CIT Grants Preliminary Injunction in Section 301 Litigation

Great news out of the CIT!

Earlier this week, on July 6, the Court of International Trade granted the Section 301 Plaintiffs’ motion for a preliminary injunction. The granting of the preliminary injunction suspending liquidation of unliquidated entries subject to the contested tariffs is an important victory for all the Section 301 plaintiffs. The preliminary injunction and the requirements set forth therein apply to all Section 301 plaintiffs.

The three-judge panel weighed four factors to reach its outcome:

(1) likelihood of success on the merits;
(2) irreparable harm absent immediate relief;
(3) the balance of interests weighing in favor of relief; and
(4) the public interest.

In the Court’s Opinion, written by Judge Kelly, the liquidation of Plaintiffs’ entries over the course of litigation coupled with the potential unavailability of reliquidation or refund, even if successful in their suit, constituted irreparable harm. Notably, the Government’s position is that “any duties paid are permanently unrecoverable regardless of whether they may have been collected unlawfully.” (Slip Op 21-81 at 17).

Since the judges found there was a potential for irreparable harm if the liquidation of entries was not suspended, the Plaintiffs only needed to demonstrate a fair chance of success on the merits rather than a likelihood of success on the merits. The CIT found that the Plaintiffs raise “sufficiently serious and substantial questions as to the proper interpretation of Section 307 to warrant injunctive relief.” (Id. at 18).

The factor “balance of the equities” tipped in favor of the Plaintiffs. Although the Government will face an administrative burden as a result of the preliminary injunction, if the preliminary injunction were not granted and the government refuses to liquidate or refund the entries, and the court is not found to have the authority to so order, then the Plaintiffs would be left without a remedy. That would be evidently inequitable. 

In considering the fourth factor (public interest), the Court found that the Government’s position that liquidation should not be suspended and that there is no right to refund would effectively short-circuit judicial review as it pertains to the imposition of the Section 301 tariffs on the liquidated entries. Importers will continue to pay those duties, and the Plaintiffs’ request for relief is narrow and seeks to maintain the status quo. The order also criticizes the Government’s argument: “If the Government’s argument is that it serves the public’s interest to retain duties ultimately determined to be unlawful, to render meaningless a determination as to lawfulness, the Government is mistaken.”

Chief Judge Barnett dissented, citing that he believed the Plaintiffs failed to establish a likelihood of irreparable harm.

The Court’s Order gives Defendants and the Steering Committee 7 days to meet and confer regarding the establishment of a repository by Defendants for Plaintiffs to identify any unliquidated entries of merchandise imported from China on Lists 3 and/or 4A by the named Plaintiffs or any plaintiffs whose actions have been stayed pursuant to In re Section 301 Cases. 

It also gives Defendants 14 days to establish a repository in which Plaintiffs can identify any such entries and provide (i) its full and correct Importer of Record (IOR) number(s); the Court Number and filing date of the litigation in which it is a party, as well as its Center and team assignment, if known; and (iii) the entry number and date of entry for each entry for which liquidation is to be suspended in accordance with this order.

The case is still developing. The Parties will appear before the court on July 13 for a Status Conference. We will continue to monitor and report on the case.

We are happy to answer any questions you may have regarding the recent developments.

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Section 301 CIT Litigation Update

Since September 2020, approximately 3,600 similar lawsuits challenging the Section 301 duties on imports from China have been filed in the U.S. Court of International Trade (“CIT”). Accordingly, in October 2020, the U.S. Department of Justice (“DOJ”) filed a motion before the CIT requesting the court implement several case management processes, such as the designation of the HMTX Industries case as the test case, the issuance of an automatic stay for all related Section 301 cases, and the appointment of a formal plaintiffs’ steering committee.

On February 5, 2021, Chief Judge Timothy C. Stanceu assigned the Section 301 litigation to a three-judge panel. In its February 10, 2021 Order, the panel issued several procedural orders, including the establishment of a March 12, 2021, deadline for the DOJ to file its answer and affirmative defenses.

