25 November 1987

80. The Panel agreed with Canada and the EEC that the ordinary meaning of the term "cost of services rendered" would be the cost of those services rendered to the individual importer in question. That meaning was also in keeping with general practice when "services" are charged for, which is to charge the same fee for the same service received. And, finally, the origins of these provisions in the "cost of issue" requirements of the 1923 Convention pointed to this meaning as well.

81. The United States interpretation, by contrast, presented serious difficulties. Granted that the terms "commensurate with" and "approximate" were intended to confer a certain degree of flexibility in the requirement that fees not exceed costs, the range of fees permitted under the US merchandise processing fee could by no stretch of language be considered a matter of mere flexibility. Moreover, the United States contention that "cost of services rendered" referred only to the total cost of the relevant government activities would leave Articles II:2(c) and VIII:1(a) without any express standard for apportioning such fees among individual importers, thereby committing the issue of apportionment, at best, to an implied requirement of equitable (or non-protective) apportionment that would be neither predictable nor capable of objective application. Finally, if "cost of services rendered" meant the total cost of customs operations, the "fiscal purposes" criterion of Article VIII:1(a) would be rendered largely redundant.

82. While the Panel thus found that the text of the General Agreement supported the interpretation advocated by Canada and the EEC, it recognized that this interpretation did not yield a result that was completely satisfying from a policy standpoint. A standard which requires the same fee for the same service would be an appropriate method of charging for government activities which were actually "services" in the economic sense. As noted above, however, most of the import fees covered by these provisions do not involve any such services. They are ordinary taxes on imports.

83. Viewing the US merchandise processing fee as an ordinary tax on imports, the Panel found itself in agreement with the United States argument that the ad valorem structure of that fee was the least distortive means of levying such a tax. That structure would have the lowest ad valorem impact for whatever amount was being collected, ⁹ it would create no distortion in relative prices between imports, it would be the most predictable for traders and investors, and it would be the simplest and least costly to administer. The United States had represented that the importers affected by the merchandise processing fee preferred its present method to all others. The Panel had no difficulty in believing that this was so.

84. The Panel was of the view, however, that the interpretation proposed by the United States presented an equally serious problem with regard to the policy objectives of the General Agreement. The problem was that the United States interpretation would enlarge the "service fee" authority granted by Articles II:2(c) and VIII:1(a), more importantly the former. Article II:2(c) is a rather extraordinary exception. It authorizes governments to impose new charges on imports in excess of the ceiling established by a tariff binding. Given the central importance assigned by the General Agreement to protecting the commercial value of tariff bindings, any such exceptions would require strict interpretation. The exception stated in Article II:2(c) requires particularly strict interpretation, however, because it does not conform to the policy justification normally given for such exceptions. In the words of an explanation of Article II:2 contained in a 1980 proposal by the Director-General (27S/24), the policy justification for the three types of border charges permitted by Article II:2 was that they did not "discriminate against imports". If the import fees authorized by Article II:2(c) were in fact fees for beneficial services, this justification would be valid. But given the reality that most such fees are simply an ordinary tax on imports, it cannot be said that such fees do not disadvantage imports vis-à-vis domestic products. In simple terms, Article II:2(c) authorizes governments to impose new protective charges in addition to the bound tariff rate. As such, it is an exception which should be doubly guarded against enlargement by interpretation.

85. In the Panel's view, the interpretation advocated by the United States would expand the scope of Articles II:2(c), as well as VIII:1(a). It would permit a broader variety of import fees to be imposed, and the greater availability and convenience of such fees would, the Panel believed, lead to an increase in both the number and the level of such fees. The Panel was convinced that the attainment of GATT policy objectives would not be furthered by such an interpretation. Thus, even though the requirement that import fees not exceed the cost of individual entries might increase the protective effect of such fees in a particular case, the Panel was unable to accept the United States argument that such consequences justified a more flexible interpretation. The Panel was satisfied that the text of the General Agreement did impose such a requirement, and that it would not promote the objectives of the General Agreement to relax it in the manner proposed by the United States.

86. The Panel concluded that the term "cost of services rendered" in Articles II:2(c) and VIII:1(a) must be interpreted to refer to the cost of the customs processing for the individual entry in question and accordingly that the ad valorem structure of the United States merchandise processing fee was inconsistent with the obligations of Articles II:2(c) and VIII:1(a) to the extent that it caused fees to be levied in excess of such costs.

