Importers are experiencing large increases in their annual customs bond amounts due to the sanctions that have been implemented on their products. Generally, bond amounts are calculated at 10% of the total amount of duty, taxes and fees paid in the previous 12 months OR calculated based on duties estimated for the next 12 months. Many of the bonds that traditionally fell below the minimum $50K amount have now more than doubled. Increased anti-dumping (AD) and countervailing duties (CVD) add an additional layer of complexity to these bond amounts and extend the time frames that entries remain open.
Customs and surety companies are monitoring these bond amounts for saturation and issuing insufficiency notifications at an alarming rate. Saturation occurs when the total duties, taxes and fees paid to customs equal or exceed the bond amount prior to the bond renewal date, making the bond insufficient. Customs and/or the bond company sends a notification to the importer indicating that a new bond is required.
A customs bond is a contract between an importer, the bond company and U.S. Customs that guarantees obligations will be paid. The customs bond ensures payment of duties, taxes and fees on an import transaction. Since the bond company is the party that must guarantee this payment, they want to ensure that the importer is financially sound. A bond application, much like a bank loan application, is reviewed by the bond company to determine the risk associated with potentially having to cover the duties, taxes and fees for an importer. Exposure increases as the bond amount increases, so bond companies often ask for additional documentation. In many cases, bonds over $100K can require requests for audited financial statements and may result in a request for collateral.
The Customs regulations, 19CFR Part 113, Subpart B, 13 (c) and (d), state the following:
“Periodic review of bond sufficiency. CBP will periodically review each bond on file to determine whether the bond is adequate to protect the revenue and ensure compliance with applicable law and regulations. If CBP determines that a bond is inadequate, the principal and surety will be promptly notified in writing. The principal will have 15 days from the date of notification to remedy the deficiency. Notwithstanding the foregoing, where CBP determines that a bond is insufficient to adequately protect the revenue and ensure compliance with applicable law and regulations, CBP may provide written notice to the principal and surety that, upon receipt thereof, additional security in the form of cash deposit or single transaction bond may be required for any and all of the principal’s transactions until the deficiency is remedied.”
“Additional security. Notwithstanding the provisions of this section or any other provision of this chapter, if CBP believes that acceptance of a transaction secured by a continuous bond would place the revenue in jeopardy or otherwise hamper the enforcement of all applicable laws or regulations, CBP may immediately require additional security.”
Please consider the following when reviewing your bond.
- Is the amount CBP noted on the insufficiency letter accurate? CBP is basing this amount on historical entries for the past 12 months. Because the provisional tariffs have changed repeatedly over the past 12 months, the amount may not be sufficient. Work with your customs broker(s) and bond company to review both the previous 12 months of transactions and estimated increased duties and taxes for the next 12 months. If this is not done, you may face another bond insufficiency prior to your next renewal date.
- Multiple bonds within the same one-year period can create additional liability and bond premiums.
- If your bond will be greater than $100K, plan to have audited financial statements available to provide to the bond company upon their request.
- It is possible that the bond company may need collateral to secure your new bond. Collateral is usually required in the form of a letter of credit, which will be held by the bond company for each bond period until all open entries liquidate. Liquidation occurs when CBP closes an entry, which generally takes place within one year from the date of entry, except for special merchandise such as anti-dumping.
Your due diligence up front can save a lot of time and money down the road.
For more information, please contact your local MIQ Logistics, a company of Noatum Logistics representative.