The U.S. Court of International Trade has been asked to consider the applicability of the Merchandise Processing Fee (MPF) to natural gas imported into the United States via pipeline, an issue that could make a difference of more than $10,000 per month to many importers of natural gas and possibly other commodities imported by pipeline. On August 26, a natural gas importer, through its counsel at Alston & Bird, filed suit to challenge U.S. Customs and Border Protection’s (CBP) assessment of MPF on natural gas that it imported via pipeline from 2004 to 2008. The importer claimed that the imported natural gas was exempt from MPF under NAFTA or, in the alternative, that CBP should assess MPF only on a monthly basis, up to a maximum of $485 per monthly entry.
Unlike many goods that are imported into the United States in discrete shipments, natural gas flows continuously into the United States via pipeline. Because natural gas is not unloaded from a ship, plane, train or truck and presented to CBP for inspection and release, and because importers are not required to present daily manifests to CBP, some importers were unaware that natural gas was even subject to CBP’s formal entry requirements. CBP has clarified that all importers of natural gas are required to file entries with CBP, but that importers may file a consolidated monthly entry for all natural gas imported from one shipper and through one port in one month. Under the Harmonized Tariff Schedule of the United States, natural gas is duty-free, but imported natural gas may nonetheless be subject to assessment of MPF.
The importer in the impending case did not initially file entries for natural gas that it imported from Canada via pipeline from 2004 through 2008. When it filed consolidated monthly entries in 2009, CBP assessed MPF on each entry at a rate of 0.21 percent ad valorem, up to $400 per day. The importer’s complaint alleges that the natural gas was wholly obtained or produced entirely in Canada and was therefore exempt from MPF under NAFTA. The complaint further alleges that the claim is not barred by the rule that importers may not seek post-importation refunds under NAFTA more than one year after importation.
The complaint argues in the alternative that, if the imported natural gas is not exempt from MPF under NAFTA, MPF may be assessed only on a monthly basis. The importer asserts that consolidated monthly entries of natural gas are not made pursuant to the program that requires assessment of MPF on a daily basis. Thus, the complaint argues that each monthly entry should be subject to MPF at the ordinary per-entry ad valorem rate, up to the ordinary per-entry maximum of $485.
The NAFTA claim in the pending court case is especially relevant to other natural gas importers that may have failed to file entries for past imports. Moreover, if the importer prevails on its claim that the statutory requirement for daily MPF assessment is not applicable to imports via pipeline, the result could offer significant MPF savings to other importers of natural gas or other commodities imported via pipeline. In addition to enjoying a cap on MPF at $485 per monthly entry, importers would have the opportunity to seek refunds for MPF tendered on certain past entries. It is expected that some importers will file similar court cases to preserve these refund claims, pending the outcome of the litigation.
Although the role of the court in this case is to interpret the statutes governing post-importation NAFTA claims and assessment of MPF on certain monthly entries, there is also a strong policy argument that monthly assessment of MPF is simply more reasonable than daily assessment. The purpose of MPF is to support the cost of CBP’s handling of imported merchandise and processing of entry documentation. CBP does not physically handle natural gas that flows via pipeline, and CBP processes paperwork for a consolidated entry once per month, not every day. Given the minimal time and effort required of CBP to facilitate pipeline entries, assessment of MPF of up to $12,400 per entry per month seems excessive. It is possible that importers may raise this policy argument outside of the court forum.
Similarly, it is possible that the government or affected importers might seek to change the statute governing MPF for certain consolidated monthly entries to clarify whether or not the statute applies to pipeline entries. Section 111(f) of the Customs and Trade Act of 1990 mandates which programs are subject to daily assessment of MPF, but it is not clear whether the statute’s mandate covers imports of natural gas or other commodities via pipeline. While Selkirk has asked the court to interpret the existing statute, Congress could moot the issue by amending the statute and expressly instructing CBP how to assess MPF on commodities imported via pipeline.
Importers of natural gas and other commodities via pipeline are encouraged first and foremost to ensure that all imported commodities have been formally reported to CBP via consolidated monthly entries or some other means. Importers that have failed to file entries may be able to avoid penalties by proactive correction of this error. Importers might then also consider whether they have claims for refunds of MPF tendered on past entries or claims to reduce MPF on entries going forward.