Originally published by the Journal of Commerce in May 2012

At the Trade Symposium which occurred on May 10, 2012 in Long Beach, CA, much of the attention was on the CEEs, or Centers for Excellence and Expertise. Acting Commissioner David Aguilar kicked off the event by confirming CBP recognizes it needs to change its business practices. He also acknowledged CBP has a “tremendous” responsibility for the safety and economic viability of the country. It is a regulatory agency, but also has a responsibility to the trade community to make its processes “safer, cheaper, faster, more compliant, transparent, predictable”, while considering the bottom line.

Commissioner Aguilar reinforced CBP wants to co-create with the trade community, but trade enforcement remains important, specifically intellectual property, trade fraud, and substantive and meaningful penalties were mentioned. Despite the austere budget environment, Mr. Aguilar, on more than one occasion, used the phrase CBP has a responsibly to “turbocharge the economy” and cited air cargo advance screening, ACE, CEEs, and simplified entry as examples of efforts in that direction.

Regarding the CEEs or Centers, Mr. Aguilar confirmed CBP wants to make them learning organizations which evolve over time. The stated goals include centralization, consistency, standardization, and knowledge building capacity.  There are currently two Centers – in New York/New Jersey – pharmaceuticals and chemicals, and in Los Angeles/Long Beach – consumer electronic products.  CBP has identified seven (7) additional industries tapped for Centers – automotive/aerospace; agriculture; base metals and machinery; consumer products and mass merchandise; industrial and manufacturing; petroleum and minerals; and textiles, wearing apparel and footwear. At the Symposium, the opening of two new Centers was announced: Houston for petroleum, natural gas, and minerals, and Detroit for automotive and aerospace.  The Centers are described as intended to coalesce the capabilities and capacities of CBP in one centralized location in order to give the trade a better way to dialog with CBP, streamline the supply chain and make it more secure.

The panel which followed Mr. Aguilar’s opening remarks was entitled: “Centers for Excellence and Expertise: Transforming the Trade” and was moderated by Brenda Brockman Smith, Executive Director, Trade Policy and Programs. She opened by saying CBP sees the Centers as a “game changer”. Admitting CBP has internal cultural hurdles to overcome, Ms. Smith pointed out, CBP is, at the same time, mirroring the practices of many companies, which have gone to more centralized operations, gathered expertise, and are leveraging resources, automation, boots on the ground, and policy makers. Ms. Smith described the Centers as moving forward by taking action in a coordinated fashion to support CBP’s goals of facilitation, strong enforcement and increasing the expertise  of their employees.

Anne Maricich, who led the establishment of the pharmaceutical CEE and now heads the consumer electronics Center, spoke next. She admitted CBP needs the first year to learn more about industry business practices and the touch points with CBP.  Where are the hurdles, costs and inconsistencies within CBP?  She too emphasized the Centers are set up as a resource for the entire trade community, large and small.  They will also be used to centralize the processing of entries and post-entry work, but only for trusted partners.

Unlike the pharmaceutical industry which is well-regulated, especially by FDA, and so enjoys well-defined supply chains which seldom vary, LA has the entire electronics industry. The top 41 trusted partners account for about 22% of the trade, leaving some 51,000 others with which to deal. In establishing the Centers, CBP is embracing a virtual environment which allows a multidisciplinary approach that crosses geographic boundaries.  CBP has performed an evaluation and is trying to develop metrics. How does CBP insure the Centers maintain a very high level of compliance with trusted partners, and collect the correct amount of revenue? How often is CBP taking unnecessary action, such as inspections and 28s? Where should CBP increase enforcement efforts? On the qualitative side, CBP is getting trade community feedback, first from the importers who are initially involved, but CBP also needs input from the small and medium size companies and the brokerage community.  As might be expected, other government agencies also need to be brought into the process.

CBP sees the benefits of the CEE as trade facilitation through risk segmentation, consistency, predictability, uniformity, and a way to communicate, collaborate and cooperate with industry.  Giving the auto industry perspective, Diane DiJarnett of Toyota was asked to talk about industry’s hope and expectations for the new Center in Detroit. She pointed out the benefits are things like a go to point of contact/team, uniformity in decision making, consistency in administering policies and procedures, a transfer of knowledge, increasing global competition and factoring in more demanding consumer expectations. Her overarching point was the cost of doing business is constantly increasing, delays are increasing and lean inventories are forever challenged. It has become increasing more important to continuously move cargo and the Centers can facilitate that outcome and also provide a welcome opportunity to educate CBP.

