Challenge to Higher 232 Duties on Turkish Steel

Remember when the President imposed tariffs on steel and aluminum under Section 232? He did so following a Commerce Department study showing that imports of steel and aluminum suppress domestic production far enough below capacity to be a threat to the national security. The steel tariffs were set at 25% and the aluminum tariffs at 10%. Here is Proclamation 9705. Those tariffs remain largely in place. In August of 2018, the President followed up with Proclamation 9772, which doubled the tariff on steel from Turkey to 50%. In Transpacific Steel LLC  v. United States, an importer of Turkish steel challenged that increase and sought a refund of the difference. The bases for the challenge are, among other things, that singling out importers of products from Turkey violates the Equal Protection Clause of the Fourteenth Amendment and that the President’s failure to follow required procedures violates the Due Process clause of the Fifth Amendment.

The United States moved to dismiss this challenge as failing to state a cause on which the Court can grant relief.

As noted in a concurrence by Judge Katzmann, this case is not about the general constitutionality of the delegation of authority to the President under Section 232. That issues is currently before the Federal Circuit on appeal from the Court of International Trade. Rather, this case is all about how Section 232 was deployed against imports from Turkey as opposed to imports from the rest of the world.

To succeed on a motion to dismiss, the Government needed to show that the complaint does not contain facts “plausibly suggesting” that the plaintiff is entitled to the relief it is seeking. The likelihood of obtaining relief must be more than merely speculative. This standard is deferential to the plaintiff and the Court is required to construe the undisputed facts in the light most favorable to the plaintiff. Here, there do not appear to be any facts in dispute.

To state a claim under the equal protection clause, plaintiff needed to allege the lack of a rational relationship between the disparate treatment of importers of Turkish products and a legitimate governmental purpose. To overcome that allegation, the defendant must “articulate any set of facts that rationally justify a distinction in classification, irrespective of whether the President himself actually justified his action at the time it was taken.” According to the Court, it is difficult to image a situation in which the government could fail to clear this low bar.

And yet, here we are.

The Government provided no facts that justify identifying importers of Turkish steel as a separate category for purposes of Section 232. It did make general statement about the high level of imports from Turkey and the 14 antidumping and countervailing duty orders on steel from Turkey. These facts, however, place Turkey in the mainstream of steel exporting countries. They do not indicate that it is a unique or even increased risk to the national security. The Court found it could not discern a possible rational justification for the distinction. Thus, the motion to dismiss was denied.

The due process argument is all about procedure. The law provides a detailed road map for imposing trade restrictions in the name of national security. The process starts with a Commerce Department report to the President. If Commerce finds a threat to national security, the President must decide whether he or she agrees with the conclusion. If so, he or she has 90 days in which to decide how to proceed. Once he or she decides to act, the President must do so within 15 days.

In this case, there was no separate finding with respect to Turkey in which the Commerce Department found it to be a unique or elevated threat to national security. Moreover, Proclamation 9772 was issued far beyond the 90 days allowed to determine the appropriate course of action and beyond the additional 15 days in which to act.

The government responded to this with the position that doubling the duties on Turkey was an adjustment of the remedy authorized by the initial Commerce Department report and Presidential Proclamation. The Court did not agree. Rather, the Court read Section 232 as requiring that the President act decisively to eliminate the risk to national security within the specified times. This implies that the process is complete when the President acts, except for the explicitly granted authority to end the action under the Act. Similarly, individual exemptions do not require the full statutory process because the Proclamation initially imposing the duties explicitly authorized the Secretary of Commerce to exempt particular products.

The Court, therefore, denied the motion to dismiss, letting the case go forward to motions for summary judgment. Keep in mind, as noted by separate concurrence, this case does not decide the issue presented. It only means that the plaintiff’s complaint contains sufficient facts to state a plausible claim that the increased 232 duties on steel (and by implication aluminum) from Turkey violate the constitution and, therefore, should be refunded to importers.

A few additional points to clean up:

The increased duties on Turkey were removed in May of 2019. That does not make this case moot. The government collected the additional duties and plaintiff is seeking a refund. This is a live dispute and not a theoretical question.

Second, the existence of this cases raises procedural questions for similarly situated importers of steel and aluminum from Turkey. Importers that paid the excess 232 duties, should consider filing protests on liquidated entries and asking Customs and Border Protection to withhold action on the protest until this case is finally decided (which may be a while). This is a risky proposition because the constitutionality of an action by the President and the Commerce Department is not something that is subject to review by CBP on a simple protest. That means other importers might need to file cases similar to Transpacific and decide whether to stay their cases pending a final decision in this case. That is a complicated issue of jurisdiction that harkens back to the Harbor Maintenance litigation. So, before you jump talk to a lawyer and remember that nothing you read here is legal advice.