The trade war has started; its intensity is accelerating, and it will not end anytime soon. As the U.S. government’s actions advance, so too do our trading partners’ retaliatory tariffs and restrictions. Nearly every major sector of the American economy is caught in the cross-fire. Businesses, however, are not helpless. They have access to a trusted tool available whenever the government overreaches: the U.S. Courts.
Many businesses think domestic trade litigation is futile. Indeed, the cases that receive media attention often fail. In those cases, the plaintiffs claim the very laws from which federal officials derive their authority are unconstitutional. But, as seen earlier this year in Severstal Export GMBH v. United States, courts are leery of striking down long-standing laws—on trade or any other issue.
Courts are, however, prepared to ensure government officers act within the boundaries of the law. These are the types of trade cases that have succeeded in the past—and the type we should expect in the coming months.
Decca Hospitality v. United States (2005) is instructive on this point. In that case, the U.S. Department of Commerce imposed a duty of 198.08 percent on a Hong Kong furniture producer. Commerce’s logic was that it found the Chinese government had dumped merchandise into the United States at that rate—and Decca did not prove that it was not part of the Chinese government. Although Decca brought constitutional claims, it asked the court to put them aside and focus on the administrative law issues. The Decca court, recalling that “it is axiomatic that Commerce may not exercise its authority in an arbitrary or capricious manner,” found against Commerce—and allowed Decca to import its merchandise at the rate afforded to private companies: 6.65 percent.
In the current environment, a prime area for legal challenge lies in the exclusion processes maintained by agencies, intended to allow U.S. businesses to avoid tariffs on certain goods they want to purchase from outside the country. These exemptions include the one Commerce is maintaining for steel and aluminum that U.S. manufacturers need but say they cannot get from U.S. producers. Although the Severstal court found that a constitutional challenge to the underlying law that Commerce used to recommend the steel and aluminum tariffs is unlikely to prevail, neither it nor any other courts have yet ruled on the application of that law, including Commerce’s administration of the exclusion process. Focusing on an agency’s application of the law rather than on its underlying authority profoundly changes the legal analysis in three respects.
First, rather than invoking a constitutional provision and colliding with the canon that statutes are presumed constitutional, plaintiffs can bring a cause of action under the Administrative Procedure Act. The APA creates a strong presumption that courts can review agency action. Accordingly, plaintiffs have a better chance of getting their proverbial foot through the door—and to subjecting the agency’s action to judicial scrutiny.
Second, the APA provides a meaningful basis by which to judge agency action: The action can be set aside if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Some businesses have already expressed concern that Commerce is administering the exclusion process in an arbitrary fashion, such as by automatically accepting any objection to an exclusion, regardless of how ill-supported it may be. The APA thus provides a court a standard by which to review such actions—and more importantly, the means to set them aside.
Finally, the APA does not require a litigant to establish a protected constitutional right in order to prevail. This distinction can prove crucial in trade litigation, as it was in the recent U.S. Auto Parts Network case heard earlier this year in the U.S. Court of International Trade. There, Customs and Border Protection required the importer to post a bond worth three times the value of any imported shipment. In evaluating a temporary restraining order, the court found the plaintiff did not have a likelihood of success on its due process claim precisely because there is no right to engage in international trade. Nonetheless, the court granted a modified temporary restraining order, finding the plaintiff had shown a likelihood of success for its claim under the APA:
Customs’ action of imposing an enhanced, punitive bond on all of plaintiff’s imports, when it actually should be directed toward only 1 percent of imports, is an abuse of discretion that is contrary to Customs’ mandate. Based on the facts available at this juncture of the action, the court concludes that Plaintiff has shown a likelihood of success on the merits with regards to its claims under the Administrative Procedure Act.
From the plaintiff’s perspective—it would have gone out of business absent the TRO—the critical thing was not to prevail under a constitutional theory, but to prevail.
In sum, the trade war has not changed one fundamental principle of American jurisprudence. While courts will remain reluctant to strike down validly passed laws, they remain just as vigilant about doing what they do best: ensuring people are afforded justice under those very laws.
Shon is a partner and Patel is Of Counsel in the Washington, D.C. office of Quinn Emanuel Urquhart & Sullivan. Both formerly served in the Office of the U.S. Trade Representative.