Leibowitz on Trade: Modifying Import Restrictions—Let Me Count the Ways

The president has imposed a host of import restrictions and sanctions since 2017. The list is extensive and the statutes under which he claims to be acting can be bewildering: Section 232, Section 301, Section 201, sanctions on Huawei and Iran (not to mention North Korea). And we can never forget the administrative import restrictions under the antidumping and countervailing duty laws; those measures were used well before President Trump took office.

Last week, the Office of the U.S. Trade Representative announced modifications to the safeguard measures on large residential washing machines (“LRWs” in acronym-obsessed Washington) in response to a “midterm review” of the safeguard measures. This event raises the issue of how safeguards compare with other presidential authorities concerning trade restrictions. Different laws can affect business and politics differently. Today, we look at modifications to import restrictions. (There is a midterm review of import measures dealing with solar cells and modules, which has not been completed yet.)

The LRW safeguard measures were proclaimed in January 2018, a few days before/after safeguard measures on solar panels and cells. The president imposed tariff rate quotas, which I’ve talked about before, on LRWs and certain parts. The in-quota tariffs started at 20 percent for the first year up to 1.2 million units, decreasing to 18 percent in year two and 16 percent in year three. Above the in-quota level, additional tariffs of 50 percent were imposed for the first year, decreasing to 45 percent in year two and 40 percent in year three.

The duration of the safeguard measures was three years and one day. That extra day is important, because the safeguard statute (Section 204 of the law) requires the ITC to conduct a “midterm review” of the measures if they are set to last more than three years. The U.S. Trade Representative is permitted to modify, terminate or reduce the import restrictions.

The International Trade Commission issued its midterm review report last August. The review covered the status of the LRW industry and concluded that production continued to lag. In response to the ITC report, the USTR announced a planned modification of the measures. Beginning in February 2020, the tariff rate quotas will be applied on a quarterly basis instead of the current annual basis.

Shifting the quota levels to a quarterly period potentially increases the effect of the tariffs. The annual global quota (other than imports from Canada, which are excluded from the LRW import restrictions) will be divided into four equal quarters. Effective in February 2020, if imports in a calendar quarter exceed the 300,000 unit ceiling, out-of-quota tariffs will be imposed on the excess. Enforcement of the quotas on a quarterly basis can only increase the units that will be subject to out-of-quota tariff rates. This will have the effect of reducing imports of LRWs into the United States.

The law is different for import restrictions under Section 232 (steel and aluminum tariffs). Section 232 limits presidential authority to impose import measures; the president must announce import restrictions within 90 days after receiving the report of a Section 232 investigation by the Secretary of Commerce. There is no provision for a “midterm review” of these measures; any modification not specifically permitted by the statute would require a new investigation by the Secretary of Commerce and recommendations on modified measures. The Court of International Trade recently ruled that modification of import restrictions (specifically the increase of tariffs on Turkish steel to 50 percent in August 2018) is not permitted by the statute. If that court decision stands, it is possible that any modification of Section 232 measures would require a new Commerce Department investigation and report.

Under Section 301, such as the China tariffs and retaliatory tariffs on European imports due to the Airbus subsidy disputes in the WTO, import restrictions require a finding that trade agreements were violated or a foreign government action “burdens or restricts” United States commerce. These actions may be modified by action of the U.S. Trade Representative if the burden on United States commerce has “increased or decreased.” The statute gives this authority directly to the USTR, subject to the specific direction of the president. Consultation with the domestic industry concerned must precede any modification or termination of import restrictions. Since the original China tariffs were imposed in July 2018, they have been expanded to cover most imports from China, and the tariff rates have also been increased for several lists and the USTR sought comments from affected parties in each case. The imposition of tariffs was postponed in December because of progress in negotiations with China, but the postponement of tariffs is arguably different from “modification” of import measures.

Based on the current state of the law, Section 232 is the least flexible statute in terms of permitting modifications to import measures. Based on the recent Court of International Trade decision on Turkey, any modification of measures requires specific statutory authorization (there are a few of those) or a new investigation and report on national security.

Modifications to safeguard measures are also restricted—in duration, in the maximum tariff rates, and in adjustments to measures (safeguard measures are designed to be reduced over time until they expire on a date certain). Section 301 remedies also have some restrictions on tariff amounts and considerable procedural requirements.

As the administration continues to utilize these statutes to a greater degree than its predecessors, challenges to the import restrictions in court are likely to increase. Court decisions may further refine the rules for modification of these restrictions.

The rules on modification of remedies can seriously impact importers and manufacturers as well as domestic producers. Procedural protections of these interests are vital to those whose business survival depends on reliable information about tariffs and quotas that may affect supply chains. Companies are still formulating strategies to address new developments that are likely to continue.

Lewis Leibowitz

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