The Court of International Trade’s Burlap & Barrel Decision, the Earlier IEEPA Tariff Ruling, & Implications for the Ongoing Tariff Refund Process

On May 7, 2026, the U.S. Court of International Trade (“CIT”) issued a significant decision in Burlap & Barrel, Inc. v. United States, Slip Op. 26-47, concluding that the Trump Administration unlawfully relied on Section 122 of the Trade Act of 1974 to impose the 10% global tariff regime adopted following the Supreme Court’s invalidation of the Administration’s earlier tariffs under the International Emergency Economic Powers Act (“IEEPA”). The decision represents the second major judicial setback to the Administration’s reliance on emergency economic authorities to support broad-based global tariffs.

The Burlap & Barrel decision is important both for what it says about the scope of Section 122 and for its practical implications for importers. The ruling arrives while U.S. Customs and Border Protection (“CBP”) is still actively administering the refund process associated with the earlier IEEPA tariffs invalidated by the Supreme Court in Learning Resources. Importers now face a rapidly evolving legal and operational environment involving the status of Section 122 tariffs already paid, the potential for future refund claims, and the effect of appellate proceedings that are already underway.

This client circular summarizes the background of the Section 122 litigation, the court’s reasoning, the current appellate posture, and the practical implications for importers in light of both the ongoing IEEPA refund process and the CIT’s latest ruling.

The Earlier IEEPA Tariffs and the Supreme Court’s Decision in Learning Resources

The Burlap & Barrel litigation emerged directly out of the Administration’s earlier effort to impose broad-based tariffs pursuant to IEEPA. Enacted in 1977, IEEPA authorizes the President to regulate certain international economic transactions after declaring a national emergency in response to an “unusual and extraordinary threat” to the United States originating substantially from abroad. Historically, however, IEEPA functioned primarily as a sanctions and emergency economic-controls statute. Prior to the recent litigation, no President had successfully used IEEPA as a generalized tariff statute authorizing broad import duties across substantial sectors of the global economy.

The Administration nevertheless invoked IEEPA to impose sweeping tariffs on imports from over 100 countries, arguing that persistent trade deficits, supply-chain vulnerabilities, and broader economic-security concerns constituted the type of national emergency contemplated by the statute. Unlike traditional trade remedies imposed under statutes such as Sections 201, 232, and 301, the IEEPA tariffs functioned as a generalized global tariff regime affecting broad categories of international commerce.

Numerous importers and states challenged the legality of the tariffs before the CIT and, ultimately, before the Supreme Court. The central legal issue was whether IEEPA authorized tariffs of this kind.

The Supreme Court concluded in Learning Resources that it did not. Although the Court framed its analysis principally as a matter of statutory interpretation, the opinion emphasized that tariffs historically fall within Congress’s constitutional authority over foreign commerce and that broad delegations of tariff authority must be clearly authorized by Congress. The Court rejected the argument that IEEPA’s broad references to regulating international economic transactions implicitly authorized comprehensive tariff programs of the kind implemented by the Administration.

In practical effect, the Supreme Court’s ruling invalidated the IEEPA tariff regime and forced the Administration to identify an alternative statutory basis for continuing broad-based tariff measures.

The Administration’s Turn to Section 122

Following the Supreme Court’s IEEPA ruling, the Administration turned to Section 122 of the Trade Act of 1974 as the legal basis for a replacement tariff regime.

Section 122 authorizes the President to impose temporary import surcharges of up to 15% for up to 150 days when “fundamental international payments problems” require special import restrictions to address “large and serious United States balance-of-payments deficits” or imminent and significant depreciation of the dollar.

Unlike IEEPA, Section 122 expressly contemplates import surcharges. The statute, however, emerged from a very specific historical and monetary context. As the CIT emphasized, Section 122 was enacted during the period of severe international monetary instability associated with the collapse of the Bretton Woods fixed exchange-rate system in the early 1970s. 

The legislative history discussed extensively by the court reflects Congress’s concern with problems such as declining U.S. gold reserves, official settlements deficits, dollar convertibility pressures, and the broader international monetary disruptions surrounding the Nixon Administration’s economic measures in the early 1970s. Congress ultimately adopted Section 122 as a narrow and temporary emergency authority intended to address extraordinary international monetary conditions. That historical context became central to the litigation.

The Administration argued that persistent modern trade deficits and broader economic imbalances justified invocation of Section 122 authority. Critics, however, argued that the Administration was effectively attempting to accomplish indirectly what the Supreme Court had already prohibited directly through the IEEPA litigation.

Importers and states challenged the Section 122 tariffs almost immediately, contending that the Administration’s interpretation stretched the statute far beyond its historical purpose. In particular, the plaintiffs argued that the balance-of-payments concepts embedded in Section 122 referred to specific monetary concepts associated with the Bretton Woods era, not to ordinary modern trade deficits or generalized current-account imbalances.

The Court’s Decision in Burlap & Barrel

The litigation consolidated challenges brought by private importers, including Burlap & Barrel and Basic Fun, as well as multiple states.