87. In reaching this conclusion, the Panel had also given careful consideration to another United States' argument based on the GATT's prior legal experience with ad valorem customs fees. The United States had argued that ad valorem service fees had been widely used throughout GATT's history, and that the absence of any previous challenge to their ad valorem character during this long period demonstrated that most contracting parties considered ad valorem fees to be consistent with Articles II and VIII. The United States had cited several instances in which the CONTRACTING PARTIES had examined particular ad valorem fees without objecting to their ad valorem character, and had placed particular stress upon the fact that, notwithstanding the large number of ad valorem fees in force in 1955, the governments maintaining such fees had agreed to make Article VIII:1(a) mandatory in the 1955 Review Session amendments.

88. The Panel had examined all of the instances cited by the United States, as well as others that came to light during the course of its research. This examination had persuaded the Panel that the evidence did not support the conclusion advocated by the United States. The Panel believed it would be of assistance to include the results of this examination in its report.

89. The Panel first noted that a substantial number of the service fees reported in GATT documents appeared to have had excessively high rates, a problem that would normally have led to legal challenges far more readily than questions of ad valorem structure. The fact that, for the most part, these rather obvious legal shortcomings also appeared not to have been challenged suggested that many of these fees had simply not been subject to the rules of Articles II and VIII, or had otherwise escaped attention. The Panel found some support for the former hypothesis in the fact that most service fees existing on the date of a government's accession to GATT were immune from legal scrutiny under both Articles II and VIII. Article II:1(b) states that tariff bindings do not prevent governments from continuing to impose any non-tariff border charges existing at the time tariff concessions were made. ¹⁰ Article VIII:1(a) imposed no legal obligations at all from 1947 to 1957 when the Review Session amendments went into force, and thereafter the obligations of Article VIII were subject to the reservation for existing mandatory legislation in the Protocol of Provisional Application. ¹¹ The relative importance of such legal immunity was indicated in a 1962 working party report on customs formalities:

90. This same legal immunity would also have made it possible for governments with pre-accession service fees to accept the Review Session amendments making Article VIII:1(a) mandatory for post-accession service fees. Once again, the most evident legal problem at the time would have been the excessive rate of many existing fees, and the fact that the new legal obligation was accepted in spite of these more obvious legal shortcomings would tend to support that conclusion. In addition, it is not accurate to say that all governments accepting the Review Session amendment of Article VIII did so in the belief that their fees were in compliance with it. The working party report recommending the amendment also recommended that "the Agreement ... contain a general provision allowing time for governments to bring their legislation into conformity with the rules." (3S/214-215) The same report went on to note that five governments had reserved their position, proposing instead that the amendment should become effective "at the earliest practicable date."

91. The Panel found five cases in which individual ad valorem service fees had been investigated by the CONTRACTING PARTIES. ¹² The Panel found that in three of the cases the ad valorem method had not been challenged, but that in each case the failure to challenge it could be accounted for by reasons other than an assumption of its validity, either because the fee was immune from legal attack on that issue, or because the government imposing the fee had promptly agreed to remove it for other reasons. ¹³ In the fourth case, the report of the working party contained a phrase which could have been a criticism of the ad valorem method, although the text was not clear. ¹⁴ In the fifth case, the legal consistency of the ad valorem method had been expressly questioned.

92. The fifth case involved a, 1954 complaint by the United States concerning an increase in the rate of a French stamp tax. The stamp tax was calculated as a per centage of the customs duty; the increase in question raised the rate from 1.7 per cent of the customs duty to 2 per cent, an increase said to equal about 0.1 per cent ad valorem. France defended the increase on the ground that the tax had been provided for in its consolidated schedule and had not actually been changed in gold or dollar value (in essence, that it was exempt under Article II:1(b)). France also defended the fee on the ground that its current level was commensurate with the cost of customs services rendered, and was thus authorized by Article II:2(c). ¹⁵ The reply of the United States delegation was as follows:

