Originally published by Charles Sartain.
By now, you’ve heard the Trump Administration is conducting a “Section 232 Investigation” into the effect of imported steel and aluminum products on national security. Here’s a primer on the topic.
What is this Section 232 thing anyway?
- Section 232 of the Trade Expansion Act of 1962 authorizes the Secretary of Commerce to conduct investigations to determine the effect on national security of imports of any product.
- On April 19 the Department of Commerce announced it was initiating a Section 232 investigation into foreign steel and aluminum imports. President Trump then called upon the Secretary of Commerce to “prioritize” that investigation.
- Section 232 requires the Secretary of Commerce (Wilbur Ross) notify the Secretary of Defense (James Mattis) that an investigation has been initiated. The Secretary of Commerce then consults with the Secretary of Defense and other agencies to determine whether any “corrective measures” are necessary to protect U.S. national security from excessive foreign imports.
- Though not required, the Department of Commerce typically holds public hearings in connection with a Section 232 Investigation. In this case, public hearings have been held and the comment period is over. Many top officials from foreign and domestic steel producers, importers, and consumers have weighed in with testimony.
- Within 270 days of initiating an investigation, the Secretary must issue a report to the President on whether importation of the product in question is in such quantities or under such circumstances as to “threaten to impair” U.S. national security. In this case, Secretary Ross has indicated the report will be issued sooner, likely by the end of June.
- Based on the Commerce Department report, the President may take action to “adjust the imports” of the goods in question. The primary means of “adjusting imports” is through tariffs, quotas, or hybrid “tariff-quotas” on the imported goods (i.e., tariffs after certain import threshholds are met).
“National Security” – Broader than you think
- U. S. steel producers easily produce enough steel to meet the Department of Defense’s traditional needs (think trucks, tanks, battleships). However, Section 232 Investigations are not limited to these traditional national security concerns. They also consider “the close relation of national economic welfare to U.S. national security” and the effect of a “loss of skills or investment, substantial unemployment and decrease in government revenue” on national security. With these broad parameters, it is no surprise President Trump has utilized Section 232 to effectuate his “America First” message.
What does this mean for America’s energy business?
- To the surprise of many, U.S. energy producers import most of their casing, tubing, and line pipe from overseas. The vast majority of these imports are from Korea, Mexico, and Turkey. While these countries are our allies (Turkey, are you listening?) the Secretary of Commerce has given no indication they will be exempted from any corrective measures implemented as a result of the investigation.
- If significant tariffs are imposed on foreign tubulars, there can be little doubt it will drive the costs of that pipe higher (that’s generally the point). And, when you consider that casing accounts for approximately 8 to 10 percent of the costs of drilling a horizontal well in most American shale plays, it is easy to see how increased casing costs would cause problems for American producers. With oil currently below $45 per barrel, there is little room for increased costs.
Answers any time soon?
- Steel industry players and downstream users have pleaded for more time and a more thorough investigation. Thus, the report may not be issued until as late as January 2018.
- Once the report is issued, the President must then issue corrective measures, which are subject to court challenge. A legal challenge to whatever corrective measures are issued seems a near certainty. It could then take years for challenges to work their way through the courts. And, until it is resolved, forecasting the cost of casing, tubing, and line pipe, will be a guessing game.
Let’s pay a visit to the importers.
Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.
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