On March 8, 2018 the President issued proclamations to increase the tariffs/duties owed on the importation of steel and aluminum articles into the United States. These changes have caused some concern in the U.S. Customs and Border Protection (CBP) world, especially regarding the bond amounts for continuous Importer bonds. Since these changes can be quite impactful to an importer, it is vital that any importer of these goods be proactive regarding their Importer bond amount.
As mentioned in our previous newsletters, the bond amount for a continuous Importer bond is usually equal to 10% of the duties, taxes and fees paid to CBP in the previous 12 months per CBP’s directive. The bond amount is set in multiples of $10,000 if this amount is less than $100,000 or multiples of $100,000 if this amount is over $100,000. Currently, the minimum bond amount required by CBP is $50,000.
Based on these new increases in duties, taxes and fees, any principal impacted by these changes may want to be proactive and estimate the total amount of duties, taxes and fees they anticipate paying to CBP in the next 12 months and use this information to determine an adequate bond amount.
If a principal is not proactive and there is an increase in the duties, taxes and fees paid, CBP may deem the current bond insufficient (see the article below regarding CBP insufficiency). In today’s atmosphere, waiting for CBP to issue an insufficiency letter may cause an Importer some issues from needing to post single transaction bonds to the unforeseen consequences of stacking liability when a new bond in a higher amount replaces an insufficient bond.
Regarding the stacking liability, the bond amount of a CBP bond represents the surety’s exposure to CBP for the term of the bond. When the bond is rewritten mid-term, or the bond is renewed, the liability stacks. This is very important for a principal to understand, since the constant rewriting of a bond mid-term may impact the principal’s ability to secure additional bonding.
For example, a principal has a $100,000 bond and expects an increase in their total duties, taxes and fees to about $5,000,000.00 for the next 12 months (this would call for a minimum bond amount of $500,000). However, if the principal elects not to be proactive, CBP will most likely find the current bond insufficient over time, as CBP uses the prior 12 months of data to determine sufficient bond limits. This would trigger a request from Customs to rewrite the bond at a higher limit, most likely $200,000.00. In the months following, as the duties, taxes and fees paid continue to increase, CBP will again require the bond be increased, most likely to $300,000.00. This continues until the correct bond amount, based on the next 12 months of duties, taxes and fees paid to CBP, is reached; in this case, $500,000.00. You will see when taking this approach, the total liability amassed for these bonds would be $1,100,000.00. This type of approach can be especially problematic to collateralized accounts.
However, if the principal was proactive and used the next 12 months of duties, taxes and fees to determine an appropriate bond amount, they may have repalced the initial $100,000.00 bond in an appropriate amount of $500,000.00, and therefore the total exposure for the surety would be $600,000.00.
If you have any questions on how the tariff changes could impact your client’s Importer bond, please feel free to contact our Bond Department (908) 879-0990.