Case 1:22-cv-00084-N/A Document 12 Filed 03/17/22 Page 1 of 22
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`DIAMOND FOUNDRY, INC.
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`Plaintiff,
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`v.
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`UNITED STATES OF AMERICA;
`OFFICE OF THE UNITED STATES TRADE
`REPRESENTATIVE; KATHERINE TAI, U.S.
`TRADE REPRESENTATIVE; U.S. CUSTOMS &
`BORDER PROTECTION; CHRIS MAGNUS, U.S.
`CUSTOMS & BORDER PROTECTION
`COMMISSIONER,
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`Defendants.
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`UNITED STATES COURT OF INTERNATIONAL TRADE
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`Court No. 22-00084
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`Plaintiff Diamond Foundry, Inc. (“Diamond Foundry” or “Plaintiff”), by and through its
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`COMPLAINT
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`attorneys, alleges and states as follows:
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`1.
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`This action concerns Defendants’ unlawful and unjustified use of its authority to
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`impose tariffs on certain imported goods from the People’s Republic of China that are covered by
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`so-called “List 3” and “List4A” Notice of Modification of Section 301 Action: China’s Acts,
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`Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 83
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`Fed. Reg. 47,974 (Sept. 21, 2018).
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`2.
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`The Trade Act of 1974 (“Trade Act”) does not confer such expansive authority on
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`Defendants. The Office of the United States Trade Representative (“USTR”) conducted an
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`investigation into China’s unfair intellectual property policies and practices pursuant to Section
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`301 of the Trade Act (19 U.S.C. § 2411). Section 304 of the Trade Act (19 U.S.C. § 2414)
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`required USTR to determine what action to take within 12 months after initiation of that
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`investigation. USTR failed to issue List 3 and List 4 within that window. USTR further was not
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`entitled to rely on its “modification” authority under Section 307 of the Trade Act (19 U.S.C. §
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`2417) to issue List 3 or List 4A. Section 307 of the Trade Act does not permit USTR to expand
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`the imposition of tariffs to other imports from China except on the grounds originally investigated
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`under Section 301 of the Trade Act, which related to intellectual property policies and practices.
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`Defendants nonetheless based the imposition of List 3 and List 4A duties on China’s retaliatory
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`duties and other unrelated issues. To the extent that USTR deemed the existing tariffs “no longer
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`appropriate,” the Trade Act only permitted USTR to delay, taper, or terminate its actions—not to
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`expand them.
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`3.
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`The arbitrary manner in which Defendants implemented the List 3 and List 4 tariff
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`actions also violates the Administrative Procedure Act (“APA”). USTR (1) failed to provide
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`sufficient opportunity for comment (for example, requiring interested parties to submit
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`affirmative and rebuttal comments on the same day); (2) failed to consider relevant factors when
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`making its decision (for example, undertaking no analysis of the supposed “increased burden”
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`imposed on U.S. commerce from the unfair policies and practices that it originally investigated);
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`and (3) failed to connect the record facts to the choices it made. In fact, USTR received many
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`thousands of comments but failed to address how those comments shaped its final promulgation
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`of List 3 and List 4. USTR’s preordained decision-making bears no resemblance to the standards
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`that the APA demands.
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`4.
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`The Court should set aside Defendants’ actions as ultra vires and otherwise contrary
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`to law, as well as order Defendants to refund (with interest) any duties paid by Plaintiff pursuant
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`to List 4.
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`JURISDICTION
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`5.
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`The Court possesses subject matter jurisdiction over this action pursuant to 28
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`U.S.C. § 1581(i)(1)(B), which confers “exclusive jurisdiction” to the Court over “any civil action
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`Case 1:22-cv-00084-N/A Document 12 Filed 03/17/22 Page 3 of 22
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`commenced against the United States, its agencies, or its officers, that arises out of any law of the
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`United States providing for . . . tariffs, duties, fees, or other taxes on the importation of
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`merchandise for reasons other than the raising of revenue.” 28 U.S.C. § 1581(i)(1)(B).
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`PARTIES
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`6.
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`Plaintiff is a United States manufacturer of man-made diamonds. Plaintiff grows
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`the diamonds in the United States, which then need to be cored, cut, polished, and inspected
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`before they are sold. Plaintiff ships the diamonds abroad to be cored, cut, polished, and inspected.
