CUSTOMS UPDATE: THE NEW 'HOMELAND' LOOK
Published in the Journal of Commerce
8/9/02
CLICK HERE for a printable version of this article

In the June 24-30, 2002 issue of JoC Week, Joel. R. Junker advocated the breaking up of the Customs Service into its separate law enforcement and trade facilitation functions. It seems some in Congress have the same idea.

The House of Representatives has passed its version of the Homeland Security Act of 2002, H.R. 5005. In it, all the functions of the Customs Service are transferred to the new Homeland Security Department. However, the job titles and functions listed as under the jurisdiction of the Commissioner of Customs exclude inspectors and agents. Apparently these employees will report to the Under Secretary for Border and Transportation Security.

While the bill is now being considered by the Senate, the version passed by the House leads to the obvious question of just how this new structure is going to work in a practical sense. If inspectors report to one part of the agency and the Import Specialists to another, what happens in case of a disagreement? How are operational issues to be resolved?

For traders, Customs is already notorious for providing almost no information in the case of a detention. Will inspectors now be allowed to hide behind the mantra of national security when declining to advise the importer or broker of what additional information is needed to obtain the release of detained goods? What will happen with the agents?

Recently chastised by the Court of International Trade for taking far too long to take action in a penalty case, what motive is there for agents to promptly deal with commercial cases when the appeal of cases involving terrorism, drug smuggling, money laundering, child pornography and the like is so much greater? Does the trade really want to rely on the kindness of the relationship between the Under Secretary and the Commissioner for relief?

Dramatic implications in new structure

There is little question H.R. 5005 was written to allow the House Ways and Means and Senate Finance Committees to retain jurisdiction over the trade issues currently part of their mandate. But this action leads to the question of just what dramatic complications lay ahead for traders. Perhaps the answer will come from the Special Assistant - Private Sector Liaison position being formulated?
 

This Special Assistant is charged with:

     (1) Creating and fostering strategic communications with the private sector to enhance the primary mission of the Department to protect the American homeland

     (2) Advising the Secretary on the impact of the Department's policies, regulations, processes, and actions on the private sector
 
     (3) Interfacing with other relevant Federal agencies with homeland security missions to assess the impact of these agencies' actions on the private sector

     (4) Creating and managing private sector advisory councils composed of representatives of industries and associations designated by the Secretary to:
         (A) Advise the Secretary on private sector products, applications, and solutions as they relate to homeland security challenges; and
         (B) Advise the Secretary on homeland security policies, regulations, processes, and actions that affect the participating industries and associations

     (5) Working with Federal laboratories, Federally-funded research and development centers, other Federally-funded  organizations, academia, and the private sector to develop innovative approaches to address homeland security challenges to produce and deploy the best available technologies for homeland security missions

     (6) Promoting existing public-private partnerships and developing new public-private partnerships to provide for collaboration and mutual support to address homeland security challenges

     (7) Assisting in the development and promotion of private sector best practices to secure critical infrastructure

Based on this list of responsibilities, it seems clear programs like the Customs and Trade Partnership Against Terrorism (C-TPAT) and Treasury's advisory committee regarding Customs Commercial Operations (COAC) will continue. However, nothing in this list of responsibilities requires the Special Assistant to do anything more than provide a vehicle for the trade to raise issues. How can the facilitation of legitimate trade and travelers be realistically accomplished if the very people involved in the inspection process are outside the jurisdiction of the Customs Commissioner? This turn of events may well lead to quite confusing and, therefore, expensive times for all of us, unless the Senate comes to its senses and places all of the agency's functions under one leadership.

The consensus in the trade community is general support for transferring Customs to the new department. However, that support has typically been provided based on the idea the agency would be able to properly function and balance trade facilitation with law enforcement. That assumption is now being sorely tested.

Questioning the current proposal is not unpatriotic, it is just common sense!
 

HOMELAND SECURITY CHALLENGES TRADERS
(Published in the Journal of Commerce on 7/10/02)
CLICK HERE for a printable version of this article

The trade rumor mill has finally stopped churning since President Bush announced his plan to reorganize the government by establishing a Department of Homeland Security.

