Women in International Trade Communiqué: Section 232 Tariffs on Aluminum and Steel

• Is the Commerce Department evaluating the overall capacity of an objector to deliver on time the quantity and quality specified for all requests on which it prevails, or is each request evaluated individually in a vacuum?
• Who has the burden of proof: the requester or the objector? Does the burden shift if a rebuttal or surrebuttal is filed?
• What is the process for renewing approved exclusions, which are generally valid for one year? Is there any expedited procedure to renew an approved exclusion?
• What steps is the Department taking to ensure that it is not giving an unfair advantage to one competitor that requested an exclusion over another with a pending request for a similar or the same product?

As I wrote to Secretary Ross, “I stand ready to work with the Commerce Department to fix this process so U.S. businesses that use steel and aluminum – including RV, boat, and trailer manufacturers in my district – are treated fairly.” I hope the Department will take steps to improve the transparency and efficiency of the exclusion process, provide clarity and certainty to all participants, and ensure fairness for businesses seeking tariff relief.

Q.  The 232 is a separate activity but does overlap with USMCA especially based on the tariffs (and retaliation) on Mexico and Canada.  How can that most effectively be resolved so that Congress can consider the broader opportunity of moving the USMCA?

A.  The U.S.-Mexico-Canada Agreement, or USMCA, is a long-overdue update to the existing trade agreement between the U.S. and our closest trading partners. Canada and Mexico are vitally important markets for American exporters, including manufacturers and farmers, and they play key roles in the supply chains of numerous industries.

A modernized trade agreement with Mexico and Canada will strengthen America’s economy and open new markets for made-in-America products. The USMCA will benefit U.S. businesses, farmers, workers, and consumers, and I hope Congress will have the opportunity to approve the agreement this summer. The timing of such a vote, of course, will be up to House Speaker Nancy Pelosi.

However, in order to move ahead with the USMCA, the Trump administration must follow through on its promise to resolve the steel and aluminum tariffs and retaliatory measures that remain in place. These tariffs on our trading partners are doing nothing to solve the problem of China’s unfair trade practices. As long as they remain in place, American manufacturers will face higher costs and diminished global competitiveness, American jobs will be at risk, and the USMCA will have a difficult, if not impossible, path forward. I have repeatedly urged the administration to resolve this issue as soon as possible, and once they do I’m confident Congress will approve this modernized, pro-growth, pro-jobs trade deal.

1. the tariffs break the commitments the United States made to charge tariffs no higher than those found in our agreed upon tariff schedule.For steel, the agreed rate is 0% and for aluminum, it varies by product between 0% and 5.6%, so imposing 25% and 10% duties breaks that commitment.
2. the tariffs break the United States’ obligation not to treat some WTO members better than others because the steel and aluminum tariffs were placed on most countries, but not on Australia, South Korea, Argentina and Brazil.
3. the tariffs were administered without “due process” since they were imposed with virtually no notice, hitting goods that were already on the water before the tariffs were proclaimed. 

The response of the United States has been to insist that the measures can be justified under the national security exception to the GATT. Article XXI allows countries to pile on tariffs or take other actions that would otherwise violate their trade commitments when they judge them to be necessary for the protection of their essential security interests provided that the actions relate to trade in nuclear materials, or involve the trafficking in arms or ammunition, or are taken in a time of war or other international emergency. The problem for the Trump Administration is that it has not and likely cannot make the case that its tariffs on steel or aluminum fit within any of those three boxes.

Those crafting this exception to the international trading rules were very aware of the balance between every country’s need to be its own judge of last resort on questions of its security and the concern that an open-ended, undefined exception would permit anything under the sun to be justified. Hence the limitation to measures related to emergencies, war and weapons. 

