Details of CBP's Proposed Rule on In-Bond Process (Part I - Overview)

(The last major revision of the in-bond regulations was in the 1930’s. CBP has been discussing plans to change the in-bond regulations¹ for several years and previously expected to issue an in-bond proposed rule as early as 2009. See ITT's Online Archives 12020814 for summary of the CBP's past expectations for the in-bond proposed rule and a preliminary summary of changes to the in-bond process.)

This is Part I of a multi-part series of summaries of this proposed rule and covers CBP's overview of the major amendments proposed to the in-bond regulations.

Proposed Rule Addresses Weaknesses GAO Identified in a 2007 Report

CBP states this proposed rule addresses certain weaknesses in the in-bond system that the Government Accountability Office (GAO) identified in an April 2007 report to Congress. The GAO concluded that CBP does not adequately monitor and track in-bond goods; in particular, CBP does not consistently reconcile the in-bond document issued at the port of first arrival with documents at the port of destination or port of export. GAO found that this diminishes CBP's ability to ensure that cargo is either officially entered, with appropriate duties or quotas applied, or is exported. GAO concluded that the in-bond regulations provide unusual flexibility for the trade community and are a major contributing factor to weaknesses in the in-bond system.

(See ITT's Online Archives 07052205 for summary of the 2007 GAO report. See ITT's Online Archives 10031515 for summary of a 2010 report by the Department of Homeland Security's Office of Inspector General, which also found weaknesses with CBP's oversight and maintenance of the in-bond program.)

Highlights of Proposed Changes to the In-Bond Regulations

CBP states the proposed changes to the in-bond regulations would enhance CBP's ability to regulate and track in-bond merchandise, as well as ensure that in-bond merchandise is property entered and duties paid, or that the in-bond merchandise is exported. The proposed rule would mainly revise and modernize 19 CFR Part 18 (Transportation in bond and merchandise in transit), but would also amend 19 CFR Parts 4, 10, 19, 113, 122, 123, 141-144, 146, 151, and 181.

(CBP notes that at this time, the agency is not proposing to change the in-bond procedures found in the air commerce regulations, except to change certain time periods to conform to the proposed changes in this document.)

Highlights of the proposed rule include the following:

Paper CBP Form 7512 Would Be Eliminated, ACE Filing Required Instead

Currently, for merchandise to be transported in-bond, the carrier or designated person must obtain a bond and submit to the appropriate CBP official CBP Form 7512, "Transportation Entry and Manifest of Goods Subject to CBP Inspection and Permit." However, CBP states paper filing raises security issues because it impedes CBP’s ability to consider relevant data about the in-bond merchandise and movements on a real-time basis.

Accordingly, CBP proposes to amend 19 CFR Part 18 to, except for merchandise transported by pipeline, eliminate the paper CBP Form 7512 and require carriers and other authorized persons (in new 19 CFR 18.1(c)) to submit in-bond applications electronically using a CBP-approved electronic data interchange (EDI) system. CBP intends to designate the Automated Commercial Environment (ACE) as the CBP-approved EDI system.

Add'l Information Would Be Required on In-Bond Application

Current regulations generally require only limited information on CBP Form 7512; in most cases, requiring only a description and quantity of the merchandise.² CBP proposes to amend 19 CFR 18.1(d) and 18.4 to require additional information on the in-bond application to enable CBP to better ascertain whether the merchandise to be transported in-bond presents any health, safety, or conservation issues and to provide immediate feedback to carriers on whether their cargo will require additional inspection and screening. The proposed additional information required includes:

• Description of the merchandise -- The carrier or other responsible party would be required to provide the six-digit Harmonized Tariff Schedule (HTS) number of the merchandise if it is available. (CBP would also accept the eight or ten-digit HTS number). If not available, a detailed description must be included that provides the exact nature of the merchandise in sufficient detail to allow CBP and/or another government agency to determine if the merchandise is subject to a rule, regulation, law, standard or ban relating to health, safety or conservation. In either case, this description must be provided if the carrier or other responsible party knows that the merchandise is subject to such a rule, regulation, law, standard or ban.
• Prohibited or restricted merchandise. The carrier or other responsible party would have to identify merchandise that is prohibited or subject to restricted importation in the U.S.
• Other identifying information. The carrier or other responsible party would have to provide the visa, permit, license or other similar number or identifying information related to the merchandise if it has been issued by the U.S. Government, a foreign government, or some other issuing authority.
• Container and seal number. The carrier or other responsible party would have to provide the container number in which the merchandise is to be transported in-bond and the seal number of the container.

Would Create Harmonized 30-Day Transit Times Between Ports for All Modes

Under current regulations, the time period to transport in-bond merchandise from the origination port to the destination port, or to the port of export, varies depending on the mode of transit.³ CBP has had difficulty enforcing these transit times as there has been uncertainty as to which time frame applies to merchandise because cargo is often transported through the in-bond system by more than one mode of transportation.

The proposed rule would amend 19 CFR to harmonize the maximum time limits across all modes of transportation to 30 days (except for pipeline shipments, which will continue to have no time limit). Additionally, subject to certain exceptions, merchandise would have to be delivered to CBP at the port of destination or export within 30 days from the date CBP authorizes the in-bond movement. This is a change from the current regulations that measure the time frame for delivery from the date the merchandise was delivered to the forwarding carrier.

Permission to Divert In-bond Cargo Would Have to Be Electronically Requested

In-bond merchandise that is in transit or that has reached the destination port or port of export may currently be diverted to a new destination port or port of export. With some exceptions, prior application and CBP approval of the diversion is not required. This makes it virtually impossible for CBP to identify the ultimate destination of a diverted shipment and to determine whether the merchandise reaches that destination. This presents a security risk, a risk of circumvention of other agencies’ admissibility requirements, and a risk that proper duties are not collected. Therefore, the proposed rule would amend 19 CFR 18.5 to require in-bond carriers and other applicable parties to electronically request permission from CBP prior to diverting imported merchandise to another port.

CBP also proposes to amend 19 CFR 18.2 and 18.5 to close a loophole regarding in-transit times. Currently, the filing of a new transportation entry has the effect of allowing the carrier additional time to transport the cargo. Under the proposed rule, neither diversion to another port nor the filing of a new in-bond application would extend the transit time. In either case, the movement of diverted merchandise would have to be completed within the original 30 day period.

Electronic Report of Arrival Would Be Required Within 24 Hours

Currently, carriers are required to promptly report to CBP (generally via CBP Form 7512) the arrival of any portion of the in-bond shipment, but no more than two working days after the arrival of the merchandise at the port of destination or export. To allow for better tracking, CBP proposes to amend 19 CFR 18.2, 18.7 and 18.20 to require the delivering carrier to electronically report, via a CBP-approved EDI system, the arrival of each in-bond shipment within 24 hours of the arrival of the merchandise at the port of destination or the port of export.

CBP is also proposing to amend 19 CFR 18.1 by adding paragraph (j) to require the carrier, at time of arrival at the port of destination or export, to electronically provide CBP with the physical location of the in-bond merchandise within the port. This will enable CBP to better monitor cargo in a high volume environment, and thus, better enforce the in-bond requirements.

Would Conform Immediate Entry Rules to Current CBP Practices

Entry for Immediate Exportation (IE) is often used when merchandise is unloaded from one conveyance and loaded onto a different conveyance for direct exportation from the U.S. CBP is proposing to amend 19 CFR 18.25 to require that shipments arriving at a U.S. port by truck, for which an IE entry is presented as the sole means of entry, will be denied a permit to proceed and the truck may be turned back to the country from which it came or, at the discretion of the port director, the truck may be allowed to file a new entry.

