'Upside-down' approach might work best

'Upside-down' approach might work best

This month, Customs plans to extend membership in the Customs-Trade Partnership Against Terrorism to foreign manufacturers. According to an initial draft of instructions released by Customs, "This phase will be offered to Mexico-based manufacturers and Mexico-based related parties and the top 50 foreign manufacturers, as identified by Customs and Border Protection (CBP), from Japan, Great Britain, Germany, Italy, China, Sweden, Switzerland, Malaysia, Korea and Hong Kong." The draft instructions further qualify a foreign manufacturer as one whose exports to the U.S. "must comprise over 7,000 entry lines in volume per year and over $75,000,000 in value per year."

This marks an important milestone in C-TPAT, especially since the weakest security links in the international supply-chain continue to be associated with a product's point of origin or export. When combined with the Container Security Initiative (CSI), the extension to foreign manufacturers will further support Customs' strategy of "pushing the borders out" in order to keep a compromised container from reaching our shores.

But while I heartily support the expansion of C-TPAT, I'm struggling to understand the rationale for wanting to limit its participation, or in not starting with the known high-risk countries first. Perhaps the bigger question is why a commercial trade enforcement model is being applied toward managing trade security?

The current approach is clearly a carry-over from Customs' traditional treatment of commercial trade enforcement. Customs' application of the Paretto Principle, or "80/20 Rule," works particularly well, considering that a disproportionate number of U.S. importing companies produce the largest amount of commercial volume and entered value. Under this model, Customs can efficiently capture the vast majority of dutiable revenue, trade statistics and entry line-items where a multitude of other admissibility laws and regulations are enforced.

But does the same model for commercial trade compliance work for trade security? I feel that this approach misses the mark in three key areas:

1. Commercial trade enforcement doesn't correlate to trade security. C-TPAT's objective is to prevent an imported container or conveyance (air, ocean, truck or rail) from becoming a delivery system for a terrorist weapon. Therefore, under trade security and unlike commercial trade enforcement, it is the actual container or conveyance itself, not the goods, that represents the risk. There is little argument that targeting companies in the top 80 percentile group will also net you a large portion of actual container traffic. But the vastly larger pool of importers at the bottom 20 percentile now continue to represent an equal if not even greater risk for container compromise. It only requires one shipment to slip through the net.

2. Commercial indices and metrics may skew management reports. To date, C-TPAT participation includes approximately 3,000 companies, including 3PLs and carriers. Unfortunately, while this figure is less then 30 percent of the program's targeted audience, Customs appears enthusiastic, stating that current participation represents approximately 65 percent of all "commercial trade" into this country. But is this a realistic index? A more appropriate metric would be the actual number of containers and conveyances represented by its participants.

3. Primary "target" companies represent the least risk. Of the estimated 400,000 U.S. companies engaged in international trade, C-TPAT targets the top 9,000 for participation. But by starting first with those companies that statistically represent the top echelon of import volume, the program is giving priority to the very companies that would seem to present the least threat to trade security. Putting trade compliance aside, these companies typically have established quality control and loss prevention programs that already dovetail nicely toward supporting trade security. It's a bit like targeting the National Honor Society as part of an anti-juvenile delinquency program.

As an alternative I would offer an "upside-down" approach to C-TPAT - a "reverse Paretto" that would aggressively target those companies and countries that represent the highest risk to trade security. Domestically it may eventually require the unpopular option of transitioning C-TPAT into a mandatory program, but in doing so would combine trade security as an equal and enforceable tenet of "reasonable care," together with trade compliance.

William G. "Jerry" Peck is president and founder of Global Trade Management Solutions. He can be reached at (815) 462-1732, or via e-mail at wgpeck@global-trade-ms.com.