Chicago Conference on GLOBAL SUPPLY-CHAIN SECURITY C-TPAT Fundamentals

1. Chicago Conference onGLOBAL SUPPLY-CHAIN SECURITYC-TPAT Fundamentals Presented By: Marian E. Ladner, Esq. Strasburger & Price, LLP 713-951-5654

2. What is C-TPAT? • Customs-Trade Partnership Against Terrorism • Objective: To create a more secure supply chain • A partnership between Customs and industry • To secure the supply chain

3. The Program • Voluntary • May become mandatory • Participants include: • Importers • Carriers • Brokers • Warehouse operators • Manufacturers • Includes foreign manufacturers • C-TPAT is the model for other countries

4. C-TPAT Facts • Began with 7 volunteer companies • To-date 7,100 U.S. companies have applied to C-TPAT. • Additionally 250 foreign companies are members. • 350 Validations have been completed • 730 are scheduled for 2004

5. C-TPAT Facts • Currently there over 140 sea carriers that are C-TPAT members. • C-TPAT sea carrier members accounts for 96% of the container volume entering United States. • All major sea carriers have been validated. • This accounts for 50% of container volume entering United States. • All major ports and terminal operators are C-TPAT certified.

6. C-TPAT Facts 2004 • C-TPAT participants not involved in ISA accounted for $177 Billion in imports. • This is 27% of the total import value of the first half of 2004. • C-TPAT participants who are also ISA participants accounted for $81 Billion in imports. • C-TPAT and ISA imports together accounted for 36% of all imports in the first half of 2004.

7. Possible Benefits • Account Manager • C-TPAT membership list • Account based processes • (bi-monthly/monthly payments) • Enhanced national security • Pre-requisite to ISA • Reduced # of inspections • Prerequisite for FAST

8. Possible Benefits • The Free and Secure Trade (FAST) program is designed to ensure security and safety while enhancing the economic prosperity of member countries. • FAST processing is based on the supplying of advanced electronic information about the goods being transported. • Requirements for FAST membership are: • Must be a C-TPAT approved carrier, • Carrying qualifying goods from a C-TPAT approved manufacturer, • Must be a C-TPAT approved importer, and • Driver must possess a valid FAST-Commercial Driver Card.

9. Benefits • FAST available at: • Canadian Border (current ports) • Buffalo, New York • Blaine, Washington • Champlain, New York • Detroit, Michigan • Lewiston, New York • Alexandria Bay, New York • Derby Line, Vermont • Highgate Springs, Vermont • Pembina, North Dakota • Portal, North Dakota • Sweetgrass, Montana

10. Benefits • FAST available at: • Mexican Border (current) • El Paso, Texas • Laredo, Texas • Hidalgo, Texas • Brownsville, Texas • Otay Mesa, California • Calexico, California • Nogales, Arizona

11. C-TPAT Drawbacks • Cost to upgrade security • Cost to engage others w/in supply chain • On-going obligations; monitor action plan • Loss of benefits if suspended • Hidden civil penalties for non-compliance with stated processes and approved security?

12. C-TPAT Security Objectives • Procedural Security • Protect against un-manifested material being introduced into a shipment • Record keeping • Internal controls - inventories • Physical Security • Facilities – fencing, guards, alarms • Shipping & receiving controls • Theft prevention – limited access to shipping areas, back dock procedures • Access Controls • Identification requirements – entry and exit logs, photo id, escorts, package scans

13. C-TPAT Security Objectives • Personnel Security • Employment screening – background, drug screening • Background checks – criminal, credit, driving, employment history • Code of conduct – distributed and acknowledged • Education and Training Awareness Program • Employee requirements, incentives • Manifest Procedures • Documentation verifications – quantity, quality, marking • Conveyance Security • Prevention against tampering during transit • Tamper resistant tape or seals • Monitoring shipment progress

14. Application Process • MOU • Self-assessment of Security • Submit an application and security profile to Customs • Customs Certification • Validation

15. Memorandum of Understanding • Signed by corporate officer with authority to implement security enhancements • Sign two originals, send to CBP-HQ • Submission of the MOU indicates that you will: • Conduct a comprehensive security self assessment • Develop and implement a program to enhance security • Communicate guidelines to other companies in the supply chain

16. Self Assessment • The self assessment requires the applicant to review the following areas: • Procedural Security • Physical Security • Personnel Security • Education and Training • Access Controls • Manifest Procedures • Conveyance Security

17. The Security Profile • The security profile includes: • Results of the self-assessment • A description of the applicant’s importation processes • Including a list of countries the applicant does business in • The types of goods typically imported • The service providers used by the applicant • The security procedures currently in place.

