Section 122 Ruling Scenarios: What Happens After the April 10 Oral Arguments

Informational only — not legal advice.

What happened on April 10

The U.S. Court of International Trade (CIT) in New York held oral arguments on summary judgment motions filed by two groups of plaintiffs challenging the Section 122 surcharge:

• 24 states led by Oregon: State of Oregon, et al. v. Trump, CIT No. 26-01472 (filed March 5, 2026).
• Private importers — Burlap & Barrel (spice importer) and Basic Fun (toy maker): Burlap and Barrel, Inc. v. Trump, CIT No. 26-01606 (filed March 9, 2026).

The three-judge panel: Chief Judge Mark A. Barnett, Judge Claire R. Kelly, and Senior Judge Timothy C. Stanceu. Brett Shumate, Assistant Attorney General for the Civil Division, argued for the government. Brian Marshall argued for the state coalition; Jeffrey Schwab of the Liberty Justice Center argued for the private importers. The hearing ran approximately three hours.

Summary judgment requires plaintiffs to show the statutory violation is so clear that no factual development is needed. The panel's willingness to engage deeply with the merits signals the judges took that threshold seriously.

Why the panel's skepticism matters

All three judges directed difficult questions at the DOJ. The central weaknesses exposed at argument:

DOJ could not quantify the deficit. Judge Stanceu pressed Shumate to state the current balance-of-payments deficit. Shumate could not provide a specific number. The statute requires the deficit to be both "large" and "serious" — both are statutory conditions. Without a figure, the government has difficulty showing those conditions are met.

The "proves too much" problem. Chief Judge Barnett told the DOJ it was "proving too much" — that if the government's reading of "fundamental international payments problems" were correct, the president could invoke Section 122 virtually any time, since some form of payments imbalance always exists. This signals the court's concern that the DOJ's interpretation effectively erases the statute's limiting conditions.

The 1974 legislative context. Judge Stanceu stated it was "quite clear" the Senate Finance Committee's concern in 1974 was a balance-of-payments deficit measured on a "liquidity basis" — a concept tied to the fixed-exchange-rate Bretton Woods system, which collapsed when Nixon ended gold convertibility in 1971 and was formally replaced by floating exchange rates by 1976. The parties dispute whether Section 122's "balance-of-payments deficit" requirement can be satisfied by today's current-account goods trade deficit.

DOJ's factual error. Shumate incorrectly stated that President Nixon's 1971 tariffs responded to trade deficits. The U.S. had a trade surplus in 1971. Nixon's action responded to a run on U.S. gold reserves under Bretton Woods — a structurally different kind of international payments crisis.

DOJ reversed its own prior position. In the IEEPA litigation, DOJ argued that trade deficits and balance-of-payments deficits were "conceptually distinct" and that Section 122 "did not have any obvious application" to trade deficits. In this case, DOJ argued the $1.2 trillion U.S. goods trade deficit satisfies Section 122's standard. The panel was aware of this contradiction.

States' standing is uncertain. Chief Judge Barnett questioned whether the 24-state coalition had a sufficiently specific injury, suggesting that general consumer harm from higher prices may not be enough: "I'm not sure that I see the same degree of clarity with regard to the state plaintiffs other than we buy stuff." The panel appeared more receptive to the private importers (Burlap & Barrel, Basic Fun), whose standing rests on specific shipment cost data.

The five scenarios

Scenario 1: Court upholds Section 122

The court rules for the government — finding either that the statutory conditions are satisfied or that the definitional questions are unreviewable executive determinations. The 10% surcharge continues collecting on all covered imports.

What it means for importers: The surcharge runs until the July 24, 2026 statutory expiration. Importers owe the full 10% on all Section 122 entries in the February 24–July 24, 2026 window (subject to any exemptions under the 9903.03.02–.11 carveout codes). No refunds are available for Section 122 duties paid.

Refund availability: None for Section 122 duties. CAPE Phase 1 proceeds on its IEEPA-only track and is unaffected by this outcome.

