In addition to the likely chaotic refund process to follow last week's bombshell U.S. Supreme Court ruling striking down the Trump administration's broad tariff regime, the decision could also result in a wide range of private commercial disputes, and possibly even investment treaty claims against the U.S.
The 6-3 ruling on Friday, authored by Chief U.S. Supreme Court Justice John Roberts, concluded that the tariffs imposed by President Donald Trump under the International Emergency Economic Powers Act are illegal, saying Congress would have explicitly allowed the imposition of tariffs under the Act if that was its intent.
Much has been written in recent days regarding the refund process, which importers who paid the now-illegal tariffs will have to initiate, if they haven't already. But experts told Law360 that those are only the beginning of the torrent of cases that will likely arise from the decision.
An even messier series of disputes could arise between contractual partners regarding how those refunds — assuming they are ultimately provided — will be split among them, as well as which party will be responsible for paying the legal costs of securing those refunds.
"I suspect that there are a lot of agreements out there that allocated the risk, and perhaps the cost of the tariffs based on whichever side had the most bargaining power," said Womble Bond Dickinson partner Alexandre de Gramont. "So you could imagine a situation in which an importer told the exporter that they were going to have to somehow share in the cost of the tariffs and now, depending on how the liquidation process works ... there may be disputes as to who gets back what amounts of tariffs."
Covington & Burling LLP special counsel Minwoo Kim said that "assuming the refund is made, some of the downstream distributors and retailers who did not pay tariffs directly might pursue claims against suppliers or logistics partners for reallocation of overcharges tied to the now-invalid tariffs."
Many of the refunds will likely depend on the liquidation process, through which U.S. Customs and Border Protection finalizes a tariff charge following an initial determination upon importation. The process usually takes up to 314 days, and the result can be challenged within 180 days.
Robert Shapiro, who chairs the international trade practice at Thompson Coburn LLP, told Law360 that beyond those examples, an entity looking to buy or sell a company might want to factor potential tariff refunds into its negotiations. A company might also pursue refunds if its customers could potentially file litigation against it to recover illegally charged tariffs, he said.
"If you're going to owe money to your customer based on those tariffs going away, then you may not have [many options] but to make sure that you put yourself in a position to recover from CBP or from the government," he said.
Separate from the refund issue, the Supreme Court's decision could affect commercial disputes that have already been ongoing as a result of the tariffs, according to Barry Appleton of Appleton & Associates International Lawyers LP.
In some instances, parties may have already sought permission from arbitrators to renege on their contractual obligations due to force majeure, which can arise due to uncontrollable events.
"Hardship has already created a large number of arbitrations ... so this decision is going to impact on that, because the court said that the emperor has no clothes," he said. "In other words, one side's going to say, 'It's not our fault because of this impediment of governmental action.' Now, all of a sudden, the court has actually said, 'You never had the authority to do it.' That's the difficult issue here."
Beyond the purely commercial disputes, Appleton told Law360, there is the potential for investment treaty claims brought against the U.S. by foreign companies affected by the tariffs.
Investment treaties "all have provisions that deal with fair and equitable treatment, protection against discriminatory and arbitrary behavior — and this looks both discriminatory and arbitrary — and so there's tremendous economic dislocation and harm that has arisen," Appleton said.
Although Canadian investors are not likely to pursue investor-state claims because that remedy was removed for them in the U.S.-Mexico-Canada Agreement, Appleton said there are investors from other countries that could pursue claims. He gave an example of a company forced to close its factory in Vietnam and to open an assembly facility in the U.S.
"That is exactly the type of behavior that's generally prohibited under treaty," he said. "Such a strong decision of the Supreme Court, saying that the president didn't have this authority — that he exceeded his bona fide authority — would significantly enhance the prospects that people would bring a case."
K&L Gates LLP noted the possibility of investor-state claims against the U.S. in an alert published by the firm on Monday, writing that the "IEEPA ruling does not automatically create a wave of investor state claims against the United States, but it strengthens certain arguments foreign investors may raise where tariffs were imposed without clear statutory authority, later declared unlawful, and caused measurable investment level harm."
So too might countries that negotiated trade deals with the U.S. based on the threat of tariffs pursue some sort of remedy after Friday's ruling, according to Covington's Kim.
"One area worth watching closely is whether the ruling has any downstream implications for trade agreements or ongoing negotiations that were structured around IEEPA-based tariffs that have now been invalidated," he told Law360.
Feb 24
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