Discrepancies and the Need for Transparency in US Tariff and Excise Collections on Imports into Puerto Rico John R. Stewart, Jr. [email protected]
Summary
US Customs and Border Protection (CBP) is tasked with the collection of tariffs on goods imported into Puerto Rico and to transfer the funds, less the cost of collection, to the Government of Puerto Rico. Between calendar years 2014 and 2023 these collections have totaled $1,647,046,624, while the Planning Board statistics only report $2.3 million transferred from 2014 to 2023 (Fiscal years ending June 30). CBP also collects a Puerto Rico-imposed excise tax on coffee and some coffee products imported into Puerto Rico and distributes the funds to the island government. My estimate of the value of the excise on regular coffee imported to the island between 2014 and 2023 is $465,630,236. Public information on the collection, distribution and uses of these funds is fragmented and incomplete, but the value of funds collected greatly exceeds the distributions reported by the government of Puerto Rico.There needs to be an accurate, publicly available time series on the annual collections and distribution of these funds, a specification of how CBP calculates the cost of collection, as well as public disclosure of all memorandums of understanding between the US and Puerto Rican governments regarding these arrangements.
The data
Since early in the 20th Century, the United States government has collected duties on international imports into Puerto Rico (PR) and transferred the funds to the government of Puerto Rico. Title 48 of the US Code currently reads:
“48 U.S. Code § 740 - Duties and taxes to constitute fund for benefit of Puerto Rico; ports of entry
?The duties and taxes collected in Puerto Rico in pursuance of the provisions of this Act, less the cost of collecting the same, and the gross amount of all collections of duties and taxes in the United States upon articles of merchandise coming from Puerto Rico, shall be paid into the treasury of Puerto Rico to be expended as required by law for the government and benefit thereof, and the Secretary of the Treasury shall designate the several ports and subports of entry in Puerto Rico and shall make such rules and regulations and appoint such agents as may be necessary to collect the duties and taxes authorized to be levied, collected, and paid in Puerto Rico by the provisions of this Act, and he shall fix the compensation and provide for the payment thereof of all such officers, agents, and assistants as he may find it necessary to employ to carry out the provisions of law.”[1]
?The PR Planning Board’s 2023 Economic Report to the Governor: Statistical Appendix states that the value of tariff collections transferred to the PR Treasury, which had averaged over $50 million per year when I left Puerto Rico in 2003, were reported to be zero in 2014, $2.3 million in 2015, and zero in every year from 2016 to 2023[2]. While the US is still a low tariff country despite recent increases under the Trump and Biden administrations, the overall average duty on US imports in 2023 was 2.36% and Puerto Rico’s “Imports for Consumption” [3] ?are billions of dollars each year. This implies more collections than a number rounding off to zero. Data from the US International Trade Commission (USITC) show that the duties on Puerto Rico’s imports for consumption did decline in the late 1990’s and were only around $100 million per year until 2017, but they had increased in calendar 2023 to $250 million. From 2014 through 2023 custom duties collected on imports into Puerto Rico have totaled $1,647,046,624, obviously a much larger number than the $2.3 million reportedly transferred to Puerto Rico in 2014.
?The US Customs Service was created in 1789 and served as the primary source of federal government revenue in the early days of the republic.? With the passage of the 2003 Homeland Security Act, the Service was passed from the Treasury Department to the Department of Homeland Security (DHS), where it was combined with other inspection and enforcement agencies to form the Customs and Border Protection Agency.[4]
?In its 2018 Congressional Justification for its budget, CBP describes a “Puerto Rico Trust Fund” (PRTF), as follows:
?“The Puerto Rico Trust Fund is used to fund the inspection of all people and goods entering Puerto Rico for the cost of collecting duties thereof. U.S. Customs Duties and Taxes are collected in Puerto Rico from passengers and for merchandise entering from foreign locations. These collections are then deposited into the Puerto Rico Trust Fund, from which CBP deducts its cost of collecting these duties and taxes, as well as reimbursing U.S. Immigration and Customs Enforcement (ICE) for related costs, with remaining funds serving as a revenue source for the government of Puerto Rico.”[5]
?This document also has a table that shows how various programs contribute to the Department’s missions. For the PRTF, allocations are as follows[6]:
Secure and Manage Our Borders- 93%
Enforce and Administer our Immigration Laws- 4%
Prevent Terrorism and Enhance Security- 3%
?I can find no public information on how much CBP charges or how it calculates the “cost of collecting duties”. CBP has valid, legislated missions for border protection, immigration enforcement and counterterrorism, but it is not unreasonable to argue that these missions are more extensive than “the cost of collecting duties”. A 2016 GAO study examined whether DHS was effectively managing user fees collected under various programs and the costs of those programs. For the Puerto Rico Trust Fund in FY 2014, The study reported $180 million in collections and $31 million in “Identified program costs”, which suggests that collection costs are significantly less than the income collected. The report does note that they “…identified limitations of to (sic) the cost data provided by components such as the inability to accurately estimate and report direct and indirect cost and note these limitations in the body of our report.” However, no limitations were identified regarding the PR Trust Fund. [7]
?A December 20, 2022, letter from CBP Chief of the Financial Reporting and Analysis Branch, Gerald Davenport, to the Secretary of the PR Treasury regarding the PRTF, says that “…CBP will be transferring, in January 2023, $156,302,765.52 for net collections received in PRTF during Fiscal Year 2022…”. It also states that $242,961,308.19 was “transferred" March 2022. The Planning Board statistics show a tariff transfer of $2.3 million from 2014 to 2023 (PR fiscal years), while the letter from US Treasury implies that $399.26 million was transferred during 2022-23. The USITC trade data report tariff collections in Puerto Rico from 2014 to 2023 were $1.647 billion. That is still a big difference between collections and reported transfers. Perhaps other transfers have taken place, but I have not found any record of them. The letter does not specify the destination of the transfers. If this money was transferred to the PR Treasury, why does it not show up in the customs duties transfer line in Table 27 of the Statistical Appendix? If it was transferred somewhere else, where is it? It is also interesting that the $118,930,323.31 in “Operating Expenses" mentioned in the letter includes “execution of agreements between Hacienda and ICE, and CBP’s Air and Marine Operation.”
