CIT Oral Argument Largely Focuses on Limits to Presidential Modifications of Section 301 Tariffs

Section 301 test-case plaintiffs HMTX and Jasco seek to vacate the lists 3 and 4A tariffs on Chinese imports and get the duties paid refunded with interest on grounds that the Ofice of the U.S. Trade Representative overstepped its authority, stemming from the 1974 Trade Act, by escalating the trade war with China and violating Administrative Procedure Act protections against sloppy and unresponsive federal rulemakings. A combined 9,000 comments were filed in the lists 3 and 4A proceedings, and the government “acknowledges they were overwhelmingly opposed to these tariffs,” attorney Joseph Palmore of Morrison & Foerster said on behalf of amici CTA, the National Retail Federation and five other trade associations.

The arguments opened up with statements from DOJ. The HMTX-Jasco complaint should be dismissed because the Section 301 China tariffs were imposed “at the direction” of President Donald Trump, “and presidential action is not reviewable” under the Administrative Procedures Act “or this court’s residual jurisdiction” authority, DOJ lawyer Justin Miller said. Chief Judge Mark Barnett interrupted, pressing Miller to show “where in the record is the president’s direction” on the tariffs, “something with his signature on it."

The APA doesn’t require presidential directives “to be in writing,” Miller responded. “The president’s directives were quite specific,” in Federal Register notices and other public documents, “when it comes to the tariffs that are at issue before the court today,” he said. Miller couldn’t answer when Choe-Groves asked if Trump had “final approval” over lists 3 and 4A and when they would take effect. “I’m not certain of that,” Miller said. “The record doesn’t reflect that type of review.”

DOJ lawyer Elizabeth Speck defended USTR’s modification authority under the Trade Act’s Section 307 to ratchet up the Chinese tariffs when it imposed lists 3 and 4A without a new Section 301 investigation. “The plaintiffs are incorrect that the trade representative ever expanded the scope” of the original investigation by imposing lists 3 and 4A as a response to China’s retaliatory tariffs against the U.S., Speck said. The “modification actions” were “all steps in the same staircase, and they’re all aimed at eliminating the unfair trade practices that were investigated” in the original Section 301 probe, she said.

Barnett asked Speck if USTR could have imposed $250 billion in List 1 tariffs instead of the $34 billion “at the very beginning,” knowing there were “rumblings” of Chinese retaliation. “Arguably, if they lose this case, they may take a step like that,” she said of USTR. There needs to be an “explanation” under the Trade Act about “why a particular action is appropriate,” she said. “As it became very apparent that China would not step away from its trade practices, they had to take additional actions.”

The “substantive dispute in this case boils down” to whether Section 307's modification provision “hands USTR essentially a blank check to ratchet up tariffs, by virtually any amount, and for virtually any reasons,” said Pratik Shah, Akin Gump attorney for HMTX and Jasco. “The government’s unprecedented position not only creates serious constitutional concerns, but it eviscerates the careful investigation-based limits Congress placed on Section 301 trade actions.”

The government was wrong to base lists 3 and 4A on the “subsequent harm” to the U.S. from Chinese retaliatory tariffs, current manipulation and Beijing’s failure to buy more U.S. agricultural products, Shah said. “None of those were the subject of the Section 301 investigation.” Shah doesn’t deny that the burden on the U.S. economy “certainly increased from China’s retaliatory measures,” Shah told Judge Claire Kelly. But the language in Section 307 “ties the burden” of increased U.S. harm from “the investigated practices” in the Section 301 report, not from the “subsequent defensive measures” imposed by the Chinese, he said.

Following a brief intermission, the amici resumed the attack on the tariff action. The Trade Act and the APA “impose obligations of opportunities to comment by stakeholders and reasoned decision-making” by the federal agencies involved, Palmore said. USTR “complied with neither” in the lists 3 and 4A tariff rulemakings, Palmore told the court's three-judge panel. USTR “of course didn’t have to go and respond comment by comment,” Palmore said. “That’s not what the APA or the burden of reasoned decision-making requires.” The statute, though, does require “some response to significant objections,” he said. “Here, there were none,” except for “simple conclusory sentences” in USTR’s Federal Register notices that the agency took public comments “into account,” he said. “That was not enough.”

USTR “hypothetically” could have told the public it believed the projected harms from the tariffs wouldn’t materialize, that public fears about the duties were overblown, or that the tariffs were “worth incurring to secure the benefit that we’re seeking” in curbing China’s allegedly unfair trade practices, Palmore said. “What they couldn’t do was just be silent, and that’s what they did here.”

The “massive scope” of the lists 3 and 4A tariffs as they were being proposed “required meeting the APA’s obligations to consider objections and to offer a reasoned explanation all the more important and made the USTR’s failure to comply with those obligations all the more stark,” Palmore said. Under questioning by Judge Jennifer Choe-Groves about whether it was USTR’s normal course to be unresponsive to public comments, Palmore said he didn't know, but it didn’t matter. “I’ve litigated a lot of administrative law cases over the years and read many, many more, and I’ve never seen one quite like this, where there was just a complete absence of response to fundamental objections to the proposed course of action.”