CUSTOMS HEADQUARTERS CONTINUES TO FAIL WITH REGARD TO VITAL INSTRUCTIONS & INTERPRETATIONS TO FIELD OFFICES

Once again, U.S. Customs has notified the customs brokerage community - via unofficial format and too late in the week for official confirmation - of local interpretation requiring retroactive action with regard to Canadian Softwood Lumber entries. Blaine Port Information Trade Notice 2001-58 (see attached), outlines their CVD bond options. Although fully aware, as you all were, that special CVD bonding requirements were forthcoming, at any time, per Commerce’s August 17^th instructions to Customs, it was legitimately expected that such conditions would become effective as of the date we were legally notified, impacting shipments "Entered" after that date. Local U.S. Customs officials at a number of ports are now, however, "Rejecting" all CVD scope entries in their system as far back as August 30^th, requiring CVD Single Entry bonds. This is ten days prior to Customs Headquarters’ September 10^th instructions to the field "parroting" Commerce’s position that bonds would be required - without Customs actually providing such instructions to their field offices or to the Trade.

Notwithstanding Customs’ authority to ensure bond sufficiency, as provided them under Title 19CFR Section 113 and T.D. 85-145, we feel that the authority in this instance, because we elected and made appropriate application for "Entry" at time of release as opposed to "I.D.", is limited to shipments released AFTER Customs’ September 10^th notification, as published in the Customs Bulletin. Customs Headquarters, although initially attempting to lock in an earlier date (September 6^th, the date they printed their notice) AND abrogate our right to elect "Entry" as opposed to "I.D.", during my September 10^th phone conference, relented that we were correct – on both counts. But, as outlined in my September 13^th written rebuttal, they said that after further thought, although in agreement with our interpretation of the Act, they couldn’t understand why "Entry" as opposed to "I.D." would make a difference, in that Commerce’s retroactive status went all the way back to May 19^th – they didn’t bother to notify the field offices. The difference, of course, is that shipments released as "Entered" as opposed to released under "I.D." prior to September 10^th (the actual day their notice was published in the Customs Bulleting), would have been accepted without the additional costs and/or liabilities associated with the then still pending special CVD bonds. Many of my colleagues concur with my position and feel we must address this issue and the possible impact our being forced into compliance will make on our clients’ entries - from our Northern Border Customs Brokers Association. I will be in Washington, D.C. the first week in October, and as a Director on the board of that Association, will move to do just that. However, without further clarification and intervention from Customs

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Headquarters, your brokers at these various ports, regardless of their intense efforts to prevent just this situation, with all of our phone, fax, e-mail communication and personal meetings with Customs in Washington, D.C., are faced with the task and related issues of re-working all CVD impacted entries – to include what we contend is Customs’ unlawful requirement of "retroactive" bond production. The dilemma we are faced with, because of our inability to get our concerns to and understood by the appropriate people in Washington, D.C., at this time, is; if we don’t re-work and re-file Customs’ rejects timely (with many technically re-due Monday) we can be fined heavily. If we do re-file according to Customs demands, it is my opinion, we are obligating our clients to increased costs and liabilities to which we feel, because Customs did not act RESPONSIBLY and with the AUTHORITY regulations provided them for doing so at the juncture in which their actions should have been undertaken - they should not be subjected.

Customs’ position with regard to retroactive bond production is similar to Commerce’s position of attempting CVD/ADD action against articles NOT named in their initial "Notice of Investigation", disallowing the impacted parties their rights to exercise discretionary options available to them when the respective sales were being confirmed and shipped.

It is Jones & Jones’ intention to hold off filing any such rejected entries requiring "retroactive" bond status until at such time Monday or whenever - that we have been able to speak with Customs Headquarters, confirming their understanding of OUR position that their orders are not supported by regulations. We agree that from Commerce’s "Critical Circumstances" Preliminary Determination, Customs has the right to apply their CVD assessments retroactive to May 19^th (ninety days back from the date of Commerce’s August 17^th finding. It is, however, our contention that any such assessments are restricted to the bond conditions in place at time of "entry". Customs regulations do not allow the Trade (customs brokers, surety underwriters or importers of record) to effect bonds, Single Entry or otherwise, retroactive to the date a shipment was "Entered". Customs is, in affect, from our perspective, directing us to violate Customs Regulations.

With regard to the immediate issue of "bond options" for shipments "entered" as of September 10^th (the first date on which Customs can now legally require CVD bonds of any nature), we feel that Option #3 - involving a Continuous bond and single entry bond (most closely resembling the bond methodology widely anticipated), would provide the required 19.3% CVD coverage of the instant shipment, limiting your CVD liability and CVD bond costs to that specific entry, while the Continuous 301 bond would cover normal entry liabilities related to the entry, such as but not limited to classification, marking, valuation and "Other Government Agency" (OGA) compliance mandates. In that it is Customs’ opinion that most softwood lumber "Importer of Record" Continuous 301 bonds on file are saturated (potential liabilities have already exceeded the face amount), we feel establishing a new Continuous 301 bond in the minimum amount - based upon 10% of duties, taxes and fees (which in most of your cases was zero) for the previous 12 months or $50,000.00, whichever is greater, would be in order AND satisfy Customs. The costs and liabilities associated with the first two options appear, in our opinion, prohibitive.