CBP states it is proposing this change due to the heavy volume of truck shipments arriving in the U.S. from foreign destinations that are entered as for immediate exportation and then promptly exported back to the country from where the shipment originated. This practice has led to a problem with congestion at certain ports and has monopolized CBP’s limited targeting and enforcement resources at the most congested ports. In some cases, these IE entries were utilized to engage in fraudulent activities and to circumvent international trade laws. This proposed change would conform the regulations to current CBP policy prohibiting this practice.

Would Clarify Rules on Sealing of Conveyances & Reporting to CBP

The proposed rule would amend 19 CFR 18.4 to clarify the rules concerning sealing of conveyances by removing the underutilized and obsolete seal options that are no longer commercially necessary or operationally feasible and by adding new requirements.

Specifically, CBP proposes to: (1) require the carrier or other authorized party to seal the containers and/or conveyance with seals pursuant to 19 CFR 24.13 and 24.13a and to ensure that the seals remain intact until the cargo arrives at the port of destination or port of export; (2) require the carrier or other authorized party to transmit the container/conveyance seal numbers to CBP as part of the in-bond application pursuant to 19 CFR 18.1(d); (3) provide for the assessment of liquidated damages against the carrier or other authorized party for any unauthorized removal of the seals; and (4) specify that only CBP may waive the seal requirement.

CBP also Expanding ACE In-Bond Capabilities to Ensure Trade Compliance

In conjunction with the proposed regulatory changes, CBP is also in the process of expanding and modernizing the capabilities of the Automated Commercial Environment (ACE). CBP states this expansion and modernization of ACE will facilitate the implementation of the proposed regulatory changes. To eliminate errors in reporting overdue in-bond movements, CBP is modifying an existing in-bond module in ACE. In addition, CBP is implementing changes in its policy and oversight of the in-bond process to ensure that the trade community complies with the in-bond requirements and to improve the tracking of in-bond merchandise.

Note that CBP authorities have stated that most of the proposed rule's requirements have already been built in ACE.

(The proposed rule would also update or remove certain provisions in 19 CFR that would no longer be relevant when electronic filing is required, as well as various other non-substantive and/or miscellaneous changes to 19 CFR Parts 18 and 19.)

¹Under current CBP regulations, imported merchandise may be transported in-bond. This process allows imported merchandise to be entered at one U.S. port of entry without appraisement or payment of duties and transported by a bonded carrier to another U.S. port of entry, provided all statutory and regulatory conditions are met. At the destination port, the merchandise is officially entered into the commerce of the U.S. and duties paid, or, the merchandise is exported. According to the Government Accountability Office (GAO), in-bond shipments represent 30-60 percent of all imports that move through U.S. ports.

²The exception to the general requirement is merchandise entered under an Immediate Transportation (IT) entry, for which the description must be sufficiently detailed to enable CBP to estimate the duties and taxes that will be owed. Additionally, certain textile shipments being transported under an IT bond must be sufficiently described to allow CBP to estimate taxes and duties.

³Currently, in-bond merchandise transported by truck must be delivered within 30 days. In-bond merchandise arriving by air transit and traveling to a final port of destination in the U.S. by air must be delivered to the destination port within 15 days of arrival at the origination port. In-bond merchandise that is transported by air to another port for exportation must be exported within 15 days from the date that it was received by the forwarding airline. Sea vessels must deliver their in-bond 16 shipments within 60 days from the date that the forwarding carrier takes receipt of the merchandise. Failure to deliver the merchandise within the prescribed time periods constitutes an irregular delivery and subjects the bonded carrier to liquidated damages claims.

(See ITT's Online Archives 12022131 for initial summary announcing the availability of this proposed rule.

(See ITT's Online Archives 12021359 for summary of a February 2012 CBP press release stating that this proposed rule would be published soon.)

CBP Contact -- Gary Schreffler (202) 344-1535

(Docket Number USCBP-2012-0002, FR Pub 02/22/12)