Ask The ExpertsSoftwood Lumber Update

What you need to know about Bonds

in this environment

April 19, 2017

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Maurice DeslauriersRegulatory Advisor, U.S. Regulatory Affairs

mjd@livingstonintl.com

Stacy StotzManager, Client Maintenance

sstotz@livingstonintl.com

Agenda

● What has happened since the October, 2015 agreement expiration

● Timeline for Department of Commerce investigation

● Critical circumstances?

● Steps you need to take to prepare

● Understanding bond requirements

Update on Softwood Lumber Dispute

● This continuing saga regarding Softwood Lumber is in its fifth phase

since the early 1980’s

● The last episode was resolved in 2006 when Canada and the US

negotiated an initial six (6) year deal that was later extended and expired

on October 12, 2015

● The resolution that was achieved in 2006, took three years and several

rounds of negotiations – Canadian lumber imports had been subject to

significant duties up until this time

Update on Softwood Lumber Dispute (continued)

● However, the final agreement included having the U.S. remit back to

Canada 80% of the duties collected. This settlement also created the

Softwood Lumber Board

● The Softwood Lumber Agreement of 2006, after its expiration in October

of 2015, allowed both countries a one-year moratorium from actions

against each other. That time has passed despite attempts to bring a

solution to the table

● On November 25, 2016 the Committee Overseeing Action for Lumber

Internal Trade Investigations (“Coalition)” petitioned the US Department

of Commerce, and the US International Trade Commission asking for

the imposition of Antidumping and Countervailing Duties on “Certain

Softwood Lumber Products from Canada”

Timeline for Department of Commerce investigation

● November 25, 2016: Petition filed by the “Coalition” with the Department

of Commerce (DOC) including a request that “critical circumstances” be

found to exist

● December 15, 2016: The DOC initiated a countervailing duty investigation.

Case numbers are: CVD: C-122-828 and ADD: A-122-827

● January 6, 2017: Vote made by the U.S. International Trade Commission

(USITC) to continue the investigation after “affirmative determinations”

● Decision for CVD to be made on or before February 21, 2017

● Decision for ADD portion to be voted on or before May 4, 2017

● January 26, 2017: Request submitted to postpone the preliminary CVD

determination until Monday, April 24, 2017

● April 19, 2017: Request submitted and granted to postpone the

preliminary ADD determination until Friday, June 23, 2017

Scope of the Department of Commerce investigation

● Antidumping and Countervailing Duty cases require a “definition”; a “set

of guidelines”. This is called a “Scope”.

● The final scope of the cases will be available should an affirmative

decision be reached

● The scope for the investigation can be found in the Federal Register

that was published on December 22, 2016

● Link to Federal Register https://www.federalregister.gov/

● The scope of this 2017 investigation, at first glance, looks like it may

have be a copy from the Softwood Lumber Agreement of 2006; but there

are important pieces missing from this scope…namely the exceptions

SCOPE

Softwood lumber,

• siding,

• flooring,

• and certain other coniferous wood:

Coniferous wood,

• sawn, or chipped lengthwise,

• sliced or peeled,

• whether or not planed, or whether or not sanded,

• or whether or not finger-jointed,

of an actual thickness exceeding six millimeters

SCOPE – page 2

Coniferous

• wood siding,

• flooring, and

• other coniferous wood (other than moldings and dowel rods),

• including strips and friezes for parquet flooring, that is continuously

shaped (including, but not limited to,

• Tongued, grooved, rebated, chamfered, V-jointed, beaded, molded,

rounded) along any of its edges, ends, or faces,

• whether or not planed, whether or not sanded,

• or whether or not end-jointed

SCOPE – page 3

Coniferous

• drilled and notched lumber and

• angle cut lumber,

Coniferous lumber

• stacked on edge and fastened together with nails, whether or not with

plywood sheathing,

SCOPE – page 4

• Components or parts of semi-finished or unassembled finished products

made from subject merchandise that would otherwise meet the definition

of the scope above

SCOPE – page 5

• Softwood lumber product imports are generally entered under Chapter

44 of the Harmonized Tariff Schedule of the United States (‘‘HTSUS’’).

