More Details on Draft KORUS FTA Bills that Would Raise MPF for Formals 60%
Both versions of the draft Korea FTA bills approved during the July House and Senate Committee mock mark-ups of the three pending free trade agreements would increase the merchandise processing fee (MPF) on formal entries by more than 60%. If enacted, such a large increase would result in hundreds of millions of dollars in additional MPF payments by importers.
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(Total MPF collections for fiscal year 2011 are projected to be $1.343 billion.)
Proposed Increase to 0.34% Would Result in Large Rate Increase
These House Ways and Means and Senate Finance Committees’ draft KORUS FTA implementing bills would increase the current .21% MPF for formal entries by about 0.13% to a rate of 0.3464% (House) or 0.343% (Senate), which would be an approximate 60% rate increase.
The Senate’s provision would take effect the date of enactment, and the House provision 15 days after the date of enactment.
Drafts Do Not Propose Changing the $485 MPF Cap
The draft legislation approved in July during the Committees’ “mock” mark-ups does not propose any amendments to the $485 cap on the maximum MPF for formal entries, nor the minimum $25 MPF for formal entries.1
$300M Increase in MPF Payments Could Result in 2012 if Enacted
The Congressional Budget Office and the staff of the Joint Committee on Taxation preliminarily estimate that an increase in the MPF for formal entries to 0.3464% (as approved by House Ways and Means) would increase MPF collections by $300 million in fiscal year 2012 and $500 million in FY 2015.
CBO and Joint Committee staff also preliminarily estimates that the proposed MPF increase would offset the revenue costs of the KORUS FTA through 2015, and that the net result of implementing both the KORUS FTA and the MPF increase would help reduce the deficit through that date.
Increase to MPF Is Only Recommended by Committees
Both the Senate Finance Committee and the House Ways and Means Committee, which have primary jurisdiction over most trade legislation, are in favor of increasing the MPF. However, the draft bills they approved are only considered to be recommendations to the Administration.
The Administration must write the final KORUS FTA implementing legislation, which could be based on subsequent advice from many sources. Once the Administration sends the final KORUS FTA implementing bill to Congress, the House and Senate are slated to consider it in an up-down vote (no amendments are allowed).
Any MPF Increase Would also Need to be in Line with International Rules
Collections from the MPF are required to offset CBP's salaries and expenses that are incurred in the processing of entries and releases (“customs revenue functions”), the automation of customs systems, and for ensuring compliance with customs laws and trade rules during the fiscal year in which such costs are incurred.
Trade experts note that any increase to the MPF would need to be in line with international rules2, which require such fees to be commensurate with, among other things, the cost of services rendered.
1According to CBP, the ad valorem MPF for formal entries requires a $25 minimum payment (for entries valued under $11,904) and caps the maximum payment at $485 (for entries valued over $230,952). For formal entries between these amounts (for entries valued from $11,904 - $230,952), the ad valorem rate is 0.21%.
The MPF is a flat rate for informal entries: $2 if automated, $6 if manual (non-Customs prepared), $9 if manual (Customs prepared) and is not affected by the draft bills. In addition, the Express Consignment Carrier fee for processing merchandise is $1.00 per individual bill or bill lading, and is similarly unaffected.)
Merchandise is exempt from the ad valorem MPF if it is classified under certain HTS Chapter 98 provisions, or is a product of an insular possession, a CBI country, a least developed beneficiary country (e.g. Bangladesh), or is from a country that has a free trade agreement with the U.S., as detailed in 19 CFR 24.23.
2In 1990 the MPF was amended add a minimum fee for commercial and noncommercial merchandise and maximum fee on commercial merchandise (and a flat fee for courier hubs, express consignment courier facilities, etc), to make the fee consistent with the General Agreement on Tariffs and Trade (GATT).
GATT requires fees on imports, such as the MPF, to be “commensurate with the cost of services rendered.” GATT also states that import fees may not represent an indirect protection to domestic products or a tax for fiscal purposes.
(See ITT’s Online Archives or 07/13/11 news, 11071320, for detailed BP summary of the MPF, GSP and ATPDEA provisions in the draft FTA bills.
See ITT’s Online Archives or 12/21/10 news, 10122120, for BP summary of CBP FAQs on user fees.)