Ms. DiJarnett pointed out, like pharmaceuticals, auto industry shipments are very predictable. They consist of cars and parts, and nothing changes that much, but that does not seem to be recognized. Industry hopes CBP will leverage the information sent and move away from transactional processing, to making decisions on the aggregate level, not on a per shipment basis. Industry recognizes CBP has compliance exams levels which are needed, but can they be done differently with trusted partners?  She then reiterated the definition of a trusted partner is to be a member of both C-TPAT and ISA. A very small percentage in the auto industry are ISA, but all are C-TPAT.  Companies all strive for compliance for a variety of reasons,  grounded in legitimate business reasons. She urged CBP to explore other definitions of trusted trader.

In response, Ms. Smith pointed out CBP hopes to expand the full potential of management by account through the Centers.  At the same time, as you go through the industries mentioned for Center oversight, each has its own requirements or unique characteristics, but CBP needs a common approach that works across the Centers’ industries.

Stephen Comstock of the American Petroleum Institute pointed out his industry works in value, volume and characteristics, but you cannot track molecules.  The petroleum industry is a heavily regulated industry with multiple agencies involved, including Commerce, Energy, Transportation, Treasury and the U.S. export agencies. It is also a capital intensive industry, as it moves and refines products.  There are a limited number of locations where crude arrives. While the processing is fairly straight forward, the pipelines themselves are a very important part of the process and need to be integrated and expanded into the CEE scope.

The other two speakers were Lynn Fallik, newly appointed head of the Houston CEE, and Tinesha Cherry, who will lead the Detroit CEE, whose comments addressed the long and short term hurdles and goals they see in setting up their Centers.

As has been his practice for some time, Mr. Aguilar invited the trade community to dialog with CBP as it transforms itself for the 21st century and beyond, so since CBP is looking for input about the Centers, here are a few possible options.

First, what should be the definition of a trusted trading partner? Certainly, CBP needs objective criteria by which to define the term, particularly for Congress which seldom understands what the agency really does. However, if CBP insists on ISA membership as a criteria, that program needs to be made more attractive. Why not work with IRS to benefit companies, such as having ISA membership impact the frequency with which the IRS audits companies?  Could CBP work more closely with the IRS regarding approval of Advance Pricing Agreements (APA) and expand its Memorandum of Understanding to include any time the IRS gets an APA from a company which imports, the IRS and CBP work together to approve Customs value along with cost of goods for tax purposes.

How about other good governance qualifications?  Why isn’t more value given to robust internal controls in such areas as value, classification and intellectual property rights? It is not enough that CBP has a handful of attorneys at Headquarters who understand intellectual property rights. It needs to develop that expertise around the country and work much more closely with third parties importing branded goods. The first words out of an inspector’s mouth have to be more creative that show me your licensing agreement.  Couldn’t an approach be developed that includes a set number of “clean” inspections to establish a company’s compliance level and thereby permit trusted trader status. Will CBP work more closely with FDA as that agency’s trusted trader – VQIP – program is rolled out?

Next,  CBP frequently acknowledges the need to be a resource for small and medium sized companies. The reality is most of those companies will never interact with CBP simply because that is what they rely on their customs brokers to do. Isn’t the more fruitful approach for CBP one that involves working more closely with the customs brokers and better appreciating the services they provide?

Also impacting the CEEs is the effort by CBP to update the regulations which govern customs brokerage. Those efforts have hopscotched around because there is little consensus in the brokerage community about how to reform the industry. Question – is reform really needed? Yes, it makes sense to speed up the process by which individual and corporate brokerage licenses are approved, but what more is really needed? Instead of confronting head on a significant issue facing the industry – claims by third party rights holders brokers should better vet their importers so as to discover those which import counterfeit goods – CBP raises the issue of whether Permits to Operate are needed in each Port. How about this – put into the regulations a list of the steps which brokers should take to vet their customers? That list needs to be flexible as to size of company and geographic location (in the same city as the importer or not), but  how about also issuing guidelines or a regulation laying out the steps importers are expected to take when importing goods with third party marks on them?

With the advent of the National Defense Authorization Act provision mandating CBP provide brand holders with data about possible counterfeit goods more openly and faster, there is a real concern grey market imports will end. If you are an importer of goods which bear a legitimate mark but are not buying directly from the mark holder or its authorized distributor, wouldn’t you want to know sooner rather than later what requirements you will need to meet to get your goods imported?  If every broker had the same requirements for vetting customers, and importers knew what was expected of them when importing branded goods, the inability of importers to get their branded goods would be reduced and CBP’s load that much lighter.

More questions given the space limitations of this column:  1) What happens if an importer calls the Center, lays out a question and it is clear there has been significant violation? Will CBP work with that importer or issue a penalty? 2) How will industries not the beneficiary of Centers be treated so they do not become second class importers?  3) What are your ideas for what the Centers should do?