The US Trusted Trader Program

Mark K. Neville, Jr.

Readers of this column will be familiar with one of the overarching attributes of the US approach to trade and customs. Leaving aside any debate on the benefits of free market capitalism, the US has for a very long time—generations, in fact—turned a close and discerning eye to whatever happens at its borders. In a marked departure from the official lassitude that might be associated with any 19^th century “laissez faire” notions for the private sector to be left alone to go about its business, passage and enforcement of trade and customs laws soon followed that scrutiny. Those efforts have been long-standing, sustained, vigorous and, for the most part, well-organized.

Well-organized, at least when studied on a discrete basis, because a sizeable challenge for all involved is that enforcement has come within many disparate federal programs that may actually overlap. Now Customs and Border Protection has come forward with a project to combine some of these border enforcement and their corresponding voluntary compliance programs.

Its Trusted Trader Program marks the latest expression of these evolving enforcement efforts. Wedded to the trade community’s own efforts at complying with these laws, Trusted Trader combines compliance along three major axes--with the customs laws, with cargo security as well as with some of the Other Government Agencies’ regulatory schemes. For good measure, Trusted Trader is a serious step along the path to a “Single Window,” which we discussed in this space a year ago.¹ All told, Trusted Trader is a bold step but not one which is surprising, given the trajectory of the earlier voluntary partnership programs which are being combined.

Trusted Trader

First, let’s define Trusted Trader. CBP itself sees it as a “holistic” program that unifies the current HYPERLINK "http://www.cbp.gov/border-security/ports-entry/cargo-security/c-tpat-customs-trade-partnership-against-terrorism" Customs-Trade Partnership Against Terrorism (C-TPAT) and the HYPERLINK "http://www.cbp.gov/trade/isa/importer-self-assessment" Importer Self-Assessment (ISA) processes in order to integrate supply chain security and trade compliance.

If that were all it did, that would be a big step. But Trusted Trader actually goes significantly further. It is a coordinated effort among members of the trade community, CBP and what it calls “Partner Government Agencies” (PGAs), such as the Food and Drug Administration (FDA), Consumer Product Safety Commission (CPSC), and the Transportation Security Administration (TSA). This approach enables CBP and its PGAs to provide additional incentives to participating entities and enhance efficiencies of managing supply chain security and trade compliance within one partnership program.

Pilot Program

The eighteen-month long pilot program was first announced by CBP with a Federal Register notice in June, 2014.² Companies who wish to participate were given the opportunity to apply. In order to lay out the benefits of participating as a Trusted Trader, CBP first explained the two major programs being united. It is worthwhile for us to review them as well.

C-TPAT

C-TPAT is a voluntary cargo security program which, as its name implies, is a partnership between CBP and the trade community. Private sector companies eligible to join C-TPAT are include U.S. importers of record; U.S./Canada highway carriers; U.S./Mexico highway carriers; air, rail and sea carriers; licensed U.S. customs brokers; U.S. marine port authority/terminal operators; third party logistics providers; U.S. freight consolidators; ocean transportation intermediaries and non-vessel operating common carriers (NVOCCs); Mexican and Canadian manufacturers; and Mexican long-haul highway carriers.

C–TPAT importers enjoy certain incentives based on their tier status within a three tier structure. Tier I incentives are afforded to those importer partners that have been certified; Tier II level to those that have been certified and validated; and Tier III incentives to those that have exceeded the program’s requirements and exhibit best practices.

