Supply Chain Security: CBP Has Made Progress in Assisting the Trade Industry in Implementing the New Importer Security Filing Requirements, but Some Challenges Remain
Published: 2010-09-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Cargo containers present significant security concerns given the potential for using them to smuggle contraband, including weapons of mass destruction. In January 2009, U.S. Customs and Border Protection (CBP), within the Department of Homeland Security (DHS), implemented the Importer Security Filing (ISF) and Additional Carrier Requirements, collectively known as the 10+2 rule. Collection of cargo information (10 data elements for importers, such as country of origin, and 2 data elements for vessel carriers), in addition to that already collected under other CBP rules, is intended to enhance CBP's ability to identify high-risk shipments. As requested, GAO assessed, among other things, (1) the extent to which CBP conducted the 10+2 regulatory assessment in accordance with Office of Management and Budget (OMB) guidance, (2) how CBP used information it collected and assessed to inform its efforts to implement the 10+2 rule since January 2009, and (3) the extent to which CBP has used the additional 10+2 data to identify high-risk cargo. GAO analyzed relevant laws, OMB guidance, and CBP's 10+2 regulatory assessment, and interviewed CBP officials.
section_title: What GAO Found
paragraphs: CBP's 10+2 regulatory assessment generally adheres to OMB guidance, although greater transparency regarding the selection of alternatives analyzed and a more complete analysis could have improved CBP's assessment. CBP's regulatory assessment addresses some elements of a good regulatory assessment, as required by OMB, such as the need for the proposed action and evaluation of the benefits and costs. However, the assessment lacks transparency in that it does not explain how the four alternatives considered for the rule--variations in what and how many data elements are to be collected--were selected or how the preferred alternative was chosen. OMB guidance states that regulatory analyses should clearly explain the assumptions used in the analysis. If, as CBP officials stated, an update might be published in the future, greater transparency could help justify the scope of alternatives analyzed in the regulatory assessment and provide insight into CBP's decision making. Further, a more complete analysis of the uncertainty involved in estimating key variables used to evaluate costs and benefits could have improved CBP's regulatory assessment by providing better information about the circumstances under which benefits justify costs. CBP officials said that to the extent that data are available, this information could be added to an updated regulatory assessment to improve its completeness. CBP is using information it has collected, assessed, and shared with the trade industry to monitor and help improve compliance with and implementation of the 10+2 rule. For example, CBP collects daily information on the ISF compliance of importers' shipments at each U.S. port to monitor the status of ISF implementation, as well as data on vessels arriving in U.S. ports for which carriers did not supply information such as the position of each cargo container (stow plans). CBP data indicate that in July 2010, approximately 80 percent of shipments were ISF compliant, and CBP officials said that most carriers had submitted stow plans. CBP publishes answers to frequently asked questions on its Web site and has conducted outreach sessions with the trade industry to discuss errors in ISF submissions and help improve compliance. The 10+2 rule data elements are available for identifying high-risk cargo, but CBP has not yet finalized its national security targeting criteria to include these additional data elements to support high-risk targeting. CBP has assessed the submitted 10+2 data elements for risk factors, and according to CBP officials, access to information on stow plans has enabled CBP to identify more than 1,000 unmanifested containers--containers that are inherently high risk because their contents are not listed on a ship's manifest. CBP has conducted a preliminary analysis that indicates that the collection of the additional 10+2 data elements could help determine risk earlier in the supply chain, but CBP has not yet finalized its national security targeting criteria for identifying high-risk cargo containers or established project time frames and milestones--best practices in project management--for doing so. Such efforts could help provide CBP with goals for finishing this project, thus better positioning it to improve its targeting of high-risk cargo.
section_title: What GAO Recommends
paragraphs: GAO recommends that CBP should, if it updates its regulatory assessment, include information to improve transparency and completeness, and set time frames and milestones for updating its national security targeting criteria. DHS concurred with these recommendations.

section_title: Letter
paragraphs: The economic well being of the United States is dependent on the  expeditious flow of people and goods through the U.S. transportation  system, which moves millions of passengers and tons of freight each day.  The extensiveness of the transportation system, as well as the sheer  volume of passengers and freight moved, makes it both an attractive target  and challenging to secure. Ports, waterways, and vessels are part of an  economic engine handling more than $1 trillion in merchandise annually,  and an attack on this system could have a widespread impact on global  shipping, international trade, and the global economy.  Cargo containers  present significant security concerns, as individuals have exploited  vulnerabilities associated with the world’s supply chain—the flow of  goods from manufacturers to retailers—by using cargo containers to  smuggle narcotics, stowaways, and other contraband.  Given these  vulnerabilities, there is a threat that terrorists could use a cargo container  to transport a weapon of mass destruction into the United States.  Within  the federal government, U.S. Customs and Border Protection (CBP), part  of the Department of Homeland Security (DHS), is responsible for  administering container security and reducing the vulnerabilities  associated with the supply chain.  Balancing security concerns with the  need to facilitate the free flow of people and commerce, part of CBP’s  mission, remains an ongoing challenge for the public and private sectors  alike.
