One of the most anticipated decisions of the Supreme Court’s recent term was Loper Bright Enterprises v. Raimondo.[1] While the specific underlying dispute in Loper Bright isn’t relevant to the trade community—did fishermen have to pay for government-mandated observers on their vessels?—the Court used this case to overturn the broadly applicable judicial deference test established in 1984 in Chevron U.S.A. Inc., v. Natural Resources Defense Council.[2] After the Loper Bright decision was announced, a range of comments were posted on social media about the impact of the decision on cross-border trade. Some said that Loper Bright was a big deal, while others said it wasn’t. But the answer isn’t black-and-white. On one hand, Loper Bright is a big deal (really big) from a macro perspective because it significantly limits unconstrained rulemaking by federal agencies. So its effect will be significant in future litigation involving agency rulemaking (although prior decisions that relied on Chevron cannot be revisited). But on the other hand, its impact at the micro level of cross-border trade is likely to be relatively minimal. Time will tell. Chevron’s demise offers the opportunity to reflect on how it affected customs-related litigation, and to guess at how it will affect, if at all, the deference the courts must give to pronouncements made by U.S. Customs and Border Protection (CBP) and the other trade-regulating agencies.
For exactly forty years and three days, the judicial authority of our federal courts to review an agency’s interpretation of a statute was constrained by what became known as the Chevron deference doctrine. Chevron established a two-step test to determine whether a court could override an agency’s interpretation of a statute. In step one, a court asked “whether Congress has directly spoken to the precise question at issue.” If the answer was yes, then the court had to “give effect to the unambiguously expressed intent of Congress” without regard to the agency’s interpretation. But if the answer was no, meaning that the statute was either “silent or ambiguous with respect to the specific issue,” then the court moved to step two, which required the court to accept an agency’s interpretation on its face as long as it was reasonable.
Deference becomes an issue only when a dispute involving an agency’s decision is litigated. Sometimes, though, an agency’s decision has nothing to do with statutory interpretation, such as when CBP issues a binding ruling. A ruling may be a central element in a dispute decided at the U.S. Court of International Trade (CIT), on appeal at the Court of Appeals for the Federal Circuit (CAFC), or, once in a blue moon, at the Supreme Court. Binding rulings, which are issued either by CBP’s National Commodity Specialist Division (NCSD) in New York or by CBP’s headquarters (HQ) in Washington DC., provide a valuable service by informing and instructing an importer or CBP’s front-line port personnel on how certain import transactions must be entered. A typical NCSD ruling is empty (by design) of analysis—it merely states a bottom-line answer without providing any rationale (unless specific questions raised by the ruling requestor deserve a response). In contrast, the rationale in an HQ ruling is typically comprehensive and well-reasoned, often providing as much analytical discussion as a court’s opinion might provide. Given the great disparity between a ruling that offers a smorgasbord of analysis and one lacking even a crumb of explanation, what criteria do the CIT and CAFC use to determine whether to accept or reject a ruling’s authority? In other words, what judicial respect does a ruling deserve now that Chevron has been overturned?
The answer has two parts. First, Chevron was never the standard of deference for judicial review of customs rulings. For the second part of the answer, we have to go back to 1942, when seven employees of a meat-packing plant in Fort Worth, Texas, sued their employer to recover overtime pay. In Skidmore v. Swift & Co. the Supreme Court ruled in favor of Skidmore and his coworkers, overturning the trial and appellate courts’ decisions.[3] The employees worked as firemen at the Swift plant. The facility had its own fire hall, which, like a typical municipal fire hall, included amenities that provided comfort, entertainment (such as a pool table) and sleeping quarters. The employees claimed that their “waiting time”—the nights they were required to be in or near the fire hall beyond their normal 7:00am to 3:30pm work shift, while waiting for a call to action—was “working time” subject to overtime pay.
