USTR Can Make Minor Section 301 Tariff Changes, Not Start Trade War, Appellants Tell CAFC

The statutory basis for the U.S. trade representative's lists 3 and 4A tariffs -- Section 307 of the Trade Act of 1930 -- only allows for a "modification" of existing duties and not a "radical and unprecedented seven-fold escalation launching an unbounded trade war with China," appellants in the massive lawsuit challenging the Section 301 tariffs on China told the U.S. Court of Appeals for the Federal Circuit on Feb. 12 (HMTX Industries v. United States, Fed. Cir. # 23-1891).

HMTX Industries and Jasco Products, representing over 4,000 companies, said that the "best reading" of the term "modify," as read previously by the Federal Circuit and the U.S. Supreme Court across various statutory contexts, means to "make only modest or minor changes to the original action." For instance, in a case on President Joe Biden's attempt to cancel student loan debt, the high court said the authority to "modify" allows the education secretary to make "modest adjustments and additions to existing provisions, not transform them."

The U.S. ignores this language and relies on the Federal Circuit's ruling in Solar Energy Industries Association v. U.S., which said that the word "modify" is "non-directionally restricted." The appellants noted that the government "tellingly" disregarded the same ruling's holding regarding the "relatively minor" nature of a Trade Act modification.

The appellants also responded to claims from the U.S., which say that the USTR's actions are "wholly unreviewable" or at most only reviewed in a case of suspected "clear misconstruction" of the statute. The companies said that to the extent this standard is legal, it only applies to "purely presidential actions involving discretionary choices" and not "final agency actions subject to statutory limits," even where the decisions are "guided or prompted by presidential discretion."

HMTX and Jasco said that, contrary to the government's read on the situation, they are not challenging presidential decisions, "such as the precise tariff rates or the precise value of trade against which new tariffs would be applied." Instead, the heart of the challenge is whether USTR "had the power to massively escalate the tariff actions" under the procedures laid out by Section 307 of the Tariff Act of 1930.

The U.S. in its reply said that the tariff decisions were made by the president because USTR didn't have discretion to act once told by the president to do so (see 2312220053). HMTX and Jasco said that claim "contradicts what USTR told" the Court of International Trade, which was that the presidential directive was only one "key element," not "fully 'binding,'" in USTR's decisions.

"Having convinced the CIT to rule in their favor in part based on a representation that USTR was exercising its own" judgment that the tariffs were "appropriate," the U.S. is now barred from claiming that USTR "exercised no such judgment here," the brief said.

The companies said that the U.S. position would "lead to absurd results," since the statute only lets USTR "modify or terminate" an action, even where the president gives no discretion. If the U.S. is correct in saying that only USTR action not directed by the president is subject to review, the president could tell USTR "to take blatantly unlawful action," including turning a $1 million action into a $1 trillion action, while avoiding review, the companies said.

HMTX and Jasco also emphasized that the "major questions doctrine" -- an idea recently adopted by the Supreme Court, which requires express delegation for the regulation of major elements of the economy -- settles the dispute.

The U.S. said that while the tariffs were major, the duties fit comfortably within the scope of the president's powers under Section 301. "That is a non sequitur," HMTX and Jasco replied. Section 301's power to impose tariffs is separate from the power under Section 307 and requires a "robust investigation, consultations, and factual findings," while Section 307 doesn't.

"Given those restrictions on an initial tariff action, it is hardly surprising that Congress would have expected USTR to act in a similarly deliberate manner before exploding an action’s size -- in magnitude and scope -- rather than to invoke Section 307’s highly 'streamlined procedures,'" the brief said. This type of situation is "exactly what the 'major questions' doctrine is for," the companies argued.

HMTX and Jasco said Section 307(a)(1)(B) itself doesn't justify the massive lists 3 and 4A tariff moves, which were imposed in retaliation to China's own retaliatory duties. The Trade Act only allows Section 301 tariff action to eliminate an "act, policy, or practice" that threatens U.S. interests. The lists 3 and 4A tariffs weren't set in response to Chinese theft of U.S. intellectual property, as the original duties were, but were meant to oppose Chinese retaliation. The U.S. claim that Section 307 allows for responses to retaliation is "wrong" since the section only allows for action in response to developments of the complained-about conduct, the brief said.

The government told the appellate court that this interpretation would impose "startling consequences," since USTR would need to conduct a new investigation for every time it changes the tariffs, which could take 30 days to a year. HMTX and Jasco said a "30-day delay hardly qualifies as a 'startling' procedural hurdle before USTR imposes tariffs covering hundreds of billions of dollars of annual imports on one of America's largest trading partners."

The U.S. also sought absolution under Section 307(a)(1)(C), which allows the president or USTR to modify a Section 301 action when that action "is being taken under Section 301(b) and is no longer appropriate." The government said the original action was no longer appropriate when China retaliated. In response, HMTX and Jasco said this interpretation renders Section 307(a)(1)(B) "redundant" since "vaguely announcing" an action to no longer be appropriate is "undeniably simpler than making factual findings regarding increased burdens."

Lastly, the appellants reiterated that USTR violated the Administrative Procedure Act by not adequately responding to comments on the duties -- the only claim to have found any success at CIT. The U.S. said at CAFC that it didn't need to respond to comments due to the law's "foreign affairs function" exception. The appellants said this exception is "typically applied to agency action implementing international agreements," which is not the case here.

The government also said it satisfied the need to address comments on remand at the trade court. But, as they did in their opening brief, the appellants said that this approach is "impermissibly post hoc" since USTR may not address the comments for the first time on remand.