US Court of International Trade orders second look at China tariffs

The U.S. Court of International Trade.

The U.S. Court of International Trade (CIT) has ordered the U.S. Trade Representative (USTR) to take a second look at its decision making on thousands of Section 301 tariffs levied against Chinese goods.

The 71-page decision by the court, released 1 April, 2022, stems from a lawsuit filed in 2020 by a company that specializes in vinyl flooring. Norwalk, Connecticut, U.S.A.-based HMTX Industries and its affiliated companies filed a complaint with the CIT challenging the authority of former U.S. Trade Representative Robert Lighthizer and the “unlawful escalation” of the trade war with China.

Following the filing, thousands of additional  U.S. companies joined as plaintiffs, including Tesla, Ford Motor Company, Home Depot, and a range of U.S. seafood companies.

The CIT had decided, in the first of approximately 3,600 cases contesting the third and fourth round of tariffs implemented by the USTR, that the tariffs need to be reconsidered by 30 June, 2022. However, the court ruled that the federal government will not have to remove the tariffs or reimburse importers for any duties already paid.

The lawsuit contended that while the initial imposition of Section 301 tariffs was justified by the investigation into China’s policies regarding intellectual property, the escalation of some tariffs to 25 percent later on – which the court labels “List 3” and “List 4A” – was unlawful because they were not related to issues of intellectual property, the initial cause given for implementing the tariffs. The lawsuit also claimed that the USTR did not abide by Administrative Procedure Act (APA) requirements when imposing the additional tariffs by not allowing for sufficient opportunity for affected importers to comment on the proposals. The USTR also failed to offer a response affirming its consideration of the public comments it received.

“Despite receiving approximately 10,000 comments, USTR said absolutely nothing about how those comments shaped its final promulgation of List 3 and List 4A,” the lawsuit states. “USTR’s preordained decision-making bears no resemblance to the standards that the APA demands.”

The court sided with the USTR in some of its arguments in the case, agreeing the Trump administration's escalation of tariffs on Chinese products was related to China’s own imposition of tariffs, which were made in response to the first round of tariffs stemming from the Section 301 investigation. However, the court agreed that the USTR did not fully abide by the APA, and that it failed to respond to significant issues raised by the public and noted in their comments.

“While a federal agency need not respond to every comment, it must explain how it resolved any significant problems raised by the comments,” the CIT opinion states. “The USTR was required 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, policies, and practices and subject to the specific direction of the [U.S.] president, if any.”

The CIT found the USTR failed to address certain comments on the List 3 and List 4A tariffs, including the reasoning as to how and why products were placed on each list.

“With respect to List 3, the USTR indicated that it chose the products subject to the tariffs at the direction of the president,” the ruling states. “However, the government acknowledged that the record does not reflect the president’s final approval of the list of products covered by the determinations … The USTR’s assertion that it removed certain products from List 3 following its review of the comments and hearing testimony fails to apprise the court of the rationale for the product selection and how that rationale is responsive to the comments.”

While the CIT agreed with the plaintiffs’ assertion that the USTR violated sections of the APA, it rejected an argument calling for the lifting of tariffs pending a full explanation of its reasoning.

“In certain circumstances, the court may remand agency action for further consideration while allowing the action to remain in effect,” the ruling states. However, undoing the Section 301 tariffs would "constitute a modification of the ongoing trade negotiations and may directly impact them, potentially disrupting a complex and evolving process that was designed by Congress to allow for negotiations.”

“For now, the court declines to try to unscramble this egg,” CIT wrote.

The ruling comes as the first round of tariffs, which went into effect on 6 July, 2018, approach an important four-year anniversary. Under U.S. Code Section 2411 - Actions by United States Trade Representative, any action taken by the USTR  technically has a four-year time limit. Specifically, any action taken during any four-year period requires either the petitioner or a domestic industry representative benefitting from the trade action submit a written request for the continuation of the action “during the last 60 days of such four-year period.” Otherwise, “such action shall terminate at the close of such four-year period.”

In addition, there are requirements that the USTR must conduct a review of the effectiveness of the tariffs it has imposed in addressing their stated reason for implementation, which in this case requires a study of the effects of the tariffs on the U.S. economy and consumers.

Taken together, the court case and the upcoming anniversary leaves the administration of U.S. President Joe Biden with important decisions to make regarding trade policy.

As Biden took office in 2020, Robert DeHaan, the vice president for government affairs at the National Fisheries Institute, the largest U.S. trade body representing the U.S. seafood industry, said it was unlikely Biden would immediately revoke the Section 301 tariffs imposed by the Trump administration. That prediction that has proven correct thus far. In fact, under Biden, the USTR reinstituted tariff exclusions on certain seafood products in March 2022.

Photo courtesy of the U.S. Court of International Trade 


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