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`Plaintiff has made entries of man-made diamonds classified under HTSUS subheading
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`7104.90.1000 (9903.88.15 for China), which is subject to the additional ad valorem duties under
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`List 4A.
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`7.
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`Defendant United States of America received the disputed tariffs and is the
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`statutory defendant under 5 U.S.C. § 702 and 28 U.S.C. § 1581(i)(1)(B).
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`8.
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`The Office of the USTR is an executive agency of the United States charged with
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`investigating a foreign country’s trade practices under Section 301 of the Trade Act and
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`implementing “appropriate” responses, subject to the direction of the President. USTR conducted
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`the Section 301 investigation at issue and made numerous decisions regarding List 3 and List 4.
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`9.
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`Katherine Tai currently holds the position of USTR and serves as the director of
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`the Office of the USTR. In these capacities, she and her predecessor Robert Lighthizer made
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`numerous decisions regarding List 3 and List 4.
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`10.
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`Defendant U.S. Customs & Border Protection (“CBP”) is the agency that collects
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`duties on imports. CBP collected payments made by Plaintiff to account for the tariffs imposed by
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`USTR under List 4.
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`11.
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`Defendant Chris Magnus is the Commissioner of CBP. In this capacity, he
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`oversees (and his predecessor Mark A. Morgan oversaw) CBP’s collection of duties paid by
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`Plaintiff under List 4.
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`STANDING
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`12.
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`Plaintiff has standing to sue because it is “adversely affected or aggrieved by
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`agency action within the meaning of” the APA. 5 U.S.C. § 702; see 28 U.S.C. § 2631(i) (“Any
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`civil action of which the Court of International Trade has jurisdiction . . . may be commenced in
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`the court by any person adversely affected or aggrieved by agency action within the meaning of
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`Section 702 of title 5.”). Tariffs imposed by Defendants pursuant to List 4A adversely affected
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`and aggrieved Plaintiff because it is required to pay these unlawful duties.
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`TIMELINESS OF THE ACTION
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`13.
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`A plaintiff must commence an action under 28 U.S.C. § 1581(i)(1)(B) “within two
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`years after the cause of action first accrues.” 28 U.S.C. § 2636(i). This action was timely
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`commenced “within two years after the cause of action first accrue[d].” 28 U.S.C. § 2636(i).
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`14.
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`Plaintiff contests action taken by Defendants that resulted in the imposition of List
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`4A duties. List 4A became applicable to listed merchandise entered, or withdrawn from
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`warehouse, for consumption on or after September 1, 2019. Notice of Modification of Section 301
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`Action: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual
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`Property, and Innovation, 83 Fed. Reg. 47,974 (Sept. 21, 2018); Notice of Modification of Section
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`301 Action: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual
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`Property, and Innovation, 84 Fed. Reg. 43,304 (August 20, 2019).
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`15.
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`A cause of action accrues for purposes of this Court’s jurisdiction under § 1581(i)
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`at the time when the duties subject to dispute are paid. See Old Republic Ins. Co. v. United States,
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`645 F. Supp. 943, 953 (Ct. Int’l Trade 1986) (“Thus, plaintiff's cause of action did not accrue
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`until it paid the duties, that is, until it could claim Customs had money that should be reimbursed
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`or refunded to it.”). Therefore, a new justiciable cause of action accrues each time an importer or
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`its broker paid or pays the duties in dispute.
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`16.
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`Plaintiff’s claims accrued, at the earliest, when List 4A tariffs were paid by
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`Plaintiff or its broker. Thus, Plaintiff has timely filed this action with respect to all such entries
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`for which List 4A tariffs were paid in the two years prior to this action or thereafter.
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`17.
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`Alternatively, Plaintiff’s cause of action accrued when the assessment of List 4A
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`tariffs was finalized. Thus, Plaintiff has timely filed this action with respect to all entries for
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`which List 4A tariffs were paid and assessment was finalized in the two years prior to the date of
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`this action or thereafter.
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`RELEVANT LAW
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`18.
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`Section 301 of the Trade Act authorizes USTR to investigate a foreign country’s
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`trade practices. 19 U.S.C. § 2411(b). If the investigation reveals an “unreasonable or
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`discriminatory” practice, USTR may take “appropriate” action, such as imposing tariffs on
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`imports from the country that administered the unfair practice. Id. § 2411(b), (c)(1)(B).
