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In the United States, the tragic terrorist events of September 11, 2001 forever altered the way we process and think about global commerce. To be sure, the proliferation and scourge of smuggling has been a problem for many years, but in a post September 11th environment, the concerns related to a secure supply chain grew exponentially. The smuggling of drugs, counterfeit goods, laundered money and/or human smuggling was now overshadowed by concerns about a “nuke in a box”. What if a terrorist organization could successfully penetrate and exploit an otherwise legitimate supply chain to introduce a nuclear weapon or a weapon of mass effect, such as anthrax?
In the weeks and months following the September 11th attacks, the legacy U.S. Customs Service (now called U.S. Customs and Border Protection or CBP) engaged the trade community in an effort to best determine how to secure the supply chain. Initially CBP considered creating a mandatory security program that would apply to all shippers and all U.S. imports. But then, common sense and their consultation with the U.S. trade community altered that approach. To be successful, it was widely believed that such a program should be voluntary, not mandatory. The thinking was that a voluntary program would incentivize those companies who want to do the right thing and come forward willingly; in the end such a program would help CBP identify the “known” consignments from the “unknown”. Conversely, if the program were made mandatory, all U.S. importers would be required to undertake the minimum supply chain security requirements; and the result would not help CBP differentiate from a “trusted shipper” versus a new or “unknown shipper”.
Additionally the U.S. trade community was very vociferous in their beliefs that compliance with trade laws and supply chain security are mutually exclusive; that is each pillar should stand on its own merit. While highly compliant companies are more likely to also have a robust security program, the “price of admission” into a supply chain security should not be dependent on rigorous compliance audits or tax inquiries. Such obstacles do little for incentivizing companies to participate in a program and blur the bright lines of distinction between compliance and security. After much thought and deliberation, CBP correctly adopted the right approach and today the U.S. Customs-Trade Partnership Against Terrorism (C-TPAT) program is a voluntary program devoid of measured compliance metrics.
The C-TPAT model was actually borrowed from the Business Anti-Smuggling Coalition (BASC), which may also be known in other countries as the Business Alliance for Secure Commerce. In the late 1990’s, as the drug smuggling problem into the U.S. became more pervasive and the cartels began to exploit otherwise legitimate supply chains to move their illicit contraband, CBP developed BASC. It was a voluntary security program designed to harden a supply chain to protect against unlawful contamination. After the attacks of September 11th, the BASC model was essentially retrofitted from an anti-drug smuggling program to be an anti-terrorism program designed to prevent and/or detect the unlawful introduction of any kind of contraband into the supply chain.
So, the U.S. C-TPAT program is a direct outgrowth of the terrorist attacks of September 11th, and is one of many layers of supply chain security adopted by CBP. Today, the U.S. C-TPAT program has been widely recognized as one of the most successful private and public partnerships ever created. The program has more than 10,000 members and offers benefits to those companies in good standing. Some of the other supply chain security layers that complement C-TPAT are, the Container Security Initiative (CSI), radiation portal monitoring at foreign ports, the Importer Security Filing (ISF), and the advanced targeting of inbound containers.
In June of 2005, the Brussels based World Customs Organization (WCO) adopted the SAFE Framework of Standards to Secure and Facilitate Global Trade (SAFE Framework). The WCO is made up of 180 customs administrations around the world and its members are responsible for managing 98% of the world’s global trade. Once adopted, other customs administrations around the world began designing and implementing their versions of supply chain security regimes. Today, there are a number of different supply chain security programs that have been fully implemented by some of the WCO Members; others are still being designed and deployed. Once implemented, the U.S. (along with other WCO Members having security programs in place) begin to negotiate Mutual Recognition Agreements (MRA’s); whereby each customs administration validates the security requirements and practices of the other. To date, the U.S. has signed a total of ten (10) MRA’s:
- New Zealand - June 2007 – New Zealand Customs Service’s Secure Export Scheme Program
- Canada - June 2008 – Canada Border Services Agency’s Partners in Protection Program.
