Section 301 Case Likely at End of the Road After CAFC Sides With US, Attorneys Say

On Sept. 25, the CAFC found the lists 3 and 4A tariffs on China from President Donald Trump's first administration to be a valid exercise of the Office of the U.S. Trade Representative's "modification" authority under Section 307(a)(1)(C) (see 2509250028). The court said the statute's permission to "modify" Section 301 action where it's "no longer appropriate" allows the U.S. trade representative to ramp up the tariffs if the original action is "insufficient" to achieve its "stated purpose."

At this stage, the plaintiffs in the case, who represent thousands of companies, can either petition the full CAFC for rehearing en banc or appeal the case directly to the Supreme Court. John Magnus, president of TradeWins, told us the chance the case gets before the high court "is very low," as is the chance the government itself would be an appellant on any issue in the case, including whether the tariffs should have been subject to review under the Administrative Procedure Act.

Another trade attorney told us it's unlikely the case will be heard by either the full Federal Circuit or the Supreme Court, since the Section 301 case "doesn't present nearly the sort of quagmire of questions" the IEEPA tariff cases present. "I think it's going to sort of stop here," the attorney said.

If this is the end of the road for the Section 301 litigation, what's left is a very flexible tariff tool, the attorneys said. Peter Harrell, former White House senior director for international economics and competitiveness, said the decision "sends a very clear message" that Section 301 is a "flexible tool for the U.S. Trade Representative to use."

The Federal Circuit signaled in its decision that USTR has plenty of discretion in modifying and greatly increasing existing Section 301 duties so long as they are geared toward addressing the issues identified in the original Section 301 investigation, Harrell said. "I think the message here is that if USTR builds the factual record for" Section 301 modifications and goes through the proper notice-and-comment procedure, "it's going to have a lot flexibility in the substance of what it does," he added.

Magnus said this ruling gives the Trump administration confidence that the alternatives at the president's disposal "are really robust even if IEEPA is ruled not to be a valid basis for tariff imposition." The president can use Section 301 and Section 232, and the Federal Circuit has said duties under these authorities "are not meaningfully subject to judicial review," Magnus said. Section 301 actions only have to show the "existence of an unreasonable burden/restriction," while Section 232 duties must show the "existence of a national security threat," Magnus clarified.

The "Administration has a free hand," he added by email. "The pathway out of our current situation does not involve the courts but rather the voters."

Harrell said that if the Trump administration loses the IEEPA cases it will have a "fork in the road." Down one path, the administration can embrace the use of Section 338, which lets the president impose tariffs up to 50% on foreign countries found to discriminate against U.S. commerce. Down the other, the administration can embrace the established trade tools found in sections 301 and 232.

Harrell said Trump may be more attracted to Section 338, since it "offers the highest level of flexibility," though, like IEEPA, it carries the "highest level of litigation risk." The administration will "have to make a decision of" choosing Section 338 and potentially having "another year of lawsuits," or choosing the other tools "that are more administratively complicated and will require them to do a lot more work" but are "more likely to stand the legal test of time."

"This Administration seems willing to roll the dice and take their chances in court," he added in an email.

Various attorneys also speculated on whether the CAFC's ruling in the Section 301 case will have any impact on the litigation before the Supreme Court on the IEEPA tariffs (see 2509220014), though many of them appeared skeptical. One attorney said the ruling won't likely have much of an effect, since the Section 301 decision was largely rooted in a textual analysis of Section 307, an entirely separate statute.

Where the high court could be implicated is in the Federal Circuit's discussion of the major questions doctrine, which guards against newfound and unheralded power claimed from old, vague statues. Judge Todd Hughes said the Section 301 duties don't violate the doctrine, since Congress clearly delegated tariff authority in Section 307, while the IEEPA tariffs raised major questions concerns, since the president used a law that had never been used for tariffs before.

Magnus found Hughes' distinction of the application of the major questions doctrine to Section 301 and IEEPA unconvincing, declaring that the Supreme Court could transplant Hughes' discussion of the non-delegation and major questions doctrines into its decision siding with the Trump administration on IEEPA. He added that the appellate court's discussion of the major questions doctrine in the IEEPA case "is unbelievably strained by comparison" to Hughes' discussion of the issue in the Section 301 case, which he dubbed to be "textbook."

Lawrence Friedman, partner at Barnes Richardson, generally found Hughes' discussion of the major questions doctrine unconvincing, based on the notion that USTR's use of Section 307(a)(1)(C) truly was transformative, akin to the President's use of IEEPA. "I understand that 301 was limited to China, and therefore it's arguably not the same universal scope [as IEEPA], but given the impact on the trade, it certainly was a transformative change in the trading relationship and covered hundreds of billions of dollars in trade, so I think it's a thin distinction that they are making," he said.