Like other departments, Homeland Security would be headed by a Secretary but would also feature an Under Secretary with responsibility for Border and Transportation Security. This Under Secretary position would have specific responsibilities to:

 -Prevent the entry of terrorists and instruments or terrorism into the U.S.
 -Secure the borders, territorial waters, ports, terminals, waterways and air, land and sea transportation systems, including coordination of ports-of-entry government activities
 -Administer immigration and naturalization laws, including visas and the proposed exit controls currently under study by the Data Management Improvement Act Task Force
-Administer customs laws
 -Carry out the orderly and efficient flow of legitimate goods and commerce

For international traders, the agencies of interest to be transferred in whole or in part to the new department are the Customs Service, Immigration and Naturalization Service; Animal and Plant Health Inspection Service; the Coast Guard, the newly-formed Transportation Security Administration, and the Federal Protection Service (which includes the Secret Service). Also of note are those agencies which are not even mentioned such as the Food and Drug Administration and Drug Enforcement Administration. Equally interesting is the import-export licensing arms of such agencies as the Bureau of Alcohol, Tobacco and Firearms, and State and Commerce Departments, which remain in their current configuration. Additionally, some have questioned how immigration controls can work if the consular arms of State, which grant and issue visas, are not part of this new department.

Once formed, Homeland Security would employ about 170,000 individuals and involves the consolidation of more than 20 agencies. It would be formed into basic sectors:

 -Information analysis and infrastructure protection
-Chemical, biological, radiological and nuclear countermeasures
 -Border and transportation security
 -Emergency preparedness and response
 -Coordination with other parts of the government at the federal, state and local levels

To consider the President's request, the House has appointed a Select Committee on Homeland Security. One of the more frustrating facts for international traders that has so far befallen other security-related measures which have an impact on trade is that those measures have been written in such a way as to bypass the Congressional committees with the most knowledge about how legitimate international trade is conducted: the House Ways and Means and the Senate Finance Committees. One can only hope the knowledge and experience of members of these two committees will be brought to bear as the creation of Homeland Security takes place.

To drum up support from the trade, Homeland Security Director Tom Ridge and Customs Commissioner Robert C. Bonner in June held a meeting at the White House to which major trade associations and selected importers were invited. A total of about 50 entities were represented either in person or by telephone. The purpose of the meeting was to assure importers that the vitally important mission of Customs to facilitate trade was not going to be lost during the reorganization process and would be balanced equally with the law enforcement mandate of the agency. Director Ridge went so far as to point out that the economic vitality of the country could not be sacrificed to security or the terrorists would have succeeded in their efforts to undermine the United States.

[Ways and Means on July 10 approved legislation to preserve Customs' traditional trade and revenue roles. Ed.]

Changes coming?

While less publicized, Homeland Security at the White House and Customs have both continued their outreach to the trade as effective ways are sought to heighten security and make the reorganization work. While much of the effort of both groups has been positive, rumors persist as to unilateral action Customs is supposedly considering taking.

One example: the practice by carriers to accept a container from a shipper which has been loaded by that shipper. As the carrier has no independent way to determine the contents of the container without opening it and recounting the packages, the bill of lading or air waybill states the container information and uses the phrase "said to contain" followed by the number of packages declared by the shipper. This longstanding procedure was devised so that shippers could load their own containers but carriers would be protected in case of shortage. Customs has strongly suggested that it intends to do away with the phrase "said to contain" because it wants an exact count of the contents of a given container. If Customs unilaterally implements this remarkable change, carriers will not be far behind in informing shippers that they will no longer be allowed to stuff their own containers, or if they are allowed to do so, carriers will be forced to unload every container, count the contents and then reload the container in order to deal with the liability avoidance issue. Either way, the cost to the shipper will be enormous and the extended delays intolerable. The only other alternative is for shippers to indemnify carriers, but for that to happen there must be first be agreements signed and that, too, takes time.

Similarly, the debate about the possible requirement for the six-digit tariff number on the manifest continues. Originally, the issue arose because Customs claimed it needed the tariff numbers for in-bond shipments. When confronted with the logical inquiry of why just in-bonds, Customs responded by saying that it wanted it for all shipments! Whether or not you agree that requiring tariff numbers on manifests is a good idea and ignoring the confidentiality dilemma for the moment, it should be noted that the current manifest computer program has no provisions for tariff coding. How does Customs propose to receive the information and from whom? Despite being asked these questions repeatedly, Customs has no answers. The agency would do itself a service by thinking through its ideas operationally as well as practically before coming up with such proposals.

