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International Trade After September 11 - Port Security Initiatives and International Business

By Russell L. Smith and Ilissa A. Kabak of Willkie Farr & Gallagher

The terrorist attacks of September 11, 2001 have changed the way Americans live and work. Security measures that were unheard of just over one year ago are now commonplace as Congress and the Bush Administration strive to prevent future terrorist attacks. This trend is especially true for the transportation sector. While we are familiar with the security measures implemented at U.S. airports, many of us are unaware of the profound changes affecting U.S. maritime ports and foreign ports of origin as well as the manner in which companies conduct international trade. All of this will ultimately have a significant impact on the U.S. economy.

Since the September 11 attacks, U.S. ports have been operating under heightened security to prevent the smuggling of weapons of mass destruction into the United States. The Bush Administration has been working to develop a more far-reaching, permanent security plan to deter such potentially disastrous activity. As part of this effort, the U.S. Customs Service has developed new programs to address the threat that terrorism poses to U.S. ports. These programs have forced companies with imports at any point in their supply chain to understand the ramifications of the various Customs programs, changes to import processing activities, and ongoing efforts to increase potential port security, and to align their operations accordingly.

While Customs has developed, and is in the process of implementing, various security-related programs, this article discusses one program, the Container Security Initiative (“CSI”), and regulations developed under CSI that have a profound effect on how U.S.-based businesses reliant upon imports operate in this new environment.

CSI and the 24-Hour Rule

As part of the effort to address the threat of terrorism to U.S. ports, Customs launched the CSI in January 2002. CSI is designed to deter terrorists from utilizing international shipping lines to smuggle weapons of mass destruction. According to Customs, the key elements of CSI are to establish security criteria for identifying high-risk containers based on advance information, prescreen containerized cargo at the earliest possible point in the shipping process, use technology to quickly prescreen containers deemed to be high-risk, and develop secure shipping containers.

Under CSI, upon agreement with foreign governments, U.S. Customs agents will be stationed at foreign ports to identify and inspect high-risk shipments for smuggled goods or weapons at those ports of lading. To date, the governments of Canada, Singapore, the Netherlands, Belgium, France, Germany, Sweden, Italy, United Kingdom, Spain, China, Hong Kong, Japan, and South Korea have agreed to participate in CSI. As of this writing, the CSI program is already operational at the ports of Antwerp, Bremerhaven, Hamburg, Rotterdam, LeHavre, Montreal, Halifax, and Vancouver.

To enhance the effectiveness of CSI, Customs developed the 24-hour Advance Vessel Manifest Rule (“24-hour Rule”). The Rule, which Customs began to enforce on February 2, 2003, requires parties to transmit to Customs specific and detailed cargo declarations for ocean freight on vessels that call on U.S. ports at least 24 hours prior to lading at the foreign port. Carriers and eligible Non-Vessel Operating Common Carriers (“NVOCCs”) must submit such information to Customs either electronically through the vessel Automated Manifest System (“AMS”) or in paper form. If Customs does not receive the required manifest information 24 hours prior to lading, Customs will instruct a shipping line not to load the cargo on the intended vessel, thus stopping the shipment at the foreign port. Customs has already issued such “No Load” directives to various shipping companies since the agency began enforcing the rule.

Customs’ 24-hour Rule exempts bulk cargo (homogenous cargo that is stowed in bulk, is loose in the vessel hold, and is not enclosed in any container such as boxes, bales, bags, cases, etc.) and break bulk cargo (cargo that is not containerized but is otherwise packaged or bundled ) on a case by case basis. To apply for an exemption, carriers must submit a written request to Customs. Unless and until an application for exemption is granted, companies are required to comply with the 24-hour Rule. Companies that are exempt from the 24-hour Rule must submit cargo declaration information to Customs 24 hours prior to arrival in the United States if they participate in the vessel AMS, or upon arrival if they are non-automated carriers.

Implications of 24-Hour Rule

Prior to the implementation of the 24-hour Rule, Customs Regulations stipulated only that parties have a cargo manifest available upon entry into the United States and upon request by a Customs agent. By requiring the presentation of vessel manifest information 24 hours prior to the loading of cargo onto the vessel at the foreign port, Customs is insisting that such information be transmitted days, or in some cases weeks, earlier than what had been required of carriers under prior Customs Regulations. Thus, exporting companies will be required to provide their carriers with detailed shipment information at an even earlier stage in the shipping process to ensure that the carriers can properly, and promptly, submit the manifest information to Customs according to the requirements set forth in the 24-hour Rule. This, in turn, will likely force U.S. importers, especially those that maintain facilities dependent upon just-in-time deliveries, to implement a system that will allow for the early identification of their need for imported products.

Given the necessary changes companies must make to comply with these new regulations, Customs’ 24-hour Rule is changing significantly the manner in which importing parties, their suppliers, and their ocean carriers, arrange and account for ocean shipments. This has the potential to place substantial burdens on parties who must comply with the Rule.

Editor: Dr. Scott B. MacDonald, Sr. Consultant

Deputy Editors: Dr. Jonathan Lemco, Director and Sr. Consultant and Robert Windorf, Senior Consultant

Associate Editor: Darin Feldman

Publisher: Keith W. Rabin, President

Web Design: Michael Feldman, Sr. Consultant

Contributing Writers to this Edition: Scott B. MacDonald, Keith W. Rabin,
Jonathan Lemco, Jean-Marc F. Blanchard, Barry Metzger, Russell Smith,
Ilissa A. Kabak, Andrew Novo, Jonathan Hopfner, C. H. Kwan, Dominic Scriven and Andrew Thorson

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