Universal Cargo Management

House Committee Approves Container Security Bill Without 100% Screening

The House Homeland Security Committee unanimously approved the Security and Accountability for Every (SAFE) Port Act (H.R. 4954) on April 26. Lawmakers made several amendments to the bill, which could come to the House floor as early as next week, but a proposal to require 100% scanning of all inbound cargo containers was not among them.

The amendment, which had been proposed by Representative Ed Markey (D-MA), would have required the Department of Homeland Security (DHS) to ensure that all such containers are scanned using the best-available technology, including scanning for radiation and density, before they are loaded onto a ship destined for the US. This requirement would have been imposed within three years for larger ports and five years for smaller ports. The measure would also have required cargo containers to be sealed with a device that indicates if the container has been tampered with in transit and notifies U.S. officials of the time and place of any such breach before the container enters U.S. waters. Business groups had vigorously opposed Markey’s proposal, arguing that it would slow international trade flows, thus increasing risks of theft or tampering, and require technology and processes that are not yet operationally viable.

Committee members did, however, approve a separate scanning-related amendment. According to International Trade Daily, this provision would require the DHS to “evaluate the development of nuclear and radiological detection systems for use at foreign ports” and within one year “determine whether adequate technology can be deployed at foreign ports.” The U.S. would be able to reject “cargo from ports whose foreign governments refuse to cooperate if the United States decides to step up inspections overseas.”

Other provisions of the bill that remain unchanged would:

• require the DHS to develop a strategic plan to enhance international supply chain security for all modes of transportation by which containers arrive in, depart from or move through U.S. seaports;

• require the DHS to develop protocols for the resumption of trade in the event of a transportation security incident, with preferences associated with participation in current supply chain security programs;

• require the DHS to collect entry data, in addition to manifest data, from importers before a container is loaded at a foreign port;

• formally establish the Container Security Initiative (CSI) and require the DHS to conduct security assessments for foreign ports interested in participating in the program;

• codify the Customs-Trade Partnership Against Terrorism (C-TPAT), establish minimum participation standards, and divide program membership into tiered categories based on the level of each company’s security cooperation;

• establish within the DHS the position of director of cargo security policy; and

• provide, through a dedicated grant program, risk-based funding for hardening U.S. ports against attacks and enhancing capabilities to respond to attacks and resume operations.

CBP Announces Mandatory C-TPAT Security Link Internet Portal

U.S. Customs and Border Protection (CBP) has announced the upcoming implementation of a new Customs-Trade Partnership Against Terrorism (C-TPAT) Internet application and communications portal. The C-TPAT Security Link Portal, once it becomes operational in May, will be mandatory for all eligible participants.

As part of the new program, C-TPAT participants will have to access and update all C-TPAT Security Link Portal account information, including their current C-TPAT supply chain security profile, based on the following implementation schedule dates:

• July 1 for importers, U.S.-Canada and U.S.-Mexico highway carriers, rail carriers, sea carriers and air carriers; and

• August 1 for customs brokers, U.S. marine port authority/terminal operators, air freight consolidators, ocean transportation intermediaries, non-vessel operating common carriers (NVOCC) and foreign manufacturers.

If a C-TPAT participant fails to update this information by the date required, its application will be considered withdrawn; all C-TPAT benefits, including reduced and expedited CBP exam processing and Free and Secure Trade (FAST) lane access, will be removed; and the company would be required to re-apply for the C-TPAT program.

CBP states that it is making participation in this portal mandatory in order to:

• improve communications between C-TPAT participants and certified members;

• allow participants to receive information directly from CBP, to include cargo security alerts and sanitized intelligence information;

• create uniform processing;

• streamline C-TPAT application processing;

• provide completely paperless processing;

• provide a structure to facilitate the construction and maintenance of the C-TPAT supply chain security profile, which outlines the participant’s commitment to C-TPAT criteria and/or guidelines; and

• ensure that all C-TPAT participants update and maintain all C-TPAT information.

A C-TPAT Security Link Portal account can only be created or modified by the C-TPAT participant’s point of contact (POC). At least one POC must be a company officer or employee and have a valid e-mail address registered with C-TPAT. Using the e-mail address as a logon ID, the primary C-TPAT POC will be granted access to create a portal account. This e-mail address must be currently on file with the C-TPAT program and belong to either a company employee or officer. The primary C-TPAT POC will be able to add additional users for access to the company’s portal account. Each user assigned by the primary C-TPAT POC will be required to have a valid e-mail address and create a unique password.

CBP notes that access to all C-TPAT participant information found in the C-TPAT Security Link Portal, such as company name, business information, supply chain security profile, etc., will be held as confidential within the C-TPAT program and not shared unless it is authorized by the primary C-TPAT POC or one of the designated authorized users.

