INTERNATIONAL TRADE AND REGULATORY ADVISORY

INTERNATIONAL TRADE AND REGULATORY ADVISORY August 11, 2003 U.S. IMPORTERS AND EXPORTERS WILL BE REQUIRED TO FILE ADVANCE ELECTRONIC MANIFEST INFORMATION UNDER CUSTOMS PROPOSED RULE The Bureau of Customs and Border Protection (Customs) has published its proposed rule requiring the advance electronic presentation of cargo information for inbound and outbound cargo conveyed by vessel, air, rail or truck. 1 The proposed rule implements Section 343(a) of the Trade Act of 2002 (19 U.S.C. 2071 note), as amended by Section 108 of the Maritime Transportation Security Act of 2002. The statute directs Customs to aim to promulgate no later than October 1, 2003 final regulations designed to enable Customs to identify high-risk shipments so as to prevent smuggling and ensure cargo safety. As discussed below, however, the dates on which these final regulations will become effective vary depending on the mode of commercial transportation. Public comments are due August 22, 2003. This advisory describes the proposed rules, details the data elements required for each mode of commercial transportation and discusses the implications for both cargo carriers and U.S. importers. VESSEL CARRIERS REQUIRED TO ELECTRONICALLY PRESENT CARGO DATA TO CUSTOMS 24 HOURS PRIOR TO LADING The proposed rule would mandate that vessel carriers electronically transmit cargo declarations to Customs 24 hours before cargo is laden aboard the vessel. Thus, the proposed rule would slightly modify the final rule requiring the advance presentation of ocean manifest information published in October 2002. 2 The current approved system for presenting electronic cargo declaration information to Customs is the Vessel Automated Manifest System (AMS). Within 90 days of the publication of the final rule in the Federal Register, all ocean carriers, and non-vessel-operating common carriers (NVOCC) electing to participate, must be automated on the Vessel AMS system at all ports of entry in the United States where their cargo will initially arrive. At this time, 1 68 Fed. Reg. 43,574 (July 23, 2003). Proposed Rule: Required Advance Electronic Presentation Of Cargo Information; Customs and Border Protection, Homeland Security; see http://www.customs.ustreas.gov/xp/cgov/ import/communications_to_industry/advance_info/. 2 See 67 Fed. Reg. 66,318 (Oct. 31, 2002). For more information, see the Alston & Bird LLP International Trade and Regulatory Advisory U.S. Customs Adopts Final 24-Hour Rule For Presentation Of Ocean Manifest Information For Carriers at http://www.alston.com/articles/u.s.%20customs%20adopts.pdf (Nov. 7,2002). www.alston.com 1

Customs believes it is impracticable to allow importers, at their discretion, to provide advance electronic cargo information for vessel shipments. The cargo declaration electronically transmitted to Customs would have to include the complete name and address of the shipper and consignee, or an identification number for the shipper taken from the bill of lading. 3 At the master bill level, for consolidated shipments, the identity of the NVOCC, freight forwarder, container station or other carrier would be sufficient. However, for non-consolidated shipments and for each house bill in a consolidated shipment, the identity of the actual shipper (i.e. owner and exporter) or the actual consignee of the cargo would be required, except for Foreign Cargo Remaining on Board. To order parties must be identified as consignees. In addition to the identity of the shipper and consignee, the cargo declaration must include the date and time of departure as reflected in the vessel log. AIR CARRIERS REQUIRED TO ELECTRONICALLY PRESENT CARGO INFORMATION NO LATER THAN FOUR HOURS PRIOR TO ARRIVAL Inbound air carriers and, if applicable, other parties approved to submit advance electronic cargo information, 4 would be required to provide such information to Customs no later than the time of departure ( wheels up ) from any foreign port or place in North America, including locations in Mexico, Central America, South America (north of the Equator), the Caribbean and Bermuda or no later than four hours prior to arrival in the U.S. from all other foreign areas. Without this information, Customs could refuse to issue a permit to unlade and could, in extreme circumstances, deny permission to land at an airport. 5 Currently, air carriers transmit air cargo information via Air AMS. 6 Because electronic cargo information would be provided in advance of arrival, air carriers would no longer be required under 19 C.F.R. 122.48(a) to file an air cargo manifest However, the air cargo manifest for all cargo on board and a general declaration must 3 The identification number will be a unique number assigned by Customs upon implementation of the Automated Commercial Environment (ACE). 4 These include Automated Broker Interface (ABI) filers (i.e. importers and brokers), a Container Freight Station or deconsolidator, an Express Consignment Carrier Facility, or an air carrier that arranged to have the incoming air carrier transport the cargo to the United States. To be qualified to file cargo information electronically, a party must establish the communication protocol required by Customs for the presentation of advance electronic cargo information and possess an international carrier bond. If an eligible party elects not to participate, that party must fully disclose and present the information to the carrier. If the required information is in the possession of a third party ineligible to file advance electronic cargo information, that party must disclose the information either to the carrier or to an eligible electronic filer. 5 In the event the approved electronic data interchange system is inoperable, the incoming air carrier and, if applicable, any other electronic filer, will be required to submit a hard copy equivalent of all required electronic cargo information to Customs within the same timeframes. 6 Customs proposed rule also permits express consignment carriers to use proprietary electronic data systems provided that Customs personnel have access and that the systems are capable of providing data to Customs in a suitable electronic format. 2

