a blueprint to trust - aaei · 2014. 12. 10. · verified u.s. and non-resident importers of record...

A B L U E P R I N T

T O T R U S TCONSTRUCTING A COMPREHENSIVE, HOLISTIC, AND EFFECTIVE TRUSTED-TRADER PROGRAM

Prepared for the American Association of Expor ters and Impor ters By

Total Spectrum LLC/Autor Global Strategies LLC

1717 K Street, N.W; Suite 1120; Washington, DC 20006; Telephone 202/857-8009; Fax 202/857-7843 | www.aaei.org

A B L U E P R I N T T O T R U S T

A B O U T A A E I

The American Association of Exporters and Importers (AAEI) has been a national

voice for the international trade community in the United States since 1921.

AAEI’s unique role representing the trade community is driven by our broad

membership base, which encompasses businesses, both large and small, from

the entire spectrum of the international trade community and across all industry

sectors – manufacturers, importers, exporters, wholesalers, retailers and industry

service providers (brokers, freight forwarders, trade advisors, insurers, security

providers, transportation interests and ports). AAEI promotes fair and open trade

policy. We advocate for companies engaged in international trade, supply

chain security, export controls, non-tariff barriers, import safety, and customs and

border protection issues.

AAEI has become the premier trade organization representing those in

the business community immediately engaged in and directly impacted

by developments pertaining to international trade. Among our member

representatives are international trade professionals who are the technical experts

on importing and exporting goods and are responsible for implementing the

supply-chain security and import safety compliance programs for many of the

world’s multi-national corporations. We are recognized technical experts on the

day-to-day facilitation of trade and supply-chain risk management. We have

provided extensive technical advice to Customs and Border Protection (CBP) and

other trade-regulating agencies on enforcement practices and procedures and

ways to minimize undue burdens to global trade.


As compliance mandates on importers have increased, AAEI has supported government efforts to use risk-management to identify and facilitate low-risk trade. To advance this process, AAEI is launching its own comprehensive and holistic trusted trader program to encompass all agencies regulating imports and importers under one uniform system offering meaningful benefits to both.1

AAEI’s proposal begins with the premise that companies investing corporate resources in compliance programs already demonstrate a strong commitment to commercial, security, environmental/conservation, human rights, and product health and safety compliance.

These companies represent low compliance risks, and would be designated by all trade-regulating agencies under the AAEI proposal as a Certified Compliant Commercial Entity (“3CE”) following an assessment of sectoral and horizontal risks certifying them as meeting this standard.

The 3CE risk-assessment system begins with developing agency-focused risk models based on how each import-regulating agency perceives risk in relation to its mission. Risk models will focus on data needed to advance that mission and mitigate unacceptable or catastrophic risk.

To establish an importer risk profile, the 3CE risk assessment will consider four specific risk factors: (1) type of importer and its experience importing; (2) type of product being imported; (3) source country/country of export; and (4) importer’s compliance record.

The 3CE structural model will be the Customs-Trade Partnership Against Terrorism (C-TPAT). Certified and verified U.S. and non-resident importers of record would be eligible to participate. Like C-TPAT, the program will have compliance tiers with specific obligations and incentives.

The 3CE program will build off a voluntary pilot project to test its structural elements, followed by a transition period to merge existing programs (with possible exception of C-TPAT) into the 3CE program. Centers of Excellence and Expertise (CEEs) would manage 3CE company accounts.

The factors for determining and measuring compliance under the 3CE program would include: (1) membership in C-TPAT; (2) membership in other compliance programs; (3) adoption of industry best practices; (4) internal controls; and (5) audit/transactional release record.

Enhanced efficiencies from the 3CE program will provide benefits and savings to participating agencies and companies through optimal and more effective use of available resources.

The program will support agencies’ enforcement and oversight responsibilities; reduce costs through more effective, efficient, and strategic use of existing resources; facilitate and enhance information exchange between and among agencies; and facilitate cooperation with counterparts in other countries through a mutual-recognition system of foreign trusted-trade systems.

The regulated trade will see lower administrative and compliance costs; enhanced trade facilitation (e.g., simplified and expedited entry and clearance and fewer release delays); lower business risk from more straight-forward compliance requirements (e.g., streamlined data requirements); and greater business predictability from a well-defined risk-management systems.

Savings realized from reduced transactional costs of pre-shipment, entry, and release cycle times will incent companies to join the program, adopt higher compliance standards, and best practices.

EXECUTIVE SUMMARY

1 The AAEI initiative can be extended to export controls, and AAEI will explore coverage of exports after working with PGAs on pilots to establish the effectiveness of the concept. However, since export control is a risk-based system rooted in U.S. national security and foreign policy objectives, a different set of parameters than those used to establish an import risk-based management system will be required.

