Presidential Authority Under the Trade Expansion Act toAdjust Shipments of Oil to and from Puerto Rico

• Court: Department of Justice Office of Legal Counsel
• Decided: February 6, 1980
• Status: Published

Opinion

Presidential Authority Under the Trade Expansion Act to Adjust Shipments of Oil to and from Puerto Rico

N either the uniformity o f duties clause o f the C onstitution, A rt. I, § 8, cl. 1, nor the port preference clause, A rt. I, § 9, cl. 6, require uniform ity o f import quotas betw een the mainland and Puerto Rico.

T he President has authority under § 232(b) o f the T rade Expansion A ct o f 1962 to impose separate quantitative restrictions on oil im ports into the U.S. mainland and Puerto Rico, respectively.

A ny system o f separate quotas imposed under the T rade Expansion A ct must be justified by national security concerns.

By implication, § 232(b) authorizes the President to impose quotas on shipm ents o f oil from Puerto Rico to the U.S. mainland in order to make the separate import quotas effective.

February 6, 1980

M EM ORANDUM OPINION FOR TH E G EN ER A L COUNSEL, D EPA R TM EN T O F TH E TREASURY, AN D TH E G EN ER A L COUNSEL, D EPA R TM EN T O F ENERGY

This responds to your request for our opinion on several questions relating to the importation of oil through Puerto Rico. Section 232(b) of the Trade Expansion Act of 1962, 19 U.S.C. § 1862(b), authorizes the President to “take such action . . . as he deems necessary to adjust the imports of [an] article . . . so that such imports will not threaten to impair the national security. . . The President may do so after the Secretary of the Treasury has completed an investigation and has con­ cluded that the article “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security. . . On March 14, 1979, the Secretary of the Treas­ ury completed such a report and concluded that imports of oil and certain oil products threatened to impair the national security. See 44 Fed. Reg. 18818 (1979). On July 15, 1979, the President announced that he would impose an oil import quota. See 15 Weekly Comp. Pres. Doc. 1235 (July 23, 1979). You asked for our analysis of three questions concerning the form of that quota:

375 (1) May the President adjust shipments of oil, which are de­ rived from Puerto Rican oil imports, from Puerto Rico to the U.S. mainland pursuant to his authority under § 232(b) of the Trade Expansion Act? (2) Does the answer to the first question depend on whether oil imported into Puerto Rico is itself adjusted under the § 232(b) authority? (3) If the answer to the second question is affirmative, what kind of adjustment of Puerto Rican oil imports will suffice? Specifically, may the adjustment involve an unrestricted quota for imports into Puerto Rico intended for Puerto Rican consumption with an accompanying limitation on shipments from Puerto Rico to the U.S. mainland? For the reasons that follow, we believe that the President may impose a quantitative restriction on shipments of oil from Puerto Rico to the U.S. mainland if that restriction is reasonably ancillary to a system of import adjustments, imposed under § 232(b), that applies to both the mainland and Puerto Rico. That system of adjustments need not be a single quota for the entire combined territory of the mainland and Puerto Rico; the President may impose separate quotas on Puerto Rico and the mainland respectively. The separate quota for Puerto Rico may be unlimited even if imports into the mainland are limited. We believe that this is the most defensible basis for restricting ship­ ments from Puerto Rico to the mainland.1 I. The President May Impose Separate Quotas on Imports into the Mainland and Puerto Rico, Respectively.

As this Office has previously concluded, the Constitution does not prevent Congress from authorizing the President to impose separate quotas on different regions. Section 232(b) is an exercise of Congress’ power to regulate foreign commerce. See U.S. Const., Art. I, § 8, cl. 3. It is well established that regulations of commerce need not be uniform, see, e.g., Currin v. Wallace, 306 U.S. 1, 13-14 (1939); see also Mulford v. Smith, 307 U.S. 38, 48-49 (1939), unless some other constitutional provision—such as the uniformity of duties clause, Art. I, § 8, cl. I,2 or the port preference clause, Art. I, § 9, cl. 6 3—requires uniformity. The

