CIT Assigns Panel for 301 Litigation on US Imports From China — Update on Options to Recover China Tariffs

Arent Fox

Arent Fox

If your company has paid Section 301 duties on products of China included in List 3 and List 4(a), there may still be an opportunity to file a suit to potentially recover duties paid.

On February 5, 2021, the US Court of International Trade (CIT) took long-awaited action on the nearly 4,000 cases filed since September 2020 to challenge the Section 301 duties imposed on goods from China (List 3 and List 4a includes products such as fashion products, automotive parts, consumer goods, food products, jewelry, steel, iron, etc.).

Chief Judge Timothy C. Stanceu issued an order assigning the cases to a three-judge panel composed of Judge Mark A. Barnett, Judge Claire R. Kelly, and Judge Jennifer Choe-Groves. The Chief Judge has the discretion to assign a three-judge panel upon request when a case(s): (1) raises an issue of the constitutionality of an Act of Congress, a proclamation of the President or an Executive Order; or (2) has broad or significant implications in the administration or interpretation of the customs laws. Now that the panel has been assigned, we expect that they will issue a case management order so that active litigation of the issues can proceed.

What Is the Section 301 Litigation About?

The United States Trade Representative (USTR) determined that China’s acts, policies, and practices in connection with technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict US commerce. As a result, pursuant to Section 301 of the Tariff Act of 1974, the USTR assessed additional duties (above the standard duties) on four lists of goods made in China.

On September 10, 2020, HMTX Industries LLC v. United States, Case No. 20-00177 was filed in the CIT with both procedural and substantive challenges to the application of duties on goods included on List 3 and List 4a. Specifically, the suit alleges that the implementation of tariffs on these lists was untimely and the USTR did not comply with the Administrative Procedures Act in enacting tariff rulemaking without transparency. Further, the suit claims that tariffs were not authorized under Section 301 because they were imposed in retaliation for tariffs imposed by China, rather than to remedy China’s unfair trade practices.

If this case is successful, it is likely that only importers that have filed their own lawsuits will recover the subject Section 301 duties for the relevant time period set forth by the litigation. Accordingly, nearly 4,000 related cases have been filed to date, one of the largest challenges brought in the CIT.

What Happens Next?

The CIT will issue an order regarding how the litigation will proceed.  We expect that a case management conference will be scheduled. The panel will decide whether to designate a lead case (i.e., HMTX) and stay all the other cases pending the results of the lead case, as requested by the Department of Justice (DOJ). A formal plaintiffs’ steering committee may also be designated to assist the court in managing the litigation of the HMTX case and the associated cases.

Your Company May Be Able To Recover Section 301 Duties or Reduce Duty Liability

If your company has paid Section 301 duties on products of China included in List 3 and List 4(a), there may still be an opportunity to file a suit to potentially recover duties paid. List 3 includes fashion products such as bags, articles of leather, and accessories, automotive parts, consumer products, electronics, raw materials, chemicals, and food products. List 4a includes products such as footwear, apparel, textiles, jewelry, other food products, housewares, iron, and steel.

The deadline to join the suit is two years after the cause of action accrues. There is some uncertainty as to whether the CIT will interpret the two-year deadline as the date the USTR announced the tariffs, the date the tariffs went into effect, or the date the tariffs were paid. Importers of List 4a goods should file suit prior to August 20, 2021, to ensure they meet the deadline under the most conservative interpretation (2 years after the August 20, 2019 announcement). Under the strictest interpretation, importers of List 3 goods were required to file suit by September 21, 2020. However, there are also possible arguments to support filing a case based on the position that the two-year deadline begins to run from the date the tariffs were paid, and thus the suit would be timely with respect to tariffs paid in the previous two years. Given the potential for significant refunds, if the cases are successful, importers under List 3 may consider filing a case in the event the panel interprets the two-year deadline as rolling based on the payment date.

The Section 301 duties of up to 25% are having a severe financial impact on companies. While the Section 301 duties must be paid, there are various duty savings programs that can help companies reduce their impact. We can provide information regarding how to identify and implement duty savings/deferral opportunities such as first sale, buying agency, and other options while minimizing changes to your existing business operations/structure.

Written by:

Arent Fox

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