North American manufacturers have their fingers crossed that the federal government's new security regulations won't unduly restrict the free flow of cross-border trade between the United States, Canada, and Mexico—one of the original goals of the North American Free Trade Agreement (NAFTA). With at least 60 percent of the $600 billion in annual NAFTA trade consisting of Just-in-Time (JIT) shipments, maintaining the fluid movement of goods between the three countries is critically important to shippers.

Yet a series of existing and proposed rules designed to ensure supply chain security threatens to create lengthy delays and jeopardize the finely tuned shipping practices that have grown up along our northern and southern borders since NAFTA was implemented in 1994.

Of particular concern are "advance manifest" rules proposed by the Bureau of Customs and Border Protection (formerly the U.S. Customs Service) that would require carriers to provide the agency with shipment details from 4 to 24 hours prior to loading any outbound or inbound shipment on a truck, train, ship, or aircraft.

Those proposals generated thunderous opposition at public hearings in Washington in January, leading Customs to reconsider its original proposals. But some observers wonder if the open borders promised by NAFTA will soon be a thing of the past. "If Customs were to move forward in implementing this regulation, it would probably single-handedly destroy the JIT system that is so common and so important to the economies of all three countries within North America," says Martin Rojas, director of cross-border operations for the American Trucking Associations.

At those hearings, shippers also voiced concerns about the rules' potential impact on the North American JIT operations they have developed in the past decade. Gil Duhn, customs compliance manager for General Motors, said it would be impossible for his company to provide shipment details even a few hours prior to loading a vehicle. "I have (auto) bodies dropped into the line to be produced into automobiles. And at that point, I order the parts," he explained. "They are manufactured, sequenced, loaded on trailers, cross the Ambassador Bridge, delivered to the plant, and installed in the vehicle in a time frame of less than four hours."

Duhn also noted that JIT operations do not allow for handling and storing the buffer stocks that Customs' proposals would force on shippers and manufacturers. "We have no place to warehouse parts anymore," he said. "Our suppliers don't have a place to warehouse parts....They cannot stage this stuff prior to lading. The floor space does not exist, and I'm not going to pay for it to exist."

Carriers and logistics service providers agreed that it would be difficult, if not impossible, for them to comply with the advance notification rules as originally proposed. The cost to industry, moreover, could be prohibitive. "It may be possible to provide this information one to two hours before a truck arrives at the border, but not before loading," says Raúl Gómez, director of southern border operations for UPS Supply Chain Services. "Even this short delay would require plants to make major changes to their planning and logistics," he says. "We are talking about some cost impact."

Many shippers, carriers, and service providers are especially frustrated by the advance-notification proposals because they have invested millions of dollars in government-sponsored trade security programs that they say overlap with the proposed rules. Moreover, they believe that these programs already provide the level of security the new rules seek to ensure. The programs include the Customs-Trade Partnership Against Terrorism (C-TPAT), which provides a framework for U.S. importers to secure their international supply chains; Free and Secure Trade (FAST), which expedites shipments handled by approved carriers and drivers at the U.S-Canada border; Border Release Advanced Screening and Selectivity (BRASS), which expedites handling of high-volume, highly compliant imports from Canada and Mexico; and the Pre-Arrival Processing System (PAPS), which certifies U.S. motor carriers for expedited processing of imports from Canada.

All of these programs are overburdening industry, says Larry Fuaco, division manager for TNT Logistics in Mississauga, Ont., which handles about 1,000 cross-border JIT trailers a day. "There are multitudes of overlapping programs," he says. "We would like just one along the lines of FAST." He notes that FAST is now an element of C-TPAT compliance, which he says is acceptable provided there is a single administrative process for everyone. "FAST is working well for the industry and has gained the support of Canadian and U.S. agencies," Fuaco says. "Any significant changes from Customs would just disrupt what is already a secure, smooth-running JIT supply chain."

