Three-Judge Panel to Hear Challenge of Section 232 Tariffs on Chapter 98 Goods

A three-judge panel at the Court of International Trade will hear a recently filed Section 232 challenge that opens a new front in the battle of steel importers against the tariffs. Maple Leaf Marketing (MLM), distributor of oil industry pipe that is exported from the U.S. to Canada for processing before being re-imported in improved form, says that CBP in April illegally expanded Section 232 tariffs to cover U.S. goods returned under subheading 9802.00.0050 (see 2004130056).

The charge is one of several in a wide-ranging complaint filed June 24 that challenges Section 232 tariffs as a whole, their imposition on Canada, and the denial of exclusions from the tariffs for some of MLM’s oil country tubular goods. CIT Judges Claire Kelly, Gary Katzmann and Jane Restani will hear the case. MLM’s lawyer, Richard O’Neill of Neville Peterson, said he did not request the three-judge panel, but anticipated it would proceed this way because of the complaint’s constitutional questions and implications for the customs laws.

“We’ve followed other recent cases involving challenges to Section 232 that have been assigned to three-judge panels and have been encouraged by the robust exchanges between the judges and counsel,” O’Neill said by email. “We’re eager to engage with the judges on our panel and work through the important issues presented in our complaint.”

The complaint concerns specially hardened and boronized J-55 steel tubing known as EndurAlloy, for which MLM is the exclusive U.S. importer. The J-55 tubing is either produced in the U.S. or already imported into the U.S., before shipping to a Canadian company for a proprietary chemical deposition alteration treatment that “results in a steel tubing product with significantly improved hardness and technical advantages,” the complaint said. MLM then re-imports the EndurAlloy tubing under subheading 9802.0050 as U.S. goods returned after repairs or alterations.

The presidential proclamations that set Section 232 tariffs on steel products, as well as the Commerce Department report that led to them, were silent as to the application of the tariffs to the special classification provisions of Chapter 98, the complaint said.

But in May 2018, well after the 90-day deadline for imposing tariffs after the Commerce report, the International Trade Commission revised the tariff schedule to connect Section 232 tariffs to Chapter 98 for the first time. It amended provisions on Section 232 in Chapter 99 to say that chapter 98 goods which are also subject to 232 “shall be eligible for and subject to the terms of such provision and applicable [CBP] regulations.”

And in April 2020, CBP issued a CSMS message that said Section 232 duties are to be assessed on Chapter 98 goods, and that, where a Chapter 98 provision assesses duty on only a portion of an article, such as is the case for the repairs or alterations of subheading 9802.00.50, the Section 232 duties will be assessed on that portion (see 2004130056). CBP subsequently said the “guidance” merely clarified existing policy (see 2004140066).

But CBP’s CSMS message did expand the tariffs, and did so improperly, MLM said. And, to the extent that it applied Section 232 tariffs to Chapter 98, so did the ITC’s earlier tariff schedule revision. Not only was Section 98 not mentioned in the Commerce report or the presidential proclamations, but both the ITC and CBP took action well after the 90-day limit for imposing tariffs following the report being issued. CBP declined to comment.

MLM also challenges the denial of exclusions for some of its products. While Commerce granted some exclusions for seamless EndurAlloy pipe, it denied others for welded EndurAlloy pipe, without any good reason for treating the two types of pipe differently, the complaint said.

Finally, MLM makes arguments against the imposition of the tariffs on Canada similar to those raised in a lawsuit filed in March (see 2003310047). The complaint says the tariffs were either too late because they came after the 90-day deadline under Section 232, or too late because they came before the 180-day deadline for negotiations under the law. The complaint also challenges Section 232 as an improper delegation of authority, despite the fruitlessness of similar arguments from the American Institute of International Steel in a case recently denied a hearing by the Supreme Court (see 2006220034).

Email ITTNews@warren-news.com for a copy of MLM’s complaint.