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SCOTUS Zeal to Curb Agency Power & Trade Loophole · Bloomberg Law

0:03
Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
0:10
Speaker 2: Last term, agency power took a hit at the Supreme
0:14
Speaker 2: Court as its conservatives overturned a forty year old precedent
0:19
Speaker 2: and put new constraints on regulators. But conservatives are not
0:23
Speaker 2: done with their attack on the so called administrative state,
0:27
Speaker 2: as more issues are coming to the Court that would
0:30
Speaker 2: further gut the authority of federal regulators, and the upcoming
0:34
Speaker 2: issues could be even more consequential if the Court considers
0:39
Speaker 2: two far reaching arguments. One threatens a multitude of laws
0:43
Speaker 2: that let agencies set clean air standards, establish workplace safety rules,
0:48
Speaker 2: and determine on fair trade practices. A second targets the
0:52
Speaker 2: independence of the Securities and Exchange Commission and perhaps even
0:57
Speaker 2: the Federal Reserve. Joining me is Bloomberg New Supreme Court
1:01
Speaker 2: reporter Greg Storr, who has written about this. Greg, for
1:04
Speaker 2: those who don't remember, explain with the Supreme Court's conservative
1:08
Speaker 2: justices did about agency power last term.
1:12
Speaker 3: Well, they did a lot of things. June. The biggest
1:14
Speaker 3: headlines were they overturned a forty year old precedent that
1:18
Speaker 3: it basically said, if there's a statute and it's not
1:21
Speaker 3: clear what it means that the courts will defer to
1:24
Speaker 3: the agency about what that ambiguity means. That was known
1:27
Speaker 3: as the Chevron doctrine. The Court overturned that, and what
1:31
Speaker 3: it means going forward is that judges are going to
1:33
Speaker 3: have a lot more power to strike down agency actions
1:37
Speaker 3: and agencies will have less authority to define the kind
1:41
Speaker 3: of the scope of their missions. There were a couple
1:42
Speaker 3: other big, big decisions the Court issued as well. It's
1:45
Speaker 3: definitely a theme of this court to limit agency power,
1:49
Speaker 3: but that was the biggest case.
1:50
Speaker 2: Address this in not only her the sense, but at
1:53
Speaker 2: a judicial conference this summer.
1:56
Speaker 3: Yeah, so Justice Kagan, who in our previous life was
1:59
Speaker 3: an expert on administrative law professor, she dissented from all
2:05
Speaker 3: the courts of the big pre rulings from this last term,
2:08
Speaker 3: and at the judicial conference in July, she mentioned that,
2:12
Speaker 3: you know, the Court's pretty clear about what his goals
2:15
Speaker 3: are here that the majority of the conservative majority, she said,
2:18
Speaker 3: just thinks there's too much agency regulation going on. And
2:22
Speaker 3: so you know what we're seeing is critics of federal
2:26
Speaker 3: regulation sort of trying to leverage that predisposition that the
2:30
Speaker 3: Court has to limit agency power and they're lodging a
2:34
Speaker 3: whole variety of arguments at the Court.
2:36
Speaker 2: Last term, we learned about the Chevron doctrine. For people
2:40
Speaker 2: who didn't know this term, we're going to learn about
2:42
Speaker 2: the non delegation doctrine.
2:45
Speaker 3: Yeah, we may well. And if we don't learn about
2:47
Speaker 3: it this term, we will learn about it in a
2:49
Speaker 3: term coming to you very soon. The non delegation doctrine,
2:53
Speaker 3: unlike Chevron Chevren, is all about how to interpret statutes.
2:57
Speaker 3: It's not a constitutional question. The delegation question is about
3:01
Speaker 3: constitutional power, and the question is whether when Congress delegates
3:06
Speaker 3: some of its authority to say, a regulatory agency, what
3:10
Speaker 3: sorts of guidance does Congress have to give that agency.
3:13
Speaker 3: And for the past ninety years or so, the Supreme
3:16
Speaker 3: Court has basically said, yeah, it doesn't have to give
3:19
Speaker 3: a whole lot of guidance. It can delegate some really
3:22
Speaker 3: important things to agencies, and as long as there's a
3:25
Speaker 3: so called intelligible principle, that's just fine. And a lot
3:30
Speaker 3: of conservative advocates conservative jurists would like the Court to
3:34
Speaker 3: reinvigorate that doctrine, to put restrictions on Congress so that
3:38
Speaker 3: if it is going to try to delegate some authority.
3:41
Speaker 3: It's got to be a lot more clear about what
3:42
Speaker 3: the agencies actually are supposed to do.
3:45
Speaker 2: That sounds almost like an uphill battle. I don't know
3:47
Speaker 2: if it's a battle that can't be won, considering how
3:51
Speaker 2: little Congress passes nowadays and how difficult it is to
3:55
Speaker 2: get anything through.