The advantages of C-TPAT begin with a reduced cargo examination rate. While examination rates have increased significantly since 2001 on all cross border movements, C–TPAT import partners continue to be examined at a considerably lower rate than non-C–TPAT partners. Other incentives afforded to importer partners by the C–TPAT program include:

(a) Access to the Free and Secure Trade (FAST) Lanes—Expedited border crossing privileges are granted to those C–TPAT highway carrier partners who are certified/validated
(b) Exemption From Stratified Exams for importer partners—C–TPAT Tier III importer partners and C–TPAT Tier II importer partners that also participate in the ISA program are exempt from stratified exams;
(c) Front of the Line—C–TPAT shipments subject to examination receive ‘‘front of the line’’ treatment. To the extent possible and practicable, C–TPAT shipments are moved ahead of any non-C–TPAT shipments. This can translate into substantial monetary savings, since C–TPAT shipments will not have to wait as long in line for an examination;
(d) Business Resumption—In the event of a significant disruption/delay in CBP cargo processing operations, communication and coordination with C–TPAT partners and foreign government stakeholders for business resumption will be maintained; and
(e) Penalty mitigation offered for the late submission of data required under the Importer Security Filing requirements.

Importer Self-Assessment (ISA)

As this name also implies, this program looks to the importer conducting an assessment of (read “auditing”) its own import activities. The ISA program is another joint government-business initiative designed to build cooperative relationships that strengthen trade compliance. ISA is based on the premise that companies with strong internal controls achieve the highest level of compliance with customs laws and regulations. First announced in 2002, the ISA program was expanded in 2012 to accept Canadian non-resident importers as well as U.S. importers.

Applicants for ISA must provide the importer’s name and unique importer number(s); a signed ISA Memorandum of Understanding (MOU); a completed ISA questionnaire along with support documentation; and a risk-based self- testing plan. The pay-off—getting out of the audit pool for a Focused Assessment (FA) audit by CBP. ³ Voluntarily signing up to audit oneself is something of a hard sell. After all, experience tell us that there are many importers who prefer to wait until the proverbial “wolf is at the door” rather than to expend much time, energy or financial resources on audits or on compliance generally.

One way to make some of these folk true believers is to actually ramp up the FA activity levels, perhaps to levels not seen in recent years. Another way to expand participation in the ISA is to make it easier for recently audited importers to join up. For importers who successfully have undergone an FA audit and were deemed an acceptable risk to CBP, there is a transition opportunity. This allows these acceptable risk importers to forego the experience a second time around and transition into the ISA program without further CBP review within twelve (12) months from the date of the FA Report in which CBP’s Regulatory Audit determined the company represents an acceptable risk to CBP. The following ISA eligibility requirements will apply:
They must be a U.S. or Canadian resident importer; they must be C–TPAT partners or apply for C–TPAT membership and become certified; they must develop a risk-based self-testing plan; and they must agree to meet all of the ISA program requirements.

ISA-PS Pilot

You should also know that there is an ongoing pilot program, first announced in 2008, whereby private sector ISA participants who are committed to safe products can participate in a joint initiative with CBP and the CPSC and importers who commit to maintain a high level of Product Safety (PS) compliance and strive to prevent ]the importation of unsafe products. It is an expansion of the ISA program and is jointly administered by CBP and CPSC.

Trusted Trader Program

As noted, the program unifies the C-TPAT and the ISA and also adds into the mix coordination with CPSC and FDA. The goals established by CBP include the following

achieve integrated US government collaborations that result in enhanced efficiencies leading to a reduction in government-wide resource expenditures; enhance information sharing between government agencies; lower the administrative cost of participants by streamlining the application and validation process; and increase the efficiencies in the existing trade programs. The Trusted Trader program will strengthen security, identify low-risk trade entities, and increase overall efficiency of trade, by segmenting risk and processing by account.⁴

As was suggested at the outset, there has been a great deal of enforcement activity by the federal government, which has, in turn, spawned a great deal of compliance activity by the private sector. That activity has been directed along various federal agency lines. This Trusted Trader program is a “whole of government” approach, one that is absolutely tied into the Single Window initiative, and that is also linked to the Authorized Economic Operator programs of foreign governments that are ultimately expressions of the World Customs Organization (WCO) SAFE (Framework of Standards to Secure and Facilitate Global Trade) Program.⁵ As CBP itself has noted

This test of the Trusted Trader program aims to move toward a whole of government approach to supply chain security and trade compliance by strengthening government collaboration between CBP and FDA and between CBP and CPSC. The Trusted Trader program, as envisioned, will align with Authorized Economic Operator programs which focus on a combined trade and security compliance model implemented by other countries around the world.⁶

If the test is successful, CBP will eliminate the ISA and transition current ISA members into the Trusted Trader Program, unless they opt out of the transition.

