Industry officials fear border security's impact on commerce

Homeland Security Department officials do not want new regulations for protecting the nation's land and sea borders to come at the expense of commerce.

"We could pass regulations that would so tightly constrict legitimate trade and commerce that our economy would slow to a crawl," Homeland Security Secretary Tom Ridge said in November at a trade symposium, but he said such rules "would also cause economic dislocation and disruption every day, literally in every corner of the globe." Instead, Ridge said, the department must encourage trade and facilitate commerce even as it takes steps to prevent terrorism.

But some industry officials argue that a recently finalized regulation on cargo security will have a significant effect on their bottom lines and hinder global trade. They also question if the department is prepared to implement the rule and whether it will do enough to secure borders.

The Push For Advance Information

The department's office on customs and border protection announced the regulation in question in July. The policy will require all carriers -- air, ship, truck and rail -- to electronically file detailed information about their cargo before entering or leaving the United States.

"We believe that this new process and the timely acquisition of additional and more detailed information about what enters and leaves the United States is a giant step forward for supply-chain security, and for building a more efficient, 'smarter' border," Customs and Border Commissioner Robert Bonner said on Nov. 20 when the department announced the final rule. The agency will begin implementing it in March.

The rule, mandated under a 2002 trade law, aims to alert border-patrol agents of contraband and high-risk threats, including weapons of mass destruction. The department's 175 analysts will process the cargo data at its National Targeting Center in northern Virginia by crosschecking the information against background data, as well as law enforcement and intelligence databases. Any suspicious carriers would have their cargo intercepted and inspected before U.S. arrival.

"When we are able to obtain better information prior to a shipment's arrival, we will be able to do a more effective job in combating terrorism," said Asa Hutchinson, Homeland Security's undersecretary for border and transportation security. The timeframes for submitting data vary across modes: Ships will have 24 hours before departure, but air carriers will have four hours before arrival, rail carriers will have two hours, and trucks will have one hour to send the information before entering the country.

The rule also applies to outbound shipments in order to alert foreign countries to potential threats.

The department sees the rule not only as a tool to help border agents identify and intercept high-risk shipments but also as sustaining the movement of goods across borders. "Advance information is a cornerstone in our efforts to secure our nation's border and ensure the flow of trade," Ridge said. "The security measure resulting from these rules is necessary to achieve these twin goals."

Hit To The Wallet

Industry officials agree that the department has mostly succeeded in crafting a rule in tune with commerce but also thinks it has underestimated the economic impact.

"We generally think they did a good job," said Andrew Danas, a lawyer for the American Institute for Shippers' Association, but he added that the rule could negatively affect the supply chain. Express-delivery carriers may have to schedule earlier pickup times in order to compile and submit data within the required timeframes.

"That's an economic hit and less efficient," said Danas, warning that businesses will transfer the extra costs onto the consumer through increased delivery rates. Air carriers then might lose those customers to truck-based just-in-time delivery services along the Canadian and Mexico borders because trucks face reporting deadlines only one hour before arrival while air and courier freight must submit data four hours before entering the country, he added.

After the department issued its proposed rule, the Air Courier Conference of America called the department's economic study of the rule "questionable" and said its annual impact on the industry would far exceed the estimated $100 million. Michael White, with the Air Transport Association, tallied the cost at more than a half-billion dollars annually for air carriers.

In the final rule published Dec. 5, the department conceded that with further analysis, it agrees that the rule "is a significant regulatory action."

Marian Ladner, a lawyer who represents carriers and sits on an advisory board to the department established by Congress, said it was "disingenuous" to not initially acknowledge the economic burden. "It's unfair to trade," she said. "Customs refused to accept the reality."

In November, Ridge said the rule "does bring some new costs." But he added that the industries also might see offsetting savings from a more efficient supply chain.

In Search Of Common Ground

A study by the World Bank supports both sides of the argument. It found that world welfare declined by $75 billion per year for each 1 percent increase in costs to trade from border-security initiatives, and that every day that border agents delay freight drives the cost of goods up by 1 percent.

The study also reported that new security regulations have the "potential to streamline trade transactions, as well as promote safety and security." "Sharing information among terminal operators, shippers and customs brokers can help expedite the movement of freight through terminals without any new physical investment," the report said.

The World Bank estimated that the department's plan to employ a new automated commercial environment to replace current paper and automated methods would save U.S. importers $22.2 billion and the U.S. government $4.4 billion in administrative costs over 20 years. And the indirect benefits of inspecting only suspicious cargo would reduce costs by 1 percent of the merchandise value.

Industry officials also question whether the agency will have the software and hardware infrastructure, as well as trained staff, in place to begin implementing the rule. Ladner said the department does not have the computer systems to mine the data for inbound cargo and currently has no infrastructure for outbound cargo.

The department has said it will phase in nearly every part of the new regulation, including when it begins penalizing carriers for not complying. It plans to deploy the central portal for the system in 2004 and will require compliance by the different modes of cargo transport in phases. Ladner applauded the department for that approach, calling it "critical" for trade.

The department also has said the regulation could be delayed in some ports if training is not provided or programming for the data system is not in place.

But industry officials object to exemptions for the Postal Service, as well as certain shipments in the new rule. "How are you going to stop the bad guys when the fixes are just cosmetic," Ladner said, adding that exempting letters and small parcels will not prevent terrorists from sending anthrax or other biological agents into the country.