Option #1, although upon initial review appearing to be the most preferable - in that the bond’s amount would reflect NOT just your anticipated volume over the term of the next

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3 – 4 months, but 19.31% of the TOTAL ENTERED VALUE OF ALL YOUR SHIPMENTS FOR THE PREVIOUS 12 MONTHS, is not really an option at all.

In affect, you would have a Continuous bond for three to four times as much as would be required until the CVD "Final Determination", at which time - cash deposits will be required. This bond amount, in our opinion, could also possibly be "tapped" for any ADD entries with which you might become liable upon its October 20^th Preliminary Determination and similar retroactive status. We would revise a review of your options at such time that the ADD Preliminary Determination is made.

Option #2 is ludicrous, as this bond’s cost would be assessed against the total entered value of the shipment, plus 19.31%. Option #3 could potentially allow a minimum $50,000.00 Continuous 301 bond (costing approximately $400.00 for the full year), with single entry bonds, per shipment, based upon 19.31% of the value only. To illustrate, we offer the following example: Option #3 allows a bond premium of $2.50 per thousand-dollar CVD liability or $2,896.50 (19.31%) of a $15,000.00 Entered Value. The bond’s cost for this shipment (with a $5.00 minimum) is $7.24, whereas in Option #2, you have to add $2896.50 (19.31%) to the same $15,000.00 Entered Value or $17,896.50. This amount, at $2.50 per thousand-dollars, would cost you $44.74, plus our bond-writing costs. After just eleven shipments you would be better off, cost-wise, by effecting the new $50,000.00 Continuous 301 bond (again, costing approximately $400.00) and paying the $7.24, plus our bond writing costs. Because, as you can easily ascertain from our frustrations in dealing with Customs, we do not, as of yet, know for certain what our precise involvement is ultimately going to entail. Therefore, other than our estimate of an additional $10.00 per shipment for Single Entry bond writing, we cannot, at this time, guarantee that our entry fees will remain the same.

Contrary to what has been reported by others, your formula for deducting from a "Delivered Price", would be to first ITEMIZE on each pro-forma presented to your broker a deduction of your freight, your brokerage and bond charges, less buying commissions and THEN your freely offered discount. I don’t know too many of you who are going to allow a discount from the freight amount YOU paid. Also, the 19.31% CVD CANNOT be deducted during the bonding period (unless one has opted for the cash deposit method), as the amount is not actually being paid, simply deferred by bond. If our case is lost and the assessments ultimately have to be paid, Customs will properly deduct the 19.31% at that time, prior to remitting their invoices. The 19.31% (or whatever figure is cited in the "Final Determination") assessment during the "Final Determination" CVD stage, when bonds will not be allowed to defer payment, will, of course, be allowed to be deducted. When "cash deposit" postings are being calculated, so as not to pay duty on the duty, one must take the sub-total (after freight, brokerage, bond, allowable commissions and freely offered discounts) – and divide by 1.1931. This will provide you with the CVD Dutiable Value. Multiplying 19.31% against this value, rounding to the nearest dollar, will provide you with the actual duty owed. If you did not divide the sub-total, i.e., $12,000.00 by 1.9131 for a sum of $10,057.83 (rounding to $10,058) x 19.31% = $1942.20 and were to simply multiply $12,000.00 by 19.31% equaling $2317.20 - the difference would an over-payment to Customs of $375.00.

In view of yesterday’s fantastic news - apprizing you of Jones & Jones’ success in overturning Commerce’s position with regard to articles outside their initial investigations’ published scope – Customs’ continued lack of clear instructions and position relative to bond retroactivity - just serves to wake us up to another "reality

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check" as to how things are expected to continue. Commerce and Customs didn’t seem too concerned when many of YOU were faced with an untenable situation of conducting YOUR businesses under the conditions Commerce mistakenly created. But look how CUSTOMS reacts when they finally wake up to the fact that although THEY had the AUTHORITY, ABILITY and RESPONSIBILITY to act back at the first hint of Commerce’s position with regard to retroactivity. Now that the results of THEIR lack of action, which could have been as simple as explaining their limitations in this matter to Commerce, have left THEM in an untenable situation as to being able to conduct THEIR business, Customs is now trying to make their mistake your and our problem – by putting us into a further untenable situation - neither of which were our doing. This is why "Critical Circumstances" findings allowing retroactive status is hardly ever invoked. The results are untenable for ALL involved!

We realize that this is a lot to digest, but we hope everyone will read and heed what we have very carefully tried to articulate. We are trying to do everything within our power to protect your best interests, while also ensuring that your entries are in compliance with all U.S. import laws. This means making sure that you are provided all the information and knowledge (however little knowledge that may be) we have at our disposal so that you can make as informed decisions as possible with regard to your businesses. I am NOT a lawyer, merely a Customs Broker. Much of my advice is from my twenty-nine years of experience in working with U.S. Customs, your businesses and their relationship with regard to the U.S. Customs Regulations, Tariff Schedules, Treasury Decisions and Customs Court Cases. If I have erred in some manner, or given some of you false hope, I apologize. My optimism, although sometimes misplaced, is based upon my faith in my fellow man (probably not politically correct) - thinking that right and fairness does take precedent over wrongful allegations and injustice. Even if some of my perceptions are found not to be supported by written law, or at least the way in which those in power would interpret that law, we can only hope that justice and our cause, which I truly believe is right and just, or I would not have taken on this fight - will eventually prevail.

Take care!

Respectfully,

Michael D. Jones, President