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Business group addresses mutual recognition of supply chain security programs

January 30, 2009
World Trade\Interactive

The International Chamber of Commerce released recently a discussion paper on mutual recognition of U.S. and European Union supply chain security programs. In March 2008 the two sides announced that they hoped to achieve in 2009 mutual recognition between the Customs-Trade Partnership Against Terrorism and the EU’s Authorized Economic Operator program. Considering that this mutual recognition agreement “will set a precedent that could help to provide both improved supply chain security and global trade facilitation,” the ICC offered several recommendations as the U.S. and EU develop a roadmap to achieving the MRA.

Benefits. The ICC asserts that both AEO and C-TPAT lack substantial benefits for participating companies. A lower risk score resulting in fewer controls and inspections is not a sufficient benefit and does not correspond to the high level of security that companies have demonstrated during the application/validation procedure. Even the EU’s eventual benefit of a reduced data set for pre-arrival and pre-departure declarations is not enough because reliable companies still have to provide data for every single transaction. From a business perspective, a waiver of individual pre-arrival/pre-departure declarations, a real “green lane,” for AEO/C-TPAT companies would be a significant benefit. Another approach would be to have a reduced audit program for industries that are already strictly controlled. In addition, where there is a reasonable nexus between enhanced supply chain security under an AEO program and the objectives of non-import regulatory regimes, governments should explore the extension of benefits to those spheres.

Exports. The AEO program includes both import and export processes but C-TPAT focuses solely on goods imported into the U.S. However, the difference between the two programs may be more apparent than real. Both are concerned with the security of goods originating in third countries, and while C-TPAT does not explicitly address export security its requirements provide implicit protections in that they require domestic manufacturing locations to comport with essential physical, personnel and information technology security measures.

Groups of Related Companies. C-TPAT provides for a single application and security verification process for groups of related companies subject to common internal security requirements that are enforced through a robust internal compliance process within the group. In contrast, AEO will require each separately incorporated legal entity in such a group to file a separate application and undergo a separate verification process. It is important that any system of mutual recognition provide group-wide benefits in cases when benefits are conferred by the host jurisdiction on the basis of a security verification process that examines security at the level of the group rather individual legal entities. In addition, a single AEO application and verification process should be implemented with a lead customs administration to which the others would defer.

Interoperable Electronic Systems. There should be interoperability in terms of software and electronic messaging between the U.S. and the EU, and among EU members, coupled with the single window facilitation so that electronic data elements only need to be submitted one time. However, achievement of interoperability may take some time and an MRA on validation should not be held up to wait for this result.

Interface with Large Regional Trade Partners. A U.S.-EU MRA would emphasize logistics disadvantages, especially with regard to road transport, with significant neighboring trade partners outside the agreement such as Mexico, Switzerland and Norway. These countries should either be included in the MRA or be brought into separate MRAs in parallel time frames. In addition, the achievement of MRAs with other significant trade partners such as Japan, Brazil, China and India should be accelerated.

Stability of MRA Requirements. If new security measures (e.g., the 10+2 rule) are continually introduced, the adjustment costs will be higher and implementation will be less effective. There should be a guarantee that AEO status will not be quickly obsolete due to new regulations or legislation (e.g., 100 percent scanning).

Risk Management. Mutual recognition, as well as all programs to enhance the security of traded goods, should be based on a multi-layered risk management approach rather than scanning of each individual shipment. National authorities should avoid over-dependence on scanning technologies that can add significant costs and delays to trade. Inspection and scanning should focus on high-risk cargo in the context of a comprehensive, multi-layered risk management approach.

Flexibility for SMEs. A U.S.-EU MRA must make AEO/C-TPAT status available to small and medium-sized enterprises by including flexibility to minimize cost burdens and requirements and demonstrate financial viability.