Importers and surety companies have recently reported certain issues regarding the sufficiency of import bonds. U. S. Customs and Border Protection (CBP) has dramatically increased the number of Notices issued advising of insufficient bond amounts, with one surety  stating that such notices were up 2 ½ times in the last month. While such notices normally give importers 30 days to increase the bond amount as required, there have been a few instances where the bond was declared to be immediately grossly insufficient and entries could not be processed until the bond was increased to the requested amount.
The annual or “continuous” bond required from importers as a condition of entry is normally calculated as 10% of the duties, taxes and fees paid by the importer during the previous twelve months. Unpaid and delinquent bills may also be considered in establishing the required amount. There is a $50,000 minimum amount, with higher amounts required when the duty and fee liability exceeds $500,000. Increased bond amounts go up in $10,000 increments until reaching $100,000, and in $100,000 amounts thereafter, always rounded up.  For example, an importer with a duty, tax and fee liability over the previous twelve months of $5.5 million would have to secure a bond in the amount of $600,000.   https://www.cbp.gov/sites/default/files/documents/bond_form_7.pdf. CBP recalculates the required bond coverage amount weekly, with insufficiency notices normally sent out monthly.
Sudden dramatic increases in duty liability due to the imposition of antidumping or countervailing duties, and more recently Section 232 and Section 301 duties, can create significant problems in maintaining bond coverage. Not only does the cost of the bond itself go up; surety companies will often require some form of collateral, such as indemnification by parent companies or standby letters of credit. The process itself can be cumbersome, requiring signatures by top level officers and/or authorization by Boards of Directors, acting within the required 30 day period. Some importers, particularly those with fewer resources, may find it difficult or even impossible to maintain the necessary bond coverage and have to cease imports.
Although still rare according to one surety company, CBP may issue a notice immediately terminating a bond where it believes that the bond amount has become “grossly insufficient.” This may be based on a significant increase in import volume, or on dramatic duty liability increases following the imposition of AD/CVD or special duties such as Section 232 or Section 301 duties. CBP has stated that importers are expected to monitor their imports and bond coverage and make required increases in a timely manner even without receiving any notices from CBP.
An additional issue applies where large new but continuing duty and fee increases apply. Because the bond amount is based on the most recent twelve months of import activity, on a rolling basis, as new duty levels go into effect there will be increased liabilities each month. Importers should project the next twelve months of activity to insure that they are not required to increase bond levels month after month – or face a “gross insufficiency” determination – as the new duties take effect.
Maintaining adequate import bond coverage is considered by CBP to be an “internal control” issue for importers. Written policies and procedures to ensure proper coverage are expected as part of an importer’s compliance program.
Steven W. Baker
AIIS Customs Committee Chair
swbaker@swbakerlaw.com
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