Pending the implementation of this new system, the C-TPAT online application process has been temporarily suspended. No new C-TPAT applications will be accepted until the new system is available within the next few weeks.

Hu Jintao Visit Fails to Make Concrete Progress

A meeting between Chinese President Hu Jintao and President Bush on April 20 garnered no new promises from the Chinese leader on the divisive issues of China’s currency valuation, intellectual property rights (IPR) protection and additional market access for U.S. goods. Some U.S. groups were critical of the lack of any real advancement during the official visit following the record $202 billion trade deficit with China in 2005. “The President failed to make any significant progress in talks with his Chinese counterpart,” said Kevin Kearns, president of the U.S. Business and Industry Council, which represents many small- and medium-sized enterprises (SME) in the U.S.

Congress has increasingly warned that it plans to take action if it doesn’t feel that appropriate steps are being taken by China to rein in the spiraling deficit. Ranking Member of the Senate Finance Committee Max Baucus (D-MT) said, “I am extremely disappointed that President Hu did not commit to take concrete steps to allow China’s currency to reflect market forces.” Baucus and Senator Charles Grassley (R-IA) introduced legislation on March 28 primarily aimed at resolving currency and trade enforcement issues between the U.S. and China. Grassley suggested that he would be watching closely over the coming weeks to see what action is taken in order to decide whether to move forward with the bill.

Additional legislation regarding China, including a bill introduced by Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) that would impose an additional 27.5% duty on imports from China and a House bill that would allow countervailing (CV) duties to be imposed on non-market economies, is also awaiting congressional action. In addition, the Treasury Department is expected to submit a report to Congress soon that could label China a “currency manipulator.” Treasury delayed submitting the report until after Hu’s visit.

CBO Reports on Effects of Container Shipment Disruptions at LA/Long Beach

The Congressional Budget Office (CBO) recently released a report detailing the economic costs of disruptions in cargo container shipments at the ports of Los Angeles and Long Beach. Specifically, the CBO examined the consequences of (a) an unexpected one-week halt to all container traffic through LA/Long Beach and (b) an unexpected three-year halt to all container traffic through those two ports as well as a precautionary one-week stoppage of container shipments at all U.S. ports. The agency stressed that this analysis focuses on the impact of lost trade opportunities and does not estimate the cost of other losses that might occur at the same time; e.g., in the case of a terrorist attack, the cost of replacing lost capital and equipment or the cost of subsequent security changes.

The CBO estimated that a one-week shutdown would result in a loss of production (gross domestic product, or GDP) of between $65 million and $150 million per day. Daily costs would be at least that large in the second scenario; simulations suggest that a three-year shutdown would reduce real (inflation-adjusted) GDP by 0.35-0.55%, or $45-70 billion, per year, which translates into daily costs of $125-200 million. Other effects would include higher inflation (two percentage points in the first year) and lower employment (an average of one million jobs lost per year).

The CBO noted that a long-term shutdown at LA and Long Beach would probably affect retailers more than manufacturers, for two reasons. First, manufacturers that use the just-in-time inventory control methods that are most sensitive to shipping delays are likely to also have sophisticated logistics systems that enable them to find alternate supply routes on short notice. Second, most of the containerized imports that arrive at these two ports appear to be finished goods rather than intermediate inputs

Emerging Trends in China Could Help Resolve Trade Irritants with U.S.

According to press reports, there are early indications that China’s status as the premier destination for low-cost manufacturing may be slipping. Labor-intensive production of clothing, toys, and other goods is beginning to move out of China to countries like Vietnam and Bangladesh, where costs are lower. If it continues, this trend could eventually help ease China’s soaring trade surplus with the U.S., something that years of cajoling and threatening from Washington has been unable to do.

The emerging situation has been fostered by a relatively recent change in Beijing’s economic policy. For most of the past 20 years this policy focused on creating jobs for the millions of people that migrated from China’s interior to the coastal cities. The result was an increase in factories producing goods that required relatively unskilled labor and were largely destined for foreign markets.

Increasingly, however, this approach does not fit the domestic and global environments. Within China, wages are on the rise as workers become more skilled and the availability of cheap labor from rural areas begins to wane. Higher wages have yielded a growing middle class with more purchasing power, and the government is therefore encouraging factories to produce more for domestic consumption. This, in turn, could reduce exports to the U.S. and thus ease the pressure from Washington for more balance in bilateral trade.

Beijing is also seeking to promote more value-added manufacturing by Chinese companies. This effort is primarily designed to establish a foundation for steady, sustained domestic economic growth, but officials also hope that higher end goods will be less vulnerable to unfair trade allegations, and the penalties and restrictions that can result, in foreign markets. Such a shift could ultimately help resolve some other outstanding issues in the U.S.-China trade relationship; e.g., producers of high-value goods will have a strong financial incentive to push for better enforcement of intellectual property rights (IPR), more government transparency and more efficient customs processes.