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Full Transcript
Marcus Eeman
Hello. Good morning, everybody. I am Marcus Eamon. I am a director, here at Flexport, and I'm very excited for this, urgent webinar. We had a different topic in mind, but, of course, we decided to pivot when we saw the supreme court, make a decision last Friday. So, obviously, we had to make a change here. For this note, if you haven't been to it before, we have a lot of content to cover. We actually extended it by another fifteen minutes, and we always try to put a lot of thought into the q and a at the end as well. So on your screen, just a couple of housekeeping things. On your screen, you'll see a sidebar on the right of the main stage where you can submit your questions. At the end of this presentation, we do host a q and a. We do try to get through as many as we can. So please get through your question early. In that same sidebar, you also see a tab labeled docs. This is where you can download a copy of today's slides and get some other helpful resources. Above your screen, you also have a button to request a customs analysis from Flexport using your own ACE data. We'll review this a little bit further on in the presentation, but please click that button if you'd like Flexport to reach out to you to discuss a customs analysis for your business. And but first, we're gonna go to a quick brief legal note. Please keep in mind that all the information provided in this session is based on the situation at this current time. Like I said, this can change really quickly. So please please note this is just the best information that we have to the minute, but it may not be specific to your business requirements. We always will rec recommend reaching out to a Flexport expert to discuss your particular situation. Joining me today on stage will be my associate, Jen Park. She leads our trade advisory team. That is the team that will be handling protests and refunds for Flexport. So we thought it'd be worth to bring her on and very excited to to be sharing the presentation here with with her. Okay. Agenda is very, very simple. What happened? What happens next? We're gonna explore what refunds are gonna look like, how that path is gonna is gonna proceed, what are some actions you can take today, and what are some other resources that you can use, to make sure you're best equipped to capitalize on the changes that came out of the supreme court ruling and wrapping up with a q and a. So what happened? Well, the Supreme Court struck down the IEPA tariffs. The main rationale behind it was largely a combination of the major questions doctrine and the delegation principle where IEPA had the language that said that the president shall have the power to regulate importation. But when it comes to questions of tariffs, that becomes a congressional power specifically provided by the constitution that says, well, you know, if the congress is going to give a specific power, right, this exact power to tariff to levy taxes to the president, they need to do so very, very specifically. And they're saying that the phrase from IEPA's law that said regulate importation does not, in fact, authorize the president to levy tariffs. This was just something that is reserved for the congress only. And, yes, tariffs are indeed taxes, so that power rests with with congress and must be very explicitly delegated to the president in the law. Another thing that they went a little bit outside of here is that they also addressed this question of import license fees. If, like many of you, on November 5, you are listening into the oral arguments, you may have heard the learning resources lawyer start to talk a little bit about license fees, if those would be allowed, under what circumstances. You also heard the, solicitor Sauer also talking about this. There are quite a few questions here. The court did preemptively a little bit kind of go a bit beyond the original question and also clarify that any import license fees are also not authorized under IEPA just in case that was an option. Licensing is, but license fees are also not because they were considered to be revenue raising, and it would seem weird to not disallow both. There were a few things that the ruling did not address. And the big one, they didn't discuss any sort of instructions on what to do about refunds. Refunds are gonna take another road. They're gonna take another process We're it would have been great for the Supreme Court to have been very clear about this to really provide that instruction. As noted in the dissent by justice Kavanaugh, it was not, which is just gonna make the process a little bit uglier, a little bit messier. We still have some thoughts about it. We still have our our general opinion that we think refunds will be allowed, but that will take a a less a less clear path. Any additional tariffs under 03/2001, February, 02/2001 weren't even reviewed affected just to kind of get ahead of any potential, you know, thought here. Any of those other tariffs that have been maybe hitting your business, those were outside of the scope of this ruling. And this also didn't really affect the rest of IEPA, which I think is an important thing to note. Remember, IEPA is the International Emergency Economic Powers Act. President Trump declared an emergency. Right? Fentanyl at the northern border, fentanyl at the southern border, fentanyl precursors and so forth coming from China. That was the first one. Second one is that these very large trade imbalances threaten our national security. The underlying emergencies themselves were not challenged. They were not questioned. They were not struck down by the court. They weren't reviewed. Meaning, the rationale for having potentially other actions under IEPA, maybe other forms of import restrictions, potentially quotas, that sort of thing, that is still authorized. So the actual emergency itself was not challenged. That was not reviewed by the Supreme Court, and there wasn't any kind of question on