Bonner's new mission

While it certainly made sense in the early days after Sept. 11 for Commissioner Bonner to remain in Washington, he would help the agency now by traveling to various ports throughout the country and observing how legitimate international trade actually moves. To be successful, such trips must include not only tours of ports and customs houses and meetings with Customs personnel but must also include give-and-take with the trade. When can we expect to see you in the trenches, Commissioner Bonner?


Treasury's Commercial Operations Advisory Committee Subcommittee on Border Security report.
1/02
Click here to download the report

CARGO SECURITY UPDATE
(Published in the Journal of Commerce on 2/27/02)
Click Here for a printable version of this article.

Every container is a possible bomb, every vessel, plane, railcar and truck a possible delivery device and every port a possible target! That's the threat which continues to circulate on Capital Hill. Homeland Security has been tasked by the White House to take the lead in addressing this national security issue. However, as with any effort as massive as this undertaking, those most affected companies in the international supply chain will have to wait for some time for anything concrete to be finalized. In the meantime, no one wants to sit idly by and wait. International traders want to shore up their supply chains now!

Moving to the forefront, the United States Customs Service quickly adopted the recommendations of the Commercial Operations Advisory Committee (COAC), a group of 20 private sector individuals who advise the Treasury Department about Customs issues. Appointees serve a two-year term.

In November 2001, Treasury Under Secretary of Enforcement James Grulle approached COAC asking for quick but solid advice about best practices for companies wanting to protect their cargo and how that process could be improved in light of the events of Sept. 11. To respond, COAC created a special subcommittee which then reached out further to the private sector. Anyone who wanted to participate was given a seat at the table. About 50 individuals representing all sectors of the trade community responded. Although the focus was on imports, exports were discussed in depth.

The end product of the COAC's efforts was produced in a remarkably short 40 business days and consisted of recommendations in a wide variety of disciplines. COAC's subcommittee divided itself into working groups: Production and Manufacturing; Transportation and Distribution, and Import/Data Exchange. As deliberations proceeded, it was also decided to add a Technology group which continues its work even today. While each group met independently, the recommendations were remarkably similar, quoting from the Executive Summary:

1. Cooperative Effort. The security initiatives must be a vehicle that is sensitive to the competitiveness of the United States. We are pleased that both Treasury and Customs, from the outset, have recognized a dialogue with the trade was critical to devising a system that would attack the security issue while preserving the needs of modern-day international trade imperatives. This dialogue should continue.

2. Flexible Guidelines. The security initiatives should be flexible to fit differing industries and their existing security systems. The government should not devise a new protocol for all companies to meet. There is no one system that can work for all. More significantly, many companies have in place effective (and expensive) security, anti-theft and anti-smuggling procedures capable of meeting the new security challenges. In many instances, companies may only need more education about the indicia of terrorist concerns, and a hot communication link to the government. The government should put forth guidelines, not rules, requirements or recommendations.

3. Strategic Approach. The security initiatives should adopt a strategic approach modeled after the anti-smuggling initiatives of Customs with importers (BASC), carriers (Carrier and Super Carrier Programs) and brokers (Frontline). The security effort should not be added to existing audit programs, such as Compliance Assessments, Focused Assessments or Importer Compliance Measurement. These audit programs best handle post-entry commercial compliance rather than preventing an immediate terrorist threat, and are considered longer term review and report programs rather than the immediate operational actions needed to combat terrorist threats.

4. Automated Systems. Any improved security measures should maximize the use of advanced, automated information systems. It is impossible to physically inspect every shipment entering the United States, as it is impossible to examine every piece of paper pertaining to these shipments. Customs' automated systems must meet the new security challenge and be capable of advanced, automated functionality. Accordingly, Treasury should seek immediate and additional funding of ACE [the Automated Commercial Environment, the long awaited new Customs entry system] to support these security measures.

5. Role of Technology. The government must take advantage of advances in technology to check cargo at ports of exportation as well as importation, and should recognize when companies and ports using acceptable technology have verified cargo. While enhanced automated information systems and communications with the trade are important, actual testing and checking of cargo, containers and vehicles are more definitive measures. Customs will never have the personnel or resources sufficient to inspect everything, and the things to be checked for are often only identifiable through technology. Therefore, security efforts should maximize the benefits of technology.

6. Outreach to All Companies. The security initiative should also be sensitive to cost considerations. Companies should be able to capitalize on existing systems rather than invest in new solutions which may overlap or duplicate their existing investments in security. Moreover, most of the 400,000plus importers bringing goods into the United States are small companies without the ability to make large investments in security systems. They should be able to work cooperatively with the government and private sector without incurring substantial costs they simply cannot afford.