In response to a requirement in the Security and Accountability for Every  Port Act of 2006 (SAFE Port Act) that DHS collect additional data to  identify high-risk cargo for inspection, in January 2009 CBP implemented  the Importer Security Filing (ISF) and Additional Carrier Requirements,  collectively known as the “10+2 rule.” The rule mandates that importers  (who order containerized and break bulk goods to be shipped from  foreign sources to the United States via oceangoing vessel) and vessel  carriers (who physically transport international goods from foreign ports  to the United States) submit additional cargo information, such as country  of origin, to CBP before the cargo is loaded onto a U.S.-bound vessel.  Collection of the additional cargo information (10 data elements for  importers and 2 data elements for vessel carriers) and their incorporation  into CBP’s Automated Targeting System (ATS) are intended to enhance  CBP’s ability to identify high-risk shipments and prevent the  transportation of potential terrorist weapons into the United States. CBP  estimates that about 250,000 importers and 1,000 vessel carriers could be  affected by the rule.
The provisions in the rule are final, with the exception of certain interim  provisions that apply to the timing and content for submitting certain data  elements, such as allowing information on the location where a container  is packed with cargo to be provided after the initial submission of the data  elements but at least 24 hours prior to arrival at a U.S. port.  These interim  provisions are known as “flexibilities,” or the “flexible filing” options, and  they were included in the 10+2 interim final rule to allow DHS to conduct a  review of compliance difficulties and limit the burden on the trade  industry.  CBP’s final regulatory assessment estimates that annualized  costs of the rule’s implementation could range from $890 million to   $7 billion.  These estimates include costs incurred by importers and  carriers to collect, coordinate, and electronically transmit the required  data to CBP; losses to U.S. importers arising from potential delays in the  supply chain; and U.S. government implementation costs.
CBP is conducting a review to analyze, for those data elements subject to  flexibilities: (1) compliance costs for various trade industry entities;   (2) the impact of the flexibilities provided for in the rule, based on data on  the extent to which importers have used the flexibilities and trade industry  comments; (3) the challenges to submitting the additional data elements  24 hours prior to loading; and (4) the benefits of collecting the additional  data elements.  The corresponding analysis is intended to inform the  decision to eliminate, modify, or maintain the requirements subject to  flexibilities under the interim final rule.  CBP expects to complete its  review in the fall of 2010, at which point DHS plans to review CBP’s  analysis before making any changes to the flexibilities in the publication of  the final rule.
In response to your request, we reviewed certain aspects of the 10+2  regulatory assessment and the 10+2 rule.  Specifically, this report  addresses the following objectives:    To what extent did CBP conduct the 10+2 regulatory assessment in  accordance with Office of Management and Budget (OMB) guidance?
How has CBP used information it collected and assessed to inform its  efforts to implement the 10+2 rule since January 2009?
To what extent have importers used the flexibilities when submitting  their Importer Security Filings since January 2009?
To what extent has CBP used 10+2 data to identify high-risk cargo for  inspection and enhance cargo security while minimizing the impact on  trade flow?
To answer these four objectives, we reviewed legal documentation,  including the 10+2 rule and the SAFE Port Act, which requires DHS to  consider the cost, benefit, and feasibility of the rule and consult with  stakeholders.  Additionally, to address the second, third, and fourth  objectives, we interviewed CBP officials from CBP’s 10+2 program office,  which is responsible for overseeing implementation of the 10+2 rule; the  National Targeting Center-Cargo, which is responsible for targeting high- risk shipments for inspection; and the Office of Intelligence and  Operations Coordination, which is responsible for adjustments to ATS to  incorporate the 10+2 data.  We interviewed officials from these offices to  discuss the status of CBP’s efforts to integrate the 10+2 data elements into  its targeting strategy.
