Section 122 Case Raises Prospect of Additional Tariff Refund

The Court of International Trade (CIT) ruled on May 7 that the president’s imposition of 10% tariffs on importers under Section 122 tariffs was illegal.

The CIT held that Proclamation 11012 exceeded Section 122 authority because it relied on modern economic indicators rather than identifying a “balance‑of‑payments deficit” by the measures required at the time Congress enacted the statute. Under the CIT’s 2-1 ruling, Section 122 tariffs are only allowed in the event of “balance-of-payments deficits,” which must be demonstrated by one of three specific factors. Because the president did not attempt to show a deficit under these factors, the tariffs were illegal.

The CIT, however, only granted relief to the importers that were before it. The decision is now on appeal. The vast majority of importers will need to seek their own relief to no longer have to pay these tariffs and to obtain refunds.

Background

On Feb. 20, 2026, President Trump issued Proclamation No. 11012 imposing a 10% ad valorem “temporary import surcharge” on “all articles imported into the United States,” with various exceptions. He did so under the authority Congress granted in Section 122 of the Trade Act of 1974 (Section 122). U.S. Customs and Border Protection (CBP) issued implementation guidance and began assessing the tariffs.

Two sets of plaintiffs filed companion cases in the CIT challenging these tariffs: (1) two private importers and (2) a coalition of states asserting that the economic impact of the Section 122 tariffs gave them a basis to bring suit (uniquely, Washington state also pleaded a right to relief because it paid Section 122 tariffs as an importer). Plaintiffs challenged the surcharge as exceeding the president’s delegated tariff authority under Section 122 and sought injunctive relief. The court exercised jurisdiction under 28 U.S.C. Section 1581(i).

Section 122 Tariffs Are Illegal

Two of the three judges determined that the Section 122 tariffs were illegal and would always be illegal unless linked to one of three specific measures of a balance-of-payments deficit. Because the way to measure a[BHFS1] [AEL2]  balance-of-payments deficit is not defined in the statute, the CIT turned to measures of statutory interpretation and ultimately relied on the fact that the legislative history includes tables using liquidity, official settlements and basic balance as showing that those were the only permissible measures of a balance-of-payments deficit. The majority noted that balance-of-payments could not be the same as balance-of-trade, because Congress chose to use the latter term elsewhere in the statute. Further, the majority specifically rejected the idea that the president could rely on more recently adopted measures to determine the deficit exists, finding that such measures would give the president the ability to always find that there is a balance-of-payments deficit. Accordingly, because the president’s proclamation did not identify a deficit under any of the three relevant measures, the Section 122 tariffs are illegal.

It should be noted that there were two other issues that the majority could have used to find the Section 122 tariffs illegal. First, the statute requires there to be “fundamental international payment problems” for issuance of tariffs. The parties disputed whether this was an independent requirement, which, if it is, the president would also have had to satisfy. Because it already ruled the tariffs illegal under the balance-of-payments deficit issue, the CIT did not reach this question, although it did opine that the language appears to be an independent requirement. Second, the decision contains a substantial discussion of the relation of Section 122 to the fixed-value currency system (the gold standard) that was in use when Section 122 was under consideration. With the change from a fixed-value currency to a system in which the value of currency changes each day to maintain certain relationships with foreign currency, it is not clear that there can be a balance-of-payments deficit. The majority determined that it did not need to reach this question to issue its decision.

The dissent argued that the president has more broad authority to find a balance-of-payments deficit, or, at least, that the judgment was premature. As to the first issue, the dissent finds that contextual clues show that Congress did not mean to limit the President to the three measures on which the majority relies. Relying upon a more robust view of the presidency, the dissent believes that courts “should hesitate” to question the president’s reliance on his advisors or to find that those advisors did not consider measures beyond those the president announced. Accordingly, the dissent would find the tariffs legal or, at least, would have allowed further briefing to more fully consider the question.

Only Importers Have Standing to Be Heard

Although the CIT granted judgment to the individual plaintiffs and to one state, it found that most plaintiffs lacked standing. Specifically, the states that were seeking relief solely on the basis that the consequences of the tariffs were causing them economic harm lacked standing to sue. Accordingly, in granting judgment and an injunction, it did so only as to three plaintiffs and did not enter a universal injunction.

The Path Forward

Because this was a 2-1 decision and because the Section 122 Tariffs were meant to fill the gap between the termination of the International Emergency Economic Powers Act (IEEPA) and the Section 233 and 301 tariffs (a gap that now widens), an appeal seemed likely, and, in fact, the United States filed an appeal to the Federal Circuit Court of Appeals on May 8.

Our reading of the decision and the dissent is that the majority has the better position, both on its face and in light of the Supreme Court’s decision striking down the IEEPA tariffs in Learning Resources v. Trump and Trump v. V.O.S. Selections. Getting to a final appellate decision, however, could be a long process, with the Federal Circuit taking at least months before it would take up and decide the issue, and there being no guarantee that the Supreme Court would choose to decide a Section 122 case on an expedited basis (particularly because the Section 122 tariffs will expire in July in any event).

There Is a Strong Likelihood that the Decision Will Be Upheld on Appeal

The majority’s decision focuses on what Congress said in its legislative history and accords with the IEEPA decision, making the decision more likely to be upheld on appeal.

First, on its face, the decision looks to legislative history for guidance and finds language there to inform its opinion. The dissent, by contrast, seeks to distinguish that legislative history, without giving any definition of how to show the balance-of-payments deficit itself. That seems to put the majority in the stronger position.

Second, the majority seems in line with the IEEPA decision from the Supreme Court, which found the president lacked authority to impose tariffs absent a clear delegation of authority. Because the delegation of authority in Section 122 can reasonably be read to be limited to the situation in which the deficit is shown by one of the three measures identified in the majority decision, it is hard to see why an appellate court would move to the more general position the dissent asserts.

With that said, Justice Kavanaugh’s dissent in the IEEPA matter that overturning the IEEPA tariffs created a “magic words requirement” will likely be heard again and could gain further support.

The CIT Did Not Order Refunds or Action for Everyone

The only clear guidance from the CIT is that it is not ordering the imposition of the Section 122 Tariffs to stop for all importers and it is not issuing a refund mandate[AEL3] . Instead, it only granted relief to the three importers before it and only ordered that CBP cease imposing Section 122 tariffs prospectively.

Our expectation is that, if the decision is upheld on appeal, CIT will eventually order refunds. In that case, we expect CBP will issue refunds for unliquidated tariffs under the CAPE system. We think, however, that, similar to CBP’s position in the IEEPA tariff litigation, it will resist issuing refunds to parties whose tariffs are liquidated outside the 90-day reliquidation window. Based on the CIT’s ruling on standing, CBP may also resist issuing refunds to parties that have not filed suit, generally.

We believe importers should immediately file suit to preserve their positions to stop imposition and for refund of these tariffs.

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