U.S. Court of International Trade Orders Customs to Halt Liquidation of Goods Subject to Section 301 Duties for Plaintiffs in Ongoing Litigation

In the latest development in ongoing litigation contesting certain Section 301 duties on Chinese goods, on July 6, 2021, the U.S. Court of International Trade (“CIT”) ordered U.S. Customs and Border Protection (“CBP”) to temporarily halt liquidation of certain unliquidated goods subject to these duties.¹ The majority of a three-judge panel held that the plaintiffs, a group of importers, were entitled to a preliminary injunction suspending liquidation of imports that are subject to Section 301 Lists 3 and 4A duties on goods from China (“Subject Entries” or “Subject Entry”) until the conclusion of the litigation.

As part of this ruling, the CIT ordered the U.S. government to create a repository for importers to request the suspension of liquidation for Subject Entries if those importers are plaintiffs in litigation pending before the CIT challenging Lists 3 and 4A duties. Such parties should prepare immediately to apply for the suspension of liquidation of Subject Entries.

Overview of Section 301 Litigation at CIT

This case arises from the previous administration’s direction to the U.S. Trade Representative (“USTR”) to explore possible actions under Section 301 of the Trade Act of 1974 (“Section 301”) to address alleged Chinese government policies that may be unreasonable or discriminatory toward American entities. As a result of the USTR’s investigation, in the summer of 2018, the USTR published two initial lists of Chinese products that would be subject to tariffs. Four months later, on January 1, 2019, the USTR published an additional list of products to be covered by the tariffs (“List 3”). Subsequently, on August 20, 2019, the USTR published a fourth list of further products that would be subject to tariffs (“List 4”). List 4 was eventually further categorized into Lists 4A and 4B. Under Section 304 of the Trade Act of 1974, a determination that tariffs are warranted under Section 301 must be made within 12 months of the USTR beginning an investigation into alleged unreasonable or discriminatory trade practices. Since Lists 3 and 4 were published over a year from the USTR’s initial investigation into Chinese trade practices, the USTR relied on their Section 307 authority to modify previously established duties when promulgating those lists, rather than Section 301 as it had for Lists 1 and 2.

On September 10, 2020, a group of importers (collectively, “Plaintiffs”) challenged the List 3 and 4A Section 301 duties, alleging that these additional tranches violated the Trade Act and the Administrative Procedure Act (“APA”).² Specifically, Plaintiffs argued that the USTR exceeded its statutory authority under Section 307, which they alleged only allows modification of previously enacted tariffs if (1) the decision to modify is based on the same activity that led to the initial tariff or (2) the modification reduces rather than raises the initial tariff. Plaintiffs asserted that neither criteria had been met when the USTR promulgated Lists 3 and 4A. Furthermore, because Plaintiffs alleged that the USTR acted in excess of their statutory authority, Plaintiffs also alleged that the U.S. government violated the APA by not acting in accordance with the law. Lastly, Plaintiffs alleged that the USTR had failed to provide interested parties with adequate opportunity to comment on Lists 3 and 4A, as allegedly required under the APA.

In the months that followed, approximately 3,600 follow-on lawsuits were filed by other importers challenging the legality of duties collected under Lists 3 and 4A. On February 10, 2021, a three-judge panel designated the Plaintiffs’ action the “master” case and stayed the other 3,600 suits pending its outcome. Thus, the panel’s July 6, 2021, decision and order are likely to have important and direct impact on the plaintiffs in all of the Section 301 lawsuits before the CIT, as well as other importers with Subject Entries.

On April 12, the U.S. government argued that there is no basis for refunds of duties even if plaintiffs are successful in their litigation. Thus, on April 23, 2021, Plaintiffs in the master case moved for a preliminary injunction, seeking to enjoin the U.S. government from liquidating Subject Entries during the pendency of the litigation.

The In re Section 301 Cases Decision

In the July 6, 2021, ruling, the CIT determined that Plaintiffs established the elements necessary to qualify for their requested preliminary injunction. Generally, in order to qualify for a preliminary injunction, plaintiffs must establish “(1) likelihood of success on the merits, (2) irreparable harm absent immediate relief, (3) the balance of interests weighing in favor of relief, and (4) that the injunction serves the public interest.”³ Importantly, the Court of Appeals for the Federal Circuit (“Federal Circuit”), which oversees appeals from the CIT, applies a “sliding scale” to preliminary injunction requests. According to this approach, if a plaintiff establishes greater potential for harm, then they face a lesser burden to demonstrate that they are likely to succeed on the merits of the case. Thus, a plaintiff who sufficiently demonstrates that they face irreparable harm need only show a fair chance of success on the merits. The CIT determined that Plaintiffs were entitled to a preliminary injunction after applying this reduced burden formula.