7. Other Federal Agencies. The security initiative must involve all other federal agencies concerned with the movement of goods, conveyances and people. All federal government agencies are looking to meet the new security challenge, and many of those agencies are focused on international trade and transportation. [COAC has] formally met with Treasury and Customs personnel. However, in carrying forward this program, Customs and Treasury officials must coordinate and harmonize their efforts with all the other agencies to avoid creation of a new regime that deserves these security measures by damaging our competitiveness and disrupting and confusing the U.S. anti-terrorist efforts.

8. International Cooperation. Treasury and other federal agencies have recognized the benefits of international intelligence cooperation resulting from last September's events. The international alliances formed to oppose terrorism should now provide the basis for unprecedented international integration of information exchange, data transmission, on the ground inspection resources, and technology use. We encourage Treasury and Customs to work closely with foreign customs and law enforcement counterparts, since those agencies may already be formulating similar requirements for U.S. exporters or their foreign subsidiaries. Early harmonization of international requirements and their oversight should be intrinsic to the security initiative.

The COAC report goes on to identify best practices which already exist and also makes specific recommendations for each element in the supply chain as to ways in which security can be improved. Some of those efforts obviously will require further action by the U.S., such as coordination among the agencies, or with our trading partners to arrange examination of cargo at loading rather than destination. However, there are things companies can do right now which heighten the security of their goods. Some were listed in January's article. A few additional examples:

Is the area where goods are stored under controlled access or can anyone get in?
Can all staff access the warehouse or only selected employees?
Are visitors to the facility escorted?
Is inventory control accomplished electronically but the data input performed by a person different from the person physically tallying goods?

The COAC's importer and carrier-related recommendations were quite similar in format and content to what Customs has now added to its Web site. In response to the need for heightened cargo security, Customs has formed the Customs Trade Partnership Against Terrorism (CTPAT). These newly- posted materials include recommendations divided by the role of the party importer, broker, manufacturer, warehouse, and type of carrier, whether air, sea and land. In each case, the recommendations are divided into the same basic categories: procedural security, physical security, access controls, personnel security, education and training awareness, manifest procedures and conveyance security.

The thrust of these recommendations is to assist companies to find ways in which to make sure the cargo under their control is made as safe as possible from being compromised through tampering, or other nefarious efforts. Importers are being asked to "develop" and "implement" a "verifiable" and "documented program to enhance security procedures throughout [the] supply chain." Further, recognizing that importers often do not control all the elements in their supply chain, Customs is asking importers to communicate the CTPAT recommendations and procedures to suppliers and others in the supply chain. Where "practical," Customs also wants importers to condition their ongoing relationships with their supply chain partners on those partners agreeing to accept and implement the CTPAT guidelines.

General information about the CTPAT program was previously posted to Customs' Web site. Customs is first and foremost an enforcement agency. Its mandate is to make sure the import and export laws are enforced and the proper revenue is collected. Therefore, the agency is severely hampered in what it can offer the trade as benefits for joining CTPAT. Customs defines the benefits:

A reduced number of inspections (reduced border times).

An assigned account manager (if one is not already assigned).

For current Low-Risk Importers, an opportunity to expand "low risk" treatment to all divisions within the company.

Access to the CTPAT membership list.

Eligibility for account-based processes (bimonthly/ monthly payments, e. g.).

An emphasis on self-policing, not Customs verifications.

Frankly, little on this list will appeal to most importers. The real motivating factor for most companies to join is plain and simple companies want to get their goods where they are going as inexpensively and quickly as possible. Part of that goal means the goods arrive when they are expected without damage or loss. In other words, the program should appeal to every company's bottom line. The more secure the process, the less likelihood of damage or shortage. While Customs is to be applauded for being the first agency to take affirmative and positive action on a broad scale, U.S. companies will probably focus on their inherent patriotism and interest in helping protect American shores, at the same time they enjoy the tangible benefits to the bottom line which result from securing their supply chain.


WHAT CARGO SECURITY MEANS FOR TRADERS
(Published in the Journal of Commerce on 1/21/02 )
Click Here for a printable version of this article.

While current newspaper headlines describe the fallout from the apparent failure of one large energy company, in the long run, a greater impact on all international traders is the heightened security concerns which have understandably arisen out of the events of Sept. 11.