that. So AIPA, just the ability to tariffs is what was taken away, not everything else under AIPA. There are still other potential tools that the president may have. And if you watched his press conference following it, you know that he had a bit of consternation. It's like, it's weird that I can embargo a country, but I can't tariff a country. I think he's right. It is a bit odd, but that is where, in a very consistent way, the Supreme Court landed saying, no. No. If we're gonna delegate article one powers, mister president, it needs to be very specifically done by the congress. That is a a principle that's been going on for for some time. So rest of AIPA is still intact. There could be more actions pursuant from AIPA, but no tariffs coming from AIPA. Well, what did the president do? That same day, there were three executive orders kind of directly in response to this IEPA decision. First, he actually said, okay. We're gonna stop collecting on IEPA tariffs. And yesterday, 02/23 was the last day in which CBP authorized it. If you look at the HTS tables, you can see there's an expiration date on all of those 122 IEPA codes saying they all ended on 01/23 or, I'm sorry, on 02/23. That includes many things. Ipa fentanyl, reciprocal, the Brazilian 40%, the Russian oil, the Cuba Ipa that never was implemented, the Iranian Ipa that was never implemented. All of those are stopped collection. So that one is is now currently in effect as of today. The second executive order reaffirmed that de minimis was still in fact banned. There is still a restriction placed on it here, but there has been a change to postal clearances. As you may know, as you if you were a de minimis importer, if you took part in section three twenty one type 86 entries, you know that you could file things under de minimis. You could get those clearances. Well, those are still banned, but postal entries were carved out. Now they were carved out with fees between 80 and $200 or certain tiered rates depending on the country of origin. Those fees are not just a flat 10%, which is an interesting an interesting thing here. If you're if you're a de minimis importer and you hadn't maybe moved all of your supply chain or infrastructure to The US or near short or whatever, postal at 10% isn't the highest rate we've seen in a while. Maybe there's there's some consideration there. The third one is that he announced section one twenty two duties. This has been something that we've been talking about over a year now. If you go back to some of our webinars, it's like a possible action that he could take, and this is effective starting today at midnight at 10%. I know he said on Truth Social that, you know, he now has 10% in the press conference on Friday. The next day on Truth Social, he said, actually, I'm gonna make it 15%. It was never officially implemented at 15%. I am expecting personally maybe a quick follow or so. So perhaps after we get through this in transit exclusion period, we may see 15 in as little as a week, maybe even less. But currently, as it stands today, it is a 10% global tariff, that has been announced. Okay. So that's what happened. What happens next? Well, we'll take a look at section one twenty two tariffs. I'm gonna really focus on this one here, and a few other options before we get into the question of refunds, for IEPA. But we're gonna talk about 01/22. The top line effect is the 10% rate, but I want to really highlight the stacking logic is the same as AEPA. A lot of those same exclusions say you don't have to pay $1.22 if you pay $2.32. That mirrors very, very closely what was true under the AEPA provisions. What was also true is, you know, if you're if you import under USMCA, you don't have to pay this. Well, that USMCA exemption is still there. So a lot of that same logic about when does IEPA apply versus when does two thirty two apply, that's been virtually preserved the same. Just swapped out one twenty two for IEPA, but the same logic is still following. Second, this is only allowed to be authorized for a hundred and fifty days. This statute is for balance of payments, and only says, okay. This is supposed to be a temporary stopgap measure. The idea being congress will then reconvene and come to some conclusion about what to do about some balance of payments crisis. So at the end of these one hundred and fifty days, which would be July 24, would be the first day it becomes inactive, these tariffs will expire. This 10% tariff will expire unless specifically reauthorized by the congress. And the third headline number to know is 122, and this is shout out to any brokers on the call. Shout out to any other people who have to audit your entries. We're seeing a 122 IUPA HTS codes being replaced by just 11 section one twenty two HTS codes. Huge, huge complexity remover, but don't celebrate for too long. I strongly suspect as trade deals get resurrected through various different trade measures, we will start to see the proliferation of more, 99 codes, as, as they look to recreate some of these trade deals without AIIPA but using other sort of, tariff law statutes. So section one twenty two, is a balance of payment kind of topic. Right? The idea behind it saying that, okay. If you have some sort of major currency crisis, there's currency outflows that are really just devaluing the dollar. We can place some tariffs in place to sort of slow that process, stop some of the bleeding. This had some origins in earlier legislation. It was then revised in 1974 as part of the trade act, and that's where it's section one twenty two of the trade 1974. It came back into use, as an option. Never had been used, but the idea behind it was concern over would there be some sort of panic, when the dollar floated, leaving the gold standard, or we're gonna have to see other forms of currency I had to get paid. This would be able to slow some of those outflows. That's where this sort of came from. So it's never really been used in this way. Now has it been implemented? Like I was saying, a