Section 122 Tariff Appeal: DOJ's Two Paths Past the CIT
DOJ's Federal Circuit brief presses two ways past the CIT: a broad Section 122 reading or a narrower basic-balance application. A remand could erase the judgment without settling either theory, while preserved issues may still keep the litigation alive.
DOJ's useful appellate point comes from the trade court's own recent descriptions of the statute. In 2025, a different CIT panel said trade deficits are among the key balance-of-payments deficits Section 122 can address. In May 2026, the CIT held that a current-account and trade deficit did not satisfy Section 122 unless it fit one of three historically recognized measures.
The institutional tension helps the government without making the earlier sentence controlling. The Federal Circuit can reject the CIT's current interpretation, apply the CIT's test to the existing record, or return the case for further proceedings. A ruling on the balance-of-payments trigger would not necessarily resolve every preserved ground or the consolidated cross-appeal.
The brief exploits a tension in the trade court's language
DOJ begins its factual account with the CIT's 2025 decision in *V.O.S. Selections*. That case concerned tariffs imposed under the International Emergency Economic Powers Act, not a proclamation that invoked Section 122. The CIT reasoned that tariffs responding to a trade imbalance belonged, if anywhere, under the narrower authority Congress created in Section 122. In doing so, it called trade deficits "one of the key balance-of-payment deficits" the statute was designed to address.
The government now quotes that sentence twice. It uses the first reference to connect Proclamation 11012 to the court's own recent description of Section 122. It uses the second to argue that the current account is at least an economically accepted way to identify a balance-of-payments deficit.
The May 2026 ruling took a narrower view. The majority concluded that Congress used "balance-of-payments deficits" to mean deficits measured by liquidity, official settlements, or basic balance, the measures that appeared in the legislative record around the 1974 Trade Act. Because the proclamation identified the trade balance, current account, primary income, secondary income, and net international investment position instead, the majority found no qualifying statutory trigger.
One CIT panel treated a trade deficit as a key balance-of-payments deficit when deciding which statute governed. Another required a historically bounded measure when deciding whether the President had met that statute's trigger.
V.O.S. is useful to DOJ, but it did not decide this question
The government's quotation has limits that matter on appeal.
*V.O.S.* asked whether IEEPA supplied tariff authority and how Section 122 affected that reading. The CIT's description of trade deficits helped define the boundary between two statutes. The case did not test Proclamation 11012 or decide whether Section 122's trigger is limited to liquidity, official settlements, or basic balance.
Nor did the later appellate history convert every part of the CIT's Section 122 discussion into binding law. The Federal Circuit affirmed on its own reading of IEEPA and cited Section 122 as an example of an express, limited tariff delegation; it did not adopt the CIT's displacement rationale or the proposition DOJ now quotes. The Supreme Court then resolved the IEEPA question. Neither appellate court adjudicated whether Proclamation 11012, issued later, met Section 122's balance-of-payments trigger.
*V.O.S.* therefore supplies evidence of tension, not a controlling Section 122 holding. The May majority acknowledged that the current account and trade balance were relevant; it held that they were distinct from the three historical measures it considered legally sufficient.
The appeal is not a contest between "trade deficit" and "balance of payments." The statute uses different terms in different subsections. Section 122(a) refers to balance-of-payments deficits, while Section 122(c) addresses balance-of-trade surpluses. The question is which subsets of transactions or accepted economic measures can establish the former. The current text of 19 U.S.C. Section 2132 does not supply a formula.
DOJ still asks for a broad rule
The opening brief's principal theory reaches beyond the V.O.S. inconsistency. DOJ argues that "balance-of-payments deficit" was a technical term with several accepted measures when Congress enacted Section 122. In its view, Congress did not freeze the statute to three measures found in selected legislative materials. It left the President room to use an economically reasonable methodology.
Adopting that rule would allow the legal meaning of the trigger to remain stable while the economic method used to identify it changes. DOJ compares the problem to other statutes that use professional terms such as generally accepted accounting principles or actuarial equivalence. A court defines the legal boundary but need not select one permissible calculation for all time.
The government says Proclamation 11012 clears that boundary because it identifies negative balances in trade, primary income, secondary income, and the current account, along with a sharply negative net international investment position. The Federal Register Proclamation 11012, 91 FR 9339 shows that the President relied on all of those findings, not the goods deficit alone.
DOJ does not say that any professionally accepted subaccount will do. It asks for an economically reasonable method of identifying a balance-of-payments deficit. The CIT majority still saw a nondelegation problem in that breadth and used constitutional avoidance to support its narrower reading. DOJ answers that the 15 percent cap, 150-day limit, international-payments trigger, and foreign-affairs context provide adequate guardrails. The appeal may define how courts test those constraints in a future proclamation.
The expansive DOJ win would reverse the CIT's closed list and confirm a wider field of acceptable methods. That ruling would shape the next President's evidentiary burden under Section 122, even if other preserved issues required further proceedings in this case.
A narrower win runs through basic balance
DOJ also argues that the government can prevail on the balance-of-payments issue even if the Federal Circuit accepts the CIT's historical framework.
The route is basic balance. In the legislative materials, that measure combined the current account with long-term capital. DOJ says a modern analogue can be constructed from the current account, capital account, and net foreign direct investment. On that measure, it contends, the United States has run a persistent deficit. The government also argues that current-account and basic-balance results have been closely correlated for much of the relevant period.
