Current Trade Environment Impact on Bonds Danielle Levine

Current Trade Environment & Impact on Bonds Danielle Levine, Roanoke Insurance Group Inc.

Today’s Presentation • Customs Bond Compliance – The Tariffs – Bond Statistics – Bond Sufficiency Review – Cumulative Liability

Total Cost of the Tariffs Value of Affected Tariff U. S. Imports (Billions) Section 232, Steel $15. 5 Section 232, Aluminum $9. 8 Section 301, List 1 $30. 2 Section 301, List 2 $14. 8 Section 301, List 3 $212. 8[ii] Section 301, List 4 A $112. 3 Section 301, List 4 B $160. 2 Total $555. 6 [i] Tariff Rate 25% 10% 25% 25%[iii] 10% 10 -25% Additional Cost Burden (Billions) $3. 9 $0. 9 $8. 1 $3. 4 $47. 2 $11. 2 $16. 0 $96. 6 [i] Data for this analysis were taken from the U. S. Census Bureau and the International Trade Commission. All import data is from 2018. [ii] Includes approximately $31 billion of goods that are only partially covered by the tariff action, as indicated by Part 2 of the U. S. tariff list. The inclusion of these goods brings the total value of affected imports close to the value reported by the U. S. Trade Representative at the time the tariffs were enacted ($200 billion in 2017). [iii] Initial rate was 10% then increased to 25%

Historical Bond Increases Import Bond Insufficiency Notices 10, 000 9, 000 8, 000 7, 000 6, 000 5, 000 4, 000 3, 000 2, 000 1, 000 0 2006 2007 2008 2009 2010 2006 -2017: 2, 070 average 2018: 5, 821 2019: 8, 799 (8 months) 2011 2012 2013 2014 2015 2016 2017 2018 2019 - 8 months

Bond Amount Calculation - Reviewer $50, 000 minimum bond amount for importers paying up to $500, 000 DTF $0 - $1, 000 DTF Greater than $1, 000 DTF See more at: Current Bond Formulas Refunds are not deducted from the DTF Multiples of $10, 000 nearest to 10% duties, taxes and fees paid Multiples of $100, 000 nearest to 10% duties, taxes and fees paid All DTF paid/payable (including AD/CVD and 201, 232 and 301 Tariffs)

Bond Amount Calculation - Analytical A Total duties, taxes & fees in previous 12 months X 10% + B + C 10% of unpaid/not protested bills less than 210 days OR protested $ of delinquent & not protested bills greater than 210 days OR denied protest + D $ for $ unpaid debit vouchers + E $ for $ bills paid by surety

CBP Increase Letter New Language “CBP conducts bond sufficiency review on a monthly basis. To avoid a bond stacking liability issue, it is in the importer’s best interest to forecast their import activities for the next 12 months to determine if a bond amount increase beyond the minimum amount stated above will be more appropriate. ” • Importer’s responsibility under Informed Compliance requirements • Broker does not receive a copy of the letter from CBP • Previous 12 months vs Next 12 months – Whichever is higher • Fall of 2018, CBP changed review using entry summary date vs entry date

Bond Increases • 8, 799 total insufficiency letters issued 1 st eight months 2019 • 40% of bonds have already been increased at least once in the past 12 months. – Most of those more than once • Importers must determine the amount of duty they will pay in the future to ensure correct bond amount – CBP Informed Compliance

Projecting Bond Amounts Data Availability 1 2 3 Customs Brokers CBP Sureties ABI Data ACE Portal Report ASI Data (Automated Broker Interface) (Entry reports & new Section 201, 232, 301 reports) (Automated Surety Interface)

Calculating Bond Amounts • Do your own math to arrive at a prospective 12 month DTF figure taking into account special tariffs, timing of tariff changes, and other factors. – Make sure you select a bond amount that is at least 10% of that Don’t forget to Round Up

Risk of Failing to Increase • • • No Entries Allowed Bond Grossly Insufficient? Immediate Shut Off Demurrage Storage STB’s required Stacking/Aggregate Liability – multiple bonds in one year • Underwriting Scrutiny

Stacking Liability Example $400, 000 bond $500, 000 bond Eff Feb 2018 CBP letter Sept 2018 for min $500, 000 bond Eff Sept 2018 CBP letter Dec 2018 for min $800, 000 bond Open entries $800, 000 bond $1, 800, 000 bond Eff Dec 2018 CBP letter July 2019 for min $1, 800, 000 bond Eff July 2019 Open entries $3, 500, 000 liability

Risk: Estimated Duty vs ADD/CVD • Estimated Duty is lower risk – Due within 10 days or monthly – Review principal’s ability to pay today • ADD/CVD is highest risk category – Rate can change 3 or more years after entry – The “tail” of liability is long; entries remain unliquidated for years

Underwriting Considerations • Subjective review based on bond amount, principal history and aggregate liability • Financial statement review • Collateral and/or Indemnity possible

Collateral • Letter of credit is most secure form • Bank rating approval • Can take around 30 days for bank to process request • Additional collateral may be required yearly due to stacking • Generally held until all entries have been liquidated and past reliquidation timeframe

Import Bond Losses 2018 Top 5 Loss Categories - Import Bonds ADD Class Chg FDA 1592 D Est Duty

Debit Vouchers 1 Account Holder has a limit on the account 2 Account Holder did not inform bank of CBP debiting account 45% are a result of…

Thank You! Danielle Levine, Vice President Danielle. Levine@roanokegroup. com (212) 412 -9232