Congress created the post of Administrator of the Wage and Hour Division in the Department of Labor. Among the Administrator’s duties was the responsibility to establish formal guidelines—analogous to a binding ruling issued by CBP—that defined when overtime pay was or was not warranted. According to Justice Robert Jackson in his opinion on behalf of the court:
There is no statutory provision as to what, if any, deference courts should pay to the Administrator’s conclusions. … The rulings of this Administrator are not reached as a result of hearing adversary proceedings in which he finds facts from evidence and reaches conclusions of law from findings of fact. They are not, of course, conclusive, even in the cases with which they directly deal, much less in those to which they apply only by analogy. They do not constitute an interpretation of the Act or a standard for judging factual situations which binds a district court’s processes, as an authoritative pronouncement of a higher court might do. But the Administrator’s policies are made in pursuance of official duty, based upon more specialized experience and broader investigations and information than is likely to come to a judge in a particular case. They do determine the policy which will guide applications for enforcement by injunction on behalf of the Government. Good administration of the Act and good judicial administration alike require that the standards of public enforcement and those for determining private rights shall be at variance only where justified by very good reasons. The fact that the Administrator’s policies and standards are not reached by trial in adversary form does not mean that they are not entitled to respect. This Court has long given considerable and in some cases decisive weight to Treasury Decisions and to interpretative regulations of the Treasury and of other bodies that were not of adversary origin.
We consider that the rulings, interpretations and opinions of the Administrator under this Act, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance. The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.
This last paragraph is the crux of the precedent. The court found that the Administrator’s rulings and interpretations were deserving of deference based not simply on the Administrator’s statutory authority but on a combination of subjective factors—“the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade”. Prior to the Supreme Court’s decision in United States v. Mead Corp., which we discuss later, courts generally didn’t grant deference to a binding ruling; in General Electric Co.–Medical Systems Group v. United States,[4] issued just prior to the Mead decision, the CAFC said that “where Customs has not issued a regulation, but merely a classification ruling implicitly interpreting an HTSUS provision, we accord the classification no deference.” However, immediately after Mead, the CAFC took the unusual step of amending its opinion in the GE case, replacing the language quoted in the previous sentence with: “where Customs has not issued a regulation, but merely a classification ruling implicitly interpreting an HTSUS provision, we accord the classification deference in accordance with Skidmore”.[5] Skidmore is thus the post-Mead standard of deference that now guides the CIT and CAFC when evaluating the credibility of binding rulings issued by CBP.
So where did the Chevron deference standard come into play? How did Skidmore and Chevron coexist? Chevron established a higher standard of deference that, for forty years, was routinely applied to assess the validity of agencies’ interpretations of statutes. Chevron specifically addressed the interpretation by the Environmental Protection Agency of a statutory definition—i.e., a “stationary source” of pollution—used to determine whether an EPA permit was required for a certain situation. Justice John Paul Stevens explained the Court’s position:
Judges are not experts in the field, and are not part of either political branch of the Government. Courts must, in some cases, reconcile competing political interests, but not on the basis of the judges’ personal policy preferences. In contrast, an agency to which Congress has delegated policymaking responsibilities may, within the limits of that delegation, properly rely upon the incumbent administration’s views of wise policy to inform its judgments. While agencies are not directly accountable to the people, the Chief Executive is, and it is entirely appropriate for this political branch of the Government to make such policy choices—resolving the competing interests which Congress itself either inadvertently did not resolve, or intentionally left to be resolved by the agency charged with the administration of the statute in light of everyday realities.
When a challenge to an agency construction of a statutory provision, fairly conceptualized, really centers on the wisdom of the agency’s policy, rather than whether it is a reasonable choice within a gap left open by Congress, the challenge must fail. In such a case, federal judges—who have no constituency—have a duty to respect legitimate policy choices made by those who do. The responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones: “Our Constitution vests such responsibilities in the political branches.”
Chevron did not require a comparative analysis of the reasonableness of potential interpretations, nor did it impose any judgment on the wisdom of executive branch policy decisions. As the Court said in a 1998 tax case, Atlantic Mutual Insurance Co. v. Commissioner of Internal Revenue, “the task that confronts us is to decide, not whether the Treasury regulation represents the best interpretation of the statute, but whether it represents a reasonable one.”[6] An intrinsic weakness of granting any measure of deference was that an agency’s interpretation of an ambiguous statute, unlike a court’s, was necessarily biased towards its self-interest. An agency generally adopted interpretations that expanded its power and influence, that furthered its own agenda, and that made its rules more complex rather than simpler and more transparent. When an agency drafted new regulations, the deference safety net under Chevron tacitly encouraged the agency to use vague—but reasonable—language to preserve for later use the freedom to avoid the prying eyes of the public scrutiny required by the notice-and-comment process under the Administrative Procedure Act (APA),[7] so that the agency could creatively restate what it really meant. This put the intent of Congress at risk of being mangled beyond recognition with little recourse.[8] Another flaw was that an agency’s presumed expertise was statutorily limited to the scope of its jurisdiction, meaning that the agency lacked the broader expertise necessary to competently evaluate the ripple-effect influence of its interpretations on other facets of government, society, and the economy. All of these dynamics were at play regardless of which political party controlled the government. The inter-agency ripple effect was discussed a half-century ago in Burlington Truck Lines, Inc. v. United States,[9] a case involving the jurisdictional line between the National Labor Relations Board and the Interstate Commerce Commission. Justice White warned that “if either agency is not careful, it may trench upon the other’s jurisdiction, and, because of lack of expert competence, contravene the national policy as to transportation or labor relations.”
