Federal Circuit upholds Section 301 Tariffs on Chinese imports

On Sept. 25, the Federal Circuit issued a landmark decision in HMTX Industries, et al. v. United States, affirming the legality of Section 301 tariffs on Chinese imports for products in Lists 3 and 4A.

Tariffs have preoccupied both the executive and the judicial branches since the start of this year. Earlier this month, the Federal Circuit ruled on the V.O.S. Selections case, finding the administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs exceeded the authority conveyed by the statute. This same court has issued the decision in HMTX Industries, interpreting a different tariff mechanism from the Presidential toolbox, namely Section 301 tariffs on imports from China.

Background

The issue in HMTX Industries dates back to 2018, when the first Trump administration imposed tariffs on certain imports from China under Section 301 of the Trade Act of 1974. The Trump administration later modified the Section 301 tariffs through the authority granted to it under Section 307 of the Act.

Between 2017 and 2018, the U.S. Trade Representative (USTR) conducted a Section 301 investigation on imports from China, concluding that China engaged in unfair trade practices that burdened U.S. commerce. After a notice-and-comment period, USTR imposed 25% tariffs on $50 billion of imports from China under “Lists 1 and 2,” which were not challenged in the courts. China retaliated to the U.S.’s imposition of tariffs, and in response to the retaliation the USTR expanded its Section 301 action under Section 307, imposing additional 10% duties (later increased to 25%) on $200 billion worth of imports under List 3, and 10% duties (later reduced to 7.5%) on $120 billion worth of imports under List 4A.

Although the USTR solicited public comments on the proposed modifications, importers HMTX Industries, Halstead New England, Metroflor, and Jasco Products (“Plaintiffs”) challenged the legality of the tariffs imposed on products enumerated in Lists 3 and 4A. Plaintiffs asserted that the USTR failed to adequately consider public comments during its investigation of imports from China. The importers also challenged the government’s procedure as exceeding the legal authority to modify 301 tariffs in accordance with Section 307 of the Trade Act of 1974 and as a violation of the Administrative Procedure Act (APA).

The Federal Circuit rejected these arguments, upholding the USTR’s authority under Section 307(a)(1)(C) to modify existing tariffs and impose additional duties. This decision is significant as it aligns with the Trump Administration’s current trade policy, which has been a focal point in U.S.-China relations. The court’s decision also reinforces the Trump Administration’s hardline approach to trade, as the administration actively conducts a new Section 301 investigation on imports from Brazil and has hinted at similar investigations against other countries’ imports.

Federal Court’s analysis and arguments

Plaintiffs appealed a decision by the Court of International Trade to the Federal Circuit on May 12, 2023, which conducted a de novo review. In its decision, the Federal Circuit emphasized that Section 301 empowers the USTR to address unfair foreign trade practices through mandatory or discretionary actions, while Section 307 authorizes the USTR to modify prior Section 301 actions under specified circumstances. The Federal Circuit concluded that Section 307(a)(1)(C) independently authorized USTR to modify discretionary actions, including by escalating tariffs.

Ultimately, the Federal Circuit rejected both of the plaintiffs’ arguments that Section 307 did not authorize the List 3 and 4A tariffs, and that the USTR had failed to act in accordance with the APA. The court also rejected constitutional and major-questions challenges, finding that Congress provided a clear, intelligible principle guiding the USTR’s discretion and that the tariff modifications did not exceed the authority granted by Congress to the executive branch.

Conclusion and decision

The Federal Circuit affirmed the CIT’s judgment, holding that Section 307(a)(1)(C) independently authorized the List 3 and 4A tariffs and that the USTR complied with APA procedures. The Federal Circuit’s decision confirms the USTR’s discretion to impose Section 301 tariffs and elucidates key factors weighed by the court when it comes to challenging agency trade actions. While the direct result of this decision is that the importers remain subject to List 3 and 4A tariffs, the comprehensive result is that the USTR’s discretionary authority has been reinforced.

It remains to be seen whether the importers will appeal the Federal Circuit’s decision to the Supreme Court. Such an appeal, however, would face long odds given the statutory language of Section 301 and the APA, and based on the court’s current composition.

Contact Clark Hill

If you have any questions regarding the content of this alert, please contact Mark Ludwikowski (mludwikowski@clarkhill.com; 202-640-6680), Kevin Williams (kwilliams@clarkhill.com; 312-985-5907), Aristeo Lopez (alopez@clarkhill.com; 202-552-2366), Kelsey Christensen (kchristensen@clarkhill.com; 202-640-6670), Laura M. Quesada (Lquesada@clarkhill.com; 202-240-0170), or other member of Clark Hill’s International Trade Business Unit.

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