Importer Security Filing - "The 10+2 Rule"

Thursday, January 1, 2009 - 00:00

U.S. Customs and Border Protection ("CBP") has issued "interim final regulations" implementing the "Importer Security Filing and Additional Carrier Requirements," the so-called 10+2 Rule. The new Importer Security Filing program applies to goods shipped to the United States via vessel and will require the submission of certain data elements to CBP at least 24 hours before the goods are laden on board the vessel. The new Importer Security Filing ("ISF") program becomes effective on January 26, 2009.

The ISF program will dramatically alter the manner in which information is processed in the supply chain. Recognizing that the trade will require time to adjust to the new requirements, CBP has provided for a " structured review and flexible enforcement period" of at least 12 months. During this period, CBP will "show restraint" and forego the issuance of liquidated damages or penalties to importers and ISF Filers making a good faith effort to comply with the new ISF requirements. While CBP has yet to finalize all the elements of this program, CBP has intimated that importers who do not demonstrate a good faith effort to comply with the program may be subject to enforcement actions during this 12-month phase-in period.

Basic Requirements

For merchandise destined to enter the United States or a foreign trade zone, importers or their agents must transmit the following data elements to CBP through either the Automated Broker Interface ("ABI") or Automated Manifest System ("AMS") electronic data systems:

1. Manufacturer (or supplier) name and address

2. Seller name and address

3. Buyer name and address

4. Ship to name and address

5. Container stuffing location

6. Consolidator name and address

7. Importer of record number

8. Consignee number

9. Country of origin of goods

10. HTS number (6 digit)

In addition to the 10 data elements set forth above, a bill of lading number at the lowest level (i.e., the regular/ straight/simple bill of lading or the house bill of lading) must also be provided. The carrier must provide CBP with: (1) a vessel stow plan; and (2) container status messages. Thus, the ISF requirement is referred to as the "10+2 Rule.")1

Data Flexibility

The interim final regulations provide flexibility with respect to certain elements of the program. First, as to timing, the "container stuffing location" and "consolidator" data elements may be transmitted up to 24 hours prior to arrival of the shipment in the United States. Second, CBP has provided for flexibility as to interpretation of the following elements: "manufacturer (or supplier)," "ship to party," "country of origin," and "HTSUS number." These flexibilities were created in response to importer concerns regarding the availability and definition of the ISF data elements. CBP has invited additional comments on these elements and will evaluate any specific compliance difficulties encountered by the trade before issuing final regulations.

The ISF Importer

The "ISF Importer" is defined as "the party causing goods to arrive within the port limits of the United States." The ISF Importer is responsible for filing the ISF. For goods that are not shipped in bond, the ISF Importer will be the goods' owner, purchaser, consignee or authorized agent. A third party agent who is properly authorized by a power of attorney may file the ISF on behalf of the ISF Importer or in its own name, provided that the ISF filing is secured by a CBP approved bond.

The ISF Importer is required to update the filing if there is any change in the data while the merchandise is in transit to the United States. Although the ISF will only be used for security targeting purposes, CBP has indicated that it may validate the ISF data against the information submitted at entry and that data discrepancies may lead to the assessment of liquidated damages and/or penalties against the ISF Importer (after the conclusion of the flexible enforcement period).

Bond Requirements

The ISF must be secured by a bond posted by either the ISF Importer or the ISF Filer, e.g., an agent designated by the ISF Importer. The CBP approved bond must be a continuous entry bond, an international carrier's bond2or an "Importer Security Filing Bond." The ISF bond is similar to a single entry bond (single entry bonds have not been approved for ISF purposes) and only secures the ISF filing; a separate bond must be posted to secure the entry. While CBP has yet to issue ISF bond guidelines, CBP has indicated that the maximum liquidated damages exposure for an improper ISF filing is $5,000 per violation, so that $5,000 would appear to be the maximum value of the ISF bond.

