**Departmental Advisory Committee on Commercial Operations of the
Customs and Border Protection and Related Homeland Security Functions**

**February 13, 2008**

**J.W. Marriott Starr Pass Resort & Spa**

**Tucson, AZ**

**1:00 p.m. -- 5:00 p.m.**

**Meeting Minutes**

**1:00: Opening Remarks**

Basham said that US Customs & Border Protection (CBP) will work with
Commercial Operations Advisory Committee (COAC) on the implementation of
the 10+2 requirement and that CBP will allow a phased in approach.

Bruce Leeds thanked CBP for the tour of the Nogales Port and how
impressed we were with CBP's enthusiasm and professionalism.

Motion to approve Minutes from November 16, 2007 by CBP Commissioner --
was approved.

**Advance Trade Data ("10+2")** by Rich DiNucci, Director, Secure
Freight Initiative, Office of Field Operations

10 to 12 comments received -- focus of these has been primarily systems
and how the field will be trained as well as how CBP will conduct
outreach to trade. He also noted the 15 day extension to March 18^th^
was published in the Federal Register. Rich said that CBP is ready to
discuss lessons learned from the testing done under Advance Trade Data
Initiative (ATDI) from a systems standpoint, and to get us some comfort.
This effort will help answer key questions related to the filing itself.
There is a good cross section of the trade community participating --
there are no issues with linking thus far nor the data elements
required. There are still issues related to the timing.

Global Trade Exchange (GTX) -- multiple bids submitted on the Request
for Quotations (RFQ) but CBP cannot tell us who responded. There is a
team looking at the proposals and their technical capabilities.

Switched back to the topic of 10+2 as Commissioner Basham has to leave
at 1:30 p.m.

Bruce Leeds said that we spent the morning working on a letter
containing our primary recommendations and that comments will be
submitted at a later date. The comments are in a 20 page document and we
would like a special COAC conference call on March 14^th^ to discuss the
comments and vote on, adopt, and to submit it post-haste.

Curtis Spencer then read into the record COAC's 8 recommendations with
respect to 10+2.

-   CBP should use a phased approach for implementation and enforcement.
    Effective date for all filers projected to be 12 months from the
    effective date of the final rule.

-   Removal of the proposed imposition of liquidated damages in
    connection with the Importer Security Filing (ISF).

-   There must be no linking of the data elements in the ISF.

-   There must be a timely confirmation message indicating that the
    security filing has been completed, filed and accepted.

-   The type, length, and definition of each required data element must
    be clearly described in the regulations and any accompanying
    instructions.

-   The ISF and the SAFE framework of Standards should be harmonized.

-   The carrier messaging requirements must be clearly defined.

-   We strongly recommend a more realistic and collaborative cost,
    benefit and feasibility study as COAC believes that the costs used
    are understated in the Notice of Proposed Rulemaking (NPRM)..

COAC Suggested that the next publication in the Federal Register be
published as an Interim Final Rule.

Commissioner Basham said that CBP will consider these recommendations.

Bruce Leeds moved COAC to adopt the letter. The measure passed. Peggy
and Tony abstained.

Anne Marie Highsmith said that a telephone conference of COAC is
permitted with the Co-Chairs of the designated federal officials.

**First Sale Rule** -- Adrienne Braumiller asked CBP to withdraw the
issuance of the "proposed interpretation". Explained that COAC will send
a letter/comment requesting this withdrawal. The reasons for this
request are:

COAC was disappointed that we were not consulted prior to the
publication of such a significant change in policy that the Notice of
the Proposed Interpretation represented.  The SAFE PORT ACT required
such consultation, as Section 401(c)(1) requires a 30 day notice to COAC
of any policies and actions that have a significant impact on
international trade and customs revenue functions.

Further, CBP's attempt to change the law pursuant to a Notice of
Proposed Interpretation is not appropriate.  CBP cannot legally change
the valuation statute pursuant to a Proposed Interpretation. 

Additionally, the value statute is clear on its face, thus there is no
interpretation by CBP necessary.  The statute at 19 USC 1401a (f)(2)(B)
states that merchandise imported into the U.S. may not be appraised
under a system that provides for the appraisement at the higher of two
alternative values.