lot of the things are the same as it was under IEPA. Stacking rules still apply. There's still USMCA exemption. There's still annex two, naturally unavailable resources. Eetrogs and essential oils used for practices are still exempted. Donations, informational exclusions, civil aircraft, all of those exclusions that were there under IEPA are still existing under section one twenty two. There is, however, a little bit of a weird quirk, an in transit exception that does go through February 28. So if you may remember back to, you know, April or maybe February if you were affected by the fentanyl tariffs, there is this in transit exclusion. Meaning, if goods were in transit to The United States and they then they arrive between the twenty fourth and the twenty eighth, you don't have to pay section one twenty two. I was a little bit surprised, but there is, in fact, an exclusion for in transit on 01/22 as well. So certain products that had left in January via ocean is how CVP is gonna interpret it. We can we'll chew the fat on that later. But if you had an ocean vessel that was on its way in January and it arrives between the twenty fourth and twenty eighth, you are exempted from section one twenty two using an in transit exclusion. It's very short lived, just a little bit of a time here. After that, this goes away. Air shipments that are leaving today, you're too late. That won't be affected. And moreover, CBP's current stance is that this only applies to the ocean method of transportation, mode of transportation, not rail, not truck, not air, not animal borne, sadly, just ocean for the in transit exclusion. But it does exist for a few days here. Some of the side effects of 01/22 is that it's actually gonna result in a few some higher rates for some of the trade deal countries in the short term. Because if you've been importing from the EU, if you've been importing from Japan, Korea, Great Britain, you'll know that they had certain trade deals that had lower rates. Right? You saw, potentially, like, this 15% capped rate for the EU, meaning, you know, if you paid if you had a very expensive, you know, polyester sweater, for instance, and you have your 32% rate, your IEPA rate for the EU was zero on that polyester sweater, but because it was setting sort of a 15% minimum. But the 01/22 logic doesn't really have that same capped rate as some of these trade deal countries. Meaning, if you were to have imported that polyester sweater, from the EU two weeks ago, you would have paid the normal 32%. But if you're gonna import that polyester sweater today, you would pay 32% plus this additional 10% from section one twenty two, a total of 42%. So this until this gets resolved in some fashion, those key trade deal partners that had these capped rates, Switzerland is another one, Liechtenstein. Right? They are not gonna see maybe the benefits that they thought of. Emmanuel Macron already kinda made some comments in the press about this saying, well, this isn't what we agreed to. We're seeing a few a few moments of that. We'll see how they navigate this change. I think the other difficulty of this is that there's just gonna be more difficulty in deal making. Section one twenty two is a little bit blunt. It's deliberately short lived. And in order for something else to replace it, there has to be investigation. There has to be other steps taking place here. This makes it harder for the administration to try to get more trade deals done trying to use section one twenty two, whereas AIPA was very flexible. It was very strong. You could do a lot of things with it. You could sit right across the table from somebody else and negotiate and back it up. But that very flexible, very powerful tool under IEPA for tariffs has gone away. And so one twenty two is just a little bit more limited in both in how much it can be, how much that rate can be, and also how quickly it can be in place and for how long can it be in place. And it also has some real questions about legality. Right? This was for balance of payments, and the currency outflows in The United States aren't what they were. These aren't major problems here. There's still plenty of capital inflows coming in. Many countries, many institutions all around the world are still buying US bonds, US debt. Right? These are things that bring currency and and money into the country, so that keeps the dollar strong. Keeping that dollar strong is not really what this was about. So this is a very novel application of 01/22. The biggest question kind of fundamentally is is a balance of payments the same as a balance of trade? What happens to countries with trade surpluses or maybe actually with capital, current account surpluses or or deficits? What do they get different treatment? There's definitely gonna be some more handwritten here, but it seems like they maybe know this, but they don't think there's gonna be any legal remedy for these hundred and fifty days. So they can use different tariff actions to get more durable tariff actions in place to keep these duties intact. So I think even the administration knows this is very much a stop gap measure. Some of the comments made, at a Washington trade conference the other day by administration officials do suggest or by former former trade officials do suggest that they are expecting to see more investigations and to try to move them along quickly before 01/22 can expire or before a court could potentially even strike down 01/22 in the same way they struck down, I. E. Put this on Friday. So there was a couple of questions that weren't immediately clear from this guidance. I think the first three that I wanna talk about are what happens to FTZ goods, drawback, and other sorts of trade deals. So FTZ goods, IEPA required most goods to be in privileged status unless otherwise exempted. So if you are an FTZ importer, we're just gonna dive into your world here. Everybody else, take care. Take a quick drink of water. This is an interesting one because withdrawal now should be without