On Oct. 13, 2006, the President signed the Security and Accountability For Every Port Act of 2006 ("SAFE Port Act"), which codifies and improves the Customs-Trade Partnership Against Terrorism ("C-TPAT"). The new legislation continues the basic framework of the C-TPAT program; however, it includes several important improvements. Notably, the new legislation clearly defines the advantages that C-TPAT members can expect to receive from Customs and Border Protection ("CBP") at each of the three membership tiers. It also provides specific time periods during which CBP must certify and validate C-TPAT members’ security systems. The Sentinel previously has addressed the importance of C-TPAT and the vital role it now plays in protecting U.S. security. See Sentinel, Spring 2005. This article discusses the growth of this vital program and the concrete benefits of C-TPAT participation at each membership level.

Protecting The Country And Facilitating Trade

After the 9/11 terrorist attacks, CBP recognized the urgent need to prevent a terrorist incident from occurring within the supply chain. In November 2001, CBP initiated the C-TPAT program in order to improve cargo security. The program has created a partnership between CBP and the private sector trade community, leading to improvements in security while also promoting trade facilitation.

C-TPAT is a voluntary program in which members agree to analyze, measure, monitor and enhance their supply chains in exchange for greater security and numerous benefits offered by CBP. The program focuses on improving security from the loading docks of foreign vendors to the U.S. ports of entry. The following businesses are eligible to become C-TPAT members: importers, customs brokers, forwarders, air, sea, and land carriers, contract logistics providers, and other entities in the international supply chain and intermodal transportation system. CBP has also enrolled select foreign manufacturers into the C-TPAT program in order to increase security at the point of origin.

To date, more than 10,000 companies have applied to become C-TPAT members. CBP has already admitted more than 6,000 of these businesses into the C-TPAT program, including most of the largest U.S. importers.

Today, more than 90 percent of the goods exported from Canada to the United States come from C-TPAT certified companies. The success and breadth of the program has led many C-TPAT members to demand that their business partners enroll in C-TPAT or at least adhere to its minimum security criteria.

The SAFE Port Act provides three tiers of C-TPAT membership, with each tier having its own set of requirements and benefits.

Tier One Membership Requirements

1. Application And Certification

In order to participate in the C-TPAT program, the SAFE Port Act requires companies to submit a confidential, on-line application using the C-TPAT Security Link Portal, which became operational June 1, 2006. The application includes a supply chain security profile in which the company evaluates and measures its security measures based on C-TPAT security criteria. CBP and the trade community jointly developed security criteria for each of the different trade industries.

Once a company submits its C-TPAT application, a CBP Supply Chain Security Specialist ("SCSS") reviews the application in order to determine if the company is eligible for membership.

The SAFE Port Act directs CBP to complete the Tier One certification process within 90 days of receipt of the C-TPAT application. If the SCSS does not find any deficiencies, she will accept the application and the company will become a certified member eligible for Tier One benefits.

CBP has reportedly rejected about 20 percent of the applications it has processed because of failure to meet minimally acceptable C-TPAT security levels, so importers must review these requirements carefully before submitting an application.

2. Tier One Benefits

As soon as CBP certifies a member, the company immediately begins to receive Tier One benefits. The most significant Tier One benefit is a reduction in the Automated Targeting System ("ATS") score. This score reduction results in fewer CBP cargo inspections. CBP is not able to inspect every container that enters the United States because of the high volume of containers that enter U.S. ports every day. In 2005 alone, CBP processed more than 23.5 million containers at U.S. ports of entry. Instead of inspecting each container, CBP uses ATS to target containers that display a high risk or an unknown risk. Once ATS identifies a high-risk container, it assigns a risk characterization, which CBP uses to determine the level of scrutiny to impose on the container. For example, depending on the threat level, CBP could do one of the following:

(1) request the container’s bill of lading; (2) examine the container with an X-ray; or (3) open the container and physically inspect it. Because certified C-TPAT members receive reduced ATS scores, they undergo fewer CBP inspections at all levels of scrutiny.

