The State of Oregon, et al. v. United States, and Burlap and Barrel, Inc., et al. v. United States, Slip Op. 26-47 (Ct. Int'l Trade May 7, 2026).

For certified public accountants (CPAs) and enrolled agents (EAs) advising clients engaged in international commerce, sudden shifts in trade policy and the imposition of import surcharges present significant tax and cash-flow implications. The United States Court of International Trade (CIT) recently addressed the legality of a broad 10 percent ad valorem tariff imposed by the Executive Branch. This article provides a technical analysis of the CIT's opinion, detailing the factual background, the plaintiffs' request for relief, the court's statutory interpretation, the application of the law, and the ultimate conclusions regarding the President's authority under Section 122 of the Trade Act of 1974.

Facts of the Case

On February 20, 2026, the President of the United States issued Proclamation No. 11012, which imposed a "temporary import surcharge of 10 percent ad valorem" on "all articles imported into the United States," subject to specific exceptions. This temporary duty went into effect at 12:01 a.m. EST on February 24, 2026, and was scheduled to remain in effect until July 24, 2026. To enforce the action, U.S. Customs and Border Protection (CBP) issued Cargo Systems Messaging Service (CSMS) # 67844987, providing implementation guidance and HTSUS classification instructions for the newly imposed duties.

The President invoked Section 122 of the Trade Act of 1974, codified at 19 U.S.C. § 2132, which grants the Executive Branch the authority to impose temporary surcharges up to 15 percent ad valorem to address fundamental international payments problems. In the Proclamation, the President asserted that his senior advisors informed him that "fundamental international payments problems within the meaning of section 122 exist and that special import measures to restrict imports are required to address these problems". To substantiate the necessity of the surcharge, the Proclamation noted that "the United States runs a trade deficit, does not currently make a net income from the capital and labor that it deploys abroad, and experiences more transfer payments, on net, flowing out of the country than into the country". Specifically, the President cited deficits in the current account (reaching 4.0 percent of GDP in 2024), primary income, secondary income, and an ongoing decline in the net international-investment position.

Taxpayers' Request for Relief

The litigation consolidated complaints from two distinct groups of plaintiffs. The "State Plaintiffs" consisted of 24 sovereign states, while the "Private Plaintiffs" included two commercial importers: Burlap and Barrel, Inc., a spice and ecommerce business, and Basic Fun, Inc., a toy company.

The plaintiffs filed motions for summary judgment and, alternatively, preliminary and permanent injunctions against the United States. The plaintiffs argued that the President lacked the authority to invoke Section 122 because "large and serious balance-of-payments deficits cannot occur in a floating exchange rate monetary system". They contended that the Proclamation unlawfully redefined the statutory term "balance-of-payments deficits" to mean "current account deficits" and requested that the court invalidate the tariffs. Furthermore, the State Plaintiffs sought to "stay, vacate, and set aside CSMS # 67844987, which implements the Section 122 Proclamation," arguing it was a final agency action in excess of statutory jurisdiction under the Administrative Procedure Act (APA).

The Court's Analysis of the Law

The CIT evaluated its jurisdiction under 28 U.S.C. § 1581(i)(1)(B), which grants the court exclusive jurisdiction over civil actions arising out of any law providing for "tariffs, duties, fees, or other taxes on the importation of merchandise for reasons other than the raising of revenue".

Before reaching the merits, the court conducted a rigorous standing analysis under Article III of the Constitution. To establish standing, a plaintiff must demonstrate an injury that is "concrete, particularized, and actual or imminent; fairly traceable to the challenged action; and redressable by a favorable ruling". Citing Clapper v. Amnesty Int'l USA, the court noted that "[a]llegations of possible future injury are not sufficient". The court found that the Private Plaintiffs and the State of Washington (the "Importer Plaintiffs") clearly met the imminent injury requirement because they directly imported goods and paid the tariffs directly to the U.S. government through their customs brokers. Conversely, the remaining "Non-Importer State Plaintiffs" based their standing on indirect economic harm—such as passthrough tariff surcharges from third-party vendors. Relying on Lujan v. Defenders of Wildlife, the court ruled that these indirect harms were too speculative and failed to establish an injury-in-fact.

