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Customs Update: Bond Guidelines Change Again
(Published in the Journal of Commerce Sept. 16, 2005) 

A series of recent articles have reminded us all that Customs and Border Protection is still being criticized for its processing of anti-dumping and countervailing duty entries. One such article reported that Customs collected only $25.5 million of the $195.5 million owed between 2002 and 2004! Another highlighted the dramatic increase in the number of anti-dumping cases filed since enactment of the so-called Byrd Amendment. The number of cases rose from 15 in 1997 to more than 30 yearly in 2002 through 2004.

The Byrd Amendment, named for Democratic Sen. Robert Byrd of West Virginia, is part of the Continued Dumping and Subsidy Offset Act of 2000. It mandates that companies which bring petitions alleging dumping or countervailing duties apply, if successful (and precious few are not), are rewarded through distribution of the very funds collected as a result of their successful actions. Naturally, these types of proceedings are viewed as self-serving. Many companies have benefited quite nicely. In fact, the latest figures suggest that 40-plus companies have received more than $1 million each. Of course, the World Trade Organization has found the Byrd Amendment to violate its rules and several countries have already taken or will shortly retaliate against American products, notably the European Union, Canada and Mexico.

In response to that criticism, in July 2004 Customs published guidelines for the setting of bond amounts involving agriculture/aquaculture goods subject to anti-dumping duties. At that time, Customs announced that in the future, bonds for shrimp would be set at the value of product imported for the preceding 12 months multiplied by the dumping duties that value would generate. So if $1 million was the value and the dumping margin was 40 percent, the bond amount becomes $400,000, plus the minimum continuous bond of $50,000, for a total bond amount of $450,000.

In August 2005, Customs issued a clarification. In the past, it was only in the context of textile and apparel imports that Customs sought production records to prove where a given shipment was processed. Requests for similar documents are now often made in the context of shrimp importations. In the past, under the now expired textile quota system, importers (some with the complicity of their suppliers and others without any knowledge of what was being done) often found their goods had been transshipped, i.e. made in one country (e.g. China), shipped to a second country (e.g. Vietnam), relabeled to reflect the name of the second country and then exported to the U.S. That syndrome has now impacted the shrimp industry. As a result, its announcement Customs advised that changes are being made to the way in which bond amounts will be set.

First, it appears Customs intends to expand the types of products subject to the new guidelines as it announced Customs will now give 60 days notice for any new products subject to these increased bond guidelines. At the same time, Customs states that if a product has been subjected to the guidelines and the need changes, it will remove the product from the list.

In deciding whether to include products under these revised bond guidelines, a series of factors will be considered:

    1. Previous collection problems concerning a specific case or industry;

    2. Similarity to previous cases or industries experiencing uncollected revenue problems;

    3. Whether the merchandise is subject to very low duty rates or was it duty free prior to the dumping case being initiated;

    4. Projected ability of the industry to pay future duty liabilities;

    5. Low capitalization of the involved industry such that new or increased duty liabilities create increased risk;

    6. Whether the involved industry is so highly leveraged that new or increased duty liabilities create increased risk; and

    7. Any other relevant factors.

In publishing its notice, Customs also advised it may choose to increase the bond of a given importer, even if calculated in accord with the newly stated formula. If so, the importer will be given 30 days notice and will have 30 days to respond. The new bond amount will not take effect until 14 days after the response is reviewed and a final determination sent to the importer.

In gauging the importer's response, Customs will evaluate:

    1. The importer's prior record regarding timely payment of all duties, taxes and charges;

    2. The importer's prior record in complying with redelivery demands and responses in other enforcement and administrative actions;

    3. The value and nature of the merchandise involved;

    4. The degree and type of supervision Customs will be required to exercise over the transactions;

    5. The importer's prior record in honoring bond commitments, including payment of liquidated damages and anti-dumping/countervailing duties;

    6. Any additional information contained in any bond application;

    7. Any other factors, such as whether the importer has switched sourcing so as to lower its duty liability.

While the list does not specifically mention transshipment, it seems obvious that if an importer has participating in transshipping or had its suppliers do so, Customs would need to more closely supervise those importations, and that, in and of itself, could lead to a higher bond amount.

Most importers of shrimp have encountered problems with the new bond requirements because the number of sureties writing these types of bonds has decreased dramatically and the few who are still writing them are requiring 100-percent collateral, often through stand-by letters of credit.

If subject to Customs' August directive, the formula used to set an importer's bond amount will consider sudden changes in declared value, claimed country of origin, classification and the like. If Customs concludes the importer has flunked the "attitude test," the bond will be set by multiplying the 12-month import value by the deposit rate in effect on date of entry. A similar formula may also be applied to first time importers.

If subjected to this higher bond requirement, the importer must wait 3 months before seeking reconsideration. A decision on any such request will be made within 30 days.

Now more than ever, having a good reputation with Customs is important. Flunking the "attitude test" will come at an ever higher price!

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