The latest US Supreme Court ruling on tariffs has not brought the calm or certainty to US tariff policy that many business leaders are seeking. US importers continue to bring court challenges to multiple important—and costly—US tariff policies. As explained below, obtaining refunds associated with the unlawful collection of tariffs under the International Emergency and Economic Powers Act (IEEPA) has not been a straightforward process.
The topic of refunds continues to generate litigation even after the Supreme Court clearly ruled that President Trump had no authority to impose the IEPPA tariffs. Just hours after learning the Supreme Court ruled against him, the president imposed a new 10 percent tariff under Section 122. That new tariff was quickly challenged in court and the US Court of International Trade (CIT) ruled that it, too, was not lawful.
What is happening with IEEPA tariff refunds?
When the US Supreme Court ruled in February that the President does not have authority under IEEPA to impose those tariffs, the Court did not specify how or when the government must refund the tariffs it unlawfully collected. The Supreme Court left that task to the lower courts, specifically the CIT.
Shortly after the February ruling, a CIT judge issued a broad order instructing the government to refund the IEEPA tariffs to all importers that paid them—not only to the parties that had filed lawsuits. But US Customs and Border Protection (CBP) explained to the court that it could not implement this order immediately for logistical reasons, and the agency began to build a system to review and administer some of the refunds. That system is the Consolidated Administration and Processing for Entries, otherwise known as CAPE. The judge allowed the agency to build and implement the system in steps, but the court also required periodic updates on the agency’s progress. The court temporarily suspended its order given CBP’s efforts to build out the CAPE system.
Importantly, the Trump Administration never publicly committed to returning all of the unlawful tariff refunds it collected. Although CBP made progress in building CAPE and has begun to return some funds through that system, CAPE does not cover all types of entries, and there are significant limitations to the current version of the system. In more than three months since the Supreme Court’s ruling, the administration has made no public commitment to returning all of the unlawfully collected tariffs. This ongoing delay resulted in a flurry of activity in court.
The government’s response regarding refunds
The judge overseeing the tariff refund cases ordered the government to have the Commissioner of CBP appear before the court on June 9. The court determined his personal testimony would be necessary “to ascertain if it is the Government’s policy to return all of the unlawfully collected duties . . . .” Requiring such a high-level government official to appear in court is highly unusual, and the order led to a reply from the government.
The government’s reply to this court order made public some of its previously unknown positions in relation to tariff refunds. The government made clear that it now plans to appeal the order of the court that required universal repayments of the unlawful tariffs. According to the government, the court lacked the authority to order such repayment for all importers. The government’s view is that the court can only order refunds for parties who have filed lawsuits. Not only will the government seek to appeal CIT's broader, universal order, but it also intends to ask the court to suspend the order while it pursues its appeal. On June 2, the government confirmed its intent and filed its notice to appeal the order that required the government to refund all IEEPA duty payments.
Questions remain for importers
This leaves open a number of important questions for importers that have paid IEEPA tariffs. If the court agrees to suspend the order while the Trump Administration pursues its appeal, will the CAPE system still operate or will it be frozen? Even if the CAPE system continues to operate, will its expansion to include a larger number of entries continue? Currently CAPE is still accepting refund submissions, but the government has not stated whether CBP will process these refund submissions during the appeal. The government could attempt to stop all refund activity if the courts do not affirmatively order it to continue processing them.
So, what does this mean for importers that have paid IEEPA tariffs? There is a good chance that the processing of refunds will slow dramatically if it is not paused altogether. Moreover, if importers have entries that are finally liquidated, the government is now taking the position that importers must file lawsuits to obtain refunds. Additionally, CAPE does not accept certain entries, such as entries subject to reconciliation. CBP previously indicated these entries would be accepted in later CAPE “phases;” however, the availability of these future phases remains uncertain. The government’s stated view is that the court can only instruct CBP on how to handle refunds for parties that have sued the government. Whether that view prevails will be subject to months of additional litigation in the courts. Prior to these recent developments, we advised importers that have already paid substantial IEEPA tariffs that filing a protective lawsuit is an important way to preserve their financial interests. It now appears that this course of action may also end up being the fastest way for importers to fully recover the funds owed to them. These delays are in strong tension with the Supreme Court’s unequivocal ruling that the government unlawfully imposed these tariffs. .
Nixon Peabody will continue to monitor developments on tariffs, refunds, and next steps for importers and businesses. For more information on the content of this alert, please contact your Nixon Peabody attorney or the authors of this article.