Trade Court Finds USTR Had Authority to Impose Lists 3, 4A Tariffs

The Office of the U.S. Trade Representative “properly exercised its authority” under the Section 307 modification provisions of the 1974 Trade Act when it ordered the imposition of the Lists 3 and 4A Section 301 tariffs on Chinese imports, the U.S. Court of International Trade ruled Friday. Test-case plaintiffs HMTX Industries and Jasco Products, plus the more than 3,600 complaints that followed, sought to vacate the tariffs on grounds that Lists 3 and 4A were unlawful without USTR launching a new Section 301 investigation tat formed the legal basis of the Lists 1 and 2 tariffs.

The opinion was a partial loss for both sides, as the court remanded the matter to USTR after ruling against the government that the agency failed to adequately respond to comments submitted in advance of the tariffs, as it was required to do under the Administrative Procedure Act. But the court's three-judge panel ruled the tariffs may remain in place while the agency reconsiders its action pertaining to these comments. USTR has until June 30 to respond to the remand order.

Plaintiffs argued in Feb. 1 oral argument that vacating the tariffs was the only proper remedy if the court found USTR acted improperly under the APA. DOJ said remand would be the only proper remedy, and the court agreed. The court did rule against the government in deciding the APA’s foreign affairs exemption didn't apply in the case.

HMTX and Jasco argued that Lists 3 and 4A actions were based on retaliatory Chinese actions, separate and apart from the allegedly unfair Chinese trade practices documented in USTR’s March 2018 Section 301 report. The government countered that the retaliatory Chinese tariffs that sparked Lists 3 and 4A were “not separate and distinct from” the investigated acts and were instead “directly related” to the acts, policies and practices that were the subject of the original investigation.

The court came down squarely on the government’s side, saying “the link between the subject of the original section 301 action and China’s retaliation is plain on its face.” Plaintiffs’ arguments that China’s retaliatory conduct cannot be part of the original action because that conduct post-dates the initial investigation and determination “are not persuasive,” it said.

Section 307 modifications “are based on activity increasing (or decreasing) the burden on U.S. commerce after the initial determination,” said the court. Plaintiffs’ argument thus turns on whether the USTR found China’s retaliatory conduct caused an increased burden on U.S. commerce from the acts, policies, and practices that constituted the subject of the action,” it said. Because the court concludes “that it did, Plaintiffs’ timing-based argument must fail,” it said.

The court agreed with the plaintiffs that USTR “failed to respond adequately” to the thousands of comments it received in the Lists 3 and 4A rulemakings. USTR was required under the APA “to address comments regarding any duties to be imposed, the aggregate level of trade subject to the proposed duties, and the products covered by the modifications, all in light of section 301’s statutory purpose to eliminate the burden on U.S. commerce from China’s unfair acts,” it said.

USTR’s “statements of basis and purpose” indicate why the agency “deemed China’s ongoing and retaliatory conduct actionable,” said the court, but those statements “fail to apprise the court how the USTR came to its decision to act and the manner in which it chose to act,” it said.

Having requested comments on a range of issues, USTR “had a duty to respond to the comments” in a manner that enables the court to understand why the agency reacted to them as it did, said the decision. “USTR could have explained its rationale with respect to the comments in light of the specific Presidential directives it was given. What the USTR could not do was fail to provide a response to the comments it solicited when providing the rationale for its final determinations.”

In deciding a remedy for USTR’s APA violations, “the court declines to find that the doctrine of waiver precludes remand here,” said the decision. Though USTR’s “failure to explain its rationale in the context of the comments it received leaves room for doubt as to the legality of its chosen courses of action,” said the ruling, the court “weighs heavily the disruptive consequences of (potentially interim) vacatur,” or vacating the tariffs, plus the possibility that vacatur would be overturned on appeal.

The court ordered that Lists 3 and 4A are remanded to USTR “for reconsideration or further explanation consistent with this opinion,” and that USTR will file its “remand results” on or before June 30. A joint status report from the plaintiffs and DOJ will be due 14 days after the remand results are reported, along with a proposed schedule “for the further disposition of this litigation.”