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Concerted efforts to develop a trusted trader program coincided with the significant increase in government mandates to bolster supply-chain security following the 9/11 terrorist attacks. In particular, the reorganized Customs and Border Protection (CBP), under the newly-formed Department of Homeland Security (DHS), was tasked with creating a supply-chain security system, now known as the Customs-Trade Partnership Against Terrorism (C-TPAT). Working closely with the trade community in its development, CBP recognized that C-TPAT would need to incorporate a risk-management approach to identify and facilitate low-risk trade to deploy its resources most effectively and efficiently and minimize any adverse impact on the nation’s commerce. As a result, C-TPAT has become the model for expanded trusted trader proposals as government mandates on supply-chain management have grown to include compliance on new health and safety, environmental/conservation, and human rights laws and regulations for imported products.

In response, several initiatives have emerged to create a more expanded trusted trader system, encompassing multiple agencies, legal requirements, and products. These initiatives include:

g CBP Importer Self-Assessment (ISA) program;

g CBP/ Advisory Committee on Customs Commercial Operations (COAC) Trusted-Trade Initiative;

g Food and Drug Administration (FDA) Secure Supply Chain Pilot Program (SSCPP) and Voluntary Qualified Importer Program (VQIP);

g CBP/Consumer Product Safety Commission (CPSC) Importer Self-Assessment-Product Safety (ISA-PS) program

There are also several foreign initiatives, such as the European Union’s Authorized Economic Operator (AEO), and Canada’s Partners in Protection (PIP) and Customs Self-Assessment (CSA) programs. Most are focused mainly on imports. Some domestic programs, like C-TPAT, primarily address security. Others, like ISA, focus on legal compliance with revenue laws, and programs, like VQIP, deal with product health and safety.

From the beginning, AAEI and its members have strongly supported efforts to develop a more comprehensive and holistic trusted trader program to respond to the expansion of legal mandates affecting global supply-chain management. The AAEI membership is interested in improving important aspects of these programs, including:

g Ensuring coordination with CBP trusted trader programs

g Increased specificity

g Mitigating penalties

g Enhanced benefits for companies and industries

g Defining and meeting underlying objectives

g Flexibility to accommodate individual company or industry risk profiles

g increased scope (i.e., number and type of entries covered)

g Expense of the application process

Therefore, AAEI and its members concluded it is necessary to launch their own trusted trader initiative that would be truly multi-faceted, holistic, risk-management focused, encompassing all agencies that regulate imports and importers, and offering meaningful benefits to both. We envision a program covering not only existing legal and regulatory mandates on imports, but one that can also be adopted and expanded to include other potential import compliance areas.2 To reflect better the various core elements of this initiative, we are also replacing the term “Trusted Trader” with “Certified Compliant Commercial Entity” or “3CE.” This document lays out a roadmap to achieve those objectives.

INTRODUCTION AND OVERVIEW

2 Protection of intellectual-property rights (IPR) presents another possible expanded import compliance area if the information technology industry is successful in pushing for import certification on the use of “clean” IT – e.g., that an importer and its suppliers are not using pirated or non-licensed software or designs.

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DISCUSSION

Defining “Certified Compliant Commercial Entity”

As an initial basis for discussion, we offer the following statistics from AAEI’s 2012 Benchmarking Survey Results:

g 91% of respondents participate in a voluntary supply chain security program.

g 84% of respondents participate in C-TPAT.

g 88% of respondents have achieved Tier 2 (validated) or Tier 3 (best practices) status.

g 53% of respondents participate in a supply chain security program because “it is the right thing to do.”3

We cite these Benchmarking Survey Results to highlight that U.S. importers volunteer to participate in a security program to support the government’s mission to protect the public and are not primarily motivated by the benefits of joining. U.S. companies are willing to expend corporate resources to achieve a public policy goal. Moreover, compliant companies will do more than the bare minimum when they participate in voluntary programs. However, compliant companies are better able to sustain such programs when the government provides trade facilitation benefits.

AAEI believes companies investing corporate resources (e.g., money, people, systems, etc.) into their corporate compliance programs already demonstrate a strong commitment to ensuring commercial, security, environmental/conservation, human rights, and product health and safety compliance and, therefore, represent a low compliance risk to the public. AAEI agrees with CBP’s position that such companies should be supported and recognized. Similar to the C-TPAT program, AAEI’s concept is that a company certified as meeting this standard would be designated by all trade-regulating agencies a Certified Compliant Commercial Entity or 3CE.

Risk is the underlying core factor in this process, and differs depending upon the compliance requirement. This concept is encompassed in the term “segmenting risk.”

For commercial compliance, risk is primarily focused on admissibility of goods and proper calculation for customs revenue purposes. Thus, a 3CE designated importer would have a robust compliance system supporting a strong and consistent compliance record.

For supply chain security, a 3CE designated importer would have an effective program built around monitoring “who has touched the container” to avoid compromising security anywhere along the supply chain from the factory forward.

For product safety, risks are different. A 3CE designated importer would mitigate those risks through internal controls, such as good manufacturing processes, quality and compliance procedures, and supply-chain systems designed to assure the “integrity of the product in the container.”

For environmental/conservation/human rights, a 3CE designated importer would also have to mitigate risk through a strong compliance system built around internal processes and supply chain controls.

