Update on China Section 301 Litigation: History in the Making or a Big Bust?

October 8, 2020

By now many of you are aware of the litigation pending before the Court of International Trade brought by HMTX Industries and its subsidiaries, Halstead New England Corporation and Metroflor Corporation.

The HMTX Industries Case

On September 10, 2020, HMTX and its subsidiaries, initiated an action in the Court of International Trade challenging the legality of the Section 301 duties on imports from China under List 3 (and later List 4A) and imposed on China imports by the USTR on and after September 24, 2018. Swiftly following on its heels, other importers filed similar cases, and there are now more than 3,400 plaintiffs in the litigation against the USTR and CBP. Among other issues the complaint alleges that the USTR violated Section 301 of the Trade Agreements Act and the Administrative Procedure Act (APA) by:

(1) Overstepping Section 301 of the Trade Act of 1974 when it made the goods of Lists 3 and 4A subject to the tariffs more than12 months after the beginning of the investigation,
(2) Assessing 301 tariffs on Lists 3 and 4A goods for punitive rather that remedial purposes, and
(3) Failing to give adequate notice of the proposed measures to the public, failing to give reasonable time and opportunity for the public to provide meaningful comments on the proposed measures, failing to reasonably consider the comments and testimony that was provided, and failing to provide an explanation for its decision to forge ahead with imposing the Lists 3 and 4A additional duties as required by the Administrative Procedure Act.

The complaint asserts that the CIT has authority to review the actions of the USTR pursuant to its residual subject matter jurisdiction over trade actions afforded under 28 USC 1581(i), and to void the liquidation of any entries of Section 301 duties on imports from China under Lists 3 and 4A.

What Comes Next?

Currently there are several motions pending before the court to establish ways in which to efficiently manage the large number of cases, to establish a plaintiffs’ steering committee, and designate one or more of the actions as a “test case.” The “test case” process is commonly used in trade litigation for protest related issues when there are a large number of protests but common facts and issues, such as the case involving the Harbor Maintenance Fee (HMF). Like the Section 301 tariffs suit, the HMF litigation involved thousands of parties with similar facts and claims, and it is seen as a likely template for the CIT to follow.

As of this writing, the Court has yet to decide on the motion filed by the government in HMTX for case management procedures or on the motion filed by HMTX on the establishment of a three-judge panel to hear the test case. We anticipate that the Court may decide the government’s motion in HMTX on or before October 14th or, as an alternative, order a case management conference amongst the main litigants.

Do Importers Need to File Protests to Secure Our Refund?

A few legal commentators have suggested that importers or their counsel file protests with CBP against the continued assessment of Section 301 duty on China imports under Tranches 3 and 4A. The underlying question, however, is whether this is even legally permissible. This question is a good one, and goes to the very heart of the case – if the plaintiffs win, does the Court have the authority to grant relief in the form of refunds?

First, let’s look at the basis of the Court’s jurisdiction in the HMTX and the related cases. In HMTX cases, the plaintiffs assert that the Court has jurisdiction to hear the case under 28 U.S.C. § 1581(i). This provision gives the CIT exclusive jurisdiction over any civil action commenced against the United States and its agencies that arises from any law providing for “tariffs, duties, fees, or other taxes on the importation of merchandise for reasons other than the raising of revenue.” So far so good since the action challenges the actions of the USTR (an agency of the government) to assess tariffs or duties on merchandise from China for a reason other than the “raising of revenue.” (The stated purpose of the tariffs under Section 301 is to encourage China to change its unfair “acts, policies, and practices related to technology transfer, intellectual property, and innovation.”)

Section 1581(i) jurisdiction is good in this case because it does not require the filing and denial of a protest to initiate the action and an importer is not limited to filing within 180 days of the complained of action. Under Section 1581(i), an importer will have two years from date of the event to file.

The CIT, however, has held on numerous occasions that the Court may hear a challenge under § 1581(i) only where the plaintiff neither has nor could have had adequate relief available to it pursuant to litigation under any other Section of 28 U.S.C. § 1581. This means that if the plaintiffs could have filed protests under 28 U.S.C. § 1581(a), then regardless of whether they did so or not, the subject matter jurisdiction of the Court would not be available under 1581(i). (See Nufarm America's, Inc. v. United States, 29 C.I.T. 1317, 1325, citing Consol. Bearings Co. v. United States, 348 F.3d 997, 1002 (Fed. Cir. 2003); Thomson Consumer Elecs., Inc. v. United States, 247 F.3d 1210, at 1214 (HMF import case); Swisher, 205 F.3d 1358, 1364. (Fe. Cir 2000).) Section 1581(i) is a grant of residual jurisdiction and applies only if no other form of relief provided in 28 USC § 1581(a) – (h) is or was available. Thus, if the assessment of Section 301 duties on Chinese goods on lists 3 and 4A is protestable under 19 USC §1514, then the CIT would have to conclude that it does not have jurisdiction under § 1581(i) to hear the HMTX challenge asserting that the tariff violated the APA. 

Additionally, if the CIT has jurisdiction to hear a challenge to a denied §1514 protest, then the Court would lack jurisdiction to order a refund for any Section 301 duties paid in to CBP that were not protested within the 180-day protest period following liquidation (e.g., liquidated on or before April 9, 2020). In other words, Section 301 duties paid to CBP for Lists 3 and 4A goods for the first year and a half would be unrecoverable.

Does the Protest Procedure Even Apply?

Section 1514 of Title 19 provides that the following types of actions are protestable:

(a) …  decisions of the Customs Service [CBP], including the legality of all orders and findings entering into the same, as to … (2) the classification and rate and amount of duties chargeable.