be kept aboard the aircraft for production on demand. Air cargo arriving from and departing for a foreign country on the same through-flight and air cargo unladen from an arriving flight and entered in bond for exportation or transportation and exportation would be subject to the advance electronic filing requirements. Diplomatic or consular pouches, as well as letters and documents, 7 shipped under an air waybill would also be subject to the advance electronic filing requirements. Hand-carried and passenger merchandise are not subject to the advance electronic filing requirements under the proposed rule. For non-consolidated shipments, the incoming air carrier would be required to submit all of the information in the air waybill record. For consolidated shipments, the incoming air carrier would be required to transmit the information applicable to the master air waybill. The incoming air carrier would also be required to provide the information for all associated house air waybills, unless another eligible party elects to electronically transmit this information directly to Customs. Under the proposed rule, the mandatory data elements for inbound air cargo required from the carrier (air waybill for non-consolidated shipments and master air waybill for consolidated shipments) includes: Air waybill number; Trip/flight number; Carrier/ICAO code; Airport of arrival; Airport of origin; Scheduled date of arrival; Total quantity based on the smallest external packing unit; 8 Total weight in pounds or kilograms; Precise cargo description; 9 7 These include data as described in General Note 19(c), HTSUS, securities and similar evidence of value, and personal correspondence, whether on paper, cards, photographs, tapes or other media. 8 For example, two pallets containing 50 pieces each would be considered as 100, not two. 9 The term Consolidation is acceptable for consolidated shipments at the master air waybill level. For nonconsolidated shipments, a precise cargo description or a 6-digit HTSUS number must be provided. Generic descriptions are unacceptable. 3

Shipper name and address; 10 and Consignee name and address. 11 For consolidated shipments, carriers or other parties eligible to file advance electronic cargo information 12 would be required to submit the following information concerning the merchandise traveling under house air waybills: Master air waybill number and associated house air waybill number; Foreign airport of origin; Cargo description; Total quantity based on the smallest external packing unit; Total weight in pounds or kilograms; Shipper name and address; and Consignee name and address. Air carriers must comply with the advance electronic cargo information filing requirements 90 days after the publication of the final rule in the Federal Register. A separate rulemaking is expected to address the reporting of discrepancies in cargo information after its transmission. 13 RAIL CARRIERS OBLIGATED TO TRANSMIT CARGO INFORMATION TWO HOURS PRIOR TO ARRIVAL AT U.S. PORT OF ENTRY Commercial cargo arriving by rail, including cargo arriving for transportation in transit across the United States from one country to another and cargo unladen in the U.S. in bond for exportation or for transportation and exportation, would also be subject to the advance electronic filing requirements. Domestic cargo transported by train to a U.S. port from another U.S. port by way of a foreign country, however, would be excepted 10 For consolidated shipments, the identity of the consolidator or express consignment or other carrier is sufficient at the master air waybill level. For non-consolidated shipments, the identity of the actual shipper (i.e. owner and exporter) of the merchandise from the foreign country is required. 11 Again, for consolidated shipments, the identity of the container station or express consignment or other carrier is sufficient at the master air waybill level. For non-consolidated shipments, the name and address of the party to whom the cargo will be delivered is required, with the exception of Freight Remaining on Board (FROB). 12 Information for all house air waybills under a single master air waybill consolidation must be presented electronically to Customs by the same party. Customs observed that the importer or its authorized agent would be the party in the U.S. most likely to have direct knowledge regarding the nature and destination of the cargo. 13 Customs is also considering a separate rulemaking regarding manifest discrepancy reporting for vessel shipments. At this time, Customs has offered no timetable for the publication of such a rule. 4

