U.S. Customs modernizes trade programs with help of industry, other regulatory bodies.
By Eric Kulisch
One of the biggest lessons learned by U.S. Customs and Border Protection in the course of implementing post-9/11 supply chain security measures is that partnerships with industry, other government agencies and the international community are essential for developing new regulations because trade is global and critical to the U.S. economy, Thomas Winkowski, the agency’s de facto leader, recently said.
During a June 17 keynote speech at the annual conference of the American Association of Exporters and Importers in Washington, the nation’s highest ranking border security official and some of his staff gave a progress report on key CBP cargo programs, many of which have been launched in direct collaboration with the trade community and foreign governments.
ACAS. One of the agency’s top success stories has been the Air Cargo Advance Screening program (ACAS), rapidly implemented 30 months ago following the attempted bombing of U.S.-bound cargo planes to receive electronic information voluntarily pre-filed by express carriers before loading at overseas airports. The pilot program is being used by CBP to learn how to collect, analyze and act on advance information so each sector of the air cargo industry can realistically meet the requirements of an upcoming rule mandating the early transmission of cargo-related data. Previously, CBP relied solely on electronic manifest filings by airlines, which are usually submitted after takeoff. The data is fed into risk-targeting software to identify potential shipments that could be compromised by criminals or terrorists.
Trade specialists say that providing reliable data upfront, and then having the ability to update it, benefits shippers and forwarders by reducing inspections and improving customs clearance times.
Winkowski, the deputy who took full responsibility when acting Commissioner David Aguilar retired in March, said that since its inception in December 2011 the ACAS program has processed more than 80 million shipments from 189 countries, representing about 82 percent of all inbound air cargo. That’s up from 25 million security transmissions from more than 100 countries through the second quarter of 2012.
In addition to the four express carriers, there are now five passenger carriers and five freight forwarders in the program and another 24 companies (10 forwarders plus 14 passenger and all-cargo airlines) undergoing IT testing and data quality review before they can become fully operational. However, there are fewer participants than expected at this stage given that five carriers and six forwarders were identified in a February 2012 CBP document as ready to join the program. CBP officials have said they are eager to get all-cargo carriers and many forwarders involved to better understand the business models of small, midsized and large transportation intermediaries.
CBP recently announced a six-month extension of the pilot through late October and reopened the application period for interested carriers, parcel delivery firms and forwarders after initially opening the program in late October for a six-month run.
Information technology issues are the primary reason for the slow acceptance of pilot participants, according to program observers. CBP is allowing companies to select their preferred method and format for transmitting the pre-departure data, but getting the resources and middleware in place to connect to CBP’s systems, and then getting the agency’s technical approval, takes time. CBP has also had to make changes to its systems to accommodate the various data channels, including XML and e-mail. Airline mergers, such as that between American Airlines and US Airways, have also preoccupied some companies and slowed progress on ACAS.
The World Customs Organization, European Union and International Civil Aviation Organization are expected to use the demonstration program’s results to establish similar standards and guidelines for adoption by their respective member nations. The approach has also attracted attention from countries such as Canada, New Zealand and Australia — which have cargo security programs that mirror many aspects of CBP’s approach — while the United Kingdom, Germany, Belgium and France have launched their own ACAS-style pilot programs, according to Winkowski.
And Japan has requested the WCO not move ahead with its supply chain security guidelines for air cargo until the ACAS results can be studied.
Winkowski said U.S. embassies around the world are updating foreign governments on ACAS’s progress and that CBP plans to make recommendations on air cargo security to the WCO by the fall. It plans to issue a proposed rulemaking for the United States by the end of the year after listening to feedback on the pilot from the Commercial Operations Advisory Committee (COAC), which is comprised of representatives from the trade community, he said.
“We see the international harmonization of future air cargo security standards and guidelines as a priority. It’s important in a global environment to ensure that security standards will not disrupt the flow of legitimate commerce,” he told the AAEI audience.
CBP officials have repeatedly said that bringing in the private sector to help conceive the policy at the beginning, as was done with ACAS, is the model for partnerships on future regulations.
CEE. Another new initiative that can be directly attributed to participation by the private sector is the Centers for Excellence and Expertise, which are part of a broader CBP effort to transform trade processing and enforcement so they match modern businesses practices, reduce transaction costs and give companies flexibility to respond to fast-changing market conditions. Underlying the modernization effort is the account-based approach that treats importers based on the totality of their entries rather than checking each transaction.
The centers are organized by industry to provide centralized processing of entry summaries and post-release activities — such as validations, amendments and correction reviews — for trusted shippers that voluntarily participate in the Customs-Trade Partnership Against Terrorism and the Importer Self-Assessment trade compliance program. Revenue collection, cargo release and security checks continue to take place at the ports of entry, but eligible companies now have one place to go to resolve issues with their held shipments.