On its face, the section duties paid to CBP for Lists 3 and 4A goods of Chinese origin appear to fall within the scope of § 1514(a)(2) because they relate to the “classification, rate and amount of duties chargeable.” If we look deeper, however, we see that CBP has not made any “decision” with respect to the assessment of the Section 301 duties.

Again, the Court has repeatedly held that, when CBP’s actions are ministerial and not decisional, the matter is not subject to protest. For example, when Customs' role is "ministerial" as to the rate and amount of duties chargeable in antidumping and countervailing duty cases, the collection of those duties by CBP is not protestable. Thus, while Customs makes decisions as to the facts and the application of the order, Customs acts in a ministerial capacity because it cannot change the rate and amount of antidumping or countervailing duties chargeable. LDA Incorporado v. United States, 79 F. Supp. 3d 1331, 1339; but see Shinyei Corp. of Am. v. United States, 35 C.I.T. 666, 672 (“Here, Customs interpreted Commerce's instructions, rather than automatically applying an antidumping duty rate. The act of interpretation is not purely ministerial.”) 

Thus, to determine if an importer has a protestable event, the importer must determine whether there was any action left to the discretion of Customs with regard to the assessment of the 301 duties. Like an AD/CVD order from Commerce, in this case Customs is not expected to interpret the USTR’s instructions, but, rather, it is simply expected to collect the Section 301 duties based on the value of the goods imported under the USTR’s designated HTSUS number. (This is not to say that there could not be a decisional issue, such as when CBP decides that the goods are covered under list 3 or 4A when the importer claims they are not.)

Can the Court Fashion an Adequate Remedy?

Some legal commentators are suggesting the filing of protests as a way to suspend the expiration of the liquidation of the entries while the litigation proceeds and the Court looks to a means to fashion a remedy should it hold that the USTRs actions with respect to Lists 3 and 4A are contrary to the statute and the APA. In other words, the concern is that the Court could find that the actions of the USTR contravene the law, but the Court is without a means to order the refund of the duties.

However, in an action brought pursuant to § 1581(i) to contest Commerce’s liquidation instructions, the Court of Appeals for the Federal Circuit said that it recognized that the CIT’s equitable powers allow it to order reliquidation in a § 1581(i) action, and then continued saying that the CIT has “broad remedial powers” under 28 U.S.C. § 2643(c)(1), which “allows it to ‘order any other relief that is appropriate in a civil action,’” (Shinyei, 355 F.3d at 1305, 1312). Sumecht NA, Inc. v. United States, 923 F.3d 1340, 1348. Likewise, in the very recent case of J. CONRAD LTD, v. UNITED STATES (challenge to the President’s Section 232 duties) the CIT explained how it had the appropriate authority to order the appropriate relief regardless of the finality of the entries’ liquidation according to 19 U.S.C. § 1514 (page 25-26):

We understand Plaintiffs’ concern that liquidation of the relevant entries while these cases are pending, if deemed to be final and conclusive for all purposes, would deny them the ultimate remedy for which they brought these actions and would thereby constitute irreparable harm. But should Plaintiffs ultimately prevail on the merits, any liquidations that occurred would not become final and conclusive so as to prevent the Court from ordering a refund the 25 percent duties with interest. Defendants have expressed their agreement with this conclusion. See Govt. Supp. Br., ECF 56, at 2.

The CIT possesses “all the powers in law and equity” of a district court. 28 U.S.C. § 1585. Accordingly, with exceptions not applicable here, this Court may award any form of relief appropriate in a civil action, id. § 2643(c)(1), including, generally, a money judgment against the United States in a civil action commenced under 28 U.S.C. § 1581. Id. § 2643(a)(1).

Therefore, in a case such as this one, which does not involve neither a protestable decision by Customs nor an action arising under 19 U.S.C. § 1516a, the finality of the entries’ liquidation attaching according to 19 U.S.C. § 1514 is no bar to the Court’s ordering appropriate relief. Shinyei, 355 F.3d 1297, 1312 (Fed. Cir. 2004) (concluding that finality under 19 U.S.C. § 1514 applies to decisions by Customs and did not preclude an order of reliquidation by the CIT in that action brought under 28 U.S.C. § 1581(i) because of the Court’s grant of “broad remedial powers”); see also Sumecht, 923 F.3d 1340, 1348 (Fed. Cir. 2019) (rejecting presumption that availability of Shinyei relief is uncertain for purposes of irreparable harm in § 1581(i) actions ...)

Based on these authorities and others, it would appear to be a futile exercise to prepare and file protests with CBP on liquidating entries of goods that are assessed Section 301 duties under Lists 3 and 4A because the actions of CBP are only "ministerial" in nature and it is likely that CBP will reject the protests for asserting a non-protestable issue.

Further, it is also likely that both the CIT and the Court of Appeals would agree that the CIT has the authority to order the appropriate relief notwithstanding the finality of liquidation rule in 19 U.S.C. § 1514, whether that be the reliquidation of the entries or a straight money judgment based on a record of the amounts deposited.

As always, we are very happy to address your individual concerns and questions that you may have on this matter.

If you have questions about filing a court action on the List 3 or List 4A exclusions, seeking a refund of past duties paid under Sec. 301, and/or discussing Sec. 301 duty avoidance strategies, such as use of country of origin transference or use of “First Sale” valuation, contact George R. Tuttle, III at geo@tuttlelaw.com or at 415-288-0428.


The information in this article is general in nature and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence and may not be considered as such.

Copyright © 2020 by Tuttle Law Offices. 
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Information has been obtained from sources believed to be reliable.  However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.

 

 

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