We also interviewed representatives of four industry associations that CBP  identified as involved in 10+2 outreach—the American Association of  Exporters and Importers (AAEI), the National Association of  Manufacturers (NAM), the National Customs Brokers and Forwarders  Association of America (NCBFAA), and the World Shipping Council  (WSC). Further, we interviewed representatives from 30 importers and 2  carriers, as referred to us by the industry associations we met with and the  trade co-chair of CBP’s Commercial Operations Advisory Committee  (COAC) ISF Subcommittee.  Our interviews with trade industry  associations, importers, and carriers solicited views on the flexibilities in  the 10+2 rule and CBP’s consultation with the trade industry in developing  and implementing the 10+2 rule.  The AAEI and NAM representatives we  met with identified representatives of 27 importer member companies who  were knowledgeable about their companies’ policies and procedures for  filing ISFs.  For the purposes of this report, we refer to these individuals as  importers.  We conducted interviews with these importers in group  settings.  This interview format allowed us to determine consensus and  also identify and examine instances where viewpoints differed among  importers.  As a result of the group settings, we do not explicitly identify  the number of importers who expressed particular views.  Rather, we  express these views as those of some of the importers we interviewed.   The trade co-chair of COAC’s ISF Subcommittee referred us to  representatives of 3 importers, whom we interviewed individually.  These  interviews specifically addressed the importers’ use of the flexibilities  when filing ISFs and whether their companies have experienced any trade  flow delays as a result of CBP’s use of the additional data elements,  including CBP’s use of the data to identify high-risk containers and use of  enforcement measures for noncompliance with the 10+2 rule.  We selected  2 carriers to interview based on a recommendation from the World  Shipping Council.  Our interviews with representatives of trade industry  associations, importers, and carriers were based on a nonprobability  sample, so while they are not generalizable to the maritime trade industry  as a whole, they provide insights into the ongoing implementation of the  10+2 rule, including reasons for using or not using the flexibilities, and the  impact of the 10+2 rule on the trade industry, including any trade delays  resulting from CBP enforcement of compliance with the 10+2 rule.
In addition to the above steps, which involved multiple objectives, we also  performed audit work specific to each of the four objectives.  To evaluate  the extent to which CBP’s regulatory assessment adhered to OMB  guidance, we analyzed CBP’s Regulatory Assessment and Final  Regulatory Flexibility Analysis for the Interim Final Rule, and  compared it to criteria in OMB Circular No. A-4, which provides guidance  to federal agencies on the development of regulatory analyses, as required  under Executive Order 12866 (Regulatory Planning and Review).  To  determine how CBP has used information it collected and assessed, we  reviewed CBP reports and analyses for monitoring ongoing  implementation of the 10+2 rule since January 2009, such as daily  compliance reports, and information regarding CBP’s consultation with  and outreach to the trade community, including presentations to importers  and the program’s Frequently Asked Questions (FAQ) document.  To  determine the extent to which importers have used the flexibilities, we  analyzed CBP data from September 13, 2009—the date on which CBP  implemented a capability to collect data—through   June 14, 2010, on importers’ election to use the flexibilities when filing  their ISFs.  We assessed the reliability of these data by reviewing CBP’s  data management practices and determined that the data are sufficiently  reliable to demonstrate overall trends in use and improper use of  flexibilities.  To determine how CBP has used the additional 10+2 data  elements to identify high-risk cargo for inspection while minimizing the  impact on trade flow, we reviewed CBP analysis from 2006 of the potential  impact of new data on targeting efforts.  We also visited the National  Targeting Center-Cargo to observe a demonstration of ATS and how it  incorporates the 10+2 data elements into the targeting process.  To assess  the extent to which CBP has enhanced cargo security based on the  additional 10+2 information, we compared CBP’s progress in integrating  the 10+2 data elements into its targeting strategy to best practices for  project management.  For the purposes of this objective, we limit our  discussion of the impact on trade flow to the impacts resulting from CBP’s  use of the data elements, specifically targeting and compliance  enforcement.  We did not explore how the requirement to provide the  additional data elements to CBP in advance of container loading may have  impacted trade flow because CBP has separately addressed this issue in its  regulatory assessment of the impacts of the regulation.
We conducted this performance audit from March 2010 to September 2010  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Supply Chain Entities
paragraphs: A number of entities are involved in the supply chain.  These entities  include the following:     Importers: Bring articles of trade from a foreign source into a  domestic market.  Importers are responsible for providing ISF data, but  an importer may designate an authorized agent to file the ISF on the  importer’s behalf.
Carriers: Transport goods from a foreign port to a U.S. port.  For  foreign cargo remaining on board, the carrier is considered the  importer and is required to submit the ISF for the shipment.
Licensed customs brokers: Clear goods through customs by  preparing and filing proper entry forms, advising importers on duties to  be paid, and arranging for delivery of imported goods to the  destination.  They also may act as the designated agent for importers in  filing their ISFs.
Shippers: Supply or own the commodities that are being shipped.
Freight consolidators: Accept partial container shipments from  individual shippers and combine the shipments into a single container  for delivery to the carrier.