This chapter of the HTSUS covers ‘‘Wood and articles of wood.’’

• Softwood lumber products that are subject to this investigation are

currently classifiable under the following ten-digit HTSUS subheadings

in Chapter 44

SCOPE – page 6

4407.10.01.01; 4407.10.01.02; 4407.10.01.15; 4407.10.01.16;

4407.10.01.17; 4407.10.01.18; 4407.10.01.19; 4407.10.01.20;

4407.10.01.42; 4407.10.01.43; 4407.10.01.44; 4407.10.01.45;

4407.10.01.46; 4407.10.01.47; 4407.10.01.48; 4407.10.01.49;

4407.10.01.52; 4407.10.01.53; 4407.10.01.54; 4407.10.01.55;

4407.10.01.56; 4407.10.01.57; 4407.10.01.58; 4407.10.01.59;

SCOPE – page 7

4407.10.01.64; 4407.10.01.65; 4407.10.01.66; 4407.10.01.67;

4407.10.01.68; 4407.10.01.69; 4407.10.01.74; 4407.10.01.75;

4407.10.01.76; 4407.10.01.77; 4407.10.01.82; 4407.10.01.83;

4407.10.01.92; 4407.10.01.93;

4409.10.05.00; 4409.10.10.20; 4409.10.10.40; 4409.10.10.60;

4409.10.10.80; 4409.10.20.00; 4409.10.90.20; 4409.10.90.40; and

4418.90.25.00.

SCOPE – page 8

Subject merchandise as described above may also be classified as

• stringers,

• square cut box-spring-frame components,

• fence pickets,

• truss components,

• pallet components,

• flooring, and door and window frame parts

under the following ten-digit HTSUS subheadings in Chapter 44:

4415.20.40.00; 4415.20.80.00;

4418.90.46.05; 4418.90.46.20; 4418.90.46.40; 4418.90.46.95;

4421.90.70.40; 4421.90.94.00; and 4421.90.97.80.

• If you believe this may have copied from the Softwood Lumber

Agreement of 2006, you are close, but there are important pieces

missing from this SCOPE…namely the exceptions.

The SLA 2006 contained 3 pages of exceptions

Critical circumstances?

● Important to remember that within the November 25, 2016 petition

filed with the DOC was a request that “critical circumstances” be

voted on.

● If the DOC vote in the affirmative for “critical circumstances”, then

U.S. CBP can go back up to 90 days from the date of the

“preliminary determination”

● For CVD: Tuesday, January 24, 2017

● For ADD: Friday, March 24, 2017

Steps you need to take to prepare

Regardless of whether or not an ADD/CVD decision is affirmed, we

recommend you take the following steps:

1. Check your Terms of Sales to properly reflect the Transaction Value

2. Verify export price with Global Affairs Canada, then with your broker

3. Is your Continuous Bond in place and current?

Understanding Customs Bonds

What is a Customs Bond?

A customs surety bond is a contract used for guaranteeing that a specific

obligation will be fulfilled between customs and an importer for any given

import transaction. The main purpose of a customs bond is to guarantee

the payment of import duties and taxes.

Continuous Bond (Activity Code 1)

● Secures the following activities:

To pay duties, taxes and fees

To make or complete entry

To produce documents and evidence

To redeliver merchandise

To rectify any non-compliance with provisions of admission

To allow for examination of merchandise

To reimburse and exonerate the United States

To comply with Customs Regulations on duty-free entries and

withdrawals

To comply with Customs Regulations applicable to Customs Security

areas at airports

Continuous Bond (Activity Code 1) (continued)

• This bond covers all entries for one year and it self-renews until

terminated

• The bond amount is determined by taking 10% of estimated annual

duties and is subject to a minimum of $50,000

• Bonds can be written in increments of $10,000 or $100,000

• CTB allows ACH, PMS or reconciliation payments

• This bond type 1 automatically covers ISF

Continuous Bond (Activity Code 1) (continued)

● This Bond type (1) encompasses all entry types:

• Temporary Importations (TIB)

• Warehouse Entries (WHS)

• Non Confirming Vehicle (AUTO)

• Anti-dumping/Countervailing Duty (ADD/CVD)

• FDA Entries

• Chapter 98

• General Merchandise

• Caribbean Basin Initiative/ Generalized System of Preferences

(CBI/ GSP)

What can happen if ADD/CVD is applicable?

