Landmark court decision limits presidential trade restrictions

Steve Charnovitz, Gary Hufbauer 28 July 2020

a

A

On 14 July 2020, the U.S. Court of International Trade (USCIT) issued a landmark decision voiding US tariffs on steel from Turkey imposed by President Trump in August 2018.1 Judicial annulments of presidential trade actions are almost unknown.  What makes the Transpacific Steel ruling especially important is that the USCIT ruled against the president not only on statutory grounds, but also on Constitutional grounds.  We are unaware of a similar court decision in US trade law jurisprudence.  

The steel tariffs at issue were invoked under Section 232 of the Trade Expansion Act of 1962.  Presidential authority under Section 232 allows restrictions following an investigation by the US Secretary of Commerce finding that an article is “being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security”. Following such a finding, the law directs the president to decide within 90 days whether he “concurs with the findings of the Secretary”, and if so, to “determine the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security”.  The president is not required to formulate any action, but should he do so, the law directs him to “implement that action” within 15 days. 

The path to the Transpacific Steel judgement can be quickly summarised. At the conclusion of an investigation of steel imports in April 2017, Secretary of Commerce Wilbur Ross issued an affirmative report in January 2018 finding a threat to national security.  In March 2018, President Trump issued Proclamation 9705 concurring in the Commerce Department’s finding and imposing an ad valorem tariff of 25% on steel imports from all countries except Canada and Mexico.  In August 2018, following political tensions between Turkey and the United States, President Trump issued new Proclamation 9772 raising the tariff on steel from Turkey to 50%.2 Several months later, Transpacific Steel, an importer of steel from Turkey, lodged a case against the United States asking the tariffs to be declared illegal and refunds paid. After the USCIT denied the government’s motion to dismiss, additional plaintiffs intervened to join the case.  To the surprise of many observers, the steel importers prevailed and won their case before a three-judge USCIT panel.  The court’s decision only refers to the 50% tariff on Turkey; the underlying Section 232 tariff of 25% on steel on Turkey and other countries was not at issue. 

The court ruled that Proclamation 9772 was “unlawful and void” because the president failed to follow procedures laid out in Section 232.  The court explained that, while the initial Proclamation 9705 and the initial imposition of tariffs were a timely response to the Commerce Department’s Section 232 report, the follow-on Proclamation 9772 was not timely because the President issued it beyond the “temporal window” following the Department’s investigation.  Moreover, the president acted without a “formal investigation and report” with respect to imports of steel from Turkey.

This judicial rebuke stands as an important development because prior cases decided by the USCIT (and predecessor courts) have been notably deferential to the president.  The practical consequence of this precedent for future Section 232 actions remains an open question. As the court points out, “the President is, of course, free to return to the Secretary and obtain an updated report…” The Secretary of Commerce is obviously not independent from the president.  

Alongside the statutory claim, the plaintiffs also made claims resting on US Constitutional guarantees of “equal protection” and “due process.”  To our knowledge, such claims have never before succeeded against a presidential action limiting imports. In adjudicating the equal protection claim, the court identified the standard of review as a “rational basis test”. In other words, to decide a claim about “disparity of treatment” of importers of steel from Turkey, the court evaluated whether there was a rational relationship between the disparity of treatment and a legitimate government purpose.  In adjudicating the due process claim, the court identified the standard of review as “whether there was a deprivation of a constitutionally protected life, liberty or property interest and, if so, whether the necessary procedures were followed”.

In examining equal protection, the court considered whether Proclamation 9772 which “distinguishes between imports on the basis of country of origin” is “justified by sufficient purpose”. Since “national security is a legitimate purpose” under Section 232, the court analysed whether doubling the steel tariff on Turkey was a “rational means to serve” national security.  The court concluded that there was no persuasive evidence that Proclamation 9772 was grounded in national security concerns because the Commerce Department had not examined the “impact of imports from Turkey individually”, but rather examined how the “global excess capacity of steel” threatened to impair US national security.3 Therefore, the court held that there “is no apparent reason to treat importers of Turkish steel products differently from importers of steel products from any other country…” The court explained: “Section 232 does not ban the President from addressing concerns by focusing on particular exports, but the decision to increase the tariffs on imported steel products from Turkey, and Turkey alone, without any justification is arbitrary and irrational.”

The “rational means” test articulated by the court is not onerous.  A trade measure that treats one country differently than another would be upheld so long as it is a rational response to the purported problem.  What’s new as a result of this ruling is that the door has been opened to future challenges of US trade actions based on equal protection grounds.  The prior history of US trade policy from 1934 to the present has been largely untouched by judicial intervention.  

The final aspect of the Transpacific Steel case was the challenge on US Constitutional due process grounds.  Here the court ruled against the plaintiffs because, according to the court, the plaintiffs had failed to fully articulate “a concrete protected property interest” in their tariff treatment.  The court went on to note that, if the plaintiffs have a protected property interest, “it is satisfied by requiring that the President abide by the statute’s procedures”.

What will be the impact of the Transpacific Steel decision?  The US Department of Justice is expected to appeal, and if so, a final ruling will not occur for many months.  If the USCIT decision is upheld by higher courts, plaintiffs will receive refunds for tariffs paid.  In future Section 232 cases, the president will probably adhere more carefully to procedural requirements. Meanwhile, cases may be filed against refusals to grant particular Section 232 exemptions. Lawsuits could also be lodged against other trade policy actions, such as those undertaken under Section 301 of the Trade Act of 1974.  Aggrieved parties will welcome a USCIT less deferential to presidential dictates.  

Endnotes

1 Transpacific Steel LLC , Plaintiff, Borusan Mannesmann Boru Sanayi Ve Ticaret A.S. et al., Intervenor Plaintiffs, v. United States et al., Defendants, Slip Opinion 20-98, Judges Jane A. Restani, Claire R. Kelly, and Gary S. Katzmann (14 July 2020).  

2 These additional tariffs on Turkish steel were removed in May 2019.

3 In its analysis of rationality, the court notes that Turkey is the sixth largest exporter of steel to the United States and so “targeting Turkish steel products alone would not appear to be an effective means of remedying the national security concerns….” In addition, the court faulted the President’s failure to consider the impact of the higher steel tariffs on Puerto Rico’s hurricane recovery or to exempt the steel shipments from Turkey to Puerto Rico.

a

A

Topics:  International trade

Tags:  President Trump, Transpacific Steel, USCIT, trade war

Associate Professor of Law, George Washington University Law School

Nonresident Senior Fellow, Peterson Institute for International Economics

Vox Talks

CEPR Policy Research