Non-vessel operating common carriers: Buy shipping space on a  vessel, through a special arrangement with an ocean carrier, and resell  the space to individual shippers.
Supply chain entities may participate in CBP’s Customs-Trade Partnership  Against Terrorism (C-TPAT), a voluntary program designed to improve the  security of the international supply chain while maintaining an efficient  flow of goods. Under C-TPAT, CBP officials work in partnership with  private companies to review their supply chain security plans to improve  members’ overall security. In return for committing to making  improvements to the security of their shipments by joining the program,   C-TPAT members may receive benefits, such as reduced numbers of  inspections or shorter border wait times for their shipments.  Within 1 year  of a member’s initial certification into the program, CBP is to conduct a  validation to ensure that the security measures outlined in the certified  members’ security profiles and periodic self-assessments are reliable,  accurate, and effective.  As of July 8, 2010, 4,416 importers were members  of C-TPAT.
section_title: Development of the Importer Security Filing and Additional Carrier Requirements (10+2 Rule)
paragraphs: In June 2004, CBP launched the Advance Trade Data Initiative with the  goal of identifying information about shipments in advance of their arrival  in the United States for improving the targeting of containers that could be  used by terrorists to transport dangerous cargo.  In the process of  identifying such information for the Advance Trade Data Initiative, CBP  consulted with its Trade Support Network in 2005 and formed a Cargo  Targeting Task Force in March 2006 to review the initiative and to make  recommendations for improving targeting of high-risk oceangoing cargo.   Figure 1 shows a portion of the millions of cargo containers that are  shipped to the United States each year that CBP is to screen for potential  threats.
In October 2006, the SAFE Port Act was enacted, which requires CBP to  collect additional data related to the movement of cargo through the  international supply chain and analyze these data to identify high-risk  cargo for inspection prior to cargo loading at foreign seaports.  The  additional data elements were to include appropriate elements of customs  entry data as determined by the Secretary of Homeland Security.  The  SAFE Port Act requires CBP to adhere to the parameters in section 343(a)  of the Trade Act of 2002, including provisions requiring consultation with a  broad range of affected trade industry entities and restricting the use of  information to security purposes, in developing the regulation.  In 2007,  CBP distributed to trade industry groups a Proposal for Advance Trade  Data Elements, which proposed the data elements that later became  known as the 10+2 data elements, and posted the proposal on its Web site  with a request for comments from the public.  In January 2008, CBP  published a notice of proposed rulemaking and, in November 2008, CBP  issued its interim final rule to require the submission of these additional  data elements. The interim final rule went into effect on January 26, 2009,  and provided a 1-year flexible enforcement period.
Importers are responsible for submitting data elements for the ISF, and the  required data elements differ depending on the cargo’s destination.  For  cargo containers that are bound for the United States as the final  destination, the rule requires importers to submit 10 data elements to CBP  24 hours prior to loading.  Four of these 10 data elements are identical to  elements submitted later for customs entry purposes.  For cargo  containers that are transiting the United States but for which the United  States is not the final destination, the rule requires importers to submit 5  data elements to CBP prior to loading. (See table 1 for the required ISF  data elements.)
In addition to data already provided by carriers under the 24-hour rule,  which requires that carriers submit cargo manifest information—a list of  cargo carried in a container—to CBP 24 hours before U.S.-bound cargo is  loaded onto a vessel at a foreign port, carriers are required to provide the  Additional Carrier Requirements, which include the following two data  elements:      Vessel stow plan: No later than 48 hours after departure from the last  foreign port, carriers must submit information to include the vessel  operator, voyage number, the stow position of each container,  hazardous material code (if applicable), and the port of discharge.  For  a voyage of less than 24 hours (short haul), CBP requires that the stow  plan be provided any time prior to arrival at the first U.S. port.  For an  example of a vessel stow plan see figure 2.
Container status messages (CSM): CSMs report terminal container  movements, such as loading and discharging the vessel, and report the  change in the status of containers, such as if they are empty or full.
CSMs also report conveyance movements, such as vessel arrivals and  departures.  Carriers must supply CSMs daily for certain events relating  to all containers laden with cargo destined to arrive within the limits of  a port in the United States by vessel.
section_title: ISF Flexibilities
paragraphs: For U.S.-bound cargo, the interim final rule provides two types of  flexibilities with respect to certain data elements (see table 2).  These  flexibilities do not apply to the ISF filings for in-transit cargo.  The purpose  of the flexibilities is to allow CBP to conduct a review of the data  elements, including an evaluation of any specific compliance difficulties  that the trade industry may be encountering with respect to these data  elements.
