A Sign of Things To Come: New Section 232 Investigation on Specialty Transformer Steel Products

On May 4, 2020, U.S. Secretary of Commerce Wilbur Ross announced that the Department of Commerce (DOC) would self-initiate a new Section 232 investigation on imports of laminations and cores made of grain-oriented electrical steel (GOES) to determine whether these imports threaten U.S. national security.  Laminations and cores made of this specialty steel are used to make electrical power transformers and transformer regulators.

The announcement of this new Section 232 investigation is interesting because this action reflects the aggressive trends in President Trump’s trade policy, but also shows some restraint.

This new case is the latest self-initiated trade action reflecting the Trump Administration’s aggressive activist role in trade matters.  Until President Trump, almost all trade remedy actions were antidumping or countervailing duty actions initiated because the domestic industry filed petitions seeking relief from unfair import competition. President Trump has dusted off rarely used provisions of the U.S. trade law to self-initiate investigations that have resulted in tariffs or other trade measures being imposed on imports on products from China (Section 301), all steel and aluminum imports (Section 232) and washing machines and solar products (Section 201).

In November 2017, DOC even self-initiated an antidumping investigation on common alloy aluminum sheet from China, the first self-initiated case in over 25 years. In August 2019, DOC announced its first ever self-initiated anti-circumvention inquiry into whether the antidumping orders on corrosion-resistant steel (CORE) from China were being circumvented by minor processing performed in third countries such as Malaysia, Costa Rica, and the United Arab Emirates. The announcement of this new Section 232 action is the latest action taken by the U.S. government’s “activist” trade policy. By self-initiating cases, DOC becomes the prosecutor, fact-finder, and judge, essentially abandoning any pretense that it is a neutral government agency that just weighs the facts presented by both petitioners and respondents.

And yet, this new case also shows some restraint in that DOC announced it would still conduct an investigation to collect information and comments to consider whether the specialty steel imports should in fact be considered a national security risk. This is in contrast to President Trump’s proclamation in late January 2020 directly expanding Section 232 duties to cover steel and aluminum “derivative” products, which were mostly steel nails and other types of fasteners and aluminum stranded wires and cables. The Trump Administration did not even bother to conduct a separate investigation or review data on whether such steel/ aluminum derivatives posed a national security threat, even though these products were never considered in the original Section 232 steel aluminum investigations. Appeals were filed challenging that extension of the Section 232 duties to steel and aluminum derivative products, raising due process and other procedural arguments based on the lack of any formal investigation for these derivative products. The U.S. Court of International Trade recently issued some decisions that cast doubt on the legality of the duties applied, at least to steel derivative products. It appears those unfavorable court decisions have now caused DOC to exercise some restraint in this case, such that it at least is going through the motions of conducting a fact-finding investigation before making its determination, instead of arbitrarily extending Section 232 duties to these specialty steel products.

Or it may be the DOC simply recognizes that, regardless of its decision to self-initiate an investigation, there may be a real need to gather actual evidence on the volume of imports, pricing data, and the market conditions for such transformer steel products. In two recent Section 232 cases (titanium sponge, uranium), although DOC found those imports did pose a national security threat, President Trump declined to impose tariffs, quotas or take any other action against those imports, citing concerns for the impact such measures would have on downstream US consumers of those products.

DOC also might have seen the need for a full investigation because the most recent investigation in 2014 on imports of grain-oriented electrical steel resulted in the ITC finding that imports were not a cause of material injury or threat of material injury to the domestic industry. In that case, the ITC found that imports had not taken market share away from the US producers and did not cause any adverse price effects. Given that the prior benchmark resulted in a negative injury determination, DOC perhaps now realizes that it needs some updated factual evidence to support any action it might want to take to impose duties in this new case.

This new Section 232 investigation on specialty steel products is part of a recent spike of new antidumping and countervailing duty (AD/CVD) cases filed since the start of this year. Nearly sixty petitions have been filed on ten products in the first quarter of 2020.  Though China has been the target for many of these petitions, other countries that have never or only rarely been targeted previously (e.g., Bahrain, Cambodia, Slovenia) are also named. With the economic downturn caused by the COVID-19 pandemic, our international trade lawyers expect the United States to file more trade remedy actions in the near term. Traditionally, when the economy gets worse, domestic producers often file new AD/CVD petitions, sometimes as a last ditch effort to get protective relief from import competition during hard economic times. But sometimes if imports are not the primary reason for the domestic industry’s woes, there is no amount of duties or tariffs that can salvage an unsalvageable situation.

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