BON-2-RR:IT:EC 113979 GG
Ms. Leticia Moran
Port Director
U.S. Customs Service
P.O. Box 3130
Laredo, TX 78044-3130
RE: Setting bond amounts; continuous bonds; conditionally free
merchandise; 19 CFR 113.13; Customs Directives 3510-004 and 3510-005.
Dear Ms. Moran:
This is in response to a recent request from Mr. Paul
Simoncini of your office for a ruling on issues pertaining to the
calculation of continuous bond amounts. Please consider this
letter to be internal advice furnished under section 177.11 of
the Customs Regulations.
FACTS:
It is the policy of U.S. Customs in the Port of Laredo when
setting the amount of Type 1 importer and broker continuous
bonds, to take into account estimates of what the duty, taxes and
fees would be on conditionally free or reduced duty goods if
entered as an ordinary consumption entry. The reason for this is
to ensure that the bond is sufficient to cover increased duty
demands made on non-originating shipments for which NAFTA status
was erroneously claimed at the time of entry. A broker operating
in Laredo has challenged this method of arriving at the correct
bond amount.
ISSUE:
Whether the bond amount for a Type 1 importer continuous
bond should be based on the duties, taxes and fees that would
normally accrue on goods when entered as an ordinary consumption
entry, in situations where the bond principal routinely enters,
or plans to enter, the merchandise on a conditionally free or
reduced duty basis.
LAW AND ANALYSIS:
Title 19, United States Code, section 1623, gives the
Customs Service broad authority to require a bond or other
security. More specifically, 19 U.S.C. 1499 mandates the
posting of a bond prior to the release of merchandise from
Customs custody. The bond amount is at the discretion of
Customs. Guidelines for determining the appropriate amount of a
bond are found in the Customs Regulations and in several Customs
Directives (CD's).
The directives issued by Customs provide the most objective
criteria by which port directors can set proper bond amounts. CD
099 3510-04,"Monetary Guidelines for Setting Bond Amounts",
issued July 23, 1991, and CD 099 3510-005, "Bond Sufficiency",
issued May 17, 1993, state, in pertinent part, that the liability
limit for Activity Code 1 importer or broker continuous bonds
[S]hall be fixed in an amount the [port] director may
deem necessary to accomplish the purpose for which the
bond is given. The non-discretionary minimum bond
amount is $50,000. To assist in fixing the limit of
liability amount, the following formula shall be used:
None to $1,000,000 duties, taxes and fees -
the bond limit of liability amount shall be
fixed in multiples of $10,000 nearest to 10
percent of all duties, taxes and fees paid by
the importer, or broker acting as importer of
record, during the previous year but in no
case shall be fixed in an amount less than
$50,000.
Over $1,000,000 duties, taxes and fees - the
bond limit of liability amount shall be fixed
in multiples of $100,000 nearest to 10
percent of all duties, taxes and fees paid by
an importer, or broker acting as importer of
record, during the previous bond year.
... If no imports were made during the preceding
calendar year, the bond limit of liability amount will
be fixed based on the duties, taxes and fees which the
applicant estimates will accrue on imports during the
calendar year, provided that the [port] director is
satisfied with the accuracy of the estimate. In no
event shall the limit of liability amount of any
continuous Activity Code 1 bond be less than $50,000.
... However, when little or no duties, taxes and fees
are involved and the $50,000 bond minimum is not deemed
sufficient, as an option, the bond limit of liability
amount may be fixed at one-half of 1 percent of the
value of importations made during the previous bond
year.
Although port directors have some latitude in setting bond
amounts, Customs in CD 099 3510-004 cautions that
The purpose of the bond is to protect the revenue and
ensure compliance... However, it is not Customs' intent
to require bond amounts which unnecessarily put an
excessive burden on a person or firm, or place them in
an impossible situation... To require excessive
security where it serves no valid purpose places an
unnecessary burden on international trade and commerce.
The exercise of judgement and restraint is thus expected in the
calculation of bond amounts.
Section 113.13 of the Customs Regulations (19 CFR 113.13)
lists criteria which, when read in conjunction with the
directives, help Customs determine whether an estimate of future
duties is realistic or whether the $50,000 bond minimum on low
duty imports is sufficient. These are:
1) The prior record of the principal in timely
payment of duties, taxes, and
charges with respect to the transaction(s)
involving such payments;
2) The prior record of the principal in complying
with Customs demands for
redelivery, the obligation to hold unexamined
merchandise intact, and other requirements
relating to enforcement and administration of Customs
and other laws and
regulations;
3) The value and nature of the merchandise involved
in the transaction(s) be secured;
4) The degree and type of supervision that Customs
will exercise over the
transaction(s);
5) The prior record of the principal in honoring bond
commitments, including the payment of
liquidated damages; and
6) Any additional information contained in any
application for a bond.
These factors make it clear that the prior record of the bond
principal in meeting its obligations to Customs weighs heavily in
setting bond amounts when established importers and brokers
obtain new bonds. In situations involving bond applicants with
no history of importing activity, the focus will necessarily be
on the nature of the goods to be imported when determining the
accuracy of estimated annual duties, taxes and fees.
In setting continuous bond amounts for established importers
of conditionally free or reduced duty merchandise who pay little
or no duties, it would be erroneous to base the liability limit
on duties that would accrue on an ordinary consumption entry. If
Customs has reservations about a particular importer because of
their past inability to meet commitments to the agency, then the
bond amount may be fixed at one-half of 1 percent of the value of
importations made during the previous bond year, if this is
greater than the $50,000 minimum. For bond applicants new to the
business of importing, Customs must decide whether the estimate
provided by the prospective importer is realistic. For example,
if the estimate is predicated on the goods qualifying under
NAFTA, but Customs has reason to believe that they will in fact
be non-originating, then basing the bond amount on duties
applicable to an ordinary consumption entry would be warranted.
If, on the other hand, Customs agrees that the merchandise will
be NAFTA eligible, and that duties due will be minimal, then the
liability limit should be set according to the conditions
described at the beginning of this paragraph. It would be
reasonable for Customs to elect the one-half of 1 percent of the
value option instead of the $50,000 bond minimum, because the
trustworthiness of the importer is as yet untested. The bond
amount could be adjusted downward at the time of renewal in the
event of satisfactory performance over the previous year.
Finally, Customs always has the option of requiring
additional security. When the amount of a continuous bond does
not cover the duty on a particular shipment and concern exists
that a greater risk to the government is involved, the port
director can secure the deposit of the estimated duty due at the
time of release, request a single entry bond for that shipment,
or request that a new continuous bond in a higher amount be
filed.
HOLDING:
The bond amount for continuous bonds used to secure
shipments of conditionally free or reduced duty merchandise
should be based on the guidelines established by regulation and
directive. In ordinary circumstances, the liability limit for
bonds covering these types of transactions do not take into
account the duties that would have accrued had this merchandise
been entered as a regular consumption entry.
Sincerely,
Jerry Laderberg
Acting Chief
Entry and Carrier Rulings Branch