First, the CIT determined that the liquidation of Plaintiffs’ duties constituted irreparable harm absent an injunction. The CIT reasoned that, because liquidation “cuts off judicial review and eliminates any chance of recovery of unlawful exactions,” absent reliquidation or refunds, Plaintiffs could potentially be denied meaningful judicial review.⁴ Furthermore, the CIT also noted that the Federal Circuit “has explicitly and implicitly called the breadth of the CIT’s statutory authority [to order reliquidation or refunds] into question.”⁵ The CIT was unsure of whether it could order the U.S. government to reliquidate or refund Plaintiffs’ duties in the event that it eventually found such duties unlawful. Thus, the CIT found that Plaintiffs would suffer irreparable harm if it did not grant the preliminary injunction to suspend liquidation until the merits of the master case were fully adjudicated.

Second, the CIT found that Plaintiffs’ claims satisfied the “likelihood of success on the merits” prong of the preliminary injunction test since the CIT found the “sliding scale” approach merited a reduced burden.⁶ Specifically, the CIT determined that Plaintiffs had raised sufficiently serious and substantial questions about the scope of the USTR’s statutory authority to promulgate Lists 3 and 4A to warrant injunctive relief. Additionally, the CIT found that Plaintiffs had shown a sufficiently fair chance of success on their APA claim alleging the USTR failed to provide adequate opportunity to comment on implementation of the List 3 and List 4A duties. The CIT did not address Plaintiffs’ other APA claim directly, perhaps due to the fact that it overlapped with the Plaintiffs’ Trade Act claim. However, the CIT did briefly address an argument from the government that the APA was inapplicable in this case because the challenged actions were taken by the president and not a government agency. The CIT said that it required more in-depth briefing on this issue before making a determination.

Regarding the third and fourth prongs of the preliminary injunction test, the CIT conceded that a preliminary injunction would place a burden on the U.S. government to ensure liquidation could be suspended for properly identified Subject Entries. However, it found that this burden is outweighed by the burden Plaintiffs would face if liquidation continued yet the duties ultimately were found to be unlawful, given Plaintiffs’ possible lack of recourse. Furthermore, the CIT asserted that it could mitigate any burden on the U.S. government with a carefully crafted order. Finally, the CIT determined that the public policy arguments presented by the U.S. government to argue against the injunction were outweighed by the public’s interest in the availability of meaningful judicial review, which the injunction would uphold. In making this calculation, the CIT noted that it could not understand the government’s argument that granting an injunction, and, thus, suspending liquidation, would encourage China to maintain harmful practices against the United States.

Chief Judge Mark Barnett dissented from the panel’s decision. In his dissent, he disagreed primarily with the majority’s assessment that Federal Circuit precedent provided sufficient uncertainty on whether the CIT lacked authority to order reliquidation or refunds to lead to a finding of likelihood of irreparable harm to Plaintiffs.

Impacts of the Order and Next Steps

Pursuant to the July 6, 2021, opinion, the CIT also issued an order on the same day⁷ enjoining the U.S. government from liquidating any Subject Entry until August 3, 2021. After August 3 and until the end of the litigation, the order also enjoins the U.S. government from liquidating any Subject Entry if it receives a proper request for suspension of liquidation pursuant to the order. By July 20, 2021, CBP must establish a repository to which plaintiffs in the currently stayed, related cases can submit the following information regarding Subject Entries in order to ensure such entries are not liquidated:

1. Their full Importer of Record number(s);

2. The Court Number and filing date of the litigation to which they are a party,

3. The Entry Number and date of entry for each Subject Entry for which suspension of liquidation is being sought; and

4. The CBP center and team assigned to each entry.

Details regarding the repository will be forthcoming, but plaintiffs in the related cases should begin to gather this information regarding any entries that may be affected.

(The authors thank Casey T. Corcoran, a summer associate in Mayer Brown’s Washington DC office, who helped draft this Legal Update.)

¹ In re Section 301 Cases, No. 1:21-cv-0052 (Ct. Int’l Trade July 6, 2021).

² Compl., HMTX Indus. LLC v. United States, No. 20-cv-00177 (Ct. Int’l Trade Sept. 10, 2020), ECF No. 2.

³ Silfab Solar, Inc. v. United States, 892 F.3d 1340, 1345 (Fed. Cir. 2018).

⁴ In re Section 301 Cases, slip op. at 11.

⁵ Id. at 13.

⁶ Id. at 18.

⁷ Order, In re Section 301 Cases, No. 1:21-cv-0052, ECF No. 330 (Ct. Int’l Trade July 6, 2021).