Trade Compliance Flash: Q&A on Section 232 Investigation into National Security Impact of Imports of Automobiles and Automotive Parts
On May 30, 2018, the Department of Commerce ("Commerce") published official notice in the Federal Register that it had initiated an investigation under Section 232 of the Trade Expansion Act of 1962 ("Section 232") into the national security impact of imports of automobiles and automotive parts – including cars, SUVs, vans, light trucks, and related parts. Investigations under Section 232 seek to determine whether imports "threaten to impair the national security" of the United States, focusing on both domestic industry's ability to meet national security needs, as well as the "close relation of the economic welfare of the Nation to our national security." If Commerce finds that such imports do threaten to impair national security, the president can take actions necessary to "adjust the import of an article and its derivatives," including by imposing additional tariffs and quantitative restrictions, i.e., quotas, on imports.
While it remains too early to predict how the investigation will unfold, this investigation is the fourth of its kind under Section 232 since President Trump took office, providing some insight as to what affected companies and individuals may expect. Namely, in April 2017, Commerce initiated investigations into the national security impacts of steel and aluminum imports which were completed in January 2018. Based on findings that imports of both products threatened to impair national security, additional tariffs were imposed on such products in March 2018. Similarly, in January 2018, two domestic uranium companies filed a petition requesting a Section 232 investigation into the imports of uranium products, which Commerce has not yet completed. Previously, there had not been such an investigation into the impact of a particular import on national security since 2001.
Our answers to frequently asked questions about the investigation and the process for submitting comments and testimony to Commerce on the impact of automobile and automotive parts, providing an opportunity for companies and individuals to have some input into the process.
How Will the Investigation into Automobile and Automotive Parts Imports Likely Proceed?
Section 232 investigations are handled by the Office of Technology Evaluation, part of Commerce's Bureau of Industry and Security ("BIS"). As a first step in the investigation into automobiles and automotive parts, BIS has solicited public comment on the impact of both products on national security and domestic industry. Interested parties may submit written comments, data, analyses, or other pertinent information via the Federal eRulemaking Portal by June 22, 2018. Rebuttal comments are due by July 6, 2018. All comments and other information submitted will be made public, unless the comments are clearly marked "business confidential."
In its official notice of the investigation, BIS emphasized that it was particularly interested in comments and information directed to the factors set forth in the National Security Industrial Base Regulations at 15 C.F.R. § 705.4, which were promulgated to assist BIS in conducting Section 232 investigations. In particular, BIS seeks comments on:
- The quantity and nature of imports of automobiles, including cars, SUVs, vans, and light trucks, and automotive parts and other circumstances related to the importation of automobiles and automotive parts;
- Domestic production needed for projected national defense requirements;
- Domestic production and productive capacity needed for automobiles and automotive parts to meet projected national defense requirements;
- The existing and anticipated availability of human resources, products, raw materials, production equipment, and facilities to produce automobiles and automotive parts;
- The growth requirements of the automobiles and automotive parts industry to meet national defense requirements and/or requirements to assure such growth, particularly with respect to investment and research and development;
- The impact of foreign competition on the economic welfare of the U.S. automobiles and automotive parts industry;
- The displacement of any domestic automobiles and automotive parts causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects;
- Relevant factors that are causing or will cause a weakening of our national economy;
- The extent to which innovation in new automotive technologies is necessary to meet projected national defense requirements;
- Whether and, if so, how the analysis of the above factors changes when U.S. production by majority U.S.-owned firms is considered separately from U.S. production by majority foreign-owned firms; and
- Any other relevant factors.
After receiving comments, information, and rebuttals, BIS will hold public hearings on July 19 and 20, 2018, allowing interested parties to give testimony as to the investigation. The hearings will be held from 8:30 a.m. to 5:00 p.m. EST on both days at the Commerce Department's headquarters in Washington, DC. Persons seeking to make presentations at the hearing must submit written requests by June 22, 2018 – the same date as for public comments – after which Commerce will arrange for a schedule of speakers. The transcript of the hearing will be made public, such that no business confidential information should be included in any presentation or testimony. Presenters may also be subject to questions from government representatives.
After the preliminary public comments and hearing, BIS will begin its evaluation of the impact of imported automobiles and automotive parts on U.S. national security. Under the timelines set forth in Section 232, BIS must submit a report with its factual findings and analysis to the president by February 23, 2019, within a 270-day period from the investigation's official start date of May 24, 2018. In the two completed Section 232 actions for steel and aluminum imports, BIS's investigations took nearly the entire 270 day-period – lasting from April 2016 to January 2017 – suggesting that the investigation into imports of automobiles and automotive parts may also take the maximum time allowed.
Within 90 days of receiving BIS's report – likely by May 24, 2019 – President Trump must determine which measures must be taken to "adjust the imports" of the articles in question such that imports will not threaten to impair the national security. President Trump issued presidential proclamations concurring with BIS's findings within about 60 days of receiving the steel and aluminum reports, suggesting a shortened timeline once BIS's report on automobiles and automotive parts reaches the president.
What Information Will BIS Consider in Its Investigation?
Both Section 232 and the National Security Industrial Base Regulations set forth multiple factors that BIS may consider in evaluating the impact of imports on national security. Such factors are broad, focusing on the ability of domestic industry to meet national defense needs, as well as on more economic issues such as increased unemployment, decreased tax revenues, and loss of investment or specialized skills and productive capacity. Furthermore, Section 232 does not define the term "national security," further broadening the president and BIS's leeway to interpret the term.
