A legal opinion conducted on behalf of the Canadian Trucking Alliance says the U.S. Department of Agriculture (USDA) Animal and Plant Health Inspection Service’s (APHIS) agricultural quarantine inspection (AQI) fees are inconsistent with the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT).
The legal opinion, prepared by the Gowlings legal firm, adds further credence to the objections raised by CTA in its formal comments filed last week on a Notice of Proposed Rulemaking (NPRM) from the USDA to significantly increase the AQI fees on all trucks crossing into the United States, whether they are carrying imports of agricultural products or not. CTA’s concerns are also reflected in the Government of Canada’s own official comments on the NPRM, which were deposited yesterday.
David Bradley, president of the 4,500 member trucking alliance, a federation of the provincial trucking associations, says the proposal to increase the AQI inspection fees for commercial trucks (from $105 to $320 per year for trucks with a transponder; and from $5.25 to $8.00 per crossing for trucks without transponders) is similar to a 1999 attempt to introduce a US Customs Service User Fee.
“As we successfully argued back then, we believe these sorts of fees are inconsistent with the United States’ international trade obligations,” says Bradley. “Having our views and concerns reinforced by the Government of Canada was welcome and significant in 1999 and it is again this time.”
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.”
As well, NAFTA Chapter 7 reflects provisions similar to the WTO Sanitary and Phytosanitary Measures Agreement (SPS), which ensure food safety and animal and plant health standards are applied only to protect human, animal or plant life or health, and do not present a disguised barrier to trade. Gowlings concludes NAFTA Chapter 7 appears to be contravened by the AQI fees.
In its own comments, the Government of Canada echoed CTA’s concerns. “The proposed fee increases and application to conveyance modes would cause an unintended disproportionate negative effect on U.S.-Canada trade,” it stated. “The magnitude of the proposed fee increases would negatively affect U.S. imports from Canada, focusing as they do on the primary modes of conveyance in our trading relationship.”
“Canadian commercial enterprises would be placed at a competitive disadvantage and could suffer de facto discrimination as compared to enterprises of other foreign countries under international trade obligations.”
It argues the “cost recovery for these services should follow the “beneficiary-pays” principle and reflect the benefits provided to the American public.”