U.S. Customs and Border Protection Customs-Trade Partnership Against Terrorism Manila, Philippines May 13, 2008

1. 1st National Conference on SAFE Trade and AEO U.S. Customs and Border Protection Customs-Trade Partnership Against Terrorism Manila, Philippines May 13, 2008

2. CBP’s Mission…. Preventing the entry of terrorists and their weapons while facilitating legitimate trade and travel

3. Layered Enforcement Strategy • Advance electronic information analysis and targeting of high risk shipments. • The 24-Hour Rule and the National Targeting Center (NTC) • Using advanced inspection technologies. • Non-intrusive Inspection Technologies (NII) • Pre-screening high-risk shipments prior to arrival in the U.S. • Container Security Initiative (CSI) • Secure Freight Initiative / 100% Scanning • Partnering with the trade community to increase supply chain security. • Customs-Trade Partnership Against Terrorism (C-TPAT)

4. SUPPLY CHAIN ROAD MAP

5. Shift in Supply Chain Security From Traditional “Single Point” to “End-to-End” Traditional Import Intervention Single Point intervention by Customs at import location.

6. Shift in Supply Chain Security From Traditional “Single Point” to “End-to-End” Expanding to Transit Port Intervention Adding intervention at transit port - CSI type measures.

7. Shift in Supply Chain Security From Traditional “Single Point” to “End-to-End” Securing Full Transport Legs Securing the full maritime portion - ISPS type measures.

8. Shift in Supply Chain Security From Traditional “Single Point” to “End-to-End” End-to-End Supply Chain Security Solution Securing the entire supply chain from end-to-end – C-TPAT type measures.

9. C-TPAT • C-TPAT is the largest government-private sector partnership to emerge from the terrorist attacks on September 11, 2001. • C-TPAT was launched in November 2001 with seven major importers who also saw the need for the focus on supply chain security. • The guiding principles for C-TPAT have been enhanced supply chain security, partnership, and a voluntary program.

10. Who is Eligible to Participate? • U.S. Importers of Record • U.S. / Canada / Mexico Highway Carriers • Air, Rail, Sea Carriers • U.S. Marine Port Authority/Terminal Operators • U.S. Air Freight Consolidators • Ocean Transportation Intermediaries and Non-Vessel Operating Common Carriers (NVOCC) • Mexican and Canadian Manufacturers • Certain Invited Foreign Manufacturers • Licensed U.S. Customs Brokers

11. C-TPAT Security Criteria (Importers) Business Partner Requirements • Documentation that they are a C-TPAT member. • Non-C-TPAT member, written or electronic confirmation meeting C-TPAT security criteria. Container Security • Written sealing procedures (PAS ISO 17712 seal). • Seven-point inspection of container prior to loading / upon receipt. • Container Storage - secure locations, preventing unauthorized entry into container or storage area. Physical Access Controls • Visitor procedures (including deliveries and mail) – Logbooks, visitor badges, escorted access. • Employment Procedures – Identification system.

12. C-TPAT Security Criteria (Importers) Personnel Security • Procedures must be in place to screen prospective employees and to periodically check current personnel (Background, employment history). • Personnel termination procedures must be in place to remove access. Procedural Security • Document processing – accurate, complete & safeguarded. • Manifesting procedures – accurate and timely. Security Training and Awareness • A threat and security awareness program should be established for all employees. • Employees must be made aware of the procedures the company has in place to address a situation and how to report it.

13. C-TPAT Security Criteria (Importers) Physical Security • Cargo handling and storage facilities must have physical barriers that guard against unauthorized access. Information Technology Security • Anti-virus software/ Firewalls. • IT security policies, procedures and standards must be in place and provided to employees in the form of training.

14. ApplicantA company that has submitted their security profile and signed their agreement (online). Tier 1 A company that has completed their online application, the company has been vetted, the profile has been reviewed along with the company’s importation history and approved by the SCSS. This company is now a C-TPAT member. Tier 2 A certified company that has undergone their validation and has met minimum security criteria. Tier 3 A certified company that has been validated and has exceeded minimum security criteria. An Explanation of C-TPAT Tiers

15. Validations • The purpose of the validation is to ensure that the C-TPAT participant’s international supply chain security measures that are contained in their security profile have been implemented and these measures are in accordance with established C-TPAT security criteria or guidelines. • The validation is an opportunity to develop a strong working relationship between CBP and C-TPAT member. • Foreign manufacturers/companies are encouraged to develop strong relationships with their government agencies. • Allows for CBP and C-TPAT partners to jointly discuss security related issues and share best practices. • A forum to review security related issues. • Identify supply chain security vulnerabilities & weakness. • Provide feedback on immediate actions required or recommendations to address security issues.