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`19.
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`Section 304 of the Trade Act requires USTR to determine what action to take, if
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`any, within 12 months after the initiation of the underlying investigation. Id. § 2414(a)(1)(B),
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`(2)(B).
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`20.
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`Section 307 of the Trade Act (in pertinent part) allows USTR to “modify or
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`terminate” an action taken pursuant to Section 301 of the Trade Act either when the “burden or
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`restriction on United States commerce” imposed by the investigated foreign country’s practice has
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`“increased or decreased” or when the action “is no longer appropriate.” Id. § 2417(a)(1)(B), (C).
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`PROCEDURAL HISTORY
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`I.
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`USTR’s Investigation
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`21.
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`On August 14, 2017, President Trump directed Ambassador Lighthizer to consider
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`initiating a targeted investigation pursuant to Section 301(b) of the Trade Act concerning China’s
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`laws, policies, practices, and actions related to intellectual property, innovation, and technology.
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`Addressing China’s Laws, Policies, Practices, and Actions Related to Intellectual Property,
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`Innovation, and Technology, 82 Fed. Reg. 39,007 (Aug. 17, 2017). The President asserted that
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`certain Chinese “laws, policies, practices, and actions” on intellectual property, innovation, and
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`technology “may inhibit United States exports, deprive United States citizens of fair remuneration
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`for their innovations, divert American jobs to workers in China, contribute to our trade deficit
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`with China, and otherwise undermine American manufacturing, services, and innovation.” Id.
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`22.
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`USTR formally initiated an investigation into “whether acts, policies, and practices
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`of the Government of China related to technology transfer, intellectual property, and innovation
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`are actionable under [Section 301(b) of] the Trade Act” on August 18, 2017. Initiation of Section
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`301 Investigation; Hearing; and Request for Public Comments: China’s Acts, Policies, and
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`Practices Related to Technology Transfer, Intellectual Property, and Innovation, 82 Fed. Reg.
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`40,213 (Aug. 24, 2017).
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`23.
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`On March 22, 2018, USTR released a report announcing the results of its
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`investigation. OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, Findings of the Investigation
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`Into China’s Acts, Policies, And Practices Related to Technology Transfer, Intellectual Property,
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`and Innovation Under Section 301 of The Trade Act of 1974 (Mar. 22, 2018), available at
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`https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF. USTR found that certain “acts,
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`policies, and practices of the Chinese government related to technology transfer, intellectual
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`property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.”
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`Id. at 17. USTR based its findings on (1) China’s use of foreign ownership restrictions, foreign
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`investment restrictions, and administrative licensing and approval processes to pressure technology
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`transfers from U.S. to Chinese companies, Id. at 45; (2) China’s use of licensing processes to transfer
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`technologies from U.S. to Chinese companies on terms that favor Chinese recipients, Id. at 48; (3)
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`China’s facilitation of systematic investment in, and acquisition of, U.S. companies and assets by
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`Chinese entities to obtain technologies and intellectual property for purposes of large-scale
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`technology transfer, Id. at 147; and (4) China’s cyber intrusions into U.S. computer networks to
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`gain access to valuable business information, Id. at 171. In its report, USTR did not quantify the
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`burden or restriction imposed on U.S. commerce by the investigated practices.
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`24.
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`USTR also published a “Fact Sheet” stating that “[a]n interagency team of subject
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`matter experts and economists estimates that China’s policies result in harm to the U.S. economy
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`of at least $50 billion per year.” OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, Section
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`301 Fact Sheet (Mar. 22, 2018), available at https://ustr.gov/about-us/policy-offices/press-office/fact-
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`sheets/2018/march/Section-301-fact-sheet. USTR also indicated that, consistent with a directive from
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`President Trump, it would “propose additional tariffs” of 25% ad valorem “on certain products of
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`China, with an annual trade value commensurate with the harm caused to the U.S. economy resulting
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`from China’s unfair policies.” Id.; see Actions by the United States Related to the Section 301
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`Investigation of China’s Laws, Policies, Practices, or Actions Related to Technology Transfer,
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`Intellectual Property, and Innovation, 83 Fed. Reg. 13,099 (Mar. 27, 2018) (President Trump’s
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`directive).
