Originally published in the Journal of Commerce in March 2016

On February 24, 2016, President Obama signed into law H.R. 644. Entitled the “Trade Facilitation and Trade Enforcement Act of 2015,” it contains a good many technical revisions to existing Customs and Border Protection (“CBP”) processes, procedures, laws and regulations. Much more is included, so there are many topics of widespread interest to the broader trade community, import and export.

A good starting point is to note the first section of the law deals with trade facilitation side-by-side with trade enforcement. The CBP Commissioner is directed to coordinate with the Director of U.S. Immigration and Customs Enforcement (“ICE”) regarding developing a joint strategic plan. CBP is further directed to continue to solicit and consult with the private sector, while being directed to coordinate with customs authorities in other countries and other federal agencies to facilitate legitimate trade and commerce, and enforce U.S. trade laws.

The next section deals with partnership programs and mandates any such programs provide “commercially significant and measurable trade benefits.” While geared to those which attain the “highest levels of compliance,” these programs are directed to provide an “integrated and transparent system of trade benefits and compliance requirements.”  CBP is directed, absent good cause, to consolidate partnership programs. Many Customs-Trade Partnership Against Terrorism (“C-TPAT”) member-companies continue privately to question the cost-benefit ratio.  One fortunately good reason this has not come to a test is the international trade system within the U.S. has not again been shut down, so CBP’s pledge to release C-TPAT member cargo first upon reopening has not been tested.  While many companies concur that C-TPAT is helpful to some degree in managing damage or loss of goods in transit, many still conclude there are not enough benefits to offset the cost of membership, but for good corporate citizenship reasons remain members.

Regardless of your feelings about Apple resisting the efforts of the FBI to be required to crack the iPhone of the San Bernardino terrorists for, among other reasons, the precedent set in more closed societies by being required to create the technology to do so, in some sense that same “what precedent does it set” concern arises with supply chain security programs. In open societies like the Five Eyes (an intelligence consortium consisting of the U.S., United Kingdom, Australia, New Zealand and Canada), the rules are transparent, as they are in a number of other countries. However, the same is not true with many other governments/regimes, and so concern about otherwise proprietary and highly sensitive data having to be shared with a government with different priorities, and how that information could be misused or misappropriated is a legitimate concern.

Even conceding that point, the ideal situation for most American companies would be one supply chain security program which applies to all the federal agencies, with discrete segments for particular types of cargo (for example, one segment that focuses on FDA regulated merchandise, a different segment for CPSC regulated goods, and so on). That uniformity is not mandated in this bill, nor is it likely to happen in the foreseeable future. We are some 15 years post-9/11, and the 20+ Congressional committees with jurisdiction over some aspect of homeland security still have not consolidated their efforts. In the face of that, the likelihood of requiring the agencies to truly coordinate their efforts seems a pipedream.  On the plus side, Congress reiterated several times in this law, these supply chain security or trusted trader programs are to provide tangible benefits for legitimate traders and immediate release of compliant shipments, absent some national security or compliance threat.

Another topic of general interest is the section dealing with effective trade enforcement. In this context, Congress focused on undervaluation, transshipment, the legitimacy of importers of record, revenue protection, fraud detection and prevention, penalties (including misclassification, inadequate bonding and other misrepresentations).   While this next point will undoubtedly be viewed as heresy by some, the simple fact is the CBP personnel who really understand trade fraud are, for the most part, retired. This is true for ICE, too. As a result, “real” trade fraud cases simply are not being undertaken by either CBP or ICE to any meaningful extent. As such, those looking to break the law see no serious downside.  The consequence is to just pay some amount of money and move on. To minimize that possibility, there is a provision in this new law seeking to have CBP do a better job of tracking corporate shareholders, officers, directors and employees, but without real enforcement teeth (meaning trained staff and adequate funding) this mandate is likely to not have much impact, especially in light of the fact most states require limited, if any, reporting of individuals in the company formation or other reporting contexts.

