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Morris Manning & Martin, LLP

Section 232 Tariffs on Aluminum Expected to Remain in Near Term: Panel

02.10.2021

It is unlikely the Section 232 tariffs and quotas on U.S. aluminum imports will be stripped by President Joe Biden in the near term, but exactly how and when the new administration goes about changing U.S. metals trade policy is unclear, a panel of industry experts said February 10.

When former President Donald Trump enacted a 10% tariff on aluminum imports in March 2018 under Section 232 of the Trade Expansion Act of 1962, the tariffs were put in place for an indefinite amount of time, with the administration using a national security defense as justification.

However, the tariffs that were put in place to protect primary U.S. aluminum production have deeply affected value-add and downstream producers, Michael Belwood, vice president of government affairs for Arconic said during the S&P Global Platts Aluminum Virtual Symposium.

Julia Mendoza, partner at Morris, Manning & Martin, LLP, said she views Section 232 as a textbook example of what happens when there is interference in the market. The result of protecting the primary producers hurts those that use those products, then those companies look to get protection extended.

"This just leads to an endless stream of protection," she said.

With domestic issues taking the priority in the early days of the Biden administration, it is likely the tariffs and quotas under Section 232 will remain in place in the near-term, Mendoza said, adding that undoing the tariffs will be a delicate issue.

Exclusion Process Should be Priority

Lauren Wilk, vice president of government relations and international programs for the Aluminum Association, said she expects Biden to significantly modify the tariffs during his administration, however the short-term focus now should be on improving the existing tariff exclusion process.

"The exclusion process is something that can be fixed immediately and should be a focus," she said.

Belwood also voiced concern over the government's exclusion process and how things have been handled since the tariffs took effect as there was an inaccurate assumption that the exclusion requests would be rare.

"Once the exclusion process rolled out, it put domestic producers at a disadvantage," he said. "Importers quickly learned to file for—and were often granted—exclusions on large quantities of imports. Because their input material was not subject to a tariff, they end up with a price advantage."

The process put the Commerce Department in the position of judging capacity when it was not something the department was equipped to do, he said.

Mendoza said she was also surprised that the administration did not anticipate the large amount of exclusion requests it would receive as there are many more domestic consumers of aluminum than producers. Since April 2018, Commerce has received more than 21,000 exclusion requests for aluminum products, she said.

 A Different Approach to Trade 

Wilk said she expects to see a much different approach from the Biden administration when it comes to trade, with the expectation that the administration will take a more holistic approach and use its trade policy agenda to achiever bigger picture goals related to issues like climate and international relations.

International forums will be important in the coming year as the Biden administration looks to find common causes with allies beyond trade, she said.

Biden has shown support for the WTO, however challenges to the Section 232 tariffs on steel and aluminum brought by other countries more than a year ago could complicate things this year, Mendoza said.

Numerous countries brought WTO cases challenging the Section 232 tariffs around the same time China filed its appeal of the Section 301 duties. China won its decision in November 2020, so a decision on the Section 232 has been due for some time, Mendoza said.

The WTO has said it is delaying the release of the report until the third quarter or 2021 due to coronavirus-related delays which will provide Biden some breathing room, Mendoza said. However the upcoming report, which she expects will be unfavorable to the US, can also be used as a vehicle to put pressure on Biden to drop the tariffs and reach another solution, she added.

"We don't think President Biden will continue the 232 tariffs and quotas after his team evaluates them, but there is going to have to be a focus on prioritizing actions that help the aluminum industry and its workers in an alternative manner," she said.

One area that is likely to grow as tariffs are removed is antidumping and countervailing trade cases concerning aluminum, the panelists agreed.

In contrast to Section 232, targeted trade cases are rules-based, transparent, bipartisan, and durable when action is taken, Belwood said.

"From our perspective, this system results in a more certain operating environment and supports decision making for industry management," he said.

Published in S&P Global Platts.