Legal Sidebari

Section 301 Tariffs on Goods from China:
International and Domestic Legal Challenges
November 13, 2020
In August 2017, the Office of the U.S. Trade Representative (USTR) initiated an investigation under
Section 301 of the Trade Act of 1974, into several allegedly unreasonable or discriminatory trade
practices carried out by the People’s Republic of China (China). On March 22, 2018, the Trump
Administration issued a report finding that several of these practices were unreasonable or discriminatory
and burdened U.S. commerce. Following this announcement, the Administration imposed additional
tariffs on a variety of imported goods from China. These tariffs, imposed in four stages between 2018 and
2019, have been challenged by China and numerous U.S.-based importers in international and domestic
legal fora. This Sidebar analyzes the litigation at the World Trade Organization (WTO) and before the
U.S. Court of International Trade (CIT).
Background
On August 24, 2017, USTR announced an investigation into “whether acts, policies, and practices of the
Government of China related to technology transfer, intellectual property, and innovation are actionable”
under authorities delegated to the President in Sections 301 through 310 of the Trade Act of 1974, often
referred to as “Section 301.” On March 22, 2018, USTR issued a report finding that four such practices or
policies justified action under Section 301: (1) China’s forced technology transfer requirements;
(2) cyber-enabled actions to acquire U.S. IP and trade secrets illegally; (3) discriminatory and nonmarket
licensing practices; and (4) state-funded strategic acquisition of U.S. assets. (For more information on the
Section 301 report and subsequent actions, see this CRS Report and In Focus.)
After USTR issued its report on the outcome of its Section 301 investigation, it determined that imposing
tariffs on approximately $50 billion worth of U.S. imports from China was an appropriate response, as
well as filing a dispute with the WTO about China’s technology licensing practices. On June 20, 2018,
USTR issued a list of products covered by the first round of tariffs (List 1), with an annual trade value of
approximately $34 billion. The Notice of the action indicated the U.S. Government had “reviewed the
extent to which the tariff subheadings . . . include products containing industrially significant technology”
to tailor the tariffs to those products affected by the practices identified during the Section 301
investigation. USTR issued a second list of products (List 2), covering approximately $16 billion worth of
imports, on August 16, 2018. The Notice of the second action indicated this amount was identified to
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“maintain the effectiveness” of the Section 301 action, which USTR previously determined should cover
$50 billion in annual trade value. In response, China announced it would impose tariffs on $50 billion
worth of goods from the United States to counter what China viewed as U.S. action that “severely
violated China’s legitimate rights in the WTO.”
Following these events, the President ordered USTR to modify the Section 301 action and impose
additional tariffs on another $200 billion worth of products from China—bringing the total value of goods
subject to tariffs to $250 billion. The President stated the $50 billion action was insufficient because
China “refuses to change its practices—and indeed recently imposed new tariffs” on goods from the
United States. On September 21, 2018, USTR issued List 3, which set the additional tariffs at 10% with
projected increases to 25% on January 1, 2019. China responded by imposing additional tariffs on $60
billion worth of U.S. goods. The United States delayed the projected tariff increases to 25% until May 10,
2019, after which China increased the tariff levels on $60 billion worth of goods from the United States.
In May 2019, the USTR proposed to modify the $250 billion action against China. It announced on
August 17, 2019, that the action “was insufficient to obtain the elimination of China’s unfair and harmful
policies” and expanded it to cover an additional $300 billion in annual trade value (List 4). In response,
China announced new tariffs worth $75 billion on products from the United States.
During this period, China initiated several WTO disputes against the United States, with each dispute
challenging different tariff lists. In addition, thousands of U.S.-based importers have filed lawsuits with
the CIT, challenging Lists 3 and 4.
Disputes at the World Trade Organization
China has initiated three disputes at the WTO that challenge the four tariff lists: DS543 challenges List 1
and List 3, including the increase of tariffs on List 3 from 10% to 25%; DS565 challenges List 2; and
DS587 challenges all four lists. Thus far, only DS543 has gone beyond consultations (i.e., private
negotiations between China and the United States) and a WTO panel issued a report in that case, finding
the United States breached its WTO obligations when it imposed tariffs under Lists 1 and 3.
In DS543, although the parties raised several procedural issues before the panel, the main substantive
issues involved China’s claims under Articles I, II(a), and II(b) of the General Agreement on Tariffs and
Trade and the U.S. defense under Article XX(a). Article I reflects the general “most-favoured-nation”
(MFN) principle, which requires WTO members to provide nondiscriminatory treatment to “like
products” of all other WTO members with respect to customs duties and certain other charges. Article
II(a) reflects a more specific application of the MFN principle, obliging WTO members to provide
nondiscriminatory treatment to all other members with regard to the commitments they make on, among
other things, maximum tariffs applied to goods. These commitments are reflected in documents referred
to as “schedules of concessions.” Article II(b) prohibits WTO members from imposing higher tariff rates
on goods than those listed in their schedules of concessions. Article XX allows WTO members to impose
WTO-inconsistent measures if they are taken to further legitimate public policy goals and satisfy certain
conditions. Article XX(a) allows certain measures that are “necessary to protect public morals.”
China argued that the U.S. tariffs violated Article I because the action imposed higher tariffs on goods
from China than were imposed on goods from other nations. Further, China claimed that the Section 301
tariffs violated Articles II(a) and (b) because the tariffs exceeded the maximum tariff levels set out in the
U.S. Schedule of Concessions and applied only to China. The United States did not dispute that the
Section 301 tariffs were inconsistent with these provisions. Instead, the United States sought to justify the
measures under Article XX(a), contending they were necessary to protect public morals. Specifically, the
United States explained that the practices identified in the Section 301 report (e.g., misappropriation of
U.S. intellectual property) violated U.S. public morals and the tariffs were imposed to combat the
continuation of these practices.