from these requirements. Unlike Air AMS, Rail AMS is currently capable of receiving information only from the rail carrier. Accordingly, the carrier must receive, from the foreign shipper or owner of the cargo or from a freight forwarder, as applicable, the necessary cargo information for electronic transmission to Customs. Under the proposed rule, the required cargo information includes: Rail carrier identification SCAC code; Carrier-assigned conveyance name, equipment number and trip number; Scheduled date and time of arrival at the first U.S. port of entry; Numbers and quantities of cargo laden aboard as contained in the bill of lading, master or house; Precise cargo description and weight; 14 Shipper s complete name and address, 15 or identification number, 16 from the bill(s) of lading; Consignee s complete name and address, or identification number, from the bill(s) of lading; Place where rail carrier takes possession of the cargo; Internationally recognized hazardous materials code, if applicable; Container numbers, if applicable, or rail car numbers; and Seal numbers for those seals affixed to containers and/or rail cars. Rail carriers would be required to commence the advance electronic transmission of cargo information to Customs 90 days from the date Customs publishes notice in the Federal Register informing affected carriers that the approved electronic data interchange system is operational at the U.S. port of entry where the train will first arrive. Again, should the automated system fail, carriers would be required to resort to existing procedures for the presentation of a hard copy equivalent of the electronic documentation to Customs. 14 For sealed containers, the shipper s declared description and weight are acceptable. Generic descriptions such as FAK (freight all kinds), general cargo and STC (said to contain) are not acceptable. 15 This means the actual owner or exporter of the cargo from the foreign country. Listing a freight forwarder or broker under this category is not acceptable. 16 The identification number will be a unique number assigned by Customs upon implementation of ACE. 5

TRUCK CARGO INFORMATION REQUIRED NO LATER THAN 30 MINUTES PRIOR TO ARRIVAL AT U.S. PORT OF ENTRY Customs proposed rule requires that truck cargo information be submitted by means of an approved electronic data interchange system no later than either 30 minutes or one hour prior to the carrier s arrival in the U.S. depending on the approved system employed to present the information. 17 Unlike the other modes of transportation, there is no one Customs-approved electronic data interchange system. Therefore, importers and their carriers are presented with a number of reporting options. Unless the U.S. importer or its broker elects to do so, it would be the sole responsibility of the incoming truck carrier to present the required information to Customs in the time prescribed. The required information would include: Conveyance number and, if applicable, equipment number; Truck carrier identification SCAC code; Trip number and, if applicable, transportation reference number for each shipment; Container numbers if different from equipment numbers and seal numbers; Foreign location where truck carrier takes possession of cargo destined for U.S.; Scheduled date and time of arrival at first U.S. port of entry; Numbers and quantities of cargo laden aboard as contained in the bill of lading; Weight or shipper s declared weight if sealed; Precise cargo description; Internationally recognized hazardous material code; Shipper s complete name and address, or identification number, from the bill(s) of lading; and 17 Under the Free and Secure Trade (FAST) program, carriers are required to present electronic cargo information no later than 30 minutes prior to arrival. Under the Pre-Arrival Processing System (PAPS) and ABI in-bond reporting programs, carriers are required to transmit electronic cargo information no later than one hour prior to arrival. Carriers may also use the Border Release Advanced Screening and Selectivity (BRASS) program and Customs Automated Forms Entry System (CAFES). For these programs, however, the necessary information must be submitted by the carrier upon arrival at the first U.S. port of entry. 6

