DHS’ Proposed Data Warehouse:
The Global Trade Data Exchange (GTX)

     The Department of Homeland Security will soon issue an official solicitation to test the controversial concept of a global information warehouse intended to enhance security screening of international cargo. Information on the concept is sketchy. The idea is to create a third-party nongovernmental data warehouse owned and operated by the private sector that will collect commercial transaction data from all parties in the supply chain. As envisioned by DHS, the information aggregated by the data clearinghouse would be used to improve risk assessment in international trade and the information would be shared globally, flowing to the country of shipment destination.
      It is ironic that the vision of this private sector-owned and operated data warehouse has evolved without the input of the private sector trade who would provide the data so essential to its success. It is an idea conceived and developed entirely in a vacuum without the benefit of practical import/export industry consultation. We approach GTX with great skepticism. Congress should communicate the same reaction and insist that certain key questions are addressed before a decision to proceed is made. Questions include:

  • Who will manage GTX and to whom will this private entity be accountable? How can reliability of systems and data be assured when one or more private sector entities are interposed between CBP and the trade?
  • What information will be collected and how will it be used?
  • What is the relationship to state of the art systems now nearing completion -- ITDS (International Trade Data System) and ACE (Automated Commercial Environment)? Indeed, what is the role of current programs designed to increase data inputs to ACE, including the 24 hour rule and the yet-to-be implemented 10+2? Does it make sense to take off in a completely new direction when new initiatives under the Safe Port Act are just being implemented? What are the costs – to taxpayers, to shippers, to consumers – of yet another venture? At what point does GTX become a costly, duplicative and unnecessary new layer?
  • Who owns the data? Who has access to the data and what is the obligation of GTX to the US government?
  • How can this massive amount of confidential commercial data, managed by a private entity, be protected? In particular, do we really want to share confidential business information about US companies with foreign governments, with little or no control over how it will be used or disseminated? The prospect of having confidential business information leaked by a foreign government to an overseas business competitor is alarming.
  • What are the security implications of entrusting a significant amount of critical supply chain data to the care of a private sector entity and then sharing that information with a foreign government? Who in the foreign government will have access to the data? Can we seriously rely on that government’s ability to protect the data?

      Pending DHS appropriations legislation provides $15 million that, among other things, funds start-up of GTX. Congress should closely scrutinize this project before another penny is spent.

The Need For A Practical Risk-Based Approach

      Congressional attention is rightfully focused on ways to strengthen the FDA’s inspection of imported food. The volume of food imports has never been greater and will continue to grow in the years ahead. At the same time, FDA’s resources for food safety and nutrition have declined – from $48 million to $28 million over the past decade.
The search for a solution must above all be guided by a sharp pragmatism. It requires a realistic understanding of the supply chain – of the diverse and complex transactions that accompany the flow of goods. It demands refined systems and programs grounded in the reality of today’s port environment, where up to 20,000 containers can arrive at the largest US ports every day. Without this, we will end up with elaborate solutions that make us feel good but will not protect the food supply.
Members of the National Customs Brokers and Forwarders Association of America are in a unique position to offer insights into this process. We serve as the interface between the importing public and CBP, FDA and other government agencies, facilitating the entry of goods and complying with government rules. It is from this perspective that we offer the following observations about the draft Energy and Commerce bill now being considered:

  • Restricting the Number of Ports for Food Shipments: The Dingell draft bill patterns itself after the USDA’s inspection program for meat, poultry and eggs by restricting the number of ports for food shipments to enter the US. Yet, such a restriction ignores the sheer magnitude and diverse range of the FDA-regulated food products. Unlike meat, poultry and eggs, which comprise a narrow subset of the total food imports and number only 2.6 million shipments per year, the FDA-regulated food imports total 10.4 million. This includes everything from herbs to raspberries to soft drinks to catfish to processed foods, food preservatives, emulsifiers and stabilizers, and the list goes on.
    To shift all 10 million plus shipments to a handful of selected ports would have profound collateral consequences for every single US port, impacting CBP staffing, Coast Guard operations, dockworkers, terminal operators and port infrastructure. For the designated FDA ports, serious port capacity and intermodal congestion issues arise when you consider that 4000 containers can average 2000 truck moves and 10 stack trains of 200 containers each. Such a shift would also revamp shipping patterns in ways that produce costly inefficiencies in the supply chain. Food shipments cross the northern and southern borders every day and yet, with no FDA labs located on the borders, does this mean all food shipments must be rerouted to the East and West Coasts and brought to the US by water?
    Moreover, the logistics of FDA inspections are such that restricting them to specified ports would not measurably improve the process. Regulated FDA food items must be examined outside of the container. If testing is required, a composite random sample must be taken. This may preclude accurate inspections at the point of arrival, since cargo in a sealed container cannot be unloaded at the point of discharge. Therefore, if off-site inspection must be conducted, then sampling can readily be done at any port and sent by overnight courier to any FDA laboratory for analysis.
  • Penalties: We probably all agree that anyone responsible for negligently introducing contaminated food into the US market should have the book thrown at them. For the culprits, penalties should be severe. The draft bill does include tough civil penalties – from the current level of $1000 to up to $500,000! However, it exposes just about everyone in the supply chain to these new penalties. Any company that "introduces into interstate commerce or delivers for introduction into interstate commerce" an article of food that is adulterated is subject to civil penalties of up to $500,000. There is no differentiation whatsoever between those who knew or should have known there was a problem with the product and those who are simply present in the supply chain with no knowledge or control over the contents of the container they are moving.
    Nor does the proposal differentiate between adulterated foods which are not injurious to public health and can be brought into compliance versus products introduced knowingly or negligently that are harmful to public health. For example, a can of peaches with pit fragments may be considered "adulterated," yet FDA may allow it to be relabeled or otherwise reconditioned to meet FDA standards. This should not be in the same penalty category as dried apples preserved with a carcinogenic chemical. In short, the tough new penalty provisions should be more narrowly focused so it is the bad actors with the bad products who are punished and not other participants in the import process with neither knowledge nor control over the contents of a shipment.
  • Inadequate Resources: The FDA’s food inspection program has suffered from a lack of funding for years. It is telling that the USDA, which oversees only about one-fourth as much food, gets four times the funding for food inspection that FDA receives. Nor has the FDA been aggressive in its funding requests for this function. Internal bickering within the agency has also hampered FDA’s performance. All of this has created a self-perpetuating cycle where lack of resources reinforces the lack of commitment which fosters less funding and so on. Changing this cycle will require more than just an infusion of money. It calls for a new mindset at FDA and a reinvention of its import program.
  • Certification of Foreign Facilities: The draft bill again follows the USDA model by requiring FDA certification of all foreign food facilities, which would include every manufacturer, processor, packager, warehouse and others in the supply chain. While the concept of certification is appealing, it is at best a fanciful notion when it comes to food imports. We are not talking about a manageable number of slaughterhouses or meat packing plants as with the USDA. China alone is estimated to have up to 1.5 million food producers, a large percent of which are farmers deep in the Chinese provinces. When you consider that US food producers often go 15 to 20 years between inspections, it defies common sense to expect the FDA to provide any meaningful certification of millions of food producers around the globe. It cannot be done.
    Nor is certification of a foreign facility the most efficient approach to individual product safety. A facility may change its product structure and processing procedure over time. An alternative approach would be to enhance and increase enforcement of the "Hazard Analysis and Critical Control Point" (HACCP) program now being used by the FDA. This program was developed for NASA Space Program food protection and is very effective if followed. This program places the responsibility for quality and standards on the manufacturer, producer and grower without physical foreign intervention by FDA.
  • User Fees: The food inspection arm of the FDA has been chronically underfunded for the past decade. Now that flaws in the system have surfaced, Congress turns to "user fees" to close the funding gap. And yet this is not a fee for a service that primarily or exclusively benefits a defined class of users. Is there any more valid public function than the protection of our food supply? The benefits of having well-stocked grocery stores with a wide variety of safe foods at a reasonable cost accrue to each and every consumer. This represents just another attempt to foist the cost of government functions to industry – a pattern that only serves to burden the movement of products through the supply chain.
    The proposed fee collection based on a FDA line item places an unfair burden on certain commodities and industries, For example, produce coming from Mexico is harvested from many small growers and consolidated into one shipment for movement and entry into the US. For food safety purposes, each grower would require a separate FDA line item and thus the importer would be charged perhaps 20 separate fees for the one shipment. In theory, with low value produce the fee could exceed the value of the importation.
    To the extent user fees are established, every penny must be used solely for enhanced staffing, training and automation and not diverted to other federal programs or agencies.
  • Low-Risk Food Importers Program: The draft bill borrows a page from Customs and Border Protection (CBP) in calling for a voluntary industry program to strengthen the food supply chain and provide expedited inspection processing to importers who participate in the program. We favor this approach. Our only criticism is that the bill does not incorporate other critical features of a risk-based, targeted inspection program that are an integral part of such a low-risk food importers program. Without an integrated, risk-based automated system where the right data elements can be analyzed to accurately target risks, the food importers program is just another "best practices" exercise with limited value.

