Leibowitz on Trade: Currency Manipulation—a Countervailable Subsidy?

In so doing, Commerce may have rewritten the rule book on countervailable subsidies. A subsidy, to be countervailable, must involve government action that confers a benefit, and be “specific.” Specificity means that its benefits are not economy-wide but benefit only a subset of the economy—a specific “enterprise or industry,” or a “group of enterprises or industries.” In a major expansion of the reach of countervailing duties, Commerce announced a change to the definition of specificity: “Commerce normally will consider enterprises that buy or sell goods internationally to comprise a ‘group’ of enterprises within the meaning of section 771(5A)(D) of the Act.”

This change could largely eliminate the element of “specificity” as a requirement for subsidies. Even the building of roads and bridges, a government function that has long been considered non-specific and therefore beyond the realm of countervailing duties, could now be ruled countervailable. 

The impact of this new rule remains to be seen. Commerce has indicated that it will consult with the Treasury Department in specific cases, and Treasury has historically opposed treating currency relationships as subsidies due to its potential to harm international relations. 

The issue of “undervalued currency” has been debated ever since the Uruguay Round agreements. In 2009, Congress passed a statute requiring Treasury to determine whether a foreign country is a “currency manipulator.” But that only requires the U.S. to discuss the issue with the foreign government concerned, and does not permit imposition of countervailing duties. 

Governments have, until now, been loath to enter into this contentious issue because of the difficulty of determining what the “proper” value of a currency is. We are about to wade into those roiling waters. The undertow could be dangerous. And trade flows could be affected for years and decades to come. If the U.S. uses this new rule extensively, we can expect other countries to use it against us. The U.S. has not exactly avoided manipulation of its currency, going back to the Plaza Accords in the 1980s. 

Presidential Proclamation of Tariffs on “Derivative” Products Made with Steel and Aluminum

I’ve written before about the proclamation the president issued on Jan. 24 imposing steel and aluminum tariffs under Section 232 on products that were not investigated by the Commerce Department in 2017 and 2018. Last week the first lawsuits were filed challenging the new proclamation, claiming that it exceeded the president’s legal authority under Section 232. The cases, PrimeSource Building Products v. United States (filed Feb. 4) and Oman Fasteners v. United States (filed Feb. 7), could affect the proclamation very soon: the plaintiffs in both cases have asked the Court of International Trade for a temporary restraining order (TRO) to prohibit enforcement of the new proclamation, claiming irreparable harm. 

A TRO, as we acronym-addicted Washington lawyers call it, requires a demonstration that the enforcement of the proclamation will cause “irreparable harm” to the plaintiffs. TROs are usually decided very quickly (a matter of days) and last a maximum of 10 days (subject to a brief extension) until a decision can be made on a preliminary injunction (PI). The PI, if granted, can last until the litigation is concluded. In addition to irreparable harm, a PI must show that the plaintiffs have a good chance to succeed on the merits, that the “balance of hardships” favors plaintiffs and that the “public interest” will be better served by enjoining the enforcement of the proclamation than by letting it continue. I will write further about this as events warrant.

This is not the first time that an attempt to enjoin enforcement of Section 232 tariffs has been tried—in March 2018, Severstal Export failed to obtain a preliminary injunction against the tariffs and soon thereafter withdrew their suit. We will see if the two plaintiffs challenging the new proclamation will have more success.  

Tampa Steel Conference 2020

I participated with many others in the 31st annual Tampa Steel Conference, hosted by Port Tampa Bay, an important conference in Tampa last week in which these two issues, and others, were discussed. I hope to see many of you next year at the conference (if not before). John Packard of Steel Market Update moderated the event with his customary insight and efficiency. 

This year marks the final steel conference organized by John Thorington of Port Tampa Bay. John is retiring later this year, and he will be missed. 

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