18. The Security Profile • Submitted to Customs 60 days after the MOU • Possibility of a one time 30 day extension

19. Customs Validation Process • Customs will validate supply chain security sometime after receipt of the application • Validation in 1-3 years • 10 business days to validate; May not be consecutive days • Initial meeting • Domestic site visit • International site(s) visit • Close out meeting • Customs will physically verify the procedures/security measures the applicant has claimed in their application • Focus on the reliability of the company’s submissions • Example: verify that a closed circuit surveillance system is working properly • Applicants should review and amend their application, as necessary • 350 completed • 730 for Schedule `04

20. Customs Validation Process • Customs will inform applicant of areas of noncompliance. • Applicant will have 30 days to respond to letter. • Time period allotted to remedy areas of noncompliance is based on a company by company basis. • Second Validation will take place. • Failure to meet standards of C-TPAT during second Validation may result in the expulsion of applicant for C-TPAT program.

21. The Future of C-TPAT • Advisory committees have suggested several changes to strengthen C-TPAT. • Expand C-TPAT to ensure that international ports are not violating C-TPAT security requirements. • Target small to medium size companies for C-TPAT involvement. • Standardization of global guidelines to ensure consistency in security. • Standardization of data collection to identify high risk shipments.

22. The Future of C-TPAT • Proposed Mandatory Standards • Selection of Business Partners: Verifiable procedures to review business partners security procedures • Container Security: Verifiable procedures to maintain container security through inspection, seals and proper storage • Physical Security: Systems designed to prevent unauthorized access, fences, etc. • Personnel Security: Background checks, etc. • Procedural Security: Shipping/Receiving procedures in place, etc. • Security Training: Employees must undergo security training and threat awareness • Information Technology: Password protection, etc.

23. The Future of C-TPAT • Commissioner Bonner’s remarks at the Cargo Summit, December 2004 • Endorsed defining the point of stuffing criteria • Increased validations to ensure members are meeting their commitments • A House Bill has recently proposed several amendments to broaden the scope and strengthen C-TPAT. • Making C-TPAT involvement mandatory for all companies based in or doing business with the United States. • Annual verification of C-TPAT participants security measures. • Penalties for non-compliance including probation, fines, and expulsion.

24. Expansion of C-TPAT to Foreign Nations • Foreign manufacturer enrollment in C-TPAT is initially limited to: • Mexican manufacturers, • Mexico related parties, and • Foreign Manufacturers invited to participate. • Due to the volume of foreign manufactures there is no specific date for the future expansion of C-TPAT to include other countries foreign manufactures.

25. Future of C-TPAT • Office of Policy and Planning Focus Group • Increasing the security of the supply chain • Delivery of benefits

26. International Initiatives and C-TPAT • Global efforts are underway to secure and ensure the safety of international trade. • The World Trade Organization (WTO) has implemented programs to facilitate trade by moving inspection points to the port of export. • The World Customs Organization (WCO), through the Global Standards for Supply Chain Security initiative, seeks to promote trade by developing standardized guidelines for the rapid clearance of low-risk cross boarder shipment. • The Smart and Secure Trade (SST) initiative, developed by the Strategic Council on Security Technology (SCST) and the International Organization for Standardization (ISO), develops technology that tracks goods globally and also generates a chain-of-custody audit trail.

27. Related Legislation • Maritime Transportation and Security Act • DHS- Border and Transportation Security Directorate (BTS) engaged Advisory Committee of Commercial Ops. (“COAC”) • COAC Subcommittee on Increased Security Standards • Performance Standards for a “smart container” concept • MTSA-required Secure Systems of Transportation • Quantitative performance metrics to measure programs aimed at increasing security

28. Related Legislation • Bioterrorism Preparedness Response Act requires: • the owner, operator, or agent • in charge of a domestic or foreign food facility • to register the facility with FDA, • Provide name and address of each facility, including all trade names • At and under which the registrant conducts business .

29. Chicago Conference onGLOBAL SUPPLY-CHAIN SECURITYC-TPAT Fundamentals Presented By: Marian E. Ladner, Esq. Strasburger & Price, LLP 713-951-5654