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Leibowitz: Which Government Branch Controls International Trade?

Written by Lewis Leibowitz

On March 17, the Court of International Trade, the federal court with jurisdiction over most cases involving international trade regulation, issued a major ruling giving control over China tariffs to the discretion of the US Trade Representative (USTR). The case dealt with legal challenges in nearly 4,000 separate cases to the  “List 3” and “List 4” tariffs on imports from China in September 2018. The earlier “List 1” and “List 2” tariffs were not challenged. When the first two lists ($50 billion in trade value) failed to change China’s behavior (no surprise there), USTR announced more proposed tariffs to hit more trade from China. Adverse public comments poured in, as did comments in support. In the end, USTR hit more goods (nearly $400 billion in trade value) with tariffs. USTR did not publicly respond to adverse comments. And, as we all know, China’s behavior has still not changed. 

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Plaintiffs filed suit, arguing that USTR’s failure to respond to public comments violated the Section 301 statute and the Administrative Procedure Act’s (APA) provisions requiring that agencies explain the reasoning behind their decisions when they are made. Under the law, an unexplained decision is not in accord with the APA. As one long-ago politician famously put it: “Don’t confuse me with the facts. My mind is made up.” 

When one list did not spur China to change it behavior, more tariffs were piled on, with identical results. A few months later, the Trump administration rolled out the big guns. The first two lists affected $50 billion in trade value. The last two lists affected nearly $400 billion in trade. Both Section 301 itself and the above-referenced APA required USTR to adhere to procedural and substantive requirements, including requesting public comment. The CIT ruled last year that the failure to explain the decision at the time it was made was improper. After-the-fact explanations are strongly disfavored under the law. 

The court gave USTR the chance to review the record of decision and explain its consideration of the adverse public comments. At the end of that process, the court ruled that the failure of the administration to consider public comments at the time the decisions were made did not warrant setting these tariffs aside. Some have called the court’s latest decision a reversal of its previous ruling. However it is characterized, the challenged tariffs remain in effect and tariffs previously imposed will not be refunded, unless the CIT’s decision is reversed.

And so it goes…

This is far from the first case that measured executive power against congressional power in international trade. The tension between the executive power to conduct foreign affairs and to act in defense of the nation and the congressional power to regulate international commerce has existed since 1789. When it comes to setting tariffs, Congress has delegated the power to adjust tariffs and other regulation of international commerce to the executive branch in a large number of statutes. Depending on exactly which administrative agency (or the president, who is not an “agency” under the law) has been delegated the responsibility, the words of each statute should be controlling in most cases. 

But since the Trump tariffs in 2018 (China, steel, aluminum and safeguard measures), courts have generally deferred to the executive branch’s own interpretation of its authority. In the steel and aluminum tariffs, for example, the Court of Appeals for the Federal Circuit effectively rewrote the statute to permit the president to double the steel tariffs on Turkey, and to escape review of the rationality of the Commerce decision that imports “threaten to impair” the national security. Full disclosure: I was involved in those cases, and several others). So far, the courts have sided with the executive and against Congress concerning the allocation of authority over the regulation of international trade. 

The CIT decision upholding Section 301 tariffs on imports from China was, in that sense, the latest in a line of decisions giving the executive branch a clear advantage over Congress in setting international trade policy. Congress is in danger of becoming irrelevant.

Just this past week, in testimony before the Senate Finance Committee and the House Ways and Means Committee (the congressional committees with jurisdiction over international trade negotiations), USTR Katherine Tai faced criticism from members of Congress over the failure to “consult” with Congress over various issues of importance to committee members. Two senators roasted Ambassador Tai over the lack of market access to potatoes from Idaho and Oregon in the Japanese market. But there is much more to this issue than potatoes. But what can they do about it?

In the recently passed “Inflation Reduction Act,” Congress provided tax credits (subsidies) for electric vehicles (EVs), but only if they are assembled in North America or a country with which the US has a “free trade agreement.” Conspicuously, the European Union does not have a free trade agreement with the US. 

A dispute erupted with the European Union over the tax credits. World Trade Organization agreements do not permit countries to favor their own producers over producers in other WTO countries. The administration wants to mollify the EU by negotiating an agreement on trade in material used to make EV batteries and call it a “free trade agreement.” 

This trend of events is unfortunate, but it could be disastrous. These court rulings, taken together, effectively join the executive branch and the judiciary in interpreting away the restrictions that Congress placed on the delegation of authority to the executive branch. When it comes to regulating international commerce, Congress can delegate authority to raise tariffs with strings attached. These conditions should be respected. So far, neither the executive branch nor the judiciary are respecting them. Instead of three co-equal branches, we seem to be moving in the direction of two branches with enforcement power (executive and judicial) ganging up on the third (with the power to make laws, but unable to directly enforce the conditions they have imposed). 

There are few recent examples that limit executive discretion regardless of the words of a particular statute. By failing to interpret existing legislation to give effect to restrictions on the executive branch, the courts are facilitating a transfer of trade authority to the executive. This gives the doctrine of Separation of Powers, which balance the roles of the president and Congress, much less force. The consequences could be critically important.

Lewis Leibowitz 

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Lewis Leibowitz, SMU Contributor

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