While Customs and Treasury have been at the forefront of efforts to identify voluntary guidelines for cargo security (including their conveyances, and people where appropriate), just about every other U.S. government agency is also looking at the issue. Unfortunately, most are operating independently.

Most also have not mastered the benefits of reaching out to the private sector before rather than after decisions are made. As a result, there is a real possibility these unconnected actions could undermine the overall success of the government's efforts.

Many companies already have security programs in place. Larger companies often have such programs (which are sometimes quite expensive) to prevent theft of cargo and intellectual property. Other companies are signatories to cargo security agreements sponsored by Customs. Clearly, already existing and successful programs should be built upon and improved rather than ordered replaced by government edict.

The Office of Homeland Security has tasked the Dept. of Transportation to come up with proposals regarding cargo security. Little public attention has been drawn to the efforts of the Container Working Group (staffed jointly by Customs and the Federal Maritime Commission). There are also groups dealing with technology, business practices and cross-border (land transport) issues. The efforts of the Coast Guard have received more public attention because that agency made the effort to reach out to the vessel and port sectors of the maritime industry to come to a common understanding.

In addition, the Maritime Administration, the Federal Motor Carrier Safety Administration, the Federal Highway Administration and Transportation's Intermodal Office, to name a few, are also looking at cargo security. One of the newest players at the table is the Food and Drug Administration. It has already released a document on its Web site, "Food Security Preventive Measures Guidance." While not regulatory requirements, the guidelines nonetheless contain suggestions for those providing food to the retail level with ways to protect food from tampering, as well as criminal or terrorist activity.

Big Questions for Small Companies

The real question is whether those voices speaking in hushed tones behind closed doors who advocate mandatory provisions will win out. Whether or not they do is critical to international traders. For larger companies, the question is whether those mandatory provisions will result in programs which look anything like the measures they already have in place? It could also mean contradictory regulations from different agencies. For smaller companies, the question is how much will they have to spend to comply?

There has already been some discussion about whether ocean transportation intermediaries (forwarders and consolidators) should be subject to background checks when their licenses are granted by the Federal Maritime Commission. Similar questions are being raised about air freight forwarders/consolidators who are currently generally unregulated. Also under discussion is whether ocean and air carriers should be required to transmit manifest information earlier in time. One proposal would require air carriers to transmit manifest details at time of departure from the last foreign airport. Should a similar requirement be placed on ocean carriers?

Understandably, for risk assessment purposes, the more that is known about a shipment prior to arrival, the easier it is for Customs to decide whether or not to examine it. Therefore, the ideal elements are the exact name and address of the shipper and consignee, a complete and accurate description of all the goods in the shipment, along with the number of packages, weight and value. For financing reasons, companies use letters of credit which often require that the bill of lading be consigned "Order of Shipper" or the air waybill be consigned to a bank. In either case, the resulting manifest would not indicate the name and address of the actual consignee. Similarly, so long as ocean carriers are required to charge in accord with their tariffs, they will employ a catchall freight description called "FAK," for Freight All Kinds. Again, because shipment specifics (product descriptions) are missing, Customs could view such shipments as presenting a higher risk. Since neither order transactions nor FAK shipments are likely to be eliminated in the near future, traders are left with the possibility of having their shipments examined by Customs simply because they use standard trading terms.

Similarly, if the carrier or transport company is not a signatory to a carrier initiative, Customs may elect to examine the shipment. The air and vessel operators are generally signatories to Super Carrier Initiatives which are, in their simplest terms, contracts entered into with U.S. Customs which obligate the carrier to undertake basic security measures to avoid the presence of drugs in their conveyances. The concern here is with consolidators because they do not have such agreements and most probably could not enter into them anyway for practical reasons. Attention to security is focused on the use of commercial shipments for ill-intentioned purposes. While there has yet to be a commercial shipment hijacked, recently we have obviously seen several successful airplane hijackings. As such, the concern must be addressed.

Since often consolidators do not own the foreign office with which they do business, how could consolidators protect themselves and their customers' goods? They often do not have the buying clout to force specific business practices on their overseas agents. Therefore, what is to stop such an overseas consolidator from illegal actions or from being duped into shipping compromised goods? There is likely very little which can be done unless and until there are international agreements reached addressing cargo security issues. Until that happens, there remains the immediate need to protect U.S. shores. However, in the long run, inspection of cargo must be moved to the port of exportation for the simple reason that if the primary place of inspection continues to be the port of unloading, the compromised goods have already reached American soil. Obviously, few other countries want compromised goods on their soil either. Therefore, it is in everyone's interest to have inspections occur at time of loading.