1 If the President uses this approach, he will not have to interpret “ im ports" in § 232(b) to include shipm ents from P uerto Rico to the mainland. This interpretation is questionable. T here appear to be no o th er statutes that explicitly define shipm ents from P uerto R ico to the mainland as “ im ports.” See, e.g.. 15 U.S.C. §§ 2001(10), 2052; 16 U.S.C. § 1159(0; 42 U.S.C. § 6291(a)(l 1). P uerto Rico is included in the "custom s te rrito ry o f the U nited States" for tariff purposes. 19 U.S.C. § 1202 headnote 2. It is unclear w h e th er shipm ents from P u erto R ico to the mainland are “ im ports" for constitutional pur­ poses. Compare Hooven & Allison Co. v. Evatt, 324 U.S. 652, 668-79 (1945), with id. at 670 n.5 and Dooley v. United States, 183 U.S. 151, 154-55 (1901). 2 "[A]ll D uties, Im posts and Excises shall be uniform th ro u g hout the U nited States." 3 “ N o Preference shall be given by any Regulation o f C om m erce o r R evenue to the Ports o f one State o v er those o f a n o th er."

376 uniformity of duties clause probably does not apply to Puerto Rico. See Rasmussen v. United States, 197 U.S. 516, 520 (1905); Downes v. Bidwell, 182 U.S. 244 (1901).4 The port preference clause may or may not apply to Puerto Rico. See, e.g., Secretary o f Agriculture v. Central Roig Refin­ ing Co., 338 U.S. 604, 616 (1950) (a “vexing problem”); Alaska v. Troy, 258 U.S. 101, 111-12 (1922). But even if it does apply, it would not proscribe separate quotas for the mainland and Puerto Rico respec­ tively. The net effect of separate quotas may be to benefit mainland ports at the expense of Puerto Rican ports, or vice versa, but legislation does not violate the port preference clause merely because it “greatly benefit[s] particular ports and . . . incidentally result[s] to the disadvan­ tage of other ports. . . ." Louisiana Public Service Commission v. Texas & New Orleans Railroad Co., 284 U.S. 125, 131 (1931). See also Alabama Great Southern Railroad Co. v. United States, 340 U.S. 216, 229 (1951). [T]he clause, in terms, seems to import a prohibition against some positive legislation by congress [looking to a direct privilege or preference of the ports of any particu­ lar State over those of another] . . . , and not against any incidental advantages that might possibly result from the legislation of congress upon other subjects connected with commerce, and confessedly within its power. Pennsylvania v. Wheeling & Belmont Bridge Co., 59 U.S. (18 How.) 421, 435 (1856). This distinction is not easy to draw, but the Supreme Court seems never to have invalidated legislation under the clause simply because it affects the prosperity of different States’ ports differently. See, e.g., Louisiana Public Service Commission v. Texas <£ New Orleans Railroad Co., 284 U.S. 125, 131-32 (1931). Moreover, in Secretary o f Agriculture v. Central Roig Refining Co., 338 U.S. 604, 616 (1950), the Court brushed aside the suggestion that a system of regional quotas might violate the port preference clause. Central Roig involved produc­ tion and marketing quotas, not import quotas, but their effect was similar to the effect that might be expected from a system combining a restrictive quota on oil imports into the mainland with an unlimited quota on shipments into Puerto Rico.5 For these reasons, this Office

4 In Downes v. Bidwell ihe Suprem e C ourt held that the uniform ity clause applied only to the states and to those territories that have been incorporated into the U nited States. 182 U.S. at 251, 287. T he C ourt has also decided that statutes that g o verned the status o f P uerto R ico betw een 1900 and 1950 did not incorporate it into the U nited States w ithin the meaning o f Downes. See, e.g., id.: Balzac v. Puerto Rico, 258 U.S. 298, 305-13 (1922). This O ffice has expressed the view that statutes c u rre n tly in force do not change P uerto R ico's status in this respect. But § 2 o f the F o rak er A ct, 48 U.S.C. § 739, has an effect similar to that o f the uniform ity o f duties clause and does limit the President's pow er under § 232(b). 5 M ore recently, the C ourt has held that an o th er clause that appears to require geographical uniform ity— the bankruptcy clause, A rt. I, § 8 , cl. 4— perm its explicit distinctions betw een or am ong regions. “T he uniform ity provision does not deny C ongress p o w er to take into account differences that exist betw een different parts o f the co u n try , and to fashion legislation to resolve geographically isolated problem s.” Blanchette v. Connecticut General Insurance Corps. (Regional R a il Reorganization Act Cases), 419 U.S. 102, 159 (1974); see id. at 160-61 (com paring uniform ity requirem ent o f bank­ ruptcy clause w ith A rt. I, § 8, cl. I, the uniform ity o f duties clause).

