As the Federal Circuit considers the legality of President Trump’s “Liberation Day” tariffs, its under-the-radar decision in Oman Fasteners, LLC v. United States offers complications for the administration’s trade agenda.

Oman Fasteners dealt with antidumping and countervailing duties, which the Department of Commerce imposes on foreign goods to combat perceived unfair trade practices. Antidumping duties are imposed on goods sold for less than fair value, and countervailing duties target goods that receive unfair subsidies from foreign governments. But Oman Fasteners makes tougher enforcement of these duties—one of the President’s priorities, dating back to his first term—more challenging by curtailing one of the easiest ways to impose steep antidumping and countervailing duties: adverse inferences against foreign producers.

Even with lowered tariff rates, the United States still protects domestic industries from unfair foreign competition. These mechanisms, including antidumping and countervailing duties, get imposed after lengthy, fact-intensive investigations into foreign merchandise. Commerce collects copious amounts of data from foreign producers on their costs, sales, inputs, and manufacturing processes. The agency also sends representatives to conduct in-person reviews of foreign factories and documentation. After collecting this evidence, Commerce determines what level of duties, if any, is needed to account for unfair trade practices.

If information is missing from the record after Commerce’s investigation ends, the law provides a two-step process for the agency to fill remaining gaps. The first part, laid out in 19 U.S.C. § 1677e(a), mandates that Commerce “use the facts otherwise available” when imposing antidumping or countervailing duties. In practice, this means that Commerce must fill the gap with some kind of facts in the record. The second part of this process is discretionary. Section 1677e(b) allows Commerce to use an adverse inference against a party “in selecting from among the facts otherwise available” when that party has “failed to cooperate by not acting to the best of its ability to comply with a request for information.” The use of an adverse inference against a foreign producer can lead to sky-high duty rates if the gap in the record is large enough. For example, in one case, Commerce’s use of an adverse inference led to duty rates of 83% on honey from Brazil, because it considered nearly the entire factual record as a “gap” to be filled with an adverse inference. 

Oman Fasteners dealt with the second step of the above process. In 2020, Commerce investigated whether steel nails from Oman were being sold below their fair value in the United States and sought information from a producer, Oman Fasteners, LLC. Oman Fasteners’ counsel submitted the requested information to Commerce, but did so 16 minutes late. Commerce considered all that information “missing” and applied an adverse inference to fill the gap. Given how much information was supposedly “missing” from the record, this adverse inference covered not only certain factual information, but the entire overall duty rate for the products in question. Commerce then selected and imposed the proposed duty rate given by domestic steel nails producers: a whopping 154.33%.

The Federal Circuit held that Commerce abused its discretion. It began by reiterating that, like any grant of discretion, the ability to use an adverse inference “must be exercised within the constraints of the statute and record.” The court then held that any time Commerce uses an adverse inference, it must do so with an eye towards calculating an accurate duty rate. While Commerce can depart from that principle to deter non-compliance, that departure must be limited to what is “needed.” This proportionality standard means that Commerce cannot seize on small failures to justify broad adverse inferences that generate “highly implausible” duty rates.

While adverse inferences may be a mundane piece of administrative procedure, they present a tool for protecting domestic industry from foreign competition. Between language barriers, busy lawyers, and overwhelmed businesses, foreign producers often fail to give Commerce all the requisite information in a timely manner. Thus, tightening procedural rules would portend more chances for Commerce to use adverse inferences.

In fact, this seems to be the administration’s strategy. In March, Commerce changed how it would treat foreign producers who ask for more time to submit information. The new rules allow for only two deadline extensions, with the second one being only three days in most cases. What’s more, supervisors are required to approve all first and second extension requests, with the Deputy Assistant Secretary for Operations ruling on additional requests. This is the exact kind of procedural rule that will create more gaps in the record, and by extension, more adverse inferences. The administration could take this further and enact similar regulations that make it harder to respond to the agency. For example, it could impose formatting and language requirements that are difficult for foreign producers to meet.

But Oman Fasteners’ holding may limit the administration’s ability to leverage these procedural rules to further its trade goals. The Federal Circuit rejected the idea that simple mistakes, if made during a good-faith effort to comply, could justify such punitive adverse inferences. It accepted that gross laziness, “deliberate concealment,” or failure to maintain and review records could justify a harsh response. Each example, however, goes to the foreign producers’ conduct and state of mind. The Federal Circuit even admonished Commerce for giving Oman Fasteners anything more than a warning. While the court explained that “[w]e need not decide what if any circumstances could justify such a result,” it implied that only repeated errors of this nature would come close. It remains unclear that failure caused by a new, strict procedural rule would justify much more than a slap on the wrist.

Oman Fasteners shows that tariffs are not the only part of the President’s trade agenda that may face judicial roadblocks. Fact-gathering procedures and adverse inferences may seem tedious, but they can be powerful tools when used creatively. Oman Fasteners, however, reduces how creative the administration can get when trying to use procedural rules to protect domestic industry. 

Kraz Greinetz is a recent graduate of Duke Law School.