93. Finally, to give a more complete view of GATT legal experience on the issue of ad valorem service fees, the Panel considered it relevant to note that the ad valorem method had in fact been expressly attacked in 1952 and 1957, in two formal recommendations concerning consular fees. (1S/25; 6S/25.) Although these recommendations were initiated at a time when Article VIII:l(a) was merely hortatory, and thus were not a legal ruling as such, they were expressly intended to implement the standards of Article VIII:l(a). In its preamble, the 1952 recommendation noted the "cost of services" standard stated in Article VIII:1(a), and then observed that "the [consular] fee charged is in many cases a high percentage of the value of the goods". The operative part of the recommendation then stated, "Any consular fee should not be a percentage of the value of the goods but should be a flat charge". The 1957 recommendation, issued one month after the effective date of the protocol making Article VIII:1(a) mandatory, restated the 1952 recommendation in similar terms. While it is probable that the primary concern with the ad valorem method in these recommendations had been its tendency to encourage excessive rates, the text of these recommendations is also consistent with a parallel objection to its cost apportionment consequences. In either event, governments were on notice from an early date that the CONTRACTING PARTIES did not necessarily consider the ad valorem method an acceptable structure for the type of fees covered by Article VIII.

94. Considering the historical evidence as a whole, the Panel could not agree with the United States argument that the GATT's legal experience with ad valorem service fees evidenced a widespread belief that the ad valorem method as such was consistent with the obligations of Articles II and VIII. Whether considered individually or as a whole, the events which constitute that history simply do not demonstrate any such understanding. If anything, these events tend to show that the ad valorem method has been questioned in those few cases where it has been put in issue.

(ii) Do all the costs included in the "commercial operations" budget of the United States Customs Service constitute "cost of services rendered" to the commercial importers subject to the merchandise processing fee within the meaning of Articles II:2(c) and VIII:1(a)?

95. After having dealt with the primary issue raised by the complaining parties, the Panel next considered several additional arguments by Canada and the European Economic Community claiming that various costs included in the "commercial operations" budget of the US Customs Service could not be considered "services rendered" to those commercial importers who were required to pay the fee. These arguments and the conclusions following from them were separate from the issue raised in the previous section. They would apply to any fee based on a calculation of total costs of customs processing, whether the fee was levied on an ad valorem basis or as a flat charge per entry. For convenience of analysis, the present report divides the arguments relating to different costs into three categories.

96. (a) The cost of certain Customs Service activities. The first category of costs to be challenged were the costs of certain Customs Service operations which, in the view of the complainant governments, could not be considered as "services rendered" within the meaning of Articles II:2(c) and VIII:1(a), and thus could not be charged to commercial importers under these provisions. Under this first heading, the parties questioned the inclusion of costs for the following activities of the Customs Service: airport passenger processing, activities related to exports, investigation of commercial fraud, investigation of counterfeit goods, collection of anti-dumping and countervailing duties, legal rulings on customs matters, technical laboratories, "clearance of carriers", and the pro rata share of Executive Management activities called International Affairs, Internal Affairs, and Chief Counsel.

97. As noted in the previous section of this report, the Panel was of the view that Articles II:2(c) and VIII:1(a) contained a limitation upon the type of charges that could be imposed under these two provisions, a limitation to be found in the term "services rendered." Stated generally, the type of government activities deemed to be "services" were those activities closely enough connected to the processes of customs entry that they might, with no more than the customary artistic license accorded to taxing authorities, be called "services" to the importer in question.

98. The Panel was aware that, in applying this standard, its capacity to make judgments about the nature and functioning of particular government operations would of necessity be limited by the quality of the information presented to it. The Panel was of the view that the government imposing the fee should have the initial burden of justifying any government activity being charged for. Once a prima facie satisfactory explanation had been given, it would then be upon the complainant government to present further information calling into question the adequacy of that explanation.

99. In the course of reaching its conclusions on these issues, the Panel also took into account that the United States Government had made a substantial effort to conform to GATT requirements when calculating the basis of the fee. The fact that the entire budget for the US Customs Service had been restructured in order to create a separate "commercial operations" account testified to the seriousness of that effort.

100. The Panel found that two of the challenged activities could not under any circumstances be regarded as "services rendered" to the commercial importers in question. The first was the activity of airport passenger processing. The cost of passenger processing was a large item in the "commercial operations" budget of the Customs Service, accounting for approximately ten per cent. According to the information furnished to the Panel, the customs clearance of passengers was a wholly separate operation from the clearance of commercial cargoes, and the expenditures for the two processes are budgeted separately. Thus, passenger processing could not be considered a government activity "serving" those commercial importers who pay the merchandise processing fee.

