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(Note: This article was published on InsideTrade.com. The text is provided below due to a paywall on the site.)

Analysts: Section 232 could provide a path to greener steel

December 27, 2022 at 2:00 PM

Section 232 of the Trade Expansion Act of 1962 could provide a path for the U.S. to implement climate-focused trade measures like those the Biden administration are pursuing in partnership with the European Union, according to analysts who have studied how such a mechanism could work.

A proposal sent earlier this month by the Biden administration to the European Commission would establish a consortium of climate-ambitious countries that would agree to impose tariffs targeting carbon-intensive steel and aluminum produced elsewhere, according to a Dec. 7 report in the New York Times. The proposal for a “Global Arrangement on Sustainable Steel and Aluminum” comes more than a year after the two sides launched negotiations for such an arrangement as part of a deal to resolve a dispute over tariffs on the metals imposed by the Trump administration on national security grounds, under the auspices of Section 232.

How the U.S. would implement tariffs under the developing arrangement remains unclear, but Section 232 has several advantages over other possible tools that could be used to enact climate-related trade measures, according to Duke University law professor Tim Meyer and Todd Tucker, director of industrial policy and trade at the Roosevelt Institute. In an August 2020 article the two contended that the tool could help the U.S. work with allies to impose carbon tariffs.

The statute’s definition of national security “pretty clearly encompasses a climate investigation,” Meyer told Inside U.S. Trade in an interview.

Tucker, in a separate interview, noted that the U.S. already has clearly established that the climate crisis represents a major national security risk. Several agencies, including the Defense Department, have identified climate-related national security issues.

If the Commerce Department were to launch a climate-focused Section 232 probe, Tucker said, its findings could ultimately allow the president to take several actions to address national security concerns, including imposing tariffs as well as concluding international agreements.

Such authority, he said, could give the president “another quiver” to address climate issues during a divided government.

The U.S.’ proposal to the EU is still in the early stages, as reported by the Times. A senior U.S. trade official told the paper the administration wanted to engage Congress in the effort. A Dec. 5 report by Bloomberg about U.S.-EU discussions on the developing arrangement suggested another approach under consideration could involve “convert[ing]” the existing Section 232 probe into a new one focused on emissions and overcapacity.

The idea of launching a climate-focused Section 232 probe has been floated in the past by some lawmakers. House Ways & Means Committee member Rep. Bill Pascrell (D-NJ) in 2019 called on Commerce to initiate such an investigation. The department, under the Trump administration, did not act on his request.

The Biden administration, meanwhile, earlier this month drew rebukes from some in the EU when it rejected adverse decisions by World Trade Organization panels that found that the Section 232 tariffs imposed by the prior administration did not qualify for the national security exception.

Despite such reactions, Meyer contended that the bloc could be receptive to efforts to use the tool to address climate concerns if the U.S. were to do so in a way that was “synced up” with the EU’s climate-related efforts -- for example, via the developing arrangement on sustainable steel and aluminum.

Meyer also argued that climate-focused measures adopted under the statute could stand up to challenges at the WTO under an environmental exception, such as Article XX(g) of the General Agreement on Tariffs and Trade. Such measures, he added, need not require a national security exception.

“Just because something is characterized a particular way under national law,” he said, does not mean “it has to be characterized the same way under WTO law.”

Meyer also contended that Section 232 offers several advantages over Section 301 of the Trade Act of 1974 as a tool to address carbon-intensive imports. For one, he noted, the statute is crafted to directly address specific products rather than government policies. Such an approach, he contended, is better suited to inducing cleaner production by the private sector.

The statute also has certain advantages from a “rule-of-law” perspective, Meyer said, noting that Commerce deals more frequently with regular administrative procedures than does USTR, the statutory lead on Section 301. At the same time, any action by the president under a Section 232 investigation is subject to what he described as very deferential review and, accordingly, is unlikely to get “hung up in endless litigation.”

Tucker, in a Dec. 20 op-ed published by the Washington Post, warned that recent WTO rulings, including those on the Section 232 tariffs, threatened to undermine decarbonization efforts -- although he contended that “the practical implications” of the rulings at issue could be limited. Other countries, for example, had already retaliated against the Section 232 tariffs, he noted.

The Section 232 tariffs have sparked controversy at home as well as abroad -- and have spurred efforts by some lawmakers in recent years to rein in presidential authority under the statute, without success. Sen. Pat Toomey (R-PA), who led several such efforts, last week slammed the U.S.’ developing arrangement with the EU as an example of executive overreach under the statute.

“Section 232 will haunt us like a protectionist Frankenstein unless Congress acts to rein in Executive abuse of the law,” he said in remarks delivered on the Senate floor. Toomey is retiring at the end of the year.

U.S. Trade Representative Katherine Tai has repeatedly called for new trade tools to address evolving challenges, a message she reiterated last May as part of a response to a question for the record from Pascrell following a House Ways & Means Committee hearing on the administration’s 2021 trade policy agenda.

Pascrell, noting his support for a climate-focused Section 232 probe, asked Tai to explain the “deficiencies” of tools provided under Trade Expansion Act of 1962 to address climate concerns -- and if she believed the administration required additional authority.

Tai deferred to Commerce on Pascrell’s question about his desire for a Section 232 investigation into imports of carbon emissions, while adding that the statute “was created at a very different time, long before the WTO was founded and when the United States faced very different trade challenges and concerns.”

Although Section 232 “has been an effective tool with respect to the effects of steel and aluminum imports, we need updated tools for the range of problems we are dealing with now,” Tai continued. “In particular, we need offensive tools, in addition to the defensive tools that we already have. There is a lot of opportunity for us to look at the challenges that we are facing and to devise solutions here in the United States and also to work with our allies and partners on multilateral initiatives that we can coordinate using to address our shared interests.”

Meyer noted that new legislation could reduce the risk that the Supreme Court ultimately undoes any efforts stemming from the developing arrangement with the EU. The court has struck down several recent executive efforts citing concerns that agency actions were not sufficiently anchored to authorities granted explicitly by Congress.

The administration, Meyer said, seems “leery” of the possibility that the court would invoke the so-called “major questions doctrine” on issues related to climate.