Section 301 CIT Litigation Update

Since September 2020, approximately 3,600 similar lawsuits challenging the Section 301 duties on imports from China have been filed in the U.S. Court of International Trade (“CIT”). Accordingly, in October 2020, the U.S. Department of Justice (“DOJ”) filed a motion before the CIT requesting the court implement several case management processes, such as the designation of the HMTX Industries case as the test case, the issuance of an automatic stay for all related Section 301 cases, and the appointment of a formal plaintiffs’ steering committee.

On February 5, 2021, Chief Judge Timothy C. Stanceu assigned the Section 301 litigation to a three-judge panel. In its February 10, 2021 Order, the panel issued several procedural orders, including the establishment of a March 12, 2021, deadline for the DOJ to file its answer and affirmative defenses.

On March 12, 2021, the DOJ filed its Master Answer. In addition to generic responses to allegations generally included in the claims of the Section 301 cases, the Master Answer provided a detailed outline of the U.S. Government’s anticipated defenses, which included:

1. The United States Trade Representative (“USTR”) acted at the direction of the President in promulgating Lists 3 and 4, and the President is not subject to the Administrative Procedure Act (“APA”).
2. Review of the President’s discretionary decisions, and the USTR’s implementation of those decisions, presents a non-justiciable, political question.
3. Even if challenged actions could be considered actions of USTR, substantial deference is owed to the Government, and the Court should not interfere because there was no clear misconstruction of a governing statute, significant procedural violation, or action outside delegated authority.
4. The USTR possessed the authority under Section 307 of the Trade Act of 1974 (“Trade Act”) to promulgate List 3 and List 4 because China’s acts, policies, and practices that were the subject of the Section 301 tariffs continued to increase the burden or restriction on U.S. commerce and because prior actions taken in response to the Section 301 investigation were no longer adequate remedies since they did not produce the desired effect of eliminating the unfair trade practices. Moreover, modifications to merely delaying, tapering, or terminating an action are not limited by Section 307.
5. Alternatively, if the challenged actions constitute agency actions, they are not subject to the APA’s informal rulemaking requirements because they qualify for the foreign affairs function exception.
6. Even if the APA’s informal rulemaking requirements apply, the USTR’s promulgation of List 3 and List 4 complied with all statutory requirements, and they were not arbitrary and capricious, contrary to law, or in excess of statutory authority.
7. Lastly, the DOJ reserved the right to raise additional defenses following the selection of the test cases, including, but not limited, all defenses related to jurisdiction and timeliness.

On March 31, 2021, the CIT issued a procedural order identifying HMTX Industries as the sample case and staying all other similar Section 301 Cases. The order also designated the members of the Plaintiffs’ Steering Committee and ordered the Steering Committee and Defendants to file a Joint Status Report by April 12, 2021, containing a proposed briefing schedule and identifying any additional issues that would require early case management intervention.

On April 13, 2021, CIT issued the scheduling order. The DOJ and the Plaintiffs were directed to complete their dispositive motions and responses on or before November 15, 2021.

On April 23, 2021, the sample-case Plaintiff Group filed a Motion for Preliminary Injunction Limited to Suspension of Liquidation.  This motion seeks to suspend the liquidation of all unliquidated entries of imported products from China subject to Lists 3 and 4A. On May 14, 2021, the DOJ filed a response to the motion. On May 20, 2021, HMTX and the other sample-case Plaintiffs filed a motion seeking the Court’s leave to file a reply to the Government’s response. On May 26, 2021, the DOJ filed a response to the Plaintiffs’ motion for leave to file a reply in support of the preliminary injunction.

On June 1, 2021, the DOJ filed a motion to dismiss or, alternatively, a motion for judgment on the agency record. In its dispositive motion, the DOJ argues:

1. The actions complained of (promulgation of Lists 3 and 4A) are not reviewable because the CIT does not have jurisdiction to consider discretionary trade decisions by the President. Furthermore, the actions are not reviewable because they were taken pursuant to the discretionary direction of the President, who is not subject to the APA. As such, the challenge represents a non-justiciable political question.
2. The President and the USTR have authority under Section 307 of the Trade Act to modify an action. According to the motion, the President and the USTR may modify an action if the burden on US commerce of the acts, policies, and practices has increased since the initial action was taken. The Government claims no clear misconstruction of the governing statute, significant procedural violation, or action beyond delegated authority has been 
3. Alternatively, even if the challenged actions can be considered agency action, the USTR did not fail to follow the appropriate procedures. Since List 3 and List 4A were mere modifications of actions, they were the result of informal rulemaking and are exempted from the APA’s notice-and-comment requirements under the foreign affairs exception. Additionally, the USTR provided interested persons with the opportunity to present their written and oral comments concerning the proposed modification.
4. Alternatively, if the challenged actions are considered agency action, and if the foreign affairs exception does not apply, the USTR still complied with all relevant APA requirements and acted within its statutory authority. The Government avers that since the modification was a fruit of informal rulemaking, the Court should apply the arbitrary and capricious standard instead of the substantial evidence standard. The USTR’s actions were not arbitrary and capricious because it provided sufficient opportunity for comment, considered all relevant factors, and connected record facts to its decisions. 

The DOJ concluded its motion by asking the Court to dismiss the Plaintiffs’ amended complaint for failure to state a claim or, alternatively, grant judgment for the Government upon the administrative record.

The Court established an August 2, 2021, deadline for Plaintiffs to respond to this dispositive motion. Plaintiffs have not yet responded to the Government’s dispositive motion. 

On June 4, 2021, the Plaintiffs filed a motion requesting the Court hold oral argument on their motion for a preliminary injunction to suspend liquidation. Oral argument was held on June 17, 2021. The recording is publicly available on the CIT’s website: https://www.cit.uscourts.gov/sites/cit/files/061721-21-00052-3JP.mp3. The hearing officially begins at minute 1:30.

The case is still developing. We will continue to monitor and report on the case.