Consignee s complete name and address, or identification number, from the bill(s) of lading. The only truck cargo excepted from the advance electronic filing requirements under the proposal are domestic cargo arriving at one U.S. port from another U.S. port after transiting a foreign country, cargo that may be informally entered, merchandise unconditionally or conditionally free and valued at less than $2,000, and U.S. goods returned. Foreign cargo arriving by truck in transit through the U.S. from one foreign country to another or arriving by truck for transportation through the U.S. from one point to another in the same foreign country would not be exempt. Cargo arriving by truck and unladen in bond for exportation or for transportation or exportation are subject to the advance electronic information filing requirements as well. The advance filing requirements for truck cargo would take effect 90 days after Customs publishes a notice in the Federal Register informing affected carriers that the approved data interchange system is fully operational at the U.S. port of entry where the cargo will first arrive and that the carriers must commence the presentation of the required information through that approved system. ADVANCE ELECTRONIC CARGO INFORMATION REQUIRED FOR OUTBOUND SHIPMENTS, ALL MODES Under the Customs proposal, the United States Principal Party in Interest (USPPI) or its authorized agent must electronically transmit commercial cargo information for receipt by Customs through the Automated Export System (AES) no later than 24 hours prior to departure for vessel cargo, no later than two hours prior to departure for air cargo, no later than four hours prior to the time the engine is attached to a foreign-bound train, and no later than one hour prior to the arrival of the truck at the border. These timeframes would only apply, however, to shipments not requiring an export license and that require full pre-departure reporting of shipment data. 18 Some shipments, including those destined for Canada and those valued at less than $2,500, would be exempt from the pre-departure reporting requirements. The commodity data to be provided to Customs would be the same as that already required by the Shipper s Export Declaration (SED). The mandatory transportation date to be reported includes: Mode of transportation; Carrier identification code; Conveyance name; 18 For items on the Commerce Control List and the United States Munitions List, it is mandatory that exporters utilize AES to electronically file Shippers Export Declarations with Customs. See 68 Fed. Reg. 42,534 (July 17, 2003) (Final Rule). 7

Country of ultimate destination; Estimated date of exportation; and Port of exportation. Under the proposal, when the USPPI or its authorized agent transmits this information, AES will generate and transmit to the USPPI a confirmation number known as the Internal Transaction Number that verifies that the data has been accepted as transmitted for the outgoing shipment. This number must be furnished by the USPPI to the outbound carrier for annotation on the carrier s outward manifest, waybill, etc. The carrier could not load cargo without first receiving this number, a low-risk exporter citation, or an appropriate exemption statement for the cargo from the USPPI. If Customs identifies certain cargo as high risk, it will be the responsibility of the carrier to deliver the cargo for inspection. If the cargo has already departed, Customs would retain the authority under the carrier s bond to demand redelivery. These rules are scheduled to be implemented concurrently with the completion of the redesign of the AES module and the issuance of mandatory AES filing regulations in mid-2004. MISCELLANEOUS Liquidated Damages Against Basic Importation and Entry and Carrier Bonds Under a basic importation and entry bond, principals (and sureties, jointly and severally) electing to provide advance inward air or truck cargo information to Customs would agree to pay liquidated damages of $5,000 for each regulation violated. Under an international carrier bond, if any vessel, vehicle, or aircraft, or any master, owner, or person in charge of a vessel, vehicle, or aircraft, slot charterer, or NVOCC incurs a penalty, duty, tax, or other charge, the obligors (i.e. principal and surety, jointly and severally) would agree to pay the sum on Customs demand. If a slot charterer, NVOCC or other party eligible to provide advance inward information to Customs defaults on its obligations, they too would agree to pay liquidated damages of $5,000 per regulation violated under an international carrier bond. Confidentiality Concerns Advance cargo information electronically presented to Customs for inbound or outbound air, rail or truck cargo is per se exempt from public disclosure under 19 C.F.R. 103.12(d), unless Customs receives a written request for such records and the owner of the information expressly consents in writing to their release. Vessel cargo manifest information remains available to the public pursuant to 19 U.S.C. 1431(c). 8

