U.S. Department of Commerce initiates Section 232 investigation into imports of laminations and wound cores for incorporation into transformers, electrical transformers, and transformer regulators

On Monday, May 4, 2020, the U.S. Department of Commerce (Department) announced its decision to launch an investigation into whether laminations for stacked cores for incorporation into transformers, stacked and wound cores for incorporation into transformers, electrical transformers, and transformer regulators are being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.

The decision to launch an investigation under section 232 of the Trade Expansion Act of 1962, as amended (Section 232), was precipitated by inquiries and requests from multiple members of Congress as well as industry stakeholders.

The investigation will be conducted by the Department’s Bureau of Industry and Security (BIS). On May 19, 2020, BIS issued a Notice of Request for Public Comments regarding the Section 232 investigation.

This marks the sixth Section 232 investigation under the Trump administration.

Current Section 232 investigation
On May 4, 2020, the Department announced its decision to launch a Section 232 investigation into laminations for stacked cores for incorporation into transformers, stacked and wound cores for incorporation into transformers, electrical transformers, and transformer regulators (hereinafter Products). The Department initiated the investigation on May 11, 2020, based on inquiries and requests from interested parties in the United States, including multiple Members of Congress, a grain-oriented electrical steel manufacturer, and producers of power and distribution transformers. Thereafter, on May 19, 2020, the Department issued a Notice of Request for Public Comments (Notice for Public Comments) regarding the Section 232 investigation.

Pursuant to the Notice for Public Comments, the Department has invited interested parties to submit written comments, data, analyses, or information pertinent to this investigation to the Office of Technology Evaluation within BIS. The Department is particularly interested in comments and information directed to the criteria listed in 15 CFR section 705.4 as they affect national security, including the following:

1. quantity of, or other circumstances related to, the importation of the Products;
2. domestic production and productive capacity needed for the Products to meet projected national defense requirements;
3. existing and anticipated availability of human resources, products, raw materials, production equipment, and facilities to produce the Products;
4. growth requirements of Products’ industries to meet national defense requirements and/or requirements for supplies and services necessary to assure such growth including investment, exploration, and development;
5. the impact of foreign competition on the economic welfare of the Products’ industries;
6. the displacement of any domestic production of the Products causing substantial unemployment, a decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects;
7. national defense supporting uses of the Products including data on applicable contracts or sub-contracts, both past and current;
8. country of manufacture for the Products;
9. relevant factors that are causing or will cause a weakening of our national economy; and
10. any other relevant factors, including the use and importance of the Products in critical infrastructure sectors identified in Presidential Policy Directive 21 (February 12, 2013) (for a listing of those sectors see DHS.gov).

The deadline to file comments will be June 9, 2020. All comments must be addressed to Section 232 Electrical Steel Investigation and filed through the Federal eRulemaking Portal, under docket number BIS–2020–0015. Rebuttal comments addressing issues raised in comments will be due by June 19, 2020.

This is the sixth Section 232 investigation under the Trump administration.

Overview of Section 232 investigation process
Section 232 provides the president with broad discretion to adjust imports of an article imported into the United States, “in such quantities or under such circumstances as to threaten to impair the national security.” Any department head, agency head, or “interested party” may prompt the Department to initiate an investigation or the Department may initiate an investigation on its own accord. Once an investigation is requested, the Department has 270 days to provide the president with a report outlining its findings and recommendations. The investigation is conducted by BIS pursuant to federal regulations codified in 15 CFR section 705. During its investigation, BIS is required to consult with the Department of Defense and may choose to consult with other “appropriate officers of the United States.” BIS may also seek input regarding an investigation from the public, typically through a notice published in the Federal Register.

While there is no specific definition of national security under the relevant statute, the investigation must consider certain factors, such as domestic production needed for projected national defense requirements; domestic capacity; the availability of human resources and supplies essential to the national defense; and potential unemployment, loss of skills or investment, or decline in government revenues resulting from displacement of any domestic products by excessive imports.¹

If BIS finds that the subject imports in question raise national security concerns, the president has 90 days to determine whether he accepts BIS’s findings and recommendations and, if so, the actions that will be taken to adjust the subject imports (e.g., tariffs or quotas). The president then has 15 days to implement these actions and 30 days to provide Congress with a statement regarding his decision. The decision must also be posted in the Federal Register. Notably, Congress does not have to approve of a Section 232 determination or action.

Prior to the Trump administration, 26 Section 232 national security investigations were initiated, beginning in 1963. Of the 26 cases initiated, the Department made negative determinations 62 percent of the time; and, in cases where the Department made positive determinations, the president took action six times. Under the Trump administration, there have been five Section 232 investigations and the Department has made positive determinations each time. Two of these cases have led to presidential proclamations imposing tariffs on U.S. imports of certain steel and aluminum products.

Key takeaways
This Section 232 investigation comes on the heels of President Trump’s May 1, 2020 executive order regarding national security concerns associated with the unrestricted foreign supply of bulk-power system electric equipment. Taken together, these actions may signal greater policy considerations regarding the U.S. power grid. Given an increased focus on U.S. energy infrastructure, companies that may be impacted by the results of the Section 232 investigation should consider filing comments.

Companies should also begin evaluating the potential impact that national security-related tariffs may have on their supply chain, and consider mitigation options, particularly in light of the national security-related tariffs currently imposed on aluminum and steel.

1.  19 U.S.C. § 1862(d); 15 CFR § 705.4.

Authors: Yves Melin, Michael J. Lowell, Manasi Venkatesh, Sarah S. Wronsky, Courtney Fisher
Reed Smith Client Alerts – Published on May 19, 2020