Section 301 Most Likely Basis for Reciprocal Tariffs, Though Much Unknown, Lawyers Say

"Section 301 presents a straightforward means to address reciprocal trade issues," said Thomas Beline, partner at Cassidy Levy, speculating that either section (A) or (B) of the statute could be used. The statute, 19 U.S.C. Section 2411(a)(1)(A), allows for tariffs if the U.S. trade representative finds that the rights of the U.S. are being "denied" under any trade agreement, while Section 2411(a)(1)(B) says that tariffs can follow from an "act, policy, or practice of a foreign country" that violates any trade agreement or "is unjustifiable and burdens or restricts United States commerce."

Beline said that the USTR could issue "mini reports" for each U.S. trading partner, similar to the current National Trade Estimate Report the USTR currently issues on foreign trade barriers erected by U.S. trading partners.

Lawrence Friedman, partner at Barnes Richardson, agreed that Section 301 is the most likely legal home for the reciprocal tariffs, since the law allows the U.S. to counter policies or practices that are "unjustifiable." Friedman said that if the standard for what is unjustifiable is "self-judging," then USTR and the president can agree that tariffs set on U.S. goods that are below U.S. levels are "unjustifiable" for countries that trade with the U.S., he said.

In the announcement of the tariffs, the White House identified three potential legal bases for the tariffs: Section 301, Section 232 and the International Emergency Economic Powers Act. Of these three, IEEPA would allow the president to impose the tariffs without proceeding through the procedural hurdles found in the other two, said Devin Sikes, partner at Akin Gump.

One potential risk in imposing the reciprocal tariffs under IEEPA comes from an apparent limit on using this law as a source of tariff-making authority established in the 1975 case Yoshida International v. U.S. In the decision, the now-defunct Court of Customs and Patent Appeals said that the president couldn't use the Trading With the Enemy Act, IEEPA's predecessor, to impose tariffs for a particular purpose if there was another source of statutory authority granting that exact authority.

Sikes noted that, since Yoshida, Congress passed the Trade Act of 1974, which gives the president the authority to impose tariffs to address "balance of payments problems," though the tariffs can only be in place for 150 days, unless extended by Congress, and can only reach 15%.

Should the Trump administration proceed with imposing the reciprocal tariffs under either Section 232 or Section 301, the Commerce Department or USTR would need to generate a report outlining their fact-findings, among other statutory hurdles. Clearing all the procedural hurdles may be difficult given the tight deadlines demanded from the White House and the administration's penchant for mass firings across the federal bureaucracy, an attorney for importers said.

Sikes highlighted that Commerce's Bureau of Industry and Security would conduct the investigation under Section 232, and that's an agency that has made headlines recently for massive turnover among its ranks (see 2502270009 and 2502270004). By speeding through the process, "you could, frankly, miss something," an attorney for importers said. In theory, the agencies will be going line-by-line to see what all U.S. trading partners are charging for tariffs on all products, Sikes said. "That's just going to take time, so trying to speed through those thousands of lines for those 150-plus countries, mistakes are bound to happen," the attorney said.

"That can result in some real financial consequences for companies who engage in trade and [at] significant volumes with other countries," the attorney said.

As for the scope of the impending tariffs, Friedman speculated that the "tariff will simply be recalibrated to offset the difference in rates after making adjustments to include [value-added tax] and other costs applied to U.S. exports." He added that this change would turn the Harmonized Tariff Schedule into a "matrix of rates for individual countries" and require "enormous programming updates to ACE," CBP's platform for importers.

Practically, CBP could group countries into "tiers of approximate tariff level adjustments based on average rates weighted by value or something similar to smooth out the number of changes required," Friedman added.

After the tariffs are imposed, the next question becomes what to do about them. Friedman and Beline believe that the ultimate goal would be U.S.-led negotiations with the trading partners to extract either lower tariff rates or some other form of concession on non-tariff barriers.

Joost Pauwelyn, professor of international law at the Graduate Institute of International and Development Studies in Switzerland, suggested an alternative route: the World Trade Organization. In a blog post, Pauwelyn said that Trump could turn to the multilateral trading body to forge more widespread negotiations instead of "hurried, bilateral discussions between the US and its major trading partners."

Trump could use Article XXVII of the General Agreements on Tariffs and Trade, under which a single country can "trigger a re-negotiation of current tariff levels," Pauwelyn said. "If managed properly, this could, in effect, turn into the biggest tariff negotiation round since the creation of the WTO in 1994, with the potential to create a fairer and more enduring result." While the U.S. will at first seek reciprocity through bilateral talks, "it may realize, however, that the WTO is ultimately built on the same reciprocity principle and that working within the WTO structure would enhance the value of bilateral deals by multilateralizing and stabilizing them under one roof.”