Trade Court Says US Only Needs 'Reasonable Cause' to Add to UFLPA Entity List

However, Katzmann did rule that Ninestar didn't need to exhaust its administrative remedies in challenging its listing by requesting that the Forced Labor Enforcement Task Force remove it from the Entity List, though the court clarified that this holding was limited to Ninestar's case and not applied to all UFLPA Entity List challenges. The judge said a decision was forthcoming on Ninestar's motion to unredact and unseal the record.

CIT Finds Ninestar Unlikely to Succeed on Evidentiary Standard, Retroactivity Claims

One of the claims on which Katzmann said Ninestar was unlikely to succeed accused the Forced Labor Enforcement Task Force of using an unreasonable burden of proof.

In listing Ninestar and various of its subsidiaries, FLETF said that it had "reasonable cause" -- rather than a "preponderance of the evidence" -- to believe the company was using the forced labor of the Uyghur, Kazakh or Kyrgyz people in China's Xinjiang region. Ninestar argued in its suit that this standard of proof violated the Administrative Procedure Act.

Katzmann said Ninestar was unlikely to succeed on that point, definitively stating that "reasonable cause is the appropriate burden of proof for UFLPA listing decisions."

The judge noted that Congress legislates against the "backdrop of existing law," and that Section 307 of the Trade Act -- the law banning the import of goods made with forced labor -- is the "operative law." Congress' clear intent in passing the UFLPA was to strengthen the prohibition on goods made with forced labor, the court said.

As a result, using a "reasonable cause burden of proof avoids an illogical asymmetry where the Government can more easily obtain section 307 embargoes than UFLPA embargoes." UFLPA sets up a presumptive embargo once a listing decision is made, while Section 307 requires three agency actions, the second of which is the use of a withhold release order. Imposing a WRO has a lower review standard than a “preponderance of the evidence” standard.

By requiring UFLPA Entity List decisions to require a “preponderance of the evidence,” WROs would become the “easier method of achieving Congress’s directive of quickly prohibiting the entry of goods made with forced labor.” This would “hardly” strengthen the prohibition on goods made with forced labor, Katzmann found.

The preponderance standard also fails to address Congress’s concern about the “difficulty of obtaining information regarding forced labor in China,” the judge added. The law is meant, in part, to “overcome the transparency issues prohibiting section 307’s effective enforcement in Xinjiang” -- a goal that would be eviscerated by the higher evidentiary standard, the court said.

Ninestar also based its Entity List challenge around three other arguments: that the task force failed to adequately explain the decision, that the decision was unsupported by substantial evidence, and that the decision was an impermissibly retroactive application of the UFLPA by relying on evidence from before the law was enacted. The exporter didn't advance its second claim in its PI bid.

On the claim that the task force didn’t adequately explain the listing, Katzmann said that after looking at the record in the litigation, “the court concludes that the FLETF has provided an adequate explanation that allows for meaningful judicial review at this preliminary stage.”

The court initially found FLETF’s listing decision given to Ninestar to be a “conclusory recitation of the statute without further explanation,” which would “plainly fail the APA’s arbitrary and capricious standard.”

However, the record told a different story. It included information from a confidential informant, documents from the Chinese government, internal Ninestar forms and media reports that showed Ninestar to participate in the Chinese government’s “poverty alleviation programs,” which transfer laborers from remote areas to the company’s facilities. The record also shows that Ninestar reportedly worked with the Xinjiang Uyghur Autonomous Region via a “third-party agency” to recruit Uyghur laborers for the company’s Zhuhai Ninestar facilities.

Katzmann stopped short of finding the inadequate explanation claim to be moot, however, ruling that a “more developed agency record or adjudication of Ninestar’s substantial evidence claim could hypothetically lead to a remand order” requiring a further explanation.

As for Ninestar’s claim that FLETF improperly imposed the law retroactively, Katzmann again found for the government. He said that redacted information shows evidence of post-enactment violations of the law, adding that where there’s evidence of post-enactment conduct, reliance on evidence dated before the statute “is not per se unreasonable” nor does it “run afoul of the presumption against retroactivity.”

The judge limited his holding to the “narrow question of whether there is any quantum of record evidence supporting a finding of post-enactment culpable conduct.”

But Appeal to FLETF Not Needed in Ninestar's Case, Court Says

Meanwhile, the U.S. had said in a motion to dismiss that Ninestar failed to exhaust its administrative remedies by not requesting to be removed from the list.

Katzmann first addressed the conflict in law between the APA and the trade court’s own statutory exhaustion requirements, established under Section 2637(d). As an issue of first impression, Ninestar said the APA’s exhaustion standard forecloses prudential exhaustion in Section 2637(d), whereby the court requires exhaustion “where appropriate.”

The judge said a reading of Section 2637(d) and the APA could conflict, where the “specific congressional directive to apply prudential exhaustion” sits on one side and the other has the APA, “which contains a generalized congressional directive barring prudential exhaustion.”

Katzmann said a “better reading” avoids the conflict, where exhaustion under the APA is required only when expressly required by law or when the agency rule requires appeal before review, while Section 2637 is that statute that “expressly requires” exhaustion. This exempts CIT cases from the APA “default rule of no prudential exhaustion” and preserves each law’s purpose.