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`II.
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`Lists 1 & 2
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`25.
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`Between April and August 2018 (i.e., within the 12-month statutory deadline from
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`the initiation of the investigation in August 2017, see 19 U.S.C. § 2414(a)(2)(B)), Defendants
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`undertook a series of actions to remedy the estimated harm to the U.S. economy caused by the
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`investigated unfair practices, ultimately imposing duties on imports from China covered by the
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`so-called Lists 1 and 2.
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`26.
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`On April 6, 2018, USTR published notice of its intent to impose “an additional duty
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`of 25 percent on a list of products of Chinese origin.” Notice of Determination and Request for
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`Public Comment Concerning Proposed Determination of Action Pursuant to Section 301: China’s
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`Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and
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`Innovation, 83 Fed. Reg. 14,906, 14,907 (Apr. 6, 2018). The products on the proposed list covered
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`1,333 tariff subheadings with a total value of “approximately $50 billion in terms of estimated
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`annual trade value for calendar year 2018.” Id. at 14,907. USTR explained that it chose $50 billion
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`because that amount was “commensurate with an economic analysis of the harm caused by
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`China’s unreasonable technology transfer policies to the U.S. economy, as covered by USTR’s
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`Section 301 investigation.” OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, Under
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`Section 301 Action, USTR Releases Proposed Tariff List on Chinese Products (Apr. 3, 2018),
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`available at https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/april/under-
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`section-301-action-ustr.
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`27.
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`On June 20, 2018, USTR published notice of its final list of products subject to an
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`additional duty of 25% ad valorem, a list commonly known as “List 1.” Notice of Action and
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`Request for Public Comment Concerning Proposed Determination of Action Pursuant to Section
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`301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property,
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`and Innovation, 83 Fed. Reg. 28,710 (June 20, 2018). USTR explained that it had “narrow[ed] the
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`proposed list in the April 6, 2018 notice to 818 tariff subheadings, with an approximate annual trade
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`value of $34 billion.” Id. at 28,711.
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`28.
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`At the same time that it finalized List 1, USTR announced that it intended to impose
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`a 25% ad valorem duty on a second proposed list of Chinese products in order to “maintain the
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`effectiveness of [the] $50 billion trade action” grounded in its Section 301 investigation. Id. at
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`28,712. USTR announced a proposed “List 2” covering 284 tariff subheadings with “an approximate
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`annual trade value of $16 billion.” Id. at 28,711-12.
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`29.
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`On August 16, 2018, USTR published notice of the final list of products subject to
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`an additional duty of 25% ad valorem in List 2, comprising “279 tariff subheadings” whose
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`“annual trade value . . . remains approximately $16 billion.” Notice of Action Pursuant to Section
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`301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property,
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`and Innovation, 83 Fed. Reg. 40,823, 40,823-24 (Aug. 16, 2018).
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`III. List 3 and List 4
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`30.
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`As soon as USTR announced the results of its investigation in March 2018, tensions
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`mounted between the governments of China and the United States. In the ensuing months,
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`Defendants greatly expanded the scope of the tariffs imposed under Section 301 of the Trade Act to
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`cover imports worth more than $500 billion—ten times the amount it had deemed “commensurate”
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`with the findings of USTR’s original investigation. Defendants’ stated reasons for doing so were
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`unrelated to the unfair practices that USTR had investigated, namely China’s reciprocal
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`countermeasures as well as other grievances related to China’s global influence.
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`A.
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`31.
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`List 3
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`Shortly after President Trump directed USTR in April 2018 to consider imposing
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`duties on $50 billion in Chinese products, China promptly threatened to impose retaliatory duties on
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`the same value of imports from the United States. In response, President Trump “instructed the
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`USTR to consider whether $100 billion of additional tariffs would be appropriate under Section
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`301” due to “China’s unfair retaliation.” THE WHITE HOUSE, Statement from Donald J. Trump
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`on Additional Proposed Section 301 Remedies
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`(Apr. 5,
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`2018),
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`available
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`at
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`https://trumpwhitehouse.archives.gov/briefings-statements/statement-president-donald-j-trump-
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`additional-proposed-section-301-remedies/.