3:57
Speaker 3: Yeah, so this doctrine, known as a non delgate doctrine,
4:01
Speaker 3: could really a It could overturn some previously enacted statutes
4:05
Speaker 3: and be, as you said, given the deadlock that is
4:10
Speaker 3: so often a feature of our political process these days,
4:13
Speaker 3: it could you make it virtually impossible or very very
4:17
Speaker 3: difficult for Congress to muster the will and the coalition
4:22
Speaker 3: needed to put in place the kind of law that
4:24
Speaker 3: the Supreme Court would approve of.
4:26
Speaker 2: This non delegation doctrine would apply to all agencies.
4:30
Speaker 3: It would apply to every federal agency. Obviously, every federal
4:34
Speaker 3: agency is different, so exactly how it applies, you know,
4:37
Speaker 3: might depend on the statute. And it will also apply
4:40
Speaker 3: and one case that the Court could decide to take
4:43
Speaker 3: up in the fairly near future, it could apply when
4:47
Speaker 3: an outside entity, a non governmental entity, plays some role
4:51
Speaker 3: in putting regulations in place. So there's also the notion
4:55
Speaker 3: that Congress has even less power to delegate things to
4:58
Speaker 3: private entitudes.
5:00
Speaker 2: Are we talking about environmental rules, workplace rules, things like that.
5:06
Speaker 3: Yeah. So one place we saw it the court turning
5:09
Speaker 3: this case down. But one place we saw it very
5:11
Speaker 3: recently was a very broad challenge to the power of OSHA,
5:15
Speaker 3: the Occupational Safety and Health Administration that sets workplace safety rules.
5:19
Speaker 3: And the challenge which again the Court didn't take this
5:22
Speaker 3: one up, but the challenge was that Congress had given
5:25
Speaker 3: OSHA way too much power to just decide what is
5:28
Speaker 3: an unsafe workplace practice. So that's one example could certainly
5:33
Speaker 3: apply in the context of the EPA. Absolutely, there are,
5:38
Speaker 3: of course a lot of different sorts of attacks on
5:40
Speaker 3: the EPA they could apply, And it's being raised with
5:44
Speaker 3: regard to the Federal Trade Commission's effort to ban noncompete
5:49
Speaker 3: clauses and employment agreements. The question is there is whether
5:53
Speaker 3: Congress has delegated to the FDC the power to decide
5:56
Speaker 3: was an unfair trade practice, and that's the mechanism the
6:00
Speaker 3: PC used to enact this ban, And the question is
6:03
Speaker 3: whether Congress was specific enough there. So it's a pretty
6:06
Speaker 3: wide and potentially very very important legal doctrine.
6:10
Speaker 2: And there's an FCC case.
6:13
Speaker 3: There is an FCC case, and this may be the
6:15
Speaker 3: one that the Court agrees to take up. This has
6:18
Speaker 3: to do with the so called Universal Service Fund. That's
6:22
Speaker 3: the program that is used to subsidize the monthly phone
6:26
Speaker 3: bills in rural areas for poor people, and it's funded
6:31
Speaker 3: by a charge that shows up on everybody else's or
6:34
Speaker 3: every phone bill. And the question goes to how the
6:39
Speaker 3: FCC determines what that charge is going to be from
6:42
Speaker 3: year to year. And this is one of those cases
6:44
Speaker 3: where it relies in part on some assistance of a
6:48
Speaker 3: private entity. That's a case where a federal appeals court,
6:52
Speaker 3: not surprisingly it's the conservative Fifth Circuit, has said that
6:56
Speaker 3: is a violation of the non delegation doctrine. That's the
7:00
Speaker 3: case that sometime in the next few weeks of Supreme
7:02
Speaker 3: Court may well say it's going to hear and greg.
7:05
Speaker 2: It was during Franklin Roosevelt's term that this was used.
7:11
Speaker 3: Yeah, this is I mentioned. The Court has had kind
7:14
Speaker 3: of a low bar for the delegations for the past
7:17
Speaker 3: ninety years, well ninety years ago. It was actually eighty
7:19
Speaker 3: nine years ago. In nineteen thirty five, where only two
7:23
Speaker 3: times the Supreme Court has ever struck anything down on
7:26
Speaker 3: the basis of the non delegation doctrine. There were two
7:29
Speaker 3: cases stemming from the New Deal. I'll spare you the
7:33
Speaker 3: details of the program, but one case is colloquially known
7:36
Speaker 3: as the Kicking case. The other one is colloquially known
7:38
Speaker 3: as the hot Oil case. But since then the Supreme
7:41
Speaker 3: Court has not struck anything down under the non delegation doctrine.
7:45
Speaker 3: But in more recent years, the Court's conservatives have in
7:49
Speaker 3: various forms, strongly suggested that they are interested in reviving
7:53
Speaker 3: the doctrine.
7:54
Speaker 2: And there are some cases that are targeting the independence
7:59
Speaker 2: of federal ages. Tell us about that.
8:02
Speaker 3: Yeah, this is another issue with its roots in the
8:05
Speaker 3: New Deal. There's a nineteen thirty five decision that also
8:08
Speaker 3: went against Franklin Roosevelt. What it did was it said
8:11
Speaker 3: that Roosevelt could not did not have the authority to
8:15
Speaker 3: fire a member of the Federal Trade Commission for any reason.
