Regulations governing international trade have been in place since ancient times when governments levied customs duties for the use of transportation facilities such as ports, streets, bridges and markets. By the 17th century, however, they came to be used only at the border of a country and usually only on imports. Much has changed in the last 400 years, not the least of which were the events of Sept. 11, 2001, which ushered in a spate of global security programs. These programs, particularly those in the U.S., are having a significant impact on how EU shippers, including the chemical industry, are conducting business with the still-largest economy in the world. Let's begin with a review of some of the current U.S. programs, the tools being used to implement them, and some pending regulations that promise to further complicate an already complex regulatory landscape.

Current Security Programs

Since August, the Transportation Security Administration (TSA) is mandating 100% screening of all cargo leaving the U.S. on passenger aircraft. This is a daunting task that can affect scheduling, so it will be important for European importers to know exactly what's occurring in their supply chains. Impacting European exporters is the Importer Security Filing (ISF) or 10+2 program that requires U.S. importers to submit 10 sometimes difficult-to-obtain data elements to customs, plus an additional two on container status from ocean carriers, 24 hours prior to loading in the country of origin. Compliance has been high, and customs is receiving the sought-after information. However, those companies not in compliance can expect to be penalized, which of course will redound on their export partners.

Another import-related program that affects exporters to the U.S. is the Customs-Trade Partnership Against Terrorism (C-TPAT). A voluntary government-business initiative, C-TPAT calls for its members to ensure the integrity of their security practices and verify the security guidelines of their supply chain partners, including manufacturers, carriers, consolidators, logistics firms and others.
Besides the obvious security benefits, membership can reduce customs inspections or provide for priority processing. To date, more than 10,000 organizations worldwide have joined this partnership.

Then there's the container security initiative to increase security for container cargo being shipped to the U.S. This program targets containers at risk for terrorism, pre-screens them using detection technology at the port of departure and promotes the use of tamper-proof containers. Initially focused on the top 20 ports outside the U.S., the program has been expanded to nearly 50 since it was launched in 2002.

Among the tools being used both to enforce and aid compliance with these programs are C-TPAT specialists to work with companies on supply chain security issues. Another one is regulatory audits, which are being conducted with increasing frequency and among smaller importers. These audits include focused assessments of companies with over $10 million in imports, requiring audit trails from purchase order through receipt of goods and payment. In addition, customs has distributed more than 7,000 radiation detectors to inspectors at all major ports.

New Trade Regulation Programs

Whereas the current programs focus on security, there are a number of relatively new programs that are essentially trade-oriented. The Foreign Corrupt Practices Act (FCPA), for example, is not exactly new, but more aggressive enforcement of it is. In fact, the Securities and Exchange Commission has established a new unit dedicated exclusively to FCPA investigations, primarily involving corporate payments for illegal activities. At the same time, the world customs organization is pushing for adoption of its "single window" data model to optimize electronic data exchange. And initiatives to identify imports that may pose health, safety or environmental issues present new obligations and risks for U.S. importers and their foreign suppliers.

In addition to these programs, U.S. customs is replacing in-depth, time-consuming compliance assessments with fast-track focused assessments of importers' internal controls regarding value, special classification programs, transshipment and other factors. Or an importer may opt for self-assessment. Designed for larger importers, self-assessment requires rigorous adherence to a documented program, but removes a company from the audit pool. It also provides a post-violation grace period to file prior disclosure, as well as ongoing analysis support.

‘Alligator' Programs Handicap U.S. Imports

These pending initiatives are cause for concern for every company importing or exporting to the U.S. The 2007 9/11 commission act calls for 100% x-ray scanning of all containers bound for the U.S. before leaving port, whether parties to the shipment are C-TPAT members or not. Scheduled to become effective in 2012, the deadline could be pushed up or extended depending on the results of the ongoing pilot program under the SAFE-Port Act of 2006. Another ‘alligator' is the 2010 Safe Chemicals Act that establishes new reporting requirements for manufacturers, importers, exporters, processors and distributors of chemical substances. Unlike current rules under the toxic substance control act, this legislation shifts the burden of proof of a chemical's safety from the Environmental Protection Agency (EPA) to the industry.

In the meantime, the EPA is viewing restrictions on importing certain chemicals used in the manufacture of a wide array of products and deemed to pose "serious health or environmental concerns," including phthalates, polybrominated diphenyl ethers (PBDEs), long-chain perfluorinated chemicals (PFCs) and short-chain chlorinated paraffins (SCCBs).

An even bigger ‘alligator' is the requirement that cargo containers containing any amount of residue can no longer be entered as "empty", but must be manifested and entered per customs' regulations. If the exact amount is unknown, the importer is to estimate, file and later amend the information. Even though enforcement has been delayed until new guidelines are developed, customs expects companies to be working toward compliance.

Government Activism

Governments around the world become increasingly concerned about the environment and health & safety of their citizens. These concerns in turn are leading to stringent regulations that address the safety of chemicals, food and drugs, control outbreaks of disease, monitor hazardous materials and protect the environment.

In the U.S., customs is enforcing these regulations through inspections, audits, liquidated damages for breach of bond, investigations and civil and criminal penalties for negligence, gross negligence and fraud. Four recent cases underscore the seriousness of these enforcement efforts:
In March, Daiso, a major Japanese retailer, paid a $2 million civil penalty for violating federal safety laws and may no longer import children's products into the U.S.
In February, Chemnutra, an importer of food and pharmaceutical ingredients, and Kroy, an importer of refrigerants, incurred both financial penalties and jail sentences for violations.

And in 2009 huge retailer Target paid a $600,000 civil penalty and had to recall toys containing lead paint.

Conclusion

Compliance with both security and trade regulations, which increasingly are converging, is critical as the cost of non-compliance climbs. Existing penalties are being expanded and new ones created to reflect the times we live in. These new mandates will apply to all importers, regardless of size, straining the resources of small and medium-size companies. The key to successfully navigating this regulatory maze is to stay current with the various programs and to thoroughly understand all areas of exposure in managing international orders.