.__ -_- - --- -_ -- ___-_ --- - ..-. .J IIIIP 1990 u .s. CUSTOMS SERVICE Merchandise Procmsing Fee: Examination of Costs and Alternatives RESTRICTED --Not to be released outside the General Accomtlng Office unless specifically approved by the Of&e of Congressional Relations. united states GAO General Accounting Office Washington, D.C. 20648 General Government Division B-239841 June 151990 The Honorable Dan Rostenkowski Chairman, Committee on Ways and Means House of Representatives Dear Mr. Chairman: This briefing report respondsto your June 28, 1989, request that we review the U.S. Customs Service’s(Customs) merchandise processingfee charged to importers. Unless Congressextends the fee, it will expire in September 1990. To assist in your deliberations on continuing the fee, you asked that we review Customs’ costs of processingimported mer- chandise to determine whether these costs could appropriately be used as a basis for the fee. As agreed,we also evaluated (1) Customs’ plans for changing the fee to address international trade concernson the cost basis and excessamounts that Customs collected through the present fee and (2) the problems Customscould face in instituting changesto the present fee. On April 27, 1990, we briefed your committee on our results and you asked that we summarize in writing the information we had presented. The merchandise processingfee was established by the Omnibus Budget Background Reconciliation Act of 1986 (P.L. 99-509). The fee, which is basedon the value of imported merchandise (ad valorem), yielded $729 million in col- lections during fiscal year 1989. The fee is set by Public Law 99-509 at 0.17 percent of value, and the Secretary of the Treasury can recommend a lower rate to Congressif the rate generatescollections exceedingcosts. The collections from the fee finance Customs’ salaries and other costs associatedwith commercial activities. Commercial activities costs are those associatedwith processingpassengers,cargo, carriers (trucks and ships), and commercial mail in order to collect duties and examine imports and exports for compliance with trade laws. During fiscal year 1989, Customs estimated commercial activities costs to be $584 million. The merchandise processing fee has been controversial. In February 1988, the General Agreement on Tariffs and Trade (GA?T), a 97nation organization that overseesworld trade and mediates trade disputes, adopted a November 1987 report of a panel it convenedto hear com- plaints from member nations that the fee did not reflect Customs’ costs of services provided to individual importers. As a member of the GAG, the United States presented arguments and evidence defending the fee. Page 1 GAO/GGWO-@lBR Merchandise Processing Fee After hearing arguments and evidence on this issue,the panel found that the fee was inconsistent with U.S. obligations under international trade agreementsthat addressimport fees. Specifically, the panel found that (1) not all of the estimated costs of Customs’ commercial services recovered through the fee were proper becauseCustoms included costs for such things as airport passengerprocessingservices that importers did not use and (2) the fee did not approximate the cost of processingan individual merchandise shipment. In its report, the panel also discussedthe problem of excesscollections becausemember nations complained that the rate of the existing fee had been set too high, generating more revenue than neededto cover Cus- toms’ costs of commercial activities. Under existing law authorizing the fee, the Secretary of the Treasury can make recommendationsto Con- gress on reducing the fee to offset these past excesscollections. The GATT panel did not make a finding on the use of these excesscollections. Customs lacks data to establish the actual costs that would serve as a Resultsin Brief basis for the merchandise processingfee. While Customs calculates costs primarily by estimating the number of staff years used to process imported merchandise, it doesnot keep data on the actual time its employees spend in processingmerchandise.As a result, we were unable to determine whether the estimates of staff years used in processing merchandise were accurate. Customs recognizesthat it needsdata on the time employeesspend processingmerchandise to establish accurate cost estimates. In April 1990, Customs agreed to collect these data through a new payroll system that is being developed. The system is scheduled to begin operation by the spring of 1992. According to the Office of the U.S. Trade Representative, since the United States is a member of the GATT, which has adopted the panel report, the United States is obliged, as a matter of international law, to abide by it. Consequently, the Bush administration has decided to replace the fee with one that would address international concerns. Customs developed two alternative fee proposals. Either proposal would require congressionalaction to be adopted. Agency officials believe either of these alternative proposals could . bring collections in line