Krieger Worldwide News and Views on Trade and Transportation

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Category: News & Views on Trade and Transportation

Krieger Worldwide News and Views on Trade and Transportation

January 02, 2019 Posted by normanadmin

Importing—Customs Bonds

Recently, U.S. Customs and Border Protection (CBP) has made changes in the way it handles customs bonds. Customs has access to reports through their recently implemented computer system, ACE, which allows them to assess bond data more accurately. This has prompted an increase in customs bond insufficiency notices. Coincidentally, importers subject to the additional 232 and 301 tariffs are also seeing an increase in these notices because the amount of duties they have been paying has increased, directly affecting the amount of coverage they need for their customs bond.

What is a customs bond?

A customs bond is required by CBP to ensure that the U.S. government will be paid for an importer’s duties and taxes. On or about the time of arrival of a shipment into the U.S., we take information that is provided to us and file a customs entry. The duty paid is estimated. For many reasons, this amount can change. The customs bond guarantees (up to the limit of the bond) that any shortfall of duty will be paid by the surety company. The bond is also a guarantee that if customs issues a redelivery notice, for many and any reason, and the cargo is not returned, or is not in compliance, customs can recover damages from the bond. The bond is a contractual agreement between U.S. Customs and Border Protection (CBP), the importer of record and the surety company. Bonds are required for commercial shipments valued over $2,500.

How are bond amounts determined?

There are two types of Customs Import Bond (Activity Code 1), single-transaction bond (one transaction) and a continuous bond (12-month period).

Customs usually determines the bond amount to be 10% of duties, taxes, and fees paid for the 12-month period. Goods that are subject to PGAs (partner government agencies like FDA and USDA) have a slightly different formula for determining bond amounts and they tend to be more than a normal bond.

It is important to understand that bond premiums are not necessarily linear with bond requirements, it is based on the surety’s risk assessment of the importer’s ability to pay. The surety company writing the bond also takes several factors into account when determining whether it will write the bond at all, or whether it will require the bond to be collateralized by the importer. There are many ways to collateralize a customs bond.

For CBP’s current bond formulas visit:

https://www.cbp.gov/sites/default/files/assets/documents/2018-Nov/trade-current-bond-formulas-october-2013.pdf

Where do I get a bond?

The best place to obtain a customs bond is through us! If we write the bond, we usually can resolve any bond related issues with customs quickly. If bond issues arise while you have a shipment pending, you want and need a quick and workable solution. You can purchase your bond through a surety licensed by the Treasury Department, but their success in resolving an issue timely is very limited.

Why is a customs bond deemed insufficient?

CBP looks at an importer’s previous 12-month activity, based on the importer of record number, to determine bond liability. A customs bond may be considered insufficient if an importer is paying more in duty, taxes, and fees than the current bond is written to cover. For example, Importers that are subject to the increased tariffs under the Section 301 (Chinese goods) and Section 232 (steel and aluminum imports) actions should recalculate their projected duties. The increase in the amount of duties payable can affect importers bonds because the bonds are based on the duties and taxes payable and not the value of the goods.

Customs and Border Protection (CBP) can hold shipments without sufficient bonds, causing importers to incur delays and additional costs. Continuous bonds can be deemed insufficient without advance notice to the importer.

Other reasons a bond maybe rendered insufficient include:

  1. Not providing required bond paperwork

  2. CBP determines that 10% of your annual duties, taxes and fees is greater than your current bond

  3. Invalid importer of record number

  4. Invalid addresses for any entity using the bond (“non-deliverable”)

  5. Failure to comply to a formal demand letter to increase your bond amount from CBP by the deadline

  6. Customs has recently been deleting from its systems companies that it deems are inactive. They have been doing this based on internal procedures which are not very valid.

If an insufficient bond is not resolved, CBP may stop the release of your goods, the importer of record may be voided, or other continuous bonds an importer has will likely be labeled insufficient.

How to prevent bond insufficiency

Steps you can take to avoid bond insufficiency include ensuring you post the proper bond amount, increasing bond amounts as needed, addressing issues quickly, using correct and current address and contact information, and monitoring your bond activity. You can also contact your customer service representative, who has experience handling the details and avoiding any issues with bonds, to obtain your bond.

What can I do if my premiums are rising for my continuous bond?

What can you do if customs notifies you that your bond amount is increasing? You can simply accept this and proceed. If you’re up to it, you can challenge this (but if not handled correctly, your imports will be shut down). We are citing one such example. Note that we are neither encouraging nor discouraging you from doing this.

In one case, the Court of International Trade recently overturned a demand from CBP to increase an importer’s continuous bond significantly. The importer argued that they maintained an “impeccable” record of paying their duties, taxes, and other fees on time and in full. The importer explained that they have been in full compliance with CBP for almost 15 years of importing.

The law firm of Sandler, Travis & Rosenberg reported that, “The Court of International Trade stated that CBP’s own regulations on determining the amount of a bond require the agency to consider factors such as the principal’s record of timely duty payments, compliance with customs laws and regulations, and honoring bond commitments and that the evidence presented in this case ‘proves beyond any doubt’ that continuing the importer’s existing bond would not endanger the revenue of the U.S.” This is a very significant decision relating to customs import bonds because it demonstrates that customs must evaluate other factors before demanding a significant increase of an importer’s continuous entry bond.

It is now more important than ever to communicate with us about all of your customs bond and maritime insurance needs!

Look for our next related article on customs duties and liquidation and how duties can change.

HAPPY HOLIDAYS, MERRY CHRISTMAS, AND HAPPY NEW YEAR!

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