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C
Welcome to the Votes and Verdicts podcast hosted by Bloomberg Intelligence, the investment research arm of Bloomberg lp. In this podcast in this podcast series, we talk about the intersection of business policy and law. My name is Holly Frome. I'm an analyst with Bloomberg Intelligence covering consumer and industrials litigation. Today's podcast will focus on the area of tariffs. I'm delighted to be joined today by Joyce Aditutu. Ms. Adetutu is a partner at Vincent and Elkins in Houston. She's focused on cross border trade, including import laws, tariffs, trade sanctions and export controls. She has counsel clients seeking help with customs questions, including assisting with questions related to product classification under the Harmonized Tariff Schedule and questions related to imports involving the Customs and Border Protection Agency. She's been on this podcast several times and we're grateful to have her here again. Thank you so much Joyce for joining us again.
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D
So glad to be here, Holly. Thank you for having me.
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C
So Joyce, can you describe your background and what types of issues you've helped your clients navigate?
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D
Absolutely. So I am a partner at Benson and Elkins. I focus my practice on sanctions, export controls and customs, particularly in the tariff space. I mean we cover pretty much everything in the important tariff sector, I guess. So we do all things from classifying products for the correct HTS code, wondering if, for importers that are wondering if they can get a tariff, we actually go through the process of determining whether they have a tariff liability. We do everything from FTZ to tariff refunds. Really a lot in the customs space.
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C
Interesting. So as many of our listeners know, last year President Trump imposed so called reciprocal tariffs on a number of nations to address trade deficits and tariffs on China, Canada and Mexico to address the fentanyl crisis at the border. He did this using a statute called the International Emergency Economic Powers act, or iepa, which allows the President to regulate imports to address an unusual and extraordinary threat to the national security, foreign policy or economy of the United. The Supreme Court in February found those tariffs unlawful and the lower court, the International Trade Court, ordered that all IPA tariffs that have been paid be refunded. So as IIPA refunds, I understand that they began May 11. Can you tell us what this process looks like for a company seeking refunds and what is the status of refunds?
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D
So right now if a company is looking to recover a refund for IPA tariffs that were paid, there's an entire process that Customs and Border Protection has designed called the CAPE process, where an importer can file what's called a declaration. And that basically includes all of their IEPA tariffs that were paid on a particular entry and they put it in a customs designed form and then submit it through this CAPE portal. Right now we're in phase one of the CAPE portal. So there's only certain tariff entries that qualify for phase one. Those would be tariff entries that have liquidated but not that are past 100 or that are past 80 days, past liquidation. Other tariffs that are either being protested or have a more complicated tariff structure like you know, including anti dumping or countervailing duties. Those can't be submitted in phase one at this point. But once an importer has submitted their declaration, the CAFE portal goes through the process of determining whether the declaration is actually valid and then we'll process those entries to determine whether an IPA refund is appropriate. So it will basically liquidate or reliquidate any entries that were subject to an IPA tariff and remove the IPA tariff and then Customs and Border Protection reviews what the CADE portal has process and will issue a refund once the, once the declaration has been approved and gone through the CAEP portal. It's quite a process right now. And like I said, we're in phase one, so presumably there will be a phase two and potentially a phase three where those more complicated entries and some of the later entries will be able to be submitted.
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C
So when you say that the CAEP process portal will validate the declarations, is that an automated. Is that an automated process, or are there actually people who are doing that?
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D
So according to Customs, the CAKE portal does the sort of initial review and validates the declaration. So once it's submitted, the CATE portal itself will reliquidate the entries and take out those IPA tariffs. So that now when Customs does the final liquidation, there are no IPA tariffs included on the entry, and. And then the refund is determined. There is a portion of the process where Customs has the ability to review, and that's the part of the process that may take a little bit longer for Customs to basically confirm that what happened within the CAEP portal was correct.
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C
Got it. So you mentioned earlier in a conversation that we were having that some industry folks are exploring the idea of credits rather than refunds. Can you explain what this means, why companies are doing this, and whether you think it's likely to happen?