8:19
Speaker 3: Congress had put in place job protections for the FTC commissioners.
8:23
Speaker 3: Those job protections are still in place, and the question
8:26
Speaker 3: is as to whether those job protections are unconstitutional, violating
8:31
Speaker 3: separation of powers. And if the answer to that is
8:35
Speaker 3: that does violate the separation of powers, then it calls
8:38
Speaker 3: in the question all the administrative agencies, all the independent
8:42
Speaker 3: agencies that are out there. So we're talking about the
8:45
Speaker 3: Securities and Exchange Commission, We're talking about the Federal Trade Commission,
8:49
Speaker 3: the Federal Communications Commission. There's a whole slew of those
8:52
Speaker 3: executive branch agencies, and the argument is basically that they
8:56
Speaker 3: need to be accountable to the president because they are
8:59
Speaker 3: executive branch aig agencies. And the folks who would like
9:02
Speaker 3: to put those agencies more firmly under presidential control are
9:06
Speaker 3: looking at the possibility or arguing for, in some cases,
9:10
Speaker 3: overturning that nineteen thirty five decision known as Humphrey's Executor.
9:14
Speaker 2: The agency that comes to mind that the Supreme Court
9:16
Speaker 2: has had a lot to do with recently is the
9:19
Speaker 2: Consumer Financial Protection Bureau. Tell us how the Court has
9:22
Speaker 2: ruled with respect to that.
9:25
Speaker 3: Yeah, So, a couple of years ago, the Court said
9:28
Speaker 3: it is unconstitutional to give job protections to the director
9:33
Speaker 3: of the CSPB. They struck down those job protections. That
9:37
Speaker 3: means that the director of the CFPP can now be
9:39
Speaker 3: fired by the President, and in that case they distinguished
9:44
Speaker 3: Humph's executor. What they said was he Humph's executor involved
9:48
Speaker 3: a multi member commission. The idea was that you want
9:51
Speaker 3: to have some expertise on this commission, you want to
9:54
Speaker 3: have sort of institutional knowledge. And the court said it
10:00
Speaker 3: different when you have a single person heading an agency.
10:03
Speaker 3: That person, the CFB director, has an enormous amount of
10:07
Speaker 3: power and he or she really ought to be accountable
10:11
Speaker 3: to somebody, namely the President. So the court left open
10:15
Speaker 3: the question of the independent agencies like the ones we
10:18
Speaker 3: were talking about earlier. It said that with regards to
10:22
Speaker 3: agencies that are run by a single person, at least
10:25
Speaker 3: when they have as much executive branch power as the
10:29
Speaker 3: CFPB director has, that is unconstitutional.
10:32
Speaker 2: And our listeners will be concerned about the FED, I think,
10:37
Speaker 2: I mean, with the FED fall if all these agencies do.
10:40
Speaker 3: Yeah, that's a really good question, because exactly how you
10:44
Speaker 3: distinguished the FED from the SEC and the FTC not
10:49
Speaker 3: entirely clear. The people I talked to and I talked
10:52
Speaker 3: to the story I wrote. I talked to a number
10:54
Speaker 3: of people about kind of what the next priorities are
10:56
Speaker 3: in the world of administrative law and without exception, and
11:00
Speaker 3: folks said, I think the Court will be skittish about
11:03
Speaker 3: calling to question the independence of the FED. You know,
11:07
Speaker 3: its independence is really a bedrock of our economic system,
11:11
Speaker 3: so you know, it's a good question. The courts will
11:14
Speaker 3: probably want to tread carefully. You know, there's not a
11:17
Speaker 3: guarantee about how it will come out, but the Court,
11:21
Speaker 3: you can imagine we'll hear a lot about the importance
11:24
Speaker 3: of said independence being a bit apart from the political
11:28
Speaker 3: processes if indeed they do take up this issue of
11:32
Speaker 3: Humphrey's executor.
11:33
Speaker 2: Coming up next on the Bloomberg Lawn Show, I'll continue
11:36
Speaker 2: this conversation with Bloomberg Supreme Court reporter Greg Store will
11:40
Speaker 2: take a peek at the term coming up and see
11:43
Speaker 2: if there are any blockbuster cases. I'm June Grosso and
11:46
Speaker 2: you're listening to Bloomberg. There's a possible challenge to the
11:50
Speaker 2: Consumer Protection Safety Commission.
11:53
Speaker 3: Yeah, this is a case that is on the so
11:56
Speaker 3: called long conference list where the Supreme Court, when this
11:59
Speaker 3: is a come back in early October, will decide whether
12:02
Speaker 3: to take these cases up. And there is a case
12:04
Speaker 3: that challenges the independence of the Consumer Product Safety Commission
12:09
Speaker 3: in that case, the petitioners are saying, hey, you don't
12:12
Speaker 3: need to overturn Humphreys Executor. We can actually make the
12:16
Speaker 3: case that the Consumer Product Safety Commission is different today
12:19
Speaker 3: than the STC was back in nineteen thirty five. But
12:23
Speaker 3: we've seen in other contexts that the Court sometimes goes
12:27
Speaker 3: beyond exactly what the parties are asking for. So it
12:31
Speaker 3: would at least call into question if the Court would
12:34
Speaker 3: agree to take up that case, it would at least
12:35
Speaker 3: call into question the survivability of Hunters Executor, and therefore
12:39
Speaker 3: all these other independent commissions.
