By Philip Sutter, US Global Trade Management Governance
When importing into the U.S., landed cost calculations must include both the duty on the product and associated fees, like the Merchandise Processing Fee (MPF). MPF should not be overlooked in evaluating your costs, and how to potentially avoid them. The MPF has been in place for thirty years and has been the subject of criticism and debate throughout this time. MPF changes are happening now and are planned for the future.
MPF costs can add up quickly. At the time this article was written (June 2016), the MPF was charged ad valorem on each entry at 0.3464% with a minimum of $25 and a maximum of $485, according to 19 CFR § 24.23(b)[1].
Note, CBP has since changed user fee amounts. For updated amounts, see article titled CBP To Increase User Fees For Fiscal Year 2019 – Effective October 1, 2018.
Do you have an MPF avoidance plan?
Most current US trade programs do exempt eligible goods from MPF
Duty avoidance is always a marquee highlight of free trade agreements. It is a misconception that goods qualifying for a preferential agreement will be automatically exempt from MPF. This is only the case where the legislation authorizing the trade agreement makes it so. Most current US trade programs do exempt eligible goods from MPF[2]. Two current trade agreements (Jordan and Morocco) do not.
| EXEMPT FROM MPF |
| African Growth and Opportunity Act (AGOA) |
| Caribbean Basin Economic Recovery Act (CBERA) |
| Caribbean Basin Trade Partnership Act (CBTPA) |
| Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) |
| Generalized System of Preferences (GSP) |
| North American Free Trade Agreement (NAFTA) |
| Australia Free Trade Agreement (AUFTA) |
| Bahrain Free Trade Agreement (BHFTA) |
| Chile Free Trade Agreement (CLFTA) |
| Colombia Trade Promotion Agreement (COTPA) |
| Israel Free Trade Area Agreement (ILFTA) |
| Korea Free Trade Agreement (KORUS) |
| Oman Free Trade Agreement (OMFTA) |
| Panama Trade Promotion Agreement (PATPA) |
| Peru Trade Promotion Agreement (PETPA) |
| Singapore Free Trade Agreement (SGFTA) |
| NOT EXEMPT FROM MPF |
| Jordan Free Trade Area Agreement (JOFTA) |
| Morocco Free Trade Agreement (MAFTA) |
Originating goods under the Trans-Pacific Partnership (TPP) will not be exempt from the MPF
Of significant importance for future cost avoidance, originating goods under the, yet to be ratified, Trans-Pacific Partnership (TPP) will not be exempt from the MPF. As part of the ratification timeline for the TPP, legislation changes had to be identified by April 4, 2016[3]. MPF was included in the changes, but an exemption was not part of the change. Unless this is added later when the implementing legislation is introduced to Congress, companies will face a dilemma. It will require a decision to either continue to administer multiple FTA programs (where there are overlaps with TPP) or offset MPF payments with the reduction in administrative burden.
According to TPP Article 2.14[4], the previously discussed provisions of the General Agreement on Tariffs and Trade (GATT) that fees only recover costs incurred and cannot be assessed on an ad valorem basis are reinforced – so MPF must change. Customs has floated a proposal to comply with this provision using a tiered structure of fees. Based on its analysis, the tiers are duty neutral and will only have a minor impact up or down to most importers.
| SHIPMENT VALUE | MPF ASSESSED |
| Entered value between $25.01 – $20,000 | $30 |
| Entered value between $20,001 – $55,000 | $150 |
| Entered value between $55,001 – $130,000 | $260 |
| Entered value greater than $130,000 | $500 |
The tiered structure remains ad valorem based, so whether this will be objected to by the other eleven TPP Parties remains to be seen. Or, it could be that the US Congress, with urging from its constituents, will demand changes and accountability for the calculation and assessment of the MPF.
Changes to MPF will be more frequent in the future
The Fix America’s Surface Transportation Act of 2015[5] was signed by the president in December 2015. Under provisions of Section 32201, it will adjust fees, including MPF, at the beginning of each fiscal year to reflect the percentage increase of the prior 12-month’s Consumer Price Index (CPI). The legislation does not indicate how the increase would be implemented, such as an increased rate or increases to the minimum or maximum. Increases of less than 1% may be ignored. Because the CPI is currently at only 0.7%, there will be no increase in 2016. It will be re-evaluated again on January 1, 2017. At present, Customs and the US Treasury are working together to analyze how to implement future increases, taking into account the tiered structure needed due to TPP.[6]
Ways to avoid or reduce your MPF liability include the following:
- Pursue and enter goods using a free trade program.
- Document and enter goods using a chapter 98 program.
- Do not overlook un-conditionally free goods for trade program claims; the duty may be free, but the MPF is not.
- Take note of new FTAs, like TPP, and understand how MPF will be impacted.
- Make consolidated entries.
So, take steps to ensure MPF is included in your landed cost calculations. Now that you are informed, do not be afraid to voice your opinion on the TPP impact and what should be documented by Customs to support the collection of MPF.
[1] https://www.law.cornell.edu/cfr/text/19/24.23
[2] http://www.cbp.gov/sites/default/files/documents/merchandise_pf_table_0.pdf
[3] https://ustr.gov/sites/default/files/TPP-Changes-to-Existing-Law-Report-FINAL.PDF
[4] https://ustr.gov/sites/default/files/TPP-Final-Text-National-Treatment-and-Market-Access.pdf
[5] https://www.congress.gov/114/bills/hr22/BILLS-114hr22enr.pdf
[6] https://www.cbp.gov/sites/default/files/assets/documents/2016-Apr/MPF%20Briefing%20for%20External%20Stakeholders_April2016.pdf