                                                                                                                                                   

Moreover, the Proposed Interpretation runs counter to well established
precedent of cases dating over 20 years.  In fact, as recently as
January 3, 2008, CBP conceded to Target in the case of [Target v. the
United States,]{.underline} in which Target used the first sale price
for the export of shoes purchased through a middleman and imported into
the United States. In addition, per Barry O'Brien, that if the First
Sale Rule is approved it would distort the price index from US Census
for the past five years.

Lastly, any change in the interpretation of the statute must be
introduced by legislation amending the statute, 19 USC 1401a and not
through an ineffective pronouncement that suddenly CBP is adopting a
different interpretation.

CBP responded that they believed we should file our objections as
comments.  Bruce Leeds requested that assuming CBP decides not to
withdraw the Notice, that CBP extend the time to submit comments by an
additional 15 days and promised to submit a request for this purpose.

Dan Baldwin, Assistant Commissioner, Office of International Trade, said
there were internal discussions regarding this and they believe that
there are laws justifying elimination of the first sale. Again suggests
we include this in our comments.

Tim Skud, Deputy Assistant Secretary Tax, Trade and Tariff Policy, said
that simply because CBP failed to consult COAC, that SAFE Port Act
requirement to consult with COAC has not been breached -- because
consultation can occur after the publication for the proposal. Curtis
disagreed for the reason that CBP knew it would be controversial. Tim
Skud said that CBP considered this to be a serious administrative
problem that required public airing.

Back to Rich DiNucci -- Secure Freight Initiative (SFI) -- drafted a
report on lessons learned CBP sent an email to Operators in the Ports of
Entry for their feedback. This is for the April Report -- this is
important for metrics.

**Customs and Trade Partnership Against Terrorism (C-TPAT) -- Todd
Owen**

Status updates on 3^rd^ party validations in China and the 3^rd^ Party
Logistics (3PL) discussions.

As of Jan 31^st^, CBP published some statistics for last year in a
document entitled C-TPAT A YEAR In REVIEW -- that identifies all CBP's
accomplishments in 2007. CBP is revalidating on a 3 year basis -- even
though the SAFE Port Act requires these be conducted every 4 years.

2 new offices:

\- Buffalo -- 18 employees-- focused on activities in Canada

\- Houston -- 25 employees-- focused on activities in Mexico

15 Companies out of the 324 companies who have suppliers only in China
agreed to participate in the Third Party Pilot but only 3 companies are
nearing completion.

CBP is still working with China CBP to allow CBP to do the validations
-- still working- slow process- CBP will report out on that at next COAC
meeting.

3PL -- draft eligibility criteria floated out to COAC subcommittee. Only
want to add entities that can help strengthen the international supply
chain. COAC submitted comments on the 1^st^ draft and CBP is working on
reviewing those.

Lisa Schimmelfenning said that she wants to revisit the benefits for
C-TPAT members, especially with regards to bonds.

Per Barry O'Brien, he recommends that CBP re-establishes communication
with the trade on the interpretation and meaning of the SVI number.
There is confusion in the importing community on how to establish an
auditing policy for the inspection of factories in China. Multiple third
party inspecting firms are auditing the same factory.

Dan Baldwin -- put out a suggestion that COAC form a Trade Subcommittee
to examine Continuous Bonds- (risk management, bond amounts, special
benefits for Importer Self Assessment (ISA) Members and for CTPAT Tier 3
Members) because bonds have not been dealt with on any significant basis
for 17 years.

Dan Baldwin said that bond benefits for ISA members makes sense since
the purpose of the bond is to protect the revenue and as ISA members
have good Internal Control Programs (ICP's) to ensure revenue is
collected, bond benefits make sense. This however cannot be said to make
sense as to C-TPAT Tier 3 members.

Bruce Leeds- Proposed once again that exporters be allowed to join
C-TPAT. One suggestion would be that if a Company is a C-TPAT Member as
an importer than the next step would be that this company can ask CBP
that it be included as an Exporter. Also comports with mutual
recognition.

**Conveyance Security Devices -- Todd Owen**

There was a Request for Proposals for CSDs and CBP has received 10
proposals. Todd said that he consulted with certain COAC members to help
determine whether CSD's actually provide benefits -- such as high risk
cargo like agricultural products; in-bond shipments. The CSDs will allow
better security. CBP will do some testing with the CSDs in the future.
Want to apply CSDs to high risk situations -- not to all shipments.

