Timing Is Everything (or Maybe Not): CIT Weighs Section 301 Exclusions and the Availability of Post-Liquidation Refunds

Many U.S. importers are facing a dilemma after paying duties on Chinese-origin goods covered by the Trump administration’s Section 301 tariffs. Although certain goods may have been or are now subject to a retroactive duty exclusion, there is no administrative mechanism for pursuing duty refunds because the entries had liquidated more than 180 days before the exclusion was granted (and are outside the period for filing an administrative protest). This may mean that an importer is unable to collect tens of thousands or even millions of dollars in refunds for goods that have been excluded from the Section 301 duties by the United States Trade Representative (USTR).

How can this be when every Federal Register notice granting product exclusions contains language stating that the exclusion will apply retroactively to the effective date when the Section 301 duties were first imposed (i.e., the date the applicable Section 301 list was published)? If it was too late to file a protest when the exclusion was granted, why can’t an importer obtain a refund under the retroactive exclusion through another means? These questions are now being addressed in a handful of cases pending before the U.S. Court of International Trade (CIT).

The pending litigation involves requests for post-liquidation refunds on products retroactively excluded from the so-called “List 2” or “List 3” Section 301 tariffs. However, this issue could impact entries subject to exclusions granted under other Section 301 lists (depending on the date the exclusion was granted and the date of liquidation). The pending cases include claims for refunds of Section 301 duties paid on:

• Handbags, purses and wallets imported on or after September 24, 2018, that were subsequently excluded from List 3 on May 28, 2020. Trebbianno LLC d/b/a Showroom 35 v. United States (Case No. 20-00135).
• Chlorinated polyethylene elastomer imported on or after August 23, 2018, that was subsequently excluded from List 2 on July 31, 2019. ARP Materials, Inc. v. United States (Case No. 20-144).
• Mountings and fittings imported on or after September 24, 2018, that were subsequently excluded from List 3 on March 26, 2020. Harrison Steel Castings Co. v. United States (Case No. 20-147).
• Upholstered, metal seats and office furniture parts imported on or after September 24, 2018, that were subsequently excluded from List 3 on February 20, 2020. Poppin, Inc. v. United States (Case 20-158).

The ARP Materials and Harrison Steel cases are proceeding as the lead cases for these issues, and the government is expected to file a (consolidated) motion to dismiss by early December. We expect that the government will assert that the court lacks jurisdiction to hear the plaintiffs’ refund claims because the plaintiffs have all filed their lawsuits under 28 U.S.C. § 1581(i), a “catch-all” jurisdictional provision that litigants often turn to when the remedies offered by other jurisdictional bases are deemed “manifestly inadequate.” The government will likely argue that the proper and exclusive cause of action for post-liquidation Section 301 duty refund claims arises under 28 U.S.C. § 1581(a), a provision that confers jurisdiction on the court only after an importer receives a denied protest. If the government’s argument is successful, importers that did not file an administrative protest within 180 days after liquidation will be left with no administrative or judicial remedy. We note that there is also discussion of a potential legislative fix for this issue, but this likely has a low chance of success in the near term.

Because USTR has announced numerous retroactive exclusions this year, it is likely that there are many importers impacted by this issue. Indeed in 2020, the USTR announced nine separate batches of retroactive exclusions on a vast range of List 3 products, including certain chemicals, metals, clothing materials, agricultural products, household items, furniture, office items, hardware supplies and many other goods. Given that List 3 first went into effect on September 24, 2018, it is possible that many entries of these goods had liquidated and were beyond the 180-day protest period before the exclusions were announced.

Importers with entries of goods subject to Section 301 duties should continue to monitor exclusions and file post-summary corrections (PSCs) or administrative protests for duty refunds when possible. For entries that were liquidated more than 180 days before the announcement of a retroactive exclusion, importers may consider filing a lawsuit at the CIT. This lawsuit could proceed on a “me-too” basis and be stayed while the ARP Materials/Harrison Steel litigation is decided.

Alternatively, or in conjunction with one of the options listed above, importers that have not done so already may also consider filing a “me too” lawsuit related to HMTX Industries LLC et al. v. United States (Court No. 20-00177), a pending challenge to the legality of the Section 301 List 3 and List 4A duties. If successful, the HMTX Industries litigation could result in refunds of all List 3 and List 4A duties. As we advised in our September 30, 2020, client alert, the relatively minimal cost of filing a “me too” case, coupled with the potentially significant relief at issue, presents a low-risk/high-reward scenario for most importers impacted by Section 301 List 3 and List 4A duties.

For More Information

Please contact the authors or any member of the Customs and International Trade Team if you have questions about the pending litigation described above or are interested in discussing options for preserving your rights to potential Section 301 duty refunds.