In order to ensure that importers always provide CBP with the most  updated and accurate 10+2 data, CBP allows importers to alter their ISF  submissions through an amendment process that is not related to the  flexibilities. Under this standard amendment process, the importer is  obligated to provide an amended ISF as soon as better information is  discovered or if there are changes to the shipment—for example, if  merchandise is sold in transit—up until vessel arrival in the first U.S. port.   Using this standard amendment option, importers can amend any data  element included in an ISF submission, regardless of whether the  flexibilities were used, before a shipment’s arrival at a U.S. port. In  addition, CBP allows for these standard amendments to be provided after  vessel arrival at the first U.S. port even though the importer is not  generally obligated to make amendments to the ISF when better  information or changes to the shipment occur after vessel arrival in the  first U.S. port.
section_title: ATS Targeting
paragraphs: The collection of these additional 10+2 data elements is intended to  improve high-risk targeting efforts.  ATS incorporates two types of  targeting rules—tactical and strategic—to identify risk factors in shipment  data.
Tactical rules: Rules that identify risks posed by specific intelligence  or threats.  Tactical rules typically identify threats based on the specific  entries for one or more shipment data elements.  Tactical rules are  updated with minimal delay to react to the immediate and specific  nature of the intelligence.
Strategic rules: Rules that identify more generalized intelligence or  threats or that identify relationships between different data elements  within a single record or across multiple records.  The process to  update strategic rules involves iterations of testing to ensure that rules  have their intended effect.
Within ATS, CBP develops combinations, or sets, of these two types of  rules and assigns numerical weights to the rules in a set to determine  overall risk scores for particular threats, such as narcotics trafficking or  national security threats.  CBP uses one such weighted rule set—the  national security weighted rule set—as targeting criteria to assess the  national security risk posed by maritime cargo.  TECS—a set of tactical  rules that compares 10+2 data to known violators of federal law— contributes, along with other strategic and tactical rule sets, to risk scores  generated by the national security weighted rule set. Based on these risk  scores, as well as CBP targeters’ analyses of shipment data, CBP is to take  actions to mitigate the threats.
CBP assesses the risks posed by shipments repeatedly throughout the  transit process. CBP reviews shipment records prior to the loading of the  cargo onto a U.S.-bound vessel, as well as during shipment transit, to  identify potential threats and determine if additional action, such as cargo  inspection, is required. When shipment record data elements are updated  with additional or amended information, ATS could identify new risks or  mitigate previously identified risks. Therefore, a shipment’s overall risk  score could change while the shipment is in transit.
section_title: The Federal Rulemaking Process and CBP’s Regulatory Assessment and Final Regulatory Flexibility Analysis
paragraphs: Regulatory agencies have authority and responsibility for developing and  issuing regulations.  The basic process by which all federal agencies  develop and issue regulations is spelled out in the Administrative  Procedure Act.  Among other things, the act generally requires agencies  to publish a notice of proposed rulemaking in the Federal Register.  After  giving interested persons or entities an opportunity to comment on the  proposed rule by providing “written data, views, or arguments,” the agency  may then publish the final rule.
OMB is responsible for the coordinated review of agency rulemaking to  ensure that regulations are consistent with applicable law, the President’s  priorities, and the principles set forth in executive orders, and that  decisions made by one agency do not conflict with the policies or actions  taken or planned by another agency.  Under Executive Order 12866,  executive branch agencies must conduct a regulatory analysis for  economically significant regulations (generally those rules that have an  annual effect on the economy of $100 million or more).  OMB also  provides guidance to agencies on regulatory requirements, such as OMB  Circular No. A-4, which provides analytical guidelines for agencies to use  in assessing the regulatory impact of economically significant regulations.   Circular No. A-4 is designed to assist analysts in regulatory agencies by  defining good regulatory analysis and standardizing the way benefits and  costs of federal regulatory actions are measured and reported.
CBP published its Regulatory Assessment and Final Regulatory  Flexibility Analysis, referred to in this report as CBP’s regulatory  assessment, as part of the rulemaking process for the 10+2 rule.  This  assessment was prepared for CBP by an outside contractor.  CBP  conducted this assessment to address (1) the requirement to conduct a  regulatory analysis for economically significant actions; and (2) the SAFE  Port Act of 2006, which requires DHS to consider the cost, benefit, and  feasibility of the rule.  CBP published its initial regulatory assessment in  December 2007 and a revised regulatory assessment in November 2008,  which is discussed later in this report.  The regulatory assessment contains  a “break-even” analysis that determines how many times a West Coast port  shutdown, a nuclear attack, or a biological attack would need to be  prevented through use of the data in order for the benefits to equal the  costs.  For example, the regulatory assessment concludes that the benefits  would exceed the costs of the rule if one West Coast port shutdown due to  a terrorist attack were prevented over a period of 3 months to 2 years,  assuming that the rule only reduces the risk of a single such event.
