Supplemental Letter to Trade Subcommittee--April 15, 1999

April 15, 1999
The Honorable Philip Crane
Chairman, House Ways & Means Committee,
Subcommittee on Trade
1104 Longworth House Office Building
Washington, DC 20515-6354

Dear Congressman Crane:

Thank you for the opportunity of the Joint Industry Group (JIG) to testify before the House Ways & Means Committee, Subcommittee on Trade, regarding the President’s proposed FY2000 budget and the US Customs Service automation funding level. At the Subcommittee’s request, we are sending a legal opinion supported by the JIG that supports the statement that the user fees proposed in the President’s budget violate the North American Free Trade Agreement (NAFTA) with Mexico and Canada. We believe the proposed fee may also be a violation of the GATT.

The President’s budget for FY2000 states under the heading "Automation Modernization":

"Contingent upon the enactment of authorizing legislation, the Secretary shall charge a fee for the use of Customs automated systems, and such fee shall be deposited as an offsetting collection to this appropriation, to become available on October 1, 2000 and remain available until expended, for the purpose of modernizing Customs automated commercial operations, and of which, $13,000,000 shall be for an international trade data system: Provided further, That upon enactment of such authorizing legislation, the amount appropriated above from the General Fund shall be reduced by $163,000,000: Provided further, That none of these funds shall be obligated until ten days after a spending plan for the funds has been submitted to the Office of Management and Budget and the Treasury Investment Review Board."

Furthermore, the Automation Modernization Fee was described as follows:

"The Administration proposes to establish a fee for the use of Customs automated systems. The fee will be charged to users of any Customs automated system based on the user’s units of data input. Proceeds of the fee will offset the costs of modernizing Customs automated commercial operations and an international trade data system, and will be available for obligation after 2000. Legislation will be transmitted to allow the Secretary to establish a fee for the use of Customs automated systems."

NAFTA Article 310 (entitled "Customs User Fees") prohibits the adoption of any Custom user fees as follows:

No Party may adopt any customs user fee of the type referred to in Annex 310.1 for originating goods.
The Parties specified in Annex 310.1 may maintain existing such fees in accordance with that Annex.

NAFTA Annex 310.1 (entitled "Existing Customs User Fees") states:

Section A – Mexico

Mexico shall not increase its customs processing fee ("derechos de trimite aduanero") on originating goods, and shall eliminate such fee on originating goods by June 30, 1999.

Section B – United States

1. The United States shall not increase its merchandise processing fee and shall eliminate such fee according to the schedule set out in Article 403 of the Canada – United States Free Trade Agreement on originating goods where those goods qualify to be marked as goods of Canada pursuant to Annex 311, without regard to whether the goods are marked.

2. The United States shall not increase its merchandise processing fee and shall eliminate such fee by June 30, 1999, on originating goods where those goods qualify to be marked as goods of Mexico pursuant to Annex 311, without regards to whether the goods are marked.

In summation, Article 310.1 states that the US is prohibited from assessing customs user fees on goods originating in Canada and Mexico. The JIG sustains the position that the definition of "customs user fees" is not limited to merchandise processing fees alone, but also includes any similar user fee.

The proposed user fee may also place the US in violation of the GATT. GATT Article VIII.1 (a) limits fees and charges connected with importations to an amount that reflects the approximate cost of services rendered and further states that such fees and charges shall not be a taxation of imports for fiscal purposes:

1.(a) All fees and charges of whatever character (other than import and export duties and other than taxes within the purview of Article III) imposed by contracting parties on or in connection with importation or exportation shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products of a taxation of imports or exports for fiscal purposes…

The JIG maintains that the proposed user fee represents a tax on imports imposed for the sole purpose of generating revenue for the development of US Customs automated systems. As such, the fee is de facto a tax collected to offset the costs of modernizing the automated systems of the US Customs Service, i.e. a fiscal purpose. Furthermore, any fee assessed must be based on the "cost of services rendered." From the JIG perspective because the fee is based on the amount of data submitted, there is no relation to the "cost of services rendered."

We urge the Subcommittee to reassess the validity of the President’s proposed FY2000 budget for Customs automation modernization. Appropriated funds should be allocated so that the government can fulfill its obligations under the Customs Modernization and Informed Compliance Act (Mod Act) while complying with NAFTA, GATT, and other international agreements.