the AEPA duties because the AEPA duties themselves were invalidated. But it's a very interesting question. How is customs going to be able to track? Will they even allow some of the technical changes for privileged status merchandise to actually have a change in HTS code at the time of withdrawal? We'll have to see. I was hoping to see if we had a weekly entry filed before this webinar. I don't don't have that yet. Should know. Well, next week. But we are gonna be watching for this very closely to see will customs allow for what kind of record keeping changes are we gonna see, what kind of inventory tracking are we gonna see when, the privilege status, on these previous IEPA codes is no longer needed. Next one, drawback. Drawback, I would recommend getting very close with your drawback broker. You already should be, but if you haven't been already, you might need to. If you file drawback on IEE reciprocal, which you were allowed to. Right? You weren't you couldn't do drawback on IEE per fentanyl, but you are allowed to claim drawback on AIPA reciprocal. There's gonna be some manual reviews that happen both by customs and your drawback brokers. If you know from maybe how GSP was reauthorized or if you had three zero one exclusions, there can be a little bit of a chance of double dipping here. Or there could be or at least there may be a risk of it. Now CDP has upgraded their systems in 2025 to try to catch some of these. They were looking for recon filings where maybe people are trying to claim drawback for a higher amount than they were allowed to. But this is something to to take a look at. And I think there's a business question here about, do I hold off on drawback filing for a protest process with the CIT to try to get AEPA refunds? That's a fair question. That interest payment that comes back on AEPA refunds that doesn't come back on drawback is probably around 6%. That's a material difference. It's definitely worth considering. Do I want to maybe slow down my drawback filings just for a minute here to try to get a sense of how long it's gonna take to get my money back via an IEPA refund rather than trying to claim this all back on drawback? Of course, with drawback, you still wanna get your MFN duties back, which is fine. They're normal duty rates. You can still get back by a drawback. But when it comes to trying to get money back, that's a fair question. And what will happen to the trade deals over the last year? The administration's gonna try to recreate this probably with at least two different measures and maybe even a third one, three thirty eight. But the question sort of becomes, how will other countries react to this kind of uncertainty? Do they trust The US to even be able to make a deal, let alone keep it? Are they looking at the legal analysis of these different trade, trade statutes and wonder themselves, is this gonna be allowed? It's gonna be a lot more difficult for them to sort of have those agreements without the really that strong flexible tool, that was IEPA. It's gonna be much more difficult for them to to enforce this and to keep this, intact. So these alternative tools, we have three thirty eight, we have three zero one, and we have two thirty two. None of them really fit that perfectly. AIPA, if it was the expansionist view that the president wanted, would've was great. It allowed him to have maximum flexibility, maximum choices, maximum options. Section three thirty eight is less perfect. Three zero one is less perfect. Two thirty two is less perfect, but they are all very viable alternatives. Three thirty eight is for tariffs of up to 50% against countries that discriminate against products of The United States. There's at least one brief that was filed that said, hey. This actually fits like a glove. The president should be using three thirty eight. But the difficulty here is how do you show discrimination against US products? This is discrimination that's unique to US products that that other country doesn't discriminate against somebody else. That could get a little bit tricky. One possible angle I look at is maybe agricultural restrictions. Something like the common agricultural policy in the EU is maybe what a template this could look for to try to recreate EU tariffs. Showing that discrimination has never been tested in court, this is definitely another angle where there'll be more legal challenges to come. Section two thirty two does already exist. There's over fifteen two thirty two investigations either in action or pending, And these are tariffs that are placed in the name of national defense, and they're very sector specific. The steel tariffs, the aluminum tariffs, copper, polysilicon, right, UAVs that's open right now, PPE that's open right now. Many are in place, and there's not many places to challenge it. But the problem with this is doing large swaths gets more and more difficult. It was already a bit of a challenge to say that, you know, certain pieces of wooden furniture are necessary for national defense. We have to be able to make furniture in The United States in the event that a war breaks out. Steel, I think, is a is a clearer case. Semiconductors is maybe a little bit of a clearer case. UAVs, drones, that makes a little bit of a clearer case. It's a little bit harder if you wanna try to place a tariff on silk blouses. It gets a little bit harder to make a national security case for volleyballs. It's a little bit harder to kinda make a national security case for pens. Maybe you can. Maybe you can get that expansionist. And so far, two thirty two has not yet been challenged on the merits in any sort of successful fashion that I'm aware of. But I think we might see more of that if he keeps trying to use two thirty two in ways that it gets really difficult for him to try to apply tariffs onto The US blender industry perhaps or other sort of protectionist matters to to, you know, in name of national defense. So two thirty two might just get stretched a little bit too far. Three zero one