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D
So this was a really interesting concept that some importers had raised to me, and I think were trying to push externally that basically instead of a refund, they wanted a credit on future entries. So for all of those IPA tariffs that were paid for, which they were entitled to a refund, they wanted to basically say, if we import things in the future that were subject to a duty, we just want you to credit it against what you owed us on the refund for IPA tariffs. So no actual funds were exchanged. This really was a cool idea for those who were subject to, for example, the steel and aluminum tariffs, because they really didn't necessarily need the cash on hand, but had, you know, potentially high duties for steel and aluminum that they could credit against their potential refund. For others, it's a little bit more complicated because others were subject to really no duties at all before the IPA tariffs. And so there wasn't really anything to credit against. And then some just really needed the cash on hand in order to continue operating. I don't think that the credit process, now that there's actually a procedure for refunds, I don't think that anything related to credits would actually happen. But it was a really interesting concept, and I thought it was a creative idea.
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C
Interesting. So we talked earlier, you talked earlier about how the importers who are seeking refunds have to file declarations. And you mentioned in a conversation an earlier conversation that we were having that a number of these declarations that were submitted to customs were rejected. Can you explain why those declarations were rejected?
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D
Yeah, so there's, like I said before, there's a, there's a customs provided form for the declaration and the declaration has to be submitted in this form with the right fields included in order for it to actually make it into the CAEP portal. So I think a good portion of them were actually rejected because they just didn't meet the requirements of the form. And then the CAEP portal has the ability to kick out entries that don't meet the requirements for this phase one. So if there were entries that were subject to anti dumping or countervailing duties, if there were entries that had liquidated and were past 80 days post liquidation, those entries would have been kicked out by the CAEP portal automatically as well. So I really do think that some of it was just learning this new process and maybe there's some growing pains that we'll have to go through in order to be able to get through this process seamlessly.
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C
So presumably they'll resubmit those declarations at another time and then maybe this the next time or the third time, fourth time they'll be validated.
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D
Correct.
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C
Got it. On April 7th, the International Trade Court, which is presiding over lawsuits seeking refunds, that court ordered the Customs Agency to liquidate entries and reliquidate entries without the IIPA tariffs, whether or not liquidation has been finalized. Can you explain what this means?
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D
So basically the court decided that if an entry had liquidated in the past, what would happen is your entry liquidates and you have 180 days to protest that liquidation. And just for those who don't know, liquidation is basically like a true up process. Did you pay enough upon importing your products at the beginning, or did you pay too much and are you entitled to a refund or do you owe us money? So if you got a liquidation and it said you didn't pay enough, you owe us more, you could protest that decision. You had 180 days to do that. That's still generally the case. If you don't protest though, you lose your ability to challenge your liquidation. The court made an interesting decision in the IPA tariffs case by saying, actually, even if you are 180 days post liquidation, so your liquidation is final, we are still going to allow you to seek your refund or order customs to provide you a refund, even though you may not have protested and may have quote unquote exhausted your administrative remedy and so now Customs is required to, even if no protest was filled, filed, provide a refund to those who were 180 days post liquidation.
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C
Why do you think the lower court did that?
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D
You know, I, I've thought about this and I think ultimately it was sort of a fairness issue because IIPA tariffs were being collected while the case was being challenged. There was a strong possibility that through the, you know, appeals process and the oral argument and issuance of the Supreme Court decision, there were entries that were paid and then went 180 days post liquidation, but there was no order saying that they were entitled to anything as of that time, via tariffs were technically valid. So it's, it's kind of unfair to expect someone to protest an entry on the basis of a decision that hasn't come out yet. So I would imagine the court was trying to be fair and say they really didn't know that these tariffs were invalid until the Supreme Court decision came out. And that really shouldn't be their fault.
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C
Right, that, that makes sense. So they shouldn't, you know, be prejudiced because they didn't file, you know, whatever they needed to because they didn't know that they had even had that option or they had a right. So that makes sense. So, so you, you said that you think the government may appeal this order. Can you explain on what grounds you think the government would do that and, and, and whether you think they would likely succeed?
