Government’s Failure to Adhere to Statutory Procedural Obligations Could Lead to Refunds of Section 232 Duties

A recent legal challenge to the Section 232 tariffs imposed on steel and aluminum imports is the latest reminder that, even though the United States Government may have broad authority to impose tariffs on these goods, adherence to procedural obligations is required (including an obligation to render an administrative decision on a complete and accurate administrative record). The Government’s failure to meet its procedural obligations led to refunds of Section 232 duties in recent litigation — and could lead to more.

Background

In January 2018, the Trump administration invoked Section 232 of the Trade Expansion Act of 1962 — a Cold War-era law that authorizes the president to impose tariffs and other trade restrictions upon a determination that targeted goods are being imported into the United States “in such quantities or under such circumstances as to threaten to impair the national security” — in relation to imported steel and aluminum products. Following an investigation and determination that steel and aluminum imports threatened to impair U.S. national security, the Trump administration imposed a 25% ad valorem tariff on steel imports and a 10% ad valorem tariff on aluminum imports for certain non-exempt countries.

In conjunction with these new trade restrictions, the U.S. Department of Commerce also implemented an exclusion process, whereby affected importers could petition for an exemption from the Section 232 tariffs upon a showing that an affected product is not produced in the United States “in a sufficient and reasonably available amount or of a satisfactory quality or based upon specific national security considerations.” Many importers took advantage of this exclusion process with some exclusions being granted, while others were denied.

Recent Litigation at the Court of International Trade

On September 4, 2018, Borusan Mannessmann Pipe U.S. Inc. (BMP) — a U.S. producer of steel pipe and tube products — submitted 19 Section 232 exclusion requests covering certain semi-finished steel pipe products manufactured by its parent company in Turkey. BMP argued such exclusions were appropriate, in part, because these products were not produced in the United States in a sufficient and reasonably available amount or in a satisfactory quality. However, after a handful of domestic competitors submitted objections to BMP’s exclusion requests, the Department of Commerce ultimately denied the requests on June 28, 2019, finding that the subject steel pipe products are “produced in the United States in a sufficient and reasonably available amount and of a satisfactory quality” and that “no overriding national security concerns require that this exclusion request be granted notwithstanding domestic availability.”

On January 17, 2020, BMP filed suit in the U.S. Court of International Trade challenging the Government’s denial under the Administrative Procedures Act (APA). Borusan Mannesmann Pipe U.S., Inc. v. United States, Court No. 20-00012. BMP asserted that the Government, in rendering its decision, relied on a series of inaccurate and incomplete statements from domestic competitors related to their respective abilities to produce a sufficient quantity and quality of the impacted products. For example, BMP noted several competitors provided a statement affirmatively demonstrating they could not supply the targeted goods “immediately,” as required by the applicable federal regulations; while other competitors failed to provide any statement as to the period of time it would take to supply the targeted goods. BMP further noted several competitors made statements demonstrating a failure to meet BMP’s technical specifications and internal company quality controls; while one competitor failed to submit any evidence related to quality control altogether.

No more than two months later (and without filing a responsive pleading), the Government sought a remand to the Department of Commerce to “review and complete the administrative record” and “reconsider its final determination.” The Government’s expression of doubt as to the accuracy of exclusion decisions not only led to a remand and the consideration of new evidence, but eventually, to a reversal. Namely, on October 14, 2020 — less than one year after the case was filed — the parties announced they reached a confidential settlement whereby the Government agreed to refund BMP, in full, Section 232 tariffs on an unspecified list of impacted products.

The BMP case underscores the opportunity for similarly aggrieved importers and portends of further litigation in this area. In fact, as recently as November 20, 2020, a lawsuit was filed in the U.S. Court of International Trade contesting the Government’s denial of 88 exclusion requests for steel slab products and line pipe from Russia, Canada and Mexico (EVRAZ Inc. NA v. United States, Court No. 20-003869). EVRAZ alleged that for each exclusion denial — which were issued between February 2019 and March 2020 — the Government provided “virtually identical, rote, boilerplate denials” and failed to acknowledge or address certain facts in the administrative record concerning a lack of domestic availability. According to EVRAZ, the Government’s actions resulted in the unlawful payment of “tens of millions of dollars” in Section 232 duties. Therefore, EVRAZ is seeking a judgment declaring that the Government’s exclusion denials were arbitrary and capricious under the APA and that it is entitled to the relief requested in all Section 232 exclusions.

While far from common, there has been a string of successful Section 232 lawsuits over the past year involving similar procedural challenges, many of which resulted in company-specific injunctive relief and even, in the case of BMP, full refunds of Section 232 duties. Despite the uncertainty surrounding the upcoming change in administration — including its impact on the existing Section 232 tariffs and exclusions — these cases continue to signal to importers that the Government’s adherence to procedural obligations (including its reliance on a complete and accurate record) cannot be taken for granted. Although limited to Section 232 duties, these cases may indicate an opportunity to challenge exclusions for Section 301 tariffs.

For More Information

If you have been denied an exclusion under either Section 232 or Section 301 and have questions or are interested in discussing options for preserving your rights to potential duty refunds, please contact the authors or any member of Faegre Drinker’s Customs and International Trade Team.