377 has previously expressed the view that the port preference clause does not prohibit a system of regional quotas as opposed to a single overall national quota; therefore it would not proscribe separate quotas for the mainland and Puerto Rico. Thus, separate quotas seem to pose no constitutional problem. Whether Congress has authorized the President to impose separate quotas is a more difficult question. Section 232(b) does not expressly confer such power on the President, but it does grant power in broad terms without expressly withholding the authority to impose separate quotas. As the Supreme Court has said: Section 232(b) authorizes the President to act after a find­ ing by the Secretary of the Treasury that a given article is being imported “in such quantities or under such circum­ stances as to threaten to impair the national security.” [Emphasis added.] The emphasized language reflects Con­ gress’ judgment that “not only the quantity of imports . . . but also the circumstances under which they are coming in: their use, their availability, their character” could endanger the national security and hence should be a potential basis for Presidential action. Federal Energy Administration v. Algonquin SNG, Inc., 426 U.S. 548, 561 (1976), quoting 104 Cong. Rec. 10542-43 (1958) (remarks of Representa­ tive Mills). The legislative history of § 232(b) and its predecessors, moreover, makes it plain that the President was to consider the domestic effects of imports. In this respect, § 232(b) contrasts sharply with several statutes which delegate power to the President but instruct him to focus on international concerns. See, e.g., 19 U.S.C. §2132 (correcting balance of payments disequilibria); 50 U.S.C. §§ 1701-1706 (international emer­ gency economic powers). Specifically, when Congress enacted § 232(b) it wanted the President to address himself to the effects of imports on various domestic industries that it thought were important to national security.6 See § 232(c), 19 U.S.C. § 1862(c). The needs of “national security” industries may, of course, differ from region to region. A single, overall national quota might be a very crude and ineffective way of serving those needs; since Congress wanted the President to serve them, it is reasonable to suppose that Congress authorized him to use

6 F o r exam ple, the hearings leading up to (he predecessor o f § 232(b) dealt extensively w ith the effects im ports had on industries that w itnesses believed vital to the nation's security. See Hearings on H .R. 1 ("Trade Agreements Extension") before the House Comm, on Ways and Means, 84th Cong., 1st Sess. 178-79, 194-95, 883-85, 1000, 1006-13, 1051-54, 1266, 1308-09, 1327-28, 2118-24 (1955); Hear- ings on H .R. I ("Trade Agreements Extension") before the Senate Comm, on Finance, 84th Cong., 1st Sess. 113-15, 331-55, 602, 721, 878-88 (1955). T h e Senate R eport on this provision said that “ [t]he C om m ittee believes that this am endm ent will provide a means for assistance to . . . various national defense industries.'* S. Rep. No. 232, 84th C ong., 1st Sess. 4 (1955). T h e Senate floor debate focused on w h eth er § 232(b) w ould protect the leading industries o f various Senators’ states. See, e.g., 101 C ong. Rec. 5297-99 (1955).

378 more refined methods. See Federal Energy Administration v. Algonquin SNG, Inc., 426 U.S. 548, 561-62 (1976). Different regional quotas are one of the obvious refinements that Congress might have envisioned. Indeed, Presidents have imposed regional quotas since they began using their § 232(b) power. In general, separate quotas were set for the area west of the Rockies, the area east of the Rockies, and Puerto Rico. See, e.g., § 2 Proclamation No. 3279, 24 Fed. Reg. 1781, 1783 (1959). So far as we have been able to determine, no court has ever decided whether imposing these regional quotas exceeded the President’s au­ thority under § 232(b).7 But Congress reenacted the provisions of § 232(b) while regional quotas were in force without specifying that the President had no power to impose them. See, e.g., Trade Expansion Act of 1962, Pub. L. No. 87-794, § 232(b), 76 Stat. 872, 877 (1962), reenacting Trade Agreements Extension Act of 1958, Pub. L. No. 85- 686, § 8, 72 Stat. 673, 678 (1958). The Supreme Court has said that such reenactments can indicate that Congress accepted the President’s in­ terpretation of the statute. Federal Energy Administration v. Algonquin SNG, Inc., 426 U.S. 548, 570 (1976); see, e.g., Norwegian Nitrogen Co. v. United States, 288 U.S. 294, 313-15 (1933). For these reasons, we believe that § 232(b) permits the President to impose separate quotas on the mainland and Puerto Rico. To say that § 232(b) permits separate quotas, however, is not to say that they may be imposed for any reason. Section 232(b) authorizes the President only to “take such action, and for such time, as he deems necessary to adjust the imports of [an] article . . . so that such im­ ports will not threaten to impair the national security. . . .” Any system of separate quotas, then, must be justified by national security concerns. The March 14, 1979, findings of the Secretary of the Treas­ ury endorse import adjustment as a way “to reduce domestic oil con­ sumption and increase domestic production of oil and other sources of energy.” 44 Fed. Reg. 18818, 18819, 18823 (1979). The legislative his­ tory of § 232(b) firmly establishes that increasing the domestic produc­ tion of oil is a legitimate national security aim; recent practice, acqui­ esced in by the Supreme Court, suggests that reducing the consumption of oil is similarly comprised by “national security.” See Federal Energy Administration v. Algonquin SNG, Inc., 426 U.S. 548, 553-55 (1976). We understand that the reason for imposing a separate quota on Puerto Rico is that, since the island has no indigenous oil, any gains from limiting its imports will be outweighed by the risk of severe economic dislocation. We believe that this too is a suitable national security justification. Section 232(c), 19 U.S.C. § 1862(c), makes it plain that economic dislocation which results from excessive imports is the sort of

