On June 1, 2021, the U.S. Department of Justice (DOJ), representing U.S. government defendants, filed its dispositive motion – a motion to dismiss and, in the alternative, a motion for judgment on the agency record – in litigation at the U.S. Court of International Trade (CIT) involving the potential refund of Section 301 tariffs placed on certain imports of Chinese products. The motion provides both a detailed review of the relevant statutory framework surrounding the Office of the U.S. Trade Representative (USTR) and section 301 of the Trade Act of 1974 and a lengthy factual discussion of the investigation that resulted in the tariffs.

According to the DOJ’s motion, the plaintiff group’s allegations that the U.S. government violated the Administrative Procedure Act (APA) fail because the USTR was acting at the direction of former President Donald Trump and the president is not subject to the APA. As the DOJ explained, the USTR issued Lists 3 and 4A, which identify the products subject to the tariffs at issue, pursuant to presidential directives and these discretionary directives to the USTR do not constitute a reviewable agency action. The DOJ also claimed that the plaintiff group has not challenged an agency action but the action of a president in directing the USTR and the USTR did not exercise independent discretion in determining to impose additional duties pursuant to Lists 3 and 4A (as well as in increasing or reducing tariff rates on those lists). The DOJ further argued that the USTR’s actions were “wholly discretionary and thus non-justiciable because the statute contains no ‘judicially discoverable and manageable standard.’” Since the president’s decision and the USTR’s implementation of that decision are “entirely discretionary,” the DOJ stated, the action is non-reviewable as it would require the CIT to “move beyond the areas of judicial expertise.”

The DOJ also argued that the plaintiff group has misconstrued the text and congressional intent of sections 301 and 307 of the Trade Act of 1974 and that modification of the USTR’s actions after China refused to cease its unfair trade practices was appropriate and authorized. The DOJ wrote that the plaintiff group’s mistaken reading of the statute is “fundamentally inconsistent with the purpose of taking action under section 301 in the first place, which is taking all ‘appropriate and feasible action’ within the power of the President” to eliminate the unfair trade practice, policy or act. If the president and the USTR had no authority under section 307 to modify any action, the DOJ explained, such an interpretation would only “incentivize other countries to refuse to negotiate and take wide-ranging retaliatory measures knowing the President and the USTR would be powerless to respond without conducting an entirely new investigation.”

Even if the CIT were to reject these arguments, the DOJ claimed that the government’s actions are exempt from the APA’s notice-and-comment requirements because they fall within the “foreign affairs function” exception since this was an informal rulemaking and “part of the negotiation of an international trade agreement.” According to the DOJ, the USTR fulfilled all of the statutory requirements under section 307 of the Trade Act of 1974 by seeking comments and holding public hearings. Alternatively, the DOJ argued that the government still complied with APA requirements and that the government’s actions were not arbitrary and capricious.

If the CIT doesn’t dismiss the case(s) as non-judiciable and proceeds to the merits, the case(s) will likely turn on how the CIT interprets the executive branch’s breadth of authority to modify its actions under section 307.

The plaintiff group’s response brief is due August 2, and amicus briefs are due August 9.

On June 2, 2021, the office of the U.S. Trade Representative (USTR) announced the conclusion of its Section 301 investigations of Digital Service Taxes (DSTs) that have been adopted by Austria, India, Italy, Spain, Turkey and the United Kingdom. For each country, USTR determined that it would take action in the form of additional duties of 25% on certain designated products from each country. However, such additional duties have been immediately suspended for a period of up to 180 days – until November 29, 2021 – to provide additional time to complete ongoing multilateral negotiations on international taxation issues. In making the announcement, USTR Katherine Tai stated, “The United States is focused on finding a multilateral solution to a range of key issues related to international taxation, including our concerns with digital services taxes … The United States remains committed to reaching a consensus on international tax issues through the OECD and G20 processes. Today’s actions provide time for those negotiations to continue to make progress while maintaining the option of imposing tariffs under Section 301 if warranted in the future.”

In January 2021, USTR found that the DSTs adopted by these countries “discriminate[] against U.S. companies, [are] inconsistent with prevailing principles of international taxation, and burden or restrict[] U.S. commerce.” See SmarTrade Updates of January 7, 2021 and January 14, 2021. In March 2021, the office of the USTR announced that it was considering tariffs of up to 25% “on an aggregate level of trade that would collect duties on goods” from each country, sought public comments and held a public hearing on potential retaliatory measures. See SmarTrade Update of March 29, 2021.

