Import/export improvements: Don't let your guard down

Our international trade attorney gives global shippers an update on 10+2, C-TPAT, and ACE—and shares the consequences of not following a solid compliance program.

By Susan Kohn Ross, International Trade Counsel at Mitchell Silberberg & Knupp, LLP -- Logistics Management, 2/1/2008

10+2=heartburn
C-TPAT: Where's the benefit?
Automated Commercial Environment (ACE)=simplicity
In the end
Compliance is king - quick case studies
10+2: Impact to the U.S. Importer

At this time in history there are so many perplexing issues revolving around importing and exporting that it's nearly impossible to put context around them all in a single article. However, I've done my best to cover the most pressing concerns facing international shippers as we venture into 2008.

The bottom line: While security remains the watchword of the day, wholesale changes in how the import/export business is done are on the horizon. As we're well aware, it's getting tougher and tougher to compete in just about every industry; and if you fail to keep up with these new government programs you're going to get hit with serious delays in moving your goods to customers—be they internal or external.

So, now, more than ever, you need to keep up on the latest import/export developments just to maintain your competitive edge. After all, getting busted may take you out of the game entirely.

10+2=heartburn

Let's start with the one that is likely to give us all serious heartburn as the year unfolds. 10 + 2 is a further attempt by U.S. Customers and Border Protection (CBP) to figure out a better way to screen inbound shipments prior to arrival.

While everyone agrees that better screening is needed, the question all shippers should be asking is whether or not 10 + 2 is the answer. At press time, the Office of Management and Budget had announced its review and approval of the proposed regulations. On January 2, 2008, the Notice of Proposed Rulemaking was issued. Comments are due no later than March 18, 2008—so now would be the time to weigh in.

In its simplest form, here is the concept: After analyzing hundreds of data combinations, CBP states that these 12 pieces of information will realistically give it what it needs to better determine risk from a security perspective—two from the carrier and 10 from the importer, all of which must be reported 24 hours prior to loading. While originally written to apply to goods moving by ocean only, there is little doubt that 10+2 will spread to other modes of transportation in the future, so be prepared.

The carrier's obligation is an easy one: Carriers are to provide the container stow plan and all container messages, both of which the carriers maintain in the ordinary course of business. The container messages provide details about the positioning and movement of a given container; while the stow plan tells CBP where on a given ship a specific container is located.

The toughest part is the importer's obligation. The 10 data elements the importer (or the importer's agent) is expected to provide are listed below.

Manufacturer name and address
Seller name and address
Container stuffing location
Consolidator name and address
Buyer name and address
“Ship to” name and address
Importer of record number
Consignee number
Country of origin of the goods
Commodity Harmonized Tariff Schedule number (6 digit)

There are several major factors causing serious concern to the importing community; perhaps none more than the fact that this information must be provided 24 hours prior to loading. Much, if not all of this information is eventually known to the importer, but most often not until at or near—and sometimes only after—time of entry.

Another equally burdensome criterion is CBP's expectation that the security filing link the name of the manufacturer to the tariff number and origin of each item shipped. Many in the trade have recommended Customs employ an algorithm that compares each possible combination and report any security hits; the thinking being that it's more cost effective to deal with the occasional inspection than to incur the cost to do the reprogramming necessary to report the demanded linkages at time of security filing.

Also of grave concern to shippers is the requirement to report the IRS numbers for the importer and consignee. In this day of identity theft, most companies do not want an overseas business associate having that information since no obligation of confidentiality applies.

The customs brokerage/freight forwarding community is expected to work closely with its IT vendors to create software to allow reporting of data elements from various sources that can then populate the fields of the broker/forwarder's module; and, in turn, be validated, and finally reported to CBP in a timely manner.

Assuming that happens, we still don't know how quickly this reprogramming can be completed and tested. Because we are in the Notice of Proposed Rule Making stage, OMB has taken the position there cannot even be discussions about possible programming needs—so hold on, it's going to be a bumpy ride.

In the interim, prudent traders will start planning for this change. Just what will it take for your business partners and service providers to drastically change when and how they provide you with the relevant information? It's time to work on answering that question. True, 10 + 2 only applies to imports for now, but can other countries be far behind in making similar demands? Look what happened with C-TPAT.

Customs-Trade Partnership Against Terrorism: Where's the benefit?

The Customs-Trade Partnership Against Terrorism (C-TPAT) remains the most successful public-private partnership of all time, if measured by number of participants—at press time it had over 7,000. However, many shippers have complained how the cost of participating far outweighs the benefits. So, what exactly are the benefits?

The primary C-TPAT benefit happens when a certified company is granted a credit in the targeting score when the determination is made to inspect a shipment. Admittedly, large companies report lowered pilferage and damage problems as the result of fewer inspections—but it's up to you to make up your own mind.

