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November 30 2012 Issue

Friday, November 30, 2012
Sandler, Travis & Rosenberg Trade Report

Changes Needed to Ensure CBP’s Risk-Based Cargo Screening Remains Effective, GAO Says

The Government Accountability Office has released a report calling on U.S. Customs and Border Protection to improve its efforts to ensure that the Automated Targeting System is doing the best possible job of identifying high-risk inbound cargo shipments.

The report states that although no such events have occurred to date and officials believe the likelihood is low, terror-related attacks on the supply chain could have devastating effects on U.S. security and economic well-being. It is therefore imperative that CBP use the best information and tools available to continually mitigate potential threats and address vulnerabilities. In that context Congress has directed CBP to scan 100% of U.S.-bound cargo containers prior to loading at foreign ports, but the agency has experienced difficulties in complying with that mandate due to a number of factors. Instead CBP employs a risk-based security strategy whose effectiveness depends on its ability to use the ATS, a Web-based enforcement and decision support system that compares traveler, cargo and conveyance information against intelligence and other data, to effectively identify cargo containers that may contain terrorist weapons or other contraband.

According to the report, the ATS includes a set of rules to assess the risk level for each arriving cargo shipment. This set of rules is referred to as the maritime national security weight set because each rule has a specific weighted value assigned to it. CBP classifies the risk scores from the weight set as low, medium or high risk, and although other factors come into play CBP officers at the ports are generally required to review shipment data for all medium-risk and high-risk shipments and to hold high-risk shipments for examination. As a result, keeping this weight set up to date is important for ensuring that CBP is using the most effective tools in making targeting decisions.

The problem, the GAO states, is that CBP lacks a full understanding of how effective the weight set is in identifying shipment risk. On the one hand, CBP does have performance measures that enable it to determine the accuracy of the weight set given a particular workload or examination rate. However, CBP has not established targets for these performance measures, meaning that it is not clear whether a particular change in the weight set’s performance is significant enough to suggest that changes are needed. The report also points out that prior to implementing an updated version of the weight set in early 2011 CBP did not conduct an assessment to determine whether it would be more effective in identifying high-risk shipments than the previous version or other alternatives. Moreover, CBP has not conducted regular assessments of the updated weight set’s effectiveness, completing only one such review and waiting 18 months to do it.

The report thus recommends that CBP (a) ensure that future updates to the weight set are based on the results of assessments that demonstrate that the chosen version of the weight set is more effective than other alternatives, including the existing version, and (b) establish targets for its performance measures and use those measures to assess the effectiveness of the weight set on a regular basis to better determine when updates are needed. 

U.S., Taiwan Sign Mutual Recognition Arrangement on Supply Chain Security Programs

The U.S. and Taiwan have signed an agreement under which they will recognize each other’s supply chain security programs. This is the seventh such mutual recognition arrangement the U.S. has signed, following partnerships with New Zealand, Canada, Jordan, Japan, Korea and the European Union. These agreements are designed to provide faster customs clearance for companies that comply with specified practices.

A press release from U.S. Customs and Border Protection states that under this MRA the U.S. and Taiwan have agreed to mutual standards in Taiwan’s AEO program, which reportedly has more than 500 members, and C-TPAT, whose membership exceeds 10,000 companies. The arrangement also recognizes the compatibility between the two programs and acknowledges that each side will accept the security status of members of the other program. 

Megaports Initiative to Deter Nuclear Smuggling Faces Uncertain Future

The Government Accountability Office is urging the Department of Energy’s National Nuclear Security Administration to review the effectiveness and efficiency of a program that helps foreign seaports combat the smuggling of nuclear materials in cargo containers. The Megaports Initiative has been in operation since 2003, but proposed budget cuts have made the future of the program uncertain and NNSA is working with an interagency group to determine an appropriate future scope for the program.

The Megaports Initiative was created to deter, detect and interdict the illicit trafficking of special nuclear and other radioactive materials through foreign seaports. The Initiative funds the installation of radiation detection equipment at select seaports overseas and trains foreign personnel to use this equipment to scan shipping containers entering and leaving these seaports, regardless of destination. NNSA provides partner countries with maintenance and technical support for about three years, after which it transfers the equipment and all related responsibilities to partner countries.

NNSA had planned to establish a total of 100 Megaports by 2018, but as of August 2012 only 42 projects had been completed in 31 countries. In addition, the Obama administration’s fiscal year 2013 budget proposal would reduce the Initiative’s budget by about 85%, prompting NNSA plans to shift the Initiative’s focus from establishing new Megaports to sustaining existing ones. As a result, NNSA has suspended ongoing negotiations for installing Megaports in 17 countries and canceled planned deployments of new equipment in five other countries.

The report makes several recommendations for improving the operation of the Megaports Initiative. For example, NNSA needs to finalize a long-term plan for ensuring the sustainability of Megaports operations after it transfers all equipment maintenance, operations and related financial responsibilities to partner countries, because without such a plan NNSA cannot be confident that the equipment will continue to be used for the purposes intended or if it will be used at all. There is also a need for more useful and reliable measures of program performance that can demonstrate whether the equipment provided to foreign seaports is effective, indicate whether countries are continuing to use that equipment or account for the volume of containers being scanned.

GAO also encouraged the NNSA to conduct periodic joint assessments with the Department of Homeland Security of the extent to which the Megaports Initiative and the Container Security Initiative, which examines high-risk shipping containers for weapons of mass destruction before they are shipped to the U.S., are effectively coordinating at the 29 foreign seaports where they are co-located. For example, in two countries GAO found that DHS personnel were using personal radiation detectors (which are not appropriate for scanning containers) to inspect containers if their radiation detection equipment is broken even though the Megaports Initiative had more suitable equipment that DHS could have used. The report states that where the joint assessments conclude that there is a need for increased coordination the two agencies should develop written policies or procedures that formally document how to achieve that objective. 

