Leibowitz on Trade: An Interesting Case for Thanksgiving Dinner

On Friday, the Court of International Trade (CIT) issued an interesting and potentially significant opinion. The CIT, which sits in New York, is the federal court with jurisdiction over many cases dealing with international trade law—antidumping, countervailing duties, Customs issues, and Section 232 of the Trade Expansion Act of 1962, as amended. This last statute is the foundation of the Section 232 steel and aluminum tariffs and quotas since March 2018.

Not everyone likes these tariffs. In January of this year, three steel traders filed suit seeking refunds of the 50 percent duties on steel imports from Turkey, which they were forced to pay. They thought that imports from Turkey should not be taxed more heavily than any other imports and that Congress had not granted the president the authority to do that. Shortly after the suit was filed, two of the three plaintiffs dropped out, leaving one company, Transpacific Steel, as the sole plaintiff. The president proclaimed increased (50 percent) tariffs on steel imports from Turkey in August 2018. The Turkish increase was removed nine months later.

In response to the Transpacific suit, the government asked the CIT to throw it out. The government argued that the plaintiff was not entitled to any refund because the president lawfully proclaimed an increase in the tariffs. 

On Nov. 15, the CIT gave its decision on the motion to dismiss the case. The court denied the government’s motion, allowing the case to go forward and the plaintiff to ask for a refund of the extra 25 percent. 

The court held that the complaint stated a valid claim on two grounds: (1) the equal protection of the law;  and (2) the procedural safeguards contained in Section 232. 

Regarding equal protection, the attorneys reading this will recall the two-tier test; the first subjects actions affecting “suspect classifications” (e.g., dividing favored and disfavored groups by race, religion, national origin) to a very stringent (“strict”) scrutiny. The second, for all other classifications, including economic classifications, the scrutiny is anything but strict. Any “rational basis” will sustain distinguishing one group from another. The rational basis test clearly applies to the tariffs from Turkey because the separation is commercial.

It’s very difficult to overturn a government action based on the “rational basis” test. As the court said, “[g]iven this standard, it is difficult to imagine Presidential action in connection with section 232 where one would be at a loss to conjure a rational justification.” The court pointed out that Turkey was singled out from other countries (such as the EU, Japan, Russia) that sent more steel to the United States and more cases of unfair trade. Searching for a rational basis to support the doubling of steel tariffs on Turkey, the court came up empty. There was none, the court said.

The CIT’s analysis of Section 232’s procedural protections similarly supported the plaintiff’s lawsuit. When the Secretary of Commerce initiates an investigation under Section 232, he (or she) is required to present the report to the president finding whether the imports “threaten to impair” national security within 270 days after initiating the investigation. 

If the report is affirmative, the president is required to act on the report within 90 days after receiving it. These time limits requirements were added to the statute in 1988 in response to a Section 232 case on machine tools that President Reagan sat on for nearly two years. 

Recall that the president announced the steel tariffs (along with aluminum) in March 2018, less than 90 days after the Commerce report. He imposed 25 percent tariffs on steel imports from all countries (except Australia), but announced that he was attempting to negotiate trade agreements with certain countries. He reached agreement with Brazil, Argentina and South Korea, but failed to reach agreement with the European Union, Canada and Mexico, and imposed 25 percent tariffs on the last three countries on June 1. 

All those actions were consistent with the time limits in the statute. However, when it came to Turkey, the president did not act until August 10, 2018, long after the 90-day period for action had expired. 

The court held that the procedural requirements are mandatory. Any presidential action after the 90-day limit that tries to modify the relief is invalid. “The President lacked power to take new action and issued [the Turkey proclamation] without the procedures as required by Congress.” Transpacific, the court held, is entitled to a refund of duties paid under the August 10 tariff increase on Turkish imports. New tariffs require a new report. 

The Transpacific case is not over. The denial of a motion to dismiss does finally decide a case. But the court found against the president’s claimed discretion to modify the import relief without a new report with new time limits. Once a final decision is made, the government can appeal to the appellate court, the Court of Appeals for the Federal Circuit.

In addition, Congress continues to look at changes to Section 232. But it has not acted to rein in the president since the steel and aluminum tariffs were announced. The courts, through interpretation of the statute, have taken the first steps to delineate the boundaries for action. This case only decides the legal issues related to the Turkish tariffs, but other issues under Section 232 are out there. Other cases await decision as well, including the constitutional challenge to Section 232 (AIIS) and the denial of steel product exclusions (JSW USA). 

Lewis Leibowitz

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