section_title: Implementation of the 10+2 Rule
paragraphs: Although the effective date of the 10+2 rule was January 26, 2009, the rule  allowed for a 1-year flexible enforcement period.  Since the end of the  flexible enforcement period, CBP has stated that it has been applying a  “measured, common sense approach” to enforcement, which includes  exercising the least punitive measures necessary to obtain full compliance,  evaluating noncompliance on a case-by-case basis, and continuing to  provide outreach and guidance to trade industry entities.
During the enforcement period, which began January 26, 2010, CBP plans  to first focus on importers who have not filed ISFs for shipments by  issuing warning letters and possibly subjecting some of these shipments to  nonintrusive inspections, such as taking x-ray images of cargo containers.  Data from the ISFs must be matched to other data sources to determine  compliance, including whether each required shipment has an ISF on file  and whether the ISF was filed in a timely manner.  ISFs are matched to  manifest data using the bill of lading number—an alphanumeric code  issued by a carrier that references an individual cargo shipment in a  manifest—and then the matched ISF becomes part of a shipment record  that includes manifest information and the International Maritime  Organization number of the vessel on which the cargo is shipped. Using  this vessel number, the shipment can be matched to a vessel departure  message, which carriers are required to supply to CBP.  CBP also matches  the ISF and manifest information to customs entry data.
section_title: CBP’s Regulatory Assessment Generally Adheres to OMB Guidance, but Could Have Been Improved by Additional Information
paragraphs: CBP’s regulatory assessment generally adheres to OMB guidance by  including required elements—such as a statement of the need for the  proposed action, an examination of alternative approaches, and evaluation  of the benefits and costs. However, the regulatory assessment lacks  transparency regarding the selection of alternatives for analysis and  support for the selection of the preferred alternative. Greater transparency  on this topic could have improved CBP’s regulatory assessment.   Additionally, a more complete analysis of the uncertainty involved in  estimating key variables used to evaluate costs and benefits, and  additional information regarding some costs to foreign entities, could also  have improved CBP’s regulatory assessment.
subsections: section_title: CBP’s Regulatory Assessment Generally Adheres to OMB Guidance
paragraphs: CBP’s regulatory assessment addresses the three basic elements of a good  regulatory assessment, as defined by OMB:    Statement of the need for the proposed action: The assessment  includes a statement that the regulation was based on a statutory  requirement (SAFE Port Act, Section 203(b)).
Examination of alternative approaches: The assessment presents  four alternatives for analysis.  Each of the four alternatives has  different components, and table 3 outlines the requirements of each  alternative analyzed in the regulatory assessment.  For example,  alternative 1 requires importers to submit an ISF (bulk cargo shipments  are exempt from the requirement) and carriers to submit the Additional  Carrier Requirements.
Evaluation of the benefits and costs: In accordance with OMB  guidance, because the benefits could not be quantified, the assessment  includes a “break-even” analysis.  For example, the analysis concludes  that the benefits of the rule would equal the costs if the rule avoids a   nuclear attack once in 60 to 500 years, assuming that the rule only reduces  the risk of a single such event.
Additionally, the regulatory assessment is generally transparent in citing  sources and explaining how estimates were derived.  Where the analysis  relied on third-party data sources, the regulatory assessment provides  references to those data sources. For example, third-party sources are  cited for estimates regarding the cost to importers for each day of delay  and the costs associated with a potential terrorist attack.  The regulatory  assessment also provides explanations for how some of the estimates used  in the assessment were developed.  For example, the assessment explains  that the initial one-time costs to adjust business practices to implement  the 10+2 rule were based on information from a COAC survey and the  recurring costs for transmitting ISF data were based on interviews with  representatives from the shipping, importing, and customs brokerage  industries.
