Customs and Border Protection (CBP), one of the major constituents of the Department of Homeland Security (DHS), has its origins in revenue collections. Before the income tax, customs duties were the primary source of federal government funding. Now, customs revenues pale in contrast to income tax collections, perhaps $21 billion vs. $1.5 trillion annually.

In 2003, CBP was transferred from the U.S. Department of Treasury, its home since 1789. While not quite all about protecting the nation’s borders, border protection is undoubtedly its primary role. As the first element of its mission statement makes clear, We are the guardians of our Nation’s borders.
We are our Nation’s frontline. Moreover, the first of its core values is Vigilance, about which the agency has this comment:

Vigilance is how we ensure the safety of all Americans. We are continuously watchful and alert to deter, detect and prevent threats to our Nation. We demonstrate courage and valor in the protection of our Nation.

Trade facilitation is claimed in the agency’s name as one of its twin responsibilities, but in this post-9/11 world, trade has taken a back seat in agency priorities.

CBP is the unified border agency within DHS. CBP combined the inspectional work forces and broad border authorities of U.S. Customs, Immigration and Naturalization, Animal and Plant Health Inspection Service and the entire U.S. Border Patrol. The trend is toward a blurring together of
national security, health and safety, and trade compliance initiatives. In this regard, CBP is the first-line enforcement agency for a wide range of other government agencies, such as the Food and Drug Administration, the Federal Communications Commission, the Environmental Protection Agency, and, of increasing importance, the Consumer Product Safety Commission (CPSC). A major theme across all of these initiatives is resource constraints. With ever-increasing volumes of trade, the federal government is hard pressed to keep up and not lose ground in the race to carry out its mission.

In this short space, we can focus on a few examples of these CBP concerns.

Cargo Security

The specter of nuclear, biological or chemical weapons being introduced clandestinely into the United
States is a haunting one. CBP rolled out a multifaceted cargo security program, seeking to gain much-needed information about the cargos bound for the United States. One aspect of the program is the Customs-Trade Partnership Against Terrorism (CTPAT), which dates back to 2002. With C-TPAT, voluntary participants from virtually all sectors in the supply chain apply best-practices security measures to their plant and physical location, containers (including controlled use of seals), personnel and information technology. Sectors represented include foreign factories, carriers (air, ocean and land) customs brokers and freight forwarders and importers. The operating principle is that if enough companies commit themselves to employ verified security measures, CBP can work smarter by concentrating its efforts on nonparticipants. The participants’ payoff is reduced cargo inspections, assignment of a cargo security specialist to work with the company and eligibility
(for importers) in the Importer Self-Assessment Program (ISA), by which the importer can get out of the audit pool by, again, voluntarily applying internal controls. Note that C-TPAT does not apply to export movements. One interesting development will be the mutual recognition of other governmental bodies’ cargo security programs. In this way, a company that meets the European Union’s Authorized Economic Operator (AEO) requirements may automatically qualify for C-TPAT and vice versa.

Another recent development in the cargo security program was the January 2009 kickoff of the Importer Security Filer (ISF), or “10 + 2,” requirements for importers and carriers where the cargo is borne by ocean. Under this program, CBP expanded on its “24-hour rule,” under which ocean carriers have to give notice of cargos to be loaded in foreign ports 24 hours prior to loading. With the new ISF regime, carriers must provide two additional data fields and importers are required to provide 10 data
points. This information is due prior to the vessel loading, to give CBP plenty of time to decide which cargo, if any, it wants to inspect.

Health and Safety

The past several years have witnessed numerous examples of imported products that have posed a
significant health or safety hazard to the United States. CBP plays a primary role in implementing CPSC’s regulations. The presence of lead in children’s toys, coupled with toxic substances in pet foods, choking hazards in certain toys and the presence of ethylene glycol in toothpaste, led to a 2007 interagency task force recommending a major effort in eliminating these risks. Another example of
interagency interplay was the October 2008 announcement that there was to be a pilot program by which ISA participants could also apply safety protocols.

Trade Compliance

The United States relies extensively on a program of post-importation audits to ensure compliance.
This dates to the 1993 Customs Modernization Act (the “Mod Act”). The theory is that a compliant company is paying its full share of customs duties. The Mod Act worked a major shift toward a partnership with the trade community. The importer is expected to show that it has exercised “reasonable care” in its importation, making sure that the correct tariff classification, valuation and origin are declared to CBP. For its part, CBP advises and guides importers through “informed compliance.” In fact, CBP has issued “Informed Compliance Publications” on a wide array of subjects. CBP’s current audit vehicle is the Focused Assessment, by which CBP initially seeks to determine whether the importer has an adequate system of internal controls. If CBP finds red flags in specific areas, then CBP will conduct a more in-depth audit of that area. The audit process review of books and records is reminiscent of IRS audits, and importers must be prepared to prove that the amounts declared to CBP at the time of entry were the amounts actually paid to the seller. The previously
mentioned ISA is a way out of the audit pool for importers willing to conduct their own periodic reviews
and report the results.

A major trade compliance effort of CBP is to eliminate commercial fraud. This task is performed by its enforcement arm, Immigration and Customs Enforcement (ICE), along with CBP officers at the ports. Importers have an incentive to report their own compliance lapses. The non-tax-deductible civil penalties assessed if and when CBP discovers such violations are multiples of the duty loss. With a “prior disclosure,” the civil penalty for a negligence or gross negligence violation is simple interest. Accordingly, many well-prepared importers conduct periodic customs compliance reviews.

Another special focus for CBP is intellectual property protection, notably the seizure and forfeiture of
counterfeit goods and accompanying civil penalties. A precondition of CBP enforcement of IP rights is recording the rights with CBP. Merely registering trademarks with the U.S. Patent and Trademark Office, for example, will not be enough.

The Takeaway

CBP is perhaps the most visible face of DHS. This multi-tasking federal agency is present at every port and at key points along the borders, as well as at strategic foreign locations. CBP exerts a major influence on companies’ supply chain strategies. There are many opportunities for importers to take initiative, from seeking advantageous tariff classification or engaging in customs valuation planning, to recording IP rights, to participating in the various programs such as C-TPAT, to a myriad of other strategies. Any company that does not take an active stance in operating within this environment is just plain careless.