In a notice published recently,1 the U.S. Customs and Border Protection (CBP) is seeking comments on a proposed measure that would extend higher bonding requirements to any category of goods that may be designated as “special category” goods, considered to be at risk of noncollection of AD/CVD duties. Under the proposed measure, importers of special category goods will be required to obtain higher-value bonds calculated using a set formula, unless they can demonstrate to CBP that a lower bond value is warranted.

This increase in monetary guidelines for setting continuous liability bonds is already effective with respect to importers of agriculture/aquaculture merchandise subject to antidumping or countervailing duty cases, as a response to high levels of uncollected duties on the importation of certain types of agriculture/aquaculture goods.2 The proposal would seek to apply the same guidelines to other types of goods covered by AD/CVD duties, if certain conditions are met.

1. Dual Regime for Continuous Bond Requirements

   The proposed measure effectively creates a dual regime for continuous bond amount requirements, with the following features:

   1. The general continuous bond formula is the traditional formula, under which the minimum continuous bond may be in an amount equal to the greater of $50,000 or 10 percent of the of the amount of previous years’ duties, taxes and fees. See CBP Directive 99-3510-004 (July 23, 1991) available at www.cbp.gov. This bond formula remains available for importers whose merchandise was not designated as a special category.

   2. The enhanced bonding formula is the new default formula that will apply to importers whose goods are both designated as special category merchandise and subject to AD/CVD duties. The new bond calculation formula establishes the amount by which the bond value will be increased. The formula is based on either the order rate (investigation)

      or the most recent final results rate (administrative review) (collectively, the “rate”) and the import value of the last 12 months:

      1. Bond increase for known importers:
         Rate * previous 12 months import value of special category goods
      2. Bond increase for new importers:
         Cash deposit rate * estimated annual import value of special category goods

      Upon prior notification to each importer of the increased bond amount, the importer may provide documentation to CBP showing that a lower bond amount is warranted, as explained below in more detail.

2. Special Category Merchandise

   1. When Designated. The proposed measure states that CBP is in the process of evaluating, on an industrywide basis, the types of merchandise for which it will require increases in bond requirements. Such types of merchandise will be designated as special category merchandise. Currently, agriculture/aquaculture merchandise is the only merchandise designated as a special category.
   2. Criteria. CBP intends to designate the special category goods using rather loose criteria, such as:
      1. Previous duty collection problems in the industry
      2. Similarity with other imports or industries experiencing duty collection problems
      3. Payment history
      4. Indications that final duty will exceed existing security (cash deposit and existing bonds)
   3. Effective Date. When special categories are designated, CBP will provide public notice of this designation 60 days before new bonding requirements take effect. According to the proposed measure, CBP will remove the designation at an undefined time, “when conditions no longer warrant” the designation.

3. Importers’ Option to Reduce the Enhanced Bonding Requirement

   Under the proposed measure, importers of goods that are or may become subject to a special category designation would have to provide a rather onerous set of financial documentation in order to attempt to lower the increase in their bonding requirement. Importers should expect the following procedure:

   1. 30-Day Prior Notice of Bond Increase. Importers will receive a notice from CBP announcing the increase in the bond requirement and calculating the increased bond requirement using the default formula above. If the importers do not respond to CBP’s notice of bond increase, the new bonding requirement goes into effect after 30 days from CBP’s letter notifying increased bonding amounts.
      
   2. 30-Day Response Time. Importers will have 30 days to submit information to CBP seeking to avoid or lower the bond increase. This submission would include information on their financial condition and other factors that would indicate they pose a lower risk of noncollection.
      
   3. CBP Decision on Bond Amount. CBP will review the importers’ responses, the importers’ histories with payment of duties and other CBP compliance, nature and value of merchandise, and other financial information providing proof of importers’ ability to pay.
      
   4. 14 Days After CBP Decision. New bonding requirement goes into effect.

4. Potential Adverse Effect of New Bonding Requirement

   The proposed measure will have an adverse effect on importers whose goods are designated as special category goods by increasing the expense of maintaining a continuous bond for their imports and by making it more difficult to secure or maintain their continuous bonds.

   Importers must be concerned about the lack of any indication as to how wide or narrow the special categories will be. The wide reach of the sole special category already identified by CBP – agriculture/aquaculture – suggests that CBP could be rather aggressive in designating large product groups as special categories. In theory, industries where a few importers have bad records of paying the liquidated AD/CVD duties may be vulnerable for increased bonding requirements.

   Comments on the proposed measure are due no later than December 26, 2006. For merchandise types other than agriculture/aquaculture products, CBP is supposed to allow at least 60 days notice of a new special category designation before a new bonding requirements goes into effect. Therefore, it is unlikely that a higher bonding requirement will be applicable before the end of the year to any importers of goods that are not yet designated as special category goods.

   Note: The proposed measure does not limit CBP’s ability to review the bond sufficiency requirements for any given importer and demand a higher bond amount. See 19 C.F.R. § 113.13(d). Therefore, while the formulas described above for the calculation of an increase in the bonding requirement are intended as the general rule, they may not reflect the maximum increase that CBP may require of a specific importer.

Footnotes:

1. Monetary Guidelines for Setting Bond Amounts for Importations Subject to Enhanced Bonding Requirements, 71 Fed. Reg. 62,276 (Customs and Border Protection, October 24, 2006) (general notice and request for comments) (the “Proposed Measure”).

2. See Amendment to Bond Directive 99-3510-004 for Certain Merchandise Subject to Antidumping Countervailing Duty Cases (July 9, 2004) available at www.cbp.gov.

John Gurley
202.857.6301
gurley.john@arentfox.com

Diana Dimitriuc-Quaia
202.857.6291
dimitriuc-quaia.diana@arentfox.com