A Customs and Security Primer

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A Customs and Security Primer



Customs is an authority or agency in a country responsible for collecting customs duties and for controlling the flow of animals and goods (including personal effects and hazardous items) in and out of a country. (Wikipedia) When trading globally, a corporation will have to deal with customs in at least every country it does business - more if the goods flow through additional countries on the way to their destination.

Security of goods in transit is not a new issue. Ever since the dawn of ocean freight, well before the dawn of the spice trade, traders have had to worry about piracy. And many hundreds of years before that, those who traded by land had to worry about outlaws, bandits, and raiders. However, ever since the attack on the World Trade Center in New York on September 11, 2001, the need for security has heightened - driven by a slew of new security regulations being introduced by countries around the globe.

With respect to customs, there are a number of acts at home and abroad that you need to be aware of when trading globally. In the USA, when dealing with Customs and Border Protection (CBP), part of the Department of Homeland Security (DoHS), one has to take into account the Customs Modernization Act of 1993, the Automated Commercial Environment (ACE), International Trade Data System (ITDS), and the Container Security Initiative (CSI). In Europe, one has to deal with the European Commission's Authorised Economic Operators (AEO) and the individual requirements of each country, at least until the Modernised European Customs Code (MCC), slated for 2009, comes into effect.

With respect to security, initiatives have been multiplying like Fibonacci's rabbits. In addition to the US Maritime Transportation Safety Act (MTSA), the International Marine Organization (IMO) International Ship and Port Facility Security Code (ISPS), and the IMO Safety of Life at Sea (SOLAS) security codes, one has to deal with the Customs Trade Partnership Against Terrorism (C-TPAT), Canada Border Services Agency (CBSA) Partners in Protection (PIP), the Asia-Pacific Economic Cooperation (APEC) Secure Trade in the APEC Region (STAR) regulations, and the World Customs Organization (WCO) SAFE Framework of Standards to Secure and Facilitate Global Trade, to name a few.

Global Customs Codes

This section overviews some of the customs code that are in place in the US, Europe, and the Commonwealth.

CBP Customs Modernization Act of 1993

As noted in the Global Data Mining white-paper Import Compliance: The Need for Automation, the US Customs System was significantly altered in 1993 by the Customs Modernization Act. The Modernization Act shifted responsibility for import compliance from government officials to the importer. Furthermore, under the Modernization Act, the importer of record must exercise "Reasonable Care" to ensure proper valuation, classification, and compliance with all laws and regulations applicable to imported goods. Failure to do so, which includes the failure to produce and maintain appropriate records for the required period of time, can result in significant penalties. If the importer is negligent in its documentation, the assessed penalty can be $10,000 or 40% of the value of each release of goods and [the penalty] doubles if the entry is NAFTA-related.

This is significant because audits are becoming more common. U.S. Customs can conduct importer audits only on 30 days notice, and when you consider that audits are a lucrative source of revenue for CBP, which collects approximately $7 for every $1 spent conducting an audit, they are only going to become more common. Furthermore, there are a number of triggers for these audits, which include:

  • Industry Type (i.e. controlled)
  • Imported Goods Value (too low or too high)
  • "High-Risk" Goods
  • Country of Origin
  • Country of Transit
  • Prior Disclosures
  • Volume of Supplemental Information Letters
  • Inconsistent Classifications (which are all too common)
  • Links to third parties who have been found non-compliant

CBP Automated Commercial Environment and International Trade Data System

The Automated Commercial Environment (ACE) is the modernized U.S. trade processing system designed to consolidate and automate border processing to significantly enhance border security and foster our Nation's economic security through lawful international trade and travel. ACE is designed to provide a foundation for all border security initatives within the CBP and:

  • allow trade participants to access and mange their trade information through reports
  • expedite legitimate trade by providing CBP with the information needed to efficiently process imports and exports
  • improve communication, collaboration, and compliance efforts
  • facilitate efficient collection, processing, and analysis of commercial import and export data
  • provide an information sharing platform for trade data

As the ACE roll-out continues, more and more cargo that enters the United States by land (i.e. rail and truck in particular) will need to be declared through electronic manifests through the Automated Commercial Environment. As of October 2007, all land border ports on the southern border and all land border ports in the state of Washington, North Dakota, Michigan, New York, Vermont, New Hampshire, Maine, and Minnesota will be ACE enabled (if they are not already) and all truck-based shipments will have to supply e-manifests through ACE before reaching the border.

The International Trade Data System (ITDS) is a program to support the Participating Government Agencies (PGAs) contributing to the development of the Automated Commercial Environment. The ITDS program is designed to assist the affected agencies in the identification, documentation, and execution of the ACE to improve their business operations.