Incentives

Here is where we lay out the answer to the “so, what’s in it for me” that importers will be asking right about now. There are actually a myriad of benefits, including, among others

The benefits of both C-TPAT and the ISA
A reduced FDA targeting/examination risk score. The incentive will be predicated on the test participants’ importation of FDA regulated goods, and the participants’ agreement to allow CBP to share C– TPAT certification status with FDA.
As part of a CBP penalty mitigation decision, test participants may receive a penalty offset upon request. If approved, penalty offsets may result in receiving credit towards their penalty liability as a result of implementing enhanced security and trade compliance measures.
Participants who also participate in the Reconciliation Prototype, and whose entries are filed via ACS, will be allowed to flag and unflag entries for reconciliation retroactively after the entry summary is filed up to 60 days prior to the date for which liquidation of the underlying entry summary has been set.
CBP will reduce the number of Foreign Trade Zone (FTZ) on-site inspections.
Drawback claimants will be exempt from on-site visits from Drawback Specialists and Full desk verification reviews, conducted pursuant to 19 CFR 191.61, will be limited to no more than one (1) per year for drawback claimants.
Where a Chemical Abstracts Service (CAS) number is required, CBP will allow a quarterly submission of the CAS number, the use, and the description for the chemical compound in advance of the calendar year quarter.
CBP will process Post-Entry Amendments (PEA) on unliquidated entries within a ninety (90)-day timeframe.
Post-cargo release, test participants may have the ability to choose an exam location, other than the port of arrival, that contains accommodations CBP considers amenable for a thorough exam.

In addition to these customs benefits, for those participants who are also participating in the PS prototype, CPSC has set out other incentives, which include the fact that CPSC

will provide the participants with a product-specific CPSC point of contact who can assist in providing National Electronic Injury Surveillance System (NEISS) Product Codes for entry lines.
will provide access to the participants with special training concerning product safety compliance, internal controls, and CPSC audit trails.
will allow the participants the opportunity to apply for external participation coverage of multiple business units (multiple IOR numbers).
will consider expansion of benefits to all products of approved participants if the entry line(s) contains all the applicable NEISS product code(s).
will reduce product safety tests on goods imported by the participants.
laboratories will grant priority ‘‘front of the line testing’’ to participants when product safety testing is conducted.
may allow products to be destroyed by participants in lieu of requesting redelivery to CBP of the product.

Participants’ Eligibility and Commitments

What do the participants in the Trusted Trade program need to do? The program itself is not for the faint of heart, as the tasks are formidable. Eligibility to participate will hinge on

Being an active U.S. importer or Non- Resident Canadian Importer who meets the requirements set forth in 19 CFR Part 141 for entry;
Have written policies and procedures pertaining to its import process;
Have a business office staffed in the United States or Canada;
Have an active Importer of Record (IOR) number or a CBP-assigned number;
Possess a valid continuous importation bond filed with CBP;
Have at least two (2) years of importing history before the date that the application for the test program is submitted;
Conduct an assessment of its supply chain based on C–TPAT’s security criteria for importers
Implement and maintain security measures and supply chain security practices
Meeting security criteria established in the C–TPAT Importer Security Criteria document;
Have a designated company officer who will be the primary cargo security officer responsible for C–TPAT;
Create and provide CBP with a C–TPAT security profile, which identifies how the importer meets C– TPAT’s Importer Security Criteria;
Maintain books and records to establish compliance with the laws and regulations administered or enforced by CBP, including but not limited to, records sufficient to ascertain the correctness of any entry and to determine the duties, taxes and fees that may be due; and
Applicants requesting consideration for the Product Safety potential incentives must concurrently complete the Product Safety portion of the Trusted Trader Program application.