• Surety notifies broker that aggregate amount is within 20% saturation of

bond

• Surety can request information throughout the year if importer ships a

new product that is subject to antidumping/ countervailing

• Customs issues insufficiency letter to importer as well as the Surety

Company

• Customs deems bond insufficient without notification

Insufficiency Letter

What if my bond does run out?

Question Answer

How will I know it has run out?

Broker will receive a reject via ABI stating

bond is insufficient or receive an insufficiency notice.

What do I need to do?

Contact your bond provider if they

haven’t already approached you to confirm next steps.

Is there anything I can do in advance of it

running out to lessen the impact on my

supply chain?

If AD/CVD is determined to be applicable,

client can review their volumes and calculate

the duty, taxes and fees that will be paid. If

they exceed their current bond amount they

should look into getting a termination and replacement bond prior to insufficiency.

Surety Requirements

• Bond Application

• General Indemnity Agreement (GIA)

- if new bond required exceeds $1,000,000

• ADD/CVD Questionnaire

• Most current fiscal year end Financial Statements

• Collateral in the form of cash, check or Letters of Credit

Continuous Bond (Activity Code 1) (revisited)

● Secures the following activities:

To pay duties, taxes and fees

To make or complete entry

To produce documents and evidence

To redeliver merchandise

To rectify any non-compliance with provisions of admission

To allow for examination of merchandise

To reimburse and exonerate the United States

To comply with Customs Regulations on duty-free entries and

withdrawals

To comply with Customs Regulations applicable to Customs Security

areas at airports

What is the bond period?

● One year minus a day from anniversary date of bond

● Example: Anniversary date:5/4/16 through 5/3/17, liability amount

$50,000

● Bond auto renews on the anniversary date of every year

● If Importer provides 100% collateral in the amount of $50,000 - ALL

entries within this bond period must liquidate before the collateral is

released

Analytical Calculation per Customs Directive 3510-04

A + B + C + D + E = New Bond Amount

A. Total DTF in previous 12 months X 10% +B. 10% of unpaid/not protested bills less than 210 days OR protested+C. $ for $ of delinquent & not protested bills greater than 210 days OR denied

protest +D. $ for $ unpaid debit vouchers+E. $ for $ bills paid by surety

What is stacking?

● Collateral requested per bond period that has or will import goods subject to

ADD/CVD

● Make sure your liability amount will cover your anticipated duty, taxes and fees

(DTF) for the next 12 months

● Bond period 1 (12/31/2014 through 12/30/15)

100% collateral for 50,000 liability bond amount

● Bond period 2 (12/31/15 through 12/30/16)

100% collateral for 50,000 liability bond amount

● Bond period 3 (12/31/16 through 12/30/17)

100% collateral for 50,000 liability bond amount

● Each bond period collateral has been collected by surety and will not be released

until all entries liquidate within specific bond period

Can Single Transaction Bond (STB) be issued when Continuous Transaction Bond (CTB) is insufficient?

● Not without additional requirements

● Collateral most likely applicable

● Other sureties can check activity based on importer number

ACH/ Automated Clearinghouse or PMS/ Periodic Monthly Statement

● Go to Customs Website: www.cbp.gov Search for ACH and PMS

● Inform your broker if you have been approved for ACH or PMS, include

EIN# approved, payer unit number (PUN) and email address(es) for

statements to be sent to

● Make sure funds are available to avoid removal from program

Questions

Questions and materials

Additional resources

Access Livingston’s helpful resource

materials by going to:

http://www.livingstonintl.com/lumber

Click the “+” to expand the questions box

Type your question(s) here

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Enquiries

Following this webinar, email your questions to:

Maurice Deslauriers mjd@livingstonintl.com

Stacy Stotz sstotz@livingstonintl.com

Thank You