US Court of International Trade orders second review of Chinese tariffs

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The US Court of International Trade (CIT) has ordered the US Trade Representative (USTR) to reconsider its decision on thousands of Section 301 tariffs levied on Chinese goods.

The court’s 71-page decision, released on April 1, 2022, follows a lawsuit filed in 2020 by a company specializing in vinyl flooring. HMTX Industries, based in Norwalk, Connecticut, USA, and its affiliates have filed a complaint with the CIT challenging the authority of former US Trade Representative Robert Lighthizer and ‘unlawful escalation’ of the trade war with China.

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

The CIT had ruled, in the first of approximately 3,600 cases challenging the third and fourth rounds of tariffs implemented by the USTR, that the tariffs must be reviewed by June 30, 2022. However, the court ruled that the federal government will not have to remove tariffs or refund importers duties already paid.

The lawsuit argued that while the initial imposition of Section 301 tariffs was justified by the investigation of China’s intellectual property policies, the escalation of some tariffs to 25% later – which the court calls “List 3” and “List 4A” – were illegal because they were not related to issues of intellectual property, the initial cause given for the application of the tariffs. The lawsuit also alleged that the USTR failed to comply with the requirements of the Administrative Procedure Act (APA) when imposing the additional tariffs by not providing sufficient opportunity for affected importers to comment on the proposals. The USTR also did not provide a response confirming its consideration of the public comments it received.

“Despite receiving approximately 10,000 comments, the USTR said absolutely nothing about how those comments shaped its final promulgation of List 3 and List 4A,” the lawsuit states. “USTR’s prearranged decision-making is nothing like the standards required by the APA.”

The court sided with the USTR in some of its arguments in the case, agreeing that the Trump administration’s escalating tariffs on Chinese goods were tied to China’s imposition of tariffs, which were imposed in response to the first round of tariffs arising from the Section 301. investigation. However, the court agreed that the USTR failed to fully comply with the APA and failed to address important issues raised by the public and noted in their comments.

“Although a federal agency need not respond to every comment, it should explain how it has resolved any material issues raised by the comments,” the CIT notice states. “The USTR was required to respond to comments regarding the duties to be assessed, the overall level of trade subject to the proposed duties, and the products covered by the amendments, all in light of Section 301’s statutory purpose of eliminate the burden on U.S. commerce of China’s unfair acts, policies, and practices and subject to the specific direction of the [U.S.] chairman, if any.

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

“With respect to List 3, the USTR has indicated that it selects the products subject to tariffs under the direction of the President,” the ruling states. “However, the government has acknowledged that the record does not reflect the President’s final approval of the list of products covered by the determinations… USTR’s assertion that it removed certain products from List 3 following its review of the comments and hearing of the evidence does not inform the court of the rationale for the selection of the product and how that rationale responds to the comments.

Although the CIT accepted the plaintiffs’ assertion that the USTR violated sections of the APA, it rejected an argument calling for tariffs to be waived pending a full explanation of its reasoning.

“In certain circumstances, the court may remand the agency’s action for further review while allowing the action to remain in effect,” the decision said. However, rescinding the Section 301 tariffs “would constitute a modification of, and could directly impact, ongoing trade negotiations, potentially disrupting a complex and evolving process that was designed by Congress to enable negotiations.”

“At this time, the court declines to attempt to decipher this egg,” CIT wrote.

The decision comes as the first round of tariffs, which took effect on July 6, 2018, approaches a significant four-year anniversary. Under US Code Section 2411 – US Trade Representative Actions, any action taken by the USTR is technically limited to four years. Specifically, any action taken within a four-year period requires the claimant or a representative of the domestic industry benefiting from the trade action to submit a written request for continuation of the action “during the last 60 days of this four-year period”. Otherwise, “such action shall terminate at the end of that four-year period”.

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

Taken together, the court case and the upcoming anniversary leave US President Joe Biden’s administration with some important trade policy decisions to make.

When 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 Biden is unlikely to immediately revoke the Section 301 tariffs imposed by the Trump administration. This prediction which has proven to be correct so far. In fact, under Biden, the USTR reinstated tariff exclusions on certain seafood products in March 2022.

Photo courtesy of the United States Court of International Trade

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