No Injunction Against 232 Duties

Yes, I know it has been a while. Trust me, I feel the guilt of not posting. At the Georgetown update last month, someone actually asked me "What happened to the Customs Law Blog?" That hurt. Like most people in the customs and trade field, it has been an extraordinarily busy time. But I digress and wallow in self pity.

The Court of International Trade has denied a motion for a preliminary injunction seeking to prevent the U.S. from imposing a 25% duty on imported steel under Section 232 of the Trade Expansion Act of 1962. The case is Severstal v. U.S. This is the first of what will likely be many challenges to the 232 duties in U.S. courts and at the WTO.

Under the Act, the Commerce Department studied whether imported steel presented a threat to U.S. national security. A similar study on aluminum was running on a parallel track. The report found that the availability of steel is important to national security and that the combination of imports and excess foreign capacity weakens the domestic economy. The report concluded that national security would be improved if U.S. steel production was running at 80% of capacity. To achieve that level of capacity utilization, Commerce recommended, among other things, tariffs on imported steel to encourage the consumption of domestic steel. That Commerce Department conclusion was despite a finding by the Department of Defense that U.S. steel production was sufficient to meet U.S. military needs.

Relying on the Commerce Department findings, the President announced duties in Proclamation 9711, which modified an earlier version of the order. The proclamation proposed to assess a 25% duty on certain steel products imported into the U.S. The duties came into effect on March 23, 2018. One of the reasons for the amended proclamation was to increase the number of exemptions from Canada and Mexico to those countries plus, South Korea, Australia, Argentina, Brazil and the EU.

The plaintiffs in this case are a Swiss steel trader and its related Miami-based affiliate. The Swiss entity is an exporter to the U.S. The Miami-based entity is an importer. Both companies are wholly owned by a Russian company. The company had entered into contracts to sell steel in the U.S. prior to the imposition of the duties. With the additional 25% duty, those contracts will be far less lucrative, if there is a profit at all.

There are a bunch of interesting legal problem for the plaintiffs in this case. The first is jurisdiction, which the Court quickly found it had under 28 USC 1581(i). That law gives the Court of International Trade exclusive jurisdiction over cases brought against the United States challenging "tariffs, duties, fees, or other taxes on the importation of merchandise for reasons other than the raising of revenue." Clearly this is that.

The next question is whether the plaintiffs had standing. In this case, standing is defined as a person who is “adversely affected or aggrieved by agency action within the meaning of section 702 of title 5." That is a reference to the Administrative Procedure Act. The government argued that there is no standing because the Supreme Court has held that the President is not an agency and his actions are not agency actions by which some can be aggrieved. The CIT rejected this argument and found that Congress, by granting exclusive jurisdiction to the CIT to review tariffs, must have also intended that a change in tariffs provide standing in the Court. Otherwise, there is an absurd result of the CIT having exclusive jurisdiction and the district courts being the only place where the plaintiff has standing.

The next question is whether the Plaintiffs could show that they are entitled to injunctive relief. Consistent with this being Passover, that raises four questions. To qualify for an injunction, the plaintiffs needs a "Yes" to the following:

1. Will the plaintiffs suffer irreparable harm unless the Court grants the requested injunction?
2. Are the plaintiffs likely to succeed on the merits of the case?
3. Who will suffer the greater hardship?
4. Is the requested relief in the public interest?

To succeed on the motion, the plaintiffs need not recline to the left nor dip their bitter herbs in salt water.

With respect to irreparable harm, the Court noted that the important considerations are the immediacy of the harm and whether the harm can be remedied by some subsequent award rather than an injunction. Here, Plaintiffs had steel on the water that would be subject to the 25% tariff when it arrived. Under its contracts, Plaintiffs were responsible for the duty. They lacked the assets to cover that additional expense and had to secure bank financing from the parent company. Plaintiffs also stopped taking orders for delivery to the U.S. in anticipation of the duties being imposed. 