Customs has also mentioned head-of-the-line preference in case of inspection. That is one benefit most ports can deliver; although, at best it usually amounts to a shipper being given preference rather than literal head-of-the-line status for an inspection. This is, of course, due to the volume of cargo moving through our ports.

What else does it do for you? Well, there has been discussion about moving C-TPAT-member cargo first as it comes off the conveyance, but port infrastructure limitations have stymied that move to this point. True, being able to move the rest of the shipment off the dock while one container is inspected has some value, but is that enough?

CBP continues to write mandatory security criteria for various categories of members, including ocean, rail, highway and air carriers, importers, foreign manufacturers, terminal operators, customs brokers, forwarders (air and ocean), NVOCCs, and port authorities. Minimum criteria for 3PLs and warehouses are expected soon.

At the same time, however, the rest of the world has adopted the concept of Authorized Economic Operators (AEO) which springs from the efforts of the U.S. through the World Customs Organization to make C-TPAT an international program. Where C-TPAT is focused on supply chain security measures, AEO criteria seem more focused on the financial health of the party being certified.

At this point, only New Zealand's AEO program has been granted reciprocity by the U.S. How much longer will it be before American exporters are at a disadvantage globally as the U.S. has no exporter certification program?

Automated Commercial Environment (ACE)=simplicity

Customs and Border Protection (CBP) is currently putting more modules into operation for the Automated Commercial Environment (ACE), the commercial trade processing system being developed by CBP to facilitate legitimate trade and strengthen border security.

The latest ACE development is the Cargo Systems Messaging Service (CSMS) that Customs will use as both a database and an e-mail list serve. CSMS is expected to become the exclusive means by which CBP provides information in the near future. The computer system on which CBP currently relies is called ACS, the Automated Cargo System—and it's so old that the language it's written in is almost extinct.

Overall, there are many benefits to the ACE initiatives, including the ability for CBP and the trade to communicate electronically through one platform, enabling importers to take advantage of periodic duty payment and electronic protest filing.

Right now, the trade is focused on the fact that the agency eliminated many of the edits which caused entries to be carefully screened electronically by CBP before being accepted as filed. This was done in order to cut cost and speed up implementation. How will that impact compliance? Is that a prudent action on CBP's part? We can only wait and see.

In the end

So, in the end, whether you work at a large or small company, there are some hallmarks by which every global shipper can be guided:

Keep the right company. Surround yourself with knowledgeable professionals who are properly trained and with whom you are working closely, but are all pulling in the same direction.
Stay up to speed. With the advent of the Internet, it is relatively easy to have some idea of what is going on in the world around you, whether from a political or regulatory perspective, so keep up-to-date and study the issues of the most importance to you and your company's supply chain operations.
Decide to be choosy. Work with service providers that are capable and professional.
Follow leaders. Selectively participate in trade associations and benchmark what others in your industry and the supply chain community at large are doing.
Do your homework.Do your research and find out what you need to know.

Compliance is king - quick case studies

Any discussion of import/export issues is certainly not complete without emphasizing the importance of a solid compliance program. There were a few cases in the news in 2007 that make that point abundantly clear.

Take for example ITT Corp. and its night vision goggle fiasco. It will potentially cost ITT $100 million dollars because the business side chose to ignore the recommendations of the compliance folks, instead choosing to share technology with unauthorized parties. There is no question ITT was not debarred (denied the right to export) simply because the technology was so critical. However, it still takes its lumps by virtue of paying $20 million to the Dept. of State in the largest single fine ever paid to the agency.

Also in 2007, Chiquita Brands agreed to pay a $25 million fine to settle a long-standing Dept. of Justice investigation into whether it knowingly paid protection money to Colombian paramilitary and rebel groups designated as terrorists by the U.S. The company said it paid the money in order to protect its people and facilities in volatile parts of the country. That defense makes sense and was valid when the payments started in 1997.

It was not until 2001 one recipient (AUC) was declared a foreign terrorist organization and a specially designated national. Management did not learn this fact until 2003, and following a Board meeting, it disclosed the payments to Justice. Executives came away from that meeting feeling Chiquita would not be pursued for prior payments, but its Colombian entity continued making payments.

These later payments were disclosed to the Board, more payments were made, and finally in June 2004, the Colombian company was sold to a third-party. In an ironic twist, Colombian authorities are now said to be seeking criminal charges against senior executives for the approximately $1.7 million which was paid.

Clearly one can sympathize with Chiquita wanting to protect its people and facilities, but was this the right way to do it? What did its compliance program require? Did its compliance program even cover this topic?

Let us know what you think by commenting below or sending an e-mail to SupplyChainGroup@reedbusiness.com

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10+2: Impact to the U.S. Importer