with Customs’ aggregatecosts for processing merchandise and . link individual fees to the approximate cost of processingeach importer’s individual merchandise shipment. P8ge 2 GAO/GGD-WBlBR Merchandise Proceseing Fee - - lb239341 Customs generally designedboth alternatives to collect enough revenue to offset those estimated commercial activities costs that the GATT panel said could be included in the fee. However, we found that Customs does not have data linking the individual fees contained in either proposal to the cost of processingan importer’s individual merchandiseshipment. Also, the fees proposed in these alternatives were not reduced to account for past excesscollections. Finally, Customs could face operational problems in instituting either alternative fee proposal. For example, under both proposals, importers could pay less if they combine individual shipment information onto one document as opposedto reporting shipment information individually. While Customs has proposed changesto limit this potential revenue loss, officials agreed they would still have to monitor either proposal to ensure revenue lossesdo not occur. (Seeapp. III for examples of how importers could pay smaller fees.) To examine these issues,we reviewed Customs’ planning documents and Approach data on costs. We did not assessthe reliability of the accounting and personnel systems that Customs usesto develop its cost estimates. In Washington, D.C., we spoke with officials from Customs’ headquarters, the Office of the U.S. Trade Representative, and the Office of Manage- ment and Budget. We also visited Customs’ ports in four cities (New York City; Los Angeles, California; Laredo, Texas; and Buffalo, New York). At these locations, we spoke with Customs officials responsible for processingmerchandise and with customs brokers who represent importers to Customs. We also spoke with representatives from several organizations such as the National Customs Brokers and Forwarders Association. Our work was done from June 1989 through May 1990 and in accordancewith generally acceptedgovernment auditing standards. Further details on our objectives, scope,and methodology are presented in appendix IV. We discussedthe information in this report with officials from Customs, the Office of the U.S. Trade Representative, and the Office of Manage- ment and Budget. They generally agreed with the facts presented. We plan no further distribution of this report until 30 days after its issu- ance date, unless you publicly releaseits contents earlier. After 30 days, we will send copies to the Secretary of the Treasury, the U.S. Customs Service, the U.S. Trade Representative, and other interested parties. Page 3 GAO/GGD-BO-91BR Mecchudse Procereing Fee Major contributors to this report are listed in appendix VI. Should you need additional information on the contents of this report, please con- tact me on 275-8389. Sincerely yours, pl ~~/&iiid Lowell Dodge Director, Administration of Justice Issues Page 4 GAO/GGDtKLDlBR Mezdundbe Processing Fee P8ge 5 GAO/GGDB@BlBR Mexthndiae Proceasing Fee Contents Appendix I 8 Customs’Merchandise Authority for the Merchandise ProcessingFee Controversy Surrounding the Merchandise ProcessingFee 8 9 ProcessingFee Appendix II Costsof Commercial Costs RecoveredThrough the Merchandise ProcessingFee Complete Evaluation of Costs Not Possible Activities Appendix III 16 Alternative Fee Transaction Fee Modified Ad Valorem Fee 16 16 ProposalsDeveloped Alternative Proposals Linked to RevenueNeeds 17 by Customs Past ExcessCollections Not Addressed 19 Ability to Administer and Control Alternative Proposals 21 Appendix IV 23 Objectives,Scdpe,and Methodology Appendix V 24 Customs’Commercial Activities Cost Estimates for Fiscal Year 1991 and PlannedReductionsto Address International Concerns Appendix VI Major Contributors to This Report Page 6 GAO/GGD-BO-BlBR Mclrhadlre Proms&g Fee Contents Figures Figure I. 1: Authority for the Merchandise ProcessingFee 8 Figure 1.2: Controversy Surrounding the Merchandise 9 ProcessingFee Figure 11.1:Costs Recoveredthrough the Merchandise 11 ProcessingFee Figure 11.2:Complete Evaluation of Costs Not Possible 13 Figure III. 1: Description of Customs’ Two Alternative Fee 15 Proposals Figure 111.2:Alternative Proposals Linked to Revenue 17 Needs Figure 111.3:Past ExcessCollections Not Addressed 19 Figure 111.4:Ability to Administer and Control 21 Alternative Proposals Abbreviations GATT General Agreement on Tariffs and Trade MPF Merchandise ProcessingFee USTR Office of the U.S. Trade Representative Page 7 GAO/GGLMO-SlBB Merchandise Processing Fee Custims’ Merchandise Processing Fee Before 1986, Customs’ costs for processingmerchandisewere primarily Authority for the paid by general taxpayers. To recover costs for various services, Merchandise Congresspassedthe Omnibus Budget Reconciliation Act of 1986 (P.L. ProcessingFee 99-509). The act becamelaw on October 21,1986, and authorized the Secretary of the Treasury to charge importers a merchandiseprocessing fee (MPF). The MPF is a fee