September 15, 2020

New Court Case Challenges Validity of Section 301 List 3 Tariffs; May Result in Refunds of All Duties Paid

On September 10, 2020, three importers filed a complaint at the U.S. Court of International Trade (CIT), HMTX Industries LLC et al. v. United States, which challenges the procedural steps and authority of the U.S. Trade Representative (USTR) to assess Section 301 duties against so-called “List 3” imports of a wide range of products from China.

As discussed further below, this lawsuit, if successful, would eliminate Section 301 List 3 duties and result in refunds to the plaintiffs. This legal challenge also presents an opportunity for importers potentially to obtain refunds of Section 301 duties deposited on List 3 imports and halt future duties on those imports. However, given the jurisdictional basis for this lawsuit, importers that wish to pursue a similar legal action need to file suit by September 21, 2020 in order to preserve their right to possible relief.

Background

Section 301 of the Trade Act of 1974 authorizes the USTR to impose duties to combat certain “unreasonable” or “discriminatory” trade acts by a foreign government. In the case of the Section 301 tariffs imposed against Chinese origin imports, the USTR initiated the investigation and initially imposed 25%tariffs on certain imports because of the failure of the Government of China to protect intellectual property of U.S. companies when exporting Chinese products to the U.S. market.

Plaintiffs’ Allegations

According to the plaintiffs, while the initial retaliatory tariff actions reflected in the implementation of List 1 and List 2 may have been lawful under Section 301, the USTR’s subsequent rounds of tariff actions (i.e., List 3 and list 4A) against Chinese origin imports overstepped the USTR’s authority and failed to comply with requirements under the Administrative Procedures Act (APA).

The plaintiffs argue that the Section 301 law was not intended as a tool to engage in an “open-ended trade war,” as opposed to an initial response to China’s intellectual property violations. Plaintiffs also argue that while the Section 301 mechanism allows the USTR to “modify or terminate” certain initial actions taken under Section 301, the provision does not allow the government to increase tariffs further after the initial actions are taken.

The lawsuit asks the CIT to vacate the List 3 tariffs, order to refund (with interest) of any List 3 duties paid by the plaintiffs, permanently enjoin the U.S. government from applying List 3 duties against the plaintiffs, and award plaintiffs’ costs and reasonable attorney fees.

Opportunity for Importers That Paid Section 301 List 3 Duties

Other importers that have paid significant duties under List 3 may consider filing a suit making claims substantially identical to the HTMX Industries complaint, with the intention of asking the CIT to consolidate the lawsuit with the lead HTMX Industries action or to be stayed during those proceedings. At this point, we believe the pending case is a long shot, but importers could file a “me-too” lawsuit at a relatively low cost and benefit from the relief in case the plaintiffs in HMTX Industries succeed.

Upcoming Deadline to File

The statute of limitations to file this type of lawsuit (alleged violation of the APA) is two years from the date that the cause of action accrues. The USTR published its Federal Register notice announcing the List 3 duties on September 21, 2018. To preserve the right to duty refunds should the pending HMTX Industries suit be successful, we recommend any complaint be filed by September 21, 2020. (Please note that the HMTX Industries suit did not ask for refund of duties on List 4A, but that is likely because the List 4A List was filed later, and therefore there is more time to sue under the two-year statute of limitations.)

If you are interested in filing a suit to preserve your rights, or if you have any questions about this matter, please contact one of the Faegre Drinker professionals below as soon as possible.

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