And because the provision is so sensitive, it had never been invoked in proceedings before a WTO panel in the more than 20 years that the WTO has existed –until now. In a decision handed down on April 26, 2019, a panel examining a dispute between Russia and Ukraine over Russia’s ban on goods transiting from Ukraine provided a first look at some of the key questions related to Article XXI. First, is Article XXI justiciable at all or does the language that says a country may invoke measures that it considers to necessary to protect its essential security mean that the provision is entirely self-judging? The U.S. (and Russia) had argued the latter, but the Russia-Ukraine panel found that Article XXI is justiciable because panels can discern, based on objective evidence, whether the goods at issue are nuclear materials or arms or ammunition, or whether their exits a state of war or other emergency in international relations. Second, the panel addressed the question of whether the “other emergency in international relations” means something entirely other than war. Here, the panel found that the phrase “other emergency” must be interpreted in the context of the rest of the provision, which refers explicitly to “war” and sits alongside the exceptions for trafficking in nuclear materials or arms. As such, not any emergency in international relations will qualify as providing a justification for breaking the rules in the name of national security; it must be an emergency akin to war.

If the WTO panels were to follow a similar line when adjudicating the nine countries’ complaints (which they are not required to do, but may find the reasoning to be persuasive), then the Trump Administration will have to, at a minimum, indicate which box the steel and aluminum tariffs fall in (presumably the “taken in a time of . . . an emergency in international relations” box) and demonstrate that the tariffs fit within it. This will be a very tall order, because tariffs on steel and aluminum, particularly when imposed on America’s staunchest allies, are not likely to be viewed as taken in a time of war or anything close to it.

What is less clear is how the Trump Administration will react when it is told that its steel and aluminum tariffs violate WTO rules. It may decide not to show up at the proceedings given its view that Article XXI is non-justiciable. It may try to ignore any adverse rulings. Or it may try to block the adoption of the report of any panel ruling against it, which it can do only because the United States has all but killed the WTO Appellate Body by blocking any process to appoint new members. The Appellate Body is supposed to have seven members, but it currently has only three (the bare minimum to decide a case) and two of those three have terms expiring on December 11, 2019. No functioning Appellate Body means that any country that wants to block the adoption of a panel report needs to do nothing more than file a notice of appeal since the rules are quite clear: panel reports cannot be adopted while an appeal is pending. For the United States, this would mean that if a panel decides that the imposition of the tariffs on steel and aluminum is a violation of our WTO obligations, the U.S. can prevent the report from becoming binding and creating a formal obligation to comply by simply filing a notice of appeal.

To ensure that the steel industry is healthy enough to supply our military and critical infrastructure projects, the response needs to be comprehensive. Given the global nature of the overcapacity crisis, if some countries are exempted from the 232 regime, they will inevitably become the conduit for global excess supply to enter the U.S. market, undermining the 232 program.

The President recognized the need for a comprehensive solution by imposing quotas on certain countries, and not giving anyone a free pass. This is why some level of 232 measures should be maintained on Canada and Mexico. The industry supports the President’s efforts to reach an accommodation with our NAFTA partners that will allow them access to the U.S. market without undermining national security. Such an accommodation could include a quota or similar system that prevents imports from surging into the U.S. market through these countries.

The President’s decisive action does not threaten the global trading order. To the contrary, this action was necessary to ensure that U.S. industries that play by the rules are not wiped out by competitors that don’t.

The motor vehicle industry of the 21st Century is in the midst of massive technology shifts and changes in consumer demands. Automation, electrification, and shared mobility will dramatically alter Americans perception and use of vehicles. These changes will impact our domestic manufacturing base as well as our global supply chain.

At the same time, the industry is facing a series of challenges in the trade policy arena.  President Donald Trump’s new trade agenda has as its cornerstones a re-negotiated agreement between the U.S., Canada, and Mexico (USCMA) and likely imposition of 25 percent tariffs on virtually all Chinese imports. And, in two separate significant moves the President has implemented tariffs on imported steel and aluminum and is considering tariffs on virtually all imported autos and motor vehicle parts. 

The U.S. industry has depended on a global supply chain to provide raw materials and finished goods in order to compete in the rapidly evolving mobility space. This global supply chain has in turn created almost 900,000 direct supplier jobs in an overall industry that supports over 10 million American job. Make no mistake about it, the global supply chain has been good for this industry but it has also been good for the U.S. economy and American workers. In fact, it has helped make the United States a center of industry innovation in areas like automation. 