7 In N ew England Governors' Conference v. Morton, Civ. No. 72-13-59 (D. Me. Sept. 7, 1973), the system o f regional quotas was challenged, but the com plaint was voluntarily dismissed.

379 impairment of the national security that the President may act to prevent: In the administration of this section, the Secretary and the President shall further recognize the close relation of the economic welfare of the Nation to our national security, and shall take into consideration the impact of foreign competition on the economic welfare of individual domes­ tic industries; and any substantial unemployment, decrease in revenues of government, loss of skills or investment, or other serious effects resulting from the displacement of any domestic products by excessive imports shall be con­ sidered, without excluding other factors, in determining whether such weakening of our internal economy may impair the national security. Section 232(c), 19 U.S.C. § 1862(c). W hatever exactly the national secu­ rity is,8 there is no reason to believe that economic dislocations with this origin threaten it more than similar dislocations caused by insuffi­ cient amounts of imported goods. Congress’ unrestrictive language— “without excluding other factors”—suggests that it would not have opposed this interpretation. Thus, if the President concludes that a strict import quota would enhance national security on the mainland but only impair it further in Puerto Rico by disrupting the island’s economy, § 232(b) authorizes him to impose separate quotas. Moreover, we see nothing in § 232(b) that prohibits the President from specifying an unlimited quota for Puerto Rico, if that is what the national security demands.9 In any event, the link between the national security and the quota system which the President finally chooses should be stated in the materials accompanying the proclamation of the quota. We emphasize that we are discussing only the legality of separate quotas—that is, separate quantitative restrictions—for Puerto Rico and the mainland. In 1970, this Office advised the Executive Director of the Cabinet Task Force on Oil Import Control that, under § 232(b), the President cannot impose tariffs or fees on products entering Puerto Rico that differ from those he imposes on the same products entering the continental United States. We reached this conclusion on the basis

8 A pp aren tly the national security requirem ent o f § 232(c) has never been interpreted by a court. ®A letter to this O ffice from the D eputy G eneral Counsel o f the D epartm ent o f E nergy asks w h e th er the President can regulate shipm ents o f cru d e oil and its derivatives from P uerto R ico to the m ainland if im ports o f c ru d e oil into P u erto R ico are not adjusted under § 232(b) As we have said, the most ap p ro p riate basis for regulating shipm ents o f oil from P uerto R ico to the mainland w ould be that such regulation is necessary to enforce a system o f im port adjustm ents, imposed under § 232(b), that em braces both the m ainland and P u erto Rico. See p. 2 and n.l supra. But since the national security apparently w ould justify the P resident's allow ing unlim ited im ports into P uerto R ico as a part o f that system o f adjustm ents, shipm ents from P uerto R ico to the mainland can be regulated even if im ports o f oil into P u erto R ico are in fact com pletely unrestricted.

380 of § 2 of the Foraker Act, 48 U.S.C. § 739, which provides, in part: The same tariffs, customs, and duties shall be levied, col­ lected, and paid upon all articles imported into Puerto Rico from ports other than those of the United States which are required by law to be collected upon articles imported into the United States from foreign countries. We concluded that this specific prohibition limited the President’s powers under § 232(b). Similar problems may arise if the President imposes a license fee or “tariff quota” system in which imports can enter free-of-charge up to a certain level but must pay a tariff or fee beyond that level; if the level from which duties are charged is not the same for both the mainland and Puerto Rico, we would have consider­ able doubt about the ability of the program to survive a challenge in court.10 II. The President May Impose Quotas on Shipments of Oil from Puerto Rico to the Mainland as a Necessary Incident of a System of Separate Import Quotas.