A certified member of C-TPAT is also eligible for other Tier One benefits, including: (1) expedited cargo processing at the border (including access to Free and Secure Trade "FAST" lanes on the Canadian and Mexican borders); (2) penalty mitigation for Trade Act of 2002 violations; (3) eligibility for the Importer Self-Assessment Pro gram ("ISA"); (4) participation in C-TPAT supply chain security seminars; and (5) an assigned SCSS to serve as a liaison between the member and CBP.

In addition to the direct benefits offered by CBP, C-TPAT members enjoy many indirect benefits. One important result of membership has been a reduction in theft because of the enhanced physical security of containers and improved security tracking systems of C-TPAT members. The National Cargo Security Council has estimated that American companies lose an estimated $12 to $15 billion a year because of stolen cargo. Through increased oversight and accountability, C-TPAT members have reportedly seen a reduction in the theft of their products. Other benefits of the C-TPAT program include better supply-chain visibility and inventory accountability. Today, companies must have a clear and accurate picture of their inventory at each level of the supply chain because many engage in "just-in-time" manufacturing and delivery of parts. For this reason, companies cannot afford lengthy inspections and delays at the border. By participating in the C-TPAT program, members have improved the predictability of their supply chains, thereby increasing the confidence customers have in receiving their products on time. The business community has recognized the value that customers attach to C-TPAT membership. Thus, many members now advertise their C-TPAT status in their websites and marketing materials.

Tier Two Membership Requirement

1. Validation

Once CBP certifies a company and accepts it into the C-TPAT program, the next goal is to schedule the member for a validation so that the company can reach Tier Two or Tier Three 9status. The purpose of a validation is for CBP to verify that the member’s security profile is accurate, and that its supply chain is in compliance with C-TPAT minimum standards. CBP has stated that the security standards are not fixed, but will constantly change and improve as new "best practices" emerge in the trade industry. In order to pass the validation and achieve Tier Two status, a member must have implemented minimum C-TPAT security criteria.

During validation, SCSSs verify supply chain security processes and procedures. SCSSs inspect both domestic and foreign sites of a member’s supply chain. CBP has stated that a validation is not an independent audit. Rather, a validation is meant to be a joint review of the member’s supply chain by the SCSS and the C-TPAT member. The SCSS gives the member at least 30 days’ written notice prior to the validation. Additionally, the SCSS and the member jointly decide on the scope of the validation and the inspection areas. At the conclusion of the validation, the SCSS writes a report that includes all of the validation findings. CBP has built an automated "Validation Assessment Tool" in order to record and measure validation results. The program automatically scores and weighs the SCSS’s validation findings. If an SCSS identifies security deficiencies during the validation, it may suspend the benefits of the C-TPAT member, or remove the member from the program.

At the beginning of the C-TPAT program, CBP stated that it would validate all C-TPAT members within three years of acceptance into the program. As a result of the high volume of certified members, however, CBP fell far behind in its validations. As of February 2005, CBP conducted a total of 420 validations, which represented only 8 percent of the total C-TPAT members at the time. As a result, the Government Accountability Office and numerous officials criticized CBP for creating a "trust but not verify" system. The SAFE Port Act addresses the validation backlog problem by requiring CBP to complete validations within one year after certification as a Tier One member. CBP has already made significant progress in completing validations. During fiscal year 2006, CBP completed 2,052 validations, which included site visits to 58 countries. CBP has projected that it will validate 100 percent of all C-TPAT members by the end of fiscal year 2007.

One of the main reasons for the validation backlog is an insufficient number of SCSSs, who are tasked with planning and conducting the validations. In order to correct this problem, the SAFE Port Act institutes two measures. First, the SAFE Port Act directs CBP to hire at least fifty additional full-time SCSSs during fiscal years 2008 and 2009. Second, the SAFE Port Act directs CBP to create a voluntary, one-year pilot program of third-party validators. Through this pilot program, CBP will test and assess the feasibility, costs, and benefits of using third parties to conduct validations of C-TPAT members. CBP must certify these third-party validators, and will retain ultimate discretion as to whether a member passes the validation process. If the pilot program is successful, Congress will likely amend the legislation to incorporate a third-party validation process. A contentious issue surrounding third-party validations is who should pay the cost of validations.

