.
With only a few exceptions, most speakers did not directly ask for a particular trade adjustment remedy, such as expressing a preference for a tariff over a quota. A representative of a major steel manufacture argued for the imposition of tariffs and import quotas together. A major finished steel product manufacturer argued for comprehensive tariffs or quotas on all steel products, but did not suggest which restriction would be preferable. Two other representatives stated a preference for quotas over tariffs, with 2010 and 2011 as the baseline years.
It is difficult to predict what policy direction the Trump Administration may take in the Section 232 investigation. On the one hand, Section 232 is drafted broadly enough to allow the Secretary of Commerce and President to draw many links between steel imports and threats to U.S. national security. On the other hand, the Trump Administration may be reluctant to spark a broader trade war with steel exporting nations by enacting import controls that would apply to steel imports irrespective of country of origin. In lieu of sparking a larger response, we think that the Trump Administration may be more likely to use the threat of Section 232 tariffs to negotiate temporary reductions in the exports from larger steel exporting countries, more commonly referred to as voluntary export restraints, or VERs. President Ronald Reagan worked with countries in the early 1980s to negotiate VERs on steel and automobiles. Faced with a bevy of foreign policy issues on other fronts, negotiating bilateral VERs might be just the way the Trump Administration opts to demonstrate it can make a deal on behalf of struggling industries.
 Interested members of the public to were invited to apply for a speaking slot at the public hearing and to submit their written comments by May 31, a date later extended to June 2. The Department of Commerce published the written comments on June 6. Approximately 200 written public comments were receive.
 19 U.S.C. § 1862 (d) (2012); Fact Sheet: Section 232 Investigations: The Effect of Imports on the National Security (Apr. 20, 2017) (https://www.commerce.gov/news/fact-sheets/2017/04/fact-sheet-section-232-investigations-effect-imports-national-security); see also Frequently Asked Questions: Section 232 Investigations: The Effect of Steel Imports on the National Security (Apr. 21, 2017) (https://www.commerce.gov/news/fact-sheets/2017/04/frequently-asked-questions-section-232-investigations-effect-steel-imports); 15 CFR § 704.4 (2017).
 Public Hearing on Section 232 Investigation of Steel Imports on National Security available at https://www.youtube.com/watch?v=k3Bnwi3DWHg.
The following Gibson Dunn lawyers assisted in preparing this client update: Judith Alison Lee and Christopher Timura.
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