Only a handful of CBP’s rulings mention Skidmore or Chevron deference. For instance, in HQ H003880 (March 27, 2007) CBP relied on the Skidmore deference granted in an appellate court decision:
In another ruling, HQ H255447 (June 29, 2015), CBP implicitly presumed that its interpretation of a product’s eligibility for classification under HTS subheading 9817.00.96 would, if litigated, be granted Skidmore deference. CBP noted that:
Judges have expressed frustration with deference tests. In a 2001 CIT case, Levi Strauss & Co.,[10] Judge R. Kenton Musgrave denounced the reach of Chevron (just a few months before the Mead decision):
In Chevron, the Supreme Court directed the judiciary to give deference to an agency’s reading of its own regulation. … Thus an agency employee, who may have little or no background in the law, is now both the enforcer and interpreter of the law.
This result compromises the long established concept of judicial review. Even in instances where the statute is silent or ambiguous and there has been no explicit legislative delegation from Congress to the agency, courts must still defer to the agency’s interpretation. … At best, this mandate supplants the opinion a member of the federal judiciary, appointed by the President with the advice and consent of the Senate, with that of an executive branch employee; at worst, it amounts, in essence, to the delegation of the authority of the judicial branch to the executive branch. …
[It] boggles the rational thought process to imagine that the Framers could possibly have contemplated empowering vast agencies with authority to interpret the very laws which they administer. Citizens and corporate entities are now at the mercy of federal regulators, who are by nature and purpose often adversaries of those whom they regulate. To say that judicial review of administrative decisions is alive and well is to deny reality. In practice the opinions and orders of administrators and their subalterns are almost always final.
A 2001 Supreme Court case, United States v. Mead Corp., is the most important customs-related case involving judicial deference.[11] Mead imported “day planners” under a duty-free HTS subheading until CBP issued a ruling that placed the goods under a dutiable subheading. The Court’s task was to determine “whether a tariff classification ruling by the United States Customs Service deserves judicial deference.” Justice Souter highlighted the bright line between Chevron and Skidmore:
Many cases since Mead have addressed the deference afforded to CBP rulings. For example, in 2003 the CAFC in Rubie’s Costume Co. v. United States said that “we read the Court’s holding [in Mead] as applying to all Customs classification rulings” and therefore “we determine that HQ 961447 is entitled to Skidmore deference because of its power to persuade.”[12] In 2017, in Cargill, Inc. v. United States, the CIT found that an HQ ruling was “not entitled to Skidmore respect” because “Customs did not give thorough consideration and provide valid reasoning in HRL 960311.”[13]
The application of the Skidmore deference test in customs litigation isn’t limited to binding rulings. Consistent with the Customs Modernization Act of 1993 (Mod Act), CBP publishes many “Informed Compliance Publications” (ICPs) intended to provide guidance to the importing community on a wide range of customs-related subjects. Importers regularly refer to the guidance in these ICPs with the expectation that they faithfully reflect the laws and regulations, and hence the implied expectation is that, if challenged, they have the power to persuade required under Skidmore. (Mead noted that “rulings are best treated like ‘interpretations contained in policy statements, agency manuals, and enforcement guidelines.’”) But in a 2003 CIT case called International Marble Corp. v. United States, the court said that guidance in a particular ICP did not deserve Skidmore deference:[14]
The courts have often considered whether some level of deference to CBP was appropriate. For example, in 2006 in Michael Simon Design, Inc. v. United States, the CIT denied deference to CBP’s claim that it “consistently interpreted the tariff term ‘festive articles’ as excluding utilitarian articles.”[15] In a 2007 CIT opinion, Wilton Industries, Inc. v. United States, the court gave no deference to an ICP on festive articles, noting that the ICP “has been so thoroughly discredited that Customs has now withdrawn it [hence it] does nothing to support Customs’ claim to deference in this action.”[16] In 2009 in Arko Foods Int’l v. United States,[17] Judge Gregory Carmen of the CIT was blunt, commenting that a classification ruling issued to Arko was undeserving of Skidmore deference because it was “barren of any logical explanation for [the] classification, and therefore lacks any power to persuade.” And in an even more cutting rebuke, Judge Judith Barzilay of the CIT said in 2009 in Global Sourcing Group v. United States[18] that the two rulings under review were “riddled with erroneous assumptions, inconsistent statements, and seemingly contradictory conclusions” and that “Customs’ method for classifying goods [is] incoherent”. In a 2013 CIT case, Corning Gilbert,[19] Judge Leo Gordon said with regard to an internal advice ruling that “the court is not persuaded that Customs undertook such a logical, thorough, and expert analysis that would warrant deference.”
