Trade Updates for Week of April 11, 2018

United States Court of International Trade

 

Preliminary Injunction Denied in 232 Case

Earlier this year the President imposed a 25 percent ad valorem tariff on imports of steel (the “Steel Tariff”) under the authority of Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. § 1862, which allows the president to impose trade restrictions on imports that threaten U.S. national security based on findings from the Secretary of Commerce. The President’s proclamation invites countries to negotiate alternative arrangements to address the national security threat, and exempts Canada, Mexico, and South Korea permanently, and Australia, Argentina, Brazil, and the European Union temporarily.

In response, in Severstal Export GMBH and Severstal Miami Corporation v. United States et al., Court No. 18-57, Slip Op. 18-37 (public version April 6, 2018), a domestic importer and Swiss exporter (collectively, “Severstal”) of Russian steel filed suit in the U.S. Court of International Trade to challenge the lawfulness of the Steel Tariff. Severstal argues that the President has exceeded his authority under Section 232 because the Steel Tariff is being imposed for economic rather than national security reasons.  In a decision dated Thursday, April 5, Senior Judge Jane A. Restani, after accepting probable jurisdiction to hear the challenge, denied Severstral’s request for a preliminary injunction against the Steel Tariff, holding that it is insufficiently likely Severstal will succeed on the merits of the case.

Section 232 allows the President to act only as necessary “to adjust the imports of [an] article and its derivatives so that such imports will not threaten to impair the national security.”  The core of Severstal’s argument is that the President exceeded his authority under Section 232 by “over-reading what can constitute a threat to national security” and using the Steel Tariff in trade negotiations to draw concessions unrelated to steel imports, as evidenced by Twitter statements and certain campaign rhetoric from the President regarding renegotiation of the North American Free Trade Agreement (NAFTA). However, Judge Restani explained that the factors that Commerce must and did consider under Section 232 are largely economic in nature and not limited to production for national defense alone. Commerce had found that the domestic steel industry is vital to national security, and thus the economic health of the domestic steel industry may indeed threaten national security, and that other economic benefits may follow was not inconsistent with the statute.

The Court did first agree that Severstal would suffer a marginally sufficient level of irreparable harm without preliminary relief. Severstal explained that at the time the Steel Tariff was imposed, Severstal was under contract to import certain Russian steel landed, duty-paid, under which terms Severstal would upon entry be responsible to the government to pay any tariff assessed, and which goods would be subject to the Steel Tariff; furthermore, the company had since suspended and would continue to suspend all U.S. sales in light of the Steel Tariff. While the value of an injunction to any pending sales would be minor because Severstal’s sales process lasts nearly four months, by which time the trial should have proceeded, the Court found that the additional tariffs would likely force the closure of the domestic importer given the unequal footing resulting from the exemption of other countries from the Steel Tariff. In the end though, this level of harm, plus a slight favor in the balance of hardships, was not enough to overcome the low likelihood of success on the merits necessary for an injunction.

 

Temporary Restraining Order Granted in Part

In U.S. Auto Parts Network v. United States et. al. Slip Op. 18-36, Court No. 18-00068 (April 6, 2018) the Court heard arguments about plaintiff’s request for a temporary restraining order (“TRO”) against Customs from requiring plaintiff to provide a single entry bond for each of their shipments. The bond amount would need to be three times the amount of the shipment. The government argued the bond will serve as a deterrent against importing counterfeit goods, as opposed to individually inspecting each shipment. For the following reasons the Court granted plaintiff’s request for a TRO “with respect to the subject merchandise not alleged to be infringing.” Id. at 13. The Court denied the TRO, with respect to infringing goods.

The issue in the case was whether plaintiff met the standard for a TRO. The Court weights four factors while deciding on a TRO, “(1) whether the party will incur irreparable harm in the absence of such order or injunction; (2) that the party is likely to succeed on the merits of the action; (3) that the balance of hardships favors the imposition of temporary equitable relief; and (4) that the temporary restraining order or injunction is in the public interest.” Id. at 5. No one factor is dispositive. The Court agreed with plaintiff that it could suffer irreparable harm because the company had not been able to find a surety willing to cover the bond requirement, which endangered the sustainability of the business. The next factor the Court considered was the balance of hardship. The Court found for plaintiff because they face “closing of its business, loss of reputation, loss of customers, and other potentially permanent consequences.” Id. at 8. In regards to likelihood of success on the merits of plaintiff’s two main claims under the APA and for a violation of due process, the Court concluded that “based on the facts available at this juncture of the action, Plaintiff has shown a likelihood of success on the merits with regards to its claims under the Administrative Procedure Act,” but not in regards to its due process claim. Id. at 10. The final factor considered was public interest. The Court concluded, “the public interest factor alone would be in defendants’ favor, since the public benefits from the efficient administration and enforcement of the law.” Id. at 12.

 

United States Court of Appeals for the Federal Circuit

 

Snacking Sunflower Seeds are Classified as Prepared or Preserved Products

In Well Luck Company, Inc. v. United States, Court No. 2017-1816 (April 11, 2018), the Federal Circuit reviewed the decision of the Court of International Trade (CIT) in the classification of in-shell sunflower seeds for snacking imported by plaintiff.  While the Court determined that in-shell sunflower seeds were prima facie classifiable under Harmonized Tariff Schedule (HTS) Headings 1206 and 2008, the Court held pursuant to Rule 3(b) of the General Rules of Interpretation, that the subject seeds were more specifically covered under Heading 2008 because the seeds are prepared by wet-cooking, salting, roasting, and flavoring.  Seeds under Heading 1206, which covers “[s]unflower seeds, whether or not broken” are not processed in ways that would alter the seeds from their character as natural products.  For these reasons the Federal Circuit, affirmed the CIT’s decision to classify the sunflower seeds under Heading 2008.19.60, covers “[f]ruit, nuts and other edible parts of plants, otherwise prepared or preserved, whether or not containing added sugar or other sweetening matter or spirit, not elsewhere specified or included: [n]uts, peanuts (groundnuts) and other seeds, whether or not mixed together: [o]ther, including mixtures: [o]ther.”