      We note that the Low-Risk Food Importers Program is also similar to the HACCAP program discussed above which only needs revised guidelines and more enforcement.

* * * * *

      Any redesign of FDA’s food inspection program must rely on modern risk assessment procedures, where critical data about shipments, suppliers, importers and processors is analyzed and manipulated to better target FDA’s inspection resources to identify high risk food imports. This should be the heart of a reengineered FDA food inspection program. Yet, the draft bill does not address this at all.
Nor does the draft bill incorporate in any way the requirements of the BioTerrorism Act of 2002, which requires that foreign and US food importer, manufacturer, supplier, processor, warehouse and others to register with the FDA and provide prior notice of imports into the US. This is valuable information that should be the foundation of a redesigned risk-based FDA food inspection program.
Yet, FDA’s automated system – OASIS – is largely outdated and incapable of providing the kind of robust analysis of the data to effectively target high risk shipments. The focus of this legislation should be squarely on enhancing FDA’s automation capabilities and facilitating a smooth interface with CBP’s Automated Commercial Environment, a state of the art system now near completion with sophisticated targeting capabilities.

NCBFAA Update On Customs-Related Homeland Security
      In preparation for the National Customs Brokers and Forwarders Association of America (NCBFAA) Government Affairs Conference from September 24 through 25, the following update will help prepare you for the program’s panels and then your discussions on Capitol Hill.
H.R.1/S.4, the 9/11 Commission Act of 2007
Touted by its advocates as a final follow up to the recommendations of the 9/11 Commission’s Report, the legislation was the product of the House and Senate Democratic Leadership’s commitment to pass homeland security legislation early in the new Congress. Its provisions address: a "Homeland Security Grant Program," communications interoperability for first responders, the incident command system, intelligence and information sharing, terrorist travel, privacy and civil liberties, biological and nuclear detection and transportation security for several modes.
Of greatest interest to NCBFAA are provisions that expand on earlier legislation relating to air and maritime cargo.
Air Cargo
The provision only relates to air cargo tendered for transportation aboard passenger aircraft. It requires that, within 3 years of enactment, TSA shall establish a system to screen 100 percent of cargo [50 percent within 18 months and 100 percent within 3 years]. The key element of this legislation is to define what "screening" means -- does it require physical examination? or, can the TSA use risk assessment tools comparable to those employed by CBP? The answer to this question must await TSA’s issuance of regulations and program directives under this statute; however, the agency has consistently taken the position that there should be alternatives to physical examination (a term which includes x-ray systems, explosives detection, explosives trace detection, canine teams or a physical search together with manifest verification).
The language in the definition seems to give TSA this latitude – an interpretation that led TSA to ultimately sign off on the language. The definition allows TSA to approve "additional screening methods" as long as it does not include "solely performing a review of information about contents…or verifying the identity of the shipper." And, the language points with approval to establishing a certified shipper program that would parallel CBP’s C-TPAT.
Maritime Cargo
The provision was adopted in the face of opposition from a private sector coalition, which included NCBFAA, NIT League, World Shipping Council, AAEI, RILA (the mass retailers), and the US Chamber of Commerce. It calls for full-scale implementation of a yet-to-be-completed pilot study (required by the 2006 Safe Ports Act) that involved 100 percent scanning of containers by non-intrusive imaging equipment and radiation detection equipment at a foreign port before it is loaded on a vessel. The deadline for full implementation is July 1, 2012.
Extensions of two years from this date can be granted by the Secretary of Homeland Security, on a port-by-port basis, if at least two conditions exist:

  • Scanning equipment is not available for purchase and installation.
  • Scanning equipment does not have a sufficiently low false alarm rate.
  • Scanning equipment cannot be deployed because the port does not have the physical characteristics to install such a system.
  • Scanning systems cannot be integrated with existing systems.
  • Systems will "significantly impact trade capacity and the flow of cargo."
  • Systems do not adequately provide an automated notification of questionable or high-risk cargo as a trigger for further inspection.