12:42
Speaker 2: You know, I foolishly thought that the Court might take
12:45
Speaker 2: a step back, you know, from these groundbreaking decisions, landmark decisions,
12:51
Speaker 2: considering that a lot of their other landmark decisions, like
12:54
Speaker 2: doing right with the Chevron Doctrine, taking away abortion rights,
12:58
Speaker 2: the Second Amendment decision have led to so much litigation
13:02
Speaker 2: in lower courts who are confused about what the rules are,
13:06
Speaker 2: and it seems like this is just going to cause
13:08
Speaker 2: more litigation.
13:09
Speaker 3: It will certainly cause more litigation if the Court goes
13:13
Speaker 3: there on these two areas of law. You know, this
13:15
Speaker 3: is not a guarantee they're going to take these issues
13:17
Speaker 3: up on the very first opportunity. It's possible they will
13:21
Speaker 3: hear people like June Grosso talking about all the confusion
13:24
Speaker 3: in the lower courts, and we'll say, yeah, maybe we should.
13:26
Speaker 3: I'm sure a little bit we will. Al will certainly
13:30
Speaker 3: also get cases coming up that are dealing with that
13:34
Speaker 3: confusion that you were talking about. The decision, the overturning Chevron,
13:39
Speaker 3: the decisions own as Low for Bride, undoubtedly is going
13:41
Speaker 3: to foster some confusion that the Court may feel the
13:45
Speaker 3: need to clear up. There's another big decision the court
13:48
Speaker 3: is whose last term, having to do with the right
13:50
Speaker 3: to a jury trial with the SEC is going after you.
13:54
Speaker 3: That may also spawn some follow up issues, so the
13:58
Speaker 3: Court may feel like it has a handsful with those issues.
14:02
Speaker 3: We're just going to have to see. But what is
14:04
Speaker 3: clear is that folks who think the administrative state has
14:07
Speaker 3: too much power certainly has some other big goals in mind,
14:11
Speaker 3: some other significant things they would like the Court to do,
14:14
Speaker 3: and they're going to be asking for.
14:15
Speaker 2: That last year. About this time, there seem to be
14:19
Speaker 2: a lot of blockbuster cases lined up for the term.
14:23
Speaker 2: Do you see any blockbusters for this term so far?
14:27
Speaker 3: I would say so far, the Court has not agreed
14:29
Speaker 3: to hear any blockbusters. There's plenty of time to add
14:32
Speaker 3: other big cases for the winter and spring. The cases
14:35
Speaker 3: that the Court has agreed to hear in the fall,
14:38
Speaker 3: probably the one that will get the most attention has
14:40
Speaker 3: to do with transgender care and laws in about two
14:43
Speaker 3: dozen states that ban so called gender firming or gender
14:47
Speaker 3: transition care for minors. That's the case the Court will
14:52
Speaker 3: probably hear in December, and of course there's a possibility
14:55
Speaker 3: that we'll have a significant elections fight, so everybody's kind
14:58
Speaker 3: of holding their breath for the power spelthy of that.
15:01
Speaker 2: Are there any abortion related cases coming up? Less term?
15:04
Speaker 2: The Supreme Court took up that Idaho case over whether
15:08
Speaker 2: a federal hospital law guarantees that patients can get abortions
15:13
Speaker 2: to prevent a serious health risk, even in states like
15:16
Speaker 2: Idaho that allow the procedure only when the mother's life
15:20
Speaker 2: is in danger, But the justices didn't resolve the issue.
15:24
Speaker 2: Is that case coming back to the Supreme Court?
15:26
Speaker 3: So the Idaho case, it doesn't seem like that's likely
15:29
Speaker 3: to come back up. There is waiting for the court.
15:32
Speaker 3: We'll see how they deal with it. A similar issue
15:35
Speaker 3: being raised in a Texas case. It's similar but different.
15:40
Speaker 3: In that case, Texas has sued the Biden administration saying
15:44
Speaker 3: a policy that the Department of Health and Human Services,
15:49
Speaker 3: a memorandum they put together, cannot be applied the Texas
15:53
Speaker 3: having to do with whether abortions that need to happen
15:56
Speaker 3: on an emergency basis in an hospital emergency rooms. I'm
16:00
Speaker 3: sure there will be other abortion cases that come along.
16:04
Speaker 3: Right now, there's not a significant one that is a
16:08
Speaker 3: sure beck for the court to take, and not one
16:10
Speaker 3: that they've already agreed to hear.
16:12
Speaker 2: I noticed that in the first week of the term
16:15
Speaker 2: there are oral arguments set in a death penalty case.
