Plaintiffs Cite 'Major Questions' Doctrine in Opening Arguments on Section 301 Duties Suit

The Office of the U.S. Trade Representative exceeded its authority in imposing the lists 3 and 4A Section 301 tariffs on China, covering a total of $320 billion worth of Chinese imports, plaintiff-appellants in the massive case against the duties, led by HTMX Industries and Jasco Products Co., argued in their opening brief at the U.S. Court of Appeals for the Federal Circuit. Appealing the Court of International Trade's decision upholding the tariffs (see 2204010061), the companies said USTR did not have the authority to set the duties since the authority was not directly delegated by Congress, in violation of the "major questions doctrine" (HMTX Industries v. United States, Fed. Cir. # 23-1891).

The high duties set by USTR create a "classic example of a 'major questions' case," the brief said. Like the Supreme Court found in 2022 in West Virginia v. EPA, USTR in the present case claimed to find in a "long-extant statute an unheralded power representing a transformative expansion in" its authority, located this power in the "vague language of an ancillary provision" that had rarely been used in the prior decades, and "took action of 'vast economic and political significantce,'" the brief said.

At the trade court, the government claimed authority to impose the tariffs under two different subjections of Section 307 of the Tariff Act of 1930: Section 307(a)(1)(B) and 307(a)(1)(C). Section 307(a)(1)(B) says that USTR can "modify or terminate" a Section 301 action if "the burden or restriction" on U.S. commerce "of the denial rights, or of the acts, policies, and practices, that are the subject of such action has increased or decreased."

HMTX and Jasco argued that the question is whether USTR based its tariff increase on increased harm to U.S. commerce from the practices that spurred the original action. "The answer is no," the brief said, since the duties were raised in response to Chinese retaliation instead of the four categories of Chinese aggression and intellectual property theft that formed the basis for the original duties.

The brief said the trade court erred in saying USTR could rely on this subsection. CIT ruled that the link between the subject of the original Section 301 investigation and China's retaliation is "plain on its face," but the appellants argued that the "statutory inquiry is not whether USTR can point to some 'link' or 'connection'" and is instead on whether "the economic burden from 'the acts, policies, and practices, that are the subject of' the original action increased."

CIT in effect "revised the statute to add a new clause that would justify a modification" whenever the burden on U.S. commerce of the practices subject of such action "or of any subsequent defensive measures taken in response to such action" has "increased or decreased," the companies said.

HMTX and Jasco said that "to the extent that CIT was concerned about restricting the ability of the United States to respond to retaliation by China, that policy concern was misplaced." The question at play is not whether something should be done but rather "who has the authority to do it," the brief said. Congress can still impose duties itself, and the legislative body gave USTR a host of other tools to respond to Chinese actions.

Section 307(a)(1)(C), on the other hand, says the president can "modify or terminate" an action if it is being taken under Section 301(b) -- as were the China tariffs -- and is "no longer appropriate." HMTX and Jasco said this section only gives USTR the authority to reduce or terminate a Section 301 action after changed circumstances undermine the original finding that taking responsive action was "appropriate." They included a lengthy discussion of USTR's reliance on the subsection despite the fact that CIT never addressed it since it was fully briefed at the court.

HMTX and Jasco said allowing USTR to increase tariffs in an unlimited fashion under Section 307(a)(1)(C) would "be especially problematic" since Congress installed a "series of congressionally imposed hoops," including investigation and consultation requirements, factual findings and a 12-month deadline to choose the "appropriate" action under Section 307(a)(1)(B). "The only coherent reading is that" Congress left the executive to reduce or eliminate tariffs while ensuring that any increases "would need to be justified by an increased burden on U.S. commerce from the investigated practices themselves," the brief said.

HMTX and Jasco added that past practice of Section 307(a)(1)(C) further supports the idea that this subsection is only to be used for lowering or terminating duties. The law has been invoked only five times before, and in each instance the duties were either terminated, lowered or delayed.

The one argument HMTX and Jasco used that found moderate success at the trade court -- the claim that USTR violated the Administrative Procedure Act by not adequately responding to comments -- also resurfaced at the appellate court. At CIT, the three-judge panel initially remanded the issue to USTR after finding that its response to the over 9,000 comments it received was inadequate. The agency came back with a 90-page remand with an explanation of the tariff subheadings it decided to exclude from the duties and the reasons it imposed the tariffs. This was enough for CIT, which sustained the duties (see 2303170063).

At the Federal Circuit, the HMTX and Jasco argued that the remand results were still inadequate and that the agency is barred from making post hoc, conclusory and otherwise insufficient rationale as it did here. USTR "offered no response whatsoever" to the "most significant comments regarding such fundamental topics as the appropriate tariff level, potential alternatives, and even the wisdom of the enterprise as a whole," the brief said. The agency offered "zero contemporaneous evidence" that "it meaningfully grappled with those substantial comments."

HMTX and Jasco added that the trade court should have vacated lists 3 and 4A after initially finding them insufficient for APA reasons instead of remanding. The APA requires that a reviewing court faced with an arbitrary and capricious agency decision shall, "not may," hold unlawful and set aside the agency action, the brief said.