In its prior reports with regard to steel and aluminum imports, BIS's analysis hinged on "the impact of foreign competition on the economic welfare of individual domestic industries" and any "serious effects resulting from the displacement of any domestic products by excessive imports" in "determining whether such weakening of our internal economy may impair the national security." In addition, also with regard to both steel and aluminum, BIS relied on a third factor not explicitly listed in Section 232, namely the "massive" foreign excess capacity for producing both products, which the agency emphasized would subject U.S. producers to increasing competition from imports, often subsidized by foreign national governments.
Given the steel and aluminum precedents, BIS will likely rely on such economic factors for the investigation into imports of automobiles and automotive parts. Thus, we suggest that companies seeking to provide effective comments to Commerce consider focusing on economic factors, which are likely to have the greatest impact on BIS's findings. A Department of Commerce press release on the investigation confirms this hypothesis, at least preliminarily, by focusing on the increase in imports of automobiles and decline of motor vehicle production employment, among other economic factors.
Will the President and Secretary of Commerce Be Involved in the Investigation?
During the two completed investigations into steel and aluminum, both Secretary of Commerce Wilbur Ross and President Donald Trump weighed in heavily in favor of the investigation and the eventual imposition of additional tariffs. Both have already expressed public support for the investigation into automobiles and automotive parts and are likely to continue to do so as the investigation proceeds. In a Twitter message sent on May 23, 2018 anticipating the investigation, President Trump noted that "There will be big news coming soon for our great American Autoworkers. After many decades of losing your jobs to other countries, you have waited long enough!" In a statement the following day, the president added that "core industries such as automobiles and automotive parts are critical to our strength as a nation," providing further insight into the president's thinking. According to the Wall Street Journal, President Trump is considering additional tariffs as high as 25 percent, which may figure into his eventual response to the report from BIS. In addition, the Trump administration has relied on tariff increases under Section 232 to gain leverage in the ongoing renegotiation of the North American Free Trade Agreement (NAFTA) with Canada and Mexico.
Similarly, the Department of Commerce press release on the investigation included a quote from Secretary Ross as to how "imports from abroad have eroded our domestic auto industry." Companies and individuals should take this high-level support for the investigation into account when considering any potential comments or response.
Will There Be Exceptions for Certain U.S. Persons, Automotive Products, or U.S. Trading Partners?
The president has discretion under Section 232 to grant exceptions or exemptions under any additional imposed tariffs. In the case of the prior investigations into steel and aluminum, President Trump announced a 25 percent tariff on certain steel imports and a 10 percent tariff on certain aluminum imports in May 2018, but also announced temporary exemptions from the tariffs to certain U.S. allies to give these countries time to negotiate "satisfactory alternative means" to address U.S. national security concerns. As of the time of the publication of this alert, Canada, Mexico, and the European Union had failed to reach such satisfactory alternative means by the end of the exemption period, meaning that the 25 percent tariff on certain steel imports and a 10 percent tariff on certain aluminum imports would be imposed with regards to those regions on June 1, 2018.
The president also authorized Commerce to provide certain relief from the additional duties for any steel or aluminum products determined "not to be produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality" and is also authorized to provide such relief based upon specific national security considerations. Commerce, in turn, published procedures for affected parties located in the United States to file "exclusion requests" from the additional tariffs. There have been over 10,000 exclusion requests and related comments filed related to steel product exclusions, and another 1,500 requests filed related to aluminum product exclusions.
Should the president decide to impose additional tariffs on automobiles and automotive parts following the new investigation, similar procedures for U.S. allies and/or U.S. persons to apply for exemptions or exclusions from any tariffs that result from the investigation would likely be implemented.
What Has the Response Been to the Announcement of the Section 232 Investigation into Imports of Automobile and Automotive Parts?
International and domestic stakeholders have already weighed in on the automotive Section 232 investigation, expressing diverse and contradictory views that may complicate the imposition of any additional tariffs. Notably, unions associated with the U.S. automobile industry announced their support for the Section 232 investigation, noting the importance of the automotive sector for the U.S. defense industrial base and the allegedly unfair trade practices of several U.S. trade partners that produce automobiles. U.S.-based automakers have largely remained silent on the issue, although shares in such automakers rose once the possibility of the investigation became public. In contrast, non-U.S. automakers have spoken out publicly against the investigation, often noting their extensive U.S. production networks and thousands of U.S. employees. Finally, U.S. trading partners indicated that they would monitor the situation, with China most publicly signaling its opposition to the "abuse of national security clauses" and announcing that it would "resolutely defend our own legitimate interests." In response to the steel and aluminum tariffs imposed after the previous completed investigations, U.S. trading partners have indicated that they may respond with retaliatory measures and/or disputes against the United States before the World Trade Organization (WTO), which may be a risk for any additional tariffs on automobiles or automotive parts as well.
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As the investigation unfolds, affected companies and individuals would be advised to proactively consider how to respond to the prospect of any additional tariffs. Although the status of the current investigation remains unclear, possible response strategies may include submitting comments or testimony according to the process described above, preparing for an exclusion request should such a mechanism be made available for automobiles and automotive parts as was the case for aluminum and steel, or preparing legal and/or operational strategies for adapting to any new tariffs.
Given the ongoing nature of the Section 232 investigation into imports of automobile and automotive parts, we will continue to update the Q&A as appropriate.
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