The regulatory assessment also contains supporting documentation and  analysis, including an uncertainty and sensitivity analysis, as called for by  OMB guidance.  The assessment addresses limitations and key sources of  uncertainty for each of three sections of the analysis that produced  estimates: (1) the baseline shipping analysis, which estimates shipping  trends (such as number of importers, carriers, and U.S.-bound shipments)  in absence of the rule; (2) incremental costs (such as up-front costs per  importer to adapt to the rule and costs per filing) and economic impact  (such as losses from potential delays); and (3) potential benefits (such as  the costs avoided by preventing a terrorist attack).  It also includes an  uncertainty analysis for the industry’s total estimated costs and welfare  losses.  The sensitivity analysis analyzes the effects of variables’  uncertainty on the results of the analysis and concludes that the  uncertainty associated with the initial, up-front costs to importers has the  greatest effect on the results of the analysis.  As a result of the sensitivity  and uncertainty analysis, the assessment concludes that the likelihood of  reaching the higher end of the cost range is low.
section_title: Additional Information Could Have Improved CBP’s Regulatory Assessment
paragraphs: Our review of the regulatory assessment found that CBP was not  transparent regarding how it selected the four alternatives for analysis.  According to CBP officials, CBP selected the alternatives that the  contractor analyzed in the regulatory assessment.  However, based on our  review, there is little variation in the alternatives analyzed.  Each of the  alternatives is a combination of including or excluding three  components—the 10 ISF data elements, an exemption for bulk cargo  shipments from filing the ISF, and the two data elements for the Additional  Carrier Requirements—and the regulatory assessment does not discuss  whether other alternatives may have met the requirements of the SAFE  Port Act.  Moreover, the regulatory assessment does not discuss other  potential alternatives with additional or fewer data elements or why such  other alternatives were not included in the analysis.  For example, it does  not discuss a range of other alternatives, such as requiring 15 data  elements for the ISF or only one of the two carrier data elements.   According to CBP officials, the regulatory assessment does not discuss  other alternatives because CBP identified the current 10+2 data  elements—in consultation with trade industry stakeholders, as data  elements that would significantly increase CBP’s ability to make better  informed targeting decisions—prior to the SAFE Port Act requirement to  collect such data.
Greater transparency regarding the selection of alternatives could have  improved the assessment by justifying the limited scope of the alternatives  analyzed in the regulatory assessment and providing insight into CBP’s  decision making.  According to OMB guidance, regulatory analysis  provides a way of organizing the evidence on the key effects—good and  bad—of the various alternatives that should be considered in developing  regulations. The motivation is either to learn if the benefits of an action are  likely to justify the costs or to discover which of various possible  alternatives would be the most cost-effective.  According to OMB  guidance, a good regulatory analysis is designed to inform the public and  other parts of the government (as well as the agency conducting the  analysis) of the effects of alternative actions.  Including a discussion of the  full scope of feasible regulations could have enhanced transparency about  the regulatory assessment’s usefulness for informing decision making.  In  response to our findings, CBP officials acknowledged that more  information about the 10+2 rulemaking process, specifically the selection  of the 10+2 data elements, could be added in a future update to the  regulatory assessment, if an update is published, to provide greater  context about the decision making involved in developing the 10+2 rule.
The regulatory assessment also lacks transparency regarding the final  selection of alternative 1 as the preferred alternative.  OMB guidance  states that regulatory analyses should be transparent, and in particular  that such analyses should clearly explain the assumptions used in the  analysis.  Three of the alternatives (alternatives 1, 2, and 3) have almost  identical costs and, therefore, the number of events (terrorist attacks) that  would need to be avoided to justify the costs are almost identical.  Absent  supporting documentation, it is not clear why, based on the information  and analysis in the regulatory assessment, CBP selected alternative 1 over  the other alternatives.  For example, the assessment does not explain how  alternative 1 may be more likely to achieve benefits, specifically  prevention of terrorist attacks, than the other alternatives to justify the  selection of alternative 1.  The assessment states that alternative 1 was  favored over alternative 2 because the impact of requiring the ISF for bulk  cargo—alternative 1 exempts bulk cargo from the ISF requirement, while  alternative 2 requires an ISF for all cargo—is expected to be slight given  that the number of bulk cargo shipments is small compared to the number  of nonbulk shipments.  Furthermore, according to CBP officials, the  exemption for bulk cargo was selected to mirror the requirements of the  24-hour rule—which requires that carriers submit cargo manifest  information for containerized cargo but allows certain timing exemptions  for bulk cargo submissions.  The assessment states that alternatives 3 and  4 were rejected based on CBP’s judgment that the ISF and Additional  Carrier Requirements should work in tandem to be effective.  However,  the regulatory assessment does not describe or analyze how or why CBP  made this judgment.  For example, it does not describe how the ISF and  Additional Carrier Requirements are used jointly to target for risk to  support the requirement to provide both types of data to CBP.  In response  to our findings, CBP officials acknowledged that more information could  be added to the regulatory assessment to provide greater transparency on  this topic.
