Court of International Trade Rejects 10% Section 122 Tariff: What Businesses Should Know While the Appeal Proceeds

The Court of International Trade has ruled that the administration exceeded its authority in imposing the temporary 10% Section 122 surcharge. The ruling, however, does not automatically end tariff exposure or create refund rights for every business. Importers and companies that paid, absorbed, or passed through the surcharge should evaluate their entries, contracts, and potential refund, protest, litigation, or contract options now.

At a Glance

• The Court of International Trade held that Proclamation 11012—which imposed a temporary 10% import surcharge under Section 122 of the Trade Act of 1974—is invalid.
• The decision does not automatically create refund rights for every importer or business affected by the surcharge.
• The immediate relief is limited to the successful plaintiffs in the lawsuit: the State of Washington, Burlap and Barrel, and Basic Fun.
• The government has appealed and the Federal Circuit has issued a temporary administrative stay pausing enforcement of the court’s order while the court considers the government’s motion for a longer stay pending appeal.
• Importers and companies that paid, absorbed, or passed through the surcharge should promptly evaluate their entries, contracts, and any steps needed to preserve potential refund, protest, litigation, or contract options.

What Did the Court Decide?

On May 7, 2026, the U.S. Court of International Trade held that Proclamation 11012, which imposed a temporary 10% import surcharge under Section 122 of the Trade Act of 1974, was invalid because the proclamation did not identify the type of “balance-of-payments deficits” required by the statute. The State of Oregon v. United States & Burlap and Barrel, Inc. v. United States, Slip Op. 26-47, Court Nos. 26-01472 & 26-01606 (Ct. Int’l Trade May 7, 2026) (“Section 122 Decision”). The Section 122 Decision is significant for importers and other companies affected by the surcharge, but it does not automatically end tariff exposure, stop collections for all importers, or create immediate refund rights. Companies should promptly assess whether they paid, absorbed, or passed through the surcharge and whether any protest, litigation, or contract-related steps are needed to preserve potential recovery.

The case arose from the administration’s shift to Section 122 after the Supreme Court rejected its use of IEEPA to support an earlier global tariff program. In its February 20, 2026, decision in Learning Resources, Inc. v. Trump and Trump v. V.O.S. Selections, Inc., the Supreme Court held that IEEPA did not authorize the tariffs at issue. Later that same day, the administration issued Proclamation 11012, invoking Section 122 of the Trade Act of 1974 as the basis for a temporary 10% import surcharge.

Section 122 is a temporary balance-of-payments authority. The statute permits the President, under specified balance-of-payments conditions, to impose temporary import restrictions, including an import surcharge of up to 15% ad valorem for no more than 150 days unless Congress extends the period. Through Proclamation 11012, the administration imposed a 10% ad valorem surcharge on articles imported into the United States, subject to specified exceptions, effective February 24, 2026. The surcharge is currently set to expire on July 24, 2026.

The issue before the court in the Section 122 Decision was whether the economic conditions cited in Proclamation 11012 satisfied the statute’s limited balance-of-payments requirement. The administration relied on several indicators, including a trade deficit, a current-account deficit, a negative net international investment position, and deficits in the balances on primary and secondary income. The court concluded that those indicators did not identify the type of “balance-of-payments deficits” Congress contemplated when it enacted Section 122. In the majority’s view, Congress used that phrase to refer to deficits measured by liquidity, official settlements, or basic balance—not the broader economic measures cited in the proclamation. The court therefore held that Proclamation 11012 was invalid and that the Section 122 tariffs imposed on the plaintiffs were unauthorized by law.

Does the Decision Apply to Every Business?

Although the court held that Proclamation 11012 was invalid, it did not grant relief to every business affected by the Section 122 surcharge. The court granted relief only to the State of Washington and the two private importer plaintiffs, who had shown imminent or actual liability for Section 122 duties. By contrast, the remaining state plaintiffs alleged indirect harms, including pass-through tariff costs and tariff-related price increases, which the court found too speculative to confer standing. The court therefore dismissed those plaintiffs for lack of standing and declined to issue a universal injunction.

Although the court did not extend relief beyond the plaintiffs before it, its reasoning may support similar challenges by importers with actual or imminent liability for Section 122 duties. Companies that paid, absorbed, or passed through the surcharge should review their entries, liquidation status, protest deadlines, contracts, and litigation options to determine whether they need to take steps to preserve potential recovery.

What Happens Next?

The government has appealed, and the Federal Circuit has issued a temporary administrative stay pausing enforcement of the CIT’s order while the court considers the government’s motion for a full stay pending appeal. If the Federal Circuit grants a stay pending appeal, the government will continue collecting Section 122 duties throughout the appellate process. Businesses should watch for further Federal Circuit orders addressing the stay, the appellate schedule, and any CBP guidance on how entries subject to Section 122 duties will be collected, suspended, liquidated, reliquidated, or refunded during the appeal.