In addition to these internal corporate risk factors, a company’s voluntary choice to join a partnership program administered by regulatory agencies, like C-TPAT or VQIP, should also be an important initial consideration until these various programs are combined into a single system. While not all compliant companies join such programs, all such programs contain compliant companies.

3 AAEI 2012 Benchmarking Survey Results – Security Section Questions Importers/Exporters (August 2012). The reported figures for C-TPAT participation and Tier 2 and 3 status are substantially the same in a different member survey AAEI conducted in 2014. Only 31.4 percent of the respondents in that survey reported being ISA participants and only 6.5 percent reported being in any PGA compliance program. AAEI Trusted Trader Survey (March 2014).

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Elements of a Certified Compliant Commercial Entity Program

I. ASSESSING RISK

The first step to construct a 3CE program is to establish how risk will be assessed. AAEI recognizes this process must begin first with ascertaining how the particular import-regulating agencies perceive risk, based on their respective missions. An agency’s mission is defined primarily by the legal requirements Congress has placed on it, its regulatory framework developed to implement those requirements, and its internal policies for enforcing those laws and regulations.

AAEI proposes to work closely with the various import-regulating agencies,4 to: (1) create an agency/mission matrix based on an examination of the legal and regulatory requirements under which they operate; (2) ascertain what data agencies need and use to assess risk in advancing that mission, including any special programs or systems demonstrating importer compliance; and (3) using this information to develop agency-focused risk models. While risk models must be applicable to each agency, they would, by necessity, be organized around the general enforcement categories – commercial, security, and health/safety/environmental compliance – into which individual agencies’ missions fall.

An important aspect of the agency risk model is to recognize that agencies will never have the time and resources to identify and mitigate or eliminate all risks. It must be acknowledged that some risks are more important to focus on than others. This means, agencies should not spend undue time and attention addressing ordinary risk, but rather should segment risk, placing a higher priority on tackling unacceptable and catastrophic risk. Specifically, an agency needs to plan its risk assessment regarding the regulated trade should a natural disaster, terrorist attack, or other extraordinary event5 seriously disrupt commerce and its enforcement and oversight mission. For example, if a hurricane or earthquake were to close several large ports or damage key facilities, how will an agency use importer risk profiles to prioritize deployment of its available resources until the situation returns to normal? This analysis is important, not only to provide the agency a plan on how to deal with such situations and help get its operations back on line as expeditiously as possible. It will also provide guidance to the trade on how they and their goods will be treated in such situations.

The next step to construct a risk-assessment process is to examine what makes an importer higher- or lower-risk to set up a 3CE importer risk profile, delineated according to risk factors specific to an industry or product (“sectoral risk”) and to an individual company (“horizontal risk”).

Generally speaking, importer risk delineation will be examined according to several factors, the first being the type of importer. A key consideration here is whether the entity is a new or experienced importer. Paramount in assessing the importer risk profile is the volume, diversity, and complexity of a company’s import operations (e.g., range of products, entries, suppliers; and sourcing/exporting countries in the supply chain, etc.).

The second risk factor is the type of product being imported. In this context, a highly-regulated product, like pharmaceuticals, will present a different risk profile than a minimally-regulated product, like books and printed material.

The third risk factor is the source country and/or country of export. In this context, high risk means an elevated record of violations for products produced in or exported from a particular country (e.g., classification, valuation, country-of-origin labeling, or illegal transshipment or fraudulent activity to avoid customs duties or environmental-protection laws). High risk also includes violations of health/safety/environmental laws and regulations.

Country risk levels vary by product. For example, a country, such as Madagascar, may represent a high risk with respect to imported wood products, but a lower risk for other products, like vanilla or cinnamon. China may present a high risk for violations of laws regulating textile and apparel trade, but a lower risk on imports of paper goods. AAEI recommends the development of a high-risk country list based upon the product categories according to chapters in the Harmonized Tariff Schedule (HTS).

The fourth risk factor is an importer’s compliance record on commercial issues (e.g., duty, excise tax, classification, valuation, etc.), security, health and safety, and other import requirements. 4 There are 47 separate federal agencies with some enforcement and

oversight responsibilities effecting imports and trade in the United States, including: Animal & Plant Health Inspection Service (APHIS); Bureau of the Census (BOC); Bureau of Industry and Security (BIS); Consumer Products Safety Commission (CPSC); Customs and Border Protection (CBP); Environmental Protection Agency (EPA); Federal Communications Commission (FCC); Fish & Wildlife Service (FWS); Food & Drug Administration (FDA); National Marine Fisheries Service (NMFS); and Office of Foreign Asset Control (OFAC). See Appendix One.