Earl Agron indicated agreement with this limited CSD effort described by
Todd Owen. However, there is a danger that a small pilot as described
will lead to false impressions not representative of a large scale
rollout of CSDs.

CBP's CSD requirement that the CSDs use a non proprietary architecture
was also strongly supported.

Earl Agron noted 2 shortcomings of the CSD Requirements published
(version 1.2 Dated December 10, 2007) related to the Request for
Proposals:

1.  The CSD requirements indicate that the probability of detection
    shall be no less than 95% per door opening while the CSD is armed.
    This means that if you open the right hand door 100 times, the CSD
    will simply not detect 5 of those openings. Something as simple as
    detecting a door opening should be more accurate.

2.  The CSD requirements indicate that the probability of false alarm
    and critical failure shall be no less than 4%. Normally these two
    measures are separated so it is unclear why CBP combined them. In
    any case, this 4% reliability hurdle is too liberal to be workable
    on any large scale CSD deployment. For comparison purposes, the ISO
    electronic Seal reliability is 100 times more reliable than the
    proposed CSD standard.

**COAC OUTREACH to Agricultural Industry- Kevin Harriger**

Goal is to teach CBP about land-based plant pests and foreign animal
diseases while at the same time trying not to unduly burden the trade.
Formed a Joint Agency Task Force -- created an action plan (U.S.
Department of Agriculture (USDA) focuses on risks from pests). Held a
stakeholder meeting with The USDA and several industry-based
stakeholders and catalogued their concerns as well as Congressional
reports to come up with the 10 points of light. It is his job to ensure
that CBP's mission regarding agriculture is met nationwide across all
ports. What should the agricultural role be at super ports to ensure the
Agriculture Mission is met top down Wanted to make sure had adequate
resources. Some of the concerns include:

-   Training is key.

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-   Twin Agency task -- make sure that mission is met

-   Metrics and Operational Support are available

-   Tracking user fees dollars in the budget

-   Outreach and communication is also a core goal.

-   Making sure that line personnel understand the job.

Nogales is an excellent example of a pest-free zone

Geoff Powell -- trying to expedite the CBP release -- offered
assistance.

Tom Winkowski -- since the merger of the USDA into CBP -- they are
really now getting some momentum in protecting the US against pests and
avoiding the shortages of these officers properly trained to clear these
shipments.

Mike Mullen -- suggested we form a committee on Agriculture to ensure
key issues are addressed.

Tom Winkowski thinks we will strengthen informed and voluntary
compliance with regards to Agriculture issues.

Peggy suggested a small number of COAC members attend the April
Stakeholders Meeting. Mike Mullen agreed.

**International Trade Data System (ITDS) -** Mike Dolan from the U.S.
Coast Guard -- announced that as of January 24^th^ the United States
Coast Guard (USCG) signed a Letter of Intent (LOI) to adopt the ITDS.
Brings USCG into the present -- and it is the 43^rd^ agency to
participate in ITDS. The USCG has jurisdiction over ocean carriers.

3 examples of how ITDS will provide USCG a more effective operating
environment:

-   Hazmat periodic review of foreign entities -- based on performance
    metrics. In other words target foreign entities with a bad track
    record.

-   Stow Plan -- often lack stow plans as will not know whether and
    where Hazmat cargo is stowed -- this would allow them to act
    accordingly in the event of a fire or other concern.

-   Wouldn't it be nice if the USCG could know which containers USCG
    placed on hold versus the containers held by Other Government Agency
    (OGA)?

Have a lot of issues with integration of information systems so there
are some big hurdles to address however, they are moving in the right
direction.

Barry O'Brien -- commented that CBP should make sure that future money
required to develop Automate Commercial Environment (ACE) should not be
cut -- because it would also be important to ensure that ITDS moves
along quickly. In other words, the sooner that ACE is funded and
developed, the sooner ITDS will be operational.

Tim Skud -- said that ITDS issues were discussed at TSN, He said that
the Consumer Product Safety Commission (CPSC) is ramping up a new
project and ITDS will be the backbone of their approach.

