The HMT: The battle isn't over yet

By Rodney C. Schonland -- Logistics Management, 11/1/1999

The Harbor Maintenance Tax (HMT) may have been ruled unconstitutional last year, but a number of important issues remain to be settled.

First, although most exporters that filed for HMT refunds have received their checks, the issue of how much interest will be paid on those refunds is still undecided. The Court of International Trade (CIT) ruled in a suit brought by IBM that "usual interest" was due from the date the exporter paid the HMT to the date the refund was issued. The federal government has appealed that decision to the Court of Appeals for the Federal Circuit (CAFC). That body is expected to affirm the lower court's ruling this winter. If that happens, the U.S. government will, no doubt, appeal it to the Supreme Court. The Supreme Court most likely will decline to hear the case. These legal maneuverings could push issuance of interest payments back to the fourth quarter of 2000. That's a long time to wait for restitution for a tax that should never have been assessed to begin with.

What about HMT payments on exports that were collected prior to the current time limit of 1992? The Stone Container case deals with how far back a claim can be made for refunds. That case also is on appeal before the CAFC and probably will be resolved this winter. The outcome is not clear, so I advise exporters to file suit with the CIT immediately (if they haven't already) if they hope to recover pre-1992 HMT payments.

On the import side, the BMW case raised the question of whether it was legal for the U.S. government to tax imports brought into a Foreign Trade Zone. The shipper argued that such cargo was not "admitted" into U.S. commerce and therefore should not be taxed. In that case, the CIT ruled in favor of the government. Look for an appeal, but expect the CAFC to uphold the lower court's ruling.

A more interesting and far-reaching case is Amoco. This case questions whether the HMT on imports could legally be severed from the rest of the Water Resources Act, which contained the original HMT provision and which was ruled unconstitutional with regard to exports. The plaintiff also questioned whether it was permissible for Congress to pass a law that violated an international treaty--in this instance, the World Trade Organization (WTO) agreement not to raise duties.

Amoco recently was decided in favor of the government on very narrow and technical grounds that did not touch on the above questions. This case is likely to be appealed to the CAFC, and the outcome is anyone's guess. If the government eventually loses in Amoco, importers will not be able to seek refunds unless they have filed timely protests. Prudent importers, therefore, should be filing protests on every HMT payment. That is the only way importers can protect their rights to get their money back if the courts should decide in their favor.

A final concern is that consultations regarding the HMT between the European Union (EU), which opposes the HMT, and the United States are continuing under the auspices of the WTO. U.S. negotiators have indicated privately that this country would repeal the flawed Water Resources Act that launched the HMT and replace it with something more workable, politically acceptable, constitutional, and in line with the WTO agreements. Will that actually come to pass? It seems unlikely, given that time is running out in this year's legislative session, there is no politically acceptable solution being offered by the Clinton administration, and the EU will soon start formal proceedings in the WTO to force the United States to remove the HMT from imports.

For something that was supposed to be a small and "reasonable" user fee, the HMT has turned into a major long-term political and legal headache for all concerned.

Rodney C. Schonland is a Boston-based attorney who specializes in international trade, transport, and U.S. Customs law. He also is a licensed customs broker. He may be reached at One Broadway, Suite 600, Cambridge, MA 02142. Phone: (617) 621-1560.