"Do Not Load" Messages

Whereas CBP had previously indicated that an erroneous or untimely ISF would not result in a "Do Not Load" message being sent to the carrier, a "Do Not Load" message may issue if the ISF indicates a security risk. Moreover, carriers are still required to transmit manifest data to CBP 24 hours prior to lading under the so-called "24 Hour Rule." It is anticipated that CBP will cross-reference the 24 Hour Rule transmission with the ISF such that the total absence of an ISF filing may also trigger a "Do Not Load" message (after the conclusion of the flexible enforcement period).

Entry Option

Not only do importers have an option as to who will submit this data, but they have an option as to the type of filing that will be permitted. In this regard, importers can opt to file the ISF 24 hours before the goods are laden on board the vessel and submit a formal entry for the merchandise upon its arrival in the United States. Alternatively, the importer can make a combined customs entry/security filing 24 hours before the goods are laden on board the vessel for shipment to the United States. Whereas certain additional data elements will be required to complete the combined entry/security filing (i.e., value, 10 digit HTS classification), only an importer self-filer or a licensed customs broker can make a combined entry/security filing. This combined filing option would appear to be the most efficient option for many types of freight due to the overlapping data elements required in each filing.

Confidentiality

Unlike manifest data that can be retrieved from CBP under the Freedom of Information Act ("FOIA"), the ISF transmission is considered confidential business information that would be exempt from public disclosure by the government under the FOIA.

Whereas licensed customs brokers are prohibited by regulation from disclosing client information, this prohibition does not extend to other parties who may be authorized to make the ISF. Importers should carefully consider who will be given access to this data, how they will control the use of this information and determine whether appropriate safeguards can be put into place through the use of enforceable legal agreements in order to keep this information confidential.

ISF Considerations

The Import Security Filing is effective January 26, 2009. While CBP will delay enforcement of the new requirement for at least one year, importers are strongly encouraged to consider how they will meet their obligations under the new program and to begin transmitting the available ISF data elements as soon as possible.

Decisions must be made with regard to who will make the filing and it may not be uncommon for importers to appoint multiple filers depending upon logistical considerations. However, in considering who to nominate to file the ISF, importers should consider the manner in which they provide the data (e.g., will the filer have to make judgmental decisions?), whether the filer is familiar with this type of data (can they distinguish between the parties in the transaction?) and how the importer will confirm that the ISF has been filed both timely and accurately.

The only party with visibility into the actual ISF data transmission is the party who files the ISF. Importers will be unable to independently verify the ISF data, unless they self-file. If the ISF data is discrepant with the data submitted at the time of entry, the importer may not learn of the discrepancy until after the goods arrive in the United States (and possibly only when CBP issues a liquidated damages claim). This risk may militate towards a combined ISF/entry filing, which can be reviewed and amended as necessary prior to the arrival of the goods.

Service providers who may consider submitting the ISF on behalf of ISF Importers must carefully examine the potential liability from both a commercial and regulatory perspective. Arrangements should be made to clarify who will bear responsibility for late, incomplete and/or erroneous data transmissions. ISF Filers who chose to post their bonds to secure the ISF should consider that they are assuming primary responsibility for the correctness of the data elements.

Importers, brokers, forwarders and ISF service providers are encouraged to utilize the flexible enforcement period to develop supply chain solutions and to identify potential difficulties in complying with this new regulatory requirement.

Our office is available to answer any questions and to offer assistance in connection with the new Importer Security Filing requirement. 1Although the data elements are slightly reduced, foreign merchandise that is intended to move in-bond through the United States as well as freight that is intended to remain on board the vessel (FROB) and merely transit the coastal waters of the United States are also subject to the ISF filing requirement 24 hours prior to lading. For break-bulk shipments, the ISF may be filed 24 hours prior to the cargo's arrival in the United States. Merchandise that is shipped in bulk is exempt from the ISF requirements.

2CBP has amended the bond terms to include liability for incorrect ISF filings. However, existing bonds do not contain this language and it is unclear whether CBP will require importers to obtain bond riders to address the ISF or permit the existing bonds to be used during the flexible enforcement period and only require that bond renewals incorporate this new language.

Alan R. Klestadt is a Partner in the firm Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP. He may be reached at (212) 973-7722.

Please email the author at aklestadt@gdlsk.com with questions about this article.