June, 2018
Surety Liability for Antidumping Duties
Mark K. Neville, Jr.
Last month’s discussion concerned the circumstances in which liquidated damages could be assessed for violations of surety bond obligations. While exploring that topic, we noted that bonds are required for almost all customs transactions. In the case of the basic importation and entry bond, a precondition for making entry, there is an obligation, inter alia, to pay duties. Once issued, the bond creates a joint and several liability for the importer and the issuing surety to pay those duties.
We thought it worthwhile to further explore that surety liability, with a special focus on antidumping (AD) duty liability.1 That choice was influenced by the fact that the AD duties can be very high, and in the case of Orders on Chinese products, in many instances exceeding 100% of the price of the goods. The risk level for the surety is also elevated because of the long delay between the date of entry and the fixing of the final AD duty rate at liquidation of the entry following an administrative review by the Commerce Department.
Given the combination of those two factors, many importers simply disappear after the importation and the surety is left “holding the bag.” In such circumstances, then, many sureties simply refuse to issue any bonds with AD duty exposure. For those intrepid sureties who do issue such bonds, CBP will insist that the bond coverage will be commensurate with the anticipated import volumes and the surety will protect itself by having the importer collateralize that bond amount.
Sureties who receive demands for payment of those onerous AD duties will try to escape such liability, often asserting defenses based upon various legal arguments. It is worthwhile examining some of those positions.
When an importer fails to pay the duty, the surety’s bond is obligated to pay for “all additional duties, taxes, and charges subsequently found due, legally fixed, and imposed on any entry secured by this bond,” which includes antidumping duties. 19 C.F.R. § 113.62. Thus, the surety’s bond will be liable, up to the bond amount, for the unpaid antidumping duties.
This was made clear in ruling no. H241317 (6/27/14). There, the surety argued that its obligation to pay duty was cut off by termination after the entry but prior to liquidation, asserting that the bond is obligated only at the time of liquidation. CBP noted that …[the surety] is incorrect in its belief. CBP’s regulations state that “[t]he surety, as well as the principal, remains liable on a terminated bond for obligations incurred prior to termination.” 19 C.F.R. § 113.3. When an importer files a bond to secure payment of duty, an obligation against that bond is incurred, even though the final amount of duty owed is not determined until liquidation. See C.S.D. 81-29 (May 12, 1980). Under applicable law, the actual amount of duty may not be fixed for several years after the date of entry. Id. The termination of bond liability concerns the future obligation against the bond and it has nothing to do with cancelling existing liability. Thus, the effect of [the surety’s] January 13, 2010 letter was to state that no new liabilities could be incurred against the bond after February 12, 2010. Since the entries were filed in November and December 2009, and the bond had not yet been terminated, it was obligated for these entries and is liable to cover the unpaid duties of the importer.
CBP pointed out that the actual bond itself clearly showed that it was issued by the surety, named the importer and provided its importer ID. The rating code "4" indicated that the bond was meant to secure payment of antidumping duties. The surety did not dispute that it issued the bond, or that the information contained on the bond was correct. Consequently, the surety’s position that it is relieved of its obligation under this bond because of this clerical error by the broker was without merit.2
But a showing that an agent for a non-resident importer of record (and other parties as well) and its surety were strangers to an entry will prevail over an erroneous inclusion by the broker of their ID numbers on the entry summary, and they will be relieved of liability.3
While the CDSOA was still in effect, in ruling no. 230339 (6/25/04), the surety alleged that the CDSOA was a Fifth Amendment taking because under the statute importers are deprived of property which is then distributed to domestic producers without "full due process under the Fifth Amendment to the Constitution." The surety concluded that because this distribution of antidumping duties was unlawful, it should not be compelled to pay the antidumping duty on the entries at issue.. CBP noted that this was not a protestable claim.
