U.S. Customs to Require Importer Security Filing

A multi-year effort by U.S. Customs and Border Protection (CBP) to obtain additional data elements for maritime shipments is now moving from the conceptual to the implementation stage, with importers and vessel carriers facing new requirements for security filings as of January 25, 2009.

However, a lengthy campaign by many traders resulted in substantial changes to CBP's proposed approach, and there is even a possibility that additional changes could be made to the new program during the upcoming year.

When CBP first began its effort to require the new security filings, Customs officials indicated the agency intended to implement the data requirements first for ocean shipments, and would then seek similar changes for other modes, including air.

But the revisions made to CBP's approach, including a decision that effectively delays finalization of aspects of the new requirement for roughly a year, make it less likely that other modes will face similar requirements in the near future, providing some breathing room for those in the air cargo supply chain.

CBP Effort to Require New Advance Data Elements

In October 2006, Congress passed the SAFE Port Act, which included a provision authorizing CBP to require new data elements for maritime shipments.

The data was to be provided electronically, in advance of the shipments, as a means of enhancing CBP's ability to target high-risk cargo. Shortly after the law's passage, CBP issued a "strawman" proposal on its website, outlining several additional data elements to be provided by importers and carriers in advance of cargo being loaded onto vessels, and soliciting comments from the trading community.

After considering these responses, CBP next issued a notice of proposed rulemaking (NPRM) in the Federal Register of January 2, 2008.

The NPRM hewed closely to the original CBP proposal.

It was generally referred to as "10+2" by members of the trading community, because it would require importers to file 10 new data elements prior to the cargo's lading, while carriers would have to file two new elements.

Throughout the process of establishing a 10+2 regulation, CBP has consistently maintained the new data elements are needed prior to lading to help prevent terrorist weapons from being transported to the United States.

CBP officials repeatedly expressed their belief that the data were reasonable and necessary to improve CBP's targeting abilities.

From the start, many members of the trade community raised concerns with CBP's proposed approach and questioned whether it would produce improved security sufficient to offset the considerable cost of compliance.

Of the 10 elements to be required of importers - seller, buyer, manufacturer or supplier, location where container is filled, "ship to" party, consolidator or stuffer (the entity filling the container), importer of record number (or FTZ number), consignee number, country of origin, and Harmonized Tariff Schedule number - some caused more consternation than others among importers, who argued that, given supply chain practices, they simply do not have access to certain data elements 24 hours prior to shipping.

They further noted the cost and complexity have access to certain data elements 24 hours prior to shipping.

They further noted the cost and complexity involved in reconfiguring entire supply chains to meet the new timeline proposed by Customs.

Maritime carriers focused their efforts on clarifying their two requirements (a vessel stow plan and container status messages) and ensuring they could be provided under manageable timelines.

Concerned importers worked their cause primarily through the National Association of Manufacturers (NAM), which mounted a vigorous campaign against CBP's proposed approach.

NAM estimated compliance with the NPRM would cost importers $20 billion per year, and asked why companies participating in the Customs-Trade Partnership Against Terrorism (C-TPAT) were not exempt from the requirements so that CBP could focus resources on higher risk trade.

NAM also contended that, instead of imposing a new rule requiring widespread changes in supply chain practices and compelling industry to absorb the substantial costs, CBP should instead conduct a full-fledged pilot that would accurately assess the costs of compliance and the supply chain changes needed to comply with the NPRM.

As the economy nosedived throughout the fall, NAM gained sympathetic ears in the halls of Congress and some government agencies which believed the compliance costs might indeed be too high.

As a result, CBP was forced to make some significant changes to its rule before it could obtain interagency clearance for publication.

Changes to CBP's Approach

On November 25, 2008, CBP published in the Federal Register its new rule requiring an importer security filing (ISF) - and the version published held several important changes from earlier CBP proposals.

The first was the nature of the regulation itself, which was issued as an interim final rule, rather than a final rule.

