You’ve decided to start an import-export business or expand your existing business by importing goods from abroad and reselling them. Wonderful! America was founded on import-export business – nearly all the reasons behind our War of Independence had to do with disagreements with England over how we should manage our international trade – so your entrepreneurial choice has a good and long pedigree.

But there’s a lot to know, and a lot more to manage in your business, once your purchases or sales start crossing borders. One of those things is how a Customs bond works and how to obtain one.

The Purpose of a Customs Bond

Even though, as the importer, you’re the one paying for it, a Customs bond isn’t really for you. Customs bonds are taken out to protect the government and ensure it gets every penny of the duties, taxes, and fees that it expects from your shipment.

In the old days, customs required importers to pay their import duties before the goods would be released from port. If you needed a couple of weeks to get the money together, your cargo would sit in port accumulating storage charges while you gathered that money. In addition, as Customs rules became more complicated, and as the duty rate differences between products grew to fill an entire book, the industry found that an importer often needed a week or two just to correctly calculate the amount owed on each shipment.

So Customs established the concept of a two-step import clearance process so that importers could import their goods, file a preliminary entry (called a CF-3461 in the U.S.), and then receive their goods immediately. They could then take their time, with up to 10 business days to calculate their entry summary (called a CF-7501). Most countries have some version of this two-step process to give importers and their agents enough time to get their filings right.

But Customs isn’t happy about letting cargo go without collecting their money upfront, so this two-step process usually requires a bond – only very low-value “informal entries” are excluded. A bond does a few things:

• It puts the importer on record with Customs so that Customs can find them if they want to. It includes your business name, EIN, address, ownership, and in some cases, your history with Customs.
• It enables Customs to allow you to pick up your goods without paying your duties right away and gives you two weeks to work with your broker and get the bond filed and paid correctly.
• It gives Customs a guarantee to collect more money should they recalculate the entry later.

What Happens If Your Entry Is Incorrect

Customs knows that nobody’s perfect and their rules are often confusing. Even after you’ve made your final filing, Customs isn’t done with you yet. They generally have up to a year to review your work – or your Customs broker’s work – and see whether or not they agree. If Customs decides your entry was wrong within that time frame, they can bill you for the additional amount caused by this correction.

What could have gone wrong? Even if you try to be diligent, and even if your customs broker tries to think of everything, there are several common reasons why the first filing might be incorrect.

• Valuation. Customs may discover that you had dutiable assists – additional payments, or payments-in-kind, to your foreign vendor – that your broker didn’t know to include. This increased value would increase your duties and fees.
• HTS Classification. Customs may disagree with you and your broker on the Harmonized Tariff Schedule (HTS) code or codes in your shipment. As hard as regulators tried to make the HTS user-friendly, thousands of codes are highly nuanced, and thousands of products don’t have a clear classification. Even the most careful importers occasionally get a code wrong or have a legitimate disagreement with Customs over one.
• Origin. The U.S. assesses the same basic duty rate on all MFN (Most Favored Nation) countries – which, for Americans, is virtually every country on earth except Cuba and North Korea. But it has lots of programs that are specific to the country of origin of goods, both in providing duty-free benefits and in assessing punitive additional anti-dumping or countervailing duties on them. Customs could discover that you claimed duty-free benefits under GSP, CBI, NAFTA, or another such program without deserving it, or that your vendor lied about the origin of the product to avoid an anti-dumping case. As a result, you could see a product you thought was duty-free get an additional bill for 5% or 10% of the value – or worse, see a product hit with an anti-dumping duty of 10%, 25%, 50%, or even 100% or more.
• Date Changes. Yes, even a date error can cause an additional bill from Customs. The U.S. usually makes its major changes at the first of the year, but anti-dumping duties and the special punitive rates on steel, aluminum, and Chinese goods created in 2018 can be implemented at any time. Since Customs brokers usually file import entries in advance of arrival to ensure that goods don’t sit in port awaiting clearance, they sometimes guess wrong on the arrival date. If a broker said something would arrive on May 9, but the plane actually landed on May 10 when a duty rate changed or a new punitive case became effective, then Customs would have to issue an additional bill, perhaps weeks or months later.

For these reasons and more, customs insists that importers have a bond in place. Again, it’s for their protection, not yours. You just get to pay for it.

Obtaining a Customs Bond

No matter who you import from – a small company or a large one, a related company or an unrelated company – you will need an import clearance. Very few shipments are excluded from the import process. Exceptions include articles from space, corpses in caskets, business records, and telecommunications. Almost every import shipment must be cleared through the Bureau of Customs and Border Protection (CBP). Virtually all countries have similar import processes through similarly named agencies, such as Canada’s “Canada Border Services Agency.”

This fact creates a division of responsibilities in your import activities.

• On the one hand, carriers are responsible for transporting the goods. Freight forwarders, containership lines, airlines, truckers, and railroads can all handle the movement of goods from country to country, and their focus is normally on speed, cost, and service.
• On the other hand, Customs brokers handle the government approval aspects of those moves. These include accurately filing documents, acquiring permits or other approvals, and calculating and paying duties, taxes, and fees on your behalf. Their focus is on accuracy and legal compliance, which takes time and therefore has a tendency to slow down the speed of your shipment and increase its cost.

Since most providers in the freight forwarding world handle both aspects – the transportation of goods and the import-export government filings on your behalf – it often causes a tug-of-war between their departments. And when your vendor has a tug-of-war concerning your interests, you lose either way. Always remember that a late shipment may make you suffer a little, but trouble with a government agency makes you suffer a lot, so always pay attention to the compliance side.

In the U.S., Customs allows an importer to file their own import entry rather than having a broker file it for them. But although it’s legal, it’s rarely recommended, unless the importer is already an expert. There’s so much to know about the classification process – and the many odd rules of importing, from country of origin to valuation to HTS classification – that you’re usually better off selecting a Customs broker, at least at first, to ensure that everything is done right on your behalf.  Brokers have computer systems with helpful warning flags and built-in triggers that protect you from missing an anti-dumping duty, tariff change, or other government agency requirements.

Single Entry Bonds vs. Continuous Customs Bonds

In most cases, Customs gives you the choice of buying one bond per shipment (a single entry bond, or “SEB”) or buying a renewable bond that lasts a year (a continuous bond). As a general rule, any import shipment worth over $2,500 must have one or the other.

Single Entry Bonds (SEBs)

An SEB can be issued on the fly. Every Customs broker has a supply of blank forms and a co