Challenging the Imposition of Section 301 Duties on Chinese Imports: Summary of the Oral Argument in HMTX Industries, Inc. v. United States

On February 1, 2022, a three-judge panel of the United States Court of International Trade heard oral argument in the Section 301 litigation lead case, HMTX Industries LLC et al., v. United States. This case, in which some 6000 importers (and counting) have joined, seeks to have the Section 301 tariffs imposed on “List 3” and “List 4A” goods struck down as unlawful. Before the Court were cross-motions for judgment on the agency record, and the Government’s motion to dismiss.

Many expected the Court to issue questions in advance of the argument but ultimately the Judges determined to withhold advance questions and make inquiries from the bench.

The Government divided its argument into three issue areas, with one attorney presenting for each area:  (i) The Government’s motion to dismiss/justiciability; (ii) Statutory interpretation of section 301 of the Trade Act of 1974 (Sections 301-308); and (iii) issues arising under the Administrative Procedure Act (“APA”), including whether the foreign affairs exception applies. 

The Government’s position mostly followed arguments set forth in their moving papers though they tried to slip in a few subtle additions. The DOJ first argued that the lawsuits are nonjusticiable because they complain of actions taken by the President, rather than by an executive agency. Counsel for Plaintiffs responded by focusing on a textual analysis of the empowering statute, Section 301(b), noting that all Section 301 actions necessarily flow through the USTR, which is an agency susceptible to suit under the APA. Th e justiciability question received perhaps the least amount of attention from the bench, and it seems entirely predictable that the Court will have no difficulty concluding that the Section 301(b) actions were imposed by USTR in a manner that does not foreclose judicial review under the APA.

 The Court spent considerable time discussing the statutory interpretation issues, namely the allegations that neither Section 301 nor Section 307 modification authority empowered the imposition of Lists 3 and 4a tariffs. The Court focused on whether “modification” authority under Section 307(a)(1)(B) and (C) allowed the administration to “ratchet up” tariffs. Under subsection (B), any modification must be justified by a determination that “the burden or restriction on United States commerce of the denial of rights, or of the acts, policies, and practices, that are the subject of such action has increased or decreased.” Chief Judge Barnett explored at some length what potential justifications could be claimed from the record as a satisfactory basis to increase tariffs under Subsection 307(a)(1)(B), and he presented roughly three potential justifications, asking counsel for Plaintiff and the Government to answer whether the presented hypotheticals would satisfy the statutory modification requirements:

•  (1) if there were no change or worsening in the acts, policies, and practices that were the subject of the original Section 301 action (e.g., intellectual property theft, forced technology transfer), but merely a continuation such that from the passage of time, the burden has increased such that a modification of the action with a tariff increase is justified;

•  (2) if there were found to be an increase in the burden or restriction that was the subject of the original Section 301 action; and 

• (3) if there were an increased burden caused by retaliatory measures implemented by our trading counterpart (China) which served to offset the corrective nature of the original 301 action such that the burden on US commerce increases, and “modification” through an increase in Section 301 actions becomes justified.

Plaintiff’s counsel argued (persuasively, in our view) that the textual interpretations of Sections 301 and 307 universally support the plaintiff’s interpretation, that “modification” only allows a reduction in sanctions, questioning why, if the Government could invoke Subsection (C) whenever it sought to modify a prior action, it would ever invoke Subsection (B) (which requires a stated justification).

The Court also focused considerable time on the notice-and-comment process which led to the imposition of the Section 301 tariffs, and particularly whether the process was in violation of the APA. Counsel for HMTX reminded the Court of the Government’s obligations under the APA to respond to comments of stakeholders and to provide “reasoned decision-making” by the federal agencies involved. Counsel appearing on behalf of amici the National Retail Federation and five other trade associations also emphasized the APA requirements, reiterating that the USTR neither complied with the 1974 Trade Act procedural requirements, nor the APA notice and comment requirements. Separately, amici noted the harm the tariff have wrought on the members of their respective industries.

 The motions, which are likely to resolve the case, are now fully briefed and under consideration by the Court, which should issue its decision in the coming months.

Contact a Neville Peterson professional if you wish to discuss the litigation, and other international trade and Customs law issues.