Customs Law Advisory - US Bureau of Customs and Border Protection Authority

A recent decision by the US Court of International Trade (“CIT”) upholds the US Bureau of Customs and Border Protection’s (“Customs”) authority to set import bond amounts without any analysis of the compliance risk presented by the individual importer.  To determine the total amount of bond coverage required, a Customs Directive instructs local port officials to use 10 % of the importer’s duties incurred in the prior year.  The CIT found that Customs may follow this formula regardless of the absence of any individual risk factors surrounding the importer or its merchandise.  Accordingly, importers should be aware that Customs may look more closely at bonds on upcoming shipments and may raise the required bond amount, even for an importer that maintains an excellent compliance record.  We recommend that all commercial importers periodically review their bonds to confirm compliance with Customs’ minimum bond amount formula.

All importers into the United States are required to carry a surety bond to guarantee procedural compliance and a source of revenue to Customs if duties go unpaid.  Most commercial importers hold a bond in an amount large enough to cover multiple shipments.  The recent CIT case of Carolina Tobacco Co. v. US Customs involved Customs’ decision to increase Carolina Tobacco’s required bond amount from $80,000 to $3 million in light of Carolina Tobacco’s increased imports, and the accompanying increase in annual duty and tax liability, since its 1999 bond application.  Customs argued that this increase was required under an agency directive recommending that bond amounts be set at 10 % of duties, taxes, and fees paid by the importer during the previous calendar year.  Carolina Tobacco argued that use of the 10 % formula violated the Customs Regulations which contain several factors regarding the individual importer that Customs “should” consider in setting the bond amount, including the compliance record of the importer and the value and nature of the merchandise imported.

The CIT noted its sympathy for “Carolina’s position, where, despite its excellent history of making timely payments to Customs, its manner of doing business and even its ability to do business, is threatened by the higher bond requirement.”  However, the CIT explained that Customs has broad discretion in this area “ceded to it by Congress.”  Therefore, the CIT upheld Customs’ argument that a 10 % bond is a necessary minimum amount in order to protect the US import revenue.  The court also accepted Custom’s explanation that the guidelines in the Customs Regulations exist to determine whether a bond amount higher than the 10 % level will be required from a particular importer.

In light of this CIT decision, Customs may demand a larger bond anytime an importer’s annual duties have increased.  Customs has made clear that it will use the 10 % minimum rather than an individualized review of each importer.  Also, Customs may require a bond larger than the 10 % amount from an importer that presents any additional compliance risk.  Accordingly, because import programs can change over time, we recommend that importers regularly review their bonds and bond amounts for compliance with the Customs requirements in order to avoid any interruption in Customs clearance.
Please contact Greg McCue at 202-429-6421 or Mike Gershberg at 202-429-6208 if you have any questions.