on imports basedon the value of merchandise (ad valorem). Public Law 99-609 set the MPF at 0.17 percent, and the Secretary of the Treasury can recommenda lower rate if the rate gener- ates collections exceedingcosts. MPF collections are deposited into a user fee account and then are made available through appropriations to pay Customs’ salaries and other costs associatedwith commercial activities. In fiscal year 1989, Customs collected $729 million in merchandise processingfees. Fbure 1.1 m Authority for the Merchandise Processing Fee l Omnibus Budget Reconciliation Act (P.L. 99-509) established the Merchandise Processing Fee aMerchandise Processing Fee collections totaled $729 million in FY 1989 p&gee GAO/GGD9041BR lkrchandlse Procesalng Fee Fipun 1.2 GAQ Controversy Surroundin,g the Merchandise Processing Fee l GATT panel found that present fee is inconsistent with U.S. trade obligations l Importing community is concerned that alternative fee proposals *are not supported by cost dat& and @couldresult in revenue losses and fee escalation The MPF has been the subject of much controversy from foreign trading Controversy partners and members of the importing community (importers, industry Surrounding the associations,and customs brokers). In February 1988, the General Merchandise Agreement on Tariffs and Trade (GA-IT), a 97-nation organization that overseesworld trade and issuesfindings on and mediates trade disputes, ProcessingFee adopted a November 1987 GAIT panel report challenging the fee. The panel heard complaints from member nations that the MPF did not relate to Customs’ costs of services provided to importers and reviewed Customs’ estimated costs of services recovered through the MPF. The panel agreed with member nation complaints, finding that the MPF was inconsistent with U.S. obligations under international trade agreements that address import fees. The panel objected to Customs recovering P8ge9 GAO/CG~~glBRMerehandiseProcessingFee Am=* 1 ~~~tmns’ Merchandise Processing Fee costs for services that importers did not use. Customs’ costs improperly charged to importers were those associatedwith . collecting duties from airport passengersentering the country, l processingexport documentation, l processing imports exempt from the MPF, and . carrying out international affairs activities of Customs officials sta- tioned overseas. The panel also found that the MPF did not approximate the cost of processingan importer’s individual merchandise shipment and could result in overcharging importers. The panel also heard complaints from member nations that the rate of the existing fee had been set too high, generating more revenue than neededto cover all of Customs’ costs. Under existing law authorizing the MPF, the !%cretary of the Treasury can make recommendations to Congresson reducing the fee to offset past excesscolIections. The panel did not make a fading on the use of these excesscollections. According to the Office of the U.S. Trade Representative (USTR),since the United !3tatesis a member of the GATT,which has adopted the panel report, the United States is obliged, as a matter of international law, to abide by it. Co~uentIy, the Bush W has decided to replace the fee with one that would address international concerns.The panel did not deflne the specific fee structure that would bring the fee into compliance with trade agreements,nor did it define the term “approximate cost” in its finding that the fee did not relate to the cost of processing an individual merchandise shipment. To address the panel finding, Customs proposed to replace the present fee with one that would charge different prices for various types of shipments. In addition to international concerns,importers, customs brokers, and industry associationsexpresseddisagreement with the Customs pro- posal. As a compromise, Customs deveIoped a secondalternative that retains the ad valorem but with certain limits to address international concerns.Importers, customs brokers, and industry associationscon- tinue to express concernsthat (1) fees contained in the alternatives do not reflect the cost of processingan individual importer’s merchandise shipment and (2) importers could pay smaller fees if the proposals were adopted, causing Customs to collect insufficient revenues to offset costs and subsequently requiring Customs to increase the fees to make up for revenue losses. P8ge 10 GAO/GGLNO-S1BB Merchandise Processing Fee b&s of Commercial Activities Customs is supposedto recover its commercial activities coststhrough CostsRecovered the MPF. For fiscal year 1989, Customs estimated these costs at $584 Through the million. Costs of commercial activities include salaries and other costs associatedwith the following: Merchandise ProcessingFee . Customs trade, legal, audit, and technical staff who collect duties, examine imports, and processexport and import documents; l Customs investigators who investigate commercial fraud by importers; l Customs inspectors who collect duties from individuals entering the country and examine