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`32. When USTR finalized List 1 in mid-June 2018, President Trump warned China that
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`he would consider imposing additional tariffs on Chinese goods if China retaliated against the United
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`States. E.g., Vicki Needham & Max Greenwood, Trump Announces Tariffs on $50 Billion in
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`Chinese
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`Goods,
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`THE
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`HILL
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`(June
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`15,
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`2018),
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`available
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`at
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`https://thehill.com/homenews/administration/392421-trump-announces-tariffs-on-50-billion-in-chinese-
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`goods (“The president said the United States will pursue additional tariffs if China retaliates ‘such as
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`imposing new tariffs on United States goods, services or agricultural products; raising non-tariff
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`barriers; or taking punitive actions against American exporters or American companies operating in
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`China.’”).
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`33.
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`On June 18, 2018, President Trump formally directed USTR to consider whether
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`the United States should impose additional duties on products from China with an estimated trade
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`value of $200 billion—despite USTR having not yet implemented List 1 and List 2. President
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`Trump acknowledged that China’s threatened retaliatory “tariffs on $50 billion worth of United
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`States exports” motivated his decision. THE WHITE HOUSE, Statement from the President
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`Regarding Trade with China (June 18, 2018), available at https://www.whitehouse.gov/briefings-
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`statements/statement-president-regarding-trade-china-2/ (“This latest action by China clearly
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`indicates its determination to keep the United States at a permanent and unfair disadvantage,
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`which is reflected in our massive $376 billion trade imbalance in goods. This is unacceptable.”).
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`34.
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`USTR stated that it would design the newly proposed duties to address China’s
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`threatened retaliatory measures, rather than any of the harms identified in its Section 301
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`investigation. OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, USTR Robert Lighthizer
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`Statement on the President’s Additional China Trade Action (June 18, 2018), available at
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`https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/june/ustr-robert-lighthizer-
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`statement-0 (explaining that, although Lists 1 and 2 “were proportionate and responsive to forced
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`technology transfer and intellectual property theft by the Chinese” identified in the Section 301
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`investigation, the proposed duties for a third list of products were necessary to respond to the
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`retaliatory and “unjustified tariffs” that China may impose to target “U.S. workers, farmers,
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`ranchers, and businesses”).
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`35.
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`China nevertheless retaliated by imposing 25% ad valorem tariffs on $50 billion in
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`U.S. goods implemented in two stages of $34 billion and $16 billion on the same dates the United
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`States began collecting its own 25% tariffs under List 1 (July 6, 2018) and List 2 (August 23,
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`2018).
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`36.
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`About a week after China imposed its first round of retaliatory duties, USTR
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`published notice of its proposal to “modify the action in this investigation by maintaining the
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`original $34 billion action and the proposed $16 billion action, and by taking a further,
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`supplemental action” in the form of “an additional 10 percent ad valorem duty on [a list of]
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`products [from] China with an annual trade value of approximately $200 billion.” Request for
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`Comments Concerning Proposed Modification of Action Pursuant to Section 301: China’s Acts,
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`Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 83
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`Fed. Reg. 33,608, 33,608 (July 17, 2018). USTR invoked Section 307(a)(1)(C) of the Trade Act,
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`pursuant to which USTR “may modify or terminate any action, subject to the specific direction, if
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`any, of the President with respect to such action, . . . if . . . such action is being taken under
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`[Section 301(b)] of this title and is no longer appropriate.” Id. at 33,609 (citing 19 U.S.C. §
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`2417(a)(1)(c)). USTR initially set a deadline of August 17, 2018 for initial comments; August 20-
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`23, 2018 for a public hearing; and August 30, 2018 for rebuttal comments. Id. at 33,608.
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`37.
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`In this notice, USTR confirmed that it had relied on China’s decision to impose
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`“retaliatory duties” as the primary basis for its proposed action. Id. at 33,609 (asserting as
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`justification “China’s response to the $50 billion action announced in the investigation and its refusal
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`to change its acts, policies, and practices”). USTR expressly justified the $200 billion in its proposed
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`action on the level of retaliatory duties imposed by China on U.S. imports, noting that “action at this
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`level is appropriate in light of the level of China’s announced retaliatory action ($50 billion) and the
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`level of Chinese goods imported into the United States ($505 billion in 2017).” Id.; see also Id.
