The United States Court of International Trade has rejected a Constitutional challenge to the “national security” tariffs imposed by the President on certain steel and aluminum products, pursuant to Section 232 of the Trade Expansion Act of 1962.

In American Institute for International Steel, Inc. v. United States, Slip Op. 19-37 (March 25, 2019), a three-judge panel of the CIT held that it was bound by the Supreme Court’s decision in Fed. Energy Administration v. Algonquin SNG Inc., 426 U.S. 548 (1976), which held that Section 232 contains an “intelligible principle” for the delegation of Congressional trade powers to the Executive, and therefore did was not offensive to constitutional “separation of powers” requirements.

Writing the opinion for the Court, Judge Claire A. Kelly, joined by Judge Jennifer Choe-Groves, turned aside the contention of the plaintiff steel importers that Algonquin had concerned only whether the specific type of relief (restraints on exports of foreign oil to the United States) was permissible under Section 232, and not the question of whether the statute itself represented an improper delegation of Congress’ powers over imports. But the Court noted that the Supreme Court in Algonquin had reached both the remedy issues and delegation issues, so that the CIT was bound by the Supreme Court’s determination that Section 232 did not contain an impermissible delegation.

The CIT also held that, because Section 232 commits the decision whether to “adjust imports” to the President’s discretion, his decision was “not subject to review for rationality, findings of fact, or abuse of discretion”. This must be distinguished from cases where the claim is that the President lacks power to act under the statute.

Rejecting the plaintiff’s claim that Section 232 was unconstitutional because the discretion granted the President was seemingly unlimited, the CIT acknowledged that “the broad guideposts of subsections (c) and (d) of section 232 bestow flexibility on the President and seem to invite the President to regulate commerce by way of means reserved for Congress, leaving very few tools beyond his reach”. The Court suggested that Section 232 actions “plainly unrelated to national security” would be in excess of the President’s authority. But the Court declined to delve into the gray areas which might exist.

Judge Gary Katzmann filed an opinion dubitante, meaning that he disagreed with aspects of Judges Kelly’s and Choe-Groves’ decision, but joined in the decision because he was bound by the Supreme Court’s Algonquin precedent. But he clearly has some concerns with the breadth of prior interpretations of Section 232.

First, he noted that the Constitution vests only in Congress the power to “Lay and collect . . . Duties”, which he defined as a “core legislative function”. While he seemed to agree that a President might impose quotas or import licensing requirements, Judge Katzmann expressed “grave doubts” about whether Section 232 could constitutionally grant the President the power to impose duties themselves. He noted that in other tariff cases involving the question of delegation, Congress had set the basis for assessing duties (e.g., cost equalization under Section 336 of the Tariff Act), and left it to the President to act as fact-finder, to determine how those duties shall be calculated. Where Congress imposes a duty, but needs assistance (for example of the Tariff Commission) to obtain data, this is acceptable, because the imposition of the tariff was made by the Congress.

While acknowledging that Section 232 grants broad powers, Judge Katzmann noted that the President is free under Section 232, to disregard the findings of the Secretary of Commerce and to impose tariffs without an explanation. [“There is no rationale provided for how a tariff of 25% was derived in some situations, and 10% in others”]. He suggested the Supreme Court might want to revisit some of its assumptions, noting that Algonquin’s holding was a limited one. “If the delegation permitted by section 232, as now revealed, does not constitute an excessive delegation in violation of the Constitution, what would?”

Next Steps:

There seems little point in seeking a rehearing in the CIT. Under 28 U.S.C. §1253, AIIS and the other plaintiffs may directly seek review of this decision in the United States Supreme Court. However, they have docketed an appeal with the United States Court of Appeals for the Federal Circuit, maintaining that a direct entreaty to the Supreme Court would be a “distraction”.

How Will this Affect Section 232?

There is legislation pending in Congress that seeks to cut back on the President’s Section 232 authority, for example by requiring Congressional approval before any Presidential action under that statute can be taken. The decision is likely to give more urgency to those efforts. In addition, the President already has a report from the Secretary of Commerce, indicating that he could impose Section 232 tariffs on imported automobiles. While the report has not yet been made public – word is the President’s advisers are wary of him imposing more Section 232 tariffs – the AIIS decision suggests that such tariffs, if announced, would be upheld.

What About Drawback on Section 232 Duties?

The President, in his proclamations imposing Section 232 tariffs on steel and aluminum products, indicated that such tariffs were not eligible for duty drawback. We have questioned whether the President’s ability to “adjust imports” under the tariff extends to the ability to limit drawback payments, which are triggered by exportation or destruction of foods. The AIIS decision does not answer this, and we believe it remains an issue ripe for judicial determination. Certainly, the CIT agrees that Presidential powers under Section 232 are broad, but not unlimited.

We stand ready to answer any questions you may have regarding this decision or the Section 232 tariffs on aluminum or steel products generally.