carrier records, cargo, and commercial mail; and Figure 11.1 GAQ Costs Recovered Through The Merchandise Processing Fee l Estimated costs paid by the fee totaled $584 million in FY 1989 l Costs recovered are those associated with all commercial activities l Costs are estimated based on data in Customs’ accounting and personnel systems P8ge 11 GAO/GGDgoQlBR Mexvhmdbe Processing Fee . Customs management and administrative staff, including data processing and international affairs personnel, who support commercial work. Customs calculates the cost of commercial activities using its accounting and personnel systems. It assigns 100 percent of direct salary and expensecosts for its trade, legal, audit, and technical staff recorded in the accounting system to the costs of commercial activities. However, Customs inspector and investigative personnel do both commercial and enforcement work. For example, inspectors do commercial work by examining cargo to determine whether the shipment complies with trade rules, including trademark and copyright requirements. These inspec- tors also do drug enforcement work by identifying high-risk shipments to detect illegal drugs. Customs’ accounting system generally doesnot record separate cost data by the type of commercial and enforcement work done. Therefore, Customs estimates these costs by taking the total positions recorded in the personnel system and asking its program managersto estimate the number of full-time equivalent positions doing (a) commercial work and (b) enforcement work. Customs usesthese personnel estimates to dis- tribute direct costs recorded in the accounting system to the cost of com- mercial activities and other enforcement work. After distributing direct costs on the basis of these personnel estimates, Customs generally dis- tributes management and administrative support costs using the same ratio. Page 18 GAO/GGD-@MUBR Mm Proceaehg Fee Appendix II Casta of Commercial Activities Figure 11.2 GAQ Complete Evaluation of Costs Not Possible ., Accounting data support l $126 million in direct commercial activities costs l Customs lacks hard data to support most of the remaining costs Customs’ accounting system contains commercial activities cost infor- CompleteEvaluation mation supporting the direct trade, legal, audit, and technical costs that of CostsNot Possible are to be recovered through the MPF.These costs totaled $126 million, or about 22 percent of total estimated commercial activities costs ($584 million) for fiscal year 1989. However, we were unable to determine whether most of the remaining costs ($458 million) assignedto commer- cial activities represented an accurate reflection of costs. For example, Customs does not know actual direct inspection costs associatedwith collecting duties from passengersentering the country and processing P8ge 13 GAO/GGWO-91BR MB Prows&g Fee commercial cargo. For fiscal year 1089, Customs estimated these inspec- tion costs at $179 million, or about 31 percent of the $684 million in total estimated commercial activity costs. Customs’ inspection and control unit, which collects duties from individ- uals entering the country and processescommercial cargo, also does enforcement work to detect drugs and other illegal cargo entering the United States. Customs does not know how much time its inspectors spend processingpassengersand cargo versus detecting drugs and other illegal cargo becauseit does not collect this information. Without this information, we were unable to determine whether the amounts assignedto commercial activities accurately reflect costs. Customs officials said they would need a work measurement system to accmately allot resourcesbetween commercial and enforcement work. The last such study was done in 1982 and collected data on a random sampling basis at all ports (seepage 18). customs officials said that they have no plans to redo that study becausethey support an ad valorem type MPFthat would not require the detailed data Another way to distinguish the resourcesused in commercial and enforcement work would be to require inspectors to record time they spend on each of these functions when they fti out their payroll records. Customs is developing a new payroll system, which is scheduled to start operations in the spring of 1992. Customs officials said that the new system can provide work measurement data, such as time spent in processingmerchandise and doing enforcement work. In April 1990, Customs officials agreed to use the new system to collect work measure- ment data so that they could establish accurate cost estimates. pye 14 GAo/GGDm@1Ba - procuhg Fee Appendix III Aibrnative Fee Proposals Developed bycustoms Transaction Fee The first proposal, known as a transaction fee, would charge a $47 fee for all formal entries and an $11 fee for informal entries.’ To reflect higher processingcosts, the proposal contains a $3 surcharge for formal and informal entry documents submitted to Customs manually rather than electronically. The proposal also includes six special fees for dif- ferent services used by importers. For example, importers may have to ship merchandise through several Customs ports before the cargo reachesits final destination where duties must be paid. Customs needs FblNm Ill.1 m Description of Customs’ Two Alternative Fee Proposals l Transaction proposal would establish fees that reflect the cost of services used l Modified ad valorem would retain a value-based fee but with changes to help reduce under- and overcharging ‘EntIieaareJ documents filed with Customs as a record of import&on, description, vahw, and disposi- tionofaglvenlotofimportedmer&ndk bymimporkrorbmke.r.Fomtalentaiesareentriesof ~withavPlutuswlly~thPn$1,2M),and~~entrlesareentrieaofmerchan- d&3ewithav8lwusuaUyles8than$1,260. P8ge 15 GAO/GGlh#lMUBR Ibhdud~ Prtnxaaing Fee to track these shipments (known as in-bond shipments) to ensure duties are paid. Importers who use them would pay a higher fee than those who do not. Customs and USTRofficials believe that in their judgment this proposal would address GAIT concernsthat fees be tied to Customs’ costs of processingan importer’s individual shipment of merchandise. We also believe transaction fees could represent prices that are related to the costs of processing an importer’s individual shipment becauseimporters would be charged for somespecific services they use. Customs officials agreed that the services covered in the transaction proposal represent Customs’ maor merchandise processingservices used by importers. Currently, Customs does not have the data to develop transaction fees. (* page 18.1 The secondproposal, known as a modified ad valorem fee, would still be ModifiedAdValorem basedon merchandise value but with limits. For formal entries, the ad Fee valorem would be 0.16 percent of merchandise value with a minimum of $20 and a maximum of $400. Like the transaction proposal, the proposal contains an $11 fee for informal entries and a $3 manual submission surcharge for formal and informal entries. The Bush administration has submitted proposed legislation to Congress recommending adoption of the modified ad valorem. Customs and the U~TRbelieve this proposal addressesGAIT concernsthat importers of high-value shipments were being overcharged and that these overcharges were subsidizing importers of low-value shipments. Agency officials believe that the upper and lower limits, coupled with informal and manual entry fees, will reduce over- and undercharging and address GAW concernsthat the fee approximate the costs of processingan importer’s individual shipment. It is unclear to us whether these modi- fied ad valorem fees would approximate the costs of processing an importer’s individual shipment becauseof a lack of cost data. kw* m Altematlve Fee Propoda Developed by Customa Figure III.2 GAQ Alternative Proposals Linked to Revenue Needs l In redoing the MPF, Customs plans to reduce FY 1991 collections by $110 million l Customs used an outdated study to develop transaction fees l Customs did not collect cost data to develop modified ad valorem fees Customs generally designedboth proposals to collect enough revenue in Alternative Proposals fiscal year 1991 to offset its estimate of those commercial activities Linked to Revenue costs that the GAIT panel said could be included in the fee. Because Needs Customs lacks data on commercial activities costs and doesnot have data to link the proposed fees to the costs of processingan individual merchandise shipment, it estimated the reductions to collections and the individual fees as follows. Pyre 17 GAO/GGMO-9lBR M- Promming Fee Reductions in Collections To address the GAIT panel finding concerning the four cost elements that importers were charged for but did not use, Customs plans to reduce the amount of revenue collected in fiscal year 1991 by $110 million. (See app. V for a list of planned reductions.) Concerning the reduction associ- ated with processingimports exempt from the MPF, Customsestimated that $45 million would have been generated assuming there was no exemption and used the number as a reduction figure. Regarding the remaining three cost elements (passengerprocessing,export processing, and international affairs), Customs reduced estimated costs recovered through the fee by $66 million2 However, in estimating the cost ele- ments that GATT said should not be recovered through the MPF,Customs did not exclude about $14 million in management and administrative support costs related to the commercial services importers did not use. Customs officials attributed the problem to an oversight and agreed to reduce revenue collected by this additional amount. Methods Used to Estimate According to Customs officials, the transaction fee proposal is basedon Fees a 1982 time study. This study collected data from all ports and included data on the amount of time employeesspent in processingdifferent types of shipments. Customs officials recognizedthat increased automa- tion and new methods for processingshipments had significantly changed Customs’ merchandise processingsince 