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`(Because “China’s retaliatory action covers a substantial percentage of U.S. goods exported to China
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`($130 billion in 2017),” “the level of the U.S. supplemental action must cover a substantial
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`percentage of Chinese imports.”). USTR did not identify any increased burdens or restrictions on
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`U.S. commerce resulting from the unfair practices that USTR had investigated. See Id.
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`38.
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`USTR’s contemporaneous press statements corroborated the contents of its notice:
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`China’s retaliatory duties motivated its proposed action. USTR stated that the proposed action came
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`“[a]s a result of China’s retaliation and failure to change its practice.” OFFICE OF THE UNITED
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`STATES TRADE REPRESENTATIVE, Statement by U.S. Trade Representative Robert Lighthizer on
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`Section 301 Action (July 10, 2018), available at https://ustr.gov/about-us/policy-offices/press-
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`office/press-releases/2018/july/statement-us-trade-representative.
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`39.
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`The following month, Ambassador Lighthizer announced that, in light of China’s
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`retaliatory duties, USTR would propose to increase the additional duty from 10% to 25% ad
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`valorem. Rather than addressing the practices that USTR investigated pursuant to Section 301 of the
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`Trade Act, he stated that China “[r]egrettably . . . has illegally retaliated against U.S. workers,
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`farmers, ranchers and businesses.” OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE,
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`Statement by U.S. Trade Representative Robert Lighthizer on Section 301 Action (Aug. 1, 2018),
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`available at https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/august/statement-us-
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`trade-representative.
`
`40.
`
`Shortly thereafter, USTR, at the direction of President Trump, formally proposed
`
`“raising the level of the additional duty in the proposed supplemental action from 10 percent to 25
`
`percent.” Extension of Public Comment Period Concerning Proposed Modification of Action
`
`Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer,
`
`Intellectual Property, and Innovation, 83 Fed. Reg. 38,760, 38,760 (Aug. 7, 2018). USTR also set
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`new dates for a public hearing over six days ending on August 27, 2018. See Id.; see also OFFICE OF
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`THE UNITED STATES TRADE REPRESENTATIVE, Public Hearings on Proposed Section 301 Tariff List
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`(Aug. 17, 2018) (modifying hearing schedule), available at https://ustr.gov/about-us/policy-
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`offices/press-office/press-releases/2018/august/public-hearings-proposed-section-301.
`
`41.
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`At the same time, USTR adjusted the deadlines for the submission of written
`
`comments, setting September 6, 2018—less than a month later—as the new deadline for both initial
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`and rebuttal comments from the public. 83 Fed. Reg. at 38,761. That adjustment, deviating from its
`
`past practices, prevented both USTR and the public from considering initial comments at the
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`hearing, and left insufficient time for interested parties to review and respond to the initial
`
`comments filed by other parties. USTR also limited each hearing participant to five minutes.
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`Docket No. USTR-2018-0026, https://beta.regulations.gov/document/USTR-2018-0026-0001.
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`Despite those obstacles, approximately 350 witnesses appeared at the six-day hearing, and the
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`public submitted over 6,000 comments. Id.
`
`42.
`
`Less than two weeks after receiving final comments from the public, President
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`Trump announced that he had directed USTR “to proceed with placing additional tariffs on roughly
`
`$200 billion of imports from China.” THE WHITE HOUSE, Statement from the President (Sep. 17,
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`2018) https://www.whitehouse.gov/briefings-statements/statement-from-the-president-4/. Once
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`Case 1:22-cv-00084-N/A Document 12 Filed 03/17/22 Page 14 of 22
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`again, the President made clear that China’s response to the $50 billion tariff action (i.e., List 1
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`and List 2 duties) motivated his decision, and he immediately promised to proceed with “phase
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`three” of the plan—an additional $267 billion tariff action—“if China takes retaliatory action
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`against our farmers or other industries.” Id.
`
`43.
`
`Following the President’s announcement, USTR published notice of the final list
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`of products subject to an additional duty, a list commonly known as “List 3.” 83 Fed. Reg. at
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`47,974. USTR imposed a 10% ad valorem tariff that was set to rise automatically to 25% on
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`January 1, 2019. Id. USTR determined that the List 3 duties would apply to all listed products that
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`enter the United States from China on or after September 24, 2018. Id. USTR did not respond to
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`any of the over 6,000 comments that it received or any of the testimony provided by roughly 350
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`witnesses. Id.
`
`44.
