International Trade Workshop #3

1. International TradeWorkshop #3 Importing & Exporting – Best Practices April 22, 2013 San Diego, CA

2. Agenda • Introductions and Market Update • CT-PAT Update • Contracting Best Practices • Managing Air & Ocean – Best Practices • Questions

3. Marianne Rowden • Marianne Rowden is President and CEO of AAEI following years of service as the Association's General Counsel.  • Ms. Rowden has testified before Congress on trade legislation because of her extensive background from practicing law over 15 years concentrating in international trade and transportation regulatory compliance. Ms. Rowden has advised importers and exporters on a wide range of trade compliance issues relating to the entire global supply chain, sourcing goods, transportation contracts, trade security, compliance audits and penalties, export licenses, embargoes and mergers and acquisitions involving foreign corporations. • Ms. Rowdenalso serves as an Adjunct Professor at The John Marshall School of Law

4. Andrew Danas •   Andrew Danas is a partner with the Washington, D.C. law firm of Grove, Jaskiewiczand Cobert LLP. •    Andrew has thirty years experience advising and representing companies involved in international trade and transportation on all aspect of their operations.  He frequently writes and speaks on a variety of legal topics involving international transportation. •    Andrew is a member of the Management Committee of the EALG, a multinational network of law firms with over 400 attorneys in the U.S., Europe, Asia, and South America. His professional affiliations also include the Transportation Lawyers Association (TLA), where he currently serves as Co-Chair of the Antitrust and Unfair Trade Practices Committee, and the American Bar Association, where he is currently a Vice Chair of the International Transportation Committee.  He is a recipient of the TLA’s Distinguished Service Award.

5. Jarrod Slaughter • Jerrod Slaughter is the Corporate Transportation and Freight Audit Manager for Columbia Sportswear.  • Currently his role includes vendor management of ocean and international air freight as well as domestic transportation.  He has over 20 years of experience in transportation and logistics management, at least half of which has been with Fortune 500 companies. • His background is principally in the areas of freight audit and payment and managing third party logistics providers.

6. Air Market Update

7. Airfreight Demand vs. Capacity (per IATA)• Global air freight markets managed to maintain improved levels of demand. Air freight markets maintained modest improvement since Q4, with the size of the market up 2.5% in February compared to October 2012• Business confidence levels continue to suggest an increase in manufacturing activity in the months ahead. Yet much depends on the stability of the Eurozone• However, carriers continue to reduce capacity expansion, park aircraft, reduce frequencies, retire older aircraft, and hub splitting (multiple stops on one flight)

8. Airline Financial Situation (per IATA) • Guarded optimism in 2013: Cargo markets should recover some lost ground from 2012. Yet, losses in cargo divisions might still prevail due to the fuel variable and global economic market conditions • Carriers remain focused on sector profitability and yield maximization • Freighter cancellations or reduction in flight frequencies • Jet fuel prices have remained high and well above $120/b

9. Ocean Market Update

10. 2013 Ocean: Market Update Global Capacity • Current idle capacity is at roughly 830,000 TEUs, around 5.0% of the global fleet, and expected to be 1.2 million by the end of 2013. The idle fleet averaged 645,000 TEU over 2012. Down from nearly 12% of the global fleet being idle in Dec. 2009. Container/Equipment & Labor • The ILA and USMX agreed to a six-year coast-wide master contract. • Labor disruptions at the Hong Kong International Terminal resulted in cargo delays. Carrier Financial & Rates Update • Transpacific shipping lines have stepped up efforts to raise freight rates, to stabilize recent volatility, to better accommodate growing demand, and to establish a more compensatory baseline for subsequent negotiation of 2013 longer-term contracts.