The concept of centralizing the process by industry instead of doing it at each port was conceived by members of the trade community and eventually embraced by CBP, which heavily relied on COAC and other industry experts to shape the program and select the location of the 10 offices.
Having industry-specific offices with virtual capabilities and a national reach allows trade specialists to develop expertise about each industry so they can provide consistent and predictable entry processing, such as determining product classification and be a resource for resolving trade compliance issues.
Removing the variability of local ports is expected to help lower the cost of cross-border transactions, one of the stated goals of CBP in the past couple years, while improving enforcement capability because specialists are more capable of sorting out anomalies and routine shipments, which often differ by industry. The industry specialists frequently help direct officers at ports of entry to shipments that should be inspected for potential violations of import safety, intellectual property rights, or customs duty regulations.
On June 3, Customs opened the final three CEEs, on top of seven existing ones. The new centers are for agriculture and prepared products in Miami; apparel, footwear and textiles in San Francisco; and consumer products and mass merchandising in Atlanta.
Winkowski said a recent survey showed users overall were “very satisfied” after contacting an Industry Integration Center and 96 percent said their issue was resolved.
The deputy commissioner, who technically can’t be referred to as acting commissioner because so much time has elapsed since the last political appointee left office, said Customs plans to hire a university research team to measure the effectiveness of the CEEs, much like it contracted with the University of Virginia several years ago to gauge the satisfaction of importers and service providers with C-TPAT.
CBP is still evaluating how to optimize staffing levels at the various CEE offices to meet trade needs, Winkowski added.
Meanwhile, CBP plans to establish more Trade Enforcement Coordination Centers, where CBP officers are co-located with the commercial fraud units of Immigration and Customs Enforcement/Homeland Security Investigations, following the success of the new TECC in the Los Angeles field office, Winkowski said.
During the first six months of fiscal year 2013, CBP had 41 seizures valued at $71 million compared to 50 seizures worth $100 million for the entire previous year, he said.
One Government At Border. What began as an effort by former CBP Commissioner Alan Bersin to improve coordination between 10 agencies responsible for ensuring the safety of imports has been broadened to include other regulatory priorities and institutionalized in a regular meeting of top officials known as the Border Interagency Executive Council.
The key principles animating the BIEC are information sharing about cargo shipments so that agencies can make quicker decisions about admissibility and enforcement actions, increasing industry partnerships and moving from paper to electronic filings through a single window to streamline cargo clearance.
CBP is essentially pushing key agencies to align their policies and procedures with CBP’s risk management strategy, which gives companies the ability to demonstrate their level of internal controls for compliance and security in exchange for oversight of their overall compliance record rather than each individual shipment. The goal, as with C-TPAT, is to increase the efficiency of inspectors so that they focus on problematic shipments and spend less time checking those from known legitimate traders.
At the BIEC’s quarterly meeting on June 18, CBP planned to ask other agencies to sign a letter of intent agreeing to follow the roadmap of principles for the unified government approach at the border, according to John Leonard, executive director of trade policy and programs. Several of the agencies had pledged in late 2010 to follow CBP’s risk-segmentation model for inspecting imports. The new letter of intent is an apparent attempt to get the other government agencies to follow through on their collaboration commitment.
CBP spokeswoman Jenny Burke was unable to disclose which agencies signed the letter because the minutes of the meeting can’t be released, but Leonard said the Consumer Product Safety Commission was already onboard.
Getting other areas of government to grant incentives to shippers that have strong compliance procedures in place and are willing to share information upfront about their operations is not always easy, Leonard admitted.
“Certain agencies just have a lower tolerance for wanting to do partnership programs. We’re trying very hard to get them to see the benefits of partnership and why trusted importers, in fact, can be trusted and they don’t need to look at all their shipments,” he said.
It has taken longer for CBP to harmonize the procedures of U.S. agencies with jurisdiction at the border than it has foreign governments, many of which have mirrored their border management on the CBP model.
ACE. Despite recent enhancements to the Automated Commercial Environment, CBP’s foundational information technology system for consolidation and automation of border processing and risk assessments of cargo and travelers, is still not complete after a dozen years of development. In 2012, Customs deployed the electronic sea and rail manifest module for carriers to file their inbound shipment lists and turned off the Automated Manifest System in its legacy Automated Commercial System (ACS).
CBP officials at the AAEI event said they have now developed a plan for the completion of core trade processing capabilities within ACE in about three years by using Agile software development.
The private sector typically tackles large IT projects using Agile methodology, which involves producing bite-size pieces of functionality more frequently to give users faster access to needed tools and regular feedback to developers before the architecture is set in stone. CBP officials in 2010 realized their attempt to build huge pieces of the IT system — relied on for everything from processing entries and managing cargo security, to internal and external communications with industry and other government agencies — at once was a mistake.