16. ApplicantApplicants do not receive any benefits. Tier 1Receives a minimal reduction in CBP examinations. Front of the line treatment. Assigned a Supply Chain Security Specialist (SCSS). Invitation to attend the supply chain security conferences hosted by C-TPAT. Tier 2Receives same as Tier 1 and in addition, a significant reduction in examinations. This tier status is one of the variables factored into post-incident contingency planning should a terrorist act impact international supply chains. Tier 3Members have around 6 to 7 times less inspections than non-C-TPAT members. Benefits Assigned to Tier Levels

17. C-TPAT Achievements May 1, 2008 • 8,363 Certified Partners • 7 Field Offices – 200 Supply Chain Security Specialists • Buffalo, Houston, Los Angeles, Miami, Newark, New York, Washington, DC. • 7,632 Total Validations Completed • 6,729 Initial Validations • 903 Re-Validations • 533 Total Suspensions/Removals • 259 Highway Carriers • Security Criteria Implemented • Importers, Sea Carriers, Highway Carriers. Rail Carriers, Foreign Manufacturers, Customs Brokers, Mexico Long Haul Highway Carrier, Port Authorities/Terminal Operators, Air Carriers. (Under Development: Consolidators). • Tier III Importers - 256

18. Safe Port Act Recognizes the critical role of CBP in securing our nation’s border against terrorism by securing the supply chain and facilitating legitimate trade. • SAFE Port Act Requires CBP: • Certify new applicants within 90 days. • Validate all partners within one year of certification. • Revalidations not less than once every four year. • Third party validation pilot program.

19. Weather Accidents Others Sabotage Supply Chain Influences

20. Accounting Irregularities Mergers and Acquisitions Class Action Lawsuit Political Unrest Natural Disasters Civil Disorders Fire Bomb Threat Suspicious Packages Missing Person, Kidnapping Loss of Utilities Water, Electricity, Natural Gas Hazardous Materials Release Transportation Accident Product Tampering or Recall Pandemic Outbreak Terrorist Attack New Government Regulations Bankruptcy Workplace Violence Labor Stoppage Chemical – Biological – Radiological – Nuclear – Explosive Contamination of Food / Water Structural Collapse Supply Chain Interruption Every Company is at Risk

21. Main Entities • Shipper/Consignor: An entity (individual/firm) that sends freight. • Consignee: An entity that receives the freight. • Shipment is transacted between consignor and consignee. • Carrier: Transports the shipment.

22. Carrier • Transportation provider. • Has the responsibility of transporting the shipment. • Typically owns and operates transportation equipment (airplanes, ships, trains, trucks, etc.).

23. Common Carrier Carrier Types • Serve all customers. • Without discrimination. • Charge reasonable rates. • Deliver shipments in stated time, is liable for damage. Private Carrier Contract Carrier • Provides service to specific customers based on negotiated rates. • Tailor service to meet the needs of each specific customer. • Rates are not public. • Entry to the industry is regulated. • But not required to serve all shippers. • Owns and manages its own transportation service. • Are not regulated. • Can provide service to other corporations.

24. Transportation Comparison Rail • Mass movement of goods. • Accessibility is a problem. • Cheaper, more efficient than trucks. • High fixed costs, low variable costs. Air • Fast • Expensive • Reliable (freight is less prone to damage) Roadways • Greatest accessibility. • Less capacity than rail. • lower initial investment, but more expensive operation. Water • Mass movement of goods. • Excellent for long-haul transportation of low-cost commodities. • Very high capacity. • Cheaper operation that rail and roadways.

25. Trucking Terms • Truck Load/Full Truck Load (TL/FTL) • TL Carriers: Shipper must contract entire truck. • Simpler to manage. • Less expensive per unit mile. • Less than Truckload (LTL) • LTL Carriers: Shipper can contract the carrier for freight that will not require entire truck. • More complicated. • More expensive per unit mile.

26. Intermodal Transportation • Using a container that can be transferred from the vehicle of one mode to the vehicle of another; and with the movement covered under a single bill of lading.