11. 2013 Market Considerations & Projections • Total container capacity grew 6% in the last six months of 2012 • Global trade volumes in goods and services are forecast to slow from 6.9% in 2011 to 3.8% in 2012 before recovering slightly to 5.4% in 2013 (revised downwards from its September forecast of 5.8% in 2012 and 6.4% in 2013 • Increase in vessel capacity against stabilized demand • Poor financial results by ocean carriers • Continued vessel idling

12. Import/Export – Best Practices 39th Annual Conference Transportation & Logistics Council San Diego, CA April 22, 2013

14. What Are the General Trends for Trade? Facilitation Compliance Security

15. What Has Actually Happened? Facilitation Safety Humanitarian Security

16. “Trusted Trader” Concept • Concept predates 9/11, but has gained currency with the government to describe a company which is: • Highly compliant • Good internal controls • Mitigates risk • “Authorized Economic Operator” • “a party involved in the international movement of goods in whatever function that has been approved by or on behalf of a national Customs administration as complying with WCO or equivalent supply chain security standards. Authorized Economic Operators include inter alia manufacturers, exporters, brokers, carriers, consolidators, intermediaries, ports, airports, terminal operators, integrated operators, warehouses, distributors.” • WCO “SAFE Framework of Standards to Secure and Facilitate Global Trade” adopted in June 2005 in Section 2.3 at p. 8. • AEO programs are: • Voluntary regimes • Commitment to adopt good importer practices for security and compliance • Trade facilitation benefits

17. World Customs Organization – SAFE Framework • World Customs Organization – SAFE Framework of Standards to Secure and Facilitate Global Trade (adopted June 2005) • Objectives of the SAFE Framework • Establish standards for supply chain security and facilitation at the global level to promote certainty and predictability • Enable integrated supply chain management for all modes of transport • Enhance the role, functions and capability of Customs to meet challenges and opportunities of the 21st Century • Strengthen cooperation between Customs administrations to improve detection of high-risk cargo • Strengthen Customs/Business cooperation • Promote seamless movement of goods through secure international trade supply chains

18. WCO SAFE Framework – Four Core Principles • Harmonize advance electronic cargo information requirements • Advance Cargo Manifest Rules • Adoption of risk management approach to security • Strategic Targeting • Exporting country perform inspection of high-risk cargo • Automated Export System • Provide benefits to business that meet minimal supply chain security standards and best practices • C-TPAT Tiers 1 - 3

19. WCO SAFE Framework – Two Pillars • Twin pillars of SAFE Framework • Customs-to-Customs network arrangements • Customs-to-Business partnerships

20. WCO SAFE Framework – Benefits • New and consolidated platform to: • enhance world trade • ensure better security against terrorism • increase contribution of Customs and trade partners to economic and social well-being of nations • Improve ability of Customs to detect and deal with high risk shipments and efficiencies in the administration of goods to expedite clearance and release of goods • Capacity building to help implement the framework worldwide

21. U.S. Authorized Economic Operator Programs • Security: Customs-Trade Partnership Against Terrorism • C-TPAT is a voluntary government-business initiative to build cooperative relationships that strengthen and improve overall international supply chain and U.S. border security. • CBP can provide the highest level of cargo security only through close cooperation with the ultimate owners of the international supply chain. • CBP is asking businesses to ensure the integrity of their security practices and communicate and verify the security guidelines of their business partners within the supply chain. • Compliance: Importer Self-Assessment Program • ISA is a voluntary trade compliance program which implements CBP’s Risk Management Strategy • Self-governance plan built around importer’s procedures and controls • Internal controls were found to be an excellent predictor of actual compliance. • Added flexibility and non-interference for participating importers • ISA members are removed from CBP’s Focused Assessment audit pool

22. Security: Customs-Trade Partnership Against Terrorism • C-TPAT is a voluntary government-business initiative to build cooperative relationships that strengthen and improve overall international supply chain and U.S. border security. • CBP can provide the highest level of cargo security only through close cooperation with the ultimate owners of the international supply chain. • CBP is asking businesses to ensure the integrity of their security practices and communicate and verify the security guidelines of their business partners within the supply chain.

23. Security: C-TPAT Eligibility • Who is eligible to join C-TPAT? • U.S. Importers of record • U.S./Canada Highway Carriers • U.S./Mexico Highway Carriers • Rail Carriers • Sea Carriers • Air 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 • Third Party Logistics Providers (3PL) • Long Haul Highway Carriers in Mexico • CBP now seeking to extend C-TPAT to U.S. exporters

24. Security: C-TPAT Importer Eligibility Requirements • Be an active U.S. Importer or Non-Resident Canadian Importer into the United States. • Have a business office staffed in the United States or Canada. • Have an active U.S. importer of record ID in either of the following formats: • U.S. Social Security Number • U.S. Internal Revenue Service assigned ID(s) • CBP assigned Importer ID • Possess a valid continuous import bond registered with CBP. • Have a designated company officer that will be the primary cargo security officer responsible for C-TPAT. • Commit to maintaining the C-TPAT supply chain security criteria as outlined in the C-TPAT Importer agreement. • Create and provide CBP with a C-TPAT supply chain security profile, which identifies how the Importer will meet, maintain, and enhance internal policy to meet the C-TPAT Importer security criteria.