CBP managers solicited all the requirements government and industry stakeholders could conceive, put together a plan and gave it to outside programmers who spent a long time developing applications which didn’t exactly meet user needs, CBP officials said a couple years ago.
Users and programmers then had to lob recommendations and fixes back and forth, which added to the delay and cost.
The Agile process is very interactive, with development teams of users and programmers working together in two-week sprints that involve testing the software’s function, feel and ability to connect with other software, and making any necessary changes along the way, with the goal of producing software that’s production ready every three to four months, Phil Landfried, executive director for targeting and analysis systems in the Office of Information Technology, said.
Agile, which is enabled by today’s more flexible coding techniques, is also being used to re-engineer the existing Automated Export System and create a single automated export processing platform for export commodity, and export control and licensing transactions in ACE, Winkowski said.
As CBP gains more experience with Agile it will increase the number of development teams from four to 12, according to an agency fact sheet. In addition to the Automated Export System, teams are also working to automate the paper-based system for correcting or canceling an entry and entry summary validations. Validations are checks on incoming data that ensures the accuracy and integrity of data being submitted to CBP by companies. To date, validations for Harbor Maintenance Fees have been built, tested and demonstrated and the validations related to classification are currently being developed, CBP said in an e-mail forwarded through a spokesperson.
Industry representatives have worked closely with CBP to provide input on ACE over the years, but are frustrated by the slow pace of development.
Progress is likely to remain slow because of the tight budget environment in Washington and Congress being more wary about appropriating more funds for a project that has cost more than $3.1 billion so far. Last fiscal year, Congress provided no money for further development, but Winkowski said CBP and the Department of Homeland Security have formulated a funding strategy “that gets us a good part of the way towards our goal of completing core trade functionality in ACE within three years.”
Development funds will come from shifting around some internal sources of revenue and reduced costs for operations and maintenance of ACE.
“Combined with ACE carryover dollars, we believe we have enough money to carry our development initiatives through fiscal year 2014 and we are continuing our efforts to bridge the remaining gap in fiscal years 2015 and 2016,” the CBP chief said.
The ultimate goal is for a government “single window” through which documentation for all government agencies can be filed once and distributed where needed to reduce red tape and cost for businesses while also increasing government efficiency. Agencies with jurisdiction over imports have agreed on a harmonized set of trade-related data they all require and which will be collected in ACE on their behalf. The Environmental Protection Agency and Food Safety Inspection Service were scheduled this summer to begin pilot testing the consolidated list of data elements, known as the Partner Government Agency message set, by focusing on the importation of ozone-depleting substances, vehicles and engines as well as meat and poultry.
The data will be transmitted to the other agencies via an interoperable Web-based service which is being tested by the Consumer Product Safety Commission, Coast Guard and Agricultural Marketing Service.
CBP also plans a third pilot for its document imaging system with EPA and the National Marine Fisheries Service. The paperless system is designed to speed up response time by allowing traders to scan and e-mail supporting documents for cargo import and export processes. CBP has reduced the number of data elements that will be required from trade filers when they submit imaged documents during the upcoming pilot expansion, CBP said in the e-mail. The agency is also expanding the number of scanned documents eligible to be submitted.
A Federal Register notice about the pilot was scheduled for publication in mid-July.
The problem, according to one knowledgeable source who is not authorized to speak publicly about ACE, is that after CBP built the document-imaging functionality more than two years ago other agencies that were supposed to prepare for sharing shipment information did not budget to develop their half of the system so they can receive customized ACE data and send back instructions for CBP to hold or review a suspicious shipment. As the government has implemented forced spending cuts, agencies now claim they don’t have the money to move forward.
The proposed date for mandatory transition from ACS to ACE is the end of 2016, Winkowski said. In the meantime, CBP is trying to convince customs brokers, software vendors and large importers who do their own customs documentation to file their entry summaries via ACE. Nearly all types of entries can be filed in ACE.
There are 188 approved trade filers that can transmit entry summaries in ACE and in April almost a quarter of all eligible entry summaries were filed in ACE, according to CBP figures. Three years ago there were fewer than 100 companies that had converted from ACS to ACE.
The benefits of filing in ACE include remote location filing for antidumping and counterveiling duty entries, electronic post-summary corrections, elimination of paper entries, faster CBP response and decreased courier and administrative costs, according to CBP.
International Standardization. One of the U.S. supply chain security strategy’s key tenants is the development of industry partnership programs to identify low-risk shippers, which has for eight years been enshrined as a global guideline in the World Customs Organization’s SAFE Framework of Standards. Winkowski said the United States wants other customs authorities to expand partnerships with the trade sector beyond trusted shipper programs to achieve safer, faster, more compliant and harmonized trade.