CAPE Phase 1 interaction: CAPE was designed for IEEPA refunds and is not affected by the Section 122 litigation outcome in either direction. An upheld Section 122 ruling does not change CAPE's scope or timetable.

Importer actions: Continue accounting for the surcharge through the July 24 cutoff. Keep entry records for any future challenge or renewal. Confirm that 9903.03.01 lines on your 7501s are being accounted for separately from IEEPA Chapter 99 lines — they are different programs with different duty status.

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Scenario 2: Court strikes down Section 122

The court grants summary judgment for plaintiffs — ruling that the statutory conditions for Section 122 are not met (e.g., no qualifying "large and serious" balance-of-payments deficit under the statute's original meaning, or the government's determination lacked the required evidentiary basis). The surcharge is invalidated before July 24.

What it means for importers: Collection of the Section 122 surcharge stops as of the court's order (subject to any stay pending appeal). Importers who paid the 10% surcharge on entries between February 24, 2026 and the ruling date have a legal basis to seek refunds.

Refund availability: Potentially yes — but no Section 122 refund mechanism currently exists. CAPE was built for IEEPA duties only. A court order invalidating Section 122 would likely require:

• A separate CIT remedial order directing CBP to accept refund claims
• A CBP implementation notice establishing the refund process
• A new reliquidation or protest workflow — analogous to what emerged after Learning Resources, Inc. v. Trump for IEEPA duties, but starting from scratch on the administrative infrastructure

The legal framework for accessing refunds (PSC for unliquidated entries; protest within 180 days for liquidated entries) would be the same as for IEEPA refunds — but importers cannot assume CBP will stand up a Section 122 refund workflow automatically.

CAPE Phase 1 interaction: CAPE is IEEPA-specific. Section 122 refunds, if court-ordered, would require a parallel process. CBP has not announced any Section 122 refund tooling.

Importer actions: Preserve entry records now. Confirm which entries carry 9903.03.01 (the default Section 122 surcharge line) and record liquidation status for each. Do not assume CAPE covers Section 122 duties. If the court strikes down Section 122, watch for CBP guidance on any new refund process — and calendar entry-level deadlines based on liquidation date as they become known.

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Scenario 3: Court issues a preliminary injunction

The court does not issue a final merits ruling but grants a preliminary injunction — suspending collection of the Section 122 surcharge while the litigation continues. Plaintiffs sought this relief. To obtain it, they must show (1) likelihood of success on the merits and (2) irreparable harm. Given the panel's pointed questions, the court may be open to this.

What it means for importers: Collection pauses as of the injunction effective date. Goods entered while the injunction is in effect would not be subject to the 10% surcharge. The underlying litigation continues; collection could resume if the injunction is later lifted or reversed on appeal by the Federal Circuit.

Refund availability: An injunction stops future collection — it does not automatically refund duties paid before the injunction date. Pre-injunction Section 122 duties would require a final merits ruling (or settlement) in plaintiffs' favor before a refund right attaches.

CAPE Phase 1 interaction: CAPE is unaffected by a Section 122 injunction. If an injunction is followed by a final merits ruling for plaintiffs, refund infrastructure for Section 122 would still need to be built separately.

Importer actions: Watch for an injunction order carefully. The effective date and scope matter. Some CIT injunctions apply only to named plaintiffs; others can have broader industry-wide applicability. If an injunction issues, confirm with your broker or trade counsel how it affects specific pending and future entries before treating it as a universal duty stop.

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Scenario 4: Court issues a narrow ruling

The court neither fully upholds nor fully invalidates the surcharge. Possible narrow outcomes include:

• Standing-only dismissal: Dismisses state plaintiffs for lack of standing while allowing the private importer claims to proceed — leaving the merits of Section 122's validity unresolved, but narrowing who can continue the challenge.
• Statutory construction ruling: Defines what a qualifying "balance-of-payments deficit" requires (e.g., a Bretton Woods-era liquidity-basis showing, not merely a goods trade deficit), without declaring the current surcharge invalid on its face — effectively establishing what the government must prove for any future invocation of Section 122.
• Remand: Sends the question back for further factual development, rather than resolving it on the existing record.