Today’s actions formally conclude the investigation and notify the public that the USTR has determined the appropriate action to be the imposition of ad valorem import duties of 25% on products of the six countries. The USTR has prepared six notices that indicate in Appendix A to each notice the specific products/tariff subheadings upon which these duties will be placed:

  • Austria – Annex A contains a list of 23 tariff subheadings, with an estimated trade value for calendar year 2019 of approximately $65 million.
  • India – Annex A contains a list of 26 tariff subheadings, with an estimated trade value for calendar year 2019 of approximately $119 million.
  • Italy – Annex A contains a list of 44 tariff subheadings, with an estimated trade value for calendar year 2019 of approximately $386 million.
  • Spain – Annex A contains a list of 27 tariff subheadings, with an estimated trade value for calendar year 2019 of approximately $324 million.
  • Turkey – Annex A contains a list of 32 tariff subheadings, with an estimated trade value for calendar year 2019 of approximately $310 million.
  • United Kingdom – Annex A contains a list of 67 tariff subheadings, with an estimated trade value for calendar year 2019 of approximately $887 million.

As noted, however, collection of these additional duties has been suspended for 180 days.

On May 28, 2021, the U.S. Customs and Border Protection (CBP) issued a press release announcing that the CBP had issued a Withhold Release Order (WRO) for imports of seafood products from Dalian Ocean Fishing Co., Ltd., a Chinese entity, “based on information that reasonably indicates the use of forced labor in the entity’s fishing operations.” The WRO will be effective immediately.

The CBP’s press release notes that, during the course of the investigation, the CBP identified 11 of the International Labor Organization’s indicators of forced labor, including physical violence, withholding of wages, and abusive working and living conditions. The WRO instructs all CBP personnel to detain at all U.S. ports of entry all entries of tuna, swordfish, and other seafood harvested by vessels owned or operated by Dalian Ocean Fishing Co. Ltd.

While the CBP issued WROs on individual distinct water fishing vessels in the past (e.g., Lien Yi Hsing No. 12, the Da Wang, and the Yu Long No. 2), this is the first WRO issued against an entire fleet of fishing vessels. Importers of detained shipments will have the opportunity to either export their shipments or demonstrate that the merchandise was not produced with forced labor.

The State Department’s Directorate of Defense Trade Controls (DDTC) on June 1, 2021 announced that a final rule from January 2020, which moved 3D-printed guns out from control under the International Traffic in Arms Regulations (ITAR) over to the Export Administration Regulations (EAR), is now in effect. See Federal Register notice of January 23, 2020. Although the final rule was originally set to go into effect in March 2020, a court challenge, including the issuance of a preliminary injunction, prevented the implementation of the final rule. On April 27, 2021, however, the U.S. Court of Appeals for the Ninth Circuit issued an opinion lifting the injunction that had blocked final implementation of the rule. Therefore, software and technical data related to 3D printing of firearms or components are now exclusively controlled by the EAR. The Department of Commerce issued a notice on June 1, 2021 announcing the transfer of jurisdiction of such technology and software to the EAR, and noted that its Final Rule controlling certain firearms, guns and related articles and technology is now fully implemented. See Federal Register Notice of January 23, 2021.

BIS has published guidance relating to the final rule in the form of 119 Frequently Asked Questions. The guidance outlines BIS’s approach to the controls, including recordkeeping, registering and applying for licenses, brokering controls, license exceptions, and clearance requirements. It also defines certain key terms to distinguish, among other things, additive manufacturing and 3D printing. For additional information, see SmarTrade Update of July 10, 2020.

On June 1, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License 8H, “Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Necessary for the Limited Maintenance of Essential Operations in Venezuela or the Wind Down of Operations in Venezuela for Certain Entities.” This general license continues to authorize transactions and activities “ordinarily incident and necessary to the limited maintenance of essential operations, contracts, or other agreements,” that:

  1. are for safety or the preservation of assets in Venezuela;
  2. involve PdVSA or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest; and
  3. were in effect prior to July 26, 2019, for the following entities and their subsidiaries:
    • Chevron Corporation
    • Halliburton
    • Schlumberger Limited
    • Baker Hughes, a GE Company
    • Weatherford International, Public Limited Company

The term “safety or the preservation of assets” covers transactions and activities necessary “to ensure the safety of personnel, or the integrity of operations and assets in Venezuela; participation in shareholder and board of directors meetings; making payments on third-party invoices for transactions and activities authorized” under this general license (or prior to April 21, 2020, if such activity was authorized at that time) as well as “payment of local taxes and purchase of utility services in Venezuela; and payment of salaries for employees and contractors in Venezuela.” The general license authorizes such activities involving PdVSA and the other listed entities through 12:01 a.m. EST, December 1, 2021.

