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Bill Extending Tariff Exemption Increases Customs Fees

Coffee Reporter - October 2011

Each house of Congress has passed a bill that would extend duty-free treatment of imports, but also increase importers’ customs user fees. In the House, HR 2832 addressed the expiration of the Generalized System of Preferences (GSP), under which goods from certain countries can be imported tariff-free into the U.S.  However, the bill also proposed offsetting the lost revenue by increasing the Merchandise Processing Fee (MPF) that importers pay when goods enter or are released into the U.S.

The MPR, or “ad valorem tax,” is assessed as a percentage of the value of imported goods. The House bill raised the MPF from the current 0.21 percent to 0.3464 percent, a 65 percent increase, effective October 1, 2011. The Senate later approved the bill with amendments.

Among the amendments, the Senate adds a provision confirming the increased MPF rate for  July 1, 2014 through November 31, 2015, but sunsets it thereafter. It also reduces the MPF to 0.1740 percent effective October 1, 2016 through September 30, 2019. It is unclear whether the MPF is suspended or restored to the original 0.21 percent during the interim period, December 1, 2015 to September 30, 2016.

Political Football
These legislative outcomes, however, emerge from a larger and more complex political battle. The bill passed in the Senate also included an amendment to include the Trade Adjustment Assistance (TAA) program. Added to the Senate bill following a protracted bipartisan effort, the TAA is a longstanding program that offers assistance to those whose employment is lost or seriously impacted by U.S. trade liberalization.

Inclusion of the TAA was accepted as a quid pro quo for support of three pending Free Trade Agreements (FTA) with Colombia, Panama and South Korea. Speaker John Boehner offered to bring the legislation to the floor despite his majority’s opposition to the TAA. However, he issued a statement indicating that he would hold the bill until President Barack Obama sent up the FTAs to the House.

Boehner suggested that he would promote the bill and the FTAs as a package. Under the Trade Promotion Authority, a special fast-track procedure set up for trade agreements, the FTAs would then enjoy an up-or-down vote with no opportunity for amendments or Congressional filibusters. This scenario appeared to be the only chance for getting the FTAs ratified in this Congress. The three FTAs have since been sent up and passed by both the House and Senate and signed into law by the President.

Industry Position
NCA, and the U.S. coffee industry generally, strongly support FTA ratification. Other business groups do as well, including The Grocery Manufacturers Association, the National Confectioners Association, and the U.S. Chamber of Commerce. For that reason, business groups appeared willing to accept the TAA, and coffee companies the increase in the MPF, as necessary evils in order to achieve FTA ratification.

Other options to satisfy Congressional demands for offsetting the loss in tariff revenues were also explored. According to the Emergency Committee for Trade (ECAT), a trade group that supports various business interests when trade issues are involved, the organization joined with other business groups to argue that increasing the MPF was not a preferable way to offset costs. However, that argument was rejected by Congress, and the group was left with no other revenue source to recommend in its place to satisfy the cost-substitution mandate. Going forward, further arguments can be made to prevent further eyeing of MPF revenues as a source of substituted revenue. NCA will continue to explore potential opportunities to support that argument in cooperation with other organizations.


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