HQ 0224269 - Request for Internal Advice Concerning Assessment of Merchandise Processing Fee on Duty-Free Merchandise Withdrawn from Customs Bonded Warehouse for Exportation. - United States International Trade Commision Rulings

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HQ 224269

May 11, 1993

ENT-1-03-CO:R:C:E 224269 SR

CATEGORY: ENTRY

Regional Director
Regulatory Audit Division
North Central Region
Chicago, Illinois 60603

RE: Request for Internal Advice Concerning Assessment of Merchandise Processing Fee on Duty-Free Merchandise Withdrawn from Customs Bonded Warehouse for Exportation.

Dear Sir:

This request for internal advice was initiated by a letter dated October 8, 1992, from the Regional Director, Regulatory Audit Division of the North Central Region of Customs.

FACTS:

An ad valorem merchandise processing fee is assessed on all merchandise that is entered into the US for consumption. You state that 99% of duty-free merchandise that is stored in a bonded warehouse is withdrawn for exportation with 1% entered for consumption. Under the Omnibus Budget Reconciliation Act of 1987 the payment of an annual fee was suspended for as long as a merchandise processing fee is in effect.

You have mentioned other fees that are assessed as follows:

1. Formal entries: 0.17% of the value; $21 minimum fee and $400 maximum fee; $3 manual surcharge

2. Informal entries: a) $2 automated; b) $5 manual (non- Customs prepared); and c) $8 manual (Customs prepared)

3. Reimbursable flat fees for reimbursable facilities such as User Fee Airports, Courier Hubs, and Express Consignment Carrier facilities, and

4. Merchandise processing fee of 80% of the fee otherwise applicable (0.136 percent), under the US- Canada Free Trade Agreement.

ISSUE:

Whether Customs can assess an ad valorem processing fee on
duty-free merchandise that is withdrawn from a Customs bonded warehouse.

LAW AND ANALYSIS:

You believe that Customs should charge an ad valorem merchandise processing fee to duty-free merchandise that is exported from a Customs bonded warehouse in order to reimburse Customs for services in connection with the bonded warehouse.

Collection of fees for services in connection with a bonded warehouse is specifically exempted under 19 U.S.C. 58c(e)(6)(c)(ii) which reads as follows:

Notwithstanding any other provision of law except paragraph (2), during any period when fees are authorized under subsection (a) of this section, no charges, other than such fees, may be collected-

. . .

(C) in connection with-

. . .

(ii) the designation or operation (including Customs Service supervision) of any bonded warehouse under section 1555 of this title.

Subsection (a) of this section includes the merchandise processing fee for merchandise that is formally entered into the U.S., which is currently authorized. (Paragraph 2 excludes airports, seaports or other facilities that are included under section 58b. Section 58b allows for customs services at certain small airports and other facilities that do not have sufficient volume of business to justify the availability of customs services at the facility and the govenor of the state has approved the fees.)

The statutes that are provided in the United States Code are laws that are enacted by Congress. Customs has no power to change these laws. The Customs Regulations are issued to regulate the services provided by the Customs service in order to carry out the intent of the statutes and to ensure uniform application of the law. The Customs Regulation, section 19.5, that allows Customs to charge an annual fee to operate a bonded warehouse is not valid under the statutes.

The other fees that you have mentioned are all provided for in the United States Code. The fees for formal entries are
provided for under 19 U.S.C. 58c(a)(9)(A), the informal entry fees are provided for under 19 U.S.C. 58c(a)(10), the reimbursable flat fees for reimbursable facilities such as user fee airports, courier hubs, and express consignment carrier facilities are provided for under 19 U.S.C. 58c(b)(9)(A), and the processing fee for merchandise covered by the US- Canada Free Trade Agreement is provided for under 19 U.S.C. 58c(b)(10). Customs has interpreted the language "entered or released" as provided in 19 U.S.C. 58c(a)(9) and (10), to mean a withdrawal for consumption (see 19 CFR 24.23(a)(2)(iii); T.D. 91-33).

The ad valorem merchandise processing fee currently in effect is imposed for the processing of commercial merchandise that is entered into the US by a formal entry and is specifically provided for under 19 U.S.C. 58c(b)(8)(E)(iii). It is assessed to pay for services that fall under Commercial Operations. The ad valorem rate is used because, although all entries may be subject to services provided by Customs such as inspections, not all entries will be required to use these services due to high quantities of importations. It is equitable to share the cost of these services with all entries for which these services may be required. Merchandise that is stored in a bonded warehouse that is not entered into the commerce of the US does not require the amount of service as a formal entry.

In enacting the US statutes concerning international trade Congress has to consider the terms of international treaties, such as the General Agreement on Tariffs and Trade (GATT). The GATT is a trade agreement that provides a framework for tariff negotiations including specific rules and norms for trade regulation and the creation of institutions for dispute settlement. The GATT regulates tariff and non-tariff barriers to trade with the goal of eliminating or reducing any non-tariff barriers.

Under the terms of the GATT any fees charged at the border, except the tariff, must satisfy 3 criteria: 1. the charge must be limited in amount to the approximate cost of services rendered 2. it must not represent an indirect protection to domestic products 3. it must not represent a taxation of imports for fiscal purposes.

In order to charge fees for duty-free merchandise in a bonded warehouse that is not entered into the commerce of the US the above criteria would have to be satisfied. The merchandise processing fee that is charged to consumption entries is meant to cover costs such as laboratory tests and the classification of merchandise which are not involved if the merchandise is not entered. Merchandise processing fees may not be charged for
export-related activities. Any fees other than for services rendered would be viewed as a tax.

HOLDING:

Collection of fees for services provided in connection with merchandise in a bonded warehouse that is not entered into the U.S. for consumption is specifically prohibited by 19 U.S.C.

Sincerely,

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