16:19
Speaker 3: It's the unusual case where the court agreed to hear
16:22
Speaker 3: an appeal by a death row inmate. It's a case
16:25
Speaker 3: where even the Oklahoma Attorney General says that the guilty
16:32
Speaker 3: verdict against Richard Glossop should not stand. There's evidence that
16:37
Speaker 3: prosecutors suppressed evidence, including some matters regarding the testimony of
16:41
Speaker 3: the key witness. So the court is hearing arguments in
16:45
Speaker 3: that case. And it's the rare case where a death
16:48
Speaker 3: row inmate has at least a fighting chance to win
16:51
Speaker 3: at the Supreme.
16:51
Speaker 2: Court Greg it seemed like it about this time last year.
16:55
Speaker 2: There are a lot more cases that were queued up
16:59
Speaker 2: that seemed interesting. How much slower are they going with
17:03
Speaker 2: granting petitions this year.
17:06
Speaker 3: It's definitely slow. Not so much on numbers, but it's
17:09
Speaker 3: slow in terms of the star power of the cases.
17:13
Speaker 3: This time last year, we had a lot of cases
17:17
Speaker 3: involving some significant cases involving administrative law the Court had
17:21
Speaker 3: already agreed to hear. There were cases that were pretty
17:24
Speaker 3: clearly in the pipeline that the Court was almost certainly
17:27
Speaker 3: going to have to hear, including the myth of pristone,
17:31
Speaker 3: the abortion pill case. We don't really have this term,
17:36
Speaker 3: not a particular reason for it other than those cases
17:40
Speaker 3: don't seem to have come along yet. I would be
17:43
Speaker 3: surprised if we didn't have some pretty significant ones when
17:46
Speaker 3: all of a said and done. The Court certainly has
17:49
Speaker 3: has plenty of time to add some big cases. And
17:51
Speaker 3: there are at least some folks out there watching the Court
17:54
Speaker 3: who speculate that they are intentionally keeping things low key
17:59
Speaker 3: right now with an election coming up, in part because
18:02
Speaker 3: they don't want their docket to get too bogged down
18:05
Speaker 3: with big stuff. Because they may indeed have to take
18:08
Speaker 3: up a significant election case depending on how things go
18:12
Speaker 3: this summer.
18:12
Speaker 2: I think three of the justices when they were talking
18:15
Speaker 2: to groups of lawyers and judges, either complained about or
18:21
Speaker 2: expressed concerns about the amount of work during the summer
18:27
Speaker 2: from the emergency docket, which is better known as the
18:30
Speaker 2: shadow docket. Was there a lot of action on the
18:33
Speaker 2: emergency docket this summer.
18:35
Speaker 3: Yeah, it's been a really big summer for emergency applications.
18:39
Speaker 3: The Court has had cases involving voting laws, a proof
18:43
Speaker 3: of citizenship law. They've had a case involving the rights
18:46
Speaker 3: of transgender students. They've had a significant case involving Joe
18:53
Speaker 3: Biden's latest attempt to reduce student loan bills. A court
18:58
Speaker 3: kept this newest plan on hold, rejecting the Biden administration
19:03
Speaker 3: in that one. And there are a number of pending
19:05
Speaker 3: applications things that have been sitting around for a while
19:09
Speaker 3: involving the EPA, including a rule that would put new
19:13
Speaker 3: limits on missions from power plant to stem climate change.
19:18
Speaker 3: So that's become a pretty regular feature of the court
19:22
Speaker 3: that there are almost always some very significant emergency applications
19:28
Speaker 3: that are in the pipeline and what often happens with these,
19:32
Speaker 3: for example, the student loan case, that may end up
19:34
Speaker 3: being the final word on that effort. It may be
19:38
Speaker 3: because who knows what's going to happen in the presidential race.
19:41
Speaker 3: It may well be that the Biden administration never gets
19:44
Speaker 3: to put those rules in place, even though this is
19:47
Speaker 3: supposed to be only a temporary order from the Supreme Court.
19:51
Speaker 2: And of course the problem with the shadow docket is
19:53
Speaker 2: that these cases are decided sometimes finally, as you mentioned
19:57
Speaker 2: with the student loan case, without full argument or briefing.
20:02
Speaker 2: Thanks so much for that preview, Greg. That's Bloomberg New
20:05
Speaker 2: Supreme Court reporter Greg's store. The Biden administration is moving
20:10
Speaker 2: to narrow a trade loophole that Chinese online retailers like
20:15
Speaker 2: Tamu and Sheen have used to ship an increasing number
20:18
Speaker 2: of packages containing cheap goods into the US every day
20:23
Speaker 2: ti free. The Biden administration announced that it intends to
20:26
Speaker 2: propose rules that would rein in the use of the
20:29
Speaker 2: so called deminimous exemption that allows products worth less than
20:33
Speaker 2: eight hundred dollars to go directly to consumers without customs
20:37
Speaker 2: declarations or duties. Shipments under the Dominimus standard have searched
20:42
Speaker 2: to one billion packages last year, up from one hundred
20:45
Speaker 2: and forty million a decade ago, overwhelming the US agencies
20:50
Speaker 2: responsible for screening packages for unsafe or illegal goods. Joining
20:55
Speaker 2: me is international trade expert David Townsend of Dorsey and
20:59
Speaker 2: Whitney tell us about the dominimous exemption.
