Details of AMS Final Rule on New Dairy Product Import Tax, Etc.

The final rule’s amendments are effective April 1, 2011, except for the implementation of the assessment on imported dairy products, which is effective August 1, 2011. AMS states that this delay will give U.S. Customs and Border Protection and customs brokers time to make the needed software changes.

(This final rule is pursuant to the Farm Security and Rural Investment Act of 2002 (2002 Farm Bill) and the Food, Conservation, and Energy Act of 2008 (2008 Farm Bill). The 2002 Farm Bill mandates that the Order be amended to implement an assessment on imported dairy cow products to fund promotion and research and to add importer representation, initially two members, to the National Dairy Promotion and Research Board.)

Final Rule Establishes Import Tax of “7.5 Cents per Hundredweight”

The final rule states that each importer will have to pay an assessment rate of $0.01327 per kilogram (kg) of milk solids¹ for dairy products in certain tariff numbers of the following HTS subheadings, as listed in new paragraph 7 CFR 1150.152(b)(1): 0401-0406, 1517, 1702, 1704, 1806, 1901, 2105-2106, 2202, 3501, and 3502.

This rate is based on the 2008 Farm Bill’s requirement to assess 7.5 cents per hundredweight of U.S. milk or equivalent thereof.²

Final Rule Defines "Importer" as Importer of Record for Dairy Products

The final rule adds new section 7 CFR 1150.21 to define the term "importer" to mean "a person that imports imported dairy products into the U.S. as a principal or as an agent, broker, or consignee of any person who produces or handles dairy products outside of the U.S. for sale in the U.S., and who is listed as the importer of record for such dairy products."

The final rule also adds new section 7 CFR 1150.120 to define an "imported dairy product" as "any product that is imported into the U.S. under any of the Harmonized Tariff Schedule (HTS) classification numbers listed in 7 CFR 1150.152(b)(1)."

"United States" is Redefined to Include Alaska, DC, Hawaii, and Puerto Rico

The final rule redefines the term "United States" (defined in 7 CFR 1150.106) to include not only the Continental States, but also Alaska, the District of Columbia, Hawaii, and the Commonwealth of Puerto Rico. Accordingly, the final rule adds these four jurisdictions to section 7 CFR 1150.131 on establishment and membership of the National Dairy Promotion and Research Board. This amendment also requires that these four jurisdictions be added to the existing regions of the Board and that domestic producers in these areas be assessed 15 cents per hundredweight on all milk produced and marketed commercially.

Importer Assessments Should be Paid to CBP When Entry Summary Docs Filed

The final rule states in 7 CFR 1150.152(b)(2), that the assessment on imported dairy products should be paid by the importer to U.S. Customs and Border Protection at the time of entry summary for subject products. AMS notes that the assessments collected by CBP will be transferred to the Dairy Board, which will, at its discretion, verify the information reported by importers to CBP to determine if additional money is due to the Dairy Board or if an amount is due to an importer based on the quantity of imported and the milk solids content per unit.

Late-Payment Charges Will Increase 1.5% Each Month Past Due

The final rule revises 7 CFR 1150.156 on charges and penalties, to cover late-payment charges for importers, stating that any unpaid assessments due to the Dairy Board will be increased 1.5% each month beginning with the day following the date such assessments were due. Any remaining amount due, which would include any unpaid charges previously made, will be increased at the same rate on the corresponding day of each month thereafter until paid.

(Any assessment not collected by CBP at the time entry summary documents are filed by the importer will be considered to be past due.)

Assessment Exemptions for Importers Who Import 100% Organic Products

The final rule revises 7 CFR 1150.157 on assessment exemptions, to state that an importer who imports only products that are eligible to be labeled as 100% organic under the National Organic Program (7 CFR 205) and who is not a split operation will be exempt from the payment of assessments.

That importer may submit documentation to the Dairy Board and request an exemption from assessment on 100% organic dairy products, on a form provided by the Dairy Board, at any time initially and annually thereafter as long as the importer continues to be eligible for the exemption. If the importer complies with the requirements, the Dairy Board will grant the exemption and issue a Certificate of Exemption to the importer.

The Board will also issue the importer a 9-digit alphanumeric HTS classification valid for one year from the date of issue. This HTS classification should be entered by the importer on the Customs entry documentation.

AMS also provides an opportunity for the reimbursement of assessments already paid upon the submission of satisfactory proof.

