U.S. Loses Cases on Section 232 Tariffs, USMCA Auto Rules

The U.S. has lost several World Trade Organization cases challenging its Section 232 tariffs on imports of steel and aluminum and has reportedly come up short in a U.S.-Mexico-Canada Agreement case against its interpretation of USMCA origin rules on automobiles.

Section 232 Tariffs. Following a Section 232 investigation, the U.S. concluded that imports of steel and aluminum threatened U.S. national security and in June 2018 imposed additional tariffs of 25 percent and 10 percent, respectively, from almost all countries. In February 2020 these tariffs were extended to certain derivatives of steel and aluminum articles from most countries. Since then the U.S. has concluded agreements eliminating these tariffs on imports from some countries in exchange for other measures.

WTO rules allow members to impose trade restrictions for national security reasons, but in 2019 a WTO panel ruled that the scope of such restrictions is limited and that it has the authority to review related actions. Last week the WTO released several similar decisions finding that the Section 232 tariffs did in fact violate WTO rules because they were not imposed “in time of war or other emergency in international relations.”

The U.S. immediately responded that it has no intention of removing the tariffs as a result of the WTO decision. “The United States has held the clear and unequivocal position, for over 70 years, that issues of national security cannot be reviewed in WTO dispute settlement and the WTO has no authority to second-guess the ability of a WTO Member to respond to a wide-range of threats to its security,” a spokesman for the Office of the U.S. Trade Representative said. “The United States will not cede decision-making over its essential security to WTO panels.”

Given this position, the U.S. is likely to appeal the panel decision to the Appellate Body, essentially forestalling any further action because the AB is currently incapable of hearing cases. While this would give the U.S. legal cover to maintain the Section 232 tariffs, it would also likely mean the continuation of the retaliatory tariffs major trading partners have maintained against U.S. goods, though those are the subject of pending WTO cases of their own.

USMCA. Earlier this year Mexico filed a USMCA case (subsequently joined by Canada) against a strict U.S. interpretation of some of that agreement’s automotive rules of origin.

The U.S. maintains that the USMCA established a regional value content of 75 percent for passenger vehicles, light trucks, and auto parts (up from 62.5 percent under NAFTA), with similarly high content thresholds for core, principal, and complementary parts, and that under this requirement subject goods must have the specified amount of content made in North America to qualify for duty-free treatment under the USMCA. However, Mexico has argued that the U.S. is violating its USMCA obligations by not allowing parts that have acquired origin by meeting the applicable RVC threshold to then be considered 100 percent originating for purposes of determining whether the vehicles into which they are incorporated are originating.

According to press reports, a preliminary panel ruling issued last month ruled in favor of the USMCA partner countries. Both sides now have time to respond before a final ruling is made public in the next few months.

If the reports are accurate, the next step could be an effort to reach agreement on a remedy. Failing that, Mexico and Canada could be allowed to impose retaliatory trade measures against U.S. exports to those countries.