      These extensions can be achieved only if the Secretary certifies that the requisite conditions exist and if he then provides notice to Congress with supporting evidence and an explanation of steps being taken to overcome these obstacles.
The private sector coalition objected that, from a political and practical viewpoint, the Secretary would not readily ask for extensions. Further the coalition felt, the requirement would rush shippers and carriers into technology that has not proven itself reliable. And, the provision prejudges the results of the pilot required by the 2006 Safe Port Act, well before the pilot has had a chance to evaluate the impact of these requirements.
Secure Freight Initiative
The Secure Freight Initiative is a concept being developed by Department of Homeland Security Deputy Secretary Michael Jackson. Unveiled at the Customs Symposium in Washington, DC over 18 months ago, it has evolved since the passage of the SAFE Ports Act and as the deputy has refined his thinking.
First, the initial phase of the Secure Freight Initiative, announced in December, involves the pilot test required in SAFE Ports and referred to above. It includes the deployment of integrated nuclear detection devices, X-ray or gamma ray imaging machines, and container identifying-optical character recognition. CBP also plans to locate its latest large-scale radiation detection machine, an advanced spectroscopic portal, at some of the SFI sites. The integration of these systems is to be tested in Puerto Cortes (Honduras), Port Qasim (Pakistan), Southampton (UK), Salalah (Oman), the Port of Singapore, and Port Busan (Korea). Data gather from the scanning will be transmitted in near real-time to CBP officers in overseas ports and to the National Targeting Center near Washington, DC. The data will be combined with other risk assessment information to improve analysis, targeting and scrutiny of high-risk containers.
      Additionally, though, the Secure Freight Initiative also continues to mean what Deputy Secretary Jackson described at the 2005 Symposium. In that speech, he described a "data warehouse," operated by private sector IT entities, into which would flow a vast variety of trade-related data from private sector importers and exporters. The data would then be available to CBP and other government agencies for use in its regulation of trade and security. While the concept appears somewhat vague to many at CBP and within the trade community, CBP will issue a Request For Quotes for a concept recast as Global Trade Exchange – or GTX -- at the end of July to test the idea.

Ten Plus Two (10+2)
The idea of 10+2 is not new at CBP. Initially, the concept was born at the Treasury Department when it had full jurisdiction over U.S. Customs. In discussions with our largest trading partners, the US and UK advanced the idea of creating a pre-established "data set" for cargo before its shipment overseas. Then, in the immediate aftermath of 9/11, as security considerations called for gathering data as early as possible for the purpose of assessing homeland security risks, the Trade Act of 2002 established the 24-hour rule, requiring the transmission to CBP of certain manifest data. Then, ATDI (Advance Trade Data Initiative) emerged as a means of obtaining additional import data pre-arrival. Finally, throughout the Congressional discussions surrounding the SAFE Ports Act, there was recognition by committee staff that manifest information (which has been the foundation of targeting) was simply not adequate for risk assessment purposes. Included then within the SAFE Ports Act was a requirement that CBP develop a means of obtaining additional trade data in a manner comparable to the 24-hour rule.
CBP has developed a Notice of Proposed Rulemaking (NPRM) that would implement a new requirement -- importers must provide ten new data elements and the carrier must provide two. These are:

  • Manufacturer name and address
  • Seller’s name and address
  • Container stuffing location
  • Consolidator’s name and address
  • Buyer’s name and address
  • "Ship to" name and address
  • Importer of record number
  • Consignee number (if different from importer of record)
  • Country of origin of goods
  • HTS number at the six-digit level.

      Additionally, somewhat late in the process, CBP has added requirements for additional data on in-bond movements and freight-on-board.
In the SAFE Port Act, Congress required CBP to consult with COAC and other interested parties in the development of this rule. CBP took input from members of the trade community until February 14 in what turned into a contentious process for some. NCBFAA filed its comments prior to that deadline and they are available at http://www.ncbfaa.org/News/ItemsDetail.cfm?ItemNumber=1256&navItemNumber=516.
Since then, discussion with CBP has been limited and even more contentious in some instances. The NPRM has now been sent by CBP to the Department of Homeland Security and is currently predicted to emerge in the October timeframe.

