To Bond or Not to Bond… Entry Bonds, Liquidated Damages and 10+2 Roanoke Trade Services, Inc. presents David F. Jordan, CHB, CPCU, CCS Vice President, Surety Compliance & Liaison

Customs Bonds & 10+2 Bonds/liquidated damages in 10+2 – If or when? –CBP consulted many trade groups when planning Did not mention bonds or LD –Spoke only of “no-load messages” Did not consult sureties/surety associations whatsoever

–Many trade groups oppose bonding of ISFs Some (including all sureties commenting) oppose all bonds in 10+2 context Some oppose bonding of filers only –Why the opposition? LD or any other monetary assessment does not accomplish the purposes of the SAFE Port Act of 2006 –Keep dangerous materiel from our shores Can drive up bond costs & complicate underwriting Customs Bonds & 10+2

In light of broad opposition, will bonds/LD be a part of the final rules or will they not? Customs Bonds & 10+2

Questions/what to expect if CBP goes ahead and makes Customs Bonds part of 10+2 –How will bond Activity Code 1 Continuous Bond (CB) amounts be set? Right now, LD exposure is not addressed in setting CB amounts Will the basic 10% formula be changed? With or without value reporting in ISF, how will sufficiency be determined? Customs Bonds & 10+2

–How will bond Activity Code 1 Continuous Bond (CB) amounts be set? (Continued) What about “Importer” CB amounts vs. “Filer CB amounts? Will a CHB (or another type of “Filer”) have to report aggregate client values to establish the amount of its own “Filer Bond”? Customs Bonds & 10+2

What about STBs? –With new, additional, LD exposures, will the formulae go up? –If value is not part of ISF reporting, how will bond sufficiency be determined? –Exactly how does a paper STB work with an Electronic ISF filing requirement? eBond presently scheduled for ACE/ESAR 3.4, some time in 2011 –Will STBs become too cumbersome to remain viable in the entry environment? –What are CHB revenue implications if STBs go away? Customs Bonds & 10+2

Liquidated Damages (LD) – how much/ against whom? –Consequence of violation – LD equal to “value” of goods –As proposed, while the “Importer” is responsible for ISF, both bonds (“Importers” & “Filers”) contain precisely the same LD provisions Note that requirement of “Filer Bond” is new –Proposed rules don’t spell out how decision to assess LD against one party vs. the other –Proposed rules don’t preclude assessing LD against both Customs Bonds & 10+2

Whatever happened to “no-load” messages? –Not mentioned in NPRM –Nothing in NPRM says no-load messages many not be transmitted –Nothing in NPRM guarantees that the transmission of a no-load message makes Importers or Filers “LD-proof” Customs Bonds & 10+2

Just who is the “Importer”? –Per proposed 19 C.F.R. § 149.1(a), etc., “the party causing goods to arrive within the limits of a port in the United States” Will probably (usually) also be “importer of record” but how many other interpretations can there be? –Could more than one entity meeting this description be liable for LD? What if CBP feels that a party other than the importer of record is culpable in some way? Customs Bonds & 10+2

–What about mitigation guidelines? Required by Omnibus Trade and Competitiveness Act of 1988, but cannot be published in advance of the rule to which they apply –Will LD for simple clerical error be the same as for a fraudulent transmission? –Penalties vs. LD Activity Code 1 bonds do not now cover penalties – prime example 19 U.S.C. § 1592(a) Even if CBP feels a monetary assessment scheme is needed in addition to no-load, un-bonded assessments would make more sense Customs Bonds & 10+2

Underwriting and rating implications –Percentage of bonds (STB or CB) currently requiring surety/surety agent approval –How will a surety/surety agent quickly/efficiently qualify “Importers”? –If a surety/surety agent cannot underwrite each ocean importer, how will it cope with a significant increase in LD exposure? Customs Bonds & 10+2

Who will the filers be? –Mostly CHBs, presumably What about the others? –NCBFAA and others want restrictions –How will non-CHBs be qualified? Customs Bonds & 10+2

How will this affect Carnets? –“Ocean only” for now, but what about later? –Carnets that are ocean tend to be large, complicated moves (symphony orchestras, circuses, large shows, etc.) How difficult to come with all 10 elements (including HTSUS subheading to at least the six digit level)? By the way, is or isn’t classification “customs business”? Customs Bonds & 10+2

What about the “2” in 10+2? –Information under more direct control of Filers (carriers)? –Fewer players –Activity Code 3 bonds (international carrier bonds) already have penalty bonding provisions Customs Bonds & 10+2

About Roanoke Trade Baltimore Boston Charleston Chicago Houston Los Angeles Miami New York St. Louis San Francisco Seattle Tampa Roanoke Trade…In 12 Cities with a Network of Agents in Over 120 Countries Over 70 years experience in managing the risks associated with global trade and transportation.