The President’s tariffs on steel and aluminum and potential tariffs on autos and parts has focused on a previously little used or understood section of the 1962 Trade Expansion Action – Section 232. The basis for a Section 232 action is a finding by the Department of Commerce that the importation of a raw material or finished good causes a national security risk. Yet nothing could be further from reality in our industry. Importation of steel, aluminum, autos and parts from allies like Canada, the EU, Japan and Mexico is not a national security risk. The integrated global marketplace provides economic viability for an industry that contributes 3.5% of the total U.S. GDP. 

When steel and aluminum tariffs were implemented starting in March 2018, an exclusion process was announced. Yet, this process has been woefully inadequate and has failed the consuming industry. Manufacturers throughout the country have filed almost 130,000 steel exclusion requests. In one year, the Department of Commerce has only acted on 37,000 of these requests. This includes 24,000 exclusion approvals and over 12,000 exclusions denied. During this same period, suppliers have seen a price increase of almost 50% for steel purchased in the United States. This increased cost has weighed particularly heavy on smaller, domestic manufacturers.

Seventy percent of supplier employment comes from smaller suppliers located throughout the United States. These suppliers often have a limited number of manufacturing facilities in the U.S. and perhaps one outside of our country. They are the backbone of our successful domestic industry and are often the major employer in small and medium sized communities throughout our country.

But here lies the difficulty. These suppliers have two major costs – raw materials and employees. The increased cost of steel and aluminum has left them with few resources to find alternative sources of raw materials. In order to continue operations, these suppliers have had no choice but to reduce worker hours and not fill open positions. 

While the strong U.S. economy may mask the overall impact of these decisions, it cannot alter the impact these decisions have on individual Americans and their communities that depend on these manufacturers. Moreover, our domestic industry will ultimately be weakened and become less globally competitive.

However, this summer, the industry is facing an even bigger potential challenge. One year ago, the President ordered the Department of Commerce to investigate the national security risk posed by importing autos and parts. Unlike many other controversial issues facing this country, the Trump Administration did not hear from any stakeholder in favor of imposing wide scale tariffs on imported autos and parts. The industry – auto manufacturers, dealers, suppliers, and the aftermarket all agree that the importation of autos and parts does not impose a national security risk and the imposition of tariffs will have a significant negative economic impact. We are in fact working in a “Driving American Jobs” coalition to prevent imposition of tariffs. Recently 160 Members of Congress sent a bipartisan letter in support of perspective. And there is no doubt, that the imposition of these tariffs will increase the consumer prices, cost jobs and reduce industry sales. All of this would lead to reduced investment in the U.S. 

According to the Center for Automotive Research (CAR), 25 percent across the board auto tariffs would increase the price for consumers of a typical motor vehicle by $2750, eliminate 367,000 U.S. jobs and cut sales by 1.3 million units. (CAR, February 2019)

Yet the President has on his desk a report by the Department of Commerce that could do just that. Although this report has not been made public, Japan, and the EU are pursuing trade negotiations with the U.S. to forestall the possibility of wide scale tariffs. 

The decision to impose these tariffs or other measures lies squarely with the President.  MEMA and the entire industry have vigorously opposed the imposition of tariffs and we see Congress considering action to limit the President’s authority to impose tariffs.  Chairman Chuck Grassley (R-IA) of the Senate Finance Committee is working with Senator Rob Portman (R-OH), Senator Pat Toomey (R-PA) and others on legislation to curtail the President’s ability to impose 232 tariffs. The entire auto industry supports these efforts to reassert Congressional authority on trade. Under Article 1, Section 8 of the U.S. Constitution, Congress has the power to “regulate Commerce with foreign Nations.”  

In the meantime, the auto parts sector faces increasing uncertainty caused by the tariffs that are already in place. Of course, production and sales of motor vehicles in the U.S. peaked a year and a half ago, as part of a general economic cycle. New auto 232 tariffs could start the process toward greater economic difficulties.

The automotive industry provides jobs, investment, and the vehicles consumers love to drive. While the industry strongly supports the President’s goal of a fair-trading system for all Americans, tariffs will weaken our domestic supply chain, decreasing jobs and investment, and increasing consumer costs while limiting choice. We know there is a better way.