Dec 9, 1987


GENEVA DECEMBER 7 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The customs user fee levied by the U.S. on an ad valorem basis on imports into the country has been held by a GATT panel to be violating the provisions of articles II and VIII of the General Agreement.

A three-member GATT panel, in ruling against the United States on a complaint by Canada and the European Communities, has suggested that the GATT Contracting Parties recommend that the U.S. bring its levy into conformity with its obligations under GATT.

The panel found that the ad valorem structure of the fee caused charges to be levied in excess of the approximate costs of the services rendered, and covered the cost of a number of activities in the "commercial operations" budget of the U.S. customs that were not related to the imports.

These activities included airport passenger processing, collecting and forwarding of documents, the "international affairs" (cost of U.S. customs officers stationed in other countries), the processing of imports exempt from the levy, and the costs of the "commercial operations" in October and November of 1986 (before the levy became effective).

The panel also agreed that the exemptions from levy in respect of imports from least developed countries (LDCS) and from beneficiaries of the Caribbean Basin Recovery Act (CBERA) was inconsistent with the most-favoured-nation obligations of the U.S., but gave no formal ruling on this issue raised by other Contracting Parties than the two complainants.

The panel report was circulated to the Contracting Parties as a restricted document on November 25, but was not formally on the agenda of last week’s 40th annual session.

The U.S., though it had advance copy of the report as a party involved in the dispute, nevertheless had not agreed to discuss it at the session.

The report will now come up at the next meeting of the GATT Council in the new year.

In October 1986, the U.S. Congress enacted as part of the omnibus budget and reconciliation act, a so-called "merchandise processing law", and this went into effect on December 1, 1986.

Under this, a fee of 0.22 percent of the customs value of merchandise (except some exempted categories) entering the U.S. was levied from December 1, 1986 to September 30, 1987 (or ten months of the U.S.’87 fiscal).

In fiscal 1988 and 1989, the fee is to be either 0.17 percent or a lesser and valorem rate to be determined by the U.S. Secretary of State as sufficient to provide revenue to fund "commercial operations" of the U.S. customs.

Canada and the EEC had challenged the levy as violative of the general agreement, and particularly the relevant provisions in article II and VIII.

Article II (1) (B) establishes a general ceiling on charges that can be levied on a product whose tariff is bound (in the schedule of concessions of a Contracting Party). Article II: 2 enables a government to impose over and above this ceiling three types of non-tariff charges of which the third, permitted in sub-para (C), is "fees or other charges commensurate with the cost of services rendered".

Article VIII dealing with fees and formalities relating to importation of products, prohibits all charges except tariffs and charges to equalise internal taxes, unless they satisfy three criteria: the charge must be "limited in amount to the approximate cost of the services rendered", and must not "represent a indirect protection to domestic products"" or "a taxation of imports ... for fiscal purposes".

Canada contended that the U.S. levy was not commensurate with the cost of the service neither rendered nor limited in amount to approximate cost of those services.

The fee, Canada further contended, was also a tax for fiscal purposes in that a fee was charged for government activities which were not services rendered to the importers, was at a rate leading to collection or funds exceeding the cost of services provided, and was an indirect protection to domestic products.

The EEC argued that the ad valorem fee was inconsistent with articles II and VIII, and its introduction was a prima facie nullification or impairment of benefits accruing to the community under the general agreement.

The U.S. however argued that the fee was commensurate with the cost of services rendered, and was approximately equal to the cost, and was neither and indirect protection nor a taxation for fiscal purposes.

Besides Canada and the EEC, Australia, Hong Kong, India, Japan, New Zealand, Peru, and Singapore had also appeared before the panel challenging the U.S. levies.

The U.S. law exempted certain categories of imports from the levy.

These included articles exported and returned, personal exceptions, governmental imports, imports of religious, education, scientific and other institutions, samples and articles imported free of duty, non-commercial importation of limited value, products of the insular possession of the U.S.A., and products of the Least Developed Countries (LDCS) and the beneficiary countries under the U.S. Caribbean Basin Economic Recovery Act.

According to U.S. data, of the total imports of 396 billion dollars into the U.S. in 1986, the exempted categories on whom no merchandise processing fee was levied amounted to 102 billion dollars of 28 percent of total U.S. imports.

In its findings and conclusions, the panel found that the term "cost of services rendered" in the two GATT articles must be interpreted to refer to the cost of the customs processing for the individual entry in question.

As such, the ad valorem structure of the fee was inconsistent with the U.S. obligations under articles II: 2 (C) and VIII: 1 (A).

The panel found that the cost of passenger processing (accounting for ten percent of the commercial operations budget), the costs of collecting and transmission of export documents, and the cost of "international affairs", were not related to the service rendered for commercial importers.

Also, in calculating the costs of services rendered, the cost of processing imports exempted from the levy and the costs of the commercial operations in October and November 1986, when the fee was not in force, could not be included.

India, as an intervening party, had said the exemptions from the fee in favour of imports from the LDCS was violative of article one of GATT, and not covered by the 1979 enabling clause.

Australia and Singapore, in addition, had also contended that the exemptions for beneficiaries of the CBERA were also violating article one.

Canada and the EEC had not raised this issue, but reserved their rights and indicated they had no objection to a panel ruling on this.

The panel agreed that the exemptions from the levy for CBERA beneficiaries was not covered by the waiver granted to the U.S. to extend duty free treatment to the CBERA beneficiaries. Nor did the 1979 enabling clause cover the exemptions either for CBERA or the LDCS.

It noted that the enabling clause allowed preferential tariff and non-tariff measures favouring third world countries only if such measures conformed to the generalised system of preferences or instruments multilaterally negotiated under GATT auspices, or for special measures favouring LDCS only if these were "in the context of any general or specific measures in favour of developing countries".

The panel however noted the GATT practice or ruling only on issues raised by parties to the dispute, and hence gave no formal ruling.

It however added that it was open to any Contracting Party wanting to raise its or any other issue relating to the U.S. levy to commence dispute settlement proceedings in its own right under the general agreement.