IEEPA Doesn't Confer Tariff-Setting Authority, DC Court Rules

The D.C. court's decision only declared the IEEPA tariffs issued under the executvie orders -- and not the executive orders themselves -- to be unlawful, and only enjoined their collection for the plaintiffs, two small importers.

Judge Rudolph Contreras stayed the preliminary injunction for 14 days to give the government the chance to appeal, which the government did just minutes after the ruling came down, taking the case to the U.S. Court of Appeals for the D.C. Circuit. In a separate order, Contreras rejected the government's attempt to have the two importers post bonds in the amount of tariffs they would pay but for the injunction, setting a nominal bond of $100. The judge said the government's proposed remedy "would effectively defeat the purpose of the preliminary relief."

Meanwhile, the U.S. asked both CIT and the U.S. Court of Appeals for the Federal Circuit for an emergency stay of the CIT ruling.

Central to the IEEPA tariff case before the D.C. court was whether IEEPA allows for tariffs at all. If it does not, as the importers argued and the court eventually held, the trade court is seemingly stripped of its exclusive jurisdiction to hear the case, since Section 1581(i) only gives CIT exclusive jurisdiction to hear cases arising out of U.S. laws that provide for tariffs.

Contreras denied the government's motion to transfer the case to CIT and found the importers established a likelihood of success on the merits, since IEEPA doesn't provide for tariffs.

The president derived his authority to impose tariffs under IEEPA from the statute's text permitting the president to "regulate" the "importation" of property in which a foreign party has an interest. Contreras ruled that this language doesn't include the power to impose tariffs, drawing a clear line between the power to "regulate" and the power to tax.

The judge started his analysis by looking to the text of the Constitution itself, which, in one clause, gives Congress the power to impose duties, and in another, gives it the power to "regulate Commerce with foreign Nations." The judge said the "Constitution treats the power to regulate and the power to impose tariffs separately because they are not substitutes," adding that the terms "tariff" and "regulate" also "take different plain meanings." The power to regulate is to "establish rules governing conduct," while the power to tariff is to "raise revenue through taxes on imports," the court said.

If Congress wanted to give the president the power to tax "ordinary commerce from any country at any rate for virtually any reason, it would have had to say so," Contreras said.

Contreras went on to adopt many of the arguments raised by the importers and many of the amici in the case, including that the term "regulate" must be understood in the context of the statute. IEEPA lets the president engage in a host of other activities, none of which relate to the "power to raise revenue," the court noted.

The D.C. court also faulted IEEPA for not containing any limits on "any potential tariff-setting power." Contreras went through a host of trade statutes to show that every time Congress has delegated tariff-setting authority, "it established express procedural, substantive, and temporal limits on that authority." The judge walked through the delegation of power in sections 122, 338 and 301 to illustrate this point. The judge said these "comprehensive statutory limitations would be eviscerated" if the president could use a "virtually unrestricted tariffing power under IEEPA."

The court added that historical practice and general "administrative practice" bolsters this view, since no president has ever used IEEPA or its predecessor, the Trading With the Enemy Act, to impose tariffs, nor has an agency used the power to regulate as the power to tax.

Contreras even embraced an argument made by a group of law professors, filing as amici, that said IEEPA can't touch tariffs, since the law only touches "any property in which any foreign country or a national thereof has any interest." Since tariffs are usually imposed after U.S. importers have "taken legal possession of imported goods," property "wholly owned by U.S. nationals falls outside of IEEPA's scope."

The D.C. court also noted that the government's interpretation of IEEPA would render it unconstitutional. If "regulate" means to tax, then this meaning must be applied to every activity the term "regulate" modifies, including exportation, which is explicitly unconstitutional, the judge noted.

While the U.S. heavily relied on the holding in Yoshida International v. U.S., which upheld President Richard Nixon's 10% duty surcharge imposed under TWEA, a law which has identical operable language to IEEPA, to address a balance-of-payments crisis, Contreras distinguished this present case from Yoshida. The judge leaned on the limitations laid out by the Yoshida court on tariff action taken under TWEA and noted the passage of Section 122, a provision letting the president impose limited tariffs to address a balance-of-payments issue, since Nixon's tariff move. CIT similarly heavily relied on the existence of Section 122 as evidence that Congress cabined the power to use tariffs to address trade deficits in Section 122 (see 2505280068).

Contreras then went through the remaining factors for establishing a preliminary injunction, which look to whether a party will suffer irreparable harm without an injunction and if the balance of equities and public interest weigh in favor of an injunction. The court said the two importers, Learning Resources and Hand2Mind, would "sustain significant and unrecoverable losses" without an injunction, while the government would merely not be allowed to collect tariffs on two small companies.

The two importers would suffer devastating economic losses should the tariffs continue unimpeded, including by having to massively scale back operations, close facilities, lay off employees and "possibly sell their business," the judge noted. While the U.S. said these harms are speculative, Contreras rhetorically asked how the importers could "possibly describe the exact costs they will face from paying tariffs that the President imposes, pauses, adjusts, and reimposes at will?”

Regarding the public interest and balance of equities, the U.S. argued that U.S. foreign policy would be significantly hamstrung by an injunction. On this point, Contreras pointed to the CIT's nationwide injunction against all IEEPA tariff action taken thus far, noting that the consequences described by the government flow from the trade court's order, not the D.C. court's. In the meantime, a preliminary injunction sparing the two importers "will have virtually no effect on the government" but will protect the companies, the decision said.