5 An extraordinary event can be defined as being beyond the ability of a single company to prepare for or mitigate.

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It is important to note that compliance for purposes of evaluating risk does not mean nor should it require perfection. Under this factor, an importer’s risk can be evaluated according to several criteria:

g Has the importer’s management demonstrated a commitment to compliance, including establishing an internal compliance training program and supplier informational system?

g Has the importer committed resources to compliance commensurate with its risks?

g Does the importer have an established compliance record?g To what extent has the importer adopted internal and/or external systems and controls to monitor and assure commercial,

security, health and safety, and other compliance requirements?g How many compliance audits has the importer undergone?g Did the audits uncover any compliance problems?6

g What were the nature and extent of any compliance problems, were they recurring, and were they corrected? g Does the importer participate in programs that certify internal compliance systems, such as ISA and CEEs for commercial

compliance, C-TPAT for security compliance, or VQIP for health and safety compliance?7

The following chart shows how these factors can be used to calculate a risk score for an individual importer graded from lowest to highest risk on a 1-10 scale. It also provides a guide on how agencies can tailor a 3CE program to the specific risk posed by a company to the United States rather than pushing companies into “one size fits all” programs.

6 Assigning weighted and ranked composite scores to an importer based on audit results and nature of compliance problems could be a helpful tool for risk analysis – e.g., how to compare risk between two importers, one that passes 90 percent of its audits, but has relatively minor compliance issues, versus another that passes 98 percent of its audits, but has comparatively more serious problems?

7 We would anticipate this requirement to continue during a transition period, at the end of which the various programs (with exception of the CEEs) are combined, harmonized, and integrated into a single certification system. However, we recognize that C-TPAT began as a voluntary pilot project initiated by CBP, was subsequently ratified statutorily by Congress under the Safe Ports Act, and will likely continue as its own unique cargo-security program for the foreseeable future. We anticipate a similar process in the development of the 3CE initiative, with Congress approving the program once a pilot project has had time to demonstrate its utility and viability. Where an OGA does not have or participate in an existing program to provide a reference for assessing risk, compliance will be the key metric.

RISK FACTOR 1

CEE Indus t r y1-10

RISK FACTOR 1

Source Count r y Number

1-10

RISK FACTOR 2

Product Type

1-10

RISK FACTOR 1

Impor ter Exper ience

1-10

RISK FACTOR 1

Number of Suppl iers

1-10

RISK FACTOR 3

Source/Expor t Count r y

1-10

RISK FACTOR 1

Number of Products

1-10

RISK FACTOR 1

Number of En t r ies

1-10

RISK FACTOR 4

Compl iance Record

1-10

IMPORTER RISK SCORE_______

IMPORTER RISK ASSESSMENT

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Based on this chart, we provide three examples below of different importer risk profiles.

A. IMPORTER RISK PROFILE ONE

Our first example is a long-established U.S. company importing large quantities of industrial glass into the United States for consumption. The company supplies glass to a few customers for commercial construction during the course of the year, and has an annual revenue of $30-$60 million. As its largest source markets are China and Taiwan, it does not use any free trade agreements. The company exports some scrap glass materials back to China. Except for safety standards for tempered (laminated) glass, there are no federal agency regulations for this product. The company is an ACE filer, and the only compliance review was one customs audit three years ago, during which it was certified as having adequate internal controls.

It is not clear that such a company falls into the Centers for Excellence and Expertise (CEE) – Industrial & Manufacturing Materials group. This company is not heavily regulated by federal agencies either on its imports (e.g., safety) or exports (e.g., export controls).

The risk profile for this company is fairly straight-forward under the four risk factors. The supplier countries are lower risk with respect to this particular imported product. The primary risk posed by this company is customs compliance for revenue purposes (e.g., tariff classification, valuation, etc.) rather than security (i.e., low-volume shipper) or safety. Therefore this company would be considered a moderate risk, and could be a low-risk importer if its internal controls are 3CE certified and validated.

B. IMPORTER RISK PROFILE TWO

Our second example is a U.S. athletic-brand company founded in 1990 with annual revenue between $500 million and $1 billion mainly through retail stores and on-line sales of its apparel and sporting equipment in the United States and Canada. It sources most of its product from China, Vietnam, Mexico, Central America, and the Caribbean, and uses the trade preferences available through GSP, NAFTA, DR-CAFTA, and CBERA for about 25 percent of its imports. Because a large portion of its importations are subject to numerous FTA, textile, and other federal agency requirements, the company has invested heavily in its trade compliance program staffed by 15 people, maintains robust internal controls, files its entries through ACE, and has successfully completed several customs audits over the past 15 years.

Looking at the four risk factors, the products the company imports and its sourcing countries are higher on the risk scale for commercial compliance. However, this company is an experienced importer and has devoted significant corporate resources to mitigate the highest risk area for its import operations – customs revenue (classification, valuation, origin), rather than security or safety, which has contributed significantly to its consistently good compliance record. Therefore, this company should be considered lower risk if its internal controls are found to meet expected 3CE standards for compliance and it joins the CEE for Textiles, Wearing Apparel & Footwear.

C. IMPORTER RISK PROFILE 3

Our third example is a multinational pharmaceutical company with annual revenue in excess of $1 billion. It imports an active pharmaceutical ingredient (API) from Japan to produce a finished drug in the United States for export to Europe, Canada, and Japan. The drug is approved by the FDA, and it files its entries through ACE. The company routinely experiences “holds” from the FDA, which do not require further action once the company provides requested supplemental documentation.

