Reconsidering Section 232 Exclusion Requests?

Recent developments in a lawsuit challenging a decision by the U.S. Department of Commerce suggest that opportunities may exist for reconsideration of Section 232 exclusion requests and denials.

To recall what we all already know: Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. § 1862, authorizes the President to undertake various actions, such as imposing tariffs and quotas on imports, in order to alleviate risks to the national security. In 2018, after a process conducted by the U.S. Department of Commerce, the President adopted tariffs and quotas on imports of a broad range of steel and aluminum products from a broad range of countries. Further, Commerce set up a process whereby importers can apply for exclusions from the tariffs for individual steel and aluminum products, and domestic producers can oppose such applications. Thousands of exclusion applications have been submitted, some have been granted, and many have been denied due to domestic opposition. Finally, many lawsuits have been commenced in the U.S. Court of International Trade, challenging both the imposition of the Section 232 tariffs and the Department’s refusal to grant exclusions. Most of the lawsuits have failed, but a few have not.

In one pending case, Maple Leaf Marketing challenged Commerce’s denial of two exclusion requests on a number of grounds, procedural, factual, and constitutional. On June 22, a three-judge panel granted the Government’s motion to dismiss all of Maple Leaf’s allegations except one, which focused on the facts underlying Commerce’s evaluation of the exclusion request and the opposition filed by a domestic producer. Maple Leaf Marketing, Inc. v. United States, Slip Op. 21-77.

Facing litigation on the remaining claim, the Government, on July 20, filed a consent motion for voluntary remand to permit Commerce to reconsider its denial of Maple Leaf’s exclusion request. Its motion recognized that in another recent case, JSW Steel, Inc. v. United States, 466 F. Supp. 3d 1320, 1330 (Ct. Int’l Trade 2020), the Court had found that Commerce’s denials of the exclusion requests at issue were “devoid of explanation and frustrate judicial review.” The Government also noted that the Bureau of Industry and Security (the office within Commerce that administers the Section 232 programs) had engaged in communications with individual parties in Section 232 proceedings, without preparing contemporaneous documentation of such contacts. “A remand for Commerce to reconsider the original exclusion requests and submissions will eliminate any potential disputes about the completeness of the current record.” Defendants’ Consent Motion for Voluntary Remand, Court No. 20-00125, at 4 (July 20, 2021).

Thus, on both substantive and procedural grounds, the Government justified the need for reconsideration of the denial of Maple Leaf’s exclusion application. The Court granted the motion on the same day. It set a deadline of October 18 for Commerce to file the results of its remand.

In its motion for remand, the Government noted that there are over 19,000 pending exclusion requests, and over the past three years thousands of such requests have been denied. For importers whose requests have been denied, it may be worthwhile evaluating the factual record and circumstances surrounding the denial to determine if grounds exist to challenge or seek reconsideration of Commerce’s decision. Likewise, for importers with pending exclusion requests, opportunities may exist to ensure that an adequate record is developed for Commerce’s decision and that appropriate processes are followed.

For questions regarding the Section 232 process and litigation options, please contact us at neil@neilellislaw.com.

A Tale of Two Appellate Decisions

The Court of Appeals for the Federal Circuit issues relatively few substantive decisions within its trade jurisdiction, and a month or more can pass without a single precedential decision in that field. So it was unusual that three precedential trade decisions were issued on consecutive days during the past week – TransPacific Steel LLC v. United States (No. 20-2157) on Tuesday, TR International Trading Co. v. United States (No. 20-1830) on Wednesday, and Stupp Corp. v. United States (No. 20-1857) on Thursday. This note addresses the first two; analysis of the third opinion, while interesting, will have to wait.

Considering the first two opinions, TransPacific immediately looks important, while TR International appears narrow and technical. But when considered through the prism of litigation planning for U.S. importers, the latter opinion is at least as important as the former.

The importance of TransPacific is evident because it confronts questions of the balance of power among the branches of government. In particular, the Court of Appeals was asked to interpret an expansive statutory delegation of authority to the Executive Branch in light of the U.S. Constitution’s vesting the Legislature with exclusive authority to regulate foreign trade and impose taxes and tariffs. U.S. Const., Art. I, § 8. As we have all learned over the past few years, Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. § 1862, delegated authority to the President to take a range of trade-related actions in order to alleviate a threat to the national security posed by imports. Both the term “national security” and the range of actions that the President may take are broadly defined. But the statute spells out in detail the procedures to be followed and deadlines that “shall” be met, before such actions may be taken. In its simplest terms, the question in TransPacific is whether those deadlines are mandatory.