The limit of Chevron deference was explored in a 2013 opinion from the Eighth Circuit Court of Appeals, Union Pacific Railroad Co. v. United States Dept. of Homeland Security.[20] The decision involved the smuggling of drugs in railcars transferred to Union Pacific’s control when the railcars entered the U.S. from Mexico. CBP held Union Pacific responsible, but the court didn’t agree. The case discussed disparate interpretations of the applicable statutes. Noting that CBP’s interpretation was contrary to the Constitution, which thus quashed any deference-based argument, the court declared that “constitutional avoidance trumps even Chevron deference, and easily outweighs any lesser form of deference we might ordinarily afford an administrative agency such as CBP.”
The difficulties in determining whether Chevron deference is appropriate were laid bare in 2016 in Ford Motor Co. v. United States,[21] a NAFTA reconciliation appellate decision in which the CAFC was sharply divided over the deference afforded to statutory interpretations made by CBP. At issue were the unique NAFTA certificate requirements under reconciliation. The court affirmed the CIT’s decision, which was adverse to Ford, concluding that CBP provided “a reasonable explanation [worthy of Chevron deference] for the different filing requirements in the traditional post-entry duty refund process and in claiming duty refund through the reconciliation program.” But in a persuasive dissent, Judge Jimmie Reyna said that he found “no principled explanation for Customs’ decision in this case to treat duty refund claims under NAFTA differently depending on whether those claims were filed traditionally or through an electronic process known as ‘reconciliation.’ … I therefore would review the statutes without Chevron deference to Customs’ interpretation.” And in 2021 in The National Association of Manufacturers v. Department of the Treasury,[22] the CAFC affirmed the CIT’s finding that a drawback-related rule implemented by CBP regarding excise taxes was, under a Chevron step-one analysis, contrary to an unambiguous statute.
The main focus of this article is the effect Loper Bright will have on the customs–importer community, but what is its effect on export controls and sanctions? Substantial deference has generally been afforded to executive branch decisions, without reliance on Chevron, regarding matters of foreign affairs and national security—the prime drivers of export controls and sanctions policymaking. The courts have long realized that judges possessed little expertise to judge executive branch policy decisions in matters of international relations. For example, the International Emergency Economic Powers Act (IEEPA), which serves as the authority for many of the sanctions imposed on countries, entities and persons, gives the President the authority “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.”[23] This delegation of broad authority effectively shields from the reach of judicial review the regulations that implement IEEPA’s objectives. We also find that Congress granted the President similarly broad authority and discretion to implement export controls under the Export Control Act of 2018.[24] So to whatever extent the courts have or have not deferred to the executive branch’s actions regarding sanctions and export controls, the reversal of Chevron should be of no consequence.
Loper Bright has returned to the courts the authority to say definitively whether a regulation can stand or should be struck down. This is a good thing. A critical check-and-balance mechanism under the Constitution is restored. The practical effect is that agencies will likely be more careful to ensure statutory alignment when rulemaking so that their interpretations will withstand judicial scrutiny. And we can hope that Congress takes greater care in drafting laws that are unambiguous in meaning and explicit when delegating interpretive authority to agencies. But as to the effect on the day-to-day cross-border activities of virtually all importers and exporters, the death of Chevron will be inconsequential and unnoticed. The crucial takeaway is that Skidmore deference is untouched—a court may continue to rely on Skidmore as a valid test of the persuasive power of binding rulings or administrative guidance publications like ICPs.
[1] Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024).
[2] Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).
[3] Skidmore v. Swift & Co., 323 U.S. 134 (1944).