International Agreement Needed

Against this backdrop then, we need international agreement as to standards for the technology to be used to inspect cargo plus standards for inspections by human beings. We also need international agreement as to the characteristics, training and qualifications of the people who will operate the technology and conduct the inspections regardless of where they take place.

No one is suggesting the Customs service of a given country will no longer conduct inspections in country, those continue to be needed for commercial compliance reasons. However, given what transpired on Sept. 11, it seems clear that how we trade goods throughout the world is in for some major changes. It is, therefore, vital for all traders to follow this issue. How you buy and sell your goods may be seriously impacted.

International traders should be looking at ways right now in which to make sure their goods are as secure as possible whether they are small or large companies. Here is a short list of suggestions:

1) If and when you visit a supplier, check the condition of the factory. Do not simply be satisfied that the price is acceptable. Does the factory appear able to produce the goods you are ordering? Is it properly staffed with personnel of appropriate age? Do the employees appear to be healthy and properly nourished?

2) Do the commercial documents you receive accurately and completely match the order you placed? Does this happen on a regular basis?

3) Are the goods you receive properly made and packaged? Do they comply with applicable marking, safety and other requirements?

4) Is your transportation company automated? How does it seal cargo? What is its claims record? How does your trucker keep track of your shipment and its trucks?

In the end, the key is to know your seller (or buyer for export goods). Anyone have any other simple and inexpensive suggestions?


Border Security and Congress
(Published in the Journal of Commerce, 12/26/01)
Click Here for a printable version of this article.

Right now the watchwords on Capitol Hill are "border security." Every container is a possible weapon, the mantra goes, every ship a possible delivery vehicle and every port a possible target!

Customs is physically able to inspect some 2% of all the containers arriving in the United States. Therefore, Members of Congress and Senators have become understandably focused on the question of border security, by land, sea and air.

The legislative proposals have ranged to the untenable. Some Members introduced a bill (H.R. 2960) requiring 100% examination of all cargo! That approach is obviously not the answer both from the point of view of what it would do to cargo release and, equally importantly, for the unconscionable expense it would create for the American taxpayer, for staffing and equipment and, in the end, consumer goods.

Senator Hollings' port security bill (S.1214) is considered much more likely to pass now than before the events of Sept. 11. The objections of the labor unions to background checks has given way to the reality that everyone who has anything to do with cargo in any fashion should be someone who is trustworthy, and trustworthy in this context means someone whose background has been thoroughly checked and approved.

The Hollings bill is focused on the nation's 50 largest ports. The first question obviously becomes, should all ports be included? The bill allows each port to design its own program, which raises the next question of whether a better approach might not be to first identify best practices and then encourage implementation of those best practices.

As mentioned, one of the provisions in the bill requires background checks for individuals who have access to "secure areas within a port or maritime facility." This phrase, too, raises questions. What part of a maritime terminal is not a secure area? What part of a port should not be considered a secure area? The other obvious question to anyone who favors civil liberties is how long is long enough? One principal of the American way of life is that each person should be given a chance at rehabilitation. If someone is convicted of a felony, serves his time and turns his life around, how long must he be out of jail to pass his background check?

Because the Hollings bill leaves the question of the specifics of the program to each seaport, it further begs the question of how to reconcile conflicting requirements if not all seaports enact compatible programs?

What does a terminal company with operations in several ports do if each port has different requirements? Should the federal government set the standards or should it set only minimum standards with each location able to enact requirements to suit its unique needs?

What none of the current proposals do is deal with the real weak link in the process - the information provided by the foreign seller. Hoping to address this aspect in the supply chain, the U.S. Customs Service is evaluating security criteria it will likely encourage the private sector to implement. Unfortunately, those efforts seem currently focused solely on large companies rather than recommending security measures which can realistically be implemented by companies of all sizes.

There seems to be little dispute, wither within the government or between the government and the private sector, that the best way to address security concerns and still allow expedited release of legitimate freight and people is through the pre-filing of manifest information. Pre-filing is accomplished by the carrier filing its manifest information with U.S. Customs electronically, but not all modes of transportation are linked to the Customs computer; plus the existing program needs refinement so it is able to handle all levels of consolidation manifest information.

Even so, pre-filing still does not insure the reliability of the information because the carrier is simply reiterating what it received from the foreign shipper. Unless there is some means to evaluate the reliability of the foreign shipper's information, the loophole is not closed, and the only way to do so is in concert with our trading partners.