From this, the Plaintiffs identified several possible harms. For example, effort to negotiate with customers to accept a portion of the tariff burden harmed their business relationships. They also lost out on contracts they would otherwise have made in the U.S. The Miami-based Plaintiff asserted that if forced to pay the duties and payback the loan, it would likely end up bankrupt.

The Court was skeptical of some of this. It specifically rejected the notion that having to pay the duties is itself irreparable harm because the importer has the ability to challenge the constitutionality of the assessment and secure a refund if successful. See the entire history of Harbor Maintenance Tax litigation.

However, the other business damage is not the kind of injury that can be remedied with a money judgment. Additionally, the exemptions made for major steel exporters creates further difficulty for the Plaintiffs in that they will not be competing with other producing countries on an equal footing. From all of this, the Court of International Trade found that the Plaintiffs had shown irreparable harm that was more then merely speculative.

Next up is the likelihood of success on the merits. To secure a preliminary injunction, the Plaintiffs need to show at least a fair chance of success on the merits of the claim. The greater the potential harm, the lower this burden. Here, the harm is pretty remote, making this a fairly high burden. This is where things get more interesting.

The Government argued that Plaintiff cannot win this case because the issue is a non-justiciable question of presidential discretion. That means that it is the kind of presidential decision that cannot be second guessed by the Courts. The CIT was unpersuaded. On the contrary, the Court found that Section 232 is a limited delegation of authority from Congress to the President to regulate trade. While the exact decision taken by the President may not be subject to review, the Court can determine whether the President so misconstrued the statute that he has exceeded the scope of his delegated authority. And that is the meat of this case.

Plaintiffs argued that the Congressional delegation of authority to the President limits his action to trade regulation in support of national security. According to Plaintiffs, the President misconstrued his authority when he equated national economic interests with national security. As the Court put it:

Plaintiffs . . . argue that the Section 1862 Steel Tariff is being used in trade negotiations to draw concessions from other countries unrelated to steel imports. Such a mismatch – harm to domestic industry (A) threatens to impair national security, import-restricting actions favoring domestic industry (A) are taken under Section 1862, such restrictions are then lifted in exchange for concessions favoring unrelated domestic industry (B) – would raise a credible question as to whether the President misapprehended the authority granted by Section 1862.

As evidence, the Plaintiff pointed to several statement from the President that point to economic rather than security considerations. For example, at one point, the President said "Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed." This is despite Canada and Mexico being significant exporters of steel to the U.S. Arguably, if national security were the issue, they would not be exempt. According to Plaintiffs' argument, national security is a pretextual peg on which the President has hung an economic hat. If so, that would mean he misconstrued his authority.

The problem for Plaintiffs is that the statute give Commerce many factors to consider including the overall economic health of the nation. According to the law:

In the administration of this section, the Secretary and the President shall further recognize the close relation of the economic welfare of the Nation to our national security, and shall take into consideration the impact of foreign competition on the economic welfare of individual domestic industries; and any substantial unemployment, decrease in revenues of government, loss of skills or investment, or other serious effects resulting from the displacement of any domestic products by excessive imports shall be considered . . . .

That means that the President can and should consider the general economic welfare and the welfare of specific industries. The Commerce report acknowledged these factors. Given the breadth of factors to be considered, the Court could not find that the President overstepped his limited delegation of authority.

That conclusion means that Plaintiffs are unlikely to succeed on the merits. 

That might have been enough to decide the case. Nevertheless, being thorough is always a good thing. The Court went on to find that the balance of hardship weighs in favor of the Plaintiffs. As discussed above, the Miami-based Plaintiff faces a risk of bankruptcy. The U.S., on the other hand, only risks a delay in collecting duties.

With respect to the public interest, the Court found the parties on an equal footing. National security is, of course in the public interest. So is the rule of law.

This is a preliminary ruling. The Plaintiffs did not succeed in securing a preliminary injunction. Now they must decide whether they want to press forward with a challenge to the duties. They might also seek an expedited appeal from the Federal Circuit. If this really is bet-the-farm litigation for the U.S.-based plaintiff, expect there to be more.