In another ruling, no. H185976 (4/16/13), the surety alleged that because the AD duties collected were distributed per the CDSOA and the surety bond contract does not cover payment to third parties, it is not liable under the bond. CBP rejected this contention, which had previously addressed in ruling letters and in the courts. CBP cited ruling no. H070919 (10/14/09), in which it had noted that
However, even if the required notice is not given, CBP will take the position that the notice is actually an additional notice since the surety who has issued the AD duty bond is presumably on notice from the public published Federal Register notice. To give effect to a lack of specific notice to the surety, the surety would have to show prejudice, as in specific protective actions that it would have taken had it received proper notice. That is a difficult task, as is evident from ruling no. H097501 (7/14/14). Further, the argument that a failure to give notice will vitiate the suspension and lead to a deemed liquidation will not succeed.7
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We thought it worthwhile to further explore that surety liability, with a special focus on antidumping (AD) duty liability.1 That choice was influenced by the fact that the AD duties can be very high, and in the case of Orders on Chinese products, in many instances exceeding 100% of the price of the goods. The risk level for the surety is also elevated because of the long delay between the date of entry and the fixing of the final AD duty rate at liquidation of the entry following an administrative review by the Commerce Department.
Given the combination of those two factors, many importers simply disappear after the importation and the surety is left “holding the bag.” In such circumstances, then, many sureties simply refuse to issue any bonds with AD duty exposure. For those intrepid sureties who do issue such bonds, CBP will insist that the bond coverage will be commensurate with the anticipated import volumes and the surety will protect itself by having the importer collateralize that bond amount.
Sureties who receive demands for payment of those onerous AD duties will try to escape such liability, often asserting defenses based upon various legal arguments. It is worthwhile examining some of those positions.
Continuous Bond
A surety may argue that a continuous importation and entry bond (import bond) cannot be used to secure payment of antidumping duties up to the bond amount. But that argument has been rejected by Customs and Border Protection (CBP). See ruling nos. H241317 (6/27/14), H070919 (10/14/09); H230339 (6/25/04); and H226215 (3/28/96). A continuous bond can be used to secure payment of antidumping duties up to the bond amount.When an importer fails to pay the duty, the surety’s bond is obligated to pay for “all additional duties, taxes, and charges subsequently found due, legally fixed, and imposed on any entry secured by this bond,” which includes antidumping duties. 19 C.F.R. § 113.62. Thus, the surety’s bond will be liable, up to the bond amount, for the unpaid antidumping duties.
There is a 5% cap on Continuous Bond
One surety argued that a continuous bond may not be used to secure antidumping duties over 5 percent ad valorem. The surety cited T.D. 85-145 (9/5/85) which states, in relevant part,Unless specifically instructed by the Secretary of Commerce or a designee to accept another form of security or a cash deposit for estimated duties, [CBP] may accept, at its discretion, any one of the following forms of security for payment of estimated antidumping or countervailing duties, or both, on merchandise entered for consumption in the United States:
(3) If the amount of the estimated antidumping or countervailing duty is less than 5 percent ad valorem (or the equivalent), a continuous basic importation and entry bond, as described in 19 C.F.R. 113.62, in an amount sufficient to cover the amount of the estimated antidumping or countervailing duty, or both, determined by the Secretary of Commerce, and all other entry bonding requirement; . . . .
(19 Cust. B. & Dec. 331).
Termination of Bond
Once the surety becomes aware of a potential problem with the importer, e.g., where the surety cannot contact the importer, as where the importer has figuratively “stolen away in the middle of the night,” the surety will terminate the bond. That will cut off all future obligations but will do nothing to relieve the surety for those obligations already incurred.This was made clear in ruling no. H241317 (6/27/14). There, the surety argued that its obligation to pay duty was cut off by termination after the entry but prior to liquidation, asserting that the bond is obligated only at the time of liquidation. CBP noted that …[the surety] is incorrect in its belief. CBP’s regulations state that “[t]he surety, as well as the principal, remains liable on a terminated bond for obligations incurred prior to termination.” 19 C.F.R. § 113.3. When an importer files a bond to secure payment of duty, an obligation against that bond is incurred, even though the final amount of duty owed is not determined until liquidation. See C.S.D. 81-29 (May 12, 1980). Under applicable law, the actual amount of duty may not be fixed for several years after the date of entry. Id. The termination of bond liability concerns the future obligation against the bond and it has nothing to do with cancelling existing liability. Thus, the effect of [the surety’s] January 13, 2010 letter was to state that no new liabilities could be incurred against the bond after February 12, 2010. Since the entries were filed in November and December 2009, and the bond had not yet been terminated, it was obligated for these entries and is liable to cover the unpaid duties of the importer.