Curiously, the pilot for the Trusted Trader Program is not open to ISA participants. This is especially curious since CBP plans to phase out the ISA as a stand-alone program if the Trusted Trader test is successful. Because it is not to be scrapped altogether, one thought is that CBP has sought to boost the numbers of importers using the ISA by embedding it within Trusted Trader. This would assume that more importers would want to go into Trusted Trader than would go into ISA if they were offered separately. The continuing responsibilities of Trusted Traders make for an exhaustive list of best practices in this area of the law. We may count, among many others, Agree to comply with applicable CBP laws and regulations, except for the regulatory requirements explicitly waived in the test;

Agree to comply with applicable CPSC and FDA laws and regulations;
Complete a Trade Compliance Questionnaire;
Submit a copy of the company’s customs policies and procedures;
Make relevant importation records (i.e., those records and documents listed in the Appendix to 19 CFR Part 163, commonly known as the ‘‘(a)(1)(A) list’’) available to substantiate compliance with trade laws for CBP to review;
Perform annual risk assessments to identify risks that could impact compliance with CBP laws and regulations;
Develop and execute an annual self- testing plan based on risk and implement corrective action in response to errors and internal control weaknesses disclosed by self-testing;
Maintain results of testing for five (5) years and make test information available to CBP upon request
Develop, document, and implement a system of internal control designed to provide reasonable assurance of compliance with CBP laws and regulations: Make appropriate adjustments to internal controls; and Maintain an audit trail from financial records to CBP declarations, or an alternate system that ensures accurate values are reported to CBP;
Make appropriate prior disclosures, PEAs, and/or PSCs [post summary corrections, filed electronically].

Status of Pilot

It is clearly the case that, taken altogether, these incentives are attractive. While it is very unlikely that each of the afore-mentioned incentives will apply to any single importer, one or more of the incentives might have enough relevance for and deliver enough of a benefit to an importer that it will join in, despite the burden of responsibilities. When it was announced a year ago, CBP had strict limits on the size of the participant pool. CBP wanted less than 10 eligible participants with different status profiles. Specifically, CBP was looking for test participants to include at least:

One or more importers currently participating in C–TPAT;
One or more importers not currently participating in any CBP
One or two participants who have imports monitored by CPSC and the FDA.

At the time of this writing, we have learned that there are nine participants going forward. We are at about the nine-month mark, the half-way point in the pilot program. By all accounts it is proceeding smoothly. We have high hopes, so let’s wait and see what develops with this merger of several customs and PGA compliance programs. If it is successful, we may see the inclusion of other PGA compliance programs into the mix.

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1. Neville, “The Customs ‘Single Window’,” 25 JOIT No. 6 at 27 (June 2014).

2. 79 Fed. Reg. 34334 (June 16, 2014).

3. For background and a discussion of recently-announced changes to CBP’s FA program, see, Neville, “US Customs Audit Program Major Changes Coming,” 26 JOIT No. 1 at 25 (2015).

4. 79 Fed. Reg. 34335-34336.

5. For a discussion of the C-TPAT in the context of Freer Trade Agreements, Mutual Recognition Arrangements and SAFE, see Neville, “Cargo Security: The experience of the United States within Free Trade Agreements and Conventions for the Mutual Recognition of C-TPAT and other Certification Methods,” 39 Jornadas Colombianos de Derecho Tributario, Derecho Aduanero y Comercio Exterior 659 (2015).

6. 79 Fed. Reg. 34336.

Mark K. Neville, Jr., LL.M. (International Legal Studies), NYU, is a long-time member of the Board of Advisors. He is Principal of International Trade Counsellors and may be reached at mkneville@itctradelaw.com. He has served as an adjunct professor at The University of California, Berkeley’s Haas School of Business and NYU’s Stern School. He is The Journal’s Customs & Trade correspondent.

May, 2015