IB&M News Release - AD/CV Duties, The Challenge Continues
Antidumping is a very risky proposition for all parties involved: Importers, Customs Brokers, The U.S. Government, and the Surety Companies who back each transaction. The root cause of the problem is the retroactive and complicated process of determining final duty rates. In the current system, AD/CVD Importers won't know their final duty rates until many years after merchandise is imported and sold. Sometimes duty is returned back to an importer upon final liquidation and all is well. Other scenarios result in a rate increase from 0% at the time of entry to 216% at liquidation; or even higher in some instances. The higher rate is then retroactively applied to All entries made during the subject review period. That type of exponential jump in duty rate is nearly impossible for CBP to collect retroactively and very difficult for Surety Companies to underwrite and guarantee at the time of entry. The importer may be very financially sound and compliant, but if the supplier overseas does not fully comply with the International Trade Commission's investigation, the worst case scenario can become reality. To read more about worst case scenarios, you can download one of our earlier news releases regarding AD/CVD at the following link: A BRIEF PRIMER ON ANTIDUMPING
The way the system works is as follows: The Department of Commerce sets an initial AD/CVD rate at the time of entry. The DOC then determines a final duty rate based on the ITC’s investigation results about two to three years later. CBP is then responsible for collecting the increased duty amounts owed many years after an importer has sold the merchandise, taken profits, and potentially in much different financial shape then at the time of entry. That is a nearly impossible task for CBP in many scenarios. Try billing a current customer for something that happened 4 or 5 years ago. That's not going to be a pleasant conversation. With 2.3 billion in uncollected AD/CV duties between the entry years of 2001-2014,the Government Accountability Office (GAO) was recently asked to review CBP's efforts to improve the collection of these duties. The result, a 94 page report that discusses some of the root causes of the problem and suggests potential solutions, however the answers are not so simple and any realistic reform in the near future is highly unlikely. GAO-16-542 Antidumping and Countervailing Duties
A few highlights from the report are as follows:
- 20 importers account for about half of the 2.3 billion uncollected
- Of the approximate 41,000 unpaid bills for goods subject to AD/CVD, the average unpaid bill was $57,000 and 127 unpaid bills were at least $1,000,000
- The average lag time between entry of goods and CBP issuing a bill for any additional duties is 2.6 years
- During this review period, the final duty rate was higher than the initial estimated rate about 18% of the time
CBP’s report notes three related factors creating heightened risk of duty nonpayment
- System for determining such duties involves the settling of an initial estimated duty rate, followed by assessment of a final duty
- The amount of duties billed can significantly exceed payment of goods entering the country
- Assessment of final duties can occur up to several years after an importer enters good, during which time they may cease operations or become unable to pay
When underwriting AD/CVD bonds, sureties must take a closer look at the exposure prior to approval. At IB&M, we have not changed our underwriting process over the years with regard to AD/CVD bonds. We approach the underwriting review of each importer on a case by case basis and gather as much underwriting information as possible to make the most informed decision. IB&M's thorough underwriting approach to AD/CVD is designed to create opportunities for our trade partners and protect them from larger potential problems downstream such as classification errors and potential AD/CVD circumvention attempts. See a recent article published by American Shipper regarding companies trying to avoid AD/CV Duties
When discussing an AD/CVD bond with IB&M, please have the following information ready if possible to expedite the underwriting process:
- Commodity
- Country of Origin
- HTS Code(s)
- AD/CV initial duty rate
- Payment Habits
- Years as an Importing Customer
- Most Current Audited Financials
- A history of Liquidations when available
- Commercial Invoices & Entry Summaries when available
If you have a bond request that involves AD/CVD, suspect an importer may begin importing AD/CVD merchandise, or feel an importer may be circumventing AD/CV duties by transshipping through a different country, please notify IB&M so that we can properly underwrite the exposure.
As always, we view our brokerage clients as a partnership and look forward to our continued service of your account with IB&M.