SECTION 301 LITIGATION; WHERE ARE WE?
/Some 3500 importers have filed suit in the United States Court of International Trade, seeking recovery of tariffs imposed under Lists 3 and 4A of the retaliation lists issued in the Section 301 investigation of China’s intellectual property rights practices. Here’s a brief update on the current status of this litigation
Status of the HMTX “Lead” Case
Most observers expect that the Court will select the first-filed challenge, HMTX Inc. v. United States, Court No. 20-00177, as the “lead” case, and will suspend other cases while HMTX is litigated. More than two months after the HMTX case was filed, however, there has been surprisingly little action in the case.
Both HMTX and the government have filed proposed litigation plans, which call for the Court to “stay” action in other cases while the HMTX case is litigated. In addition, HMTX has proposed assigning the case to a three (3)-judge panel, based on the importance of the issues involved. The government does not oppose this proposal.
There has been some minor skirmishing from some plaintiffs, who believe that a case other than HMTX should be selected as the lead case, or that HMTX should be joined with other cases, which raise additional (usually Constitutional) challenges to the Section 301 tariffs. Others argue that HMTX should proceed ahead on its own, since Courts will not consider constitutional issues if cases can be decided on non-constitutional grounds.
Technically, the government’s time to file Answers to the Complaints in most of the Section 301 challenges has elapsed. While the Court would not hold the government in default, the urgency for establishment of a case management plan is increasing.
An informal Plaintiff’s Steering Committee has been established, and confers with some regularity. Neville Peterson LLP has a representative on that Committee.
To Protest or Not Protest?
One much-debated topic is whether importers seeking to recover Section 301 duties must file protests against the liquidation of their entries in order to preserve their rights to refunds of these duties.
Our firm has conducted extensive research on this issue. Our judgment is that while filing a protest is a viable procedural way to ultimately bring a specific refund claim before the Court of International Trade, it is not necessary, since filing a protest would be futile and the Court would almost certainly waive the exhaustion of that particular administrative remedy.
Section 514(a) of the Tariff Act of 1930, as amended [19 U.S.C. §1514(a)] allows importers to protest seven (7) categories of Customs decisions, typically (but not always after an entry of merchandise is “liquidated” by Customs. These categories are:
(1) the appraised value of merchandise;
(2) the classification and rate and amount of duties chargeable;
(3) all charges or exactions of whatever character within the jurisdiction of the Secretary of the Treasury;
(4) the exclusion of merchandise from entry or delivery or a demand for redelivery to customs custody under any provision of the customs laws, except a determination appealable under section 1337 of this title;
(5) the liquidation or reliquidation of an entry, or reconciliation as to the issues contained therein, or any modification thereof, including the liquidation of an entry, pursuant to either section 1500 of this title or section 1504 of this title;
(6) the refusal to pay a claim for drawback; or
(7) the refusal to reliquidate an entry under subsection (d) of section 1520 of this title;
A protest may be lodged against a determination “adverse to the importer, in any entry, liquidation, or reliquidation, and, decisions of the Customs Service, including the legality of all orders and findings entering into the same . . . “.
Some commentators have suggested that the assessment of Section 301 duties is not protestable, since the duties are imposed by order of the United States Trade Representative, rather than Customs, and because Customs’ role is “ministerial”. We disagree. The only area where Congress has specifically eliminated or narrowed the ability to protest liquidations is with respect to antidumping and countervailing duties, and then only to the extent the protest would challenge a determination made by the Commerce Department.
While Congress sought to limit Customs protests from being used to make “collateral attacks” on decisions of other agencies, see Conoco Inc. v. Foreign Trade Zones Board, 18 F. 3d 1581 (Fed. Cir. 1994), it did not accomplish this goal. While Congress eliminated language from the Court of International Trade’s jurisdictional statute, 28 U.S.C. §1581(a), which gave court jurisdiction to challenge protest denials, “including the legality of all orders and findings entering into same”, it did not eliminate the parallel language from the protest statute, 19 U.S.C. §1514(a). Thus a protest may lie against liquidation of a Customs entry “including the legality of all orders and findings entering into same”, and the CIT has jurisdiction to consider all matters raised by protest.
That being said, filing a protest is possible, but not necessary, since filing a protest is futile – CBP has no power to hold USTR’s imposition of Section 301 tariffs unlawful and grant a protest challenging them. In this regard 28 U.S.C. §2637(d) provides “The court shall require exhaustion of administrative remedies where appropriate”, and the Court waives exhaustion of protest remedies where the remedy would be “futile” or “inappropriate”. In the case of Section 301 tariffs, as noted above, the protest remedy is “futile” since CBP has no power to declare USTR’s action unlawful and grant any protest.
A protest is a “slow boat” approach to bringing a Section 301 challenge in the CIT, A protest must be filed against the liquidation of every entry in which Section 301 duties are challenged, within 180 days, and once a protest is denied, CIT litigation must be brought within 180 days. All liquidated duties, taxes and fees must be paid prior to filing suit. Protests can usually reach entries made during the last 17 months, while the Court’s “residual” jurisdiction, under which the 3500+ Section 301 challenges have been filed, allows recovery of duties paid within two years prior to the filing of suit. [1]
Can Section 301 Refunds be Obtained in a Case Brought under the CIT’s “Residual Jurisdiction”?
Some observers have noted that the current CIT complaints seek declaratory relief, and relief under the Administrative Procedure Act, which requires a reviewing court to “hold unlawful and set aside” agency actions taken in violation of law and obligation. Money damages are not available in APA lawsuits.
However, Courts have held that, in APA cases, courts can order equitable restitution of funds taken from a plaintiff through unlawful means. This is viewed as a restoration of the plaintiff’s property, and not as an award of “damages”. See Bowen v. Massachusetts, 487 U.S. 879, 893-94 (1988); See also Anselmo v. King, 902 F. Supp. 273, 275 (D.D.C. 2005) ; National Ass'n of Counties v. Baker, 268 U.S. App. D.C. 373, 842 F.2d 369, 373 (D.C. Cir. 1988))”.
How do the Election Results Affect this Litigation?
Litigants who expect that the election of Joe Biden as President of the United States will lead to a quick removal of Section 301 tariffs on China are likely to be disappointed. It appears that tariffs will not be a “Day 1” issue for the incoming administration, which will be looking to focus on COVID-19 and the economy once it takes office.
The Section 301 tariffs are popular with labor unions that supported the Biden candidacy, and are likely to be used by the incoming Administration as leverage in negotiations with China. Practical considerations make intervention in the pending Section 301 lawsuits unlikely. First, the cases are with the Judicial Branch, and Biden Administration’s initial focus will be on asserting control over the Executive Branch. It may also take some time before the new Administration’s international trade team is in place.
While we believe that the Biden Administration will approach trade with China from a different perspective, whether there will be a wholesale elimination of China-based duties is very uncertain. We note the following:
One of the few areas in which there was some bipartisan political agreement is the belief that China acts in violation of international trade rules and must be called to account for its actions. While there may be differences in how China is to be held liable, there is a consensus on the larger point that some form of trade redress is required.
The Biden Administration will likely approach the issue multilaterally – by engaging our other trading partners in a common pursuit of Chinese remedies - or by seeking a greater involvement from the WTO. The Trump Administration charted its own China-trade course. We expect the Biden Administration may move multilaterally but, in any event, will not likely withdraw the duties without demanding some changes in behavior in exchange.
We stand ready to discuss the litigation, and other international trade and Customs law issues, at your convenience.
[1] Our firm has prepared a more detailed analysis of the protestability issue, which we are happy to make available to clients on request.