21:02
Speaker 1: It's a harve out from the US import entry process
21:07
Speaker 1: where an importer is permitted to make what's called an
21:10
Speaker 1: informal entry as its merchandise comes into the United States,
21:15
Speaker 1: and by statute, that exemption is available only if the
21:19
Speaker 1: package is valued at less than eight hundred dollars and
21:23
Speaker 1: is only entered on one day to the same person,
21:26
Speaker 1: So you can't have one person importing multiple items that
21:30
Speaker 1: are less than eight hundred dollars in claiming them under
21:33
Speaker 1: the informal entry process. What the informal entry process does
21:37
Speaker 1: is it allows a sort of streamlined entry process where
21:42
Speaker 1: limited information and data is reported to US customs and
21:47
Speaker 1: there's a lot of formal data elements that you get
21:49
Speaker 1: to skip if you enter it under the dominamous exemption,
21:53
Speaker 1: and customs waves or doesn't apply. A number of the
21:57
Speaker 1: regulatory requirements that apply to import entry that do not
22:01
Speaker 1: enter under the diminimus exemption.
22:03
Speaker 2: Has the use of the dominimous exemption gone up in
22:07
Speaker 2: recent years?
22:08
Speaker 1: Yeah, So I'll just back up in terms of the
22:11
Speaker 1: history of the dominomous exemption, because it has a pretty
22:14
Speaker 1: long history. It was it's been in effect under US
22:17
Speaker 1: law for decades through most of the nineties and early
22:21
Speaker 1: two thousands. It was at two hundred dollars per person
22:23
Speaker 1: per day. That was changed in twenty fifteen, and in
22:28
Speaker 1: that law, Congress raised the statutory threshold under which importers
22:34
Speaker 1: can use the diminamous exemption. So the exemption went from
22:39
Speaker 1: two hundred dollars a day eight hundred dollars a day
22:42
Speaker 1: in twenty fifteen. When Congress made this change, it was
22:44
Speaker 1: a recognition that e commerce had increased, that there was
22:48
Speaker 1: significant benefit to US consumers, to US importers, to e
22:53
Speaker 1: commerce and retail companies to allowing the use of the
22:57
Speaker 1: informal entry procedure. And so to get to question whether
23:01
Speaker 1: it's increased, Yes, it's increased many times over since twenty fifteen.
23:05
Speaker 1: And it's no secret why that would be the case. First,
23:09
Speaker 1: the amount of customers and US consumers that buy things over.
23:14
Speaker 1: E commerce has significantly increased since twenty fifteen. There was
23:18
Speaker 1: a large increase because of COVID nineteen, also a large
23:22
Speaker 1: increase I think, even aside from COVID, just from people
23:26
Speaker 1: choosing the shop online and through e commerce platforms more
23:30
Speaker 1: than they were as of the date when Congress changed it.
23:33
Speaker 1: So to give you just a few figures about that increase,
23:37
Speaker 1: that's been vast. So in twenty fifteen twenty sixteen when
23:40
Speaker 1: the law changed, there was about one hundred and forty
23:43
Speaker 1: six million parcels per year that we're using the informal
23:46
Speaker 1: entry process, and as of last year and well this
23:50
Speaker 1: year as well, it'll be over one billion, So a
23:53
Speaker 1: very large increase. And the value of imports under the
23:56
Speaker 1: exemption has increased in the commensurate amount as the number
24:00
Speaker 1: of parcels.
24:01
Speaker 2: How much of this is directed at the Chinese retailers
24:05
Speaker 2: Temu and Sheen. The US textile industry has complained that
24:10
Speaker 2: the recent boom in e commerce from those two companies
24:13
Speaker 2: in particular has hamstrung manufacturers.
24:17
Speaker 1: Well, the majority of imports under the Dominomus exemption are
24:22
Speaker 1: from China, and I think you know, a lot of
24:25
Speaker 1: that increase would be to be expected because the profile
24:28
Speaker 1: of imports from China to the United States has been
24:32
Speaker 1: even going all the way back to twenty fifteen and
24:34
Speaker 1: still today, there's a lot of consumer goods and items
24:37
Speaker 1: sold over e commerce that would naturally tend to qualify
24:42
Speaker 1: for the diminimist exemption.
24:44
Speaker 2: Tell us about the executive order and what it aims
24:47
Speaker 2: to do.
24:48
Speaker 1: Yeah, So the White House on Friday announced several changes
24:53
Speaker 1: to the dominimus exemption. First, there are one of the
24:57
Speaker 1: significant benefits of using the dominomous exemption, certain tariffs can
25:01
Speaker 1: be avoided entirely. And the White House aims to, through
25:07
Speaker 1: a notice of rule making, is going to eliminate some
25:11
Speaker 1: of the tariff exemptions that applied for the dominamous exemption.
25:14
Speaker 1: And I'll just give you a few examples of those.