- Jordan - June 2008 – Jordan Customs Department’s Golden List Program.
- Japan - June 2009 – Japan Customs and Tariff Bureau’s Authorized Economic Operator Program.
- Korea - June 2010 – Korean Customs Service’s Authorized Economic Operator Program.
- European Union - May 2012 – European Union’s Authorized Economic Operator Program.
- Taiwan - November 2012– Directorate General of Customs, Taiwan Ministry of Finance’s – Authorized Economic Operator Program.*
- Israel – June 2014 - Israel Tax Authority’s Authorized Economic Operator Program.
- Mexico - October 2014 - Mexico Tax Administration Service's New Scheme of Certified Companies (NEEC) Program
- Singapore – December 2014 – Singapore Customs’ Secure Trade Partnership (STP) Program
The WCO, to which Peru is a signatory, offers its members a number of tools and guidance to assist in the creation of a meaningful supply chain security program. Under the guise of the WCO SAFE Framework, Peru created an AEO program in 2012, the program however has been met with timid results and only a small number of Peruvian companies who may qualify have joined the program. This might be because applying for Peru AEO status is also accompanied by a strenuous tax assessment; in my opinion it is similar to being punished for trying to do the right thing. Peruvian customs authorities would be well-advised to reconsider this approach. I realize that the term or word “partnership” is foreign to many customs authorities, but I am a fervent believer that a true partnership between the public and private sector must be the cornerstone of any meaningful supply chain security program.
Research data published by Transparency International and the Freightwatch International Threat Assessment characterize Peru as having many opportunities for improvement in the area of corruption and security. As such, Peru is viewed by the rest of the world as a medium-high to high risk country as it is related to supply chain security. In order to maintain its competitive advantage in the global trade markets much needs to be done to improve the integrity and security around Peruvian exports. Carrying a high risk rating means that most imports to the U.S. from Peru will be fully scrutinized; often resulting in substantial delays and extra costs for the U.S. importer. This dilutes Peru’s ability to compete with countries that already have meaningful supply chain security programs in place, or lower risk ratings.
The tragic events of September 11th fully illuminated the necessity for increasing the security around all supply chains, for all modalities. The U.S. government and the U.S. trade community have made a quantum leap forward in this regard, and today many other countries around the globe are following that lead by developing their own versions or iterations of a supply chain security program.
About the Author
Michael Laden is the Chief Executive Officer of Trade Innovations, Inc., a Minneapolis, MN based consultancy. He is a recognized expert in the customs compliance and the supply chain regulatory environment and he has more than 35 years of experience in the international trade industry. Prior to founding Trade Innovations in 2005, Mr. Laden was the Director of Global Trade Services for Target Corporation. He has been licensed as a customs broker by U.S. Customs and Border Protection (CBP) since 1981. Mr. Laden is also credited with developing some of the most creative and ingenious customs compliance programs, policies and procedures; allowing his employer to achieve unprecedented levels of compliance, while lowering associated landed costs.
In 2001, Mr. Laden was instrumental in the design and development of the Customs-Trade Partnership Against Terrorism (C-TPAT) program. His article, The Genesis of the U.S. C-TPAT Program: Lessons Learned and Earned by the Government and Trade was published in the World Customs Journal, Volume 1, Number 2; September 2007.
Mr. Laden has testified before the House Ways and Means Committee and the House Subcommittee on Appropriations concerning Customs Commercial Operations and Enforcement Policies. He also appeared as a witness before the Senate Governmental Affairs Committee on matters related to container security and operations in a post September 11th environment. Mr. Laden has been a featured speaker on CBP and related matters before many national organizations. He travels extensively and has taught the fundamentals of importing to thousands of foreign suppliers and manufacturers worldwide.
 World Customs Organization SAFE Framework of Standards to Secure and Facilitate Global Trade, June 2015
 World Customs Organization Guidelines for Developing a Mutual Recognition Arrangement/Agreement