Customs-Trade Partnership Against Terrorism (C-TPAT) (1)

C-TPAT means the Customs-Trade Partnership Against Terrorism. It is an initiative of the US Customs Service ("US Customs") in the wake of the events of September 11th in order to upgrade the security of commercial shipments against terrorist infiltration.

C-TPAT covers ALL products shipping to the United States from ALL foreign jurisdictions.

In mid-April, US Customs extended C-TPAT membership to all importers. Initially, membership was only open to some 210 importers across all product areas who had previously graded out as low-risk importers ("LRI"s) during customs audits.

As of the end of May, US Customs had received applications from 105 importers to join C-TPAT. Applications are coming in at around 10-12/week. Most applicants are LRIs who comprised the first round of invitees. As only the largest importers are LRIs, it is fair to assume that the applicants to date take up a fairly significant percentage of overall US imports. A number of the applications are from LRIs who are large-scale retailers.

US Customs plans to eventually open C-TPAT membership to carriers, brokers, warehouse providers and manufacturers. US Customs envisions entire supply chains, from manufacturer to carrier to warehouse provider to broker to importer, in which each supply-chain participant is a C-TPAT member.

US Customs has not indicated that buying agents can join C-TPAT. However, based on my conversations with US Customs, this appears to be an oversight rather than any intention to exclude buying agents from C-TPAT membership.

The timing is unclear. Membership for carriers and brokers should be extended shortly. Membership for manufacturers is unlikely to be extended in the near term. US Customs will need time to absorb all the applications from importers, carriers and brokers first before it can get around to manufacturers. Further, notwithstanding public announcements by US Customs to the contrary, it is not clear whether manufacturers will be allowed to directly join C-TPAT. Membership for manufacturers might be indirect, for example, through an association in an export jurisdiction that manufacturers could join on proof of being security-compliant.

The primary commercial benefit is that shipments of importers who are C-TPAT members will be subject to fewer security examinations by US Customs. For some importers, membership in C-TPAT may also allow them to avoid focussed-assessment audits. Further, importers may find that their customers (who may be C-TPAT members themselves but also buy from importers on an LDP basis) will require them to become C-TPAT members.

No. C-TPAT is a voluntary initiative. However, I expect that over time most importers of any size will join. If the commercial benefits prove to be as advertised, importers will not want to expose their shipments to the risk of additional examinations. Further, informal pressure from US Customs ("Company X in your industry joined, why haven't you?") may be another spur to join C-TPAT.

The importer must complete an Agreement to Voluntarily Participate in Customs-Trade Partnership Against Terrorism ("C-TPAT MOU"). The importer must also provide an executive summary in response to a Supply Chain Security Profile Questionnaire ("SCSPQ"). The SCSPQ covers security arrangements at the importer's facilities and those of its supply chain participants, including manufacturers. This executive summary can be submitted within thirty (30) days after the importer submits the C-TPAT MOU.

US Customs has published Security Recommendations for importers, brokers, carriers (sea, air and land), warehouse providers and manufacturers. The Security Recommendations overlap to a certain extent, and primarily cover the following areas: physical security, access, procedural security, personnel security and education and training awareness. Among other things, the C-TPAT MOU requires the importer to undertake "to develop and implement, within a framework consistent with [the Security Recommendations], a verifiable, documented program to enhance security procedures throughout its supply chain process." (emphasis added)

US Customs does not expect that importers will actively monitor their brokers, carriers and warehouse providers for security compliance. Importers have historically exercised little or no on-site oversight over these supply-chain participants. Therefore, it should be sufficient for importers to send to these supply-chain participants the relevant Security Recommendations, and ask these supply-chain participants to confirm that their security procedures are in line with the relevant Security Recommendations.

Manufacturers are a different story, however. Importers historically have performed on-site monitoring of their manufacturers, either by themselves or through their buying agents, for quality, delivery, customs compliance and social compliance. I believe that US Customs will expect that monitoring to now include security arrangements.

Because one importer will usually deal with many manufacturers, it is unlikely that importers will leave it to their manufacturers to develop security procedures consistent with the Manufacturer Security Recommendations ("MSRs"). This would produce as many procedures as the importer had factories, which would increase the difficulty for importers and their buying agents to monitor security compliance. Instead, most importers will devise uniform security procedures for their manufacturers. How much input importers will seek from their manufacturers in devising these procedures will vary from importer to importer.

By now, a number of manufacturers may have received questionnaires from their importer customers about security procedures. My office is assisting several importers in applying for C-TPAT membership, and in that regard we have prepared such questionnaires. The answers to these questionnaires will provide importers with input as to which of the recommendations contained in the MSRs are feasible and which are not. With that information, importers can prepare security procedures for their manufacturers that follow the spirit but not necessarily the letter of the MSRs. For example, one recommendation set out in the MSRs is that manufacturers should periodically verify job applications. The reality at many manufacturers, however, particularly those in lesser-developed countries, is that job candidates do not ordinarily submit written applications. How will this recommendation finally wash out in the security procedures that importers devise for factories? Some importers will ignore reality and simply repeat everything that is in the MSRs. Others, however, taking a more thoughtful approach, may require job applications for senior or sensitive positions only (for example, a packing supervisor) or require that job applications for all employees be a goal that manufacturers should try to attain within a certain period.

Manufacturers receiving questionnaires would be well-advised to fill them out completely and otherwise voice comments and concerns with their importer customers in order to reduce the risk of being burdened with security procedures that sound good on paper but are unrealistic.

At present, importers are not acting in concert in devising security procedures for their manufacturers. Over time, however, standard security procedures for manufacturers should hopefully emerge. For example, manufacturers, on their own initiative or at their customers' insistence, may hire third parties to perform security evaluations, on the basis of which manufacturers will be certified as security-compliant.

In addition to checking manufacturers for the usual things (quality, compliance, etc.), buying agents will now need to verify security procedures at manufacturers. As buying agent are not trained in security matters, their principals may phase in this responsibility. For example, third-party auditors, trained in security matters, may take on this responsibility initially but train the buying agents to eventually assume this responsibility.

I expect importers to expand vendor manuals, purchase orders, buying agency agreements, factory evaluations and inspection reports to reflect security concerns.

I believe "no". To keep the system honest, I expect that US Customs, together with foreign customs authorities, will begin to randomly visit manufacturers to verify security procedures. This is similar to the jump-team visits now carried out by US Customs to verify origin compliance for textiles and apparel.

As reported in The South China Morning Post on June 5, 2002, US Customs has proposed that its officers be permanently stationed in megaports -- overseas container ports that handle the largest percentage of US-bound container shipments -- to pre-screen containers before leaving for the United States. Megaports include Hong Kong, Shanghai, Yantian, Singapore, and Kaohsiung. There are ongoing discussions begin the US and governments in the region, including the Hong Kong government. On June 6, 2002, The International Herald Tribune reported that Singapore had agreed to allow US Customs to pre-screen containers in Singapore.

Yes. While C-TPAT is a US initiative, it will effect exports to other markets. For example, upgrades by a manufacturer of its security procedures will likely be factory-wide (for example, adding close-circuit cameras in the packing areas), and therefore affect all of its customers, not just its US customers. Further, I expect that buyers in non-US markets, such as the EU, that are also potential terrorist targets, will piggyback on to C-TPAT by including security concerns in their contracting arrangements.