The risk profile for this company is primarily focused on security and safety, rather than customs compliance, due to the nature of its imported product. Under the four risk factors, the company is an experienced importer with no compliance problems; its supplier countries are considered lower risk for FDA legal compliance; and, because it is heavily regulated by the FDA, it has both a commercial and regulatory incentive to have strong internal controls, which it has done. Therefore, this company should be treated as lower risk under 3CE, and CBP should regulate the company on an account basis through the CEE for Pharmaceuticals, Health & Chemicals.

D. IMPORTER RISK PROFILE 4

Our fourth example is a manufacturer of high-end kitchenware and furniture that has been in business for less than 10 years and has an annual revenue of approximately $20-30 million. It imports a variety of tropical hardwoods, mainly from Brazil and India, to produce kitchen products, like tables, chairs, bowls, and utensils, and is, therefore, subject to Lacey Act requirements administered by APHIS and FWS for imported plant products. It has occasionally imported wood from Madagascar, but has never undergone

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an examination more extensive than a basic review of its import documents, Lacey Act import declaration, and export licenses.

Under the four risk factors, this importer’s risk profile is mainly in the area of environmental, rather than customs, health, or safety compliance. Under our four risk factors, it imports high risk products from higher-risk countries for Lacey Act compliance. Although it has never been found to be in violation of the Lacey Act, it does not have an established compliance record, nor has it been certified or validated as having adequate internal compliance controls. This importer could be designated lower risk under 3CE risk assessment provided it demonstrates strong internal compliance controls, undergoes periodic audits of those controls and its supply chain, and establishes a good compliance record.

II. STRUCTURE

In defining the 3CE program structure, AAEI believes the best place to start is C-TPAT, which is designed to identify and regulate low-risk trade and can, therefore, serve as a model, including CBP’s targeting data and methodology, for a broader program encompassing trade, security, health/safety, and other import regulatory issues.

As was done at the inception of C-TPAT, the first stage of the 3CE initiative would be to establish a voluntary pilot project to test the structural elements of the program. The most logical pool of candidate companies for participation would include those currently certified under C-TPAT, ISA, and VQIP.

As with the launch of the C-TPAT pilot, it appears CPB has the ability to waive its own regulations for purposes of initiating a 3CE pilot program. CPSC may also have such authority as a participant in a 3CE pilot project, as suggested by its collaboration with other agencies in developing its health and safety risk assessment methodology for imports and importers. In the course of developing the 3CE pilot project and program, however, we would need to confirm with all agencies participating in the project the extent of their authority and flexibility to delay or waive their existing regulations during the administration of the pilot project and participate in the program. We would also work with each participating agency to identify what, if any, additional authority may be needed and how best to obtain it.

Unlike C-TPAT, 3CE program eligibility would include only U.S. importers of record and any non-resident importers of record certified and validated according to the program requirements8 In addition, C-TPAT membership should serve as a gateway into the 3CE program. Specifically, as a necessary prerequisite, 3CE eligibility criteria would require

a company to have at least Tier 2 C-TPAT status before being accepted into the program. Since 3CE participants would already be certified and validated under C-TPAT, PGAs would not need to consider security issues in their respective 3CE risk assessments for individual importers.

Like C-TPAT, participants should be divided into compliance tiers with specific incentives9 provided for each tier:

g Tier 1 would include those participants certified as meeting program compliance requirements – i.e., the participant has provided sufficient evidence that it has adopted proper policies and procedures;

g Tier 2 would include those participants certified and validated as meeting those requirements – i.e., the participant has undergone on-site verification that policies and procedures described in its Tier 1 profile have been effectively implemented; and

g Tier 3 would include those participants exceeding program requirements by adopting and using recognized best practices.

However, we propose one change with respect to Tier 3 status. The 3CE program would only provide Tier 3 designation for security compliance under the current C-TPAT program because of the unique and nuanced risk considerations for security compliance. For other aspects of import compliance (commercial, health/safety, environmental/conservation, etc.), which involves a more scientific or analytic approach, a company is either compliant or not. As such, we see no need for a Tier 3 status with respect to non-security-related import compliance.

An important overlying concept in constructing the 3CE program is that a comprehensive system should lead to one uniform system, not numerous separate systems under one umbrella. Therefore, once the pilot program has completed testing the 3CE system, there should be a specified transition period, during which existing trusted trader programs would be merged into the 3CE program and, with the possible exception of C-TPAT,10 discontinued when that period ends. Current rules under those programs for non-certified and validated entities would continue and be administered under the 3CE program. Accounts of 3CE certified companies would be managed through the CEEs.

8 ISA already allows participation by non-resident Canadian importers of record. The 3CE program would allow participation of any non-resident importer of record, regardless of country of residence, as long as it is able to demonstrate a commitment to compliance and its internal compliance systems and practices meet program requirements.

9 The benefits section of this paper discusses in more detail the incentives available to participants at each tier.

10 As has been noted, the Safe Ports Act officially recognized C-TPAT, and it would likely take a further act of Congress to transition the program into 3CE.

