With COAC’s help, U.S. Customs and Border Protection seeks to devise an online strategy to better target illicit exports before they can leave the country.
Customs and Border Protection’s primary focus has long been on the health and safety, as well as revenue collection, of the nation’s voluminous imports. However, the increased national security controls placed on U.S. exports has the agency working to strengthen its outbound cargo oversight.
CBP serves as the front-line enforcement arm of several primary export control agencies, including the Commerce Department’s Bureau of Industry and Security, State Department’s Directorate of Defense Trade Controls and Treasury Department’s Office of Foreign Assets Control.
“It’s important to understand that CBP’s role is not the policy maker,” said James D. Swanson, the agency’s director of cargo security and controls, in a recent interview with the Adam Smith Project. “We’re the tip of the spear in terms of enforcement for exports.”
To reinvigorate the agency’s export oversight, CBP worked with industry members of the Commercial Customs Operations Advisory Committee (COAC) at the start of this year to establish the Export Modernization Working Group. The goals for this working group include:
• Assisting CBP with the development of an updated “export strategy” with a focus on “development of 21st century procedures and processes to both enhance export enforcement and facilitate exports to benefit the U.S. economy;”
• Review and assist the agency with creating operational requirements for electronic export manifest and assist in expansion of the current carrier pilots to full operation;
• Help CBP mandate the use of electronic manifest across all modes and review existing CBP export regulations to support the Export Modernization Working Group’s goals;
• Work with the agency to update tools and operational practices related to the Automated Export System (AES);
• And collaborate with other COAC working groups and subcommittees to identify export equities and provide feedback and content including e-commerce and regulatory reform.
COAC will hold its next quarterly meeting Thursday in Laredo, Texas.
For years, AES has been one of the most important export enforcement tools to CBP’s front-line officers. The agency has co-shared the system with the Census Bureau’s Foreign Trade Division, which collects the nation’s international trade statistics.
AES has long been a work in progress, although it has been mandatory for filing shippers’ export declarations with the federal government since Sept. 30, 2008.
Census developed AES with Customs as a successor to the Automated Export Reporting Program (AERP) in mid-1995. The agency switched off the 30-year-old AERP at midnight on Dec. 31, 1999.
AES initially was set up with the export industry as a voluntary system. Migration from paper export declarations to the system was slow in the late 1990s, but its use by exporters and freight forwarders took off after 2000.
In 1999, Congress passed the Consolidated Appropriations Act, requiring Census to develop regulations for mandatory AES reporting of all shipments regulated under the U.S. Munitions List and Commerce Control List. This regulation was published in July 2003.
After the Sept. 11, 2001, terrorist attacks in the United States, Congress and the Bush administration began to press for the processing of all export declarations through AES and its Internet-based counterpart, AESDirect. In 2002, Congress passed the Security Assistance Act, which mandated this activity. The 2002 Trade Act also authorized Customs to request electronic submission of export declarations predeparture. Census responded to this legislation by turning its attention toward full mandatory AES filing in the summer of 2003.
Despite the success of mandating AES, agency officials knew that further policy changes and certain export data filing challenges still needed addressing in the years that followed.
For example, the mandatory AES rules maintained a moratorium on post-departure filing of export declarations, known as Option 4. CBP sought to eliminate Option 4 over concerns it could be used as a loophole for illegal exports. The freeze meant that about 1,800 companies already eligible for Option 4 filing could continue to submit export information up to 10 days after departure, but the program would not be expanded to include new companies.
Swanson said CBP is currently working with COAC to consider new enhancements to AES post-departure filing, including opening the filing option to additional participants. However, technical questions remain for the agency regarding what information it should still receive in advance through AES, particularly for licensed exports, so that its officers can conduct timely regulatory oversight.
Compliance questions also have lingered in the current mandatory AES filing regulations when it comes to how to properly handle “routed” export transactions.
Routed transactions, also known commercially as “ex-works” shipments, occur when the overseas buyer (foreign principal part in interest, or FPPI) authorizes a U.S. agent to facilitate the export of items from the United States on its behalf and prepare and file the electronic export information (EEI) in AES. The practice is quite common and experienced routinely between exporters (U.S. principal party in interest, or USPPI) and their overseas customers.
In August 2016, BIS and CBP released a new function in AES that helps shippers keep track of their export license value thresholds.
Each export license has a value limit on the amount of the good that a company can legally ship. BIS tracks the value amount exported against the license through a process called “decrementation.” AES now provides an automatic informational message to the filer each time a shipment is exported against its Commerce Department license.
Another important CBP export enforcement tool is the outbound manifests filed by ocean, air and overland carriers. After years of struggling to nail down an electronic filing process, CBP wants to work with COAC to determine an efficient way forward for when and how to receive export manifest data to conduct enforcement in a timely and effective manner.
“The problem is by the time we get the data, [the shipments] are already out the door,” Swanson said. “So the idea here is how do we get there earlier? How do we stop those goods? And putting it all on the carriers and putting it all on those [CBP officers at the ports] to do a lot of reviews in a short period of time is not a particularly efficient way to do enforcement.”
Early last year, COAC’s Export Manifest Working Group called for CBP to consider “progressive filing” of electronic export manifests, whereby carriers and non-vessel-operating common carriers/indirect air carriers (freight forwarders) would be required to submit portions of the manifest early with next-level carriers submitting master bills to the agency.
“We’re looking at how to do those exams in a more efficient way,” Swanson said. “Right now, consolidated cargo, for example, is a problem, because you send goods to [the Port of] L.A. where it’s containerized, it gets ready to load, it gets turned over to the vessel operator and at that point the [CBP] hold shows up. And it’s two boxes in a container of 3,000 boxes.”
That consolidated export container must then be directed to a CBP-approved location for devanning so that agency’s officers can physically review the targeted shipments. This action causes the container to miss the vessel sailing, as well as adds operational costs and potentially results in lost business to the exporters.
“From an enforcement perspective, we want to try and get out front of it as much as possible and identify those things that can be examined earlier in the chain,” Swanson said. “The industry’s going to have to step up too.”
He added that “this is the year we’re looking to really start ramping up the process of electronic manifest. And it’s important that we get there because everything else we’re going to do from the enforcement perspective is going to be tied to this.”
In addition, CBP is considering new ways to better train its officers with export enforcement responsibilities. A continuous problem for the agency is that resources for export enforcement activities are traditionally much smaller than what’s provided to import targeting and interdiction, and that its officers are frequently rotated to different roles within the agency, precluding them from long-term work in specific enforcement areas like exports.
Swanson said it’s a challenge to “try to get [export] information out and figuring out who the relevant employees are” within the agency’s Office of Field Operations staff, which is scattered among 328 ports of entry. Instead of traditional classroom instruction, he anticipates more export enforcement training to be facilitated online.
“We are working on trying to enhance that training of our officers, especially as things change,” he said. “There’s been some huge changes in the export control regime over the last few years, and you’re going to see more.”
However, Swanson said CBP’s enhanced export enforcement should not become a bottleneck to legitimate outbound trade.
“Those are American jobs and American productivity, and we need to make sure that we’re not setting up artificial barriers to exports,” he told the Adam Smith Project.