25. Security: C-TPAT Importer Security Criteria • Companies must conduct a security assessment of international supply chain based on C-TPAT security criteria below • Business partners • Written documentation for selecting business partners • Container security • Point of stuffing procedure to seal and maintain integrity of container • Container inspection • Procedures for “seven-point” inspection process to check container structure • Physical access controls • Controls to prevent unauthorized entry to facilities by employees, visitors and vendors • Personnel security • Procedures to screen prospective employees (consistent with laws in jurisdiction) • Procedural security • Procedures to ensure integrity and security of transportation, handling and storage of cargo • Security training and threat awareness • Program to make employees aware of threats posed by terrorists at each point in supply chain • Information technology security • Automated systems using individually assigned accounts with periodic change of password

26. Security: C-TPAT Benefits • C-TPAT offers trade-related businesses an opportunity to play an active role in the war against terrorism. By participating in this first worldwide supply chain security initiative, companies will ensure a more secure and expeditious supply chain for their employees, suppliers and customers. • Beyond these essential security benefits, CBP will offer benefits to certain certified C-TPAT member categories, including: • A reduced number of CBP inspections (reduced border delay times) • Access to FAST lanes • Priority processing for CBP inspections. (Front of the Line processing for inspections when possible.) • Assignment of a C-TPAT Supply Chain Security Specialist (SCSS) who will work with the company to validate and enhance security throughout the company’s international supply chain. • Potential eligibility for CBP Importer Self-Assessment program (ISA) with an emphasis on self-policing, not CBP audits. • Mutual recognition – Canada, New Zealand, Jordan

27. Security: C-TPAT Application Process • Submit an online electronic application with: • Corporate information • Supply chain security profile • In completing the supply chain security profile, companies must conduct a comprehensive self-assessment of their supply chain security procedures using the C-TPAT security criteria or guidelines jointly developed by CBP and the trade community for their specific enrollment category. • Executed Memorandum of Understanding as an acknowledgement of an agreement to voluntarily participate • CBP reviews the application • C-TPAT Tiers • Tier I = Certified • Tier II = Validated • Tier III = Best Practices

28. Security: C-TPAT Achievements (September 9, 2011) • 10,181 - Certified Partners to current date • 169 -Total C-TPAT staffing level • 18,696-Total Validations Completed • 10,786 - Initial Validations Completed • 7,910 - Re-Validations Completed • Number of completed validations by year: • -2010 / 1,017-Initial Validations / 2,127-Revalidations • 3,144-Total Validations in 2010 • -2011 / 446-Initial Validations / 1,344-Revalidations • 1,790-Total Validations in 2011 • 1,109 - Total Suspensions (525 Highway Carriers) • 943 - TotalRemovals(382 Highway Carriers) • Internationalization Efforts: • 5 - Mutual Recognition Arrangements: New Zealand, Canada, Jordan , Japan, Korea • 3 - Mutual Recognition Projects: European Union, Taiwan, Singapore • 8 - Technical Assistance Projects: Malaysia, Mexico, Philippines, Guatemala, China, Colombia, Israel, Peru • 2 - Capacity Building Training Programs: Ghana, Kenya • 3 - Rounds of joint validations with the General Administration of China Customs • Security Criteria Implemented: • 10 - Business Entity Types: Importers, Air Carriers, Highway Carriers, Mexico Long Haul Highway Carriers, Rail Carriers, Sea Carriers, Foreign Manufacturers, Customs Brokers, Port Authorities/Terminal Operators, Third Party Logistics Providers (3PLs). • Tiered Benefits Structure – commensurate with security enhancements. Best Practices Catalog. • 329 - Tier 3 Importers Source: CBP Office of C-TPAT/Industry Partnership Programs (September 2011)