Failure to Require Cash Deposit
Another argument that a surety has made in contesting the obligation to pay antidumping duties arises when a bond rather than a cash deposit of estimated antidumping duty has been accepted. The surety argued that where the importer should have been required to post a cash deposit instead of a bond, the bond that was erroneously posted is unenforceable for the amount of cash deposit that CBP should have accepted at the time of entry. CBP rejected that assertion, observing that, “… regardless of whether CBP should have collected a 0.00 percent cash deposit or a 198.63 percent cash deposit, [the surety’s] bond is still liable up to the bond amount for any unpaid duties, including antidumping duties.” Ruling no. H241317 (6/27/14); see also ruling no. H185976 (4/16/13) (also noting CBP has authority to request bonds for any entry, citing 16 [sic] USC § 1623 and 19 CFR 113.1)Surety did not issue the bond
In one instance, a surety that had issued a single entry bond to cover the payment of antidumping duties sought to avoid liability under the bond it issued because the broker had mistakenly used another surety company’s identification code on the face of the entry summary (CB Form 7501). CBP Headquarters rejected the claim CBP relied on another surety to secure the AD duty.CBP pointed out that the actual bond itself clearly showed that it was issued by the surety, named the importer and provided its importer ID. The rating code "4" indicated that the bond was meant to secure payment of antidumping duties. The surety did not dispute that it issued the bond, or that the information contained on the bond was correct. Consequently, the surety’s position that it is relieved of its obligation under this bond because of this clerical error by the broker was without merit.2
But a showing that an agent for a non-resident importer of record (and other parties as well) and its surety were strangers to an entry will prevail over an erroneous inclusion by the broker of their ID numbers on the entry summary, and they will be relieved of liability.3
Byrd Amendment Relieves Surety of Obligation
One of the more controversial peculiarities of the US trade remedy regime was the so-called “Byrd Amendment” or CDSOA4 pursuant to which 2000 legislation domestic producers would receive a distribution of the AD and CVD duties collected by CBP. This was successfully challenged at the Dispute Settlement Body of the World Trade Organization (WTO) by a number of trading partners of the US.While the CDSOA was still in effect, in ruling no. 230339 (6/25/04), the surety alleged that the CDSOA was a Fifth Amendment taking because under the statute importers are deprived of property which is then distributed to domestic producers without "full due process under the Fifth Amendment to the Constitution." The surety concluded that because this distribution of antidumping duties was unlawful, it should not be compelled to pay the antidumping duty on the entries at issue.. CBP noted that this was not a protestable claim.
In another ruling, no. H185976 (4/16/13), the surety alleged that because the AD duties collected were distributed per the CDSOA and the surety bond contract does not cover payment to third parties, it is not liable under the bond. CBP rejected this contention, which had previously addressed in ruling letters and in the courts. CBP cited ruling no. H070919 (10/14/09), in which it had noted that
[t]he existence of the CDSOA did not change the importer's obligation to pay the duties it owes, nor did it change the surety's liability for those duties. The CDSOA did not alter the contract between the importer and the surety: it did not expose the surety to any greater risk, it did not increase the surety's contractual liability, nor did it alter the payment structure of the bond. * * * The CDSOA did not create "third party beneficiaries" to the bond. * * * [citations omitted]
The importer committed fraud
The surety might claim that it was deliberately misled or defrauded by the importer. But CBP has held that such a claim is not protestable. Ruling no. 230339 (6/25/04) (importer "purposefully and intentionally committed fraud" against its sureties and CBP).Liquidation was invalid
Given the long interval between entry and liquidation, with the mandatory suspension of liquidation during the investigation or administrative review being the norm, it is not surprising that there has been a history of controversy when the liquidation has finally occurred. One of the arguments that frequently arises is that CBP failed to timely liquidate the entry, meaning that the agency failed to act within the statutory 6-month time frame after the suspension of liquidation has been removed.5 A failure to timely liquidate by CBP leads to a deemed liquidation by operation of law at the rates that had been entered. There has been much controversy, leading to case law on these matters. It is no surprise that importers and sureties, who stand in importers’ shoes, will allege that CBP had failed to act timely. See ruling no. H070919 (10/14/09) (earlier notice was not clear and unambiguous, time did not start to run until clear liquidation instructions were issued).Notice of Suspension of Liquidation not given