25:17
Speaker 1: There's what's called Section three A one tariffs, which are
25:20
Speaker 1: imposed on Chinese origin goods since twenty eighteen by the
25:24
Speaker 1: Trump administration, and Customs have been very clear from the
25:27
Speaker 1: beginning that if you were importing something under the dominamus exemption,
25:32
Speaker 1: you could avoid the Section three to one tariffs. Also,
25:36
Speaker 1: less important in my view, the White House is proposing
25:39
Speaker 1: to do away with the exemption if what are called
25:41
Speaker 1: Section two a one terraffs that are safeguard tariffs apply
25:44
Speaker 1: to the import or also two thirty two duties, which
25:47
Speaker 1: are national security related duties that are imposed on deal
25:51
Speaker 1: and aluminum. Unlike those duties, the Section three to one
25:54
Speaker 1: tariffs apply to about two thirds of the goods that
25:57
Speaker 1: are imported from China and do cover at least some
26:01
Speaker 1: consumer items, the types of things that you would expect
26:04
Speaker 1: to be and in packages that are valued at eight
26:08
Speaker 1: hundred dollars or less. So the White House is proposing
26:11
Speaker 1: to say, if you have anything in a package that
26:15
Speaker 1: is subject to Section three to one duties, you're ineligible
26:18
Speaker 1: to use the informal entry process, and you must declare
26:21
Speaker 1: it as the formal entry and then be required to
26:24
Speaker 1: pay the Section three to one duties. I mean, one
26:27
Speaker 1: thing you know that's significantly changed since twenty fifteen when
26:31
Speaker 1: the DOMINOMAUS exemption was increased was in twenty eighteen, President
26:34
Speaker 1: Trump began imposing the Section three oh one tariffs and
26:38
Speaker 1: President Biden has continued those tariffs, and so critics have
26:42
Speaker 1: been saying, well, this has created a loophole because you
26:46
Speaker 1: can import items from China that ought to be subject
26:49
Speaker 1: to Section three to one duties, but if you do
26:51
Speaker 1: so under the divinmus exemption, you can just avoid it entirely.
26:55
Speaker 1: And what the White House proposed on Friday would avoid
26:59
Speaker 1: that situation by for closing importers from using the diminimus
27:03
Speaker 1: exemptions for any package with anything that's subject to Section
27:06
Speaker 1: three oh one.
27:07
Speaker 2: What happens right away? These are just suggested.
27:10
Speaker 1: The White House said that they're going to initiate a
27:13
Speaker 1: proposed rule making that would prevent filers from using the
27:18
Speaker 1: diminimus exemption if anything is subject to three oh one.
27:21
Speaker 1: At the same time, the White House said that they
27:24
Speaker 1: think there should be comprehensive reform of the diminimust exemption,
27:29
Speaker 1: which would be done by Congress. As I noted at
27:31
Speaker 1: the start, the Diminimus exemption is the creature of statute,
27:35
Speaker 1: so it's established under the US Customs law. So although
27:39
Speaker 1: the White House is going to engage in a rule
27:42
Speaker 1: making on the topic, they've also said that at least
27:45
Speaker 1: some of the issues and enforcement problems that people have
27:48
Speaker 1: cited with respect to dominimus ought to be resolved through
27:52
Speaker 1: congressional lawmaking rather than just through administrative action rulemaking.
27:57
Speaker 2: Takes how long?
27:58
Speaker 1: Yeah, right, we're going to have to propose a rule.
28:01
Speaker 1: They'll have to open it up for comment, the public
28:04
Speaker 1: will get to comment on that, and they'll have to
28:07
Speaker 1: engage in a process of addressing those comments and finalizing
28:12
Speaker 1: a rule. So presumably it's going to be months before
28:15
Speaker 1: something is final And the White House noted that they said, look,
28:19
Speaker 1: this all could be done more quickly if Congress acts
28:22
Speaker 1: than if the administration does. But they obviously feel like
28:25
Speaker 1: they have the authority to move forward with these changes
28:28
Speaker 1: without Congress acting, And given the political pressure that's been
28:33
Speaker 1: building on this topic, I think they thought they would
28:35
Speaker 1: stay in front of it by saying, look, we're going
28:37
Speaker 1: to do a rule making to close the three h
28:39
Speaker 1: one loophole, as it's been called. At the same time,
28:43
Speaker 1: if this is going to be done in a comprehensive manner,
28:45
Speaker 1: it ought to be done by Congress.
28:47
Speaker 2: Is there a suspicion that a lot is coming in
28:51
Speaker 2: that doesn't really fit the deminimous exemption that's slipping in.
28:57
Speaker 1: Yeah, So there's sort of two different buckets of issue here.
29:00
Speaker 1: One would be the lawful avoidance of Section three to
29:03
Speaker 1: one duties that I've described, but then the second is
29:07
Speaker 1: that because the import process is informal, it requires less data.
