On April 1, 2022, the three-judge panel at the U.S. Court of International Trade (CIT) issued its opinion in the China Section 301 tariff refund litigation regarding the government defendants’ motion to dismiss and the plaintiffs’ cross-motion for judgment on the record. The CIT found that: (1) the Office of the U.S. Trade Representative (USTR) had the authority and discretion to modify the tariffs first implemented as a result of the USTR’s determination regarding China’s intellectual property (IP) practices and to implement additional tariffs on imported products from China included in Lists 3 and 4A; and (2) the USTR failed to respond adequately to comments it received during the rulemaking process when it proposed tariffs on these additional products and thus did not adhere to the standards set forth in the Administrative Procedure Act (APA). In its remand order, the CIT instructed the USTR to correct deficiencies in the agency’s record. The opinion affords the USTR 90 days, until June 30, 2022, to respond and also orders the plaintiffs and the government defendants to submit a joint status report 14 days thereafter, including a proposed schedule on “the further disposition of this litigation.”

In its opinion, the CIT rejected the government defendants’ arguments in their motion to dismiss that the USTR’s Section 301 determination was not reviewable because it was a “presidential action” — and not an agency action — and also rejected their argument that the matter was a “political question” not suitable to judicial review. The CIT, however, found that the USTR was within its authority to apply additional tariffs to products on Lists 3 and 4A after the conclusion of the original investigation due to China’s retaliatory tariff actions. The CIT stated that the investigation “covered China’s conduct related to the identified matters and not simply, as Plaintiffs contend, the acts constituting the identified matters.” “[B]y directly offsetting the duties on the $50 billion in trade with its own duties on $50 billion in trade from the United States,” the CIT wrote, “China directly connected its retaliation to the U.S. action and to its own acts, policies and practices that the U.S. action was designed to eliminate.” This “link between the subject of the original Section 301 action and China’s retaliation is plain on its face.” The opinion details USTR’s authority under Section 307 of the Trade Act of 1974. Ultimately, the CIT held that the “USTR properly found an increased burden on U.S. commerce arising from the acts that formed part of the subject of the original action” and that Section 307 allows modification of the USTR’s Section 301 actions.

Regarding APA non-compliance, the CIT first dismissed the government defendants’ argument that the promulgation of Lists 3 and 4A fell under the “foreign affairs” exemption of the APA. Next, in addressing the merit of the plaintiffs’ APA claims, the CIT found that USTR failed to respond adequately to the roughly 10,000 comments filed by U.S. stakeholders challenging the imposition of these tariffs. Though a detailed comment-by-comment response “is not the standard required by the APA,” the CIT stated that the USTR “was required to address comments regarding any duties to be imposed, the aggregate level of trade subject to the proposed duties, and the products covered by the modifications, all in light of Section 301’s statutory purpose to eliminate the burden on U.S. commerce from China’s unfair acts, policies, and practices.” While the CIT acknowledged that the USTR’s “statements of basis and purpose” for its action and reasons it “deemed China’s ongoing and retaliatory conduct actionable” are both present, it found that “those statements fail to apprise 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 courses of action, within the context of the specific direction provided by the President.” “Having requested comments on a range of issues, the USTR had a duty to respond to the comments in a manner that enables the court to understand ‘why the agency reacted to them as it did.’”

During the February 1, 2022 oral argument (see Update of February 2, 2022), plaintiffs’ counsel argued that vacating the tariffs on Lists 3 and 4A products was a proper remedy while the government’s counsel argued that remand under the APA was the proper standard. With this opinion, the CIT found that USTR’s “failure to explain its rationale in the context of the comments it received leaves room for doubt as to the legality of its chosen courses of action.” However, the CIT declined to vacate the tariffs, indicating that such action “would disrupt a complex and evolving process” and that the APA allows other action “when it was possible for the relevant agency to cure the defect.” In remanding the action to the USTR, the CIT noted that the USTR may only rely upon evidence that existed before its List 3 and List 4A decisions and that any expanded explanations the USTR provides must be based on the same rationales it originally offered. The USTR “may not identify reasons that were not previously given unless it wishes to ‘deal with the problem afresh’ by taking new agency action.”