By: Bruce Leeds, Senior Counsel
Heading 9813 in Subchapter XIII of the Harmonized Tariff Schedule contains the provisions for temporary imports under bond commonly referred to as TIB entries.
TIBs are for articles ordinarily subject to duty and/or a Merchandise Processing Fee (MPF) and are temporarily imported for certain purposes, and are subsequently exported or destroyed. Regulations and requirements for TIBs are found in the Subchapter notes and in Part 10.31-10.40 of the Customs Regulations.
First – the good news. If articles are entered under a TIB, and properly exported or destroyed, they are exempt from duty and MPF. This can translate into significant savings for an importer. Something to brag to your management about! However before going out and filing a bunch of TIB entries and saving all that money there are a few things you need to know.
First is that TIBs do not cover all temporary import situations. The purpose for the temporary import must align with one of the subheadings under Heading 9813. There are provisions for temporary imports for processing, testing, tools of trade. production of articles for export and other specific purposes. There are some purposes that will not qualify. As an example, Subheading 9813.0030 applies to articles temporarily imported for testing, experimental, or review purposes. This means that the temporarily imported articles will themselves be tested. If they will be used to test something else they won’t qualify for a TIB.
The “B” in TIB means bond. The importer must post a bond for two times the normal duty. (There are some exceptions to this.) Thus, if the normal duty on an import is $5,000, the bond would be for a limit of liability of $10,000. The importer would either obtain a single transaction bond in this amount, or could use its continuous entry bond if the bond was sufficient to cover the TIB.
Most TIBs are valid for one year from the original date of import. That means the importer must carry out the purpose of the temporary import and either export or destroy the articles within one year. There are two one-year extensions available, but the importer must apply for the extensions before the year is up, as there are no retroactive extensions.
Articles entered under TIB must be exported or destroyed. “Export” means a permanent export to a foreign country. Temporary exports, or shipments to U.S. insular possessions will not qualify. The articles do not have to be returned to the original country of export, as any bona fide export will count. There are also special rules and duty implications for certain exports to Canada and Mexico. “Destruction” means a total destruction of the article, so a partial destruction will not work.
The requirement for export or destruction can be satisfied by a combination of these things. For example, a company can import ten articles under a TIB. Of the ten, four are exported to Country A, four to Country B, and two are destroyed in the US. If this was completed within the one-year period, (plus any extensions) and proof submitted to U.S. Customs & Border Protection (CBP), the TIB would be cancelled and the importer will have realized the duty and MPF savings.
Proof? What proof do you need? There is a form for cancelling TIBs – CBP Form 3495. However, in many ports this form is no longer used. Instead the importer may need to submit other evidence of export or destruction. The evidence could consist of export documents, such as invoices, packing lists, bills of lading or air waybills, Electronic Export Information filings, cargo manifests and foreign customs entries. The proof is submitted to CPB as one package, since they don’t want piecemeal TIB cancellations.
CBP has the right to witness the export or destruction. CBP ports have procedures for this. Unless CBP waives the requirement, assume that you will need to arrange for witnessing the export or destruction.
What if the articles imported on a TIB entry are not all exported or destroyed within the required time frame? What if the importer exported or destroyed them but does not have proof? If any of these happen the importer becomes eligible for TIB penalties. Technically these are liquidated damages assessed for failure to meet the conditions of a bond. The penalties will be equal to the amount of the TIB bond, which are normally twice the regular duty.
Example: A company imports ten articles on a TIB and posts a bond for $20,000. They successfully export nine of the ten articles and have sufficient proof of export. For failure to export one of the ten articles, the importer will receive a penalty notice for the full bond amount – $20,000. The fact that they exported nine of the ten articles is only a mitigating factor when pleading for mercy from CBP Fines, Penalties & Forfeitures.
If the importer wants to keep the articles on a TIB entry instead of exporting them, can they just change the TIB to a consumption entry and pay the duty and MPF? The short answer is no. Once you file a TIB entry you are stuck with it.
All this means that an importer importing articles under TIBs must keep track of the imported articles at all times. The customs broker can help with the import and export formalities, but the importer must know what is being exported or destroyed and arrange ahead of time for examination (if required) and documentation. Failure to do this can lead to penalties and perhaps repercussions for the employees involved.
An importer must be very careful when considering using TIBs. They must balance the duty and MPF potentially being saved against the cost of administration and the likelihood of TIB penalties. Don’t use TIBs unless the savings are significant and the temporary imports can be monitored and controlled.
Consider alternatives to TIBs. These could include using a free trade agreement if the articles qualify. The alternatives could also be the use of a bonded warehouse or Foreign Trade Zone, or claiming drawback. These may not be easy, but perhaps more feasible and lower risk than a TIB.
If you do successfully use TIBs and save significant duty and MPF be sure to track the savings and advise your management. Remember, if you don’t tell them they will probably never know.