CIT assigns panel for 301 litigation on US imports from China – update on options to recover tariffs

Introduction
What is the Section 301 litigation about?
What's next?
Companies may be able to recover Section 301 duties or reduce duty liability

Introduction

Companies which have paid Section 301 duties on products from China that are included on Lists 3 or 4(a) may still have an opportunity to file a suit to potentially recover the duties paid.

On 5 February 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 (Lists 3 and 4a include products such as fashion products, automotive parts, consumer goods, food products, jewellery, steel and iron).

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 on request when a case:

• raises an issue of the constitutionality of an act of Congress, a proclamation of the president or an executive order; or
• has broad or significant implications in the administration or interpretation of the customs laws.

Now that the panel has been assigned, it is expected to issue a case management order so that active litigation of the issues can proceed.

What is the Section 301 litigation about?

The US 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 1974, the USTR assessed additional duties (above the standard duties) on four lists of goods made in China.

On 10 September 2020 HMTX Industries LLC v United States (Case 20-00177) was filed in the CIT with both procedural and substantive challenges to the application of duties on goods included on Lists 3 or 4a. Specifically, the suit alleges that the implementation of tariffs on these lists was untimely and that the USTR did not comply with the Administrative Procedures Act in enacting tariff rulemaking without transparency. Further, the suit claims that tariffs were not authorised 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 out by the litigation. Accordingly, nearly 4,000 related cases have been filed to date, one of the largest challenges brought in the CIT.

What's next?

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

Companies may be able to recover Section 301 duties or reduce duty liability

Companies which have paid Section 301 duties on products from China that are included on Lists 3 or 4(a) may still have an opportunity to file a suit to potentially recover the duties paid. List 3 includes fashion products (eg, 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, jewellery, 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 on which:

• the USTR announced the tariffs;
• the tariffs took effect; or
• the tariffs were paid.

Importers of List 4a goods should file suit prior to 20 August 2021 to ensure that they meet the deadline under the most conservative interpretation (two years after the 20 August 2019 announcement). Under the strictest interpretation, importers of List 3 goods had to file suit by 21 September 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 on which 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 if 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 programmes that can help companies to reduce their impact.

For further information on this topic please contact Robert J Ernest at Arent Fox LLP's Boston office by telephone (+1 617 973 6100) or email (robert.ernest@arentfox.com). Alternatively, contact Angela Santos at Arent Fox LLP's New York office by telephone (+1 212 484 3900) or email (angela.santos@arentfox.com). The Arent Fox LLP website can be accessed at www.arentfox.com.

David R Hamill, partner, and Nancy A Noonan, partner, assisted in the preparation of this article.