Turning to the substantive trade law, the court noted that Article I, Section 8 of the Constitution vests Congress with the power to lay and collect taxes and tariffs, and Section 122 constitutes a specific, constrained delegation of that power to the President. Reviewing executive action, the CIT emphasized its reliance on Loper Bright Enters. v. Raimondo and Marbury v. Madison, declaring, "It is emphatically the province and duty of the judicial department to say what the law is". While the court recognized it could not review the factual determinations committed to the President's discretion, it stated that it must "determine whether the President 'clear[ly] misconstru[ed]' his statutory authority".

The court thoroughly analyzed the text of 19 U.S.C. § 2132(a)(1), which requires the presence of "large and serious United States balance-of-payments deficits". Pointing to the legislative history of the Trade Act of 1974, the court observed that Congress understood "balance-of-payments deficits" to refer specifically to deficits in "(1) liquidity, (2) official settlements, or (3) basic balance". The court highlighted that Congress deliberately distinguished "balance-of-payments deficits" in Section 122(a) from "balance-of-trade surpluses" in Section 122(c), indicating a strict intent regarding the measurements required to invoke the surcharge.

Application of the Law to the Facts

In applying the law to the facts, the court flatly rejected the government's argument that "balance-of-payments deficits" is a malleable phrase that "may depend on the facts of the day". The government's own declarations acknowledged that the Proclamation relied upon modern current account deficit measurements because the Bureau of Economic Analysis (BEA) "no longer reports all the components needed to exactly replicate the basic balance" as calculated in 1974. The court noted that because the balance of payments as an accounting principle essentially nets to zero, giving the President the unfettered ability to select among sub-accounts to find a deficit would violate the nondelegation doctrine. The court emphasized that the canon of constitutional avoidance dictates that "[a] construction of the statute that avoids [an] open-ended grant" of authority should be favored.

The court determined that the Proclamation failed to assert the specific conditions required by the statute. The court stated, "Nowhere does Proclamation No. 11012 identify balance-of-payments deficits within the meaning of Section 122 as it was enacted in 1974". Instead, the Proclamation relied on the current account deficit, the trade deficit, and the net international-investment position. The court concluded that "the Proclamation’s use of trade and current account deficits to stand in the place of balance-of-payment deficits within the meaning of the statute renders the Proclamation ultra vires".

Regarding CSMS # 67844987, the State Plaintiffs argued it should be set aside under the APA. However, the court found that the plaintiffs raised their substantive APA arguments too late—in their reply brief—and thus forfeited the claim. Furthermore, the plaintiffs failed to adequately establish that the CBP guidance was a final agency action under the APA.

Conclusions of the Court

Based on its statutory interpretation, the CIT concluded that Proclamation No. 11012 was invalid and that the tariffs imposed on the plaintiffs were unauthorized by law.

Because a permanent injunction does not automatically follow from success on the merits, the court applied the four-factor test from eBay Inc. v. MercExchange, L.L.C.. The court found that the Importer Plaintiffs suffered irreparable harm (including lost profits, price erosion, and loss of goodwill) and that the balance of equities and public interest strongly favored ensuring that governmental bodies comply with the law.

The CIT issued the following orders:

Standing: The court dismissed all claims by the Non-Importer State Plaintiffs without prejudice due to a lack of Article III standing.
Summary Judgment: The court granted the motions for summary judgment filed by the Private Plaintiffs (Burlap and Barrel, Basic Fun) and the sole qualifying state plaintiff (The State of Washington).
Remedy: The court granted a permanent injunction specifically for the Importer Plaintiffs against the collection of the Section 122 duties. The court explicitly declined to issue a universal injunction, limiting the relief and subsequent refunds strictly to the plaintiffs who possessed standing.
Mootness: The plaintiffs' alternative motions for a preliminary injunction were denied as moot.

Prepared with assistance from NotebookLM.