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III. MEASURING COMPLIANCE

AAEI recognizes that compliance issues on product health and safety create certain unique challenges. However, we see no reason why those challenges cannot be adequately addressed under a comprehensive program like 3CE. To provide guidance to the agencies on this question, we offer the following chart identifying the factors that would go into determining and measuring compliance under the 3CE program.

I. THE AGENCIES

For the agencies, 3CE program benefits fall into four categories. First, the program must be consistent with and support each agency’s enforcement and oversight mission and mandate. As discussed in the section on risk, AAEI will work with the agencies to develop a matrix containing a clear description of each agency’s mandate and mission. This matrix will guide construction of the 3CE program so that it is consistent with and fully meets the need to support agency enforcement and oversight responsibilities.

Second, in the current political and budgetary environment, agencies cannot expect Congress to provide them sufficient additional financial or FTE resources to support their expanding responsibilities in regulating trade. This reality means agencies will have to be smarter about using their available resources.

Currently, enforcement and oversight efforts by many agencies demonstrate a particular lack of strategic thinking. The inclination by some agencies to demand as much information as possible from the regulated trade underscores this problem and suggests more a motivation to protect the agency from possible criticism, than a clear understanding of how to identify and prioritize risks the agencies ought to focus on to meet their enforcement and oversight responsibilities and advance their mission most effectively and efficiently. Unfortunately, an enforcement and oversight policy driven by trying to collect every scrap of information, regardless of its value or the ability of the agency to analyze it, or to address every conceivable threat regardless of its importance or relevance to the mission, is not a smart or strategic use of resources. It largely ends up placing unnecessary burdens on the Nation’s businesses and commerce with little value in return for effective enforcement, advancing the agency’s mission, and promoting compliance or support from the trade community.

The 3CE program will help the agencies use their existing resources more effectively and efficiently, thereby reducing or mitigating cost. The program’s focus on risk segmentation and management will not tie the agencies’ hands, but rather, will provide a useful guide to develop a more sensible and strategic approach to enforcement and oversight.

Third, the 3CE program will provide a framework to facilitate and enhance information exchange between and among agencies. This benefit will be achieved through the active involvement and collaboration of all import-regulating agencies to consolidate the several existing trusted trader

C-TPAT MEMBERSHIP

c Yes c No

OTHER PROGRAM(S) MEMBERSHIP ( ISA, CEE, VQIP, AEO, e tc. )

c Yes c No

ADOPTION OF INDUSTRY BEST PRACTICES

c Yes c No

INTERNAL CONTROLS

c Yes c No

AUDIT/TRANSACTIONAL RELEASE RECORD (COMPLAINCE RECORD)

c Yes c No

DEFINING BENEFITS

To be viable and garner sufficient stakeholder and government support, the 3CE program must offer tangible and meaningful benefits, not just to the trade community, but also to the participating agencies. These benefits can generally be described for both groups as enhancing efficiencies to ensure optimal and effective use of available resources.

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initiatives into a single unified and coherent program; employing an agreed-upon importer risk-assessment tool; and a single window, account-based interface with the trading community. Just using a common software system, like the International Trade Data System (ITDS), has proven to be a valuable mechanism for closer agency information-sharing and collaboration.

Fourth, the 3CE program will include a formal mutual-recognition system for foreign trusted-trade programs. This system would facilitate agency discussion between agencies participating in the 3CE program and foreign counterparts, thereby further helping to reduce the use of agency resources in the certification process. It would also provide an opportunity and a means for agencies to follow CBP’s practice of sharing information, best practices, and aligning processes/documentation, etc. with their counterparts in other countries. This will help streamline additional aspects of international trade, resulting over time in further efficiencies for both industry and government.

II. TRADERS

AAEI and the business community’s support for a comprehensive program envisioned by the 3CE initiative is premised both on the desire to promote good public policy and on the assumption that it will provide significant benefits to the regulated trade.11 As a rule, a program offering genuinely valuable benefits to those who join is more likely to generate greater and more enthusiastic participation.

An importer’s designation under the 3CE program would place it in a low risk category, which would provide it a range of benefits, including: lower administrative and compliance costs; more efficient and expeditious trade facilitation; lower business risk from more straight-forward compliance requirements; and greater business predictability from a well-defined risk-management system.

Within these general categories, AAEI members have identified the following specific benefits to 3CE-designated traders:

g Pre-Shipment g Movement away from transactional to account-

based clearances g Pre-arrival and pre-departure filing and release

g Single portal for electronic filing

g Release

g Reduced risk of release delays (e.g., inspections/examinations, holds, entry rejections)

g Faster cargo processing and clearance

g Single coordinated multi-agency release (single window)

g Simplified data entry(e.g., fewer data sets)

g Post-Entry g Mitigated penalties g Improved and coordinated information flow in

communications with agencies g Reduced audits g Complementary procedures and rules for

processing imports and exports g Mutual recognition of equivalent foreign programs

(e.g., AEO programs) g Movement toward risk-based enforcement

g On-demand (post-clearance) auditing

Focusing these benefits on facilitating trade while tying them directly to identified risk means that a certified low-risk, highly-compliant 3CE importer would not normally be subject to the same level of scrutiny as importers not so designated. Thus, absent credible, specific intelligence indicating a threat or potential violation, shipments of a 3CE-certified importer would be assured expedited and uninterrupted processing, clearance, and entry for consumption on arrival at a port of entry.