Customs is understandably concerned about "Order of Shipper" bills of lading because the name of the actual consignee is generally not stated on the bill of lading, an important element for pre-screening.

Similarly, goods which move on an FAK (freight all kinds) freight rate lack a specific product description, another important factor in making a decision as to whether to release cargo. While both accepted and long-standing methods of shipping goods, they may have to give way to security concerns. The need for the order bill of lading is obvious to anyone who has ever sold goods relying on a letter of credit.

Similarly, the FAK freight rate exists because the U.S. still requires the use of steamship tariffs. FAK applies when no other published tariff provision adequately describes the goods being shipped. If shippers need to use these options for legitimate commercial reasons, why not provide a means for carriers to provide the consignee name or a "better" product description right on the manifest?

One reason many companies give for not wanting to state the actual consignee's name is they don't want it published when manifest information is publicly released. As to FAK rates (and product descriptions generally), a major consideration for companies to avoid detailed product descriptions is cargo theft. An equally important consideration is industrial espionage. Therefore, solutions to these problems may lie in the government changing the way it does business, e.g., one possibility is making the sharing of information by an importer with Customs easier, perhaps by allowing customs brokers the ability to input clarifying information into certain data elements in the Automated Manifest System.

The same concerns exist for exports. One fact we obviously have learned is that terrorists can exist unnoticed on any country's soil for lengthy periods of time. The type of uproar they seek to cause can be committed much more easily by exporting a shipment than importing it, if for no other reason than the time of transport is much shorter, thereby allowing less time for things to go wrong.

The one major component missing from the current debate is international efforts. If we are to be satisfied the cargo system is secure, we must work internationally with our trading partners to agree upon the required elements for security. The same concern for international cooperation exists in the immigration context. A bill (S.1618) is currently making its way through Congress which mandates that biometric information be stored on visas. However, which standard(s) is to be used, e.g., fingerprint, retinal scan, etc., is unclear. Whether dealing with Customs, immigration or a host of other concerns, the bottom line is that if we are to have a reliable system, we must reach consensus with our trading partners as to what is expected and then enforce those rules. If there ever was an example where unilateral action will only gum up the works, cargo security is it!

Should you have any questions, please feel free to call us or e-mail your inquiries to info@skralaw.com

Cargo Liability Rules To Change?
03/02

The current $500 per package limit of liability for ocean shipments has been the subject of much scorn as being commercially a too low rate of return in the case of damaged or lost cargo. Therefore, not surprisingly, the amount of liability compensation and related rules dealing with defenses have been under review for some time.

One revision to the limit of liability took form in the Hague/Visby rules and raised the amount to $1,000 per package. However, many countries, including the U.S., have not adopted these changes.

Senate Passes Seaport Security Bill
03/02

In response to the mantra that every container is a possible bomb, every carrier a possible delivery device and every port a possible target, the U.S. Senate on December 21st passed the Port and Maritime Security Act, S.1214. It requires the 50 largest ports to put in place security programs for cargo. Among its more controversial provisions is one which requires background checks for those in security sensitive areas, finally understood to be a necessity if cargo security is to be realized.

The bill calls for the creation of local security committees to better coordinate efforts between the federal and local governments. Users of the ports will pay the cost through tonnage tax payments, the current rate will now not decline in 2003 but rather will remain at the current level until 2006.

In order to become law, S.1214 must now be approved by the House and then signed by President Bush. The House is expected to take up the legislation in late January, 2002. If its version varies from that enacted by the Senate, a conference committee will have to iron out the differences and then both houses will likely have to vote again to approve the revised bill.

Better Container Seals Are Possible
03/02

As the focus understandably is now on cargo security and much of the government’s efforts are directed towards large companies, small and medium size shippers are being left out. One way those smaller entities can play “with the big boys” is by insisting on the use of better security seals. No longer should companies simply accept the flimsy seals still employed by some carriers. Those plastic or metal numbered seals must quickly become a thing of the past. Steamship lines have long used high security seals but those should rapidly be replaced by electronic seals which store data and can pinpoint when a seal is broken or tampered with. Bolt seals are also a good but old-fashioned way to secure cargo. They simply involve bolting a metal piece bent at a particular angle to close doors. They can be removed by a determined thief but tampering can be detected. Not every option in security in the supply chain involves large expenditures of money, although all involve some cash outlay at the start. Making seals more tamper resistant is a relatively inexpensive option.

