Customs Bonded Warehouses

A bonded warehouse is a storage facility where imported merchandise, except perishable articles and explosive devices, may be stored without the payment of Customs duties for a period of five years. In addition, a bonded warehouse may be used as (1) a location to manipulate imported goods prior to entry into the commerce of the United States, (2) a location to manufacture goods from imported and domestic components for purposes of exportation, and (3) a duty-free sales enterprise. Such uses depend upon the type of bonded warehouse license the warehouse proprietor obtains and the nature of the merchandise. For example, Customs will not approve a bonded warehouse application if the contemplated operations performed on quota class textile products results in a change in quota category.

This memorandum describes the requirements for establishing a bonded warehouse, and the obligations of the warehouse proprietor. In the event you elect to establish a bonded warehouse, we will assist you in completing the appropriate application and provide the company with a manual that describes, in detail, the requirements that must be satisfied. After the warehouse application has been completed and filed with Customs, we anticipate that a license will be granted within 6 months.

1. Obtaining A Bonded Warehouse License

In order to operate a bonded warehouse, the owner or lessee of the warehouse must file an application with the District Director of Customs where the warehouse is located. The application must disclose the names and addresses of all officers and managing officials of the warehouse, and all persons who have a direct or indirect financial interest in the warehouse. The application must also state the exact location of the bonded warehouse and, if a private warehouse, the nature of the merchandise that will be stored therein and an estimate of the maximum amount of duties that are owing on bonded merchandise stored within the warehouse during a given period of time. This last requirement is necessary in order to determine the amount of the bond the warehouse proprietor must secure.

A copy of the fire insurance policy covering the warehouse, and blueprints showing the measurements and openings of the warehouse or space to be bonded, must be submitted to Customs with the application. Upon approval of the application, the warehouse proprietor must execute a bond that sets forth the conditions with which the warehouse proprietor must comply.

Customs may refuse to grant an application for bonded warehouse status, or revoke such status, in the event that the warehouse proprietor or a corporate officer has been convicted of, or has committed, specific criminal acts relating to the theft or smuggling of merchandise.

2. Construction Of A Bonded Warehouse Area In An Existing Facility

Often, a company will elect to designate a portion of an existing facility as a bonded warehouse. The Customs Service must be assured that the bonded and non-bonded areas are sufficiently separated by substantial materials that render it impossible for unauthorized personnel to enter the bonded area. In the event you elect to designate a portion of your facility as a bonded warehouse, the bonded portion of the facility must be segregated from the main facility by partitions that meet the following specifications:

A. Expanded Metal

Expanded metal (steel) shall be at least 9 gauge with mesh openings not to exceed 2 inches in diameter, and shall be welded to corner posts of at least 3 x 3 x 5/16 inch angle iron. The intermediate posts shall be at least 2 x 2 x 3/16 inch angle iron, and the top, middle and bottom rails must be of the same specifications.

B. Steel Chain Link Fence

Steel chain link fence fabric shall be at least 9 gauge with mesh openings not to exceed 2 inches in diameter, and shall be installed on a galvanized steel tubular frame consisting of 2 7/8 inch outer diameter corner and gate posts, 2 3/8 inch outer diameter intermediate posts, and 1 5/8 inch outer diameter top, middle and bottom rails. These posts must be affixed to a true floor and ceiling in a manner that precludes their easy removal. The chain link fence fabric must be fastened to all corner posts with 3 1/6 x 3/4 inch tension bars and 11 gauge tension bands. There shall be one band for each foot in the height of the fence fabric. The bolts used to affix these bands to the fence shall be bent, peened, welded or altered to preclude the removal of the nut from the bolt. The fence fabric shall be fastened to the intermediate posts, and top, middle and bottom rails with 9 gauge wire ties, double wrapped, on one foot centers.

C. Wood

Wood partitions must be constructed of not less than 1 inch boards of uniform length between supports, nailed with not less than ten penny nails to not less than 2 x 4 inch stud framing and held in place by 1/8 x 2 inch metal cover-strips secured over the nailed ends, with carriage bolts through the boards and partition framing. Plywood of not less than 3/4 inch thickness may be substituted for the 1 inch thick wood boards, provided that it is erected in the same manner as the boards. Gates may be constructed of any materials specified for partitions. The gates must be constructed in such a manner so as to prevent any possible sagging.

