Leibowitz on Trade: Setback for Steel & Aluminum 232? WTO Marches (Lurches) On

The WTO has a two-tiered system—the first tier is panels, made up of three trade diplomats or other experts in the WTO agreements. They decide cases in the first instance. If the losing side believes it was not treated fairly, it is allowed to file an appeal to the Appellate Body. It is that body that has ceased to function. Members of the WTO have been wrestling with this issue for months. So far, the Appellate Body is still non-functional and the end of that situation is not in sight.

The United States and the Republic of Korea are engaged in a long-running case that involves antidumping duties on oil country tubular goods from Korea. The three-member panel faulted the U.S. on certain calculations to develop profit margins for sales of Korean OCTG outside the United States. After a “reasonable period of time” to comply, Korea went back to the WTO to claim that the U.S. was not in compliance with the ruling. Korea asked for an arbitrator to determine how much trade was affected by the non-compliance, which would give the amount of retaliatory restrictions Korea could imposed consistent with WTO rules.

The WTO process is, in the best of times, slow and cumbersome. But with the Appellate Body out of commission, the process could literally be endless. In the face of that prospect, the U.S. and Korea agreed on a procedure to move forward.

First, the arbiter would be asked to suspend its work. Second, Korea can request consultations with the U.S. over the alleged non-compliance with the WTO ruling, which dates to 2017. If the consultations don’t lead to a settlement within 60 days, Korea may request a new panel to determine the amount of retaliation that is permitted. The U.S. agreed to permit the establishment of a panel on the first request. Third, if a panel is formed, the two countries agreed that neither would appeal the decision.

This is an unusual situation because it involves a compliance issue rather than a violation issue. In another compliance panel case in January (this time over countervailing duties), the U.S. agreed with India that neither would appeal the compliance panel decision until the Appellate Body resumed its normal activities, signaling an indefinite delay in the resolution of their dispute. In December, the U.S. announced that it would appeal a compliance panel report over the alleged failure of the U.S. to comply with an earlier decision.

As you will note, U.S. administration of antidumping and countervailing duty laws is a major part of the WTO’s case law. The track record of the U.S. in these cases is not good, which is a key reason why the U.S. has put the Appellate Body out of action.

Other countries have also adopted ad hoc measures to keep dispute cases going even without the Appellate Body. Some countries have even agreed to an essentially “off the books” appeal process (akin to commercial arbitration) to keep cases moving. It remains open to conjecture how long this impasse will last.

Derivative Tariffs on Steel and Aluminum—One Company’s Escape from Tariffs (Maybe)

As you read in this column last week, two cases have been filed in the Court of International Trade challenging the president’s latest steel and aluminum proclamation on “derivative” products. Both cases involved steel nails, which were not covered by the Section 232 tariffs in 2018 (and in fact were not included in the steel investigation).

PrimeSource, the company that filed the first lawsuit challenging the Jan. 24 proclamation, asked the Court of International Trade to impose a temporary restraining order against the proclamation. Last Thursday, after the government and PrimeSource reached an agreement, an order was entered by the Court. It prohibits the imposition of the 25 percent “derivative” tariffs on imports by PrimeSource (and only PrimeSource) until further order of the Court. In exchange, PrimeSource agreed to post an importer’s bond of sufficient amount to cover the tariffs, in the event that PrimeSource loses the case.

The entry of an order in favor of a single company, rather than all similarly situated companies, is unusual. Clearly, the government thought that PrimeSource had a good case, and they alleged that they would suffer “irreparable injury” if the tariffs were imposed. A motion for preliminary injunction has been requested. If granted, the injunction would last until the final resolution of the litigation.

The other CIT case, filed by Oman Fasteners, also requested a TRO and preliminary injunction, but the government has not responded to that motion as yet. We could hear more about that case in the coming days.

At the very least, the long-term viability of the Section 232 tariffs, at least as applied to “derivatives” of steel and aluminum, seems to be on shaky ground.

Obviously, there is more to come.

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