March 26, 2019

March 26, 2019

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March 25, 2019

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Dinner Table Conversation: How an Offhand Comment May Signal a Shift in the Global Trade of Semiconductors

On June 19, Commerce Secretary Ross mentioned at a Wall Street Journal CFO dinner that the Administration is now considering launching an investigation of semiconductor imports under Section 232 of the Trade Expansion Act of 1962. Ross said the specific concern is the threat of China to surpass U.S. semiconductor production.

Section 232 is a statute that gives the President broad authority to impose measures like protective tariffs, import quotas, or tariff rate quotas on selected imports if he finds that there is a threat to national security from imports harming U.S. industry. The Administration has already started investigations of steel and aluminum using Section 232. The steel decision is expected later this month, and the signals from Washington suggest that a tariff rate quota will probably be imposed on specified steel products.

Commerce Secretary Ross’s comments may be, for some companies, an ominous harbinger of the Trump Administration’s planned use of Section 232 and the concept of “national security.” Secretary Ross said the Administration intends to take “bold action” to address the national security risks presented by steel imports and will do this by addressing issues in the context of national security under “a broad definition, including strong reference to the needs of the economy.” 

That comment implies that products to be protected under Section 232 would not necessarily have to be used by the military or be critical to national infrastructure. If he wished, President Trump could in theory decide that more U.S. domestic manufacturing of semiconductors was important for the “needs of the economy” and use this type of broad reading of Section 232 to justify tariffs, quotas, or tariff rate quotes on semiconductors.

Indeed, this attitude would make it possible to invoke Section 232 for just about any purpose, making AD/CVD cases and other trade remedy cases redundant and virtually unnecessary. If the Administration goes down this path, we would expect to see court challenges asserting that Section 232 has been abused and seeking to overturn or reduce the scope of the actions taken on such broad grounds.

Secretary Ross said that the Commerce Department has not yet presented the findings of its steel investigation to President Trump, and the Administration is reportedly still debating whether to adopt a tariff rate quota or other measures. Ross has said in prior comments that a tariff rate quota would have the advantage of causing less inflationary impact. He has also referred to Section 232 as having an advantage compared to AD/CVD because it is less dependent on geography and evidence about specific products and can therefore be used to address what he called “systemic problems” in an industry.

At this point, White House officials appear to be divided over exactly how far to go in arguing that imports being reviewed under Section 232 are undermining the ability to build equipment such as planes and submarines and how much to rely on broader economic arguments. Many companies with global logistics chains will be hoping that cooler heads at the White House will prevail and persuade President Trump not to use Section 232 as broadly as Secretary Ross’s latest comments suggest.

Before the Trump Administration, the last time Section 232 had been used to impose a duty on imports was 1975, when Gerald Ford was President. It is extraordinary that repeated use is now being made of a long-dormant provision in U.S. trade law. Trade experts consider the use of Section 232 a dangerous precedent because other countries could easily follow the lead of the U.S. by imposing trade barriers on grounds of national security, and there is no provision for WTO review of such national security actions.

Our international trade experts have been analyzing the issues under Section 232 in depth for clients in sectors affected by the pending steel and aluminum cases. We are now studying the potential ramifications of a Section 232 action on the global semiconductor industry. If your company may be affected by changes in tariffs or trade terms affecting the import of semiconductors for U.S. manufacturing or distribution, it may be wise to consult an expert; comments over dinner one day may be policy the next.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Curtis Dombek, Attorney, Lawyer, Governmental Contracts, Sheppard Mullin Law Firm
Partner

Curt Dombek is a partner in the Government Contracts, Investigations & International Trade Practice Group. Curt divides his time between the firm's Brussels and Los Angeles offices.

Areas of Practice

Mr. Dombek has practiced since 1983 in the field of international trade. He advises clients on the full range of international regulatory issues, including civilian and military export controls, trade sanctions and blocking orders, Customs matters, the Foreign Corrupt Practices Act, the USA Patriot Act, Free Trade Agreements, CFIUS reviews of foreign...

213-617-5595
Reid Whitten, partner, Sheppard Mullin Law Firm
Partner

Reid Whitten works with clients around the world to plan, prepare, and succeed in global business transactions.

In the areas of U.S. and international sanctions, export and defense export controls, and anti-corruption regulations, he supports clients in detecting and deterring potential compliance issues as well as conducting and defending investigations and enforcements. Mr. Whitten also advises on anti-dumping, anti-money laundering, and anti-boycott regulations.

Mr. Whitten is a thought leader on cross-border business regulations. He teaches a seminar on The Law of International Business as a professor at the Law School of the Université Catholique de Lille, in France. He writes and comments regularly and is called on by trade publications to provide analysis on the latest changes to cross-border transactional regulations. Mr. Whitten also teaches seminars on regulatory updates industry groups in the United States, France, and Belgium. He speaks French fluently.

202-469-4968