Aircraft Exempt from New U.S. Tariffs, but Future Unclear

In a move called a “stunning sea change,” aircraft and associated products are once again exempt from U.S. tariffs as a result of the U.S. Supreme Court decision on Friday to strike down tariffs imposed through the International Emergency Economic Powers Act (IEEPA) and then subsequent actions by the White House, according to legal and trade experts.

However, the experts participating in an NBAA webinar on Monday agreed that several issues remain unresolved, including whether new tariffs would be imposed eventually that include aircraft and associated components. Also at issue is whether those who have paid the tariff will be eligible for reimbursement, and what might happen to the myriad trade agreements negotiated on the basis of the former tariffs.

Moderated by NBAA senior v-p of government affairs Kristie Greco Johnson, the webinar featured Katie DeLuca, a partner with the law firm Harper Meyer; Bruce Hirsh, of counsel with Capitol Counsel; and Tobias Kleitman, president of aircraft trust services and customs broker TVPX.

On Friday, the Supreme Court ruled in a 6-to-3 decision that the “president has no inherent peacetime authority to impose tariffs [through IEEPA]. Nor are we persuaded that the dots connect from our wartime precedents.” A defiant President Trump followed with a press conference saying he had other alternatives to impose tariffs, just ones that were not as flexible.

He immediately declared that he was imposing a 10% global tariff, but the White House later said that it would be upped to 15%. Also over the weekend, the White House issued an executive order formally dropping the IEEPA-imposed tariffs beginning midnight February 24 (today) and others with associated annexes on the new tariffs.

Hirsh explained that the White House was “well prepared” for the Supreme Court ruling and appears to be striving to work toward the ability to retain the tariffs at their current levels. The new tariffs were imposed under Section 122 of the Trade Act of 1974, which allows the executive branch to impose up to 15% tariffs for up to 150 days. However, those tariffs have time limits and cannot vary from country to country. This removes tariff flexibility and tamps down negotiating power with individual countries.

However, the White House also has indicated that it intends to move forward with investigations under another section of the trade act—301—which ultimately enables more focused levies on individual countries. Such investigations were already underway with countries including Brazil. This is a longer-term process. These investigations are anticipated to kick off with all the U.S.’s major trading partners.

On the positive side, however, is that the associated annexes issued with the tariff executive orders and proclamation retain the exemptions on aircraft and associated parts. “It is very encouraging and quite good news,” noted DeLuca, at least for now. Unless something changes during the 301 process, she said, “We are in good shape.”

Kleitman, who called the shift stunning from where the industry was less than a year ago, agreed. “Now it seems we have a window at least where we can import these aircraft free from tariffs. The question is how long that window will last,” he said. “I’m hopeful that aircraft will remain exempt.”

As for how soon companies can import aircraft under the change, DeLuca said she expects Customs to move quickly on the changes, but there is a process to implement them, so it is unclear on timing.

Kleitman added, “It’s just moving so fast,” but the industry was awaiting the correct Customs codes to be able to import aircraft under zero tariffs.

As far as rebates of tariffs paid under IEEPA, Hirsh called it “very much up in the air. It could be easy. It could be hard.” The Supreme Court did not address this. The administration could set up a process for rebates to make it easy. But it could all end up at the U.S. Court of International Trade to decide on rebates.

DeLuca called the situation “a wait and see” but advised that affected parties make sure they have their appropriate documentation. She caveated that the importer of record would be the party eligible to seek the rebate, but that may not be the party that paid the tariff. Contractual agreements come into play here to ensure those who paid are able to get their rebates.

Also in question is the level of Section 122 tariffs. The orders immediately called for 10%, which is the level in place with the UK. Despite the threat of increasing that, Hirsh said, “It’s anybody’s guess whether we will actually see the 15% implemented” because it would have to apply to all trading partners. This may have an impact on trade negotiations.

The Supreme Court did not nullify the trade deals made over the past year. “There’s no reason they would have to go away.” But if the White House goes to 15%, it could alter the trade deal in place with the EU, and as a result, the EU has frozen the process to see how this plays out. The White House has indicated that it does plan to comply with trade agreements, but international trading partners “all are acting cautiously right now,” Hirsh said. However, those international partners also know the White House has other tariff authorities, creating risk if they try to walk away from the trade deals.