Much attention has been paid to the subject of in-bond procedures as overseen by U.S. Customs and Border Protection (CBP or Customs) in 2012. At the beginning of the year, CBP issued a Notice of Proposed Rule Making and that it intended to tighten these rules on in-country transportation of imports. Most recently, the Court of International Trade (CIT) decided a case wherein it determined that a bonded carrier was responsible for the duties on merchandise deemed to have entered the stream of U.S. commerce. Both actions show a heightened attention to these transportation rules.

When a shipment of merchandise reaches the U.S., it can technically enter the country under Customs regulations in one of several ways, including permanent entry for consumption and transportation in-bond. The transportation in-bond method gives importers and other interested parties more flexibility, as it allows them to choose when and where to enter the merchandise into the U.S. stream of commerce, or even if they wish to instead export it immediately without making it available to U.S. purchasers. The in-bond system is widely used. According to a 2007 report by the U.S. Government Accountability Office (GAO) addressing the viability of in-bond shipments, between 30 and 60 percent of U.S. entries are in-bond shipments.

Generally, in-bond shipments involve the movement of imported merchandise, secured by a bond, from one port of entry to another prior to appraisement of the merchandise and payment of the duties. When the shipment reaches its destination, it must either be entered into the U.S. stream of commerce as a consumption entry, be stored in a warehouse, or be immediately exported. Many importers use this method to either delay the payment of duties until the shipment reaches the final port of destination, or to be relieved of paying duties at all if the shipment is meant for direct export to another country from the final port in the U.S.

The CBP notice of rule changes is in reaction to the GAO report on in-bond shipments. One area of concern noted in the GAO report is that the current process does not allow CBP to adequately track and monitor the movement of these goods as they are transported through the U.S. For example, shipments transported by ship are permitted from 15 to 60 days to reach the final port after entering the first port in U.S. territory. Carriers are also allowed to change the final port without first notifying CBP. Also, the report found that CBP does not consistently reconcile the initial paperwork for the entry with the documentation provided at the final port. This lapse weakens enforcement, as CBP is not able to then verify whether the shipment actually was exported as intended, or correctly entered with the appropriate amount of duties and taxes assigned.

The CBP notice to change the in-bond shipment rules will affect the flexibility currently allowed in the regulations by addressing weaknesses in the in-bond shipment process. Proposed rule changes include instituting a 30-day limitation for the shipment to be transported to the final destination port as well as requiring more detailed information on the shipment at the initial port. That additional information would include the six-digit Harmonized Tariff Schedule code or other detailed description of the merchandise, any applicable permits, licenses or required authorization for the merchandise and the container and seal number of the shipment. Finally, the proposed amendment will limit the risk of the shipment being diverted to an unauthorized port and limit loss of duties by requiring the carrier to first electronically request permission from CBP to change the final destination port. As a result of these amendments, CBP anticipates it will be able to limit potential loss of duties and minimize security concerns.

The initial notice of the proposed rule was published in the Federal Register on February 22: (http://www.gpo.gov/fdsys/pkg/FR-2012-02-22/pdf/2012-2819.pdf). The proposed rule was re-announced in the Federal Register in July with comments due by August 27, 2012, due to CBP inadvertently omitting a technical publication requirement (http://www.gpo.gov/fdsys/pkg/FR-2012-07-26/pdf/2012-18187.pdf ). The proposed changes to the rule are therefore still in process.

The recent CIT case echoes CBP’s efforts to tighten procedures surrounding the in-bond transportation process by acting to enforce these broad regulations. In the C.H. Robinson case, the carrier company C.H. Robinson was held liable for approximately $106,000 in duties for merchandise it transported in-bond through the U.S. The importer hired C.H. Robinson to carry three items of apparel from China from the initial port in the U.S. to the final U.S. port, from which the apparel was to be exported. The CIT found that the apparel was instead diverted to the U.S. market. CIT did not find that the carrier was involved in diverting the goods, but did find the company liable because it could not produce proof of exportation from the port even though it could demonstrate that the goods did arrive at the destination port.

Under Customs regulations, failure to ensure exportation of this type of in-bond shipment opens the carrier to liability, as any non-delivery of the shipment at the final port is presumed to be carrier’s fault. In this situation, CBP conducted an audit to determine the location of the shipment, but the merchandise could not be found. C.H. Robinson was not able to prove that the in-bond shipment was exported to Mexico, even after the Mexican government did several searches of its import records. The carrier presented Mexican import permits, called “pedimentos,” as evidence, but these documents did not match up with the instant merchandise. The CIT was forced to deem that the merchandise was not exported and had entered the stream of U.S. commerce. Accordingly, CIT found that C.H. Robinson, as the carrier, was liable for the duties and interest on the merchandise.

The combination of the proposed amendment to the CBP regulations, and this recent CIT case, show a focused awareness on the gaps in the in-bond shipment requirements. CBP apparently considers the current in-bond shipment procedures lax and raises security and loss-of-revenue concerns. This heightened focus on in-bond shipments serves as a strong alert to importers and other interested parties to ensure that their in-bond shipments are properly recorded and accurate records are maintained.