For a narrow reversal, DOJ relies on the existing record, not the proclamation alone. That record includes the proclamation, the Yared declaration submitted to the CIT, and an appendix chart. DOJ separately cites the April 2026 Economic Report of the President to reinforce its account of the relationship between current account and basic balance. It says the record is enough for the Federal Circuit to conclude that the basic balance was negative.
The appellate issue is whether that existing record satisfies the CIT's legal test. If it does not, DOJ asks the court to vacate and remand so the CIT can receive further submissions and address the issue in the first instance. The July CEA paper cannot silently become evidence that was before the trial court or a finding contained in the February proclamation.
Traverse previously explained why the CEA paper did not itself alter the legal or customs record in Traverse Analysis on the CEA paper and 19 U.S.C. Section 2132. The opening brief now turns that record boundary into a choice of appellate disposition.
Remand avoids choosing the broadest theory
The procedural dispute gives the Federal Circuit a route that is narrower still.
Judge Timothy Stanceu's dissent said the majority adopted a definition that neither side had proposed. Plaintiffs argued that the modern floating-rate system made the relevant deficit unavailable or that the proclamation used the wrong account. The government defended the current account. The majority instead selected liquidity, official settlements, and basic balance from the legislative history.
The dissent would have used USCIT Rule 56(f), which requires notice and a reasonable time to respond before a court grants summary judgment on a ground not raised by a party. The majority answered that both sides had notice because the meaning of the statutory term was squarely presented and the government addressed alternative measures at oral argument.
DOJ's opening brief does not foreground the rule number, but it adopts the dissent's fairness point. The government says it did not have a proper opportunity to show that the proclamation also established a negative basic balance. It asks for reversal on that ground or, at minimum, remand.
A remand could vacate the current judgment and direct the CIT to consider the historical test on a developed record, without adopting DOJ's broad methodology or approving the CEA formula.
The Federal Circuit stay order in Oregon v. Trump, June 11, 2026 provides only a posture signal. The nonprecedential order said the government had shown a likelihood of success and questioned the majority's interpretation and nondelegation reasoning. It did not choose an appellate remedy or settle the merits.
The merits issue has four immediate landing points
For the balance-of-payments issue in the government's appeal, track four possible dispositions:
1. **Broad reversal.** The Federal Circuit rejects the CIT's three-measure limit and permits any economically reasonable methodology within the statute. This has the greatest effect on future Section 122 proclamations.
2. **Narrow application ruling.** The court keeps the CIT's framework but holds that the existing record establishes a negative basic balance. DOJ prevails on this issue without receiving its preferred general rule.
3. **Vacatur and remand.** The court finds the present record or procedure inadequate and returns the basic-balance question to the CIT. The statutory definition and the ultimate validity of the proclamation may remain unresolved.
4. **Affirmance on this issue.** The court accepts the CIT's interpretation and agrees that the government failed to identify a qualifying deficit. The ruling would impose a more specific record requirement on any future Section 122 action.
These are not an exhaustive map of the consolidated litigation. The CIT did not reach whether "fundamental international payments problems" is an independent condition, and plaintiffs preserved other challenges, including nondiscrimination and the proclamation's exemptions. Appellees may rely on preserved alternative grounds even if DOJ wins the balance-of-payments question.
Cross-appeal No. 2026-1928 runs on a separate track. It was filed by state plaintiffs dismissed for lack of standing and can affect which parties remain in the case and the scope of any relief. A favorable trigger ruling for DOJ would not automatically decide that cross-appeal.
The surcharge's scheduled expiration does not collapse these branches. Proclamation 11012 was signed on February 20, collection began on February 24, and the Traverse Policy Signal for White House Proclamation 11012 records the action. The proclamation schedules collection to end at 12:01 a.m. EDT on July 24. The appeal still governs the lawfulness of duties already collected, the relief available to the parties, and the legal standard for another invocation.
Trade teams should separate the present case from the next one
Importers and policy teams need two authority files, not one blended forecast.
The first file concerns Proclamation 11012. It should track the appellate disposition, covered party, entry number, liquidation status and date, protest deadline and status, applicable relief, and continuous-bond exposure. The CIT judgment did not promise a refund to every importer, and the June stay did not finally validate the tariff. Traverse Analysis on the Section 122 defense under 19 U.S.C. Section 2132 sets out the separate domestic and WTO tracks.
The second file concerns future Section 122 use. The key field is the court's rationale. A broad reversal would allow a future proclamation to choose among accepted economic methods. A narrow application ruling would reward more careful mapping from proclamation findings and supporting record to basic balance. A remand would signal that method, record, and procedure cannot be separated. An affirmance would require the executive to build around the CIT's three-measure framework or seek another authority.
Operational files should remain separate as well. The July 24 cutoff removes the 10 percent Section 122 surcharge from covered goods entered for consumption or withdrawn from warehouse for consumption after the cutoff. It does not itself decide liquidation, protests, refunds, or continuous-bond sufficiency. Traverse Analysis on Proclamation 11012 expiration and customs bonds explains why the bond calculation has its own trailing data.
DOJ has identified a useful tension in how two CIT panels described Section 122. The harder appellate question is what follows from it. If the Federal Circuit uses *V.O.S.* to adopt DOJ's broad methodology rule, the decision will reach well beyond a tariff that is about to expire. A basic-balance ruling could give DOJ a narrow trigger win. A remand could erase the current judgment without resolving the trigger, the preserved grounds, or the cross-appeal.
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