[4] General Electric Co.–Medical Systems Group v. United States, 247 F.3d 1231 (Fed. Cir. 2001).
[5] General Electric Co.–Medical Systems Group v. United States, 273 F.3d 1070 (Fed. Cir. 2001). The court further added that “despite Customs’ relative expertise, for the reasons stated below, we find its position unpersuasive.”
[6] Atlantic Mutual Insurance Co. v. Commissioner of Internal Revenue, 523 U.S. 382 (1998).
[7] 5 U.S.C. §§ 551–559. In Loper Bright, the Court noted: “The experience of the last 40 years has thus done little to rehabilitate Chevron. It has only made clear that Chevron’s fictional presumption of congressional intent was always unmoored from the APA’s demand that courts exercise independent judgment in construing statutes administered by agencies.”
[8] The Supreme Court recognized this risk in Christopher v. SmithKline Beecham Corp., 567 U.S. 142 (2012), noting that the Court’s “practice of deferring to an agency’s interpretation of its own ambiguous regulations undoubtedly has important advantages, but this practice also creates a risk that agencies will promulgate vague and open-ended regulations that they can later interpret as they see fit[.]” In his dissent of the majority opinion in New York v. United States, 342 U.S. 882 (1951), Justice Hugo Black wrote that “unless we make the requirements for administrative action strict and demanding, expertise, the strength of modern government, can become a monster which rules with no practical limits on its discretion. Absolute discretion, like corruption, marks the beginning of the end of liberty.”
[9] Burlington Truck Lines, Inc. v. United States, 371 U.S. 156 (1962).
[10] Levi Strauss & Co. v. United States, 133 F. Supp. 2d 693 (Ct. Int’l Trade 2001). Examples of other CIT cases that relied to some extent on Chevron include Hyundai Electronics Co., Ltd. v. United States, 53 F. Supp. 2d 1334 (Ct. Int’l Trade 1999); Fuwei Films (Shandong) Co. v. United States, 791 F. Supp. 2d 1381 (Ct. Int’l Trade 2011); Samsung Electronics Co., Ltd. v. United States, 72 F. Supp. 3d 1359 (Ct. Int’l Trade 2015); Juancheng Kangtai Chemical Co., Ltd. v. United States, 2017 CIT 3 (Ct. Int’l Trade 2017); and Tabacos USA, Inc. v. United States, 2018 CIT 170 (Ct. Int’l Trade 2018).
[11] United States v. Mead Corp., 533 U.S. 218 (2001).
[12] Rubie’s Costume Co. v, United States, 337 F. 3d 1350 (Fed. Cir. 2003).
[13] Cargill, Inc. v. United States, 318 F. Supp. 2d 1279 (Ct. Int’l Trade 2004).
[14] International Marble Corp. v. United States, 264 F. Supp. 2d 1306 (Ct. Int’l Trade 2003).
[15] Michael Simon Design, Inc. v. United States, 452 F. Supp. 2d 1316 (Ct. Int’l Trade 2006).
[16] Wilton Industries, Inc. v. United States, 493 F. Supp. 2d 1294 (Ct. Int’l Trade 2007).
[17] Arko Foods Int’l, Inc. v. United States, 679 F. Supp. 2d 1369 (Ct. Int’l Trade 2009).
[18] Global Sourcing Group, Inc. v. United States, 611 F. Supp. 2d 1367 (Ct. Int’l Trade 2009).
[19] Corning Gilbert Inc. v. United States, 896 F. Supp. 2d 1281 (Ct. Int’l Trade 2013). This case involved Corning Gilbert’s protest of the exclusion from entry of certain coaxial connectors that CBP claimed were subject to a patent infringement exclusion order issued by the ITC. To resolve the protest, the port received an internal advice ruling, HQ H194336 (December 9, 2011), but the court did not defer to CBP because the ruling essentially parroted the ITC exclusion order without offering CBP’s own analysis.
[20] Union Pacific Railroad Co. v. United States Dept. of Homeland Security, 738 F.3d 885 (8th Cir. 2013).
[21] Ford Motor Co. v. United States, 809 F.3d 1320 (Fed. Cir. 2016).
[22] The National Association of Manufacturers v. Department of the Treasury, 10 F.4th 1279 (Fed. Cir. 2021).
[23] 50 U.S.C. § 1701.
[24] 50 U.S.C. § 4812.
Read more articles by Mike: https://www.braumillerconsulting.com/author/mike-smiszek/