Tim Skud -- in response to a question from Sam Banks said he would check
with Office of Management Budget (OMB) to find out if the agency ITDS
milestones "scorecard" is a public document.

Also discussed the World Customs Organization (WCO) Data Implementation
Model -- international reporting codes and formats of data and will be
globally adopted and presented this to TSN.

Jevon Jamison asked about GTX and how it will fit into the operating
environment.

Chris Koch suggested if the bidders on the GTX project cannot meet the
RFQ criteria that CBP use those dollars on ACE instead.

**International Trade Issues/Updates -- Dan Baldwin**

**Dan Baldwin -- with regards to** Conditional Release on Apparel, Dan
said CBP is trying to add typical scenarios on how the punitive aspect
could impact the trade.

Remote Location Filing (RLF)-- there is an NRPM out -- CBP received a
number of good comments on this and how we can expand RLF until ACE is
fully functional. The most controversial issue is the elimination of
paired ports.

Dan strongly requested we submit comments.

Regarding the Office of International Trade (OIT), Adrienne Braumiller
presented Brad Shorser's update.

The subcommittee has been divided into 3 separate workgroups:

1\. The Importer Self Assessment (ISA) participant detention policy for
wearing apparel;

2\. Increasing paperless entry filing and expanding eligibility for
Remote Location Filing (RLF) to other types of entries; and

3\. Import safety

With regards to the recently published detention policy, it was decided
that CBP would draw up several scenarios that would be the basis for a
meeting between the ISA apparel importers and CBP. The meeting should be
scheduled shortly.

The workgroup on paperless/rlf met several times to explore our
opportunities for increasing paperless entries and expanding the
application of RLF to other types of entries.

-   In the case of type 3 entries, ad/cvd, it appears as though systems
    issues may preclude our ability to proceed, as ACS can not eliminate
    the requirement for documents on only some IOR numbers.

-   In the case of foreign trade zones, several days ago, importers
    provided statistics to CBP for analysis. CBP will determine why
    paper is always required in the applicable port(s).

-   CBP is exploring actual use provisions and is trying to identify
    HTSUS numbers that could go paperless without jeopardizing
    compliance.

The import safety workgroup met once and discussed a wide range of
topics surrounding this issue. It was decided that an ISA type program
would be ideal.

Other issues discussed and in need of further discussion are:

-   A proposal to change policy with regard to transaction value and the
    use of first sale to determine the price paid that caused the
    export. Besides the legal questions surrounding this change in
    policy is the issue of not communicating with COAC prior to its
    publication.

-   A pilot project that potentially would permit importers to pick up a
    day in cycle-time on goods designated for exam and the other
    containers on the applicable entry was canceled due to budget
    restraints. The pilot called for inspectors in the port of Newark to
    have laptops that they would use to update ABI with a clearance
    message at the time they completed the examination. Since the
    cancellation, the inspectors have reverted back to the practice of
    waiting until the end of the day to key in all the clearance updates
    into ABI.

-   Several importers reported that they have seen a significant
    increase in documents required and exams during the month of
    January. CBP will review the January statistics and we will discuss
    at next meeting.

Carol Sheldon suggested that we start a subcommittee for bonds.
Suggested that we work together with the Surety and E-Bond work groups
of TSN. Dan wants to know for example is a 10% of annual value to set
the bond limits appropriate.

**Import Safety Initiatives -- Cathy Sauceda**

A new agency on Import Safety has been formed-- 2 branches --

one on interagency compliance issues and the other on Import Safety.

It is a huge task getting other agencies to agree to the recommendations
adopted in the Import Safety Action Plan. CBP will fulfill the
recommendations of that Action Plan.

The office of Regulatory Audit will be doing some mandatory audits on
Import Safety and Best Practices will be issued to the trade based on
those audits.

CBP is working with COAC to add an import product safety component to
ISA . CBP wants to make sure that there are tangible benefits given not
only by CBP but also other agencies for safety best practices.

CBP wants a list of Violators that Consumer Product and Safety
Commission (CPSC) can share with CBP.

CPSC is using ACE and is working through ITDS as well.

Barry O'Brien - CBP wears multiple hats and it is one face at the
border. It's important that it maintains this status in the future for
Product Safety.

