United States Court of International Trade

Slip Op. 22-32

In In re Section 301 Litigation, Slip Op. 22-32 (April 1, 2022), a three-judge panel of the Court held that the United States Trade Representative (USTR) had the authority to impose the List 3 and 4A sanctions as part of a continuing trade battle against unfair Chinese intellectual property practices. In so ruling, the Court rejected the plaintiffs’ principal argument that the retaliation was a new measure against Chinese tariffs, which the USTR could not impose unless it first conducted a new Section 301 investigation. However, the Court also found that USTR violated the Administrative Procedure Act (APA) by failing to provide an adequate and reasoned explanation for the choices it made in imposing these measures on some goods and not on others, and by failing to respond to the voluminous public comments received regarding these measures, the vast majority of which opposed the tariffs. The Court remanded the case to USTR with directions for the agency to provide a more detailed explanation of its decision by June 30. The Court indicated that, even though it concluded that the tariffs were not imposed in accordance with APA requirements, it would not vacate the tariffs pending the remand.

The Court began by determining that the List 3 and 4A sanctions constituted “final agency action” that was judicially reviewable. In so arguing, the Court rejected the government’s argument that the USTR’s actions were immune from judicial review as involving “foreign policy” considerations. The Court also rejected the notion that the Section 301 tariffs represented a “political question” which was not judicially reviewable. Turning to the crux of the plaintiffs’ main charge, the Court held that USTR had authority to modify its previous List 1 and 2 retaliations to impose the additional sanctions in Lists 3 and 4A. The plaintiffs had argued that these new retaliations were not the “subject of the action” originally retaliated against (China IP practices), because the Chinese tariffs had not yet been imposed when the initial Section 301 investigation was initiated, or when USTR determined that remedial action was appropriate. The government contended that China’s tariffs represented an increase in the burden on U.S. commerce resulting from China’s IP policies.

The Court held that “upon review of the record’s proceedings and the arguments of the Parties, the Court find that the link between the subject of the original Section 301 action and China’s retaliation is plain on its face.” The Court asserted that “by directly offsetting the duties on the $50 billion in trade with its own duties on $50 billion from the United States, China directly connected its retaliation to the U.S. action and to its own policies and practices that the U.S. action was designed to eliminate”. Stated another way, once the USTR imposes Section 301 tariffs, it can continue to escalate the battle against a trading partner so long as it can connect any action by the partner to the original dispute.

The Court also suggested that by discussion retaliation, the USTR’s Section 301 report “provides context and explanation regarding the reasons why individual companies are unable and unwilling to pursue their own complaints against the underlying Chinese practices. This recognition of the challenges faced by individual companies led the USTR, consistent with the direction of the President, to initiate the Section 301 action in order to protect US companies without them filing their own petitions and incurring the consequences of targeted regulation”. The court concluded that “thus even if the retaliatory actions by China were not otherwise clearly related to the acts, policies, and practices that China sought to defend from the USTR’s Section 301 action, the USTR report provides a basis for regarding China’s retaliatory actions as within the scope of the acts, policies, and practices, that were the subject of the original action”.

Finding that the issues did not fall within the “foreign affairs” exception to the Administrative Procedure Act (APA), the Court then proceeded to consider the plaintiffs’ APA claims, finding that USTR failed to respond adequately to public comments, and failed to explain the reasons for its determinations. The court held that:

The USTR’s statements of basis and purpose thus indicate why the USTR deemed China’s ongoing and retaliatory conduct actionable; however, those statements failed to appraise the Court how the USTR came to its decision to act and the manner in which it chose to act, taking account of the opposition and support for the increased duties and the inclusion or exclusion of particular subheadings, the concerns raised about the impact of the duties on the U.S. economy and the potential availability of alternative causes of action, within the context of the specific direction provided by the President.

USTR’s failure to respond to significant issues raised in the public comments rendered the determination not consistent with the APA.

The Court remanded the matter to USTR, with instructions for the agency to provide comments and reasons for its imposition of List 3 and 4A tariffs on Chinese goods no later than June 30, 2022.

Ordinarily, the APA requires a reviewing court to “hold unlawful, and set aside” agency action not undertaken in accordance with APA requirements. The court concluded, however, that it could remand USTR’s legally insufficient determination for further comment, without vacating it, or voiding the tariffs imposed thereunder.