Trade Cases

Leibowitz on Trade: A Dilemma for the Government on Tariff Refunds Found Unlawful?

Written by Lewis Leibowitz

Last Tuesday, the Court of International Trade issued a major opinion in the massive litigation over China tariffs. As I’ve written before, the imposition of tariffs on more than $200 billion of imports per year from China has prompted a slew of lawsuits (more than 3,600 so far, including 6,500 separate plaintiffs), which could find that the List Three and List 4A China tariffs are contrary to Section 301 of the Trade Act of 1974. In the lead case on this matter, the government argued that duties later declared unlawful could not be refunded if the Customs entries were closed out administratively (“liquidated”).

The government has, until now, consistently accepted that in cases subject to the CIT’s “residual” jurisdiction, past entries that were “liquidated” by Customs could be reopened and re-liquidation ordered by the Court of International Trade if the tariffs collected were unlawful and were imposed by the action of other agencies (such as the U.S. Trade Representative in 301 cases and the Commerce Department under Section 232 of the Trade Expansion Act of 1962).

The government’s reversal of its stance on the availability of reliquidation is curious indeed. This 180-degree change in position must have been thought through thoroughly. When the issue came up before, the government asserted that injunctions preventing liquidation of entries were unnecessary because the court could order reliquidation if the government lost its case and the duties collected were judged illegal. The government would then be required to reliquidate entries and refund unlawfully imposed duties. All entries, whether liquidated or not, that featured duties unlawfully imposed would be corrected.

The change in position would, if sustained, permit the government to keep money that it is not entitled to under the law. This certainly does not look like justice. And the government is now arguing that if some of the China tariffs are illegal, the money already collected cannot be refunded. The government obviously is considering matters other than justice.

For one, the spate of lawsuits under the China tariffs implicate the collection of literally billions of dollars of tariffs imposed since 2018. The government revealed that more than 12 million Customs entries have been made with List Three and 4A tariffs collected. The Section 232 tariffs on steel and aluminum also involve billions of dollars, but a much smaller tally than the China tariffs. By challenging the authority of the Court of International Trade to order refunds of duties collected on millions of entries, the government could avoid blowing a big hole in its revenue stream.

Another issue is the burden on Customs to suspend liquidation of millions of entries. The government argues that Customs does not have the resources to sift through the requests to suspend liquidation of entries from the 6,500 importers that bring in merchandise from China.

To summarize, the government argued in this case, for the first time, that the Court of International Trade does not have the authority to order reliquidation of liquidated entries, and simultaneously argued against the suspension of liquidation of entries that have not yet liquidated. The unliquidated entries as of March 31, 2021, amounted to 4.9 million of the 12.7 million entries with List Three and 4A tariffs collected. Those entries would continue to fall into the “unrecoverable” liquidated entries category while the case was being litigated.

The plaintiffs sought a preliminary injunction requiring suspension of liquidation, preserving the status quo, to preclude further irreparable harm while the case was being litigated. If the government was correct that the court could not order reliquidation of entries and refund of unlawfully collected duties, it was necessary to stop further damage by stopping the liquidation train.

The three-judge court ruled in favor of the plaintiffs, enjoining liquidation of entries for an initial period of 28 days and directing the parties in the test case to confer about the next steps. The problem raised by the government could be addressed by an agreement that the liquidated entries could be reliquidated and unlawful duties refunded, as the government had accepted in other cases.

One of the judges on the court (Chief Judge Mark Barnett) did not agree with the issuance of a preliminary injunction. He found that the plaintiffs in the case (HMTX v. United States) were not entitled to preliminary injunction because they could not show “irreparable harm.” Judge Barnett reasoned that the authority of the court to order reliquidation and refund of duties in this case was solidly established, contrary to the government’s argument. Therefore, plaintiffs were not irreparably injured.

This means that one of the three judges in this case has already decided that the government cannot succeed in its argument. The government can now appeal the preliminary injunction ruling to the Court of Appeals for the Federal Circuit. They may ask for a stay of the preliminary injunction, which has happened before. The Court of Appeals will probably get to decide that issue in short order. The government may have concluded that it is in everyone’s interest to get a quick answer to the question of refunds should the government lose the case.

I cannot speculate on how these issues will play out—but the issue of whether the courts can order reliquidation and refund of duties unlawfully paid should be decided soon. A case on the 50% tariffs on imports of steel from Turkey has been fully briefed and argued in the Court of Appeals for the Federal Circuit (Transpacific Steel LLC v. United States). (Full disclosure—I am one of the attorneys of record in that case.) A decision on the legality of the 50% tariffs on Turkish steel could be announced at any time.

One way or the other, the refund of illegally imposed duties on products from China, Turkey or many other countries promises to occupy the trade bar for a while. The amounts at stake are collectively in the billions.

One final thought: the new government position by the Biden administration is a departure from the Trump view that it would defend the tariffs, but comply with court decisions if the courts finally struck them down. The government has now raised a host of reasons why the courts should not get involved with the issue of legality of the tariffs. Clearly, the new administration wants to have negotiating options with other countries to remove the tariffs in exchange for other concessions by our trading partners, including China. Whether they succeed in that effort is, at this point, very uncertain.

Lewis Leibowitz

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Lewis Leibowitz, SMU Contributor

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