DOJ Files Section 301 'Anticipated Defenses' Layered With Fallback Arguments

The Office of the U.S. Trade Representative, acting at the “direction” of President Donald Trump, had the authority under the 1974 Trade Act to impose the Lists 3 and 4A Section 301 tariffs on Chinese imports, argued a DOJ "master answer" (in Pacer) Friday in one among a series of “anticipated defenses” it plans to mount against the massive litigation inundating the U.S. Court of International Trade. The defenses were layered with a series of fallback arguments, some contradicting others. Lawyers we polled Monday said the tactic was common, based on the proven strategy that DOJ needs only one argument to stick.

It was the government’s first public statement on the merits of the 3,500 cases filed since mid-September, all seeking to get the Lists 3 and 4A rulemakings vacated and the tariffs refunded. DOJ squarely took on Akin Gump’s complaint in the first-filed HMTX/Jasco case (see 2009110041) when it said “the burden or restriction on United States commerce of China’s acts, policies, and practices that were the subject of the Section 301 action continued to increase” after the Lists 1 and 2 tariffs were imposed, including after the one-year investigation period expired. “The previous actions taken in response to the Section 301 investigation proved to no longer be appropriate, as the actions were not effective in eliminating the unfair trade practices that were the subject of that investigation.” The Trade Act doesn’t limit USTR’s “modifications” authority “to merely delaying, tapering, or terminating an action,” said DOJ.

Akin Gump argued the Trade Act “required USTR to determine what action to take, if any, within 12 months” after initiating its Section 301 investigation into China’s allegedly unfair trade practices (see 2009110041). “But USTR failed to issue List 3 (or subsequent List 4) within that window.” It’s not entitled to “fall back” on its modification authority under the statute’s Section 307 “to salvage List 3,” it said. The HMTX/Jasco complaint was the template for virtually all the others that followed. “The government’s answer to plaintiffs’ complaints was as expected and we look forward to responding during the briefing phase of the litigation,” emailed lead Akin Gump attorney Matt Nicely Monday. DOJ didn't respond to questions.

The statute bars USTR from expanding the imposition of tariffs to other imports from China “for reasons untethered to the unfair intellectual property policies and practices it originally investigated,” said Akin Gump. Yet that’s “exactly” what USTR did in promulgating List 3 duties in “response to China’s retaliatory duties and other unrelated issues,” it said. “The Trade Act permits USTR only to delay, taper, or terminate -- not ratchet up -- the actions it has already taken.” Lawyers said establishing the link between the Section 301 investigative report to Lists 3 and 4A is critical to DOJ’s defense.

DOJ countered that review of the president’s “discretionary decisions,” and USTR’s implementation of those decisions, raises a “non-justiciable, political question. Case law gives USTR “substantial deference” to interpret the Trade Act, and the court “should not interpose because there was no clear misconstruction of a governing statute, significant procedural violation, or action outside delegated authority,” it said.

On allegations that USTR ran afoul of the 1946 Administrative Procedure Act by running rulemakings that were sloppy and lacked transparency, USTR was acting “at the direction” of the president when it imposed Lists 3 and 4A, and the president “is not subject to the APA,” said DOJ. “Even if the challenged actions could be considered actions of USTR” as a federal agency that must abide by the APA, they're “exempt” from the statute’s notice-and-comment rulemaking requirements “because they qualify for the foreign affairs function exception,” it said.

Akin Gump complained USTR also breached the APA by giving insufficient opportunity for comment, and by failing to connect facts in the record “to the choices it made,” it said. “Despite receiving over 6,000 comments, USTR said absolutely nothing about how those comments shaped its final promulgation of List 3.”

Though USTR never cited the APA’s foreign affairs exception in any of its tariff rulemakings, Friday’s DOJ answer said the exemption relieved the agency of the obligation to act more transparently. The exception is open to wide interpretation, wrote then-Attorney General Tom Clark in a 1947 "manual" soon after the statute was enacted. Judging from the APA's “legislative history,” said Clark, “it would seem clear that the exception must be construed as applicable to most functions of the State Department and to the foreign affairs functions of any other agency.” The House and Senate legislative reports before the APA's enactment said the exception "was not to be loosely interpreted to mean any function extending beyond the borders of the United States but only those 'affairs' which so affect relations with other governments that, for example, public rule making provisions would clearly provoke definitely undesirable international consequences."

Even if the court rejects the foreign affairs exception argument, “USTR’s actions in promulgating 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,” said DOJ. The defendants “reserve the right to raise additional defenses after the test cases have been chosen, including, but not limited to, all defenses related to jurisdiction and/or timeliness,” it said.

The deadline is later this week for plaintiffs to recommend to the court which complaints should be picked as the test cases and who among the plaintiffs’ lawyers should sit on the steering committee. DOJ was silent in Friday’s answer whether it will stipulate support for plaintiffs’ request for “interim relief” if importers ultimately prevail over the government. Lawyers we canvassed Monday said it’s likely DOJ won’t address interim relief until the test cases and steering committee are in place.

The relevant statute says the liquidation of an entry is final and binding on all parties, unless it's timely protested within 180 days of the liquidation. Akin Gump argued many plaintiffs are or will be seeking refunds of List 3 duties on entries that have been liquidated and are long past the protest deadline. It wants a DOJ stipulation that plaintiffs will get their refunds if successful, regardless of whether the entries have been liquidated or protested.