The appeal also may focus on issues raised in Judge Stanceu’s dissent. On the merits, Judge Stanceu argued that Section 122 does not limit “balance-of-payments deficits” to the three historical measures identified by the majority—liquidity, official settlements, and basic balance. He pointed to Congress’s deletion of draft language specifying particular measurement methods as evidence that the statute was not meant to be locked to any single set of indicators, and he warned that the majority’s interpretation could make Section 122 difficult to administer if the Bureau of Economic Analysis changes how it calculates balance-of-payments data. On procedure, he argued that the majority resolved the case on grounds neither group of plaintiffs had raised without first providing notice and an opportunity for further briefing under Rule 56(f), and that genuine disputes of material fact should have precluded summary judgment.

For now, the legal and practical consequences remain unsettled. The CIT invalidated Proclamation 11012 and limited relief to the plaintiffs before it, but the government has appealed, the Federal Circuit has temporarily paused enforcement of the CIT’s order, and the dissent identifies arguments the government may press on appeal. Affected companies should continue tracking covered entries, preserving import and payment records, monitoring liquidation and protest deadlines, and reviewing contracts and customer communications that may affect who ultimately bears or recovers the surcharge.

How Should Businesses Manage Section 122 Tariff Uncertainty?

For companies that paid, deposited, absorbed, or passed through the 10% Section 122 surcharge, the immediate task is to determine their exposure, their role in the import transaction, and any deadlines that may affect potential recovery. A company’s options may depend on whether it was the importer of record, whether it paid or deposited the surcharge, whether affected entries have liquidated, whether tariff costs were passed through by contract or invoice, and whether any statutory or regulatory deadlines are approaching.

Companies should consider the following steps:

1. Identify affected entries and payments. Importers should determine whether they paid or deposited the 10% Section 122 surcharge, which entries were affected, who served as importer of record, how much was paid, and whether the entries have liquidated. That entry-level information will be important in evaluating any refund, protest, post-summary correction, or litigation strategy.
2. Check liquidation status and preservation deadlines. There is not yet an automatic refund process for nonparty importers. Companies should review affected entries now because liquidation status may determine which preservation tools are available and how quickly a company must act.
   • For unliquidated entries, importers should evaluate whether a post-summary correction (PSC) is available for entries on which Section 122 duties were paid or deposited. PSC availability will depend on entry status, timing, ACE/CBP requirements, and any CBP guidance issued after the ruling.
   • For liquidated entries, importers of record should pay particular attention to protest deadlines. In many customs disputes, a protest must be filed within 180 days after liquidation or reliquidation, and missing that window may affect whether the liquidation becomes final and conclusive. For entries liquidated within the last 180 days, importers that paid the 10% Section 122 surcharge should promptly evaluate whether a protest or Court of International Trade action is needed before the applicable deadline expires.
3. Preserve customs, payment, and contract records. Companies should retain customs entries, duty-payment records, broker communications, invoices, purchase orders, supplier notices, customer communications, and documents showing whether tariff costs were absorbed, passed through, or separately invoiced. Those records may matter for customs purposes, contract disputes, supplier negotiations, customer credits, and internal accounting.
4. Review tariff pass-through, refund, and contract provisions. Contract terms may determine who bears the tariff cost now and who benefits if money is later recovered. Companies should review tariff pass-through clauses, tax-and-duty provisions, delivered-duty-paid terms, price-adjustment language, change-in-law provisions, notice requirements, and refund-sharing terms. Companies that are not importers of record should pay particular attention to whether their contracts address tariff surcharges, credits, rebates, or refunds.
5. Avoid premature refund or pricing commitments. Companies should be cautious before promising refunds, issuing credits, changing customer pricing, or altering supplier-payment positions. Those decisions should be made only after confirming who paid the duties, who bore the economic cost, whether recovery is available, and what the relevant contracts or customer terms require. Retailers and other consumer-facing companies should also review how any tariff-related surcharges or price changes were disclosed to customers because those disclosures may affect customer-credit decisions, refund requests, or potential consumer-protection claims if tariff costs are later recovered.
6. Monitor the appeal and CBP guidance. Businesses should watch for further Federal Circuit orders and any CBP guidance addressing whether Section 122 duties will continue to be collected, suspended, refunded, liquidated, reliquidated, or otherwise processed while the appeal proceeds. Until there is further direction, companies should not assume the ruling changes how future shipments will be entered, assessed, or liquidated.

For now, businesses should focus on the facts that will determine their options—what they paid, who bore the cost, what the relevant contracts say, what deadlines may apply, and what rights may need to be preserved. Companies that answer those questions now will be better positioned whether the Section 122 surcharge is affirmed, enjoined, narrowed, allowed to expire, replaced by another trade measure, or leads to a refund process.

The Path Forward

The key question for most businesses is whether they have a viable path to preserve potential recovery or avoid missing deadlines that could affect their rights. That answer will depend on entry records, liquidation status, protest deadlines, importer-of-record status, contract terms, and any further appellate or CBP guidance. Companies that paid, deposited, absorbed, or passed through the 10% Section 122 surcharge should review those issues now, particularly if affected entries have liquidated or may liquidate soon.

Ward and Smith’s international trade team can help importers and other businesses identify affected entries, evaluate preservation options, review contract and pass-through issues, and assess potential refund, credit, protest, PSC, or litigation strategies as the appeal and any CBP guidance unfold.

For questions about how the Section 122 Decision may affect your business, please contact Kelly Reid or Trip Coyne.