Trade Compliance

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Legal Opinion Backs CTA’s Claim APHIS Fees Violate Trade Agreements

Posted June 27, 2014

The Ontario Trucking Association yesterday published a release on its website outlining the legal opinion obtained by the Canadian Trucking Association (CTA) from Gowling Lafleur Henderson LLP. The CTA believes the opinion adds further credence to the objections raised in its formal comments submitted to the USDA regarding the proposed increase of the APHIS fees in connection with funding the agency’s AQI program. The opinion describes the proposed fee increase as a “disguised restriction on trade” that violates both NAFTA and rules under the global General Agreement on Tariffs and Trade (GATT) that restrict fees at the border.

NAFTA Article 310 prohibits the adoption of customs user fees, defined as “an amount of money charged for processing goods through customs”. The AQI fees, which are charged regardless of the origin of the goods and whether they are actually inspected, clearly fall under this definition. According to Gowlings, “the basic effect of NAFTA Article 310 is to prohibit the United States, as a Party to the NAFTA, from adopting any customs user fees other than those that existed at the date of the coming into force of NAFTA, which ultimately were eliminated for goods originating in Canada.”

Similarly, while GATT Article VIII permits the imposition of certain customs fees to recoup expenses incurred in the course of inspection or documentation of goods, it also places limitations on such fees, specifically those that apply to inspection and quarantine services.

Among other conditions, GATT requires customs fees to be “limited in amount to the approximate cost of the service.” Therefore, they must first involve a “service” rendered, and the level of the charge must not exceed the approximate cost of that “service.”

Says Gowlings: “The AQI fees cannot be considered as GATT-compliant customs users fees in that the fees are applied irrespective of whether an individual conveyance is actually inspected, and irrespective of the actual need for an inspection to be performed given the nature of the shipment and the goods.”

Gowlings argues the AQI fees also violate this requirement by charging a flat fee to the vast majority of shipments regardless of whether an inspection takes place. The fact the fee for commercial trucks can be paid on an annualized basis makes clear that the AQI fees are not in any sense relatable to the costs of services provided to an individual shipment.

APHIS maintains that the proposed increase is required to pay salary costs for the “hundreds of additional inspectors” that have been hired to conduct inspections. But, according to Gowlings, “if inspections were based on a reasonable, risk-based approach, APHIS presumably would not need to constantly increase the number of inspectors it employs. “Given the availability of pre-clearance inspections and other targeted risk assessment measures, it is difficult to justify a level of inspection that warrants the existing fees, much less the proposed increased fees,” says Gowlings.

Furthermore, the first article of the GATT Agreement prohibits members from discriminating between trading partners. “The AQI fees applicable to commercial trucking de facto discriminate against Canadian manufacturers and exporters as compared to other countries which export goods to the United States, because the vast majority of Canadian goods are shipped to the United States by road,” explains Gowlings.

Gowlings refers to this as a “disguised restriction on trade by placing Canadian manufacturers and exporters at a significant disadvantage as compared to their US counterparts, who do not incur such fees … (and) compared to their foreign counterparts, given that the fees for commercial truck shipments are effectively much higher than for other modes of transportation.”

In a previous post, we had expressed a view that the CTA’s belief (as stated in its initial press release) that the proposed APHIS fee increase violates both NAFTA and GATT rules appeared to be mistaken. This was based on a strict, narrowly circumscribed interpretation of the relevant provisions concerning “customs user fees” as outlined in the NAFTA and GATT trade agreements and our understanding of the way fees at the border levied by other federal agencies and collected by customs have been administered in practice.  However, the compelling argument made by Gowlings on behalf of the CTA would seem to put that view in doubt.  It now remains to be seen whether the legal argument made by the CTA in objection to the USDA’s Notice of Proposed Rulemaking will be accepted as valid by the U.S. government agency.