Siding with Ninestar’s interpretation, which says Section 2637 doesn’t expressly require exhaustion since it’s discretionary, would “ignore that legislative directive and run counter to Federal Circuit precedent, effectively turning § 2637 into dead letter for all CIT cases involving the APA,” the judge said.

After maintaining the court’s discretionary power in requiring exhaustion in UFLPA Entity List cases, Katzmann said exhaustion is not appropriate in Ninestar’s case.

Among the four reasons CIT doesn’t require exhaustion, one of them -- lack of timely access to the confidential record -- applies to the case, Katzmann said. Ninestar didn’t have “timely access to the confidential record” or “even an explanation of why it was listed,” the court said.

All the listing decision said was that Ninestar was added for working with the Xinjiang government to receive Uyghur forced labor. The judge said that FLETF’s language in the listing decision wasn't in error under the APA, nor are future UFLPA cases “categorically exempt from the exhaustion requirement.”

CIT has ruled that exhaustion would be “necessarily speculative, illogical, and useless” when the facts or arguments backing an agency’s conclusion either didn’t exist at the time of the chance to exhaust or were “not yet made available to a party challenging action.”

The judge added the twin aims of exhaustion -- the delegation of responsibility to agencies to oversee federal programs and judicial efficiency -- are not served by requiring exchausion from Ninestar. FLETF’s expertise is irrelevant to a delisting request where Ninestar “cannot dispute or characterize the agency’s reasoning or belief,” and judicial efficiency gains “are slim” where Ninestar can't let the agency “correct its errors or hone the record.”

CIT Finds No Irreparable Harm, Denies Injunction

In its PI motion, Ninestar cited four bases of harm that the court put into two categories: “economic harms of financial loss, business opportunity loss, and reputational loss”; and harm of being denied a procedural right under the APA. Katzmann found both inadequate for an injunction.

Ninestar said its listing subjected it to irreparable financial harm and interfered with the opportunity to build business relationships with U.S. and non-U.S. customers alike. Katzmann said the exporter didn’t have enough evidence to carry its claims.

Ninestar cited financial projections and two declarations from the head of its enterprise planning department saying the firm risks losses in the U.S. and globally. The judge said that, generally, “affidavits submitted by interested parties are weak evidence, unlikely to justify a preliminary injunction,” adding that the need for “clarifying and corroborating evidence is particularly important because the court cannot determine that Ninestar’s losses are sufficiently substantial when considering its many subsidiaries and affiliates across the globe.”

Regarding its business relationships, Ninestar cited public notices from three trade associations advising businesses to “distance themselves from” Ninestar due to the listing decision, along with an ITC report saying it wouldn’t renew a certification for the company that’s key to the printer cartridge industry. Katzmann again found a “sufficiency problem” in the evidence, holding that the company “simply has not offered the same quantum of evidence here to show that the loss of its reputation is irreparable.”

There’s also no reason to believe that these trade groups wouldn’t rely on a delisting move as a “clean bill of health,” the judge said, adding that the “decline of all U.S. sales to zero, as well as the deterioration of international business opportunities and corporate reputation, are obvious consequences that would be true for any entity on the UFLPA’s Entity List.” These facts cut against the “extraordinary nature” of PIs.

Ninestar also relied on a pair of CIT decisions to say it will suffer procedural harm, given that the decisions said a procedural violation can cause irreparable harm where damage done by an APA violation can’t be later cured by remedial action. Katzmann said the holding is inapplicable since “Ninestar’s alleged procedural harms can be remedied on remand.”

Lastly, the court found that the balance of equities and balance of public interest favor the U.S. Ninestar claimed that its significant economic loss suffered due to its listing compared to the government’s increase in administrative burden clearly weighs for the exporter. The judge said this gives “short shrift to the Government.”

Katzmann found that the UFLPA denotes even a single entry made with forced labor is “one too many,” adding that lifting the embargo on Ninestar, “even if temporarily, would constitute a risk to the public interest -- as defined by Congress -- that the American public and markets are complicit in, and legitimize goods made with, forced labor from Xinjiang.”

Additionally, the UFLPA’s embargoes “are intended to strengthen international protections for human rights beyond Xinjiang and to forcefully denounce any form of forced labor.” And while public interest is served in having U.S. laws applied “uniformly and fairly,” this reason alone can’t resolve the public interest analysis, the judge said.

By structuring the law to have a presumptive embargo that can be rebutted, “Congress subordinated the risk of overbreadth to the public interests served by the UFLPA’s presumptive embargo,” the opinion said.

Katzmann concluded that Ninestar’s hardships are “entirely predictable consequences that were likely foreseen by Congress, rather than unexpected or extraordinary byproducts, of an adverse listing. To hold here that Ninestar’s foreseeable hardships outweigh the UFLPA-defined public interests would favor preliminary injunctions in nearly every challenge to the UFLPA.”

(Ninestar Corp. v. United States, Slip Op. 24-24, CIT # 23-00182, dated 02/27/24; Judge: Gary Katzmann; Attorneys: Gordon Todd of Sidley Austin for plaintiff Ninestar; Monica Triana for defendant U.S. government)