Importer Can be Reimbursed for Assessments on U.S.-Produced Milk Solids, Etc.

The final rule revises 7 CFR 1150.155 on adjustment of accounts, to state that any importer of dairy products against whose imports an assessment has been collected and who believes that such assessment or any portion of such assessment was made on U.S.-produced milk solids or milk solids other than cow’s milk, may apply to the Secretary for a reimbursement. AMS states that the importer would be required to submit satisfactory proof to the Secretary that the import was produced with U.S.-produced milk solids or milk solids other than cow’s milk.

Importers Will be Subject to Reporting, Books and Records Requirements

The final rule amends 7 CFR 1150.171 to require importers to submit reports as requested by the Secretary as necessary to verify that importer assessments have been carried out correctly, including verification³ that correct amounts were paid based upon milk solids content of the imported dairy products.

The final rule also revises 7 CFR 1150.172 on books and records, to state that each importer of dairy products will be required to maintain and make available for inspection by the Secretary such books and records to verify that importer assessments have been carried out correctly, including verification that correct amounts were paid based upon milk solids content of the imported dairy products.

AMS states that such records should be retained for at least two years beyond the calendar period of their applicability. Such information may include but may not be limited to invoices, packing slips, bills of lading, laboratory test results, and letters from the manufacturer on the manufacturer's letterhead stating the milk solids content of imported dairy products.

Dairy Board to Expand to Include Milk Product Importers

AMS will initially expand the Dairy Board to include two importer representatives and revises section 1150.131 in the final rule on the establishment and membership of the Dairy Board. The Dairy Board, which currently consists of 36 producer members, is revised to add Alaska, Hawaii, the District of Columbia, and the Commonwealth of Puerto Rico to the region of closest geographic proximity of established Diary Board regions.

As stated in section 1150.132 of the final rule, the importers, like domestic dairy farmers who are appointed to the Dairy Board, will serve for terms of three years. The two importer members initially appointed to the Board will serve until October 31, 2013, and October 31, 2014.

Importers Can Direct Portion of Assessments to Qualified Programs

Through importer representation on the Dairy Board and possible establishment of qualified dairy product promotion, research, or nutrition education programs (qualified programs⁴) by importers, AMS states that imported products could be promoted to a greater extent than under the current program. In 7 CFR 1150.152(b)(5) of this final rule, it is stated that an importer may inform the Secretary to direct the Dairy Board to forward up to 2.5 cents per hundredweight of milk of the 7.5 cents per hundredweight of milk assessment paid by the importer, to a qualified program. The Secretary will compute the funds due for each qualified program designated by importers and direct the Board to forward such funds to each qualified program.

¹AMS' May 2009 proposed rule offered importers two methods to calculate assessments, one using a rate based on milk solids content and the other based on product volume, depending on whether the importer had sufficient documentation to determine the milk solids content. The proposed rule also noted that for most products, the default assessment rate for each HTS code would be based on maximum milk solids content.

In response to commenter objections, AMS has decided to provide one method for importers to calculate the assessment. The final rule therefore states that importers will be required to pay assessments based upon cow’s milk solids content of imported dairy products only.

²Domestic producers are already assessed 15 cents per hundredweight for all milk produced and marketed, except for those in Alaska, Hawaii, the District of Columbia, and the Commonwealth of Puerto Rico, which will become subject to the assessment as of this final rule.

³As verification reports are likely to contain confidential and commercially sensitive data, AMS states that the final rule modifies sections so that only the Secretary has access to confidential information, and that CBP will forward assessments directly to the Board.

⁴AMS states that the words "produced in the United States" were struck from the definition of milk, which now means any class of cow's milk. As a result, programs like the "Real Seal" and "3-A-Day" partners and promotional offers will become available to international dairy brands and importers. AMS notes that such programs will no longer be allowed to refer specifically to domestically produced dairy products if funded by the Dairy Board. Additionally, research carried out with assessment funds would be available to all of the importers subject to the assessment and qualified programs may continue to promote State brands.

(See ITT's Online Archives or 03/17/11 news, 11031712, for BP announcement of the availability of this AMS final rule.

See ITT's Online Archives or 05/27/09 news, 09052710, for BP summary of the AMS proposed rule.)

AMS Contact- Whitney Rick (202) 720-6909

(D/N DA-08-07, FR Pub 03/18/11)

USDA press release on AMS final rule is available here.