Shipments of oil between regions can, of course, nullify any system of regional quotas. Sometimes, market conditions and transportation costs combine to prevent such transshipments. If they do not, however, and if § 232(b) gives the President the power to establish separate regional quotas, then by implication § 232(b) authorizes the President to restrict transshipments directly in order to make the separate regional quotas effective. The Supreme Court is, “in the absence of compelling evidence that such was Congress’ intention, unwilling to prohibit administrative action imperative for the achievement of an agency’s ultimate purposes. . . . We cannot . . . conclude that Congress has given authority inadequate to achieve with reasonable effectiveness the purposes for which it has acted.” Permian Basin Area Rate Cases, 390 U.S. 747, 780, 777 (1968). Elsewhere the Court has indicated that unless Congress says otherwise, an agency has power to do that which is “reasonably ancillary to the effective performance of [its] various re­ sponsibilities. . . .” United States v. Southwestern Cable Co., 392 U.S. 157, 178 (1968). Neither the text nor the legislative history of § 232(b) suggests that Congress intended to withhold from the President all authority to regulate shipments between regions. The President may, then, impose ‘quotas on shipments of oil from Puerto Rico to the mainland if he decides that such quotas are reasonably necessary to enforce the import adjustment scheme he has adopted under § 232(b).11

10 T h e Suprem e C ourt recently declined 10 decide the analogous issue arising under the uniform ity o f duties clause. See Federal Energy Administration v. Algonquin SN G . Inc.. 426 U.S. 548, 560 n .ll (1976). 11 In G u lf Oil Corp. v. Hickel, 435 F.2d 440 (D .C . Cir. 1970), the U nited States C ourt o f A ppeals for the D istrict o f C olum bia C ircuit tacitly endorsed the President's p o w er to restrict shipm ents o f oil from P uerto R ico to the m ainland. In 1968 a presidential proclam ation under § 232(b) imposed

381 It is not difficult to see why restrictions on transshipments will be necessary if Puerto Rico’s quota is unlimited and the mainland’s has some significant effect on imports. Nonetheless, it would be advisable for the President to explain his reasoning if and when he adopts such restrictions. Moreover, we wish to emphasize that § 232(b) authorizes only those controls on interstate shipments which are reasonably ancil­ lary to a system of import adjustments adopted under § 232(b). Section 232(b) does not give the President a general power to adjust interstate shipments of oil. Again, our conclusions apply only to quotas or other quantitative restrictions on shipments from Puerto Rico to the mainland. A tariff or fee would violate § 3 of the Foraker Act, 48 U.S.C. § 738: All merchandise and articles coming into the United States from Puerto Rico and coming into Puerto Rico from the United States shall be entered at the several ports of entry free of duty and in no event shall any tariff duties be collected on said merchandise or articles. See also Dooley v. United States, 182 U.S. 222, 233-36 (1901). As we said in connection with § 2 of the Foraker Act, 48 U.S.C. § 739, this specific prohibition limits the President’s general § 232(b) powers.

L arry A. H am m ond Acting Assistant Attorney General Office o f Legal Counsel

separate quotas on oil shipped into the mainland and P u erto Rico. See Proclam ation No. 3823, 33 Fed. R eg. 1171 (1968), am ending Proclam ation No. 3279, 24 Fed. Reg. 1781 (1959). T h e P uerto Rican quota was allocated am ong several producers. Section 3(b)(2) o f the proclam ation instructed the Secretary of the In terio r that if a p ro d u cer shipped m ore oil from P u erto R ico to the mainland than that producer had shipped d u rin g a certain base year, the p ro d u cer’s allocated share o f the P uerto Rican import qu o ta for the next year w as to be reduced by an equal am ount. T he obvious purpose and effect o f this provision w as to ensure that shipm ents o f oil from P uerto R ico to the mainland w ould not exceed the base year levels. T h e D istrict o f C olum bia C ircuit noted that this provision w as “ in furtherance o f the large design o f the overall reg u lato ry schem e, to restrict im portation o f foreign oil into the continental U nited States.'* Id. at 443 (em phasis added). T h e co u rt proceeded to decide a dispute, arising under this provision, about how to calculate the base year figure. T h e legality o f the restriction on shipm ents from P u e rto R ico to the m ainland w as apparently not challenged, and the c ourt never questioned it.