But FAST and other expedited-release programs will be ineffective if security concerns cause border infrastructure to become congested, says Dennis Wright, a senior vice president with Sandler & Travis Trade Advisory Services in Detroit. "There are no plans for dealing with trucks that are not in compliance," he says. "The bridges and tunnels at the (U.S.-Canada) border are narrow. If they get backed up, there is nowhere for the high-volume FAST and line-release vehicles to go. You want to keep the trailers moving.... A trailer at rest is a trailer at risk."

For the thousands of shippers and carriers involved in North American trade, the cost of compliance with Customs' final rules will determine whether their businesses thrive or die. The situation on the U.S.-Mexico border, where JIT shipments to and from maquiladoras account for more than 60 percent of cross-border traffic, is particularly difficult. Manufacturers benefit from tax and duty breaks by importing components into Mexico, assembling them at these government-approved plants, and then exporting them to the United States, Canada, or elsewhere.

Maquiladoras have been hit with unfavorable changes in Mexican tax laws, higher labor and production costs, and chronic border-crossing delays from unresolved infrastructure problems. Any new security regulations that would further disrupt JIT operations could be enough to tip the balance and sink the maquiladoras altogether. As Sony spokesman Dan Sherman explained at one of the advance manifest hearings, "I can tell you that it's not going to take long for companies to start doing the math and to see that [maquiladoras are] going to be less effective and less competitive with facilities that are located in other parts of the world."

Trade security rules could also affect the NAFTA provision that allows motor carriers from all three countries to carry cross-border shipments throughout North America, says Dr. James Giermanski, director of the International Trade Program at Belmont Abbey College in Belmont, N.C. At the moment, cross-border trucking is on hold due to a court injunction regarding the U.S. Department of Transportation's failure to conduct an environmental impact study on Mexican carriers' operations in the United States. When that is resolved and Mexican carriers are allowed to do business here, he says, security requirements could create yet another barrier to entry.

That's because many U.S. exporters and importers only want to do business with carriers that are certified under C-TPAT, FAST, and other security programs. Most small and medium-sized Mexican motor carriers, though, don't have the financial resources and information systems needed to meet all of those requirements, he says. "Only the biggest Mexican trucking companies can afford to comply with all these programs and qualify for expedited border crossings."

In addition, until the borders open to Mexican and U.S. longhaul truckers, shippers must continue to rely on local drayage carriers to shuttle trailers across the Mexico-U.S. border at some crossings, such as Laredo, Texas. These local carriers, most of them mom-and-pop operations, don't have the wherewithal to comply with trade security rules, Giermanski continues. And because few have the ability to communicate electronically with other parties, shipments effectively "drop out of sight" while in their possession. Until that situation changes, he says, imports from Mexico will present a security risk in the government's view, and shippers can expect further delays at the border.

Tom Wade, past president of the Laredo Transportation Association, worries that Customs authorities won't consider the needs of JIT manufacturers along the Mexican border as they work on finalizing new security rules. That's par for the course, in his opinion. "Customs has ignored us when we asked them to keep the borders open 24 hours a day," he says. "They have ignored us when we asked for fast lanes for known shippers to expedite their shipments. They haven't listened to our objections about the advance notice requirements. I just have a bad feeling about how this is going to come out."

At this point, no one knows the final shape of the advance manifest and other trade security rules—or how they ultimately will affect North American trade. Customs has certainly heard plenty of opinions from the trade community, though. The Commercial Operations Advisory Committee (COAC), a group of international trade stakeholders charged with representing industry's views to policymakers, has submitted recommendations it believes will minimize the rules' impact on business practices. Customs also has taken informal comments on its original proposals, and will accept written comments after it publishes its final rules in a Notice of Proposed Rulemaking, expected sometime in June.

Page Hall, an international trade lawyer with Dorsey & Whitney LLC in Washington, D.C., is optimistic that if international traders continue to press their case, Customs officials will heed their concerns. "We've seen that Customs is listening carefully to industry on this issue," he says. Until the final rules are published, though, shippers will have to wait and see just how well the agency listened.