The import safety audits would be single focus audits -- needs to be
some standards. There is one office that is the prototype but it has
only performed one Agriculture audit. Involving Chief Counsel's Office
for authority. Toy Testing will be quite strict -- should come out some
time soon -- through CPSC. CPSC does not perform audits so CBP would
take on this role.

Cathy Sauceda could not say when the Regulatory Audits on Import Safety
will begin.

**Intellectual Property Rights Enforcement Subcommittee -- Dan Baldwin**

27% increase in Intellectual Property Rights (IPR) seizures. This is the
number one threat to import products.

-   Over 5000 textile and apparel seizures on IPR infringement alone.

There is a Joint- European Union (EU) initiative to address IPR
Infringement.

Barry O'Brien suggested that Mattel and Hasbro come together to
represent the toy industry and come to CBP to brainstorm on ways to
prevent infringing goods.

Dan said there are a number of trade organizations and countries looking
at IPR and CBP is working with them to address this important issue.

**World Customs Organization (WCO) and Mutual Recognition -- Mike
Mullen,** Assistant Commissioner, International Affairs and Trade
Relations (INATR)

The 100% US scanning under the SAFE is not consistent with the WCO SAFE
Framework. There was also a discussion or proposal to ensure that any
data elements that are in Safe Frameworks are in line with the Data
Model.

The Secure Workgroup is meeting in Brussels this week to address IPR.

There are Working Attaches in China, Korea, Brazil and India and these
are useful to assist the trade with a variety of issues.

Bradd Skinner said that Mutual Recognition will be rolled out in 4
phases:

-   Comparing CTPAT and SAFE side by side

-   Look at how the Administrations are conducting their validations

-   Sign off of Mutual Implementation by parties involved

-   What information and data elements will the parties use and what
    platform will be used?

[Deliverables:]{.underline}

-Standard uniform procedures and fewer redundant, multiple validations.

Through the information exchange in New Zealand -- CBP and New Zealand
share info collaboratively, such as how to receive that information -
but more importantly, CBP does not have to use its resources to validate
a specific company that New Zealand has just validated-- i.e., CBP will
not send Supply Chain Security Specialists to New Zealand.

We are currently in a Stage 2 -Joint Validation with Canada where we can
review their validations and vice versa.

Japan -- CBP is at Stage 1 - reviewing the side-by-side and hopefully
moving into next phase.

EU - have completed Phase 1 review. Their program went operational Jan
1^st^ 2008. Now starting to discuss how they can conduct joint
validations.

Exporter Program -- this is on EU's agenda of how this will be
addressed.

Exports: It is CBP's position that CTPAT is importer-based but through
mutual recognition are considering an export component and limiting it
to the current CTPAT membership. This is all dependent upon resources
and where CBP's authority in this arena would start and end.

Lee Schmidt reported that the Private Sector Consultative Group (PSCG)
focused on the importance of mutual recognition. Regarding the WCO Data
Model -- many companies try to operate globally and thus attempt to try
to adopt these data models. In PSCG the WCO has a working group on the
10+2 requirements and to make sure that the data requirements are
consistent with the Data Model.

[Revalidations]{.underline} - Per Brad Skinner these have begun. What to
expect: it's a case by case basis per Brad. CBP considers when the
company was validated, what the Security Profile contains and the SCSS
can identify the areas to be covered. The key is that CBP will
revalidate the minimum security criteria.

In some cases, the members revalidated under the old standards may not
be up to snuff. These members could be suspended or required to meet
recommendations to stay in the program. Also a Tier 3 Company could be
knocked down to 2 or also vice versa.

CBP is in the infancy of mutual recognition. Thus, each administration
reserves the right to conduct its OWN validation and just because you
meet one administration's Security Program does not automatically mean
that the Company will be accepted into other administrations programs.
CBP is still working with the administrations on what certification in
one country may mean to the administration of another country. Also, the
U.S. Company involved has to decide whether it wishes to subject itself
to the foreign country for validation. It could also require an
application -- but it could be easier to achieve if the parties involved
agree on the same information -- even though the format or vehicle for
applying for membership varies.

Chris Koch -- any update on Automated Export Systems (AES)? Todd Owen
said lots of discussions but he does not think it will be soon. Tom
Winkowski said he can find out about this.