Sureties may also seek to escape liability for the AD duty where CBP has failed to meet the requirement of notifying sureties of suspension of liquidation.6 See ruling nos. 230339 (6/25/04) and 230316 (5/10/04) (surety not able to rebut presumption of notice).However, even if the required notice is not given, CBP will take the position that the notice is actually an additional notice since the surety who has issued the AD duty bond is presumably on notice from the public published Federal Register notice. To give effect to a lack of specific notice to the surety, the surety would have to show prejudice, as in specific protective actions that it would have taken had it received proper notice. That is a difficult task, as is evident from ruling no. H097501 (7/14/14). Further, the argument that a failure to give notice will vitiate the suspension and lead to a deemed liquidation will not succeed.7
AD duties cannot be doubled if importer went out of business
The regulations provide that the AD duties (and CVD duties as well) will be doubled unless a non-reimbursement certificate is filed by the importer.8 The failure to file such a certificate creates a presumption of payment or reimbursement and the surety will be called upon to pay this doubled amount. Commerce Department practice will allow for an exception, however, if the surety can prove that the importer went out of business. However, that escape route is cut off unless the importer’s filing for bankruptcy or dissolution occurred prior to liquidation of the entry. The burden is on the surety to provide satisfactory evidence of that bankruptcy.9Wrong AD duty rate was used
The surety might argue that the wrong antidumping margin might have been applied by CBP. But neither the importer nor the surety can challenge the AD duty rate in a protest—those challenges can only be made at the agency (Department of Commerce) proceeding level and then later challenged in court. A failure to participate in the Commerce proceeding will be fatal, as CBP will simply follow the relevant liquidation instructions from Commerce. If the AD duty rate correctly applies the rate from those instructions, any protest to that rate will be denied.10CBP should collect AD duty from the importer
Sureties and the importer are jointly and severally liable for the payment of all duties, including AD duties. Beyond that point, how CBP collects or issues bills is not a Customs decision enumerated in the protest statute11 and, therefore, is not protestable....................................................................................................................
1. This discussion applies with equal force to Countervailing Duties (CVD), which are a trade remedy to blunt unfair subsidies, as well.
2. Ruling no. 230516 (2/10/05). See also ruling nos. 111992 (4/21/92), 574541 (1/28/00) and H097501 (7/14/14).
3. Ruling no. 175077 (11/24/14).
4. Codified at 19 USC § 1675c, the Continued Dumping and Subsidy Offset Distribution Act (CDSOA) (required collected antidumping duty to be distributed to domestic entities affected by dumping and unfair subsidies). The CDSOA was repealed in 2006.
5. 19 USC § 1504 (d).
6. 19 USC §1504 (c), 19 CFR §159.12 (c).
7. See ruling no. W230879 (10/19/07) and authorities cited therein. But see an earlier ruling, no. 226207 (12/23/96) where a failure to give notice cut off the surety’s obligation to pay the AD duty.
8. 19 CFR §§ 351.402(f)(2) and (3).
9. Ruling nos. 230316 (5/10/04) and H185976 (4/16/13).
10. See ruling no.230316 and authorities cited therein.
11. 19 USC § 1514(a).
2. Ruling no. 230516 (2/10/05). See also ruling nos. 111992 (4/21/92), 574541 (1/28/00) and H097501 (7/14/14).
3. Ruling no. 175077 (11/24/14).
4. Codified at 19 USC § 1675c, the Continued Dumping and Subsidy Offset Distribution Act (CDSOA) (required collected antidumping duty to be distributed to domestic entities affected by dumping and unfair subsidies). The CDSOA was repealed in 2006.
5. 19 USC § 1504 (d).
6. 19 USC §1504 (c), 19 CFR §159.12 (c).
7. See ruling no. W230879 (10/19/07) and authorities cited therein. But see an earlier ruling, no. 226207 (12/23/96) where a failure to give notice cut off the surety’s obligation to pay the AD duty.
8. 19 CFR §§ 351.402(f)(2) and (3).
9. Ruling nos. 230316 (5/10/04) and H185976 (4/16/13).
10. See ruling no.230316 and authorities cited therein.
11. 19 USC § 1514(a).
Mark K. Neville, Jr., LL.M. (International Legal Studies), NYU, is a long-time member of the Board of Advisors. He is Principal of International Trade Counsellors and may be reached at mkneville@itctradelaw.com. He has served as an adjunct professor at The University of California, Berkeley’s Haas School of Business and NYU’s Stern School. He is The Journal’s Customs & Trade correspondent.