To assure swifter release and reduce delay, AAEI recommends that the 3CE program incorporate certain specific elements. For example, the Global Express Association’s proposed “Accelerated Border Clearance (ABC) Model” offers one possible option for simplified entry and clearance. The ABC model would reduce the current four-step process to two, beginning with required pre-shipment filings – e.g., 3CE certification, security filings, and entry documents – followed by expedited clearance and release and a deferred, post-entry period for duty payment, document review, and reconciliation. One expected benefit of this model to low-risk importers is a reduced risk of shipment delays due to inspections/examinations, holds, detentions, and entry rejections, a significant problem AAEI members identified with most PGAs, but particularly for imports regulated by the FDA and USDA/APHIS.12

11 For example, the Free and Secure Trade (FAST) and C-TPAT programs have provided significant benefits to shippers. There are currently 78,000 commercial truck drivers enrolled in FAST program, which allows expedited trade clearance and reduced inspections for known low-risk shipments entering the United States from Canada and Mexico by commercial carrier. The program operates at 34 ports processing commercial cargo along the northern and southern borders. See, CBP website at http://www.cbp.gov/travel/trusted-traveler-programs/fast.

12 The 2014 AAEI Trusted Trader member survey revealed that many (41 percent) believe CBP is doing a good job at trade facilitation, a result suggesting that CBP could provide a model for PGAs. In contrast, 51 percent of respondents rated FDA as poor on facilitating trade.

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Another way to reduce the risk of delayed entry and release for low-risk trade is to exempt 3CE-certified importers from certain types of inspections/examinations, such as stratified exams13 and random Non-Intrusive Inspections, which are often protracted, onerous, and generally not necessary for compliant shippers. For shipments subject to examination or product-safety testing, the program should also provide front-of-the-line privileges to 3CE certified importers and allow the importer to select any reasonable location for any non-security related examinations or tests.

One important component and benefit during the release phase would be the consolidation and streamlining of compliance data requirements as agencies move away from using transactional data to periodically-submitted, account-based data for low-risk 3CE importers. CBP has already begun putting this system in place through the CEEs and the Simplified Entry Pilot program, which could provide a model for other PGAs governing cargo entry and release for companies demonstrating strong security and compliance practices and internal controls.

Some other benefits during the release phase to facilitate clearance and entry have been identified by CBP in its Trusted Trade Program Test,14 including: (1) access to FAST lanes at highway border crossings from Canada and Mexico; and (2) front-of-the-line treatment for 3CE certified importers in event of a significant disruption or delay in cargo processing operations to ensure rapid resumption of business operations.

Finally, each tier of 3CE participation would provide the following specific benefits:

g Tier 1 - would be focused on actions to ensure no undue slowdown in treatment of cargo of a certified importer, including treatment as an account; smaller data sets; reduced inspections and audits; and elimination of transaction based user fees for periodic account-based fees.

g Tier 2 – would be focused on speeding up treatment of cargo of a certified and validated importer, including early quick release; front-of-the-line treatment; and faster processing.

g Tier 3 – would be focused on global trade facilitation for a best practices importer15.

In sum, enhanced trade facilitation benefits will provide lower administrative and compliance costs resulting from the greater efficiencies a comprehensive 3CE risk-management program would generate. For example, including all trade-regulating agencies and existing trade enforcement and trusted trader programs under one umbrella (i.e., single window) would remove redundancy from these various programs, including streamlining the importer application and validation process, and use of ITDS as a single data interface. These redundancies currently add significant costs to importers’ compliance systems while doing little to enhance and support enforcement and compliance. Significant reductions in time and cost and more efficient risk-based enforcement would also provide valuable incentives for more companies to adopt higher compliance standards and best practices.16

13 Stratified exams require matching specific goods to import documents for customs compliance, are particularly burdensome and time-consuming, and should not be required of companies certified and validated as being low-risk.

14 Announcement of Trusted Trader Program Test, 79 Fed. Reg. 34334 (June 16, 2014).

15 Several possibilities for Tier 3 benefits could include one-stop shopping for global certification and validation and a global fast lane.

16 Ideally, the government should provide periodic statistics (monthly and annually), demonstrating the substantive benefit of 3CE status with a comparator to non-designated companies.

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CALCULATING COST

The cost of the proposed 3CE program, both to the agencies and the regulated trade community, is clearly an important issue warranting further consideration and analysis. As discussed in the previous section, the greater efficiencies under a comprehensive 3CE program, combining various individual agency initiatives, should yield significant resource savings for the agencies. This conclusion is supported by statements of the agencies themselves, including CBP, which acknowledged a more comprehensive program would:

Achieve integrated U.S. government collaborations

that result in enhanced efficiencies leading

to a reduction in government-wide resource

expenditures; enhance information sharing between

government agencies; lower the administrative cost

of participants by streamlining the application and

validation process; and increase the efficiencies in

the existing trade programs.17

While it would be difficult at this point to provide an accurate estimate on those potential savings or projected costs of the 3CE program, one could best extrapolate based particularly on the CBP experience in its current trusted trader initiatives, C-TPAT and ISA.