3. Manner Of Storage

All goods covered by a specific warehouse entry should be stored in the same location and not mixed with goods from another warehouse entry. A useful method to ensure that goods are not commingled is to store goods on separate pallets. This method of storage will also enable the proprietor to easily move the merchandise within the warehouse. By attaching a card to the front and sides of the pallet that indicates the warehouse entry number and the number of packages contained in the entry, the proprietor will be able to verify to Customs’ satisfaction the precise location of all bonded merchandise under his control.

Goods must be stored in a safe and sanitary method, and clean aisles should be established between the goods so that when Customs inspects the warehouse facility, the Customs inspector can readily verify that all merchandise is properly accounted for.

4. Recordkeeping Requirements

The United States government has a vested interest in bonded merchandise, because it has not yet received the duties owing on the merchandise. Accordingly, the warehouse proprietor must maintain records that enable Customs to readily verify that all the bonded merchandise is accounted for, and that merchandise has not been released from the warehouse before Customs has received the proper amount of duties owing thereon or has proof of exportation.

At the time merchandise is entered into the bonded facility, the warehouse proprietor should insp be brought to the attention of Customs in order that the proprietor is not held responsible for duties owing goods it never received. Any theft, shortage or overage detected after the goods have entered the bonded facility should also be brought to Customs’ attention. Thus, if the packing list states that each box contains 100 pair of eyewear and, upon opening a box, you determine that one box only contains 80 pair of eyewear, you must notify Customs of this shortage or you will be liable for duties owing on goods that you never received.

Bonded merchandise shall be recorded in the warehouse proprietor’s accounting and inventory records by “bond lot numbers,” and merchandise within specific bond lots should be segregated from merchandise within a different bond lot number (no commingling). An easy method to comply with this requirement is to assign a specific bond lot number to each entry number and indicate both numbers on the cards affixed to the pallets.

The warehouse proprietor must open a “permit file folder” for each bond lot. This folder chronicles the movement and release of goods covered by a specific warehouse entry. The file should contain a copy of the warehouse entry, which establishes the amount of merchandise contained within the bond lot, any theft or shortage reports, and a copy of each removal permit. There are two types of removal permits; blanket and partial. A blanket permit authorizes the release of all goods covered by a warehouse entry, and a partial permit authorizes the release of a portion of the goods covered by a warehouse entry (i.e., boxes one through ten). Removal permits should be perforated, or otherwise marked, so as to indicate that duties have been paid on the goods. A proprietor should not release goods until it has a copy of the perforated removal permit. Once all the goods covered by a warehouse entry have been released, the last permit should show that there are zero goods covered by the warfolder is deemed closed, and it must be returned to Customs within a certain number of business days.

5. Manipulating Merchandise Within The Bonded Facility

A Class 8 bonded warehouse license allows the warehouse proprietor to manipulate imported goods while in bond. Repacking operations are considered to be a manipulation. In the event that your proposed activities fall within the definition of “manipulation,” the company should seek a blanket manipulation permit in order to avoid constantly applying for permission to manipulate. Records must be maintained indicating the quantities of merchandise under a bond lot number before and after the manipulation, and describe the marks and number of packages that have been manipulated.

6. Small Withdrawals

Many private bonded warehouse operators find the biggest problem with operating a bonded warehouse is the cost of filing withdrawals. Each withdrawal, whether for consumption in the United States or for export, is a separate document from the warehouse entry itself. Thus, any savings realized by deferring duty payment may be outweighed by filing numerous withdrawals. You may be able to overcome this problem by consolidating withdrawals for consumption and withdrawals for exportation. However, this would depend upon your business operations. Before filing an application, you may wish to contact your customshouse broker to determine the fee charged for filing such withdrawals.

Note: The information contained in this memorandum is for general information only, and is not intended as advice or counsel regarding any specific situation. If you have an issue relating to the subject matter discussed in this memorandum, you should consult with counsel or your customs advisers concerning the proper course of action to be followed in your case.

For additional information concerning the subjects discussed in this Neville Peterson LLP background memorandum, please contact our offices at (212) 635-2730 or (202) 861-2959, or e-mail using the mailbox on this Website.