IT ISN'T ABOUT IN-BOND

IT ISN'T ABOUT IN-BOND

Ever since Sept. 11 there's been a lot of discussion about the importing procedure known as in-bond. Members of Congress raised questions about the program because it allows goods physically imported at one port of entry, whether by land, sea or air, to move to an inland port of entry without having been inspected or formally cleared into the United States by Customs. Before Sept. 11 this was merely a program to get goods moved away from congested ports of entry as quickly as possible to avoid gridlock. After that date, legitimate questions have been raised about whether in-bond is in fact a gaping hole in our national security. The answer lies somewhere in between.

In-bond came to be popular among shippers for sev-eral reasons. The biggest one is that it helps avoid delays at the physical port of entry. Maybe in earlier days companies could tolerate their goods sitting on a pier for days awaiting a customs inspection, but with the compression of inventory cycle times, they no longer can. Companies use in-bond for the same reason they divert cargo toports on the East Coast to avoid longshore labor slowdowns at Los Angeles and Long Beach. In-bond also allows companies to avoid inspections of goods at port cities where labor costs are higher than at inland locations. It also may allow companies to delay the payment of duties.

In-bond today is widely used, says Bob Coleman, chairman of the Pacific Coast Council of Customs Brokers and Forwarders. Goods moving in-bond range from

ocean containers moving east on double-stack railcars from the ports of Los Angeles and Long Beach, to air cargo shipments remaining on flights beyond their first U.S. arrival.

But it is clear following Sept. 11 that in-bond, in the way it has been functioning, does not measure up to the security standards that the nation now must have in place. Jim Clawson, director-general of the Global Alliance for Trade Efficiency, notes that some years ago, the General Accounting Office of Congress sharply criticized Customs for not knowing the whereabouts or contents of containers moving in-bond. Customs' next-generation computer system, the Automated Commercial Environment, was supposed to address those concerns, but the system still hasn't been built.

Now we have a situation where the international trade system depends on in-bond, but security standards have suddenly been ratcheted up significantly. What's the solution?

It's really not in-bond that's the issue. The issue is ensuring that legitimate goods can enter the country unencumbered by delays at the border. Few disagree with that objective. Since Sept. 11, officials such as Coast Guard Commandant Adm. James Loy and Treasury Secretary Paul O'Neill have made it clear that anti-terrorism restrictions must not impede the legitimate flow of trade, lest the country suffer economically. Rep. Duncan Hunter, R-Calif., wants to see all containers inspected at the border, but that's considered an extreme position.

Still, for goods to be able enter the country, there must be strong assurances that they are free of weapons of mass destruction. All the officials are saying is that the border is not the place to be checking for that. Security must begin upstream and be built into corporate procedures, as Michael Laden of Target Corp. writes in an excellent

commentary on Page 14 of this issue. This is what the 'partnership' between the trade community and the government proposed last month by Customs Commissioner Robert C. Bonner is all about. It's also at the heart of the agreement signed last week by John Manley, Canadian minister of foreign affairs, and Tom Ridge, director of the U.S. Office of Homeland Security, to create a 'Smart Border' between the U.S. and Canada.

Where does this leave in-bond? In-bond is a privilege; you have to qualify to avoid inspections at the physical port of entry, based on your record of compliance with trade laws. Similarly, in this new environment, the ability to avoid inspections will rest not only on a company's compliance record, but on its logistics security system. That's the reality. In-bond in its current form will not survive. Trade security legislation in the Senate calls for additional information to be provided to Customs on in-bond shipments, and bills in the House might eliminate the program entirely.

The government wants to know more about shipments earlier. But it's fair to say the spirit of in-bond will live on. Companies that can prove to Customs that their logistics systems are secure will be rewarded with preferential treatment for their shipments at the border. It is on that basis that today's international logistics system will be preserved.

Peter Tirschwell is editor of JoC Week. He can be reached at (973) 848-7158, or via e-mail at ptirschwell

oc.com.