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D
I think, you know, the, the biggest appeal option I see is the blanket statement that refunds are required even for those who are past their final liquidation date. And the reason for that is that there is a, A, a procedural history here where if you are post liquidation and you haven't protested, you really haven't gone through the administrative process necessary to be able to seek an appeal from a, a court else. So really you shouldn't be entitled to a refund. At least I think that's what the government will argue. Like I said, I mean, I, I think that there are some importers for which that is inherently unfair because there wasn't an order at the time. But one thing I think we still have to remember is that while the CAPE process is ongoing, there are potential importers who haven't been able to file for the CAPE process because they don't fit into phase one and their entries are liquidating and the clock is ticking on that 180 days. And I think the government may want to challenge whether those people who are 180 days post liquidation are subject to receiving a refund. I'M not sure how successful that will be given sort of the, how different this situation is. But I do think it's, it's at least the strongest view for a challenge that I can see.
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C
So are you saying that the order requiring liquidation and reliquidation for any entries finalized or not, that would be appealed with respect to entries that are not that, that, you know, where there's 180 daytime period is now running. In other words, it hasn't expired yet, but is now running?
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D
Yeah, I mean, I think there's definitely a possibility that the government appeals across the board for all of the entries, regardless of whether they finally liquidated or not. In part because the Supreme Court's decision was silent on the issue of refunds. It really just said that the refund or the tariffs themselves were invalid. But I think the court or the government could argue that there was no refund that should have been given. I think it's harder to argue that once you've paid. And as far as I understand, some people have actually received a refund at this point. So that may be a more difficult argument. And that's why I think those ones that are past that 180 day liquidation date are the strongest ones to, to challenge at this point.
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C
Oh, I see. Okay. So they may, they may appeal just on the grounds that this, that, you know, that the tariff ruling by the Supreme Court shouldn't have been retroactive.
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D
Right.
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C
Okay, got it. Okay. And then there's also this, you know, administrative aspect that they haven't exhausted their administrative remedies. Is that right?
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D
Correct.
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C
Okay, got it. The US Trade Rep has opened so called Section 301 investigations on 16 countries over excess capacity and 60 countries over the failure to prohibit imports made using forced labor. Can you explain what section 301 of the Trade act is and what the trade reps investigations are about?
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D
Yeah. So section 301 allows the US Trade Representative to address unfair trade practices that harm US commerce. So typically you would think about this in the sense that they're like violating trade agreements or engaging in some level of discrimination, something like that. Right now the Section 301 investigations that are ongoing are pretty broad. As you mentioned, there's 16 countries that are being investigated in the excess capacity investigation that's really focused on countries that are engaging in unfair practices like subsidies or industrial planning or suppressing domestic consumption in order to have it have an excess capacity to export to the United States, which potentially has an effect on US Domestic manufacturing. That investigation is more limited than the forced labor investigation. That one is investigating actually 60 countries, some of which are close allied countries, related to forced labor practices within their supply chains. And those are, the investigation is actually pretty broad. They're basically arguing that any forced labor within a country's supply chain could negatively impact US Industry. And so both are interestingly broad and cover a much broader range of countries than former 301 investigations.
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C
Interesting. So do you anticipate that the U.S. trade Rep. Will take action as a result of these investigations? And if so, do you have any view as to whether those actions will be similar in magnitude to the tariffs the President imposed under ipa?
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D
I think so. I think that's, that's really the design was to replace the IPA tariffs with Section 301 tariffs, which is why we're seeing such a broad swath of countries. And something like forced labor, for example, is inherently difficult to kind of put your finger on what we're calling forced labor or a difference in forced labor practices. You know, pay in certain countries is going to be vastly different than pay for workers in the United States of America or other countries. So I do think that there is going to be a push for the Section 301 tariffs to be imposed after these investigations. And I do think they're intended to cover quite a bit like the IPA tariffs did.
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C
Do you think that legal challenges will be filed to these 301 terrorists? And if so, what do you think the grounds will be?
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D
I imagine there will be challenges. They're much harder to challenge. I would anticipate the challenges to be really related to the investigations themselves and the basis for the investigations. So like I said, the US Trade Representative can address unfair trade practices, but they have to harm U.S. commerce. So if the investigations don't directly tie the trade practices within a particular country to an exact impact on US Commerce, I think it's going to result in some, some challenges just on the basis of the reasoning for the investigation alone. And then I think if the investigations aren't thorough, if they're sort of limited in nature in terms of how much information we get on each of the 60 countries, for example, I think we'll see some challenges on whether the investigations were actually sufficient to impose the tariffs that they're planning to impose once the 301 investigations are done.
