10+2 = Big Fines

On July 9, U.S. Customs and Border Protection began formal enforcement of the Importer Security Filing and Additional Carrier Requirements rule, or ISF, for overseas ocean containers destined for U.S. ports of entry. If this affects your international supply chain, you’ve undoubtedly been bombarded with industry alerts, announcements, invitations for webinars or even requests to sign “hold harmless” letters of indemnification from carriers and freight forwarders (which I would not sign, by the way) from the potential assortment of fines that Customs can levy.

To recap, Customs implemented ISF in January 2009 as another layer in the agency’s risk management approach to trade security designed specifically to identify and remove deemed high-risk ocean containers that pose a threat of concealing a weapon of mass destruction. The ISF requirement — commonly known as 10+2 as a direct reference to the 10 key data elements Customs requires in advance of each shipment — holds the importer of record accountable for submitting this data to CBP no later than 24 hours before the cargo is loaded aboard a U.S.-bound vessel. 

The intent is to help Customs “push the borders out” by identifying those shipments that may represent an unacceptable security risk to the U.S. before they leave the port of export. Liquidated damages of $5,000 can be levied against importers and carriers for each instance of an untimely, incomplete or inaccurate filing.    

I have long opined that, in a post-September 11 environment, trade security should be treated as no less an equal and enforceable tenet of international trade as trade compliance, and therefore supported putting some real teeth in the ISF regulations. 

My position was that if an importer can be penalized for not having the correct country-of-origin marking on his goods, then it only seems logical that there should be similar consequences for not having controls in place to ensure its container is WMD-free, especially considering the Customs’ Trade Partnership Against Terrorism — CBP’s premier trade security program for the industry — is a voluntary program with little to incentivize a company’s participation.

But with potential ISF penalties now in play, significant questions are being raised. Will the threat of penalties have any material impact on improving ISF’s capabilities and, further, is ISF an effective trade security control to begin with?

The debate divides into two camps: The first cites the 3 ½ years of empirical data under ISF, combined with the preceding eight years of data analysis conducted after exports sailed that collectively failed to identify a single legitimate threat, as support that ISF reporting is insignificant to trade security.

That camp believes that adding penalties to a process with questionable effectiveness would be counterproductive, especially because the largest importing demographic likely to be penalized under ISF would be small businesses that also would be the least capable of absorbing such a penalty.

Camp 2 rebuts the notion that simply because data analysis has never led to the discovery of a compromised container that the process itself doesn’t work, and sides with the opinions and statistics from various government experts and industry think tanks that posit that every day after the September 11 attacks is simply one day closer to the next one.

They quote organizations such as the Homeland Security Policy Institute and its May 2013 brief that states: “… recent plots and many others make it clear that terrorist groups will likely continue to try to target the global transportation system and supply chain, and the more sophisticated groups will likely develop novel tactics for carrying out such attacks.” They point to the current geopolitical instability in countries that possess WMDs and the very real fear that terrorists could gain access to these weapons.

Ironically, if a WMD were to arrive via a compromised ocean container tomorrow, both camps could claim a degree of correctness, so perhaps what the government should review is how, as a trade security tool, can ISF be optimized? This type of questioning also is recommended within the same HSPI brief: “… senior leaders need to review existing (security) programs and activities to see whether they are still effective and relevant, and make changes to such programs as needed.”

For now, importers and their logistics service providers will be watching intently to see what extent Customs will issue penalties. More importantly, will they prove effective in closing the current gaps of missing and untimely ISF data? 

Jerry Peck is a licensed customs broker and Global Trade Management expert with more than 30 years experience in regulatory compliance and GTM optimization solutions. Contact him at 469-235-5229, or at wgpeck@global-trade-ms.com.


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