FMC Proposes to Increase NVOCC China Bond Rider Amount, Allow Aggregation
The Federal Maritime Commission has issued a proposed rule that would increase the amount of bond coverage required in its optional China Bond Rider for Non-Vessel-Operating Common Carriers so that total NVOCC financial responsibility would equal 800,000 Chinese Renminbi (RMB) under current exchange rates. The proposed rule would also provide a method for NVOCCs to demonstrate financial responsibility by aggregating the total coverage of a bond and all of its riders. Comments are due by March 12, 2012.
(Pursuant to a 2003 bilateral Maritime Agreement, China does not require U.S. NVOCCs to deposit a cash security in a Chinese bank if the NVOCC: (1) is a legal person registered by U.S. authorities; (2) obtains an FMC license as an NVOCC; and (3) provides evidence of financial responsibility in the amount of 800,000 RMB ($96,000). An FMC-licensed U.S. NVOCC that voluntarily provides an additional surety bond in the amount of $21,0001 may register in China without depositing the 800,000 RMB.
In 2004, the FMC amended its regulations to allow a $21,000 optional bond rider, in addition to the $75,000 base bond (for a total of $96,000), to be filed as additional proof of the financial responsibility required by China. See ITT's Online Archives 04040505 and 04040610 for summaries.)
China Said Current $96K Bond Amount Inadequate, Requests Increase to $122K
In April 2011, China transmitted a request to the FMC noting that since 2003, the exchange rate between the U.S. dollar and the RMB has risen approximately 21.02%. Therefore, the current total required bond amount of $96,000 ($75,000 base bond plus $21,000 rider bond) is inadequate to meet 800,000 RMB at the current exchange rate.
China proposed that the FMC's regulation be revised to include a provision that would allow for adjustments to the U.S. dollar amount required in an NVOCC optional bond rider covering transportation activities in the U.S./China trades when the dollar and the RMB exchange rate fluctuates 20% higher or lower than that of the last adjustment. If this proposal is adopted, China requests that the existing total required bond amount of $96,000 be increased to $122,000 (which is the equivalent amount of 800,000 RMB at the present exchange rate).
Proposed Rule Would Increase China Bond Rider from $21K to $50K
In June 2011, the FMC issued a Notice of Inquiry soliciting comments on the China bond rider and received three2, generally favorable responses. (See ITT's Online Archives 11061426 and 11120205 for summaries of the FMC's NOI.)
Based on the comments, the FMC now proposes to amend Appendix F to Subpart C of 46 CFR 515 (Form FMC-69, group bonds) to increase the specified amount of surety available in the optional China Bond Rider from $21,000 to $50,000.
Would Allow NVOCCs to Aggregate Total Coverage of a Bond w/ All Its Riders
FMC is also proposing to amend Appendix E to Subpart C of 46 CFR 515 (Form FMC-48A) to provide a method for NVOCCs to demonstrate financial responsibility by aggregating the total bond coverage for a bond and all of its riders.
Pursuant to 46 CFR 515.21(a)(4), NVOCCs are required to obtain an additional $10,000 in bond coverage for each branch office. Comments in response to the FMC's NOI noted that many bondholders already demonstrate 800,000 RMB worth of coverage if the aggregate amount posted for their branch offices is included. For example, if a bondholder has five additional branch offices, the total coverage would be $125,000 ($75,000 base bond plus $50,000 for five branch offices). Commenters stated that if the aggregate bond amount posted was counted, the operating costs for some NVOCCs would be slightly reduced while adequate coverage would be maintained.
Therefore, the proposed rule would remove the pre-specified rider amount (currently $21,000) in Appendix E and replace it with a blank space for NVOCCs to fill out. This would allow NVOCCs to account for variances in their combined total surety levels maintained to meet the FMC's other financial responsibility requirements (including that they maintain $10,000 for each of their branch offices), as long as their total coverage equals or exceeds $125,000 (the base bond of $75,000 plus $50,000 in bond riders).
Comments Sought on Feasibility of Proposed Changes, Etc.
The FMC seeks comments particularly on the feasibility of these proposed changes. The FMC intends to periodically review the value of the total coverage provided by the China bond rider.
1This bond amount, by its conditions, is available for potential claims of the Chinese Ministry of Transport (as well as other Chinese agencies) for violations of the Chinese Regulations on International Maritime Transportation.
2Comments were submitted by the National Customs Brokers and Forwarders Association (NCBFAA), Mohawk Global Logistics, and Econocarbide Consolidators.
(See ITT's Online Archives 12011020 for initial summary of this proposed rule.)
FMC Contact -- Karen Gregory (202) 523-5725
(DN 11-09, FR Pub 01/11/12)