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The WTO panel found that China made a prima facie case that the tariffs were inconsistent with Article I
because they “apply only to products from China” and thereby do not provide the same treatment to
Chinese products as to all other WTO members’ products. It also concluded the Section 301 tariffs were
prima facie inconsistent with Articles II(a) and (b) because they “applied in excess of the rates to which
the United States bound itself in its Schedule and accord imports from China ‘less favourable treatment’
than that provided in the United States’ Schedule.” Turning to the United States’ public morals defense,
the panel first found that the “‘standards of right and wrong’ invoked by the United States . . . could, at
least at a conceptual level, be covered by the term ‘public morals.’” However, the United States had not,
in the panel’s view, demonstrated the tariffs were “necessary” to protect public morals, and therefore the
tariffs were not justified under Article XX(a). Thus, the panel concluded the Section 301 tariffs were
inconsistent with the United States’ WTO obligations and recommended the United States “bring its
measures into conformity.”
On October 26, 2020, the United States announced its decision to appeal the DS543 panel report. As the
Appellate Body currently lacks a quorum of members, and therefore cannot hear appeals as detailed in
this Sidebar, there is no immediate way to resolve the dispute within the WTO. Thus, at least in the near
term, there will be no final recommendation from the WTO’s Dispute Settlement Body that the United
States must remove the Section 301 tariffs to come into conformity with the WTO agreements. While the
Appellate Body remains dormant, any resolution to the dispute will need to be negotiated by the United
States and China outside of the WTO’s dispute settlement framework.
Disputes Before the U.S. Court of International Trade
In addition to China’s pursuit of dispute settlement cases against the Section 301 tariffs at the WTO,
thousands of private companies have challenged the tariffs in domestic court cases. In September 2020,
HMTX Industries LLC, a U.S.-based importer of vinyl tile that paid duties under List 3, brought the first
of these lawsuits at the CIT. The company, as well as several of its affiliates, challenged the List 3 tariffs.
Subsequently, more than 3,000 importers of various goods from China filed similar challenges to the Lists
3 and 4A tariffs, seeking a refund of duties paid. (HMTX later amended its complaint to add challenges to
List 4A.) Collectively, these lawsuits represent the first domestic court challenges to Section 301 tariffs.
The plaintiffs in the HMTX case, which has served as a model for subsequent lawsuits, lodge the
following claims: (1) that the USTR violated procedural requirements for imposing Section 301 tariffs;
and (2) that the agency exceeded its authority when imposing the tariffs. On procedural grounds, the
plaintiffs argue that USTR imposed the Lists 3 and 4A tariffs more than a year after initiating the Section
301 investigation into China, thereby violating the statute’s deadline for action. The plaintiffs also allege
that USTR violated the Administrative Procedure Act by declining to give the affected importers
sufficient time to submit comments on the proposed duties, and by failing to consider relevant factors
when determining to impose tariffs, among other things. Further, the plaintiffs argue that USTR exceeded
its authority under the Trade Act of 1974 when imposing the tariffs.
In implementing Lists 3 and 4, USTR relied upon Section 307(a)(1)(B) and (C) of the Trade Act, which
permits the agency to “modify or terminate” actions against foreign unfair trade practices when the
“burden or restriction on United States commerce” imposed by the investigated country’s practice has
“increased or decreased” or when the action “is no longer appropriate.” The USTR claims it possessed
statutory authority to impose the Lists 3 and 4 tariffs because China had issued retaliatory tariffs on U.S.
exports in an effort to maintain its unfair trade practices. Therefore, in the agency’s view, it had the
authority to impose additional tariffs because the initial rounds of tariffs were no longer sufficient (i.e.,
appropriate) to counteract China’s practices.
In response to USTR’s argument, the plaintiffs counter that the agency lacked authority to issue Lists 3
and 4 under Section 307 because these lists did not seek to address the unfair trade practices identified in