For the regulated trade, savings would accrue mainly from reducing transactional costs (time and delay). The best cost estimation can be gleaned from the AAEI Benchmarking Survey18 and the COAC 2013 Trade Efficiency Survey, which looked more closely at the adverse impact of transactional costs on the regulated trade:

g Delays at time of entry – mainly holds, documentation requests, and exams – impact a significant number of shippers (over 80 percent in the AAEI survey and 65 percent in the COAC survey).20

g The number of impacted shipments was also significant – ranging as high as 25 percent – with delays reported between 1 and 3 days, at an average cost ranging from $500 to $1000 per delay.21

g Although exams are relatively infrequent, they typically result in a 2-4 day delay, costing shippers an average $1800 per exam.22

g These estimated costs do not include indirect costs due to delays, such as supply shortages, failure to fulfill orders, storage, and administrative expenses, all of which can be considerable.

g Even the normal cycle time for entry and release costs shippers on average $399 per entry.23

The greater efficiencies and trade facilitation benefits afforded by a 3CE program would significantly mitigate delays and transactional costs and shorten entry and release cycle times for program participants. These benefits would provide a considerable incentive for companies to seek certification under the program.

CONCLUSION

AAEI recognizes that this paper provides a new conceptual framework for developing risk-assessment profiles and leveraging those profiles across federal agencies. However, we believe operational efficiencies resulting from data submission sharing will generate significant cost savings. AAEI welcomes the opportunity to discuss possible ways by which trusted trade programs can be mechanically implemented.

17 Id. at 34334.18 AAEI, Benchmarking Results (2014).19 Advisory Committee on the Commercial Operations of Customs and

Border Protection (COAC), Trade Efficiency Survey (2013).20 AAEI Benchmarking Survey at 5; COAC Survey at 98.21 AAEI Benchmarking Survey at 7, 12; COAC Survey at 122. Not

surprisingly, industries experiencing the most clearance delays were pharmaceuticals, health and chemicals, textiles, agriculture, and consumer products. COAC Survey at 98.

22 Id. at 99.23 Id. at 98.

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S E C U R I T YC O M P L I A N C E

g DHS - CBP - Secret Service

g Defense

g Justice - ATF - FBI

g State

g Treasury - OFAC

C O M M E R C I A LC O M P L I A N C E

g BOC

g Commerce - Census

g DHS - CBP

g Energy - FERC

g FTC

g FCC

g ITC

g Treasury - IRS

E N V I R O N M E N TA LC O M P L I A N C E

g Commerce - NMFS

g DHS - CBP

g EPA

g FTC

g Interior - FWS

g Justice

g State

g USDA - APHIS

H E A LT H / S A F E T Y /C O M P L I A N C E

g CPSC

g DOT - FAA - FRA - MARAD - NHTSA

g EPA

g FDA

g FTC

g HHS

g USDA

A P P E N D I X O N ETRADE-REGULATING AGENCIES

14


Claib Cook (Secretary-Treasurer) General Motors Corporation

Jerry Cook Hanesbrands Inc.

Michelle Forte Charter Brokerage Services

Lori Goldberg (Vice Chair – Education and Annual Conference) Avery Dennison Corporation

Susie Hoeger Abbott Laboratories

Steve Johnsen (Chair Emeritus) Bayer Corporation

Karen Kelly (Vice Chair - Membership and Communication) Becton Dickinson and Company

Bruce Leeds Braumiller Law Group

Michael Leightman Ernst & Young, LLC

Robert Leo Meeks, Sheppard, Leo & Pillsbury

Karen Lobdell Integration Point

Matt McGrath Barnes, Richardson & Colburn

Kathleen Murphy Drinker Biddle & Reath LLP

Shanna O’Brien (EC) Eaton Corporation

Julie Parks (EC) Raytheon

Steve Pasienski (EC) Toyota Motor Sales, U.S.A., Inc.

Beth Peterson BPE Global

Mike Rafferty Mercedes-Benz US International, Inc.

Richard Salamone BASF Corporation

Lee Sandler Sandler, Travis & Rosenberg

Mel Schwechter BakerHostetler

John Sega Northrop Grumman Corporation

Katherine Terricciano (Chair) Philips Electronics N.A.

Virginia Thompson Crate & Barrel

Matthew Varner Nike Inc.

Theresa Walker Cargill, Incorporated

Ken Weigel Alston & Bird

Phyliss Wigginton (Chair-Elect) Mitsui & Company (USA), Inc.

Kevin Willis Tyco Fire & Security

Doug Zuvich KPMG LLP

AAEI’S BOARD OF GOVERNORS

a blueprint to trust - aaei · 2014. 12. 10. · verified u.s. and non-resident importers of record...

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