Lack of Section 232 Tariff Drawback May Be Susceptible to Legal Challenge, Neville Peterson Says

It's not clear that the president's authorities under Section 232 allow for the elimination of drawback, law firm Neville Peterson said in a blog post. President Donald Trump said in April that drawback would not be allowed for entries subject to the Section 232 tariffs (see 1804300064). "While this is a close question, the President’s power under Section 232 is limited to 'adjust[ing] imports,'” the law firm said. "It seems unlikely that the President can take action respecting exports, the activity which generally triggers claims for duty drawback."

The longer that the steel and aluminum tariffs remain, "the more likely that this controversy will be landing in the courts in the foreseeable future," Neville Peterson said. A 1976 Supreme Court case ruled that the president has wide leeway in "adjusting imports" in response to national security concerns under Section 232, the firm said in the blog post. The court looked at the "legislative history of national security measures to control imports, and concluded that both qualitative and quantitative measures were embraced to 'adjust imports' under Section 232," it said. It's not clear that "restricting drawback falls within the scope of the term 'adjust imports.'"

There seem to be "at least three" cases to be made that the drawback prohibitions aren't permissible. "A restriction on drawback does nothing to 'adjust imports'" and is instead "focused entirely on exported or destroyed goods that are not imported for consumption." Once import adjustments have been applied, the president "has no delegated authority to interfere with other Congressional measures, such as the drawback statute," it said. Another potential grounds for impermissibility involves the constitutionality of taxes on exports. "The argument would be that the denial of drawback operates as a 'tax' on exports which would not otherwise exist," the firm said. "If the drawback denial could be so characterized, our judgment is that this is a potentially strong argument on which to challenge the drawback denial in the proclamation."

Another potential issue is "whether delegated Presidential authority has been exercised in accordance with statutory procedural requirements," the blog post continued. "We note that Section 232 requires that remedial action take effect no later than 15 days after the President determines to take the action in question. In this case, the President’s determination was made on March 8, and nothing was said in respect of drawback" well more than 15 days later. Also, the retroactive application of the drawback restrictions (see 1805020070) "is a construct of CBP, not the President," so the "drawback restriction would appear to be infirm on procedural grounds," the firm said.