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the initial Section 301 investigation and were instead imposed for other, unrelated reasons (e.g., to
counteract China’s own retaliatory tariffs). The plaintiffs also argue that Section 307 does not authorize
USTR to increase rates of duty but only to “delay, taper, or terminate” them. The United States has not yet
filed its answer, and the cases remain pending at the CIT.
Domestic legal challenges to other Trump Administration tariffs may provide some indication as to how
the CIT might resolve challenges to the Section 301 tariffs. Thus far, challenges to tariffs that the Trump
Administration imposed under a different authority—Section 232 of the Trade Expansion Act of 1962—
have rarely been successful. For example, in one case, Severstal Export GmbH, a U.S. subsidiary of a
Russian steel producer, sought a preliminary injunction from the CIT to prevent the United States from
collecting Section 232 national security tariffs on the import of certain steel products. The company and
its Swiss affiliate argued the President acted outside of the authority delegated by Congress in Section 232
because the tariffs were not truly imposed for national security purposes. The court denied the motion,
determining the plaintiffs were unlikely to prevail on the merits of their challenge; the parties later agreed
to dismiss the case. As a further example, on March 25, 2019, the CIT, relying on Supreme Court
precedent, issued an opinion rejecting arguments that Congress delegated too much of its legislative
power to the President in Section 232 in violation of the Constitution’s separation of powers. The U.S.
Court of Appeals for the Federal Circuit affirmed the decision.
By contrast, in a case challenging the recent Section 232 tariffs, the CIT held that the Executive must
closely adhere to statutory procedures when imposing tariffs. In Transpacific Steel LLC v. United States,
U.S.-based importers of Turkish steel successfully obtained a favorable ruling against the
Administration’s increase of Section 232 tariffs from 25% to 50% on imports from Turkey. The CIT
ultimately concluded, among other things, that the President violated Section 232’s mandatory statutory
deadline when increasing the tariffs. The decision in Transpacific Steel indicates that the CIT might
scrutinize whether the executive branch has followed the proper procedures, including meeting statutory
deadlines, when exercising Section 301 authority. Presidential action that does not follow these statutory
procedures may be deemed in excess of the President’s authority.
Possible Legal Implications of the Section 301 Litigation
As noted, the United States is facing legal challenges to the Section 301 tariffs at both the international
and domestic levels. At the international level, the WTO panel in DS543 found Lists 1 and 3 to be
inconsistent with the United States’ WTO obligations. However, because the United States appealed the
WTO panel report and the Appellate Body is unable to hear appeals, the dispute likely will not be
resolved within the WTO’s dispute settlement framework. In other words, for the United States and China
to reach a resolution, the issue may need to be negotiated outside of the WTO. In the meantime, because
there is no final decision from the WTO’s Dispute Settlement Body that Lists 1 and 3 are WTO-
inconsistent, the United States might argue it is not under an international legal obligation to remove the
tariffs. It has been suggested, however, that appealing a dispute under circumstances where the dispute
cannot become final may give rise to a separate breach of the international obligation of good faith, and
may entitle another WTO member to impose countermeasures (e.g., raise tariffs) to address the dispute. In
either case, China may seek to use the panel report as leverage in negotiations. The two other disputes
remain pending before the WTO, but China has not taken formal action beyond requesting consultations
with the United States. It is unclear whether China will proceed with the other disputes (i.e., request
establishment of a WTO panel) or choose to continue negotiating with the United States about all four of
the tariff lists outside of the WTO dispute settlement system.
At the domestic level, the United States is facing numerous challenges to Lists 3 and 4 before the CIT. If
the United States loses before the CIT (or ultimately on appeal), the Administration may have to remove
the tariffs. Although this might not absolve the Administration of its obligation to refund prior duties paid,
such an action may address at least part of the WTO panel finding as to List 3, and could affect

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U.S.-China trade negotiations. Additionally, if at some point the WTO panel report on Lists 1 and 3
becomes final and China seeks to enforce the panel’s findings, then any action the United States takes
pursuant to a potential CIT order to remove the List 3 tariffs could also affect the WTO litigation.


Author Information

Nina M. Hart
Brandon J. Murrill
Legislative Attorney
Legislative Attorney





Disclaimer
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