Importers’ bonds, sometimes referred to as tariff or Canadian customs bonds, have been in the news lately due to significant changes in Canada’s customs process and the potential for increased tariffs, particularly in the context of Canada-US trade. The Canada Border Services Agency (CBSA) is implementing a new system called CARM, which requires importers to secure their own customs bonds. This is happening at the same time as threats of increased tariffs on goods from Canada to the US, and potentially retaliatory tariffs from Canada in response. Let’s examine what an importer’s bond is and how it will affect Canadian importers and the insurance industry as a whole.
What is an Importer’s Bond or Tariffs Bond?
An importer’s bond is a financial guarantee required by customs authorities (like the CBSA in Canada or CBP in the US) to ensure that an importer will comply with all import regulations and pay all applicable duties, taxes, and fees. It acts as a form of insurance, protecting the government from financial loss if the importer fails to meet their obligations.
Unlike an importer’s bond, a tariff bond is a type of customs bond that specifically guarantees the payment of tariff duties. It may be used in cases where certain imported goods are subject to special or additional tariffs (e.g., retaliatory tariffs or anti-dumping responsibilities).
There are three parties involved in the contract of an Importers Bond:
- Principal– the party that must post the bond in order to do business with CBSA, such as an importer.
- Surety– the party that guarantees the principal on the bond. The surety is a company that has been pre-approved by the Department of the Treasury to write bonds up to a specific limit. By writing the bond, the surety agrees to pay amounts due to CBSA if the principal fails to fulfill its obligations.
- Obligee– the beneficiary of the contract (CBSA).
What are the Benefits?
They enable the immediate release of goods upon arrival, even before final payment of duties and taxes is made, thereby streamlining the import process. In addition to speeding up the customs clearance process, it provides financial security that the government will be paid what it is owed, even if the importer faces financial difficulties or fails to comply with regulations. It also ensures that the importer complies with all customs laws and regulations, including the provision of proper documentation and the timely payment of duties.
Types of Importers’ Bonds
- Single Transaction Bonds (Single-entry bonds): These cover specific import transactions
- Continuous Bonds: These cover all import activity within 12 months.
How Does the Importer’s Bond Process Work?
When an importer purchases a bond, they are essentially getting a line of credit from a surety company that specializes in these types of guarantees. If the importer fails to pay duties, taxes, or comply with regulations, the surety company will pay the customs authority on their behalf. The surety company then has the right to recover the amount from the importer.
Who Needs It
As of the CARM (CBSA Assessment and Revenue Management) rollout, you need an importer’s bond if you:
- Are a commercial business importer bringing goods into Canada.
- Want to use Release Prior to Payment (RPP) privileges (i.e., release goods before paying duties/taxes).
Why?
- CARM now requires all importers to provide their own financial security (usually a surety bond) to cover duties and taxes.
- You can no longer use your customs broker’s bond — you need your own.
What is the Cost?
Under CARM, the bond amount (coverage) is based on:
- Your import volume and
- Your use of Release Prior to Payment (RPP)
The bond amount (Required Security) is usually 50% of the highest monthly accounts receivable owed to CBSA over the past 12 months. The minimum bond amount is $25,000. Higher importers may need as much as $100,000 or more in bond coverage. Typically, the bond premium is between 0.5%-1.5% of the bond amount (depending on your credit and risk profile).
The costs of bonds are often lower for companies with good credit or financials.
New Tariffs May Change Requirements for Customs Surety Bonds
New tariff rules in Canada and the U.S. will require importers to pay higher duties and increase their customs guarantee responsibilities. Importers must understand these changes to avoid delays in importing goods into the country. The Canada Border Services Agency (CBSA) has updated its procedures for how importers pay customs duties. Under the new CARM system, importers are now required to obtain their own customs bond to cover duty costs. In the past, they usually relied on their customs broker’s bond.
How CARM Affects the Insurance Industry in Canada
CARM is modernizing the import process, but also shifting financial responsibility to importers. This creates new opportunities — and challenges — for both importers and the insurance industry.
More Demand for Surety Bonds
- Importers must get their own bonds: CARM requires importers to have their own surety bonds to cover duties and taxes.
- Less reliance on brokers’ bonds: Importers can no longer rely on their brokers’ bonds — they must secure their own.
- New business for insurers: This opens a new market for insurance companies to offer bonds directly to importers.
Insurance companies that provide surety products (e.g., Aviva, Intact, Travelers, Guarantee Co.) are now seeing more business from importers needing their own bonds, due to CARM.
Changes in Risk and Responsibility
- Importers are more accountable: They must manage their own bond coverage and financial security.
- Higher risk of claims: If importers don’t meet their payment obligations, more claims may be made on bonds.
- Need for support: Many importers will require assistance in understanding and managing these bonds — insurance brokers can play a crucial role in guiding them.
CARM Client Portal
- Everything online: Importers will use the CARM Portal to manage accounts, submit forms, and make payments.
- Manage bonds digitally: Bond details and account security will also be handled through the portal.
Importer’s Bonds: Summary
An importer’s bond is a crucial part of the international trade process, serving as a guarantee that importers will comply with Canadian regulations and pay the necessary duties, taxes, and fines. Whether you are a small business owner importing goods occasionally or a large company handling regular shipments, understanding the role of this bond is vital to ensuring smooth and timely customs clearance.
Please speak to one of our isure representatives for more information regarding your business insurance coverage.
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