He planned to deliver his message about writing global standards for coordination with industry to other customs directors at the WCO’s late-June annual meeting in Brussels, Belgium. And he urged U.S. shippers, carriers and customs brokers to talk to international counterparts about pressing their governments for more industry collaboration and alignment of supply chain regulations with global best practices.
Toward that end, the WCO should create a more substantive means for consulting with the private sector on customs issues, Winkowski said, similar to the relationship between CBP and COAC. The WCO currently has a Private Sector Consultative Group with representatives from trade associations and companies around the world to provide policy advice. It was not clear what specific changes Winkowski had in mind.
“Our world is changing faster and becoming smaller more than ever before and it’s up to us to keep pace with forward-looking processes and closer, global partnerships,” Winkowski said.
In the meantime, the United States continues to pursue bilateral agreements designed to synchronize trusted trader programs. Under C-TPAT, member companies must demonstrate they and their suppliers have effective plans for vetting personnel, protecting IT systems, controlling access to facilities, properly securing containers from tampering, selecting approved carriers and taking other precautions in exchange for being designated as low risk and eligible for fewer security exams. CBP specialists travel to other countries to see in person how well applicants are implementing security plans.
The United States has mutual recognition agreements with New Zealand, Jordan, Japan, South Korea, Canada, Taiwan and the European Union. Their voluntary Authorized Economic Operator programs are similar to C-TPAT, but differ in two key ways: they also vet exporters and offer three types of certification for meeting trade standards, including ones for regulatory compliance and financial stability. Full certification is available for companies willing and able to meet security and trade standards.
Mutual recognition agreements require countries to agree to a core group of international customs security standards for corporate validations and overall customs controls, and then follow through so that both sides can trust the other to check companies within their borders instead of traveling to self-check overseas export points themselves. Member companies are then eligible to receive the same expedited treatment in the partner country as their own. The goal is to increase efficiency by reducing redundant cargo exams and corporate security reviews, and the need for shippers to follow different sets of supply chain requirements around the world.
In an interview following his speech, Winkowski said CBP is still talking with the European Union about ironing out some procedural issues and increasing benefits for companies on both sides. The United States and European Union agreed to reciprocate on supply chain security programs in May 2012. The agency is also working with the European Union to get Croatia, which recently acceded to the European federation, incorporated into the mutual recognition agreement, he said.
After setting the benchmark for global supply chain security, the United States is now trying to modify C-TPAT into a true AEO program by combining it with the Importer Self-Assessment program and creating an export component. Last summer, CBP announced it would look into merging C-TPAT and the Importer Self-Assessment program into a single program with enhanced benefits to attract more companies and free up resources to focus on high-risk shippers.
ISA allows importers with strong internal controls to monitor their compliance with trade regulations in return for fewer Customs audits, but in 11 years only about 250 companies have signed up because its requirements are considered too burdensome for most companies given the limited benefits.
CBP hopes to learn how to incorporate compliance into a holistic trusted trader program through discussions with its European counterparts, Winkowski said in the interview.
The process has not advanced far in the past year. Winkowski told American Shipper that officials continue to review various models for making a joint program more constructive than the individual pieces.
Maria Louisa Boyce, a Winkowski aide, said COAC is trying to quantify how to measure the return on investment for participating in a trusted trader program from a CEO’s perspective. Among the ideas being bounced around is whether a company that meets an equivalent industry standard for compliance could be given ISA status.
Lessons also could be learned from the Internal Revenue Service and how it measures tax compliance, such as by taking samples of highly compliant, large companies rather than spending huge amounts of time conducting audits, Winkowski said.
At the annual Trade Symposium in November, CBP announced it had launched a pilot program with Japan for export supply chains during which it would assess how well C-TPAT companies implement their approved security plans for outbound shipments. Japan all along has been rating domestic companies and sending the reports to CBP so that the shipments receive expedited treatment upon arrival in the United States.
Boyce said only two companies that export to Japan have been certified as having secure export supply chains. CBP officials in November had said they hoped to quickly vet export supply chains of five other major trading partners.
CBP is waiting for COAC to map the operational and regulatory steps in the export process, as well as provide program metrics, before validating more companies, Boyce explained.
“We’re at the infant stages on exports,” Winkowski said. The bigger questions, he said, is how to turn export clearances in one country into seamless import clearances in another through sharing of standard data sets that will reduce the amount of redundant filing and allow for an early decision on cargo release by Customs in the destination country.
“We have a lot to learn on exports. But it’s more than just a container leaving the United States. It’s making sure it is compliant with the regulations in Europe too, for example,” Winkowski said.