CBP Container Security Initiative

The Container Security Initiative (CSI) is a program designed to increase security for containerized cargo shipped to the United States from around the world. CSI is a security regime to ensure all containers that pose a potential risk for terrorism are identified and inspected at foreign ports before they are placed on vessels destined for the United Sates. CBP has stationed multidisciplinary teams of U.S. officers from both CBP and Immigration and Customs Enforcement (ICE) at participating ports to work together with their host foreign government counterparts.

Canada Customs Act

In Canada, customs falls under the Canada Border Services Agency (CBSA) and the primary regulations governing customs are laid out in the Canada Customs Act of 1985, as assented to on February 13, 1986, and the Customs Tariff Act of 1997, as assented to on December 8, 1997. An on-line version of the Customs Act and of the Customs Tariffs Act can be found on the Department of Justice web-site .

EC Authorised Economic Operators

The EC Authorised Economic Operator is a security amendment to the Community Customs Code. The goal is to grant reliable traders who comply with security and safety regulations the same simplified customs procedures traditionally granted to reliable economic operators within the European Union. It's considered one of the foundational elements that will be included when the customs code is overhauled, likely in the Modernised European Customs Code slated for 2009.

Modernised European Customs Code

The current Community Customs Code in place in the European Union was adopted back in 1992 (the year before the U.S. introduced it's own Customs Modernization Act). Recently, the EU Council of Ministers reached a political agreement on the foundation of a new modernised Community Customs Code that will simplify legislation and streamline customs procedures to the benefit of both customs authorities and reliable traders while eventually integrating the IT systems of 27 customs administrations. The modernized code will:

  • Introduce the electronic logging of customs declarations and accompanying documents as the rule;
  • Provide for the exchange of electronic information between the national customs and other competent authorities;
  • Promote the concept of 'centralised clearance', under which authorised traders will be able to declare goods electronically and pay their customs duties at the place where they are established, irrespective of the Member State through which the goods will be brought in or out of the EU customs territory or in which they will be consumed.
  • Offer bases for the development of the 'Single Window' and 'One-Stop-Shop' concepts, under which economic operators give information on goods to only one contact point ('Single Window' concept), even if the data should reach different administrations/agencies, so that controls on them for various purposes (customs, sanitary...) are performed at the same time and at the same place ('one-stop-shop' concept).

More information can be found on the Euopean Commission's Taxation and Customs Union web-site.

Australian Customs Act

In Australia, customs falls under the Australian Customs Service and the primary regulations governing customs are laid out in the Customs Act of 1901 and the Customs Tariff Act of 1995. The current version of the customs act can be found on the Commonwealth of Australian Law site and the customs tariff hs2007 regulations can be found on the Australian Customs Service web-site.

Global Security Regulations

This section overviews some of the security regulations that a corporation involved in global trade will have to deal with in the US, Europe, and the Commonwealth. A good summary of many of the acts and security initiatives referenced herein can also be found on the European Commission (EC) Taxation and Customs Union website.

US Maritime Transportation Security Act

The US Maritime Transportation Security Act (MTSA) of 2002 is an act intended to protect U.S. ports and waterways from a terrorist attack. It mandates that certain foreign-flagged vessels, such as liquefied natural gas (LNG) and oil tankers, entering U.S. waterways meet specific security requirements and comply with the International Ship and Port Security code. (Reference) Furthermore, there was the additional intent to assess vulnerability of U.S. port facilities and vessels that may be involved in a transportation security incident and require the Secretary of Transportation to prepare a National Maritime Transportation Security Plan for deterring and responding to a transportation security incident. (Reference)

It requires owners or operators of vessels or facilities to prepare and submit to the Secretary of Transportation a vessel or facility security plan for deterring a transportation security incident to the maximum extent practicable. It also requires such plans to be consistent with the National Maritime Transportation Security Plan and Area Plans and be reviewed, approved, and updated. It permits a vessel or facility to operate temporarily without such a plan if the owner or operator certifies that deterrence has been ensured by other means. It requires the implementation of interim security measures and makes such information nondisclosable.

IMO International Ship and Port Facility Security Code

The International Maritime Organization (IMO) International Ship and Port Facility Security Code (ISPS) is a code agreed to by the signatories of the International Convention for the Safety of Life at Sea (SOLAS) on minimum security arrangements for ships, ports, and Coast Guard agencies that was agreed to in December 2002 and brought into force on July 1, 2004. The code outlines a standardized, consistent framework for evaluating risk, enabling governments to offset changes in threat with changes in vulnerability for ships and port facilities.