1982. However, they used the study becauseit was the only information available. These offi- cials agreed a new study would be neededto develop reliable data for transaction fees. According to an official who helped design the original study, Customs could collect new data but it would take about 2 years. BecauseCustoms is supporting the modified ad valorem MPF, officials said they have no plans to redo the study. In developing the modified ad valorem, Customs made a series of calcu- lations using various fees, percentage rates, and data on the value of imports. From these calculations, Customs chosea combination of fees and a percentage rate that yielded the collections neededto recover esti- mated commercial activities costs minus the costs that the GATT panel said should not be charged to importers. Customs officials said they did not collect cost data becausethey believed that putting upper and lower limits on the fees would address GAIT concerns. 2Although the GATT panel finding ~&edw~~~r pmcessing its, Cus- tomsoffici&saidthatthe- processing estimates for allpas- !iengem. consequently,customs included allpaemger pmceshgc&sinit.9t66rniUionesthate. _. Appendtx Ill AlternirtiveFeePropoeah Deweloped by Cuetorrm Ftgun III.3 m Past Excess Collections Not Addressed l Customs did not reduce the fee to offset past excess collections l For FY 1988 and FY 1989 combined, past excess collections totaled about $235 million Member nations also complained to the GATT panel that the rate of the Past Excess existing MPF had been set too high, generating more revenue than needed CollectionsNot to cover all the costs of Customs’ commercial activities. During the GAIT Addressed panel hearings, the United States explained that MPF legislation contains a fee reduction mechanism that allows the Secretary of the Treasury to make recommendations to Congresson reducing the MPF in subsequent years to offset past-excesscollections. For fiscal years 1988 and 1989 combined, Customs estimated that these past excesscollections totaled about $235 million. Page 19 GAO/GGD9091BB Merchandise Processing Fpe Agency officials did not address past excesscollections in calculating changesto the fee for fiscal year 1991. They said that becausethe MPF statute is due to expire, their first two priorities were to develop pro- posed legislation to (1) eliminate from the proposals the costs that should not be charged to importers and (2) address concernsabout the MPF exceedingthe cost of processingan importer’s individual merchan- dise shipment. Agency officials also noted that adjusting the fee requires congressionalaction. They said that their proposed legislation to change the MPF gives the Secretary of the Treasury the authority to adjust fees. According to agency officials, if Congressadopts their proposed legisla- tion and extends the law, the Bush administration will probably address excesscollections in setting fees for fiscal year 1992. Page20 GAO/GGDdO4UBRMerchand&eProceseingFee Appendix IIl Alternative Fee Propoda Developed by Chotoma Figure III.4 GM Ability to Administer and Control Alternative Proposals l Transaction proposal would be more difficult to administer l Brokers need 2 to 6 months to prepare for transaction fees l Customs is proposing changes to reduce possible revenue losses Ability to Administer and Control Alternative Proposals Administering Alternative Customs officials and brokers said transaction fees would be more diffi- Fee Proposals cult to administer than modified ad valorem fees. Customs officials said they do not have methods and procedures to collect two of the six spe- cial transaction fees. For example, they said they would have to develop Page 21 GAO/GGDW91BR Merchandise Recessing Fee Ala=- m Altenutlve Fee Proposals Developed by Customs a method for collecting proposed fees on in-bond shipments. Customs officials also said that becauseof the larger number of transaction fees, their offices may need more personnel to collect fees. Brokers com- mented that a scheduleof transaction fees would complicate their oper- ations more than a modified ad valorem becauseof the time required to (1) educate employeesand clients on the various fees, (2) develop oper- ating procedures, and (3) program their automated systems. They said they would need about 2 to 6 months to implement transaction fees into their operations. Potential for Reduced In discussionswith brokers, we learned there are at least two ways in which reduced collections could occur under both alternative fee pro- Collections posals. First, brokers and importers could reduce the fees they pay by combining information from the entries onto a summary document. Customs’ regulations allow this practice. The examples below illustrate how smaller collections could result. . Under the transaction fee, a broker combines five entries on a summary document. Instead of paying $236 ($47 X 5 entries), the broker would pay $47 for the summary document -a loss of $188 to Customs. . Under the modified ad valorem, a broker combines 10 entries each