Trade Agreements: Breaking the Impasse

In May, the Bush Administration and leading Democrats in Congress struck a much-acclaimed compromise intended to establish guiding principles for Free Trade Agreements (FTA) in the areas of environment, labor standards and access to medicines. It was meant to pave the way for Congressional consideration of FTAs and to restore the bipartisan consensus on trade.
       Yet, there has been little progress since May. The four pending agreements – Peru, Panama, Korea and Colombia – were duly renegotiated to reflect the core principles of the Administration-Congressional Democrats’ agreement. The business community was hopeful that Congress would proceed with the two most popular, Peru and Panama, before the August recess.
       Instead, faced with an unhappy base, Democratic leaders in Congress erected a new hurdle. It is not enough that Peru and Panama agreed to change the terms of the FTAs to fit the new template and then ratified the renegotiated agreements. Congress says they will have to actually implement those changes by enacting the necessary changes in their own laws. This is an unprecedented requirement to mandate implementation even before the US Congress has approved the FTAs.
      Meanwhile, the President’s Trade Promotion Authority (TPA) expired July 1 and Congress signaled that it will not consider an extension any time soon. Most believe renewal will not occur until after the 2008 elections.
Status of Pending Trade Agreements

  • U.S.-Peru Trade Promotion Agreement: Peru has waited patiently for the US Congress to approve the free trade agreement it signed in April 2006. Although trade with Peru is relatively small, the agreement is important to the US. For one thing, it will give US producers access to the dynamic and growing Peruvian market. It is difficult to understand the fears of organized labor when 98% of Peru’s imports already enter the US duty-free. The Peru agreement will for the first time make US-Peru trade a two-way street. The agreement is also important politically in a region that is challenged by anti-American left-leaning populists, such as Venezuela’s Hugo Chavez. Failure to approve the USPTPA would seriously undermine the US-friendly government of President Alan Garcia.
          House Ways and Means Chairman Charlie Rangel (D-NY) is traveling to Peru during the August recess and promised to make passage of the USPTPA a priority in September. The Peru agreement should be an easy sell. President Garcia has a good record on labor rights. The agreement itself contains strong labor and environmental protections. And, although it is expected to gain Congressional approval, the vote will not be a "slam-dunk."Panama Trade Promotion Agreement: The Panama agreement is expected to follow the path of the Peru agreement, with Congressional approval as early as this fall. The U.S. and Panama have long standing economic ties. Ninety percent of Panama’s imports to the U.S. already enter duty-free, so the impact on US jobs will be insignificant. Yet, like the Peru agreement, this will deepen the economic relationship, fostering two-way trade and strengthening another ally in South America.
  • U.S.-Colombia Trade Promotion Agreement: This is the agreement that labor unions and Congressional Democrats are out to get. Despite the strong labor protections written into the agreement, Colombia’s history of violence against labor union activists has opponents in an uproar. As a result, it is highly uncertain whether House Speaker Nancy Pelosi (D-CA) will even allow the agreement to proceed to the House floor in this Congress.
  • Korea-U.S. Free Trade Agreement: Of all the pending agreements, Korea is the one that matters the most from a commercial standpoint. In fact, it is the most commercially significant agreement reached by the US in 20 years. It also has huge geopolitical consequences, giving the U.S. an important foothold in Asia.
          Yet, the agreement also faces opposition in Congress because Democrats believe the agreement gives South Korean automakers too much new access to the U.S. market, while doing too little to tear down "nontariff barriers" that have kept American cars out of South Korea. Barriers to US beef exports will also need to be resolved before the agreement can even hope to past muster with Senate Finance Chairman Max Baucus (D-MT).
          These challenges have led some to predict that the agreement will have to wait until a new President is installed. However, with so much at stake, others say it will get done before the Bush Administration leaves office. The Administration and the business community are gearing up for an aggressive education campaign directed towards members of Congress, whose initial animosity towards the pact may soften when they learn more about the export opportunities for US producers. Agricultural groups plan to mount a vigorous campaign in support of the bill for this very reason.
  • Other Trade Agreements: Efforts will continue to revive the Doha round of trade talks, but the prospects are clearly bleak following the breakdown in talks earlier this summer. With the President’s trade negotiating authority expired, only the most ambitious result would convince Congress to grant the President limited authority to conclude an agreement.

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