As with past extensions, General License 8H does not authorize any activities related to Venezuelan-origin petroleum or petroleum products; the provision of insurance for such products; the design, construction or work on wells or other facilities or infrastructure in Venezuela; contracting any additional personnel or services (except as required for safety); or, the payment of any dividends to PdVSA. Further, this General License does not authorize transactions related to the export or re-export of diluents to Venezuela; the issuance of any loans to, or accrual of additional debt by, or subsidization of PdVSA; or, any transactions prohibited by OFAC’s Venezuela Sanctions Regulations (31 C.F.R. part 591) or with any blocked persons other than those identified in this General License.

General License 8H replaces and supersedes General License 8G. See also SmarTrade Update of November 17, 2020.

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) has formally issued the Burma Sanctions Regulations to implement Executive Order 14014 of February 10, 2021, “Blocking Property With Respect to the Situation in Burma.” See SmarTrade Update of February 11, 2021. These regulations took effect on June 1, 2021, and are now codified in the Code of Federal Regulations at 31 C.F.R. Part 525. The Burma Sanctions Regulations set forth formal definitions; provide the scope of prohibited transactions; detail the general and specific license procedures; and provide limited details on available interpretations. OFAC states that these regulations are being published “in abbreviated form at this time for the purpose of providing immediate guidance to the public,” but that the agency intends to supplement Part 525 “with a more comprehensive set of regulations, which may include additional interpretive and definitional guidance, general licenses, and other regulatory provisions.”

Currently, OFAC has issued four general licenses in order to authorize activities that would otherwise be prohibited with regard to the Burma Sanctions Regulations. General licenses allow U.S. persons to engage in the activity described in the general license without needing to apply for a specific license.

OFAC has also issued limited FAQs on the Burma sanctions.

As a reminder, BIS previously announced actions to limit exports and reexports of sensitive goods to Burma’s military and security services and suspended certain license exceptions for the country in the wake of the Burmese military’s February 1 coup to overthrow the civilian government of Burma. However, actual regulations had not been formalized. BIS’s policy remains a “presumption of denial” for any licenses for export and reexport to select Burmese government departments and agencies. See SmarTrade Update of February 12, 2021.

NOTE: While the U.S. government and its regulations still reference “Burma,” the country since 1989 has been known as Myanmar.

Key Notes:

  • USMCA trade ministers meet, demonstrating that USMCA is in full force
  • USMCA compliance required as of now
  • Auto rules of origin and labor were key issues in discussions

On May 18, 2021, the U.S.-Mexico-Canada Agreement (USMCA) Free Trade Commission (FTC) held its inaugural meeting, which was led by U.S. Trade Representative (USTR) Katherine Tai, Mexico’s Secretary of Economy Tatiana Clouthier and Canada’s Minister of Small Business, Export Promotion and International Trade Mary Ng. The parties issued a joint statement at the close of the FTC meeting summarizing the developments and next steps.

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On May 14, 2021, the U.S. government defendants in the ongoing Court of International Trade (CIT) litigation over Section 301 tariffs on certain imports of Chinese products filed their opposition to the plaintiffs’ motion for a preliminary injunction that would suspend collection of these tariffs on imports covered by List 3 and List 4A as implemented by the Trump administration. See Update of May 3, 2021 for details on the plaintiffs’ motion). In its opposition, the government argued that the plaintiffs “cannot demonstrate” any of the four required factors: (1) they have not demonstrated a likelihood of success on the merits; (2) the public interest and balance of hardships “weigh heavily in favor of the United States” and compel denial; (3) plaintiffs have not demonstrated irreparable harm; and (4) implementing an order to suspend liquidation of the millions of entries “would impose an enormous administrative burden.”

Broadly, the U.S. government’s argument rests on its claims that plaintiffs have a “flawed view” of section 307 of the Trade Act of 1974 and that the U.S. Trade Representative (USTR) has the authority to modify an action because the USTR otherwise would be rendered “a completely ineffective negotiator” in instances where the offending country refused to cease its unlawful activities or retaliated. It is undisputed, the U.S. government argued, that China refused to initially change its practices after the implementation of Section 301 tariffs on Chinese products appearing the USTR’s Lists 1 and 2, and only from the increased scope of covered products and modifications under Lists 3 and 4A did China engage in serious negotiations. Referencing U.S. Court of Appeals for the Federal Circuit precedent, the government argued that “[i]n international trade controversies of this highly discretionary kind — involving the President and foreign affairs … [f]or a court to interpose, there has to be a clear misconstruction of the governing statute, a significant procedural violation, or action outside delegated authority.” The opposition brief stated that the plaintiffs have failed to establish any violation of the Trade Act of 1974, much less a “clear misconstruction.”