101. The second item found not to qualify was the collecting and transmission of export documentation. No argument was made that export-related activities were properly chargeable to commercial importers. The United States sought to defend the failure to exclude the cost of this activity on the ground that the costs were de minimis. The Panel accepted that any system of cost allocation would of necessity require certain consolidations of minor functions within larger general categories, and that on balance such consolidations would probably not distort costs to any significant degree, especially since improper costs included in one case were likely to be offset by the exclusion of proper costs in another. On the other hand, the Panel also noted that the cost of adjusting budgets to reallocate any improper costs that were challenged would not be very great. Consequently, the Panel was of the view that, where affected governments consider particular cost items important enough to be challenged, the better solution would be to adhere to the legal requirements and to recommend that the government in question make the necessary budgetary correction. If costs were known well enough to support a claim of de minimis, they should be known well enough to permit moving the estimated cost of the challenged activity to another budget item.

102. The remaining "commercial operations" activities questioned by the complainants were all activities that had some relationship to the processing of commercial imports, but in each case one or both of the complainants had raised a question whether the activity was of sufficient proximity to the normal process of customs clearance to be considered a "service" rendered to the importer. A second and related issue raised by the complainants was whether, assuming that a particular activity (e.g., a customs fraud investigation) were considered a "service" to the directly affected importer, that activity could also be considered a "service" to all other importers who were not in fact directly affected by it.

103. With respect to all but one of these remaining activities, the Panel was satisfied that the challenged activities were both proximate enough, and of sufficiently general applicability, that their costs could be included in the fee applicable to all commercial importers. In reaching these conclusions, the Panel gave considerable weight to the United States explanation that customs processing in the United States had increasingly moved away from hands-on processing of incoming shipments, towards a highly centralized process which focused on identifying problem transactions and concentrating on them. Under such a system, centralized and specialized activities far removed from the ordinary importer were in fact an essential ingredient to the more rapid handling of the ordinary entry, the ultimate objective of the "service" that importers were being made to pay for.

104. Taking into account this system of customs administration, the Panel was persuaded that investigations of customs fraud and counterfeit goods were activities that directly affected the manner in which all entries were processed. The Panel concluded that collection of anti-dumping and countervailing duties were also normal customs activities, and that, taken as a group with the administration of other special border measures that affect varying goods at varying times, they are of a sufficiently general character that they might properly be considered a part of general customs "services" applicable to all commercial importers. The Panel was likewise of the view that both technical laboratories and the service of providing legal rulings on customs matters were resources of general applicability to the entire customs process, and that their cost could be allocated among all commercial importers and did not have to be charged solely to the specific importers who happened to be beneficiaries of their "services" at the time in question. With respect to the "clearance of carriers" item, the Panel noted that this activity involved the examination of manifests which was the first step in discharging commercial cargo, and thus was clearly a part of the normal process of customs clearance.

105. Finally, with regard to the cost of those Executive Management functions challenged by the complainants, the Panel was satisfied that the United States was justified in including the pro rata cost of Internal Affairs and Chief Counsel, but it was unable to conclude that the International Affairs item had been properly allocated. Unlike the other functions in this category, which were described as involving centralized administrative functions, International Affairs was described as involving a variety of activities of Customs officers stationed in other countries, activities that were not identical and only some of which appeared to be related to the process of customs clearance. The Panel considered that the costs of such activities could not be allocated on the same pro rata basis as the other items. Since the United States supplied no other basis for allocating these costs, the Panel could not find that their inclusion was justified.

106. The Panel's conclusion under this first category of challenged costs was that the cost of passenger processing and the cost of handling export documentation could not be included in the cost base of the merchandise processing fee, and that the inclusion of the cost of International Affairs had not been justified.

107. (b) The cost of customs processing for exempt imports. The second category of costs challenged by the complainants was the cost of customs processing for imports that were exempt from the merchandise processing fee. Exemptions from the fee had been provided to imports from US insular possessions, imports from least developed developing countries, imports from developing countries designated as beneficiaries under the Caribbean Basin Economic Recovery Act (CBERA), and imports classified under Schedule 8 of the Tariff Schedules of the United States. The information provided to the Panel made clear that the rate of the merchandise processing fee was calculated in a manner which assured that the revenues from the fee would cover the cost of customs processing for all commercial imports, including the cost of processing exempt imports. In short, those who paid the fee were paying not only the cost of processing their own entries, but also the costs of exempt entries. According to information supplied by the United States, the costs attributable to exempt imports were substantial. Out of total 1986 imports of $369 billion, the total value of imports exempted from the fee would have been approximately $102 billion, or about 28 per cent if measured by value.

