CUSTOMS-NOTES. December 13, Important Trade Security Measures

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1 CUSTOMS-NOTES The materials contained in this document have been prepared by the George R. Tuttle Law Offices for informational purposes only. The information contained is general in nature, and may not apply to particular factual or legal circumstances. The materials do not constitute legal advice or opinions, and should not be relied upon as such. December 13, 2001 Important Trade Security Measures Customs new Commissioner, Robert C. Bonner, has made it clear that enhanced security is currently Customs primary focus. To this end, Customs and Congress are implementing several programs designed to heighten the security measures in international trade. These include: The Customs-Trade Partnership Against Terrorism (TPAT), Customs Operation Shield America, and The Port Security Act of 2002 (pending in Congress). Trade Partnership Against Terrorism On November 27, 2001, Customs Commissioner Robert C. Bonner announced a Customs Trade Partnership Against Terrorism (TPAT) calling for development and implementation of a new industry security standard for countering terrorism. Mr. Bonner cautioned, [w]e must reaffirm the importance of knowing your customer, and consider the overall "air-tightness" of your supply chain, from factory floor, to loading dock, to transportation to our border. Every single link in that chain must be made more secure against the terrorist threat. The key provisions of the initiative are expected to include: Increased security measures at the plant or loading dock; Security during transport; Better, more accurate, and more timely advance manifest information on all forms of entry and shipments; Use of electronic seals for container shipments to identify shipments opened or tampered with.

2 Industry sources indicate that such key provisions could additionally result in the recommendation of the following specific safeguards: A written and well-implemented supply-chain security program; An employee policy manual; Restricted access to shipping/receiving areas at factory, distribution and destination areas, and employee identification procedures; Training of personnel to identify suspect shipments, and company incentives for reporting such activity; Procedures for reporting the discovery of contraband, diversions, suspicious shipments; Sealing, locking, and securing all loaded trailer/containers and use of electronic and advance algorithmic seals; Systematic tracking of shipments using GPS transponders; Requiring authorized signatures for paperwork preparation, affixing of seals, breaking of seals, physical piece counts, trailer inspections, and driver checklists; Limited access to, control over, and inspection of all empty and stuffed conveyances, containers, chassis, etc.; Cargo-Security agreements with other business partners requiring similar security measures. At this stage, the TPAT is envisioned as a voluntary program. The program would entail the assignment of Customs Account Managers to active members. Such active members which meet security standards would benefit from a "fast lane" through border crossings, and through seaports and other ports of entry as low-risk companies. Benefits of Participation The program is expected to include: Dedicated commercial lanes for approved and active participants; Deployment of Non-Intrusive Inspection (NII) technology at selected ports for faster screening and expedited clearance; Priority levels of service for program members; U.S. Customs expertise in securing cargo and conveyances against the threat of terrorism through a designated Customs point of contact. Customs is presently developing appropriate audit tools to measure security compliance, and these are expected to be integrated into the Focused Assessment program. 2

3 Burdens on Non-Participants A failure to meet the security standards or to participate in the program will result in Customs classifying the importer into an unknown category for anti-terrorism security. Such unknown importers will suffer from: Higher scrutiny of cargo and conveyance; Increased reviews and audits; Added examinations; Increased requests for more information. Program Development to Proceed Rapidly in COAC Air, Land, and Sea Subcommittees The overarching principles for supply chain models were established in a conference meeting on December 5 th at Customs Headquarters. An internal blueprint for the initiative was given to the Commissioner of Customs on December 10 th, COAC is now coordinating the creation of a comprehensive recommendation on behalf of the trade community and, therefore, has invited all members of the trade community to participate as technical advisors on Land, Air, or Sea teams. The teams will develop supply-chain models to be forwarded to COAC, and thereafter to Under Secretary Gurule of the Treasury Department. On December 12, teams began meeting at Customs headquarters, and by January 2 nd they will develop their best practice models. Team leaders will again meet with Customs on January 9 th and will submit proposals to COAC by January 18 th. The COAC compilation from the Air, Land and Sea teams will take the form of a recommendation to the Treasury Department on January 25 th. Steps Companies Can Undertake Immediately Companies may wish to assess security measures currently in place and to plan for general improvements to their supply-chain security protocols in order to be able to (1) achieve and (2) properly document a heightened supply-chain security. Companies who wish to participate directly, or indirectly, in the COAC drafting process are invited to contact us for further information. We will be keeping the trade abreast of further developments on our website as they are announced. 3

4 Operation Shield America On December 10, 2001, Customs launched Operation Shield America. The program will be headed by the Office of Strategic Investigations, and is designed to prevent international terrorist organizations from obtaining sensitive U.S. technology, weapons, and other equipment. Principally, the program consists of (1) outreach, and (2) investigation and prosecution. Customs Intelligence Division has compiled a list of key technologies and weapons likely to be of interest to terrorist groups, and is presently soliciting feedback from the Departments of State, Commerce, Defense, Energy, Treasury, and Justice in order to reach an accord on the items that should be the focus of Operation Shield America. Customs field offices will immediately be identifying the U.S. firms in their areas that manufacture or distribute materials on the list compiled by Customs. Customs agents will then be visiting these firms, and will provide materials about Operation Shield America, U.S. export controls, and data about the items sought by terrorists. Customs agents will also encourage these firms to notify Customs if they are approached by customers looking to acquire and export their products illegally. At the same time, Customs agents will increase efforts in investigating and prosecuting those who attempt to acquire and illegally export sensitive technology, weapons, and equipment to international terrorist organizations. Port Security Measures Act of 2001 The Port Security Measures Act of 2001 has been introduced and is currently pending in the House and Senate. The Act recognizes that 25 of the nations seaports account for 98 percent of all container traffic, and yet such seaports receive no Federal funds for security measures. Therefore, the bill also proposes to authorize such Federal funds for implementing security procedures at seaports. In addition, the Senate version of the bill would require amendment to existing ocean vessel entry procedures: (1) by promulgating regulations to require all ocean manifests to be transmitted in electronic form to the Custom Service in sufficient time for the information to be used effectively by Customs, notwithstanding the second sentence of section 411(b) of the Tariff Act of 1930 (19 U.S.C. 1411(b)); (2) by promulgating regulations to require all entries of goods, including in-bond entries, to provide the same information required for entries of goods released into the commerce of the United States to the Customs Service before the goods are released for shipment from the seaport of first arrival, notwithstanding sections 552, 553, and 1641 of such Act (19 U.S.C. 1552, 1553, and 1641); and 4

5 (3) by distributing the above information on a real-time basis to any Federal, State, or local government agency that has a regulatory or lawenforcement interest in the goods. We will be updating the trade on additional information as it becomes available. Should your company have questions or be interested in program participation, please feel free to contact us, and to view our website for additional information. George R. Tuttle Law Offices, Three Embarcadero Center, Suite 1160 San Francisco, CA 94111, Phone (415) , Fax (415) info@tuttlelaw.com Web Site: 5