On Monday, May 4, the U.S. Department of Commerce (“Commerce”) announced that it will initiate an investigation into imports of key electrical transformer components due to national security concerns. The investigation will be conducted under Section 232 of the Trade Expansion Act of 1962 (19 U.S. Code § 1862) and will cover “laminations for stacked cores for incorporation into transformers, stacked and wound cores for incorporation into transformers, electrical transformers, and transformer regulators.” The Secretary of Commerce will notify the Secretary of Defense of the investigation by letter, as required by law.
If Commerce determines that these imports threaten to impair national security, Commerce will have 270 days from the initiation date of the investigation to submit its remedy recommendations, if any, to the President. The President will then have 90 days to decide whether to concur with the recommendations and take action—either those recommended by Commerce or an alternative approach, such as negotiations—to adjust imports to a level that will not threaten to impair the national security. Once the President has made this determination, he has 15 days to implement the action and 30 days to submit a written statement to Congress explaining the action. The President must also publish his findings in the Federal Register.
Potential Impact of Investigation
In its announcement, Commerce explained, “Laminations and cores made of grain-oriented electrical steel are critical transformer components. Electrical steel is necessary for power distribution transformers for all types of energy—including solar, nuclear, wind, coal, and natural gas—across the country.” Commerce further added, “An assured domestic supply of these products enables the United States to respond to large power disruptions affecting civilian populations, critical infrastructure, and U.S. defense industrial production capabilities.”
This Latest 232 Investigation, in Context
The investigation into key electrical transformer components will be the sixth investigation that the Trump administration has conducted under Section 232 and the fourth self-initiated. The administration's first two investigations, both self-initiated, covered steel and aluminum and resulted in the President applying 25 percent and 10 percent tariffs, respectively, on certain steel and aluminum imports. These tariffs became effective on March 23, 2018. (See our 2018 Legal Update on tariffs on steel and aluminum imports.)
Following the steel and aluminum investigation, the administration conducted separate 232 investigations into imports of autos and auto parts (combined in a single investigation and self-initiated), uranium ore, and titanium sponge. In each case, Commerce determined in its final report that the imports threatened to impair national security.1 The President chose not to impose restrictions on imports of titanium sponge or uranium ore, opting instead to establish working groups to examine the state of domestic nuclear fuel and titanium sponge production. The Nuclear Fuel Working Group recently announced its Strategy to Restore American Nuclear Energy Leadership, but there have been no developments for the titanium sponge working group. The President chose to enter into negotiations with key auto trading partners to address the threat posed by auto and auto parts imports. To date, no other remedy pursuant to Section 232 has been imposed on autos and auto parts, although it is possible the President could take action in the future. In the past, the President has favored imposing tariffs over other 232 remedies. (See our prior Legal Updates related to autos and auto parts imports and titanium sponge.)
Key electrical transformer components were excluded from the scope of the original Section 232 steel tariffs. Since that time, there has been extensive lobbying to have the administration subsequently include these products within the scope of those tariffs.2 On January 24 of this year, the President expanded the scope of products covered by the steel and aluminum tariffs to include some “derivative” or downstream products such as nails and stranded wire, effective February 8. This action was taken in response to a surge of imports of derivative steel and aluminum products following the original 232 steel and aluminum tariffs. However, several companies challenged the inclusion of these derivative products before the U.S. Court of International Trade and obtained an injunction stopping U.S. Customs and Border Protection from collecting duties on those products. While these injunctions are company-specific, they may have persuaded the administration to pursue today’s new investigation rather than simply expand the scope of the Section 232 steel tariffs to include key electrical transformer components.
Commerce’s Bureau of Industry and Security (“BIS”) will conduct the investigation and will provide an opportunity for public comment. Commerce will publish a notice to the Federal Register regarding the investigation shortly.
2 “Brown, Casey Release Statements on Commerce Decision Impacting AK Steel-Cleveland Cliffs,” (May 4, 2020), https://www.brown.senate.gov/newsroom/press/release/brown-casey-release-statements-on-commerce-decision-impacting-ak-steel-cleveland-cliffs;“Brown, Portman, Casey Ask President Trump to Prioritize Electrical Steel in Any 232 Trade Remedy,” (March 8, 2018), https://www.brown.senate.gov/newsroom/press/release/brown-portman-casey-ask-president-trump-to-prioritize-electrical-steel-in-any-232-trade-remedy.