In the News: Illegal Log Trade, Trans-Pacific Talks

China at center of global illegal timber trade, NGO says

After election, pressure grows on Obama in Asia-Pacific trade talks

Dates and Deadlines: Export Regulations, NAFTA, Colombia FTA

Following are highlights of regulatory effective dates and deadlines and federal agency meetings coming up in the next week.

Dec. 3 – comments on form 3-177, Declaration for Importation or Exportation of Fish or Wildlife

Dec. 4 – ST&R webinar: Introduction to Export Administration Regulations

Dec. 4 – Commerce Dept. conference on trade issues facing machinery manufacturers

Dec. 5 – meeting of Bureau of Industry and Security’s Regulations and Procedures Technical Advisory Committee

Dec. 6 – STTAS seminar on NAFTA for auto products

Dec. 6 – comments on interim procedures for considering short supply requests under U.S.-Colombia Free Trade Agreement

Dec. 6 – meeting of President’s Export Council

Dec. 7 – meeting of President’s Export Council Subcommittee on Export Administration 

U.S. is World’s Largest Producer and Exporter of Remanufactured Goods, ITC Reports

The International Trade Commission released Nov. 28 a report finding that the U.S. is the world's largest producer, consumer and exporter of remanufactured goods. Remanufacturing is the industrial process of restoring end-of-life goods to their original working condition, the ITC states, and is an “important and growing activity in many industrial sectors” that supports at least 180,000 U.S. jobs. This report provides an overview of the U.S. remanufactured goods industries and markets, including production and employment; estimates U.S. and global trade in remanufactured goods; and examines factors affecting trends in remanufactured goods trade.

According to an ITC press release, the report’s findings include the following.

- From 2009-11 U.S. production of remanufactured goods grew by 15% to at least $43 billion. The largest U.S. remanufacturing sectors are aerospace, heavy-duty and off-road equipment, and motor vehicle parts.

- U.S. production, employment and exports are growing in many remanufacturing sectors but are still small compared with overall U.S. manufacturing activities.

- U.S. exports of remanufactured goods totaled $11.7 billion in 2011, up 50% compared with 2009. About 40% of such exports went to free trade agreement partners, including Canada and Mexico, and the European Union was an important market as well.

- Key factors affecting the competitiveness of U.S. remanufacturers in all sectors and markets are the availability and relative price of cores (the used goods to be remanufactured), transportation and labor costs, the comparative price of remanufactured goods and new goods, the availability of lower-priced new alternatives, and customer perceptions about price and quality.

- Remanufacturing and trade in remanufactured goods and related inputs in many foreign markets are limited. Foreign regulatory barriers and the lack of a common definition of remanufactured goods are a significant impediment to U.S. and global trade in these items.

- The U.S. and the EU account for the bulk of global remanufacturing activity and trade. Although Brazil, India and China are developing their own remanufacturing industries in response to growing domestic demand they tend to restrict trade in remanufactured goods and related inputs the most. 

Telecom Trade Agreement Compliance Subject of Annual USTR Inquiry

The Office of the U.S. Trade Representative is inviting public comments by Dec. 17 on the operation, effectiveness and implementation of and compliance with various trade agreements regarding U.S. telecommunications products and services. These agreements are the World Trade Organization’s General Agreement on Trade in Services, NAFTA and the U.S. free trade agreements with Australia, Bahrain, Chile, Colombia, Korea, Morocco, Oman, Panama, Peru, Singapore and the DR-CAFTA region, and any other telecom trade agreements, such as mutual recognition agreements for conformity assessment of telecom equipment. USTR plans to conclude this review by March 31, 2013.

The purpose of this review is to determine whether any act, policy or practice of a country that has entered into an FTA or other telecom trade agreement with the U.S. is inconsistent with the terms of such agreement or otherwise denies U.S. firms, within the context of the terms of such agreements, mutually advantageous market opportunities for telecom products and services. Measures or practices of interest include the following.

- efforts by a foreign government or a telecom service provider to block services delivered over the Internet (including voice over Internet protocol services, social networking and search services)

- requirements for access to or use of networks that limit the products or services U.S. suppliers
can offer in specific foreign markets

- the imposition of excessively high licensing fees

- unreasonable wholesale roaming rates that mobile telecom service suppliers in specific foreign
markets charge U.S. suppliers that seek to supply international mobile roaming services to their U.S. customers;

- allocating access to spectrum or other scarce resources through discriminatory procedures or contingent on the purchase of locally-produced equipment

- subsidies provided to equipment manufacturers that are contingent upon exporting or local content or have caused adverse effects to domestic equipment manufacturers

- the imposition by foreign governments of unnecessary or discriminatory technical regulations or standards for telecom products or services 

Foreign Regulatory Changes Could Affect Exports of Children’s Products, Lamps, Appliances

According to the National Institute of Standards and Technology, the World Trade Organization has been notified of regulatory changes that may affect exports of specific products to the following countries. For information on how these restrictions may affect your business, contact ST&R.

Canada – proposed regulations on tris (2-chloroethyle) phosphate in children’s products (comments due by Jan. 24, 2013)

China – national standards on emissions from light-duty vehicles, the safety of gas appliances in civil buildings, laminated solar photovoltaic glazing materials, thermally toughened safety glass for ships, double-capped fluorescent lamps, and self-ballasted fluorescent lamps (comments due by Jan. 27, 2013)

Ecuador – draft technical regulations on street lighting and disused discharge lamps (comments due by Feb. 10, 2013)

New Zealand – amended proposal on minimum energy performance standards for air conditioners and heat pumps

Nicaragua – amended technical standard on pasteurized milk

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