In reaching a negative answer to that question, the majority opinion attempted to avoid potential constitutional issues by carefully parsing the statutory language and legislative intent. The opinion rested, in part, on the meaning of the word “action” as found in the statute – as distinguished from the word “act” – and on the intent of Congress in amending the Act in 1988, where the legislative history made clear the Congressional frustration with Presidential inaction in previous cases. Judge Reyna, in dissent, addressed the constitutional issues directly, by arguing that, in light of the Constitution’s vesting of trade regulatory authority in the Legislative Branch, Congressional delegations of that authority to the Executive Branch should be interpreted narrowly. Relying on this underlying principle, the dissent dismissed the majority’s interpretation of the law as “statutory leapfrog, hopping here and there but ignoring what it has skipped.” Slip Op. at 56.

The importance of TransPacific is indisputable in terms of broad issues of the relations among the three branches of government in the regulation of trade. However, the practical significance of the Court’s decision in TR International should not be overlooked. Here, the Court of Appeals broke no new ground, but reaffirmed its consistent position that jurisdiction for judicial review of the trade agencies’ decisions cannot be invoked through the “residual” provision of 28 USC § 1581(i) when direct substantive review options exist.

TR International involved a determination by U.S. Customs and Border Protection that the processing of a food additive (citric acid) in India was not sufficient to establish Indian country of origin. Because the country of origin of the primary input was unknown, CBP presumed that it was of Chinese origin – and hence subject to the U.S. anti-dumping and countervailing duty orders (and tariffs) on Citric Acid from China. The importer challenged CBP’s determination both by protest and launching a lawsuit pursuant to the Court of International Trade’s residual jurisdiction under Section 1581(i), claiming, inter alia, that CBP’s actions were ultra vires and procedurally defective. The Court of International Trade dismissed the lawsuit, and the Court of Appeals affirmed.

The Court noted that other avenues for judicial review were available and that 1581(i) “‘may not be invoked when jurisdiction under another subsection of [section] 1581 is or could have been available, unless the remedy provided under that other subsection would be manifestly inadequate’.” Slip Op. at 6 (quoting Sunpreme Inc. v. United States, 892 F.3d 1186, 1191 (Fed. Cir. 2018)). Here, the Court noted that the denial of a protest may be subject to judicial review under subsection (a) of Section 1581. Likewise, to the extent that the importer was challenging a finding that the Indian merchandise fell within the “scope” of the Citric Acid orders, the Court of Appeals noted that the Department of Commerce has the authority to interpret the scope of anti-dumping and countervailing duty orders, and that scope rulings are also expressly subject to judicial review under subsection (c) of Section 1581.

In light of this well-established precedent, it is important, when preparing a litigation strategy, to identify the correct jurisdictional bases and to remain aware of the applicable deadlines for judicial review. Although the timing issue did not arise in TR International, jurisdictional deadlines cannot be extended, and residual jurisdiction cannot be invoked to elide the expiration of deadlines under the proper jurisdictional bases. In light of the increasingly expansive application of circumvention and scope determinations by Commerce and CBP’s increasingly rigorous application of duties on entries, this lesson is as important as the separation of powers issue handled by the Court in TransPacific.

Some Afterthoughts on the Supreme Court’s NCAA Opinion

On June 21, the U.S. Supreme Court issued its opinion in NCAA v. Alston, which continues the exploration of the applicability of federal antitrust to sports – and particularly, the business of collegiate sports. In this lawsuit, the Supreme Court was asked to consider whether a narrow range of NCAA restrictions on student-athlete compensation violated the Sherman Act’s prohibition of “conspirac[ies] in restraint of trade.” 15 U.S.C. § 1. Several compensation restrictions were challenged by the student-athletes, but the trial court rejected most of them and found only that limits on certain education-related benefits (such as prohibitions on graduate and vocational school scholarships) ran afoul of the Sherman Act. Accordingly, it imposed an injunction prohibiting those practices, and the Ninth Circuit affirmed.