108. The United States gave a full explanation of the reasons for making these exemptions. In the Panel's view, however, none of the reasons for exempting a particular class of imports could provide any justification for the decision to make other importers pay the costs attributable to those imports.

109. The Panel concluded that processing exempted imports could not be considered as "services rendered" to the commercial importers paying the merchandise processing fee.

110. (c) The cost of "commercial operations" for the first two months of Fiscal Year 1987. The third category of costs challenged by the complainants concerned the cost of all "commercial operations" during the first two months of Fiscal Year 1987, a period when the fee was not in force. During the last ten months of FY 1987 when the merchandise processing fee had been in force, the rate had been set high enough to produce revenues sufficient to cover the "commercial operations" budget for the entire fiscal year. The complainants argued that the costs for the first two months could not be regarded as "cost of services rendered" to the importers paying the fee in the last ten months. The United States offered the view that the higher rate during the last ten months of the initial fiscal year of the fee was permissible, in view of the essential similarity between services rendered in the last ten months and those rendered during the entire fiscal year.

111. The Panel could not accept the justification presented by the United States. The Panel found nothing in Articles II or VIII which would authorize retroactive imposition of customs fees. The only plausible reading of the link required between costs and revenues was that revenues must be measured against the costs of the period in which the revenues are collected.

112. The Panel concluded, therefore, that the receipts from the last ten months of FY 1987 had to be measured against the costs of customs operations during that period, or, at least, against 10/12 of the total cost of "commercial operations" for FY 1987. Costs in excess of this amount could not be attributed to the commercial importers paying the fee.

(iii) To what extent, under Articles II:2(c) and VIII:1(a), can total charges in excess of the total "cost of services rendered" be rectified by sequestering revenues from the fee in an account that can only be expended for customs services in subsequent years?

113. Viewing the United States merchandise processing fee as a whole, Canada and the European Economic Community contended that the fee had resulted in an overcharge, for two basic reasons. The first reason was the inclusion in the base of the fee of the improper charges described above: (a) charges for the cost of airport passenger processing, export-related activities, and International Affairs, (b) charges for the cost of processing exempt imports, and (c) charges for the cost of "commercial operations" for the two months prior to December 1986. The second reason for the overcharge, argued the complainants, was that the rate of the fee had been set too high, generating more revenue than needed to cover all the costs (proper or improper) contained in the "commercial operations" budget. The rate of 0.22 per cent ad valorem applied in the last ten months of FY 1987 had yielded approximately $536 million in revenue, against estimated costs of approximately $505 million for Customs "commercial operations" during all of FY 1987. Revenues for FY 1988 from the statutory rate of 0.17 per cent ad valorem were projected to be $540 million, against projected costs of $535 million for the same period.

114. In response to the general problem of overcharges, the United States argued that the problem was essentially self-correcting under the US law, because funds from the merchandise processing fee were sequestered in a separate account that could only be expended for the "commercial operations" budget of the Customs Service. Excess revenues in one year simply constituted a surplus that must be used to reduce the fee in years following.

115. With regard to overcharges due to the second reason, i.e. incorrect rates, the Panel recognized that the "cost of services" limitation was a legal standard that could not be applied with precision in advance, at least not at the upper limit. Under any method of assessment seeking total reimbursement for the costs in question, governments would of necessity have to set the level of the fee on the basis of cost and revenue estimates, with a procedure for correcting overcharges when they occurred. The Panel considered that the United States system of sequestered accounts was a reasonable solution to the problem of overcharges due to incorrect estimates. The Panel noted the complainants' argument that the size of the overcharge in FY 1987 due to an incorrect rate (i.e. revenues of $535 million for costs of $505 million) exceeded normal tolerances. The Panel was not provided with the data on which the 1987 calculations were made, but, having been supplied by the parties with an array of differing cost and revenue estimates made during FY 1987, the Panel did not consider this six per cent error to be outside the normal range of error for such forecasts.