is something that did also come up in that trade talk from the other day. This is for countries that have unfair trade practices that unfairly burdens US commerce. These are the tariffs that have been on China since 2018. And so far, they've resisted some legal challenges. You know, the first list weren't even challenged. List three and four a for, you know, China tariff folk, remember three zero one. Those kind of are starting to dwindle here at the court. Even the APA challenges don't seem to be destined for success. I think it's the HTMX case. So seeing that, they seem to be a little a little bit more durable. They've been in place now for almost eight years. So this seems okay as a possible option. It seems like maybe a possible place where they're gonna go to. There is still an investigation needed. Right? It'll take at least a minimum thirty day comment period, probably more likely closer to ninety days, three, four months, five months maybe. But I think that timing works out pretty well with the hundred and fifty day limit on section one twenty two. However, you may recall that a lot of these trade deals that were gotten in place already for three zero one or, I'm sorry, for IEPA, these were in order to change the behavior on the part of the other country. They were going to open up. They were gonna stop discriminating. They were gonna stop some sort of unfair trade practice against The US. Well, if this country has already agreed to stop some sort of unfair trade practices, what is now the basis for a three zero one investigation? Right? If AIPA was successful in changing the behavior of this country saying, okay. Well, we're not gonna have no sort of discrimination against US products anymore. We're not gonna have this weird trade barrier anymore. We agreed to take it down and agreed for a lower US AIPA rate. Well, now that those have been resolved, well, now what do we do? What happens now? Because if that's already been resolved, then what's the basis for a three zero one claim? There's a couple maybe more options here. Forced labor is one perhaps, but it gets, again, a little bit more difficult to try to make a stronger three zero one case, therefore, more susceptible to legal challenges. Okay. Potential refunds. Jen, this is the number one hit. This is the one that people came to hear. Would you like to talk through a little bit about how do people get their money back? What is what's gonna have to happen next?
Jenn Park
Alright. Thanks, Marcus. I know this was the much anticipated section of the presentation. I just wanna make it clear that, you know, there isn't much guidance, you know, yet on the refunds so far, but we will wanna kinda walk through in this section if, you know, refunds are gonna be issued, how, and when, just based on what we know so far. So we wanted to share some insight here. I think this just focuses on will the refunds be issued. The Supreme Court decision, as Marcus mentioned above, does not have any sort of indication on refunds, on how those will be issued, or just even discusses refunds in general. But we do think that it is likely that the refunds will be issued based on, you know, the fact that these tariffs have already been deemed illegal by the supreme court. So it's only rightfully so that these will be refunded back to the importers. And the government has been on record multiple times indicating that they will not oppose decision to issue refunds. Right? In the VOS Selections case, they quote that they will not oppose the reliquidation of these entries, also that they will not oppose the refunds that will be issued to the plaintiffs. And in December 2025, there was also an AGS Automotive Solutions case where the government also said that they will not oppose the court's authority to reliquidate the entries, which will result in refunds when there is a final and unappealable decision from the Supreme Court. Right? So we do think that the government hopefully will play a call and not oppose any sort of indication of refunds for the plaintiffs, but that's still to be decided. When we go to the next slide, I wanted to kind of walk through when and how, because I think that's very important, but also something all importers are waiting to find out. Right? And so we just wanted to walk you through kind of what we will see in terms of next steps since the Supreme Court decision is out. What will happen is that the case will now be remanded back down to the CAFC and then once again remanded back down to the CIT. The Supreme Court has made it very clear that, you know, the IEPA is within the jurisdiction of its Court of International Trade. So what we're going to be waiting on is for the Court of International Trade to make a decision on the BOS selections regarding the refunds. So it's gonna take some time. It's not gonna be an immediate decision. I do think it's gonna take months to find out how the refunds will be issued back to the importers. For now, in terms of how, what the mechanism will be, we're assuming that the Court of International Trade will provide guidance or direct CBP to formulate some guidance on how the refunds will be collected. At this time, it's very unclear whether, you know, unliquidated entries will need to be filed by will be will be through PSCs, post summary corrections, and whether liquidated entries need to be requested through protests or maybe a court case needs to be filed at the Court of National Trade under 1581i. So that's something that's still we're trying to get clarity on. We will walk through in the next few slides on why they pause to do the repair, but we just wanted to kind of provide some insight as to what the process will look like in terms of hearing more on what the refund process will be, but that there is uncertainty as to what the mechanism will be in actually obtaining these refunds for importers. So just summary, we are gonna wait for the CIT to issue some sort of directive, CBP to publish some sort of guidance as to what that mechanism will be.
