Following instructions from President Trump, on May 23, 2018, Department of Commerce (DOC) Secretary Wilbur Ross launched an investigation to determine whether imports of automobiles and automotive parts threaten the national security of the United States. The investigation will be conducted pursuant to Section 232 of the Trade Expansion Act. This action follows the administration’s recent Section 232 investigation on targeted steel and aluminum imports, which resulted in the assessment of 25 percent and 10 percent additional duties, respectively.
Section 232 authorizes the Commerce Secretary to investigate whether products are being imported into the United States “in such quantities, or under such circumstances as to threaten to impair the national security….” Until recently, the statute was seldom utilized. While the statute allows interested parties to file requests for Section 232 investigations, it also allows the DOC to self-initiate an investigation—such as in this case. Section 232 directs the DOC to consult with the Secretary of Defense regarding policy questions and review methods raised in the Section 232 investigation. The DOC may also provide the public with an opportunity to comment, and if the DOC deems appropriate, hold public hearings.
Pursuant to the statute, the Commerce Secretary must submit a report to President Trump no later than February 17, 2019, 270 days from the initiation of the investigation, detailing the findings of the investigation. The president will then have 90 days to determine whether he accepts the findings of the report and, if he does, what actions should be taken. The president must also submit a report to Congress within 30 days of making such a determination.
This Section 232 investigation on imported automobiles and automotive parts is expected to be more involved than the administration’s recently concluded 10-month investigation of aluminum and steel imports. Further, it should be viewed in relation to the ongoing trade negotiations with Mexico and Canada for the NAFTA renegotiation, as well as associated ongoing trade talks with China and Japan, so time lines may be impacted based on these discussions.
Section 232 explicitly requires the Commerce Secretary and the president to “recognize the close relation of the economic welfare of the Nation to our national security.” As such, DOC regulations implementing Section 232 identify certain national security and economic factors to consider. The national security factors are:
- Domestic production needed for projected national defense requirements (NDR).
- Capacity of the domestic industry to meet projected NDRs.
- Existing and anticipated availabilities of human resources, products, raw materials, production equipment and facilities, and other supplies and services essential to the national defense.
- Growth requirements of domestic industries to meet NDRs and the supplies and services including investment, exploration and development necessary to assure growth.
- Any other relevant factors.
The economic factors are:
- The impact of foreign competition on the economic welfare of any domestic industry essential to the national security.
- The displacement of any domestic products causing substantial unemployment, decrease in the revenues of government, loss of investment of specialized skills and productive capacity, or other serious effects.
- Any other relevant factors.
This is the third self-initiated Section 232 investigation under the Trump administration, which seems to be using any statutory mechanism available to support domestic industries, with this action focused on the U.S. auto industry. The DOC has stated that the “investigation will consider whether the decline of domestic automobile and automotive parts production threatens to weaken the internal economy of the United States.”
As with the recently concluded steel and aluminium section 232 investigations, this investigation suggests that it may result in some restraint on the import of automobiles and automotive parts. Early reports suggest that tariffs could jump up to 25 percent on automobiles and automotive parts. If duties or other restraints are imposed, they will likely be challenged by U.S. trading partners at the World Trade Organization. The Japanese trade minister, Hiroshige Seko, has already voiced concern over potential restraints stating, “If it comes into effect, it would cause very broad restrictions on trade and create disarray in global markets. It is very regrettable.”
For inquiries or further information, please contact the authors below or any other member of Drinker Biddle’s Customs and International Trade Team.