For international traders and especially those involved with U.S. import transactions, 2018 has featured uncertainty, complexity, and significant duty exposure. Almost every month, there has been a new, changed, or announced trade remedy action (see chart below).
An area of particular concern for importers arising from these remedies is the matter of bond sufficiency. The importer of record (IOR) is responsible to maintain an appropriate customs bond in accordance with U.S. Customs and Border Protection (CBP) regulations 19 CFR Part 113.
- Do your compliance procedures include oversight and control points for the regular review of your customs bond?
- Will the next duty announcement be the straw that breaks your bond sufficiency’s back?
BACKGROUND
Various customs activities require different bonds including basic importation and entry, custodian of bonded merchandise, international carrier, control of instruments of international traffic, etc. For importation and entry, the IOR or broker will obtain a single transaction bond or a continuous bond (to cover multiple transactions) to: guarantee payment of duties, taxes, and charges; make or complete entry; produce documents and evidence; redeliver merchandise; rectify non-compliance; comply with CBP regulations; etc.
For a continuous importation and entry bond the amount of the bond is determined based on duties, taxes, and fees in the preceding 12-month rolling period (including anti-dumping and countervailing duties and trade remedies).
- Importers with an annual total of duties, taxes, and fees that is $1 million or less the bond is fixed in multiples of $10 thousand nearest to 10% of duties, taxes, and fees.
- Importers with an annual total of duties, taxes, and fees over $1 million the bond is fixed in multiples of $100 thousand nearest to 10% of duties, taxes, and fees.
The imposition of the trade remedies has made the bond sufficiency calculation a very fluid exercise, but it is imperative to maintain your standing with CBP. CBP has published the Bond Formula.
CONTROL POINTS
The responsibility for having an adequate bond rests with the IOR as CBP considers it a matter of reasonable care. The IOR should conduct regular reviews of import activity to have visibility to your total duty, taxes, and fees. The appropriate frequency will depend on the variability of your business. Special events such as new and unforeseen anti-dumping and countervailing duties, penalties, and liquidated damages will alter the bond calculation. And, of course, the trade remedies need to be rolled through your analysis on a month-by-month basis, so stay informed.
Your process should include regular interaction with your broker and surety as well as using tools such as the ACE Portal to get your numbers. A best practice is to make bond sufficiency part of your monthly compliance metrics. Also, upcoming duty exposure should be anticipated and communicated to process owners to ensure the appropriate bond is secured ahead of time. It is a prudent move to include some amount of buffer into your calculations. As always, document the process and assign the appropriate ownership and responsibility for its execution.
CONSEQUENCES
If CBP deems your bond insufficient, your supply-chain may be adversely impacted and unexpected costs incurred. In most cases, CBP will issue a bond insufficiency notice and you will have 30-days from the date of the notice to increase the bond amount.
IORs can request the termination process be started for their saturated bond, which starts the “clock” on the 15-day termination process. However, they must act quickly to meet all requirements with surety to ensure that a new bond for the appropriate liability amount is written and effective by the 16th day.
In addition, consider the internal signoff process by your company officers and the documentary requirements (as shown below) that your surety may require from you. Note, the higher the bond amount, the longer the process takes because more parties are involved for the approval process.
Caution! Do not count on getting a notice, CBP is not required to do so. Cutting it close is not worth the risk of finding your bond is over-saturated. CBP is able to immediately terminate an IOR’s bond. However, if CBP’s National Finance Center sees that you have already initiated action to increase the bond they usually will not render a bond insufficient during this time period.
If a bond is terminated, those goods may not be entered until the bond amount has been increased. In the meantime, you will incur additional costs for demurrage and potentially storage if your merchandise will is sent to a general order warehouse. This of course means that your goods are not getting to their intended destination and whatever consequential costs that such a delay in production or delivery to your customer must be considered. It is important to recognize that with the advent of the various trade remedies, CBP has been quite busy issuing notices and not simply delaying, but halting shipments.
DOCUMENTARY REQUIREMENTS
The following documents must be supplied to the underwriter of your bond:
- Surety bond application and indemnity agreement (1 document).
- General indemnity agreement (if liability amount exceeds $1,000,000).
- Most current fiscal year-end Financial Statements (in English). This should include Income Statement, Balance Sheet, Statement of Cash Flow and any accompanying accounting notes. If you don’t have current audited financials, surety has accepted unaudited financials signed by an officer of the company.
- Collateral in the form of Cash (ACH and Cash Wire Transfer), check (certified check, bank check or cashier’s check) or instructions for Letters of Credit. Checks are to be drawn on a Federal Deposit Insurance Corporation (FDIC) insured U.S. Bank with a financial rating of 40 or higher.
- In the event that you use Avalon surety, contact your representative at Livingston and they will be happy to provide you with the documents you require.
2018 TRADE ACTIONS
As a quick recap here is a scorecard of the trade remedies and other trade actions initiated in 2018 and those that may yet occur this year or next. Keeping your bond sufficient may hinge on how well you monitor these actions.
| TRADE REMEDY | DESCRIPTION | EFFECTIVE DATE |
| Section 201 Safeguard Tariffs – Large Residential Washing Machines |
|
February 7, 2018 |
| Section 201 Safeguard Tariffs – Solar Cells and Modules |
|
February 7, 2018 |
| Section 232 Security Tariffs – Steel |
|
March 23, 2018
(changes occurred on May 1st June 1st, and July 1st) |
| Section 232 Security Tariffs – Aluminum |
|
March 23, 2018
(changes occurred on May 1st June 1st, and July 1st) |
| Section 301 Intellectual Property Tariffs on Various Chinese Goods – List 1 |
|
July 6, 2018 |
| Section 301 Intellectual Property Tariffs on Various Chinese Goods – List 2 |
|
August 23, 2018 |
| Section 301 Intellectual Property Tariffs on Various Chinese Goods – List 3 |
|
September 24, 2018 |
| Section 301 Intellectual Property Tariffs on Various Chinese Goods – List 4 |
|
TBD – Possibly Q4 2018 |
| Section 232 Security Tariffs – Automobiles and Auto Parts |
|
TBD – Possibly Q4 2018 |
| Section 232 Security Tariffs – Uranium |
|
TBD |
| North American Free Trade Agreement Renegotiation |
|
Ratification in 2019? |