AMS Final Rule Increases Cotton Taxes, Expands HTS Nos on Sept 30

This final rule is effective September 30, 2011.

Final Rule Increases Supplemental Cotton Assessment by Approximately 14%

This rule increases the value assigned to imported cotton for the purposes of calculating the supplemental portion of the assessments collected for use by the Cotton Research and Promotion Program¹. AMS states that this adjustment is required to ensure that assessments collected on imported raw cotton and the cotton content of imported cotton-containing products are the same as assessments collected on domestically produced cotton.

Therefore, the new value of imported cotton has been increased by approximately 14% to $0.012665 per kilogram of imported cotton from its current value of $0.010880 per kilogram. According to AMS, this increase reflects the increase in the weighted average price of Upland cotton received by U.S. farmers for Upland cotton for the calendar year 2010.²

(In 2010, producer assessments totaled $46.5 million and importer assessments totaled $38.2 million. According to the Cotton Board, should the volume of cotton products imported into the U.S. remain at the same level in 2011, the increased importer assessment could be expected to generate approximately $10.8 million.)

Revises Conversion Factors to More Accurately Determine Raw Fiber Equivalents

The final rule also revises the textile trade conversion factors used to determine the raw fiber equivalents of imported cotton-containing products that appears in the Import Assessment Table (7 CFR 1205.510(b)(iii)) to reflect updated textile technologies and to more accurately estimate the amount of cotton contained in cotton-containing imports. AMS states that this will assure a more fair and accurate assessment of imported cotton-containing products.

(According to AMS, an analysis of these cotton trade conversion factors for a subset of cotton textile imports on which cotton import assessments are collected revealed that the differences between the current conversion factors and revised conversion factors represent an approximate 4.7% reduction in cotton or $1.93 million less in assessments.)

Triples Affected HTS Nos to Cover Remaining 11% of Unassessed Products

AMS notes that in a 2010 report, the U.S. Department of Agriculture's Economic Research Service (ERS) determined that the current set of Harmonized Tariff Schedule codes used by the AMS for research and promotion assessment purposes accounted for 89% of the total U.S. cotton product imports. This leaves 11% of imported cotton products unassessed.

As requested by the Cotton Board, this final rule expands the number of HTS numbers from the current 706 to 2,371 so that the program collects close to 100% on imported cotton and cotton-containing products, as it does with the domestic producer assessment.

(AMS states that had it expanded its list to include the 2,371 HTS numbers in 2009, the Cotton Research and Promotion Program could have collected approximately $4.81 million more that year.)

Provides Certain Exemptions to Assessment

AMS states that importers with line-items appearing on U.S. Customs and Border Protection documentation with value of the cotton contained therein resulting in an assessment of two dollars ($2.00) or less will not be subject to assessments.

In addition, imported cotton and products may be exempt from assessment if the cotton content of products is (1) U.S. produced, (2) cotton other than Upland, or (3) imported products that are eligible to be labeled as 100% organic under the National Organic Program (7 CFR 205) and which are not a split operation.

Remedy Available for Assessments Made on HTS Nos w/ 100% Man-Made Fibers

AMS states that a comment it received on its June 2011 proposed rule questioned the list of HTS numbers as some were categorized in the HTS as containing only man-made fibers. The commenter stated that the cotton fee should not be assessed for those HTS numbers, which should not have a conversion factor. In response, AMS states that such HTS numbers were identified by the ERS in its 2009 study as containing some cotton, and are not considered 100% man-made fibers, and therefore, are estimated to contain small percentages of other fibers, like cotton.

However, AMS agrees that there is a possibility of select import products identified as containing cotton actually being composed of 100% man-made fibers. AMS states that the cotton regulations in 7 CFR 1205.336 provides for a remedy. If an importer has paid assessments and can prove that such assessments were made on fiber other than Upland cotton, the importer has the right to request and receive a reimbursement from the Cotton Board.

¹Under the Cotton Research and Promotion Program, assessments are used by the Cotton Board to finance research and promotion programs designed to increase consumer demand for Upland cotton within the U.S. and international markets. The total value of assessments is the sum of a flat rate levied on the weight of cotton imported and a supplemental assessment levied at a rate of five-tenths of one percent of the weighted average price of the imported raw cotton or the cotton content of imported cotton-containing products.

²Since the weighted average price of cotton that serves as the basis of the supplemental assessment calculation has changed, total assessment rates reported in the Import Assessment Table that appears in 7 CFR 1205.510(b)(3) have also been revised.

(See ITT's Online Archives or 06/03/11 news, 11060321, for BP summary of the proposed rule.)

AMS Contact -- Shethir Riva (540) 361-2726 Shethir.Riva@ams.usda.gov