The Supreme Court took the case, and unanimously affirmed. Put succinctly, the Court noted that “this suit involves admitted horizontal price fixing in a market where the defendants exercise monopoly control” (Slip Op. at 14) – later explaining that what was involved here was a buyer-side monopoly (a monopsony), because the NCAA was restraining the purchase of the services of student-athletes. Of course, the existence of a “monopoly” is not a necessary element for a Section 1 claim, but the NCAA’s concession on that point obviated the exploration of difficult Section 1 questions of market definition and market power – which, as the Court noted, often doom challenges to practices not subject to per se condemnation.

The Court explained that the challenged restrictions were properly analyzed under the Rule of Reason, and concluded that the justifications put forth by the NCAA either were non-cognizable under the antitrust laws (Slip Op. at 22-24) or could have been achieved through “substantially less restrictive means”. Slip Op. at 28-29. The Court dismissed NCAA’s reliance on NCAA v. Bd. of Regents, 468 U.S. 85 (1984) (“NCAA 1984”), explaining that this case could not be resolved through a “quick look” application of the Rule of Reason, either to condemn or salvage the challenged conduct. Slip Op. at 17-19 (citing NCAA 1984, 468 U.S. at 110; American Needle, Inc. v. National Football League, 560 U.S. 183, 203 (2010)).

In the days since the opinion was issued, there have been predictions that it spells the inevitable end of other NCAA practices that escaped condemnation solely because of the posture of this case. To a large extent, such prognostications are based on the statements in Justice Kavanaugh’s concurring opinion, in which he “underscore[d] that the NCAA’s remaining compensation rules also raise serious questions under the antitrust laws” (Concurring Op. at 2), and stated that “[t]he NCAA’s business model would be flatly illegal in almost any other industry in America.” Concurring Op. at 3. This may very well foretell a coming reckoning.

But majority opinion was more cautious, and identified the limits of this decision. Its caution was articulated in several ways: First, the Court noted the limited substantive scope of the dispute as presented, in which a number of key, and sometimes difficult, issues required for an antitrust analysis were conceded. These issues include not only market definition and market power (noted above), but also that the NCAA’s restrictions suppressed compensation to the student-athletes, which, in turn, suppressed their participation in the labor market. Slip Op. at 14.

Second, the Court reiterated the caution expressed in previous cases that intrusive judicial intervention in business arrangements is to be avoided. In doing so, it pointed to the frequently-quoted statement in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 (2004), that the “mistaken condemnations of legitimate business arrangements” through overly expansive application of antitrust rules “are especially costly because they chill the very procompetitive conduct the antitrust laws are designed to protect.” Slip Op. at 27. And it endorsed the usual precaution that “[j]udges must be mindful of their limitations – as generalists, as lawyers, and as outsiders trying to understand intricate business relationships.” Slip Op. at 35.

Third, the Court noted that, when a “quick look” is not suitable to resolve the antitrust issues involved, the very concept of the Rule of Reason generally entails a full exploration of market definition and market power. Quoting California Dental, it explained that “[t]he whole point of the rule of reason is to furnish ‘an enquiry meet for the case, looking to the circumstances, details, and logic of a restraint’ to ensure that it unduly harms compe­tition before a court declares it unlawful.” Slip Op. at 25 (quoting California Dental Ass’n v. FTC, 526 U. S. 756, 781 (1999)). Recognizing this heavy antitrust litigation burden, the Court repeatedly commended the district court for its thorough analysis and for amassing a detailed factual record.

And finally, the Court reaffirmed the basic principle, articulated in NCAA 1984, that some “horizontal restraints on competition are essential if the product” – i.e., collegiate football – “is to be available at all”. Slip Op. at 19 (quoting NCAA 1984, 468 U.S. at 101-02). Thus, the task required of a court confronting challenges to joint venture restrictions is twofold – (1) to determine the appropriate analytic framework – i.e., the “enquiry meet for the case” – and then (2) to develop a record that, pursuant to that framework, enables a determination of the antitrust significance of the challenged conduct. No small task.

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Neil Ellis was a member of the U.S. Department of Justice’s team that participated as amicus in the appellate litigation in the 1982 NCAA lawsuit, which led to the Supreme Court’s NCAA 1984 decision. Please contact us at neil@neilellislaw.com for more information on antitrust issues involving joint ventures among competitors.