US Makes Defense of Lists 3 and 4A China Tariff Action at Federal Circuit

The companies may challenge the president's discretion only in considering whether to make a tariff modification, as was the case for the lists 3 and 4A tariffs, or take a brand new Section 301 action, the government said Dec. 21 at the U.S. Court of Appeals for the Federal Circuit. However, review of this decision is "entitled to substantial deference and is reviewable only for a 'clear misconstruction' of the statute," which the plaintiffs "certainly cannot establish," the U.S. said.

Filing the highly anticipated brief, the government also addressed the plaintiffs' claims regarding the "major questions" doctrine -- a legal theory recently adopted by the U.S. Supreme Court, which says the executive branch may regulate major areas of the economy only where explicitly delegated to do so by Congress.

The U.S. said this doctrine is "irrelevant here" because imposing tariffs on foreign countries is "manifestly within the substantive scope of the President's" and the Office of the U.S. Trade Representative's power under the Trade Act of 1930. The only question is whether the lists 3 and 4A modifications had to be imposed via Section 301's lengthy process or the Trade Act's process for modification, established in Section 307, though this dispute "does not implicate any transformative expansion of agency authority triggering a major-questions inquiry."

At the Court of International Trade, the government championed Section 307 as its legal cover for imposing the lists 3 and 4A tariffs, claiming that two different subsections under Section 307 gave it the authority to set duties on over $320 billion worth of Chinese goods. One of the subsections, Section 307(a)(1)(B), lets USTR "modify or terminate" a Section 301 action if the "burden or restriction" on U.S. commerce "of the denial rights, or of the acts, policies, and practices, that are the subject of such action has increased or increased."

Because the U.S. didn't base the tariff hikes on increased harm to U.S. commerce from practices that caused the original action, the plaintiffs said USTR didn't have the right to impose the tariffs (see 2307180069). The companies, led by HMTX Industries and Jasco Products, said CIT and USTR erred in finding the "subject" of the Section 301 action to be the retaliatory tariffs imposed by China, adding that the subject can be only the theft of U.S. intellectual property initially investigated by USTR.

In response, the government said that limiting the practices forming the "subject" of the existing tariff action to foreign conduct "cannot be reconciled with the statutory text, which contemplates post-action changes." The U.S. also clarified that the lists 3 and 4A duties weren't imposed to address China's retaliatory tariffs or based on the idea that the defensive tariffs themselves were unfair practices, but that the tariffs "were a further step that China had taken to" defend its IP theft.

The statute specifically allows further tariff action to address defensive measures taken by the offending nation, the government argued. Even if there were a requirement that Section 301 modifications must respond to "exacerbation" from the offending nation only in the form of the original unfair trade practice, "it would be satisfied here," the brief said. "China’s tariffs were simply another manifestation of its retaliatory conduct long used to protect and support its practices regarding technology and intellectual property," the government claimed.

HMTX and Jasco also claimed that Section 307(a)(1)(C) barred the tariff modifications, since this statute only allows the president or USTR to modify a Section 301 action when that action "is being taken under Section 301(b) and is no longer appropriate." The U.S. said the original action stopped being "appropriate" due to China's retaliatory tariffs, and that this subsection allowed a shift to an action "appropriate" to the goal of eliminating China's "unfair practices."

The plaintiffs said Section 307(a)(1)'s authorization to "modify or terminate" a tariff must be interpreted in subsection (C) to mean "decrease or terminate" cuts against "basic principles of statutory interpretation," the U.S. said. The companies' take on this statute also "cannot be reconciled with the statute's purpose or history, creates perverse incentives to avoid measured trade actions, and introduces temporal anomalies into the Act's operation," the brief said.

The U.S. also addressed the plaintiffs' claims regarding USTR's alleged procedural deficiencies under the Administrative Procedure Act, which initially found more success at CIT. The trade court initially remanded the tariff actions due to USTR's failure to meaningfully address comments on lists 3 and 4A, though USTR's greater explanation of its decisions on remand satisfied the trial court.

Again addressing the plaintiffs' claim that USTR may not make post hoc rationalizations of its decisions, the government first said the modifications were not subject to the APA, given the statute's "foreign affairs function" exemption. The U.S. also argued that even assuming the APA's rules did apply, "USTR satisfied them by responding to comments on remand." The government said an agency is allowed to "elaborate later" on the "determinative reasons for its action," though it may not provide "new reasons." This is the route USTR took on remand, the brief said.

The government lastly defended CIT's decision to remand the tariff actions to USTR to address the comments without vacating the tariff actions. It said the trade court clearly had the authority to order remand without vacating and didn't abuse its discretion because vacating would have been "massively disruptive."