The U.S. government’s argument also focused on the burden that would be placed on U.S. Customs and Border Protection (CBP), which was supported by a declaration from a CBP official, to gather and organize the necessary entry data and implement an order suspending the liquidation of millions of entries subject to the Lists 3 and 4A tariffs. On this point, the government argued that the plaintiffs’ claims of harm in paying these tariffs have been undermined by the plaintiffs themselves, who waited more than a year before challenging these tariffs before the CIT. As of March 31, 2021, the government highlighted, more than 12.7 million entries have been made that are subject to these Section 301 tariffs under Lists 3 or 4A. The manner in which the entry information is entered by the importers, the government claimed, would not allow for automatic suspension of the duties but would be “an extremely resource-intensive and burdensome task” that would be an ongoing exercise for an agency with “limited resources” and “competing priorities.” As a result, the U.S. government argued, the balance of hardships between plaintiffs and the government strongly favors denying the motion for a preliminary injunction.

If the CIT were to grant the motion, the U.S. government defendants offered an alternative proposed order that would require (1) the plaintiffs’ steering committee within 30 days of the order to provide a “spreadsheet” with importer of record numbers and case information from each plaintiff and (2) the government, in turn, within 90 days of receipt of that spreadsheet to implement the suspensions but not “to return any entries that liquidate during that 90-day period to unliquidated status.” During the litigation, according to the proposed order, the plaintiffs’ steering committee would be required to update the spreadsheet every 30 days, triggering the 90-day waiting period process each time.

On May 17, 2021, the United States and European Union (EU) issued a Joint Statement agreeing to discussions in an effort to address global steel and aluminum excess capacity. In their statement, U.S. Trade Representative Katherine Tai, Secretary of Commerce Gina Raimondo, and European Commission Executive Vice President Valdis Dombrovskis acknowledged the impact of this excess capacity, which they stated was driven mostly by third parties (e.g., China), and the threat that such distortions cause on the market-oriented U.S. and EU steel and aluminum industries. Recognizing their shared security interests, the United States and EU will seek a “mutual resolution of concerns” and the “deployment of effective solutions, including appropriate trade measures” to preserve their steel and aluminum industries.  They also agreed to avoid any changes that “negatively affect bilateral trade.”

As a result, the EU announced that its members will not increase retaliatory tariffs on certain U.S. goods originally implemented in response to Trump administration tariffs placed on EU steel and aluminum products under Section 232 of the Trade Expansion Act of 1962. These EU tariffs were scheduled to double from 25% to 50% at the end of June 2021.

On May 12, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a series of Frequently Asked Questions (FAQs) in an effort to respond to numerous questions from industry regarding the export of items that have been moved from the U.S. Munitions List under the International Traffic in Arms Regulations (ITAR) to BIS’ Commodity Control List and authorized under the Foreign Military Sales (FMS) program.  BIS notes that the movement of certain items which were previously classified as defense articles under the ITAR over to the Export Administration Regulations (EAR) as “600 series” items under the control of BIS “did not change the FMS Program.”

Under the EAR, certain items are not “subject to the EAR” (i.e., those regulations that govern U.S. export controls and license application procedures enforced by BIS).  One such instance is the Department of Defense (DoD) and Department of State Foreign Military Sales (FMS) Program, as the EAR confirms that “items that are subject to the EAR that are sold, leased or loaned by the Department of Defense to a foreign country or international organization under the FMS Program of the Arms Export Control Act pursuant to a Letter of Offer and Acceptance (LOA) authorizing such transfers are not ‘subject to the EAR,’ but rather, are subject to the authority of the Arms Export Control Act.”

The FAQs note, therefore, that “BIS will not issue a license for the export of these items.”  Instead, when exported under FMS authority, these items are “defense articles” even if they are not listed or described on the US Munitions List (USML) under ITAR.  According to the FAQs, the State Department has determined that it has the authority to authorize items normally “subject to the EAR” when such items will be exported under FMS authority if “the item will be used in or with a USML defense article.”  Thus, an FMS applicant “may include such items on a DDTC application as USML paragraph (x) items when for use in or with USML defense articles listed on the same DDTC application and will be included in the same shipment as those USML defense articles.”  The FAQs then clarify that the terms and conditions of any Letter of Offer and Acceptance (LOA) govern the export of items shipped under the FMS Program and whether any U.S. government authorization is required.

The FAQs, while helpful, are detailed and must be applied to a specific scenario involving FMS Program sales and export.  Thus, interested parties are encouraged to review them carefully.  They were developed by BIS, the U.S. Census Bureau, the Directorate of Defense Trade Controls (DDTC) and the Office of Regional Security and Arms Transfers (RSAT) at the Department of State, the Defense Security Cooperation Agency (DSCA) at the Department of Defense; and, U.S. Customs and Border Protection (CBP).  The notice provides contact information for most of these agencies for any further specific questions.