Scott Lincicome, Alfredo Carrillo Obregon, and Chad Smitson
Last week, the Court of International Trade (CIT) delivered a victory for US importers that paid the “emergency” tariffs that the Supreme Court recently invalidated. Unfortunately, the companies’ fight may just be getting started. If so, the drawn-out process will likely deny many American firms the money that the government owes them and will likely cost taxpayers billions of additional dollars in interest.
First, the good news. Last Wednesday, CIT Judge Richard Eaton ordered US Customs and Border Protection (CBP) to cease collecting duties that President Trump unlawfully imposed last year under the International Emergency Economic Powers Act (IEEPA) and, in a surprise move, to immediately refund most of the duties already collected, with interest. The ruling settled some of the uncertainty we laid out in February, namely that the CIT will push the refund process quickly and will mandate refunds for all importers, not just those that have filed a lawsuit. Both are welcome moves toward getting American companies the billions they’re now owed by the US government—and toward limiting the damage to US taxpayers who must foot the bill for millions in interest that accrues daily on the shipments at issue.
Now, the bad news. In a filing last Friday, CBP acknowledged the government’s refund obligations but claimed that it does not have the technical capabilities to comply with the court’s order in the manner and time frame Judge Eaton set out.
First, the agency said that it can’t stop charging IEEPA tariffs on imports for which duty liability has not yet been finalized (i.e., “liquidated”). Citing the limitations of its online import processing system, the Automated Commercial Environment (ACE), CBP stated that “it is not possible for CBP to immediately prevent any additional entries from liquidating without IEEPA duties.” In other words, importers of the 20.1 million entries that remain unliquidated as of March 4 may still be charged IEEPA tariffs. (Four million of those entries are informal entries—shipments valued at less than $2,500—that have been assessed IEEPA duties; CBP claims it cannot prevent the automatic liquidation of these entries.)
Second, CBP told the court that it also can’t quickly refund duties for liquidated entries. In particular, CBP claims to lack the personnel and technical capacity to sort through the enormous number of entries, validate them, and distribute refunds. It warns that to process what has (unsurprisingly) become the largest mass-refund event in the history of US tariffs, it would need to pull staff from other crucial duties within the agency.
In response to CBP’s claims, Judge Eaton suspended the agency’s obligation to “immediately comply” with the refund order but required the agency to produce a report by today, March 12, on its progress in implementing the new capabilities. The agency just submitted that report, summarizing the new system’s main components and claiming that they were partially (40–80 percent, depending on the component) completed.
The agency’s statements to the court are unsurprising: The US government is often a reluctant tax-refunder, and Trump administration officials have repeatedly indicated they’d resist blanket refunds. Yet CBP’s approach still raises several serious concerns:
First, the implementation challenges that CBP says it now faces are predictable technical and logistical issues that the agency should have considered months ago, especially since the government lost the IEEPA tariff case in every court that heard it. That CBP is now scrambling at the 11th hour indicates that the agency made no efforts last year to prepare for the very real possibility of mass IEEPA refunds—even though about $700 million in additional interest is accruing for each month that CBP delays the refunds at issue. The agency’s predicament is a problem of the government’s own making, and we seriously doubt that American importers or taxpayers would be granted the leniency that the agency is now requesting from the court. It’s good that CBP is at least developing new capabilities to process and issue refunds electronically, but this should have been done months ago.
Second, CBP’s proposed refund system will inevitably let the US government keep much of the more than $165 billion in IEEPA duties that it illegally collected. According to CBP’s filing today, the refund system is not automatic but instead requires US importers to proactively request a refund by submitting detailed paperwork in the proper format via the importer’s ACE Portal accounts. CBP will then validate the file and its contents, rejecting anything that doesn’t comply with CBP’s rules. This new ACE functionality will therefore create additional administrative burdens for US importers, especially small companies that lack the sophistication and resources to jump through various bureaucratic hoops. For example, not every US importer has an ACE Portal account. Also, CBP’s March 12 filing indicates that entries that do not explicitly identify a Chapter 99 subheading of the US tariff code will not be processed automatically, even as CBP’s March 6 filing admits that importers “frequently” combine all applicable duties under Chapter 99 (including IEEPA, Section 232, Section 301, and other “temporary” tariff measures) and regular US most-favored-nation duties. Thus, importers whose entries are rejected would have to subsequently submit documentation verifying the IEEPA portion of the duties declared for those entries. CBP’s system may genuinely be well-designed for the trade professional class, but it assumes a level of customs sophistication and infrastructure that most small importers don’t have and thus ensures that many will be unable to get a timely refund.
Finally, it could take longer than 45 days for the new refund system to be implemented and even longer for tariff refunds to be processed. CBP’s 45-day timeline is only an estimate, as are the percentages in today’s filing. They are not a hard promise or a mandatory deadline, and CBP will likely have to issue guidance on using these functionalities before importers start using them to file for refunds. Only after the agency does so will the administrative refund process begin. Meanwhile, the interest clock will be ticking.
The Trump administration previously assured courts that issuing refunds to importers whose entries had been liquidated and validated would be quick and easy. Its proposed system is neither. The government also might appeal the CIT’s order up until May 4, meaning more delays and uncertainty—and more needless costs for importers and taxpayers. The Trump administration lost, repeatedly, in court, and the law is clear that illegally collected taxes must be returned to the payer of said taxes, with interest. Appealing the CIT’s order would be a costly case of sour grapes, but it’s a definite possibility.
For both legal and ethical reasons, IEEPA tariff refunds should be fast, automatic, and comprehensive. Any administrative burdens will inevitably and unfairly punish small companies, reward their larger competitors, and cost taxpayers millions. The longer the US government delays refunding IEEPA tariffs—money that importers dutifully paid, despite the financial pain and dubious legality—the more likely it is that American companies with limited capital tied up in customs bonds and high-interest debt struggle financially or resort to costly external arrangements (e.g., selling tariff claims to Wall Street banks for pennies on the dollar) to keep their businesses afloat. It’s thus imperative that CBP go back to the drawing board and create a truly automatic IEEPA refund system that guarantees US importers receive the money they’re owed.
The IEEPA tariff saga never should’ve started. The least the Trump administration can do now is to quickly issue refunds and end this farce once and for all.