Automated Commercial Environment (ACE) Customs continues to develop ACE and the International Trade Data System, a single system that will fully integrate all requisite information about goods entering and exiting the U.S. Ultimately, the collection of information for a multitude of federal agencies may be coordinated through a sole portal. At present, however, Customs does not believe that the construction of a fully integrated, comprehensive, multi-agency electronic data interchange system is practicable or feasible. IMPLICATIONS FOR SHIPPERS, CARRIERS, U.S. IMPORTERS AND U.S. EXPORTERS Although the proposed rule will not be finalized for several months, affected businesses can begin now to prepare for its implications. Because they are precluded from electronically transmitting vessel and rail cargo information to Customs, importers and consignees may suffer harsh consequences, including delayed or non-delivery of merchandise, for noncompliance by carriers whose actions are beyond their control. Accordingly, importers should review the capabilities of their carriers and the terms of their arrangements with their carriers and suppliers to assess and minimize the potential indirect effects of the proposed rule on their importing operations. For air and truck shipments, importers that elect to electronically transmit data directly to Customs must ensure that the data provided are accurate and complete and that the submissions are timely. For foreign shippers and importers or other parties opting to provide the requisite data to their carrier rather than file directly, it will be imperative to provide the carrier with information within the proposed timeframes so that the carrier may timely prepare the required declarations. Finally, importers and consignees should review their just in time inventory programs in light of the proposed rules. We are available to consult with affected parties on the implications of this rule or to assist in the preparation of comments. In particular, affected parties should consider commenting on the feasibility of the proposed timeframes for reporting each mode of transportation and of the required data elements for each mode of transportation. In addition, affected parties should begin thinking about how Customs should formulate its proposals for manifest discrepancy reporting. 9

This International Trade and Regulatory Advisory is published by Alston & Bird (www.alston.com) to provide a summary of significant developments to our clients and friends. It is intended to be informational and does not constitute legal advice regarding any specific situation. The material may also be considered advertising under the applicable court rules. If you have any questions or would like additional information please contact your Alston & Bird attorney or any of the following: Daniel J. Gerkin 202-756-3443 dgerkin@alston.com Robert W. Irish 202-756-3446 rirish@alston.com Paul F. Brinkman 202-756-3404 pbrinkman@alston.com Thomas P. Newman 202-756-3307 tnewman@alston.com Kipp A. Coddington 202-756-3408 kcoddington@alston.com David P. Sanders 202-756-3420 dsanders@alston.com Thomas E. Crocker 202-756-3318 tcrocker@alston.com Jonathan M. Fee 202-756-3387 jfee@alston.com Laura L. Fraedrich 202-756-3494 lfraedrich@alston.com H. Stephen Harris, Jr. 404-881-7197 sharris@alston.com Jason M. Waite 202-756-3455 jwaite@alston.com Kenneth G. Weigel 202-756-3431 kweigel@alston.com Jonathan M. Winer 202-756-3342 jwiner@alston.com ATLANTA One Atlantic Center 1201 West Peachtree Street Atlanta, GA 30309-3424 404-881-7000 CHARLOTTE Bank of America Plaza 101 South Tryon Street Suite 4000 Charlotte, NC 28280-4000 704-444-1000 NEW YORK 90 Park Avenue New York, NY 10016-1387 212-210-9400 RESEARCH TRIANGLE 3201 Beechleaf Court Suite 600 Raleigh, NC 27604-1062 919-862-2200 If you would like to receive future International Trade and Regulatory Advisories electronically, please forward your contact information including e-mail address to trade.advisory@alston.com. Be sure to put subscribe in the subject line. WASHINGTON, D.C. 601 Pennsylvania Avenue, N.W. North Building, 10th Floor Washington, D.C. 20004-2601 202-756-3300 www.alston.com Alston & Bird LLP 2003