Currently, C-TPAT members do not have to pay for validation costs. However, under the voluntary pilot program, the C-TPAT member agrees to pay all costs associated with the third-party validation. In the event that CBP implements a third-party validation program, it will have to decide whether the government will continue to fund validations.

2. Tier Two Benefits

According to the SAFE Port Act, Tier Two members receive all the benefits associated with Tier One, including the same level of ATS risk score reductions. However, Tier Two members also have the benefit of a reduced amount of cargo examinations than those received by Tier One members. In addition, Tier Two members are eligible for priority searches of cargo, meaning "front-of-the-line" inspection privileges at ports of entry, should an examination be required.

Tier Three Membership Requirement

1. Meeting Security Best Practices

As a result of a validation, a member can achieve Tier Three status only if it exhibits "security best practices" that "exceed the minimum security criteria." Therefore, Tier Three members must exceed the guidelines established for validation as a Tier Two member of C-TPAT. Tier Three members cannot have significant law enforcement or compliance violations on their records. Additionally, they must use advanced container security devices and technologies, such as "smart boxes," which are special containers with intrusion alert technology. In order to achieve Tier Three status, CBP has stated that "[S]upply chain security [must be] embraced at the highest levels of the company—the CEO, the COO, the President, etc. The security of a company’s supply chain should be a required topic of discussion in corporate boardrooms." In March 2006, CBP reported that C-TPAT had only 139 importers that had reached Tier Three status, which was only about 0.2 percent of the total number of C-TPAT members at the time. In order to assist members in achieving Tier Three status, CBP has created a Best Practices Catalog that provides measures that members can implement to strengthen their supply chain.

2. Tier Three Benefits

Tier Three members receive all of the benefits of Tier One and Tier Two status. They are also eligible to receive further reduction in their ATS scores, exceeding those of Tier One and Tier Two members. In addition, Tier Three members receive: (1) further reduction in examinations of cargo; (2) highest priority for examinations of cargo; and (3) inclusion in joint incident management exercises. Lastly, Tier Three members are eligible for use of a "Green Lane," which allows the expedited release of cargo in U.S. ports during all threat levels. The Green Lane was created by Congress to ensure that trade lanes are restored as quickly as possible in the event of a terrorist incident.

Ongoing Requirements

In order to maintain its benefits, a member must maintain C-TPAT security standards and comply with ongoing requirements. Members must update their security profiles once a year on the on-line C-TPAT Security Link Portal. Since the Portal did not become operational until June 1, 2006, many members had not used the on-line system to submit their initial applications. As a result, CBP directed all members to submit an updated supply chain security profile on the Portal by Oct. 1, 2006. Members must also fulfill several other ongoing requirements, including: (1) constantly assessing their security systems and supply chain; (2) periodically submitting security questionnaires to CBP; (3) developing security enhancement plans; and (4) constantly communicating C-TPAT guidelines to companies in their supply chains. The SAFE Port Act also directs CBP to implement a revalidation process for Tier Two and Tier Three members, whereby CBP will have to revalidate members once during each four-year period following the initial validation.

If a member fails to uphold its C-TPAT commitments, CBP can either suspend its benefits or cancel its participation in the program. CBP has already decertified or suspended more than 160 members because of "negative validations, failure to meet their commitments, or because their supply chain security was compromised." Under the SAFE Port Act, CBP is authorized to publish in the Federal Register names of C-TPAT members who are suspended or expelled from the program for knowingly providing false or misleading information to CBP during the validation process.

Conclusion

C-TPAT is an innovative program that has significantly changed the landscape of the trade community. Instead of focusing solely on "policing" businesses, CBP has become a collaborator, educator, and facilitator. The C-TPAT partnership has led businesses to take responsibility and ownership over the security of their supply chains. The SAFE Port Act has codified and improved the C-TPAT program. Notably, it has directed CBP to complete certifications within 90 days of receipt of the C-TPAT application, and validations within one year of certification. Additionally, it has clearly defined C-TPAT benefits for each of the three membership tiers. By doing so, the SAFE Port Act has provided much-needed clarity and accountability for both sides of the partnership. Reed Smith can assist companies in becoming C-TPAT members so that they can take advantage of the many benefits of the program, and thereby improve their trade efficiency.

This article is presented for informational purposes only and is not intended to constitute legal advice.