Cargo Security Update
03/02

While the various constituencies within the Government are still trying to organize their thoughts about how to deal with cargo security in light of the events of September 11th, the private sector has already made some concrete recommendations. In mid-November, Treasury Under Secretary of Enforcement Jimmy Gurule approached COAC asking it to identify best practices in the cargo security area. COAC is the Commercial Operations Advisory Committee and consists of twenty (20) private sector individuals appointed for two (2) year terms who advise Treasury about Customs issues.

COAC decided to reach further into the private sector by forming a special working group to respond to Sec. Gurule's request. The working group (which numbered 50) held three (3) meetings in December and January. There were countless telephone calls and e-mail exchanges to facilitate the work of the group which divided itself into sub-committees to focus on Production and Manufacturing, Transportation and Distribution and Import and Data Exchange. As things were winding up, a fourth sub-committee was established to deal with Technology. The work of the Technology group continues.

In a brief 40 working days, the Subcommittee on Border Security issued its report which was adopted by COAC as a whole in late January and quickly accepted by Treasury. For a copy of the report in compressed format - click here

WHAT CARGO SECURITY MEANS FOR TRADERS
(Published in the Journal of Commerce on January 21, 2002 )
View Article

MORE ABOUT CARGO SECURITY CONCERNS:
02/02

The threat being discussed as the framework from which much of the Washington, D.C. discussion about cargo security starts is - every container is a possible bomb, every conveyance a possible delivery device and every port a possible target!

Against that backdrop, the Commercial Operations Advisory Committee, an appointed group of twenty (20) individuals from the private sector which advises the Dept. of Treasury about Customs issues, was requested to identify existing best practices by companies regarding cargo security. An organized effort at reaching out to the private sector was undertaken. The final group of advisers consisted of about fifty (50) individuals. The resulting report not only identifies currently existing best practices but also makes recommendations for changes which would heighten security even further.

Customs is about to take some of those recommendations and post them to its web site in the context of the recently created Customs-Trade Partnership Against Terrorism (C-TPAT). As the COAC report is considerably more extensive than what Customs is incorporating into C-TPAT, for anyone interest in receiving a copy, e-mail us your request. Also check out Su's February article [January's JOC article also dealt with this same topic] about cargo security which will shortly be posted to the Journal of Commerce website.

Port Security Bill Amended
02/02

The version of the port security bill passed by the U.S. Senate requires a security evaluation of all port authorities, waterfront facilities and public or commercial structures located within or adjacent to the marine environment. Port vulnerability assessments are also required. The bill also empowers the Sec. of Transportation to assess the effectiveness of foreign port security measures. Foreign ports which are non-compliant face publicity of their non-compliance with the likely result that cargo arriving from those ports will be subject to closer scrutiny. If the situation were bad enough, vessels calling those ports could be barred from arrival in the U.S.

Air Security Increased
01/02

Customs has issued an interim rule requiring each passenger air carrier to electronically transmit separate manifests for passengers and crews. The manifest is to contain full name, date of birth and citizenship, gender, passport number and country of issuance, U.S. visa number or resident alien card number. Additional data may be required in specific instances. The information must be transmitted prior to departure from the last foreign port for the crew manifest, and no later than 15 minutes after departure for the passenger manifest. Security Considerations For Companies of All Sizes ­­ Following the events of September 11th, everyone has become more security conscious. The various federal inspectional agencies have been examining the question of what sorts of security requirements will be imposed on shippers. Understandably, much of the focus has been on large companies. However, small companies can also exercise a few simple rules to make their facilities safer. Customs published these tips:

Review your facility's security systems and procedures. Are the physical security features and monitoring of security sufficient to prevent your facility from being a target? Do locks, fences or cameras need to be improved or added?

Know who is in your facility at all times. Access should be restricted to persons who have passed through a screening process. All visitors to your facility should have valid picture identification, a legitimate purpose for being there and should be escorted whenever possible.

Know your employees. New employees should be chosen and screened carefully.

Know your merchandise. Merchandise should be what you expect to receive. You should receive the same amount and type of merchandise that is on the shipping paperwork.

PORT SECURITY STATUS REPORTED BY COAST GUARD
11/01

The U.S. Coast Guard is providing information to the maritime industry regarding the status of port security around the U.S. via two Internet Web sites: (www.hklaw.com/maritimedev.asp and www.uscg.mil/safeports).