On March 12, 2021, the DOJ filed its Master Answer. In addition to generic responses to allegations generally included in the claims of the Section 301 cases, the Master Answer provided a detailed outline of the U.S. Government’s anticipated defenses, which included:

  1. The United States Trade Representative (“USTR”) acted at the direction of the President in promulgating Lists 3 and 4, and the President is not subject to the Administrative Procedure Act (“APA”).
  2. Review of the President’s discretionary decisions, and the USTR’s implementation of those decisions, presents a non-justiciable, political question.
  3. Even if challenged actions could be considered actions of USTR, substantial deference is owed to the Government, and the Court should not interfere because there was no clear misconstruction of a governing statute, significant procedural violation, or action outside delegated authority.
  4. The USTR possessed the authority under Section 307 of the Trade Act of 1974 (“Trade Act”) to promulgate List 3 and List 4 because China’s acts, policies, and practices that were the subject of the Section 301 tariffs continued to increase the burden or restriction on U.S. commerce and because prior actions taken in response to the Section 301 investigation were no longer adequate remedies since they did not produce the desired effect of eliminating the unfair trade practices. Moreover, modifications to merely delaying, tapering, or terminating an action are not limited by Section 307.
  5. Alternatively, if the challenged actions constitute agency actions, they are not subject to the APA’s informal rulemaking requirements because they qualify for the foreign affairs function exception.
  6. Even if the APA’s informal rulemaking requirements apply, the USTR’s promulgation of List 3 and List 4 complied with all statutory requirements, and they were not arbitrary and capricious, contrary to law, or in excess of statutory authority.
  7. Lastly, the DOJ reserved the right to raise additional defenses following the selection of the test cases, including, but not limited, all defenses related to jurisdiction and timeliness.

On March 31, 2021, the CIT issued a procedural order identifying HMTX Industries as the sample case and staying all other similar Section 301 Cases. The order also designated the members of the Plaintiffs’ Steering Committee and ordered the Steering Committee and Defendants to file a Joint Status Report by April 12, 2021, containing a proposed briefing schedule and identifying any additional issues that would require early case management intervention.

On April 13, 2021, CIT issued the scheduling order. The DOJ and the Plaintiffs were directed to complete their dispositive motions and responses on or before November 15, 2021.

On April 23, 2021, the sample-case Plaintiff Group filed a Motion for Preliminary Injunction Limited to Suspension of Liquidation.  This motion seeks to suspend the liquidation of all unliquidated entries of imported products from China subject to Lists 3 and 4A. On May 14, 2021, the DOJ filed a response to the motion. On May 20, 2021, HMTX and the other sample-case Plaintiffs filed a motion seeking the Court’s leave to file a reply to the Government’s response. On May 26, 2021, the DOJ filed a response to the Plaintiffs’ motion for leave to file a reply in support of the preliminary injunction.

On June 1, 2021, the DOJ filed a motion to dismiss or, alternatively, a motion for judgment on the agency record. In its dispositive motion, the DOJ argues:

  1. The actions complained of (promulgation of Lists 3 and 4A) are not reviewable because the CIT does not have jurisdiction to consider discretionary trade decisions by the President. Furthermore, the actions are not reviewable because they were taken pursuant to the discretionary direction of the President, who is not subject to the APA. As such, the challenge represents a non-justiciable political question.
  2. The President and the USTR have authority under Section 307 of the Trade Act to modify an action. According to the motion, the President and the USTR may modify an action if the burden on US commerce of the acts, policies, and practices has increased since the initial action was taken. The Government claims no clear misconstruction of the governing statute, significant procedural violation, or action beyond delegated authority has been 
  3. Alternatively, even if the challenged actions can be considered agency action, the USTR did not fail to follow the appropriate procedures. Since List 3 and List 4A were mere modifications of actions, they were the result of informal rulemaking and are exempted from the APA’s notice-and-comment requirements under the foreign affairs exception. Additionally, the USTR provided interested persons with the opportunity to present their written and oral comments concerning the proposed modification.
  4. Alternatively, if the challenged actions are considered agency action, and if the foreign affairs exception does not apply, the USTR still complied with all relevant APA requirements and acted within its statutory authority. The Government avers that since the modification was a fruit of informal rulemaking, the Court should apply the arbitrary and capricious standard instead of the substantial evidence standard. The USTR’s actions were not arbitrary and capricious because it provided sufficient opportunity for comment, considered all relevant factors, and connected record facts to its decisions. 

The DOJ concluded its motion by asking the Court to dismiss the Plaintiffs’ amended complaint for failure to state a claim or, alternatively, grant judgment for the Government upon the administrative record.

