Anyone wishing to import goods into the United States or engage in import related operations is required to post some form of financial security with U.S. Customs and Border Protection (CBP). While CBP is authorized to accept a variety of forms of security, such as cash, U.S. Treasury notes, or Treasury bonds the most common (and typically most cost effective) form is a surety bond (Customs bond). This posting protects the Customs revenue and ensures compliance with the regulations of the United States pertaining to importing and related activities. Because CBP will hold the security until such time that CBP determines in is no longer required (in CBP’s sole discretion), the best option is the posting of a Customs bond due to surety’s extensive experience in dealing with Customs regulations.
The Customs bond is a multi-purpose document used for a range of activities from importing or operating a bonded warehouse to serving as a bonded truckmen or operating an international shipping fleet or airline. The CBP bond can be used to cover importing activities on a single transaction or continuous basis. When the CBP bond is completed for single transactions, it covers only one transaction. When the CBP bond is executed as a continuous bond, it will normally cover all transactions by the principal while the bond is valid.
While the CBP bond can cover over 14 specific, import-related activities, the needs of most principals typically fall into a few activities which are covered in this overview. It is important that the CBP bond be completed using the correct activity code to insure the proper coverage for the principal, so a brief description of these activity codes is provided for convenience. Please note that all Customs administration is subject to the discretion of each Port Director.
ACTIVITY 1 – IMPORTER OR BROKER
An importer bond, or Activity Code 1, is the most common type of CBP bond. This type of bond allows an importer of merchandise to bring their goods into the United States. The bond guarantees that the entry paperwork is filed correctly by the principal or principal’s customs broker and the appropriate amount of duties, taxes and fees will be paid by the principal to Customs. Additionally, the importer bond also satisfies the requirement of airport security and ISF filings.
Single Transaction – Bond is usually completed for either an amount equal to the value of the merchandise plus the duty, taxes and other fees or, for certain merchandise as determined by CBP, an amount equal to three (3) times the value of the merchandise.
Continuous – Bond amount is usually equal to 10% of the duty and other import taxes paid in the previous year, in multiples of $10,000 if the duties are less than $1,000,000 or multiples of $100,000 if the duties are over $1,000,000. Currently, the minimum bond amount required by CBP is $50,000. Further, care should be taken to ensure that the bond is sufficient to cover the duty, not the value, on any single shipment of merchandise.
Reconciliation is a CBP process which, according to CBP, “allows the importer, using reasonable care, to file entry summaries with CBP with the best available information, with the mutual understanding that certain elements, such as the declared value, remain outstanding. At a later date (anywhere from 12 to 21 months) when the specifics have been determined, the importer files a Reconciliation which provides the final and correct information. The Reconciliation is then liquidated, with a single bill or refund, as appropriate.”
For more information on the Reconciliation program, please read our April 2016 article.
Periodic Monthly Statement Processing Program
When an import is made into the U.S., the duties, taxes and fees are due to Customs within 10 days. The Periodic Monthly Statement Processing Program (PMS) allows the principal to pay these duties, taxes and fees on the 15th working day of the following month. This program is only offered for continuous Importer bonds and approval from Customs is required before participating. For more information on the PMS program, please read our April 2016 article.
ACTIVITY 1A – DRAWBACK PAYMENT REFUNDS
Drawback is a procedure under which an exporter can obtain refunds on duties previously paid on imported goods which have been exported. An exporter may claim drawback under either exporter’s summary or accelerated payment.
Single Transaction – Bond is issued for an amount equal to accelerated drawback duty being claimed for the covered entry.
Continuous – Bond is completed for an amount equal to the total accelerated drawback duty to be claimed in one year.
ACTIVITY 2 – CUSTODIAN OF BONDED MERCHANDISE
Activity 2 is used to cover operations which carry or hold merchandise not yet entered into the commerce of the United States, for export or entry at a later time or place; also known as “Bonded Merchandise.” Operations such as bonded warehouses, cartmen, carriers, and container stations are covered under this activity. Also, importers carrying their own bonded merchandise would be required to obtain this coverage.
Continuous – Amount of the bond is determined by CBP based on a completed application and is dependent on the size and type of operation. During the application approval process, CBP will advise the principal of the correct bond amount.
