by Susan Kohn Ross

Anyone who imports aquaculture knows that Customs and Border Protection's bond requirement is a trade killer!

Imports of aquaculture, including products such as shrimp imported from Brazil, Ecuador, China, India, Thailand and Vietnam, are subject to antidumping duty. These imports were dramatically impacted in July 2004 when Customs announced its new formula for setting the bond amounts for these products. Specifically, Customs singled out aquaculture and agriculture products as subject to this new formula.

When obtaining their continuous bond, these importers are now required to set their bond at the amount of the expected antidumping or countervailing duties to be paid, plus the usual $50,000 minimum continuous bond, rounded up to the nearest $100,000. So, for example, if the importer was expecting to pay $700,000 in antidumping duties, you add $700,000 and $50,000 and the continuous bond amount becomes $800,000.

As it turned out, performing that calculation became the easiest part of the bargain. When Customs announced the formula, it admitted doing so because of the Byrd Amendment and the criticism it received from the General Accounting Office in the face of the large sums of antidumping monies which were being not collected. Recognizing their exposure had just increased dramatically, sureties responded to the startling rise in bond amounts by implementing new underwriting guidelines. No longer would these bonds be written unless properly collateralized.

Another factor that came into play was the step taken by an unusually large number of American buyers who decided they did not want to assume the risk of the antidumping margin possibly rising and so refused to buy aquaculture except on a delivered duty paid (DDP) basis. To keep their market share, foreign suppliers in droves agreed and so became importers in the U.S. -- and boy were they in for a shock!

In applying for their bonds, they ran into the full collateral requirement. Using our original example, in the 2004-05 season, our fictional importer had to post a stand-by letter of credit for $800,000. If his sales were better than expected, he had to increase his bond accordingly for the 2005-06 season. Let's assume the bond for that period totaled $1 million. That importer now had to post $1 million, and here is where the rude awakening occurred. Many such importers thought they could rely on the $800,000 already on deposit, but no. In fact, they had to post the full $1 million as the entries from the 2004-05 season are not yet liquidated. So, now the surety has $1.8 million of the company's assets tied up in stand-by letters of credit or similar collateral. Regardless of where they are located, how many companies can afford that?

Knowing the various procedural hurdles through which dumping cases generally pass, it is likely to be another year or two before the antidumping margins for the first season are finalized, which is when the Commerce Department issues instructions to Customs and Customs liquidates these entries. That being the case, many importers are finding themselves into their third season -- 2006-07 -- and having to tie up even more money.

In our January column, we addressed this topic and mentioned the National Fisheries Institute lawsuit challenging Customs' approach with these bonds. While that case makes its way through the court system, there has been a new development on the international front. We heard from a number of different foreign-based clients about their governments considering challenging Customs' decision at the World Trade Organization. Now we have confirmation that at least one such challenge has been filed. In early June, the U.S. Trade Representative published notice in the Federal Register acknowledging that on April 24, 2006, Thailand requested consultations concerning certain issues related to the way in which these antidumping duty cases were handled. If the planned consultations do not resolve the matter, a dispute settlement panel will be established.

Thailand has complained to the WTO on technical grounds that the way in which the U.S. zeros out certain cost/expense factors results in failing to make a proper comparison between the export price and the normal value and so distorts the dumping margins. Further, the Thais have asserted that these bond requirement violate WTO agreements on several other technical grounds. Stay tuned as this drama plays itself out nationally and internationally. It isn't likely we are going to give up our shrimp consumption. So, what is the solution?