29. Security If your company participates in a supply chain security program, why did your company decide to join the program? Source: AAEI Benchmarking Survey – Security Question for Importers/Exporters (June 2009, May 2010, May 2011, and August 2012, respectively)

30. Security: Great Expectations Has the supply chain security program in which your company is enrolled met your expectations? Source: AAEI Benchmarking Survey – Security Question for Importers/Exporters (June 2009, May 2010, May 2011, and August 2012, respectively)

31. Security: If you knew then, what you know now . . . Based on your experience with supply chain security programs, would you join today? Source: AAEI Benchmarking Survey – Security Question for Importers/Exporters (June 2009, May 2010, May 2011, and August 2012, respectively)

32. Security: Cost of AEO Status On an annual basis, what is your company’s cost to maintain status in the supply chain security program(s) in which it is a member? Source: AAEI Benchmarking Survey – Security Question for Importers/Exporters (June 2009 May 2010, May 2011, and August 2012, respectively)

33. Security: Costs and Benefits of C-TPAT Is the amount your company spends maintaining status in its supply chain security programs: Source: AAEI Benchmarking Survey – Security Question for Importers/Exporters (June 2009, May 2010, May 2011, and August 2012, respectively)

34. Security: Costs and Benefits of C-TPAT Do you think the cost to join/maintain your company’s supply chain security program(s) is worth the benefits? Source: AAEI Benchmarking Survey – Security Question for Importers/Exporters (June 2009, May 2010, May 2011, and August 2012, respectively)

35. Compliance: ISA Status • Currently, approximately 288 companies in the Importer Self-Assessment (ISA) program • Membership has not increased over the last few years • CBP has not aggressively promoted ISA • “Industry ISA” programs • Completed • Petroleum • Aerospace • Chemicals • Pharmaceuticals/Biotech (completed in April 2011) • In negotiations • Automotive (off and on) • Textiles (keep dreaming)

36. Compliance: Customs Audits Considering all the U.S. Customs audits that your company has experienced over the past five years, what was the typical cycle time from entrance from conference to exit conference? Source: AAEI Benchmarking Survey – Import Question for Importers/Exporters (June 2009, May 2010, May 2011, and August 2012, respectively)

37. Compliance: Voluntary Disclosures If your company has filed any export voluntary disclosures, what is the typical time between filing the complete (“perfected”) disclosure and closing the matter with the government? Source: AAEI Benchmarking Survey – Export Question for Importers/Exporters (June 2009, May 2010, May 2011, and August 2012, respectively)

38. Security: Status of AEO MRAs Concluded MRAs MRAs Being Negotiated

39. Security: C-TPAT Exporter Security Problem Areas • Companies must conduct a security assessment of international supply chain based on C-TPAT security criteria below • Business partners • Written documentation for selecting business partners • Container security • Point of stuffing procedure to seal and maintain integrity of container • Container inspection • Procedures for “seven-point” inspection process to check container structure • Physical access controls • Controls to prevent unauthorized entry to facilities by employees, visitors and vendors • Personnel security • Procedures to screen prospective employees (consistent with laws in jurisdiction) • Procedural security • Procedures to ensure integrity and security of transportation, handling and storage of cargo • Security training and threat awareness • Program to make employees aware of threats posed by terrorists at each point in supply chain • Information technology security • Automated systems using individually assigned accounts with periodic change of password

40. Security: C-TPAT and Consequences • DHS Notice of Privacy Act System of Records for C-TPAT, 78 Fed. Reg. 15962 (March 13, 2013) • Creates “system of records” for all the C-TPAT data in the profile which mat be disclosed outside DHS as a “routine use” to: • Department of Justice for litigation • Congressional office • National Archives or General Services Administration • An agency or organization to do an audit or oversight • Appropriate agencies • Contractors working for DHS • Appropriate federal, state, tribal, local, international or foreign law enforcement agency • Appropriate foreign government organizations or multilateral organization • Organization or individual who is a target of terrorist activity • Third parties during law enforcement investigation • News media and the public “when there exists a legitimate public interest in the disclosure of the information or when disclosure is necessary to preserve confidence in the integrity of DHS . . . .” • DHS Notice of Proposed Rulemaking, Privacy Act of 1974: Implementation of Exemptions for C-TPAT System of Records, 78 Fed. Reg. 15889 (March 13, 2013)