What it means for importers: A narrow ruling creates procedural uncertainty. Collection of the surcharge is likely to continue through July 24 in most narrow-ruling scenarios. A statutory construction ruling could prompt the government to supplement its record and restart the analytical clock.

Refund availability: A narrow ruling does not, in itself, create a Section 122 refund right. If the court requires a more specific deficit showing that the government then fails to meet in subsequent proceedings, a merits ruling for plaintiffs could eventually follow — but not immediately.

CAPE Phase 1 interaction: No change to CAPE scope or timeline. CAPE processes IEEPA refunds independently of Section 122 procedural developments.

Importer actions: Preserve entry records regardless. A standing dismissal of the state claims is not a merits ruling. Watch for any supplemental briefing ordered by the court and for whether the private importer track (Burlap & Barrel and Basic Fun) continues to a merits ruling.

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Scenario 5: No ruling before July 24, 2026

The Section 122 surcharge expires on its statutory schedule — July 24, 2026 — before the CIT issues a ruling. The court gave no timeline after oral argument. Given the compressed window (roughly three and a half months from oral argument to expiration), and the possibility of Federal Circuit or Supreme Court appellate proceedings extending further, mootness on the injunction question is a real risk.

What it means for importers: Collection ends automatically at the 150-day mark. No court order is needed. Importers who entered goods under the surcharge between February 24 and July 24, 2026 have paid the duty; whether they can recover it depends on how the litigation resolves after expiration.

Refund availability: The injunction request becomes moot once the surcharge expires — there is nothing left to enjoin. However, the underlying merits question and the refund claims for duties already paid survive the expiration. Plaintiffs would likely argue the issue is "capable of repetition yet evading review" to keep the constitutional question live; alternatively, they can continue litigating solely for retroactive monetary relief.

CAPE Phase 1 interaction: CAPE processes IEEPA refunds on its own timeline; expiration of the Section 122 surcharge does not affect that. If the court eventually rules Section 122 was unlawful — even after expiration — a refund mechanism for the February 24–July 24 collection window would still need to be established.

Importer actions: Plan to resume normal duty accounting after July 24 (the 10% surcharge drops out regardless of litigation outcome). Preserve records for the full February 24–July 24 collection window in case litigation later produces a retroactive refund right. Calendar July 24 as a hard operational cutoff for new Section 122 collections.

Cross-cutting: how each scenario interacts with CAPE Phase 1

CAPE is CBP's Consolidated Administration and Processing of Entries — the ACE-based refund workflow CBP is building to process IEEPA duty refunds. As of mid-March 2026, CBP reported the Claim Portal at 70%, Mass Processing at 40%, Review and Liquidation/Reliquidation at 80%, and Refund at 60%.

In all five scenarios above, CAPE Phase 1 is not designed to process Section 122 refunds. Section 122 and IEEPA are different statutes, different Chapter 99 HTS families, and different litigation tracks. The practical implication for importers in any scenario that produces a Section 122 refund right (Scenarios 2, 3, and potentially 5):

• A separate refund mechanism would need to be established — most likely through a new CIT remedial order, followed by CBP implementation guidance and new ACE tooling.
• The timeline for such a mechanism is unpredictable and would start only after a court order directing CBP to act.
• Until that guidance exists, preserving entry records (entry number, liquidation status, 9903.03.01 duty amounts per entry) is the only action importers can take to protect a future refund right.

What to watch for next

Preliminary injunction timing. Given the July 24 expiration, an injunction ruling is more time-sensitive than the merits. Watch for a PI order in the weeks following the April 10 argument.

Standing ruling. If the court separates standing from merits, a standing-only order on the state plaintiffs could come before the merits ruling.

Government appeal. Any adverse ruling will likely be appealed to the Federal Circuit immediately, with an emergency stay request. A stay pending appeal would reinstate collection even if the CIT grants an injunction.

CAPE Phase 1 launch. CBP's IEEPA refund system is on its own separate track. Watch CBP's CSMS feed and ACE Portal for launch guidance — but note that CAPE does not cover Section 122 duties in its current scope.