Third Party Validation: Partners in Protection or a Necessary Evil?

1. Third Party Validation: Partners in Protection or a Necessary Evil? Manila, Philippines, May 13-14 2008 The First National Conference on Safe Trade and AEO

2. Agenda • SGS Group • WCO SAFE Framework of Standards • Validations – a Necessity? • SGS Proposal “Philippine AEO’s Security Audits” • Case Studies on Supply Chain Security

3. SGS Group

4. SGS Group • Founded in 1875 in France • World headquarters now in Geneva, Switzerland • International network • 140 countries • 845+ offices • 335+ laboratories • 42,000+ dedicated and trained employees • World’s largest … • Verification • Testing • Certification • Asia Pacific • 133 offices • 54 laboratories • 14,800 employees • 495 companies certified by SGS Philippines • Philippines • Thailand • Malaysia • China • Singapore • Indonesia • Australia • Japan • Vietnam Security Audits

5. WCO SAFE Framework of Standards

6. Core Elements of WCO SAFE Framework • Advance Cargo Information • Risk Management • Container Scanning • Supply Chain Security

7. SGS ACI Capability Côte d’Ivoire (www.oic.ci) Madagascar (www.bsgmg.sgs.com) SGS Capabilities on SAFE core Elements • Advance Cargo Information. • Risk Management • Container Scanning • Supply Chain Security

8. SGS Risk Management Capability Bangladesh Mexico Guatemala Haiti Nigeria Madagascar Ivory Coast Kenya Angola Cameroon SGS Capabilities on SAFE core Elements • Advance Cargo Information • Risk Management • Container Scanning • Supply Chain Security

9. Advance Cargo Information Risk Management Container Scanning Supply Chain Security SGS Scanner Capability Mexico The Gambia Madagascar Cameroon Haiti Nigeria Bahrain Kosovo Uruguay SGS Capabilities on SAFE core Elements

10. Advance Cargo Information Risk Management Container Scanning Supply Chain Security SGS Supply Chain Security Capability TAPA One of three companies ww Leader in certificates – 200 ww C-TPAT CBP China Pilot Validation ISO 28000 WCO SGS Capabilities on SAFE core Elements

11. SGS Capabilities on SAFE core Elements C-TPAT • Questionnaire to C-TPAT requirements • Developed with Greenberg Traurig LLB in 2003 • Continuously improved with CTPAT, TAPA, CBP Pilot program experience • Attributes, Weighting Criteria, Mandatory Requirements, Scoring Guidelines based on auditing expertise • Rigorous security auditor selection criteria • SGS auditor training program developed and presented to auditors ww from 2003 onward • Approximately 1500 C-TPAT audits conducted using SGS checklist or client prepared checklists and 500 more in 08

12. SGS Capabilities on SAFE core Elements China Pilot Validation Program • SGS approved by US CBP to provide third party auditing services for China pilot validation project based on: • Experience in security auditing • Strength of our security auditing program and detail of our security questionnaire • Global presence of 100+ security auditors, in particular in China and throughout Asia

13. Validations A Necessity?

14. Why Third Parties are Necessary: Customs • “Customs Administration, together with representatives from the trade community will design validation processes…[for] AEOs”5 • Capacity to extend Borders • Customs have inadequate resources to validate and continually monitor supply chains outside borders • As AEO programs expand these resources will be stretched • Capability for security: • Customs primary focus is on protection of revenue and economic interest…… they typically lack security expertise • Political Jurisdictional rights • There is no International Jurisdiction for Trade - Customs have no inspection/enforcement rights outside their own territory • AEO Supply Chains4 are too complex and evolve too rapidly • Multiple blind spots – container stuffing, inland dray • Operational - 20+ handoffs, 25+ documents, 200+ data elements

15. Why Third Party Validations • “Validation process based on principles of audit and Inspection”6 • Security is Standardised, systems, process approach • Measurement and proper allocation of Benefits • “Accreditation procedures that offer incentives” • US Experience - Validations “Trust and Verify” prerequisite • Gaming - no validations allows free riding & competitive disadvantage • Self verification without assurance leads to lower level of complaince6 • Disincentives – threat of detection against a reliance “on companies that we haven't even gone out to check7 • “inadvertently … actually raise the risk of a WMD being smuggled into the United States via a participant’s supply chain” 8

16. Why Third are Necessary: Private Sector • “Ensure all service providers commit to the implementation and adherence to security recommendations” • “Regular visits to AEO suppliers to verify requirements”11 • “Trading Partner Security extends to AEO suppliers …. assessment and training are key components”9 • Customs recognize AEO compliance with other Intergovernmental organizations”10 Philippines Supply Chain US Raw Materials Manufacturing Warehousing Port Importer International Supply Chain Philippines

17. SGS Partner in ProtectionAudit Proposal Philippine AEOs What Philippine AEOs can expect

18. Proposal: Value of 3rd Party Validations to Philippine AEOs • Provide independent and objective assessment of security and required improvements • Your Company - “ • Your Business Partners - • The global vantage point of SGS auditors and trainers can • Save time and money for you • provide audits in the local language by auditors who know the local customs • An SGS audit program can give you consistent comparisons across the breadth of your organization’s supplier base

19. Proposal: Options for Philippine AEOs • Use company’s own AEO security checklist and associated summary documents • Use SGS AEO security questionnaire and associated summary documents • Combination of the two above • Customized classroom or Webinar training to AEO requirements for your suppliers (based on generic AEO requirements, or your own security program accepted by Philippine Bureau of Customs)

20. Proposal: Management of Philippine AEO Program • SGS Audit Infrastructure • Global key account manager overseeing account – final review of AEO audits • Regional audit managers responsible for first level, local review of audits • Dedicated scheduling and customer care personnel in affiliates • Trained and experienced security auditors • Web-based reporting available – client can review on line, build their own reports of results

21. Proposal: Philippine AEO Training • One day SGS AEO course covering all areas of Philippine Bureau of Customs requirements with Q and A time • Three hour overview of AEO • Custom designed course to fit your security profile and your business partners • Custom designed Webinar training • Discussion points: • Where do you want training? • Who do you want trained? • When do you need the training

22. SGS Supply Chain Security Case Studies What our C-TPAT clients have experienced

23. Case Studies of SGS Security Program (1) • US based global retail company • Over 315 supplier security audits completed, with 275 in China alone for first phase • Audits in Philippines • US based account manager for audit control • Checklist developed by client

24. Case Studies of SGS Security Program(2) • US based freight forwarding company • Over 70 security audits conducted overseas and in US at ff warehouse locations • US based account manager for audit control and scheduling • Checklist developed by client in consultation with SGS security manager • (Prior to C-TPAT program conducted 53 TAPA certification audits in North America)

25. Case Studies of SGS Security Program(3) • US based freight forwarder security project • Developed internal auditor checklist for company to use on all world wide locations • Developed training program based on their CBP approved security program (prepared in English and Chinese languages) • Held 4 classroom training sessions in… • Chicago, il • Shenzhen, China • Shanghai, China • Penang, Malaysia

26. Contact Sten Bertelsen SGS GIS Head of Supply Chain Security Tel +44 (0)7973 600 990 Email: Sten.bertelsen@sgs.com