valued at $6,000 on a summary document, for a total value of $50,000. Instead of paying $200 ($20 minimum X 10 entries), the broker would pay $75 ($60,000 X 0.15 percent) for the summary value-a loss of $126 to customs. Customs now proposesto charge fees basedon each entry as opposedto charging a fee on the summary document. This action will correct the first potential revenue loss problem associatedwith combining entry information onto a summary document. However, it will not prevent the secondway in which potential revenue lossescould occur. Under both proposals, brokers and importers could combine different merchandise in a shipment onto one entry document to keep the fee low. Customs officials said that while regulations do not prohibit this prac- tice, there are economic reasonsthat would discourageit. For example, if an entry is selectedfor inspection, all the merchandise would be held by Customs until the inspection is completed, thus delaying the importer’s ability to fill customer orders. Officials said that under either proposal they will have to monitor import practices to assesswhether revenue lossesare occurring. P8ge 22 GAO/GGDBLL@lBIt Merchandise Processing Fee Appendix IV Objectives, Scope, and Methodology The objectives of our review were to assess . Customs’ methods for estimating commercial activities costs, . Customs’ plans to address international concernson the MPF, . alternative fee proposals for recovering costs, and . problems Customs could face in administering fees and controlling against revenue loss. To collect information on these issues,we interviewed Customs officials responsible for budgeting and accounting, trade operations, inspection and control, and user fee development. We reviewed documents that dealt with methods Customs used to estimate its commercial activities costs for fiscal year 1989 through 1991 and plans for complying with the GATI- panel findings. We spoke with officials from USTR,the Office of Management and Budget, and members of the Treasury Department’s Commercial Operations Advisory Committee concerning the fee pro- posals. This committee was formed by the Omnibus Budget Reconcilia- tion Act of 1987 (P.L. 100-203) to advise the Secretary of the Treasury on issuesrelating to Customs’ commercial activities. To find out how difficult it would be to administer and control pro- posals, we spoke with Customs’ headquarters officials, Customs offi- cials, and customs brokers at ports in New York City; Los Angeles, California; Laredo, Texas; and Buffalo, New York. These locations were selectedin consultation with Customs officials who said these ports represent merchandise processingoperations common among all ports. These ports accounted for over $238 million, or 33 percent of the MPF collections during fiscal year 1989. At these locations, we spoke with Customs officials responsible for processingimports and a total of 30 brokers. We selected a judgmental sample of the 30 brokers from lists of brokers provided by Customs. Brokers were selectedbased on the size and type of operations as indicated by their annual entry volume. We did not pro- ject the views obtained from these interviews becauseof the small number of brokers interviewed. We also spoke with industry representa- tives from the National Customs Brokers and Forwarders Association, the American Association of Exporters and Importers, and the Joint Industry Group. Our work was done from June 1989 through May 1990 and in accor- dance with generally acceptedgovernment auditing standards. Page 22 GAO/GGD90-91BR Merchandise Process~ Fee Custmps’ Commercial Activities Cost l3stimatis for F’iscd Year 1991 and Planned lhductions ID Address Internatiorkl Concerns Dollars in thousands Commorckl AclMtler costs 6676,200 PhnnodRoductbns Passenger processing’ wmo) Export processing (1,400) International affairs (1Dw MPF exempt imports (45,ooo) Total aqusmms 0110,300) %cludes all Costs of processing passengers, including airport pessengefs. Source: U.S. Customs Service Page 24 GAO/GGI.MW@IBR Memhandbe Processtn.g Fee Qpendix VI Major Gmtributors to This Report GeneralGovernment Weldon McPhail, Assistant Director, Administration of Justice Issues Division, Washington, 2: ~%c~~~~~~~chmge DC. Eric S. Rauch: Writer-Editor Mary E. Cassady,Social ScienceAnalyst Anna T. LittleJohn, Secretary/Typist (2-1 Ptgt26 GAO/GGD-9M1BR Mere- Processing Fee -.- -_ Requests for copies of GAO reports should be sent to: U.S. General Accounting Office Post Office Box 6015 Gaithersburg, Maryland 20877 Telephone 202-275-6241 The first five copies of each report. are free. Additional copies are $2.00 each. There is a 25% discount on orders for 100 or more copies mailed to a single address. Orders must be prepaid by cash or by check or money order made out to the Superintendent of Documents.
U.S. Customs Service: Merchandise Processing Fee--Examination of Costs and Alternatives
Published by the Government Accountability Office on 1990-06-15.
Below is a raw (and likely hideous) rendition of the original report. (PDF)