29:12
Speaker 1: That there's a lot of merchandise entered under the informal
29:16
Speaker 1: process that is not lawfully eligible to be entered under
29:21
Speaker 1: the dominimous entry process, and that isn't eligible to be
29:24
Speaker 1: imported into the United States at all. So I'll just
29:27
Speaker 1: give you a couple of examples of this sort of
29:29
Speaker 1: unlawful evasion of US Customs police authority that people are
29:34
Speaker 1: concerned about. One is that items that may have illegitimate
29:40
Speaker 1: intellectual property or trademarks on them are able to be
29:44
Speaker 1: imported under the dominomous exemption without Customs fully enforcing US
29:48
Speaker 1: law related to it. And then another is narcotics. So
29:53
Speaker 1: that's another example where people have said illicit substances are
29:56
Speaker 1: able to be imported into the United States under customs.
29:59
Speaker 1: No is because they're not getting full visibility into certain
30:03
Speaker 1: import entries that might contain drugs or precursors to drugs
30:07
Speaker 1: that people can use to make into illicit substances, and
30:12
Speaker 1: Customs has acknowledged that these are blind spots for them
30:17
Speaker 1: as one of the things US Customs did earlier this year,
30:22
Speaker 1: they issued a rule making related to the type what's
30:28
Speaker 1: called Type eighty six entry, which is an entry where
30:32
Speaker 1: you take advantage of the deminimus exemption.
30:35
Speaker 3: But you still report certain.
30:37
Speaker 1: Limited data to US Customs through their electronic system. And
30:41
Speaker 1: they said when they were altering this type eighty sixth
30:44
Speaker 1: entry process, they said, look, we have enforcement concerns. Given
30:48
Speaker 1: the rise in imports under the Demnamus exemption. We just
30:51
Speaker 1: cannot meaningfully police everything that's coming in under this and
30:56
Speaker 1: so their solution was to broaden at least a bit
31:00
Speaker 1: the amount of data elements that importers have to have
31:03
Speaker 1: to report to customs as they're using the dominimous entry process,
31:07
Speaker 1: and that was done back in January. I think it
31:10
Speaker 1: was made effective in the first quarter of twenty twenty four.
31:14
Speaker 1: You know, the concerns about enforcement have not abated at
31:17
Speaker 1: all since then. In fact, they've grown even stronger. And
31:20
Speaker 1: so you see Customs in this position where they're acknowledging that,
31:24
Speaker 1: you know, we cannot fully enforce US law under the
31:28
Speaker 1: volume of shipments we're seeing under the dominimous exemption. And
31:31
Speaker 1: that brings you to the White House action that was
31:34
Speaker 1: taken on Friday that narrow the circumstances under which importers
31:38
Speaker 1: are allowed to use the diminimus exemption. Although one of
31:42
Speaker 1: the elements is that anything subject to second three to
31:46
Speaker 1: one tiff would be ineligible to use the dominomous exemption.
31:50
Speaker 1: They're also as part of the White House proposal, is
31:53
Speaker 1: going to be a rulemaking relating to how importers declare
31:58
Speaker 1: the dominimus exemption and the elements that they have to
32:01
Speaker 1: share with customs. So you see both the duty avoidance
32:04
Speaker 1: issue related to three to one that we talked about earlier,
32:07
Speaker 1: but also these other larger enforcement issues relating to IP
32:12
Speaker 1: relating to narcotics and other items entering the United States
32:17
Speaker 1: that shouldn't be lawfully entered.
32:19
Speaker 2: And lawmakers have worn that products illegally made with forced
32:24
Speaker 2: labor can avoid detection with this deminimous exemption.
32:29
Speaker 1: It's also a significant concern here is as part of
32:33
Speaker 1: the Trade Enforcement and Trade Facilitation Act of twenty fifteen,
32:38
Speaker 1: Congress addressed and narrowed an exclusion for imports relating to
32:43
Speaker 1: forced labor. And that is another issue that since twenty
32:47
Speaker 1: fifteen has become a significant flashpoint. And so when you
32:50
Speaker 1: look back to those legal changes that were made in
32:53
Speaker 1: twenty fifteen by Congress. You have Congress, you know, expanding
32:55
Speaker 1: the deminimous exemption up to eight hundred dollars and at
32:58
Speaker 1: the same time tightening US import law. Related to an
33:02
Speaker 1: enforcement issue, it's just forced labor. And the importance of
33:06
Speaker 1: forced labor for Congress and other policymakers in the United
33:09
Speaker 1: States has really grown significantly since then, and so that
33:13
Speaker 1: is another sort of flashpoint and reason I think you're
33:15
Speaker 1: seeing a lot of discussion about reforming the deminamus exemption
33:19
Speaker 1: under US law. Whether it's by executive action like the
33:22
Speaker 1: White House is doing, or through a potential statory change
33:25
Speaker 1: by Congress.
33:26
Speaker 2: It's certainly a critical issue. Thanks so much, David. That's
33:29
Speaker 2: David Townshend of Dorsey and Whitney. And that's it for
33:33
Speaker 2: this edition of the Bloomberg Law Podcast. Remember you can
33:36
Speaker 2: always get the latest legal news by subscribing and listening
33:39
Speaker 2: to the show on Apple Podcasts, Spotify, and at Bloomberg
33:42
Speaker 2: dot com, Slash podcast, Slash Law. I'm June Grosso and
33:46
Speaker 2: this is Bloomberg