?There is another discrepancy in a collection done by CBP for Puerto Rico that raises similar questions. The US does not levy any tariffs on imported coffee, but Puerto Rico levies its own excise tax on coffee imported into PR and uses the funds to promote local agriculture. In addition to collecting US tariffs, CBP also collects this excise tax and transfers the funds to the PR Treasury, which are placed in the “Integral Fund for Agricultural Development” (FIDA, in Spanish). A March 17, 2023, letter from the Subsecretary of the PR Treasury, Angel L. Panotja-Rodríguez to the Secretary of the PR Senate, Yamil Rivera Vélez, states that the transfers previously mentioned in the letter from CBP included funds from the PR coffee excise tax, which implies an even larger discrepancy between US tariffs collected and the funds transferred to Puerto Rico.
?CBP states that it is collecting an excise of $2.50 per pound for “regular coffee”, as well as excises on some on other coffee products that have more complex formulas to calculate[8]. Using US data on the quantity of regular coffee imported into PR, and assuming the $2.50 rate, I estimate the regular coffee excise tax collections as follows:
领英推荐
Source: US International Trade Commission, CBP, author’s calculations.
?As shown in the table above, my estimates for excise collections from 2015 to 2023 were over $465 million. Based on data in the 2023 letter from the Subsecretary of the PR Treasury to the Secretary of the PR Senate, this suggests that, as was the case with customs duties, coffee excise tax collections are much larger than the funds that have been reported as transferred to Puerto Rico over recent years.
?While CBP activities benefit Puerto Rico, border protection is the responsibility of the federal government, and this entails much more than the collection of tariffs. Whether Puerto Rico should share in broader border protection activities is a legitimate policy question for public discussion.
?The statistical discrepancy in collections and distributions needs to be corrected, and there needs to be a public scrutiny of the calculation of the appropriate costs of collection and administration of these funds. I have not been able to find any documentation for a charter for the Puerto Rico Trust Fund or any agreements between CBP and the government of Puerto Rico. There also needs to be an accurate, publicly available time series on the annual income and outflow from the Puerto Rico Trust Fund as well as other distributions of monies collected from customs and excise taxes collected by CBP. These would be very helpful in providing the public with an understanding of how the system is currently operating and what, if anything should be done to improve it. Transparency, accountability and an open discussion of the issues are warranted.
[2] The data in the Statistical Appendix are for fiscal years ending June 30. Table 27 has this transfer in a line titled “Derechos de Aduana”, or Customs duties.
[3] “Imports for Consumption” does not include goods entered in bonded warehouses, customs zones and free trade areas.
[5] Department of Homeland Security; U.S. Customs and Border Protection; “Budget Overview, Fiscal Year 2018, Congressional Justification”, p.7.
[6] Ibid., p.8
[7] US Government Accountability Office; “DHS Management: Enhanced Oversight Could Better Ensure Programs Fees and Other Collections Use Funds Effectively”, GAO-16-443, July 2016., pp.55-56
[8] https://www.cbp.gov/trade/automated/news/coffee-imported-puerto-rico#:~:text=Duty%20rates%3A,to%20provide%20the%20Yield%20Factor. For example, the excise on instant coffee is determined by a “yield factor” which must be supplied by the manufacturer and depends on how many pounds of regular coffee were used to obtain a pound of instant coffee.
President at Twenty One Strategies LLC
7 个月As always John, your analyses are very informative and eye-opening. Transparency and accurate data are critical to the stakeholders that want healthy progress for PR.