Comments on Section 232 National Security Investigation of Imports of Steel
From Steve Charnovitz, George Washington University Law School
April 26, 2017
DOC Billing Code 3510-33-P
The idea that imports of goods, services, or capital could undermine national security is farfetched. Imports serve to supplement domestic capacity and therefore provide more options to governments and to the private sector. Just as Benjamin Franklin taught us that no nation was ever ruined by trade, the same is generally true for national security; no nation can ruin its national security by having more supply.
To be sure, an analyst could lay out certain conditions in which a reliance on foreign imports could lead to a risk of a shortage from a foreign embargo. In such a situation, the appropriate instrument would be to stockpile the commodity as the United States has done intermittently for over a century. Another instrument would be to try to prevent supplying countries from barring exports of that strategic good to the United States. Rules to that effect was included in the General Agreement on Tariffs and Trade (GATT) in 1947 largely due to US leadership. In recent years, the United States brought an important case against China in the World Trade Organization (WTO) to oppose China’s export barriers on rare earths. That case hinged on China-specific WTO law.
Of all the sectors in the world economy, steel is probably the sector for which there is the smallest risk of a shortage due to reliance on foreign imports. As Secretary Ross noted in his Press Briefing on April 20, 2017, the US domestic steel industry is “only operating at about 71 percent of capacity.” As for the availability of foreign steel, Secretary Ross explained that there was an “overcapacity” of steel in global markets. If there is unused US domestic steelmaking capacity and a glut of foreign steel, then obviously no real security risk exists from importing foreign steel.
Section 232 is titled “Safeguarding National Security.” Section 232(b) directs the Secretary of Commerce to determine the effects on the national security of imports of the investigated article, which in this case is steel. The law also states that if the Secretary finds that steel “is being imported under such circumstances as to threaten to impair the national security, the Secretary shall so advise the President in such report.” Thus, the purpose of Section 232 is to protect US national security, not to protect particular industries that happen to be politically favored. Of course, it is true that Section 232(b) is supplemented by 232(d) which expands the scope of the investigation to consider whether foreign competition affects the welfare of individual domestic industries in a way that could lead to a “weakening of our internal economy” that “may impair the national security.” But even here, the bottom line is that the imports have to impair national security in order to be actionable under Section 232(b).
Given the limited scope of Section 232, the unused capacity in US steelmaking, and the glut in foreign steel availability, the only justifiable conclusion from the ongoing Section 232 investigation would be that imported steel does not impair US national security.
Among the topics on which the Department has specifically requested public comments are: (h) relevant factors that are causing or will cause a weakening of our national economy and (i) any other relevant factors. Having explained above why imported steel does not currently impair national security, I would also like to comment on those two additional relevant factors.
First, if an affirmative finding under this study led to steel import restraints, such as tariffs or quotas, such action would be found to be a violation of GATT Articles II or XI (and possibly Article I) and would not be defensible under GATT Articles XX or XXI. Any violation of WTO law by the United States weakens the rule of law in the global economy and cannot help but hurt the US national economy since the United States is the largest beneficiary of the open world trading system.
Second, any downward adjustment of steel imports could also lead to retaliation by our trading partners including actions that would truly undermine US national security. For example, should the United States ban freely traded imports of steel from China for bogus national security reasons, China could respond by being less cooperative in helping to protect the United States and our ally South Korea from attacks by North Korea. Countries that supply critical commodities to the United States could also retaliate by withholding access to those commodities.
In conclusion, the Commerce Department has important things to do under an Administration that has promised to make American great again. I hope that this investigation can be put to bed quickly so that the Department can move on to solving the serious problems undermining US economic growth and job creation.