As summarized in the Wikipedia entry, for ships, the framework includes requirements on:

  • ship security plans
  • ship security officers
  • company security officers
  • certain onboard equipment

For port facilities, the requirements include:

  • port facility security plans
  • port facility security officers
  • certain security equipment

And for ships, the requiements also include:

  • monitoring and controlling access
  • monitoring the activities of people and cargo
  • ensuring security communications are readily available

IMO Safety of Life at Sea

The International Safety of Life at Sea (SOLAS) is one of the oldest, and most important, treaties in effect protecting the safety of merchant ships at sea. The first version of the treaty was passed in 1914 in response to the sinking of the RMS Titanic and newer vesions were adopted in 1929, 1948, 1960, and 1974. Since then, amendments were adopted in 1988 and 1992. At the foundation is the prescription of a sufficient number of lifeboats and other emergency equipment along with safety procedures. The 1960 convention, which came into affect in 1965, was the first major achievement for the International Maritime Organization and represented a massive advance in updating commercial shipping regulations and in staying up-to-date with new technology and procedures in the industry. (Wikipedia)

Customs Trade Partnership Against Terrorism

The Customs Trade Partnership Agaisnt Terrorism (C-TPAT) is a joint US Customs and Border Protection and private business initiative to strengthen border and overall supply chain security. The program offers a number of benefits to participating businesses, including a reduced number of inspections, reduced border crossing times, an assigned account manager, and eligibility for account-based processes.

In order to participate in C-TPAT, businesses must:

  • conduct a comprehensive self-assessment of supply chain security using the C-TPAT security guidelines
  • submit a supply chain security profile questionnaire
  • develop and implement a program to enhance security in accordance with C-TPAT guidelines
  • communicate C-TPAT guidelines to supply chain partners

Canada Border Services Agency Partners in Protection

The Canada Border Services Agency (CBSA) Partners in Protection (PIP) program is the Canadian equivalent to the CBP C-TPAT program of Canada's southern neighbor. As per the website, PIP enlists the cooperation of private industry in efforts to enhance border security, combat organized crime and terrorism, increase awareness of customs compliance issues and help detect and prevent contraband smuggling. As with C-PTAT, joining requires a self-assessment, a joint action plan to improve your security, a willingness to communiate guidelines to your partners, and regular participation in awareness sessions. But it has similar advantages, including faster processing of shipments and travelers.

Asia-Pacific Economic Cooperation Secure Trade in the APEC Region

Back in 2002, APEC Leaders agreed that terrorism represented a severe threat to the region, and decided that a new Secure Trade in the APEC Region (STAR) Initiative would be introduced as a matter of urgency. Since then, discussions have focused on policies and procedures to enhance security and efficiency in the APEC region's seaports, airports and other access points, including port and airport security; shipping container security; coastal patrol; capacity building; financial assistance, and private sector initiatives. (APEC) So far, Private Sector Supply Chain Security Guidelines have been introduced, and it's likely that directives, similar to those produced by the European Commission, will eventually be produced and adopted by the 21 APEC member economies.

====World Customs Organization SAFE Framework
of Standards to Secure and Facilitate Global Trade====

The primary objective of the World Customs Organization (WCO) SAFE Framework of Standards to Secure and Facilitate Global Trade is to establish a set of standards that provide supply chain security and facilitation at a global level to promote certainty and predictability. The framework has four core elements:

  • harmonising advance electronic cargo information to allow risk assessment
  • using a consistent risk management approach
  • using non-intrusive detection equipment to effect inspections
  • definable benefits for business

From a business perspective, the goal is to enhance security, uniformity, predictability, trade facilitation, efficiency, and relationships, reduce inspection rates and border clearance time, and help participants authorised economic operator status (and comply with the forthcoming Modernised European Customs Code). The direct effects quoted are reduced border clearance time for cargo owners, reduction of quayside time and requisite container yard area for shipping companies, higher work efficiency for terminal operators and shipping forwarders, and fixing of pickup time for truck operators.

Australian Authorised Economic Operator Supply Chain Security Pilot

Australian customs is currently conducting an Authorised Economic Operator (AEO) program that involves Australian Customs working closely with Australian industry and overseas customs administrations in the APEC region. The goal of the program is to strengthen the security controls over the handling, transport and storage of cargo and the pilot is designed to test and fine tune the application and assessment process for security accreditation of supply chain participants and to reach an agreement of mutual recognition from other customs administrators participating in the framework with an eventual goal of implementing an AEO program compliant with the WCO SAFE Framework.

Food and Drug Administration Bioterrorism Act of 2002

The Public Health Security and Bioterrorism Preparedness Response Act (PHSBPRA) came into effect in 2002 and was intended to establish new requirements for registration of possession, use, and transfer of select agents and toxins that could pose a threat to human, animal, and plant safety and health. Furthermore, any person who meets the criteria of a "restricted person", as defined in the USA Patriot Act of 2001, is not allowed access to such materials.

Department of Defense International Traffic in Arms

International Traffic in Arms Regulations (ITAR) is a set of United States government regulations that control the export and import of defense-related articles and services on the United States Munitions List. ITAR regulations dictate that information and material pertaining to defense and military related technologies may only be shared with US Persons unless approval from the Department of State is received or a special exemption is used.


Michael G. Lamoureux, Ph.D. of Sourcing Innovation

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