Higher Tariffs May Trigger Bond Stacking Liability for Importers
By Colleen Clarke, Roanoke Insurance Group, Inc.
July 31, 2024 – Driven by the onset of the trade remedy tariffs in Spring 2018, duties owed on imported goods more than doubled and continues to grow, especially driven by additional duties on goods imported from China.
According to U.S. Customs and Border Protection’s (CBP’s) Trade Statistics, the total amount of duties, taxes and fees collected in FY 2023 was $92.3 billion. This was a 17.46% decrease from FY 2022. However, the amount of duties, taxes and fees increased over 220% compared to FY 2018. The value of goods imported decreased slightly in FY 2023, with the number of entries down as well.
The impact of these additional duties has a direct impact on U.S. Customs Import Bonds, as the bond amount calculation is 10% of the total duties, taxes and fees an importer has paid in the last 12 months (subject to certain rounding rules and a $50,000 minimum bond amount). As trade remedy tariffs continue, the additional duties owed will likely increase, causing many importers to need a larger bond.
Since the introduction of sections 201, 232 and 301 tariffs in 2018, we have seen an unprecedented rise in bond insufficiency notices sent out by CBP. The chart above shows the number of CBP-mandated bond insufficiency letters issued each calendar year (2024 through June). While the number has cooled in the most recent years, the expiration of many exemptions from these tariffs should once again cause an upswing in insufficiencies. CBP requires a short timeline to initiate the replacement of an insufficient bond. Just 15 days after the date of the letter, the termination of the bond on file must be received by CBP.
Many of the notices are for principals that have already had at least one bond increase since the inception of the increased tariffs.
It’s important for importers to understand their Customs Bond obligations. Maintaining a sufficient bond is an informed compliance requirement, but it often falls to the surety agent and the customs broker to guide the importer toward a proper bond amount.
Many importers do not understand the ramifications of needing to increase their bond amount multiple times. Having more than one bond in a year creates a “stacking liability” or aggregate liability issue for both the surety and the importer.
A bond is a financial guarantee. When it is terminated and replaced, the liability under that bond for both the importer and the surety is not extinguished by the termination. Depending on the merchandise imported, the liability can remain open for years. Even under the normal liquidation cycle, entries will stay open for 11 months. Now the increased bond is written, and there is open liability under that bond as well. If this happens multiple times, the principal and surety are fully exposed under all bonds until entries are liquidated. This can cause underwriting concerns for the surety, as the bond is a financial guarantee if the importer defaults.
Importers should know the importance of forecasting the next 12 months of estimated duties, taxes, and fees for their imports to determine the proper bond amount going forward. They should take their annual import value and multiply it by the tariff rate for the next 12 months to come up with a bond amount that will be sufficient in the year to come.
With the continuation of these trade remedy tariff rates coupled with the reduction in exemptions, importers likely can no longer look backward at the last 12 months of duty, as it will not be sufficient until the tariffs have been in place for an entire year. If they obtain a bond large enough to cover their yearly imports and they can avoid multiple bond replacements, it will save them time, money and frustration.