ACTIVITY 3 – INTERNATIONAL CARRIER
Activity 3 is for operations of ships, airlines, and other conveyors of international merchandise. The bond ensures that operators properly manifest the goods they are carrying, pay for overtime services, and comply with other CBP regulations related to the clearance of the vessel.
Single Transaction – Amount is determined by Customs at the time of clearance, but is generally not less than $25,000.
Continuous – Bond amount is determined by Customs, but is generally not less than $25,000.
ACTIVITY 3A – INSTRUMENTS OF INTERNATIONAL TRAFFIC
Activity 3A is used to cover the movements and clearances of containers which move internationally. Without this provision each container moved into the United States would have to be entered and duty paid upon entry.
Continuous – Bond is usually issued for $20,000.
ACTIVITY CODE 4 – FOREIGN TRADE ZONE OPERATOR
A foreign-trade zone is a secured area under U.S. Customs’ supervision that is generally considered outside United States territory (for commerce purposes) upon activation. A foreign-trade zone is typically located in or near a U.S. Customs port of entry and falls under the authority of that port.
Foreign and domestic merchandise may be moved into foreign-trade zones for operations including storage, exhibition, assembly, manufacturing, and processing. All foreign-trade zone activity is subject to public interest review and is subject to the laws and regulations of the United States, as well as those of the states and communities in which they are located.
When a principal is operating a foreign-trade zone U.S. Customs will require the principal to obtain a Foreign Trade Zone bond, or activity code 4. The bond amount for the bond can only be determined by U.S. Customs; however, it is usually not less than $50,000. Based on the various different types of foreign-trade zone operations, the principal must receive specific approval from the local port to act in this capacity and must contact Customs prior to submitting a bond application. Although our office is not involved with the application process between Customs and the principal, we can assist a broker with most questions regarding this process prior to submitting the application on behalf of their client.
Customs has additional information on their website such as how to establish a foreign-trade zone, what operations are acceptable in the foreign-trade zone and more. A link to this website may be located here:
CBP: About Foreign-Trade Zones & Contact Info
Continuous – Amount of the bond is determined by Customs based on a completed application and is dependent on the size and type of operation. During the application approval process, Customs will advise the principal of the correct bond amount.
ACTIVITY CODE 11 – AIRPORT SECURITY BOND
According to Customs: “Customs security area” means the Federal inspection services area at any airport accommodating international air commerce designated for processing passengers, crew, their baggage and effects arriving from, or departing to, foreign countries, as well as the aircraft deplaning and ramp area and other restricted areas designated by the port director. These areas will be posted as restricted to the extent possible and are established for the purpose of prohibiting unauthorized entries or contact with persons or objects” (19 CFR 122.181).
When a company or individual must access these Customs security areas, U.S. Customs requires them to have a bond in place, to secure compliance with all regulations governing areas to be secured. Luckily, principals operating in the Customs security areas have several different options for the bond required by Customs. If the principal only requires a bond for the purpose of accessing the Customs security areas, the principal may choose to obtain an activity code 11 bond, identified as an Airport Security bond. This bond specifically covers the Customs requirements in order for the principal to access these areas.
In addition to this type of bond, the Customs regulations state that the Airport security area bond requirement is automatically met if a principal has an Importer bond, Custodian of Bonded Merchandise bond or International Carrier bond in the appropriate amount. Therefore, although the principal may be accessing Customs security areas, they may not be required to obtain an additional bond if they already have one of these types of bonds in effect at the appropriate amount.
Continuous – Amount of the bond is determined by Customs based on several factors. Therefore the principal should speak with the Customs office they are working with in order to determine the correct bond amount.
CONTINUOUS VS SINGLE TRANSACTIONS
The most commonly issued Customs bonds are for Activity 1, i.e. for importing. An importer must decide whether to use single transaction bonds or a continuous bond. Most companies use the facilities of a customs broker to handle the paperwork required by U.S. Customs when merchandise is imported. Depending on the value of imports and type of commodity, the cost of using single transaction bonds can substantially exceed the cost of a continuous bond. The purchase of a continuous bond may be more cost effective after only one or two shipments rather than purchasing single transaction bonds for each shipment.
Now that Customs has rolled out their eBond process, principals no longer need to make the speed vs. cost evaluation as continuous bonds can be made effective the same day in most cases.