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C
So if the, if the impact is too indirect, do you think that that may be a challenge? Like what would, can you think of an example of impact that's too indirect to. Well, I know it's hard to speculate, but something that would be challenged because it's indirect, an indirect relationship to this forced labor or excess capacity.
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D
So let's say in, in a country they have a much lower working wage, for example. So, you know, we're, we're talking cents on the US Dollar and that is interpreted to be forced labor in that particular country. And if that country is part of a broad group of countries that imports, for example, textiles into the United States, I think it's going to be difficult to tie, you know, low wages in that country to a direct impact on us, on the US textiles industry, where there are 40 other countries that also import the same thing and that have potentially, you know, actual forced labor in terms of like, you know, no pay or something like that. And trying to specifically tie one country's forced labor and supply chain practices to US Commerce where there are others who are similarly situated, I think that's going to be very difficult.
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C
Wow, that's so interesting. So, so like, forced labor, it sounds like, is sort of like a, like a fungible term. Like it could be, you know, it could mean like many, many things. And so if, for example, you know, a bunch of countries are doing the same thing or there's one that's actually paying nothing, then the challenge would be, I guess, that they're, you know, treating these other countries differently. So what this, I guess, would the argument be it's like a pretextual tariff, right?
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D
I think unless all the countries who are similarly situated are treated exactly the same, then I think there's some argument, one that it's, it's not really, we're not really addressing the impact on US Commerce with this particular country. But I think the other issue is that you can't really show that the actions of this particular country are impacting US Commerce where there are a number of them. So I think it's going to be interesting to see how the investigation of all of the countries sort of plays into each other and to see how different countries are treated. Because if we remember with the IPA tariffs, there were certain countries that were particularly targeted and others who engaged in sort of trade negotiations and things like that with the current administration were treated somewhat differently. So it'll be interesting to see how this plays out once the 301 tariffs are actually announced.
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C
Do you anticipate that, you know, deals would be struck again based on these 301 tariffs?
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D
I can imagine that there will be a lot of trade discussions once the investigations are done. And there's a finding by the US Trade Representative that tariffs need to be imposed on particular countries, I can see some trade negotiations for sure.
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C
Yeah, that, that makes sense to me. So with regard to those challenges, and it's so interesting, with regard to those legal challenges or potential legal challenges, how do you view the strength of those challeng? Like, if it's like a causation argument or if it's, you know, an argument that, you know, all these other countries are doing it. So there's, there's, there's, you know, no reason why you should impose it on us. Like, what do you view the strength of those legal challenges?
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D
I think the challenges are hard. Section 301 tariffs have an established process. You know, the US Trade Representative goes through the investigation, period. There's a public comment process. Sometimes there are hearings. And so even if there are questions about the validity of a particular investigation, I think a challenge becomes more difficult because of the process that the US Trade representative goes through. So I'm not sure how successful they will be. 301 challenges have historically been hard, but given how broad these are, I do think there are some grounds for. There may be some grounds for challenges once the investigations come out, and that
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C
may take many years. Is that right?
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D
I think so, yeah. Well, I guess I should clarify. Do you mean the challenge process itself?
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C
Right.
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D
Yes, absolutely. That could take a very long time.
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C
Yeah. Because there's, I think there's a. There were challenges to the Trump administration's first 301 tariffs, and I think those are still playing out in appellate courts now.
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D
Right, Exactly.
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C
Well, thank you so much, Joyce, for being here. I'm sure we'll probably have to have you on again at some point to explain what's going on.
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D
Well, I would love to be here. It's always a pleasure. Thank you so much, Holly.
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C
I think we're going to leave it there. We'll wrap up this episode of Votes and Verdicts. As always, thank you for listening. If you have any questions about anything that we talked about on this episode, please don't hesitate to reach out to us at your convenience. As a reminder, you can find all of our research on the Bloomberg terminal at Bigo. You can find our litigation policy dashboard in the terminal at BI LawsGO. And we want to thank our producer, Aditya Samani, without whom this podcast would never publish. Thank you for listening and have a great day.
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