The distinction is far more than semantic: while the interim rule will take effect January 26, 2009, it will be subject to additional evaluation and potential modification, whereas a final rule would have been dispositive.

In another significant change, CBP reduced the potential penalties for noncompliance. Whereas the NPRM proposed penalties equal to the value of the merchandise, the interim final rule changes that to $5,000 per violation. CBP also agreed to "informed compliance" for the first year of the rule, meaning it will not impose liquidated damages for non-compliance through January 25, 2010 - and the informed compliance period may be extended past the current deadline.

In addition, CBP will not issue "do not load" messages to carriers simply due to failure to submit timely, accurate and complete filings, provided importers are making good faith efforts to meet the rule's requirements.

Finally, CBP agreed to a "structured review" of aspects of the new rule, which could result in modifications prior to issuance of a final regulation.

The interim final rule requires importers or their designated agents to make an Importer Security Filing (ISF) consisting of the 10 data elements from CBP's original proposal.

The ISF is to be filed electronically, using existing CBP automation systems. While the data elements remain the same, CBP will allow flexibility with respect to the timing and content of some of them.

Specifically, CBP will require eight data elements to be filed by importers 24 hours prior to cargo lading: manufacturer, country of origin, Harmonized Tariff classification, "ship to" party, seller, buyer, importer of record or FTZ number, and consignee number. However, for the first four, CBP will be flexible with respect to content, allowing importers to provide the best available information at the time of filing, and to make subsequent changes as they receive better information.

Furthermore, CBP will allow importers to file the final two data elements, the name and the location of the party filling the container, any time during the vessel's voyage provided they are filed no later than 24 hours prior to arrival at the first U.S. port.

Additionally, carriers are required to file their stow plan not less than 48 hours after the vessel departs the last foreign port or, for trips of less than 48 hours, upon arrival at the U.S. port.

Carriers must also provide container status messages reporting changes in load status. The interim final rule also imposes requirements for freight remaining on board ("FROB") during stops in U.S. ports and transiting on to foreign ports.

The following are required at any time prior to lading: booking party, foreign port and transiting on to foreign ports.

The following are required at any time prior to lading: booking party, foreign port of unlading, place of delivery, "ship to" party, and HTS classification.

Throughout extensive debates with industry and other government agencies over 10+2, CBP vigorously resisted calls for a pilot, arguing it was unnecessary.

However, CBP did agree to a "structured review" as part of the interim final rule.

As part of its review, CBP will accept comments from interested parties through June 1, 2009, regarding the flexible data elements and cost of compliance with the interim final rule.

CBP also intends to hold public meetings around the country to explain the new requirements and solicit feedback from the trading community on their impact.

CBP says it will use that input, along with formal comments submitted by June 1, to complete its structured review.

At this stage, it is unclear what changes, if any, the structured review will produce - but CBP has at least committed to conduct such an analysis.

Subsequent to the review, there will be additional interagency discussions on whether to eliminate, modify or leave unchanged the various requirements being evaluated.

Upon conclusion of these discussions, CBP will presumably issue a final rule reflecting any changes resulting from this process.

Conclusion

The changes embedded in the interim final rule guarantee that the debate over 10+2 for maritime shipments will continue for some time.

For the next year, at the very least, affected importers will be aiming to scale back the scope of the final rule, and are likely to seek support from the same agencies and congressional offices who backed them previously.

The economic recession and the new Administration, which will bring Obama appointees into key positions in all the relevant agencies, may also influence the process in ways that simply cannot be predicted at this point.

From an air cargo perspective, the continuing uncertainty over the outcome for ocean shipments delays the day when a version of 10+2 may be rolled out for air shipments.

Given the ongoing phase-in of new aviation cargo security requirements by TSA and the continuing focus on the air mode by Congress, this delay provides a welcome respite.

Nonetheless, given the continuing potential impact on aviation, it will be important to track the 10+2 process as CBP moves to finalize its approach on the new data elements. Source: TIACA