FMC Proposes Increase in Amount of Optional Bond Rider for China
The Federal Maritime Commission is proposing to amend its rules regarding the amount of bond coverage required in its optional China bond rider for non-vessel-operating common carriers. This proposed rule is intended to provide NVOCCs with the ability to post a bond that satisfies the equivalent of 800,000 yuan, for which the equivalent dollar amount has fluctuated since the China bond rider regulation was first adopted. Comments on this proposal are due no later than March 12.
Pursuant to a 2003 bilateral maritime agreement, China does not require U.S. NVOCCs to make a cash deposit in a Chinese bank as would otherwise be required by Chinese regulations as long as the NVOCC is a legal person registered by U.S. authorities, obtains an FMC license as an NVOCC and provides evidence of financial responsibility in the total amount of 800,000 yuan, or $96,000. An FMC-licensed U.S. NVOCC that voluntarily provides an additional surety bond in the amount of $21,000 (denominated in dollars or yuan), which 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, is able to register in China without paying the cash deposit otherwise required by Chinese law and regulation. In 2004 the FMC amended its regulations to allow an optional rider to be filed with a licensed NVOCC’s proof of financial responsibility to provide additional proof of financial responsibility for such carriers serving in the U.S. oceanborne trade with China.
The MOT asserts that because the exchange rate between the dollar and the yuan has risen approximately 21% since 2003 the amount of $96,000 no longer corresponds with 800,000 yuan. The FMC states that while the 2003 agreement did not provide for adjustment in exchange rates, “in the spirit of comity and good faith with our trading partner” it is proposing to adjust the amount of surety available in the optional China bond rider and provide a method for NVOCCs to demonstrate financial responsibility by aggregating the total bond coverage for all bonds. Specifically, this rule would amend the regulation on group bonds to increase the amount specified from $21,000 to $50,000 and amend the regulation on individual NVOCC bonds to remove pre-specified rider amounts to account for variances in NVOCCs’ combined total surety levels maintained to meet the FMC’s other financial responsibility requirements, including $10,000 in bond coverage that NVOCCs maintain for each of their branch offices. This recognition means that NVOCCs with branch offices may have rider amounts that vary to satisfy the level of coverage requested by China so long as their total coverage equals $125,000. The FMC intends to review the value of the total coverage provided by the China bond rider periodically.