27. Container • Single, rigid, sealed, re-useable metal box of standardized dimensions. • Merchandise is packed in container and containers are shipped via trucks, rail, ships. • Usually 8 ft in width and height, can be 20 ft or more in length. • TEU (Twenty-foot Equivalent Unit) • FEU (Forty-foot Equivalent Unit)

28. Terminal • Transportation facility with one or more functions: • Access (point where freight enters and leaves the transportation system) • Freight consolidation/distribution • Mode transfer • Vehicle transfer • Storage and warehousing • Fleet maintenance

29. Freight Forwarder • An agency that receives freight from a shipper and then arranges transportation with one or more carriers. Often performs other tasks: • Consolidation • Pickup/delivery • Freight handling, documentation, clearances.

30. Nonvessel-Operating Common Carrier (NVOCC) • Owns no vessels (ships). • Provides ocean shipping freight-forwarding service. • Provides consolidated, negotiated-rate services for ocean and inland water carriers. • May affiliate with freight-forwarders to provide pickup/delivery and other services.

31. Third Party Logistics Provider (3PL) • Firm to which logistics services are outsourced. • Typically handles many of the following tasks: • Procurement • Order management • Inventory/warehousing • Transportation

32. Consolidation • Bringing together small shipments, often from different shippers. • Take advantage of economies of scale. • In-Vehicle: Perform pickups from many shippers and consolidate into larger shipments. • Out-of-Vehicle: Occurs at terminals; shipments to a single customer are consolidated before shipping.

33. Threats - Impact vs. Probability NUCLEAR WEAPON BIOLOGICAL AGENT IMPROVISED NUCLEAR DEVICE CHEMICAL AGENT OR TOXIC INDUSTRIAL CHEMICAL POTENTIAL IMPACT RADIOACTIVE MATERIAL PROBABILITY / LIKELIHOOD

34. Know Your Business Partners!

35. C-TPAT & Mutual Recognition • The goal of mutual recognition is to link the various international industry partnership programs, so that together they create a unified and sustainable security posture that can assist in securing and facilitating global cargo trade. • The principle behind aligning partnership programs is to create a system whereby all participants in an international trade transaction are approved by Customs as observing specified standards in the secure handling of goods and relevant information.

36. C-TPAT & Mutual Recognition • The signing of a mutual recognition arrangement is the procedure that enables information sharing activities to occur in accordance with the terms of the Customs Mutual Assistance Agreement (CMAA), and each participant’s domestic law and policy. • Mutual recognition is not “automatic.” A business must be in good standing with both Customs administrations. • Mutual recognition can only occur to the extent permitted by law, regulation, or ruling, and is subject to national security considerations.

37. C-TPAT & Mutual Recognition • The Customs-Trade Partnership Against Terrorism (C-TPAT) mutual recognition process involves four (4) phases: • A side-by-side comparison of the program requirements. This is designed to determine if the programs align on basic principles. • A pilot program of joint validation visits. This is designed to determine if the programs align in basic practice. • The signing of a mutual recognition arrangement. • The development of mutual recognition operational procedures, primarily those associated with information sharing.

38. C-TPAT & Mutual Recognition • New Zealand – Secure Export Scheme • June 29, 2007 - Mutual Recognition Arrangement Signed • Canada – Partners in Protection • Arrangement Completed – Signing Pending • Jordan – Golden List • Arrangement Completed – Signing Pending

39. C-TPAT & Mutual Recognition • Japan – Authorized Economic Operator • Side-by-Side Comparison – Under Development • Singapore – Secure Trade Partnership • Side-by-Side Comparison – Under Development • Australia – Authorized Economic Operator • Pending Operational Status • Mexico – Alliance for Secure Commerce • Under Development

40. C-TPAT & Mutual Recognition • European Union – Authorized Economic Operator • Development – 2007 • Side-by-Side Comparison - Completed • Joint Visitation Pilot - Completed • Implementation – January 2008 • European Commission is responsible for the implementation of the AEO program in the 27 Member States. • Operational – January 2009 • Mutual Recognition – To Be Determined

41. Mutual Recognition Security Model U.S. Customs and Border Protection (CBP) - Customs-Trade Partnership Against Terrorism (C-TPAT) Authorized Economic Operator (AEO) LOW EXPLANATIONS Business security practices are known to both CBP and foreign program. Business security practices are known to CBP, but unknown to foreign program. Business security practices are unknown to CBP, but known to foreign program. Business security practices are unknown to both CBP and foreign program. C-TPAT & AEO C-TPAT but No AEO No C-TPAT but AEO No C-TPAT & No AEO HIGH RISK

42. Review There are numerous ways that a supply chain can be interrupted. The goal of government-business partnership programs is to institutionalize identifiable security procedures to protect the global trade supply chain. Mutual Recognition involves the alignment of security requirements of different international programs.

43. Customs-Trade Partnership Against Terrorism Questions?