To its credit, Congress does note the need for more and better training of CBP staff and even goes so far as to recommend CBP hire private sector trainers, but even if there were better training and greater resources, there is no assurance trade would flow more smoothly. One need look no further than how trademarks and copyrights are enforced.  Admittedly one complication in this context is CBP and ICE coordinate their efforts regarding IP enforcement, and that means all the decisions are made in D.C., but that does not change the fact CBP officers simply do not understand trademark or copyright law. If a shipment is held,  any response from an importer which does not rely on here is a valid licensing agreement or letter of authorization leads to seizure, with many of those seizures later yielding release due strictly to the complexity of the applicable law. And, let’s not even talk about the difficulties CBP has in figuring out patent rights once an ITC exclusion order is issued!

In the context of private sector instruction, the law calls out physical inspection, reviewing manifests and accompanying documentation, valuation and industry supply chains as the topics to be covered. Regarding trade enforcement, the training topics cite to private sector training regarding collecting antidumping and countervailing duties, duty evasion regarding textile imports, IP protection and enforcement of child labor laws.

As was to be expected, there is support for ACE, AES and ITDS, and reports are mandated regarding progress towards full implementation by all the relevant agencies. In fact, there are yet again a myriad of reports on a variety of topics mandated by this bill, frankly likely too many. The Centers of Excellence and Expertise (“CEE”) are also mentioned. Again, there is to be consultation with the trade, but honestly, does anyone really think the CEEs will work until the definition of trusted trader is finalized? It is true, many of the CEEs are fully functional, but try getting attention for an importer who is not a trusted trader!  As this continues, everyone’s worst fears are being realized.  CEEs have little to no benefit for smaller importers, the very parties that require most of the agency’s attention and resources, and for whom CBP will never have enough staff, and the Broker Known Importer Program is of limited benefit as the final approval correctly lies with CBP.

The law itself is some 156 pages in length. Naturally, that means many more topics were covered including the first drawback reform in many years; preferential trade status for Nepal; classification changes/breakouts for “recreational performance outerwear” and certain footwear; federal – state partnerships to support small business trading; direction to CBP to identify “acts, policies, or practices” of foreign governments which significantly impact U.S. economic growth; enforcement of cultural property, archaeological and ethnological materials, and fish, wildlife and plants whose importation, exportation and trafficking violate U.S. law; honey transshipments (with CBP tasked to compile a database of honey characteristics by country); creation of a Chief Innovation and Intellectual Property Negotiator at USTR; reporting/notice requirements in the case of electronic devices being searched; increasing the di minimis value from $200 to $800; and changes to headings 9801 and 9802, HTSUS;

The current list of priority issues for CBP is antidumping and countervailing duty, import safety, intellectual property rights, textiles/wearing apparel, trade agreements and “comprehensive” trade enforcement. With the new law, that list must, at the very least, consist of: agriculture programs, antidumping and countervailing duty, import safety, intellectual property rights, revenue, textiles and wearing apparel and trade agreements and preference programs. The Commissioner is free to name other trade priorities and otherwise consolidate, modify or eliminate any priorities, but only upon advance notice to Congress.

What is troubling about this list of priorities is how many of these topics could be better addressed at time of entry if CBP and ICE really understood the technical issues. For example, one common topic is valuation. As a broad general statement, it is fair to say that if the value for a given shipment is other than FOB, C&F or CIF, CBP staff have difficulty with it. If the term of sale is DDP, the comprehension of CBP depends entirely on the person looking at the issue. If one gets to computed or deductive value, it’s a real crapshoot! Sadly, this is an area where more attention during training, and proper refreshers courses, would make life so much easier for CBP and the trade community – and a good part of the reason why value and these other technical topics are such a challenge for CBP comes especially from the fact that when Congress authorizes staffing for CBP, all too often the positions authorized are for inspectors  and not the “other”  positions where technical knowledge is really helpful and sufficient and fully trained staff is sorely lacking.

Finally, parents generally raise their children to learn to play nicely in the sandbox. What this means is literally to be nice to other people but also to honor their presence. In the context of international traders, it seems a reasonable conclusion to say to the myriad of federal agencies with criminal and/or civil jurisdiction over American individuals and companies, need to also learn to play nice with the agencies that actually understand the import and export laws, regulations and processes. It is costly and frustrating to the trade community as these non-trade agencies time and again waste their limited resources and industry’s time and money on wild goose chases! Unfortunately, there is nothing in the new law addressing that on-going headache.