The Court established an August 2, 2021, deadline for Plaintiffs to respond to this dispositive motion. Plaintiffs have not yet responded to the Government’s dispositive motion. 

On June 4, 2021, the Plaintiffs filed a motion requesting the Court hold oral argument on their motion for a preliminary injunction to suspend liquidation. The Court granted the motion for oral argument; virtual oral argument has been scheduled for June 17, 2021. 

The case is still developing. We will continue to monitor and report on the case.

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Section 301 Update: Additional Exclusions on List 3 Products; Suspension on List 4B Products; and Reduction on List 4A Products

On December 12, 2019, the United States Trade Representative (“USTR”) released a list of an additional forty-four (44) HTS provisions and product descriptions that will be excluded from Section 301 tariffs. These exclusions relate to items on List 3 of the China Section 301 tariffs. The unexcluded products on List 3 will continue to be subjected to an additional duty rate of 25%. The exclusions will be retroactive to September 24, 2018 and will remain in effect until August 7, 2020. The importers need to file post-entry corrections or protests to claim duty refunds. All granted exclusions can be found on the USTR’s website.

On December 13, 2019, the USTR announced that in light of a recent trade deal agreement between the United States and China, the additional duty of 15 percent on certain products from China (List 4B), scheduled to take effect on December 15, 2019, will be suspended until further notice. The USTR also expects to issue in the near future a notice reducing the rate of additional duty applicable to the products of China on List 4A.

If you have any questions about claiming refunds or whether or not you meet the requirements, please contact us and we will gladly help you navigate these regulations.

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Changes to Cuban Policy

The Trump administration is tightening restrictions on travel, trade, and remittances to Cuba.  The new changes are as follows:

  1. Vessels and aircrafts initially authorized to fly to Cuba on temporary sojourn will no longer be able to.
  2. OFAC is placing a cap of $1,000, the maximum amount that one remitter can send per quarter to one Cuban national as a family remittance.
  3. Leasing commercial aircrafts to Cuban State-owned airlines has been restricted.
  4. A ban on flights to nine Cuban cities has been implemented.

If you have any questions or want any more details, please feel free to contact us.

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Exclusion Process for Items on List 4A Announced

On October 23, 2019, the U.S. Trade Representative announced that an exclusion process for the List 4A products will open on October 31, 2019. The deadline for submitting an exclusion request is January 31, 2020. The products on List 4A (Annex A to Notice of Modification) are currently subject to a 15% additional tariff. Products for which exclusion requests are granted will be excluded from the application of the additional 15% tariff. The exclusion requests must be submitted through an online portal.

Pennington P.A. is highly experienced in assisting companies in the process of filing exclusion requests and responding to the tariff increases. If your products are on List 4A and would like to acquire assistance in this strenuous process, please feel free to contact us. 

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Additional Tariffs on EU Products

On Thursday evening, October 17th, it was confirmed that the tariffs on $7.5 billion of European goods will take effect today, October 18th. On October 2, 2019 the USTR published a list of the E.U. products that will be subject to the additional duties. Aircrafts produced in the EU will now have an additional 10% tariff. Other products ranging from whisky to cheese will have an additional 25% tariff.

These tariffs came as a response to the preferential treatment by the EU for aircraft maker Airbus SA. The application of these additional tariffs will depend on the tariff provision and country of origin.

This topic is evolving, and we will keep close watch on this. If you have any questions regarding how this can affect your business, please contact us.

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USTR Announces Additional Exclusions to Section 301

On September 17, 2019 the USTR announced additional exclusions to Section 301, Tranches 1, 2, and 3. The current additional duty rate for products on these lists is 25% and it is scheduled to increase to 30% on October 15. However, any Chinese product on Tranche 3 that meets the description of an excluded product can submit an exclusion request.

The exclusions will be retroactive to July 6, 2018 and August 23, 2018 for List 1 and 2 products, respectively, and extend for one year after publication of the USTR notice of exclusion. The exclusions for List 3 products will be effective September 24, 2018 to August 7, 2020.

The USTR claimed that it will continue to add exclusion decisions for Tranche 1 and Tranche 2 routinely. Despite the fact that the exclusion request process has closed for both of these tranches, the exclusion request process for tranche 3 remains open until September 30, 2019. An exclusion process for Tranche 4 has been announced by the USTR but has not yet opened.

