National security reasons to limit imports of steel and aluminium – cunning or careless?
Willemien Viljoen, tralac Researcher, comments on the possibility of the United States imposing trade restrictions on steel and aluminium imports as a measure against potential threats to national security
On 20 April 2017, the United States (US) President instructed the Secretary of Commerce to investigate whether steel imports pose a threat to the national security of the US in terms of Section 232(B) of the Trade Expansion Act of 1962. Subsequently, a similar investigation was launched regarding aluminium imports on 26 April 2017 and indications are that another investigation regarding semiconductor imports is set to follow. Since the Trade Expansion Act came into existence there have been less than 30 investigations to determine the impact of certain imports on national security, the last of which was in 2001, dealing with imports of iron ore and semi-finished steel products. In the majority of the cases it was found that there was no threat to national security and no action was deemed necessary. The only cases where national security concerns were found pertained to crude oil imports (the last being in 1982). The steel and aluminium investigations are only the 3rd and 4th of their kind since the US became a member of the WTO in 1995. Both previous investigations did not lead to any action to adjust imports; however, the current steel investigation might lead to either an increase in the overall tariff (around 20-25 percent) or quantitative restrictions (tariff rate quotas or a quota system). According to the Memorandum to the Secretary of Commerce the decision to use the Trade Expansion Act is due to the inability of over 150 current anti-dumping and countervailing duties in place to address the overcapacity and market distortions which exist in the steel industry. Also, efforts to encourage other countries to reduce and address the underlying causes of excess capacity in the steel market have had little meaningful effect.
The rarely used provisions of Section 232 allow for the imposition of import restrictions for reasons of national security; assessing whether there is an excessive reliance on imports from unreliable sources or if imports threaten the domestic industry to such an extent that it cannot satisfy US defence needs. The Act affords the President a broad discretion to ‘take such action as he deems necessary to adjust imports of the article so that such imports will not threaten to impair the national security.’ Neither the Act nor its implementing Regulations define the terms ‘national security’ and no limits are placed on the type and extent of the actions which can be taken against the imports of concern. The Act is more flexible in scope, affords the Commerce Department more discretion and, therefore, offers an easier road to an affirmative finding and a broad range of import remedies that the president can impose. There is no need to prove that unfair practices (dumping or subsidies) exist or to meet rigorous injury or causation standards as in the case of trade remedies and safeguards. The critical factors which the Secretary of Commerce needs to take into consideration in the investigation include the needs of the economy, including the impact of foreign competition on the economic welfare of the essential domestic industry; and the displacement of any domestic products leading to substantial unemployment, decrease in government revenues, and the loss of investment, specialised skills and productive capacity.
Although the final reports regarding these two investigations were expected at the end of June, the deadline has passed without any final decision being made. The US President has delayed the publication of the reports until after consultations with trade partners at the G20 Summit on 7 and 8 July in Hamburg. However, downstream industries and major steel exporters have already expressed their discontent and concern about the Section 232 investigations; threatening domestic legal action, retaliation measures and possibly WTO dispute challenges. The downstream industries, including automotive producers; producers of utilities, mining and agriculture equipment, fasteners, transformers, and home appliances; and the construction industry commented on the fact that increased steel prices would likely lead to more job losses in downstream industries than job retention and creation for steel mills. US agriculture producers, mainly wheat and soya, have raised concerns about possible retaliation based on food security arguments. China, Russia and the EU have also raised concerns at the WTO Goods Council on these potential unilateral ‘trade distorting’ and protectionist measures.
If the US President does decide to make an adjustment to import measures based on national security it can lead to interesting developments in the realm of global trade and multilateral trade rules:
Limiting imports based on the national security argument can lead to tit-for-tat retaliation on similar arguments against US exports. Previous threats of retaliation have been made against exports of juice and citrus fruit and wheat and soya producers are concerned that importers, including China will limit imports based on their own food security concerns.
Countries can start using similar national security arguments to circumvent multilateral trade rules and WTO compliant trade remedies and safeguards to protect domestic industries. This can undermine the whole multilateral trading system as limiting imports based on the ‘needs of the economy’ can be extended to include almost everything.
Although GATT Article XXI includes a broad national security exception, this is not what the US is basing its case on. They are using national legislation which came into effect after GATT but before the WTO. If trading partners wish to challenge a decision made by the US based on domestic legislation at the WTO Dispute Settlement Body (DSU) it must be done based on the violation of WTO commitments made by the US. Thus, complainant countries must show that the action taken by the US clearly violates WTO commitments over which the DSU can establish jurisdiction. However, previous case law, pertaining to security exceptions in GATT Article XXI shows that there is a reluctance by the multilateral dispute settlement body to review a state’s ability to invoke national security concerns under the Article. Even if the DSU finds that it does have jurisdiction in the given matter, the question becomes how to strike a balance between a state’s sovereign right to protect itself in national security cases and preventing the abuse of purely trade protectionist measures under the guise of security concerns.
Dattu, R., Glossop, P., and Kim, M. 2017. International trade brief: Trump administration investigates impact of steel imports on U.S. national security. https://www.osler.com/en/resources/cross-border/2017/international-trade-brief-trump-administration-in
Perry, B. 2017. Trump’s trade war. https://uschinatradewar.com/
The Whitehouse. Memorandum for the Secretary of Commerce. https://www.whitehouse.gov/the-press-office/2017/04/20/presidential-memorandum-secretary-commerce
US Department of Commerce. 2007. Section 232 investigations programme guide. https://www.bis.doc.gov/index.php/forms-documents/section-232-investigations/86-section-232-booklet/file