Leibowitz: Disputes Continue Over Section 301 Tariffs on China

It’s also notable that President Biden has chosen to keep the tariffs on China in place during inflationary times. The tariffs were by far the most far-reaching and inflationary steps taken by President Trump to restrict international trade.

To recap, the initial tariffs, on $34 billion of 2017 trade value (List One) and $16 billion (List Two) have entered the “review” phase required by Section 301. Last May, the Office of the US Trade Representative (USTR) gave notice of the approaching four-year anniversary of those tariffs (July 6 and Aug. 23, 2018). USTR also asked if any interested party wanted them to continue.

Not surprisingly, hundreds of companies and trade associations filed comments supporting continuation of the tariffs. On Sept. 8, USTR published a notice continuing the List One and List Two tariffs while the agency pondered whether to keep them in place. There is no deadline for when such a review must conclude.

Here is a brief history of changes to the Section 301 tariffs on Chinese goods to date:

• The US modified Section 301 on China in September 2018 to include an additional set of tariff categories totaling $200 billion in trade (List Three)

• In 2019, the modification was changed yet again to increase the List Three tariffs to 25% from the original 10%

• Later in 2019, tariffs were imposed on $120 billion worth of goods from China at a rate of 15%, referred to as List 4A

• The 15% tariff was halved in early 2020 following negotiations with China

• List 4B tariffs were suspended indefinitely in December 2019

The review of these tariffs will be detailed in further notices from USTR. The review could take a while. List Three tariffs celebrated their fourth anniversary on Sept. 21. The review that was announced on Sept. 8 will presumably include the advisability of maintaining all the tariffs.

Another important proceeding is playing out in the US Court of International Trade relating just to the List Three and List 4A tariffs. Plaintiffs filed about 4,000 lawsuits claiming that the List Three and List 4A tariffs violated the law. Of those 4,000 cases, only a couple are being litigated as test cases. On April 1, the court issued an opinion finding that these tariffs did not comply with the law regulating federal agency actions, the Administrative Procedure Act (APA). Specifically, the court found that USTR apparently ignored more than 3,000 public comments opposing the tariffs because of their impact on the US economy, particularly on manufacturers and on consumers.

The plaintiffs argued that the court should strike down the List Three and List 4A tariffs. But the court sent the issue back to USTR, giving the agency a chance to explain how it considered and addressed those 3,000 negative comments before making its decision on new tariffs.

On Aug. 1, the agency responded to the court’s order. It added documents to the record that USTR argued addressed the public concerns. However, the explanation did not really add evidence explaining how USTR considered and reacted to the comments before the tariffs were implemented. And the law requires that an agency make a decision after considering evidence. Post-decision consideration is not acceptable evidence.

On Sept. 15, plaintiffs filed comments pointing out these and other supposed deficiencies in USTR’s decision, along with several other groups with an interest in the case. Their comments pointed out that there was no indication that USTR considered the adverse comments before the decision to impose tariffs was made. Those comments raised issues such as inflation, damage to US manufacturers that rely on Chinese inputs, and lost US exports.

The court has required USTR to respond to the plaintiffs’ comments by Oct. 28. We’ll see what happens. It is possible, but far from certain, that the List Three and List 4A tariffs could be overturned by the case.

The case could also be an important watershed. On the one hand, the court may defer to USTR because of the president’s foreign affairs powers under the Constitution and the impact of trade tensions with China on national security. On the other hand, the plaintiffs cite the power of Congress, not the president, to regulate international trade. They also cite Congress’ decision to impose requirements on the agency to seek and to consider public comments before making decisions. These are not easy issues to resolve.

Plaintiffs’ remand comments accurately pointed out that many cases, including a few in the Supreme Court, require administrative agencies to consider and to respond to comments questioning the advisability of administrative action. The Court of International Trade has already ruled that USTR was within its authority to add List Three and List Four tariffs as “modifications” of the initial action, a large concession to the administration. Failure to consider and to address substantive comments about the impact of these tariffs on domestic parties, such as manufacturers and consumers, would be a significant additional concession.

Only the List Three and List Four tariffs are involved in this court case. The List One and List Two tariffs will continue and will be modified or terminated on the administration’s own timeline. There is no outer limit for when these tariffs must be ended.

How long can tariffs stick around? Consider the famous (to trade lawyers at least) “chicken tax,” imposed by President Lyndon Johnson in 1963. It remains in effect on imported pickup trucks—a 25% tariff approaching its 60th birthday.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
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