Lawyers Assess Options for Non-Importers Seeking IEEPA Tariff Refunds
Non-importer companies looking to reap some of the tariff refunds should the Supreme Court eliminate tariffs imposed under the International Emergency Economic Powers Act have limited options for asserting a legal right to the refund payments, various lawyers told us.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
Chris Duncan, partner at Squire Patton, said the basic options for non-importers to recoup tariff payments include reconfiguring or enforcing contracts with express provisions on the sharing of tariff refund payments or lawsuits against the importer of record for unjust enrichment.
The prospect of IEEPA tariff refunds presents a host of potential issues regarding downstream contracts between importers and corporate purchasers of imported goods, said Koichiro Sato, attorney at Masudo Funai, in a blog post. Sato said that many supply contracts executed since the imposition of IEEPA tariffs included "tariff pass-through provisions," which allow price increases to reflect tariffs paid by the importer.
Should the tariffs be refunded, under U.S. customs law, only the importer of record is entitled to the funds, Evelyn Suarez, principal at The Suarez Firm, told us.
However, Sato said "commercial contracts may allocate tariff-related financial responsibilities differently." He added that if an importer "passed the full cost to downstream customers through contractual price adjustments or surcharges, receiving a government refund could result in a windfall."
Suarez said any contract dispute regarding tariff payments would ultimately boil down to how specific the contract is in allocating tariff costs and whether those costs were shared with the downstream customers.
Sato echoed this observation, writing that the contract disputes will "depend heavily on contract language." Sophisticated supply agreements may have provisions "specifying how tariff refunds should be allocated if duties are later invalidated," though most contracts "lack such specificity."
"Where contracts are silent, parties must rely on general principles of contract interpretation, course of dealing, and good faith obligations," Sato said. The key issues to resolve include "whether the original tariff pass-through represented a temporary compliance adjustment or a permanent repricing; whether the contract contained price adjustment clauses triggered by regulatory changes; and whether the importer retained any obligation to the customer once prices were adjusted to pursue potential refunds."
Suarez said what's most likely is downstream customers will cite the tariff refunds as a basis for seeking some form of discount or rebate on future orders with suppliers. She added that large buyers, such as big box retailers like Walmart, have additional leverage to seek such discounts from their suppliers.
Absent any contract language on tariff payments, downstream purchasers could turn to the doctrine of unjust enrichment, Sato said.
However, Duncan said "unjust enrichment seems like a big stretch," since prices are "negotiated and there are always dynamic risk/reward factors that determine whether it ends up being a good price or not."
Suarez added that importers often spread the tariff costs "throughout the supply chain," ultimately making it difficult for companies looking to get a cut of the tariff refunds to establish that certain price increases were due to the tariffs. She noted that companies often find ways to hide additional tariff costs, including by stockpiling imports prior to massive tariff hikes or finding alternate supply sources.