The CIT ultimately agreed with the importer plaintiffs. Two members of the three-judge panel concluded that the Administration unlawfully invoked Section 122 because the statutory conditions required for imposing the tariffs were not satisfied.

A central feature of the court’s analysis was its interpretation of the phrase “balance-of-payments deficits.” The court concluded that Congress understood that phrase, at the time Section 122 was enacted, to refer to specific types of monetary deficits, including deficits in liquidity, official settlements, or basic balance. The court emphasized that the legislative history repeatedly reflected concern with particular international monetary conditions characteristic of the Bretton Woods period.

The Administration, by contrast, had justified the tariffs by pointing to deficits in trade, primary income, secondary income, the current account, and the United States’ net international investment position. The court concluded that these modern economic metrics did not satisfy the statutory meaning Congress intended when it enacted Section 122. The court therefore held that the Administration exceeded the authority granted by Section 122.

The majority also rejected the government’s argument that the phrase “balance-of-payments deficits” should be interpreted broadly enough to encompass essentially any component of the balance of payments. The court reasoned that such an interpretation would effectively permit the President to invoke Section 122 whenever virtually any current-account imbalance existed, thereby transforming a narrow emergency authority into a generalized tariff statute.

One judge dissented, arguing that the statutory text did not clearly limit the meaning of “balance-of-payments deficits” to the narrower monetary concepts identified by the majority. Nevertheless, the majority opinion controlled.

The court also dismissed most of the state plaintiffs for lack of standing, concluding that only direct importers could challenge the tariffs successfully on the record before it. As a result, the court’s injunction presently extends only to the successful importer plaintiffs and to the State of Washington in its capacity as an importer. 

That remedial limitation is important. Although the court’s reasoning strongly suggests that the Administration lacked authority to impose the Section 122 tariff regime more broadly, the immediate injunction itself presently applies only to the successful importer plaintiffs and Washington State.

At the same time, however, the court’s reasoning is plainly directed at the legality of the Section 122 tariff regime itself, rather than at some plaintiff-specific feature of the case. Accordingly, although the precise scope of the court’s remedial order and any subsequent appellate proceedings will matter significantly, the opinion is likely to be understood by importers, CBP, and future courts as rendering invalid the Section 122 universal tariff regime more generally.

The Appeal and Current Procedural Posture

The Administration moved quickly to appeal the CIT’s ruling to the U.S. Court of Appeals for the Federal Circuit on May 8, 2026. The government is also expected to seek a stay pending appeal.

As a result, importers should not assume that tariff collection will necessarily cease immediately or that the litigation has reached a final resolution.

The appellate proceedings will likely focus both on the court’s interpretation of Section 122 and on the scope of the relief issued by the CIT. In particular, the Federal Circuit may be asked to address whether the CIT properly interpreted the historical meaning of “balance-of-payments deficits” and whether the trial court appropriately limited relief to the successful importer plaintiffs.

Because the litigation is moving rapidly, importers should continue closely monitoring developments regarding both the appeal itself and any interim stay orders.

Relationship to the Ongoing IEEPA Refund Process

The Burlap & Barrel decision arrives while CBP is still actively implementing the refund process associated with the earlier IEEPA tariffs invalidated in Learning Resources.

Following the Supreme Court’s decision and subsequent proceedings before the CIT on remand, CBP began developing operational procedures for identifying affected entries, processing refund claims, and administering the complex customs-law issues arising from the invalidation of the tariffs. CBP has reportedly implemented dedicated refund-processing mechanisms through its customs systems and continues to provide guidance regarding processing procedures and affected entries.

The refund process remains active and evolving. Importers should not assume that refunds will occur automatically or universally. Questions involving importer-of-record status, liquidation posture, protests, customs finality rules, and administrative procedures remain highly significant.

The Burlap & Barrel decision now raises similar issues regarding Section 122 tariffs already paid. If the Section 122 tariffs ultimately are invalidated on a final basis following appeal, importers may be able to seek refunds analogous to those currently being pursued in connection with the earlier IEEPA tariffs.

At present, however, substantial uncertainty remains regarding the timing and scope of any such refund rights. Much will depend upon the outcome of the appeal, whether any stay pending appeal is granted, and how CBP ultimately implements the judicial rulings administratively.

Practical Considerations for Importers

The CIT’s decision substantially increases uncertainty surrounding the continued viability of the Section 122 tariff regime and raises the possibility that importers may ultimately possess substantial refund claims relating both to the earlier IEEPA tariffs and to the Section 122 tariffs imposed in their place.

Importers affected by either regime should therefore continue reviewing affected entries, maintaining detailed records of tariff payments, monitoring liquidation status, evaluating protest and preservation options, and closely tracking CBP guidance and appellate developments.

The interaction between the ongoing IEEPA refund process and the emerging Section 122 litigation has created an unusually dynamic customs-law environment. Because both the litigation and the administrative response continue to evolve rapidly, importers should continue evaluating whether additional procedural steps may be advisable to preserve potential refund rights and mitigate future risk.