116. The Panel could not agree, however, that sequestered accounts alone were sufficient to cure the overcharge due to the first reason, improper charges. The amount of the overcharge in FY 1987 due to such improper charges had been substantial. Based on the data accepted for the purpose of the present report, the Panel found that the $505 million allocated to the "commercial operations" budget in FY 1987 exceeded the proper amount by over $230 million. ¹⁶ The projected costs of $535 million for "commercial operations" in FY 1988 would also exceed proper costs by a similarly substantial sum, approximately $185 million, so long as it included charges for airport passenger processing and exempt imports. ¹⁷

117. As long as such improper costs remained in the "commercial operations" budget, sequestering of accounts would do nothing at all to correct the overcharge, because the revenues collected for such costs would be used to pay them and would never create a surplus to be carried over into future years. Even if such sums were treated as surplus, however, the carrying forward of sums of such magnitude, for credit in future years, could not be considered a satisfactory implementation of the legal obligations in question. Compliance with these obligations would require the removal of such costs from the basis of the present tax so that no further excess revenues are collected.

(iv) Does the US merchandising processing fee represent either "an indirect protection to domestic products" or "a taxation of imports ... for fiscal purposes" within the meaning of Article VIII:1(a)?

118. Having considered at some length the issues raised by the parties under the "cost of services" limitation in Articles II:2(c) and VIII:1(a), the Panel then considered whether the arguments of the parties had raised any further issues concerning the US merchandise processing fee under the second and third criteria stated in Article VIII:1(a).

119. The only issue raised by the parties under the third criterion prohibiting "taxation of imports ... for fiscal purposes" was the question of whether total revenues exceeded total attributable costs, an issue which the Panel dealt with fully under the "cost of services" requirement.

120. The only specific issue raised by the parties under the second criterion was whether the 0.22 and 0.17 per cent ad valorem charges constituted "an indirect protection to domestic products" due to their effect on certain classes of price-sensitive imports. It was not necessary for the Panel to decide whether the "indirect protection" criterion actually involved a requirement of no adverse trade effects. The Panel concluded that, even if it did, it had not been demonstrated that these ad valorem charges had had a trade distorting effect.

Were the exemptions from the US merchandise processing fee granted to imports from certain countries inconsistent with the MFN obligation of Article I:1?

121. In a submission to the Panel, India, appearing as an intervening party, requested the Panel to consider whether the exemption contained in the merchandise processing fee legislation in favour of imports from least developed countries was consistent with the MFN obligations of Article I:1. Two other interveners, Australia and Singapore, also referred to this issue, mentioning in addition the exemption for beneficiaries of the CBERA. The two complainants had not raised this matter but reserved their right on the issue. They indicated that they had no objection to the Panel dealing with the issue.

122. The Panel understood the argument that these exemptions were inconsistent with the obligations of Article I to be as follows: The merchandise processing fee was a "charge imposed on or in connection with importation" within the meaning of Article I:1. Exemptions from the fee fell within the category of "advantage, favour, privilege or immunity" which Article I:1 required to be extended unconditionally to all other contracting parties. Such preferential exemptions therefore constituted a breach of the obligation of non-discrimination of Article I:1. The exemption from the fee granted to beneficiaries of the CBERA was not authorized by the waiver granting the US authority to extend duty-free treatment to these beneficiaries (31S/20). Nor was it authorized by the Enabling Clause of 28 November 1979 (26S/203), the relevant provisions of which authorized preferential tariff and non-tariff measures for the benefit of developing countries only if such measures conformed to the Generalized System of Preferences or to instruments multilaterally negotiated under GATT auspices. Nor, finally, did the Enabling Clause, cited above, authorize the preferential exemption from the merchandise processing fee for products from least developed developing countries. Under the Enabling Clause, special measures for least developed developing countries were permitted only if taken "in the context of any general or specific measures in favour of developing countries."

123. No answer in opposition to these legal claims was given, nor was the Panel aware of any that could be given.

124. Nevertheless the Panel concluded that it would not be appropriate to make a formal finding on this issue. GATT practice has been for panels to make findings only on those issues raised by the parties to the dispute. The Panel believed that this was sound legal practice and should be followed

in this case. It was, of course, open to any contracting party who wished to raise this issue, or any other issue pertaining to the US merchandise processing fee, to commence dispute settlement proceedings in its own right under the General Agreement.

125. The Panel found that:

126. In the light of the above, the Panel suggests that the CONTRACTING PARTIES recommend that the United States bring the merchandise processing fee into conformity with its obligations under the General Agreement.

⁹ The complainants had observed that the ad valorem impact of a flat-charge user fee can be reduced to minimal levels by simply not trying to collect the entire cost of the "service" in question. While this may be true, it is also true that, given the same revenue target for both kinds of tax, collecting that amount by means of an ad valorem tax without upper limits will produce lower upper rates than any other.