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September 3 2018

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September 3 2018 | The Journal of Commerce 45 Government renews on an annual basis, unless the importer, or the importer's customs broker, determines that the importer's exposure to duties, fees, or taxes will increase or decrease. That calculation could come as a result of lower or higher expected import volume, or a change in the duties applicable to that volume. The tariffs assessed earlier this year — from the 232 tariffs applied to steel and aluminum imports to the 301 tariffs applied to certain imports from China — by definition increase the amount of duties pay- able. And that can have a significant impact on importers from a couple different perspectives. "On the steel tariff, we had one bond that went from $200,000 to $5 million," said Colleen Clarke, vice president at Roanoke Insurance Group, which provides transpor- tation-related surety bonds and insurance for the international trade community. "Another steel importer had a $200,000 bond, and we have estimated they'll now need an $11 million bond." First, those higher bond amounts translate into higher continuous bond premiums, a straight cost increase. Shane Garcia, owner and vice president of the Houston-based customs broker RW Smith, THERE'S A SECONDARY impact to the recent imposition of tariffs on certain goods that US importers are likely overlooking: the need to increase the level of what's known as a continuous bond, which covers a defined percentage of the projected amount of duties, taxes, and fees an importer is expected to pay over a 12-month period. Failure to maintain a sufficient bond can hamper the ability of im- porters to get their cargo released at US ports and cause importers to incur demurrage, since US Customs and Border Protection (CBP) can direct shipments with insufficient bonds to be held. The increased bond require- ments are also taxing the balance sheets of small and midsize importers. Experts in this field told The Journal of Commerce that the tariffs assessed as part of the Section 301 and Section 232 actions by the Trump administration this year compel im- porters to recalculate their estimated exposure to duties. In some cases, that means an importer might need to increase their bond level by 20 to 100 times what it is today. And there's evidence CBP is increasing its watch- fulness of importers not meeting their bond requirements, with one source saying CBP tripled the number of notices from June to July that it sent to importers with insufficient bonds. The import bond is required for all companies importing goods into the United States, with US Customs and Border Protection having set the continuous import bond amount at 10 percent of those estimated duties, fees, and taxes. The amount of a continuous bond is not based on the value of the goods themselves. So, for instance, an importer that expects to pay $1 million in duties, fees, and taxes over the course of a year would need to secure a continuous bond of $100,000. Generally, such a bond automatically estimates the cost of an annual premium might increase from $500 to $15,000 as a bond increases from, say, $50,000 to $5 million. But potentially more impact- ful is that importers often need to provide some collateral — generally a letter of credit — when the bond amount increases so substantially. That increased bank exposure can significantly hamper the finances of a small to midsize importer. "It's not just the bond premium, which is nominal in relation to the bond amount; it's the underwriting and potential collateral requirements," Clarke said. "It takes away from their available line of credit with their banks, and that might inhibit their ability to grow. That could happen." There are also cargo fluidity im- plications. If the CBP deems a bond to be insufficient, it can hold cargo at the port of entry. Not only does that stymie an importer's ability to get its cargo, the held cargo can also in- cur demurrage fees, Garcia noted. If the bond is deemed insufficient, the CBP can inactivate the bond (which is essentially a three-party contract between the importer, Customs, and the surety) and require importers to obtain single transaction bonds. Those bonds, unlike continuous bonds, are in an amount of the total value of the shipment, including duties, fees, and taxes. They are primarily designed for infrequent im- porters and are also prohibitively more expensive than continuous bonds. Clarke, who also currently serves as president of the International Trade Surety Association, said that in July the CBP sent 183 letters to importers notifying them they had insufficient continuous bonds, a sign that enforce- ment of the bond levels is rising. JOC email: twitter: @LogTechEric Hidden tariff costs With CBP as watchdog, tariffs escalate costs US importers must pay for bonds By Eric Johnson Potentially more impactful is that importers oen need to provide some collateral... when the bond amount increases so substantially. International | Washington | Customs | Security | Regulation

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