41. Ultimate Goal = Mutual Recognition • AEO from one major trading block is recognized by another major trading block via a bilateral agreement. Only companies that apply for a full or safety and security AEO certificate may participate in arrangements brought about by mutual recognition agreements. • European Commission is currently engaged in mutual recognition discussions with USA, China, Switzerland, Norway, Japan and India. Negotiations are still in progress. • USA: mutual recognition for C-TPAT only: • Internationalization Efforts: • 4 - Mutual Recognition Arrangements: New Zealand, Canada, Jordan , Japan • 4 - Mutual Recognition Projects: Argentina, Singapore, Korea, European Union • 7 - Technical Assistance Projects: Malaysia, Mexico, Philippines, Guatemala, China, Colombia, Israel • 2 - Capacity Building Training Programs: Ghana, Kenya • Security Criteria Implemented: • 10 - Business Entity Types: Importers, Air Carriers, Highway Carriers, Mexico Long Haul Highway Carriers, Rail Carriers, Sea Carriers, Foreign Manufacturers, Customs Brokers, Port Authorities/Terminal Operators, Third Party Logistics Providers (3PLs). • Tiered Benefits Structure: commensurate with security enhancements. Best Practices Catalog. • 310 - Tier 3 Importers Source: KPMG LLP “AEO – EU Update” presentation to AAEI’s Globalization Committee (September 2009) and CBP Office of C-TPAT/Industry Partnership Programs (April 2010)

42. Security: What Does Mutual Recognition Mean? • AEO from one major trading block is recognized by another major trading block via a bilateral agreement. Only companies that apply for a full or safety and security AEO certificate may participate in arrangements brought about by mutual recognition agreements • European commission is currently engaged in mutual recognition discussions with USA, China, Switzerland, Norway, Japan and India. Negotiations are still in progress, so details are limited: • USA • mutual recognition agreed at political level • key milestones agreed (Trans-Atlantic Economy Committee) • US examining export processes • mutual recognition agreement signed in 2012 Source: KPMG LLP “AEO – EU Update” presentation to AAEI’s Globalization Committee (September 2009)

43. Security: What Does Mutual Recognition Mean? • AAEI has proposed a “self-executing” MRA for the Trans Pacific Partnership Agreement: “Any TPP signatory which has an Authorized Economic Operator program based on the World Customs Organization’s SAFE Framework of Standards shall be accorded mutual recognition by the other TPP signatories. A company which has been granted “trusted trader” status as low risk under any TPP signatory country’s AEO program shall be accorded ‘trusted trader’ status in every other TPP country and receive the same benefits as if it had received such status from that government.”

44. Questions?

45. IMPORT/EXPORT – BEST PRACTICESContracting WithInternational Carriers and Multi-National 3PLsAndrew M. Danas, Esq. Grove, Jaskiewicz and Cobert, LLP39th Annual ConferenceTransportation & Logistics Council, Inc.San Diego, CaliforniaApril 22, 2013

46. Basic Guide: International Transport Contracts • Non-contiguous international transportation services can be offered by: • Ocean Carriers • Non-Vessel Operating Common Carriers (NVOCCs) • Ocean Freight Forwarders • Indirect Air Carriers • Multimodal International 3PLs

47. Basic Guide: International Transport Contracts • Different rules govern different service providers • International ocean shipping: still regulated. • International air transportation cargo services: largely deregulated. • International 3PL contracts: subject to the rules governing the underlying mode/service provider.

48. Basic Guide: International Transport Contracts • Ocean shipping rates & services: the most regulated mode of transportation • Recent Federal Maritime Commission (FMC) actions increase pricing flexibility. They include: • The right to use quoted, non-tariff rates by some (not all) nvoccs. • The right to use index rates. • A broader right to use contract terms that are incorporated by reference, rather than spelled out in the document.

49. Basic Guide: International Transport Contracts • Bottom Line • New contracting tools allow for more creativity and flexibility in shipping goods internationally. • They also create traps for the unwary.

50. Basic Guide: International Transport Contracts