HQ 224269: Request for Internal Advice Concerning Assessment ofMerchandise Processing Fee on Duty-Free Merchandise Withdrawnfrom Customs Bonded Warehouse for Exportation.

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            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Merchandise Processing Fee on Duty-Free Merchandise Withdrawn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bonded warehouse is withdrawn for exportation with 1% entered for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 

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duty-free merchandise that is withdrawn from a Customs bonded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 


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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 


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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.
58c(e)(6)(c)(ii).


                                   Sincerely,





                                   John Durant, Director