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`As legal support for its action, USTR for the first time cited Section 307(a)(1)(B) of
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`the Trade Act, which provides that USTR “may modify or terminate any action, subject to the
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`specific direction . . . of the President . . . taken under Section 301 if . . . the burden or restriction on
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`United States commerce of the denial of rights, or of the acts, policies, or practices, that are the
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`subject of such action has increased or decreased.” Id. (brackets omitted). USTR stated that the
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`relevant burden “continues to increase, including following the one-year investigation period,”
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`adding that “China’s unfair acts, policies, and practices include not just its specific technology
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`transfer and IP polices referenced in the notice of initiation in the investigation, but also China’s
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`subsequent defensive actions taken to maintain those policies.” Id. USTR also cited Section
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`307(a)(1)(C) of the Trade Act, arguing that China’s response to the $50 billion tariff action “has
`
`shown that the current action no longer is appropriate” because “China openly has responded to the
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`current action by choosing to cause further harm to the U.S. economy, by increasing duties on
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`U.S. exports to China.” Id. at 47,975.
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`45.
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`Over the next few months, China and the United States engaged in trade
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`negotiations. Based on the progress made with China in those negotiations, the Trump
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`Administration announced in December 2018, and again in February 2019, that it would delay the
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`scheduled increase in the List 3 duty rate from 10 to 25%. Notice of Modification of Section 301
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`Action: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual
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`Property, and Innovation, 83 Fed. Reg. 65,198 (Dec. 19, 2018); Notice of Modification of Section
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`301 Action: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual
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`Property, and Innovation, 84 Fed. Reg. 7,966 (Mar. 5, 2019).
`
`46.
`
`The trade negotiations ultimately fell apart. In May 2019, USTR announced its
`
`intent to raise the tariff rate on List 3 goods to 25%, effective either May 10, 2019 or June 1, 2019,
`
`depending on the day of export. See Notice of Modification of Section 301 Action: China's Acts,
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`Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 84
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`Fed. Reg. 20,459 (May 9, 2019) (“List 3 Rate Increase Notice”); see also Implementing
`
`Modification to Section 301 Action: China’s Acts, Policies, and Practices Related to Technology
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`Transfer, Intellectual Property, and Innovation, 84 Fed. Reg. 21,892 (May 15, 2019). The notice
`
`cited China’s decision to “retreat from specific commitments agreed to in earlier rounds” of
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`negotiations as the basis for the increase in the duty rate. List 3 Rate Increase Notice, 84 Fed. Reg.
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`at 20,459. Unlike with past imposition of new tariffs, USTR did not seek public comment but rather
`
`simply announced that the increase would occur. Id.
`
`47.
`
`Recognizing that List 3 would cause substantial harm to U.S. companies and
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`consumers, as well as the U.S. economy, USTR in June 2019 invited the public to seek exclusions
`
`from List 3 duties on a product-specific basis. Procedures for Requests to Exclude Particular
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`Products From the September 2018 Action Pursuant to Section 301: China’s Acts, Policies, and
`
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`Case 1:22-cv-00084-N/A Document 12 Filed 03/17/22 Page 16 of 22
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`Practices Related to Technology Transfer, Intellectual Property, and Innovation, 84 Fed. Reg.
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`29,576 (June 24, 2019).
`
`48.
`
`Starting in November 2019, USTR established processes for submitting public
`
`comment on whether to extend particular exclusions. See, e.g., Request for Comments Concerning
`
`the Extension of Particular Exclusions Granted Under the April 2019 Product Exclusion Notice
`
`From the $34 Billion Action Pursuant to Section 301: China's Acts, Policies, and Practices Related
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`to Technology Transfer, Intellectual Property, and Innovation, 85 Fed. Reg. 6,687 (February 5,
`
`2020); Request for Comments Concerning the Extension of Particular Exclusions Granted Under
`
`the $300 Billion Action Pursuant to Section 301: China's Acts, Policies, and Practices Related to
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`Technology Transfer, Intellectual Property, and Innovation, 85 Fed. Reg. 38,482 (June 26, 2020).
`
`49.
`
`All of the exclusions and extensions granted by USTR have since expired. Request
`
`for Comments on the Possible Reinstatement of Certain Exclusions in the Section 301
`
`Investigation of China’s Acts, Poli