The list of items excluded from additional duties as of September 17, 2019:

https://ustr.gov/sites/default/files/enforcement/301Investigations/%2434_Billion_Exclusions_Granted_September.pdf

https://ustr.gov/sites/default/files/enforcement/301Investigations/%2416_Billion_Exclusions_Granted_September.pdf

https://ustr.gov/sites/default/files/enforcement/301Investigations/%24200_Billion_Exclusions_Granted_September.pdf

If you have any questions about claiming refunds or whether or not you meet the requirements contact us and we will gladly help you navigate these regulations.

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OFAC Enforcement Against Va. Forwarder and Fl. Shipper

I. Virginia Forwarder

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a Finding of Violation to DNI Express Shipping Company (“DNI”), incorporated in McLean, Virginia, for a violation of § 501.602 of the Reporting, Procedures and Penalties Regulations, 31 C.F.R. part 501 (RPPR) as to the provision of farm equipment to Sudan. Specifically, DNI violated § 501.602 of the RPPR by providing information to OFAC during the pendency of OFAC’s investigation, including a subpoena response, that contained contradictory, false, materially inaccurate, materially incomplete, and misleading statements.

OFAC considered the following to be aggravating factors:

(1) DNI, through counsel, demonstrated reckless disregard for its U.S. sanctions requirements by failing to provide accurate and complete information in response to an OFAC Administrative Subpoena;

(2) DNI, and its owner, facilitated both the shipment and attempted shipment of goods to Sudan and provided financing for such shipments. Accordingly, DNI had actual knowledge that its responses to OFAC’s Administrative Subpoena concerning the facilitation of the shipment and attempted shipment of goods to Sudan and related financing were false, materially inaccurate, materially incomplete, and misleading;

(3) After supplying OFAC with responses that were false, materially inaccurate, materially incomplete, and misleading, OFAC gave DNI the opportunity to correct or clarify its original responses. However, DNI failed to appropriately amend its responses and instead confirmed its original responses; and

(4) By providing false, materially inaccurate, materially incomplete, and misleading statements, DNI did not fully cooperate with OFAC’s investigation.

For more information, please visit the following web notice.

II. Florida Shipper

Separately, OFAC issued a issued a Finding of Violation to Southern Cross Aviation, LLC (“Southern Cross”), incorporated in Florida and with offices in Florida and North Carolina, for a violation of the RPPR. OFAC stated it had reason to believe that Southern Cross was recently involved in the sale of several helicopters destined for Iran via an Iranian businessman based in Ecuador.  Southern Cross violated § 501.602 of the RPPR by failing to provide complete information to OFAC in response to an Administrative Subpoena issued to Southern Cross.

OFAC considered the following to be aggravating factors:

(1) Southern Cross demonstrated reckless disregard for its U.S. sanctions requirements by failing to provide accurate and complete information in response to an OFAC Administrative Subpoena;

(2) Southern Cross had actual knowledge or reason to know of the conduct that led to the violation in this instance; and

(3) Southern Cross did not fully cooperate with OFAC’s investigation.

For more information, please visit the following web notice.

New information on OFAC Civil Penalties and Informal Settlements is now available.

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Delay on Certain Tariffs on Chinese Goods

Today, August 13, 2019, The United States Trade Representative announced that certain products such as cell phones, laptops, video games consoles, certain toys, some clothing and shoes are being removed from the forthcoming tariff list based on health, safety, national security, and other factors. These items will not face the additional tariffs of 10 percent which were planned to take effect September 1st. They will be delayed until December 15. The list of the items that will still be affected by the tariff on September 1st has been updated.

The exact details along with the lists of the tariff lines that are affected have been posted to the Federal Register. An exclusion process for these products will shortly be released as well.

This topic is still developing, and we will keep a close watch on it. If you have any questions or would require any legal advice, please feel free to contact us.

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Update on List 4 Trump Tariffs

On August 1, 2019, President Trump announced on Twitter that the U.S. will impose a 10% tariff on roughly $300 billion worth of Chinese imports (List 4). The additional duties will go into effect beginning September 1, 2019. A confirmation from the USTR has not been issued yet.

The proposed list 4 was released on May 13, 2019. It covers essentially all of the Chinese products that were not covered by the previous lists. The comment period has been closed. We expect that the USTR will provide exclusion request procedures as it did in the previous three lists.

If you are interested in participating in the exclusion process or exploring possibilities to minimize or eliminate Section 301 duties, please contact us.

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