Court of International Trade Issues Its Decision in Section 301 (China) Litigation
On April 1, 2022, the United States Court of International Trade (“CIT” or the “Court”) issued a decision in the Section 301 (China) tariff litigation case. The Court determined that the Office of the United States Trade Representative (“USTR”) had legal authority to issue List 3 and List 4A of the Section 301 China tariffs. However, it found that the USTR had failed to comply with the Administrative Procedures Act’s (“APA”) procedural requirements because it did not adequately respond to significant issues raised in public comments. The Court remanded the case back to USTR for “further explanation regarding the USTR’s rationale for imposing the tariffs and, as necessary, the USTR’s reasons for placing products on the list or removing products therefrom.”
Background
In 2017, USTR initiated an investigation pursuant to the Trade Act of 1974 (the “Trade Act”) into China’s “laws, policies, practices, and actions” that may “inhibit United States exports, deprive United States citizens of fair remuneration for their innovations, divert American jobs to workers in China, contribute to our trade deficit with China, and otherwise undermine American manufacturing, services, and innovation.”1 USTR found that certain “acts, policies, and practices of the Chinese government” related to technology transfer, intellectual property, and innovation “are unreasonable or discriminatory and burden or restrict U.S. commerce.”2 USTR subsequently published “List 1” and “List 2” of products imported from China that were subject to additional duties.
In 2018, the USTR amended the Section 301 action and published “List 3” of products that were made subject to additional duties. This was followed by an announcement in 2019 that USTR would also publish a “List 4.” USTR divided List 4 into two tranches: List 4A and List 4B. Tariffs on List 4A went into effect on September 1, 2019. On December 18, 2019, as a result of successfully negotiating a limited trade deal with China, USTR announced that it would “suspend indefinitely the imposition of additional duties of 15 percent on products of China covered by” List 4B.3
In the fall of 2020, more than 6,500 importers filed lawsuits at the CIT challenging the tariffs imposed under List 3 and List 4A. The cases challenged USTR’s authority under Section 301 of the Trade Act to impose the List 3 and List 4A tariffs. They also argued that USTR had violated the procedural requirements of the Administration Procedures Act (“APA”) by failing to adequately respond to public comments. Plaintiffs argued that they were entitled to refunds of the List 3 and List 4A tariffs.
The April 1 Decision
In its April 1 Decision, the CIT first considered the Government’s motion to dismiss Plaintiff’s claims based on non-justiciability. “Justiciability” refers to the types of matters that a court can adjudicate. If a case is “non-justiciable,” the court must dismiss it. The Government had argued that the List 3 and 4A actions were “Presidential actions” and/or implicated the “Political Question” doctrine and thus were unreviewable by the Court. The Court rejected these arguments.
The Court next considered whether USTR had legal authority to amend the Section 301 action to create List 3 and List 4A. The Court found that USTR properly exercised its authority to promulgate List 3 and List 4A. Plaintiffs had argued that the subject of Section 301 actions could not encompass China’s defensive actions, as “those actions had not yet transpired when the investigation was initiated or when USTR determined that remedial action was ‘appropriate.’” In other words, Plaintiffs claimed that the initial investigation was limited and discrete, and that the required act, policy, or practice of a foreign country that burdens United States commerce cannot come from “other subsequent ‘defensive’ actions” by China. The Court rejected this reasoning, finding that the link between the subject of the original Section 301 action and China’s retaliation were “plain on its face.” The Court found that “USTR’s initial determination was statutorily required to be designed to lead to the elimination of the unfair acts, policies, and practices, but without any requirement for the action to be focused on the same or similar industries.” China’s retaliation, the Court found, was directly connected to the U.S. action of imposing duties on $50 billion in trade, and therefore connected to China’s “own acts, policies, and practices that the U.S. action was designed to eliminate.”
The Government argued that the promulgation of List 3 and List 4A were exempt from the APA procedural requirements. The Court rejected the Government’s argument and turned to whether USTR complied with the APA in issuing List 3 and List 4A. The Court determined that USTR failed to respond adequately to significant issues raised in public comments, a requirement under the APA. The CIT remanded to USTR to further explain its determinations. Specifically, the Court noted that remand is required for “further explanation regarding the USTR’s rationale for imposing the tariffs and, as necessary, the USTR’s reasons for placing products on the lists or removing products therefrom.” The Court cautioned that USTR “may only further explain the justifications it had given for the modifications,” and “may not identify reasons that were not previously given unless it wishes to . . . tak[e] new agency action.”
USTR must file its remand results no later than June 30, 2022, although the Government likely will ask for an extension. Within 14 days of such filing, Defendants and Plaintiffs must file a joint status report and proposed schedule for the further disposition of the litigation.
1 Addressing China’s Laws, Policies, Practices, and Actions Related to Intellectual Property, Innovation, and Technology, 82 Fed. Reg. 39,007 (Aug. 17, 2017).
2 OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, Findings of the Investigation Into China’s Acts, Policies, And Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of The Trade Act of 1974 (Mar. 22, 2018), available at https://ustr.gov/sites/default/files/Section 301 FINAL.PDF.
3 Notice of Modification of Section 301 Action: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 84 Fed. Reg. 69,447, 69,447 (Dec. 18, 2019).