The regulatory assessment acknowledged uncertainty for the cost to  importers for a day of delay and the value of statistical life, but these  variables were not addressed by the assessment’s uncertainty analysis.   OMB guidance states that the important uncertainties connected with  regulatory decisions need to be analyzed and presented as part of the  overall regulatory analysis.  Uncertainties with respect to these two  variables may have influenced the results of the assessment.  For example,  if the assessment’s estimate for the value of statistical life was too low, the  resulting conclusion would be that more terrorist attacks using cargo  containers would need to be prevented in a particular time period to  justify the costs of the regulation and the analysis would favor a less costly  alternative.  The quantitative uncertainty analysis includes the number or  percentage of containers that may experience delays and the length of the  potential delays in the supply chain, but the assessment does not address  the impact of the uncertainty associated with the estimate for the dollar  cost of delay.  A more complete analysis of these variables’ uncertainty  could have more fully addressed the elements in OMB guidance and,  therefore, could have improved the regulatory assessment.  CBP officials  recognized that these estimates were not addressed in the uncertainty  analysis and they acknowledged that more information could be added to  improve the assessment’s discussion of uncertainty.
The regulatory assessment notes that lost producer surplus, or profits,  which were assumed to be borne by foreign entities, are not estimated in  the assessment.  OMB Circular No. A-4 states that, when evaluating a  regulation that is likely to have effects beyond the United States, the  effects to foreign entities should be reported separately.  Because the  assessment does not evaluate lost producer surplus, the costs to foreign  entities are not fully reported.  According to the regulatory assessment,  these costs are not addressed because the regulatory assessment focuses  on impacts to the U.S. economy.  CBP officials acknowledged that, to the  extent data are available on these costs, this information could be added  to the regulatory assessment.
These officials also said that CBP is conducting additional analyses to  determine the impact of delays resulting from the rule and to review  public comments solicited in the publication of the 10+2 rule. Depending  on the results of these analyses, CBP may update its regulatory  assessment.  If CBP publishes an update to its regulatory assessment,  additional information, such as a discussion of how the alternatives were  selected for analysis, an uncertainty analysis for the cost to importers for a  day of delay and for the value of statistical life, and estimates for lost  profits borne by foreign entities, would improve the transparency and  completeness of the assessment.
section_title: CBP Has Collected, Assessed, and Shared Information with the Trade Industry to Monitor and Help Improve Compliance with and Implementation of the 10+2 Rule
paragraphs: CBP has collected and assessed a variety of information, such as daily  compliance reports, and has shared information with the trade industry,  through importer progress reports and outreach events, to help improve  compliance with and implementation of the 10+2 rule.  CBP is also using  information it has collected to monitor and help improve implementation  of the rule, for example, by posting a “Frequently Asked Questions”  document on its Web site that addresses some common problems.
subsections: section_title: CBP Has Collected and Assessed a Variety of Information to Help Improve Compliance with and Implementation of the 10+2 Rule
paragraphs: CBP is tracking the daily level of ISF compliance at each U.S. port to  determine the overall level of compliance with the 10+2 rule.  For all  shipments scheduled to arrive at a U.S. port within 2 days, CBP assesses  the percentage of shipments that have ISFs filed.  For example, for  shipments scheduled to arrive in the United States on April 18, 2010, a  report generated on the morning of April 16, 2010, indicated that 22,310 of  26,348 shipments (85 percent) had ISFs filed.  CBP also monitors data on  arriving vessels that have not submitted vessel stow plans, based on data  for ships that are due to arrive in port within 96 hours. CBP forwards these  reports to the local port officials who then contact the carriers who have  not filed stow plans to obtain the necessary information.  CBP has also  collected and analyzed information about the use of flexibilities in filing  ISFs.  (Information on importers’ use of flexibilities is discussed later in  this report.)  To gauge issues trade industry entities may have in  understanding or implementing the ISF requirement, CBP has also  reviewed and analyzed data on ISF errors and rejections, including  determining the most common errors that result in rejections.  According  to a CBP analysis, which examined ISFs submitted from January 26, 2010,  through March 28, 2010, 22,257 of 81,435 rejected ISFs (27 percent) were  rejected because they were duplicates of ISFs already on file.  This was  the most common error that led to rejections. Other types of errors, such  as not supplying the ISF importer number, each accounted for less than 5  percent of rejected ISFs.
While the data that CBP has collected to date provide information on the  most common errors or reasons for rejecting ISFs for importers who are  trying to comply with the rule, the data provide limited information about  the reasons for noncompliance among other importers.  According to CBP  officials, CBP can identify a shipment for which an ISF has been filed, but  it is difficult to determine the importer responsible for filing the ISF and  possible reasons for why an ISF was not filed or was not matched to the  shipment.  For the purposes of filing the ISF, the importer for a shipment  may be one of several entities involved in the supply chain, such as the  owner or purchaser of the goods, and it is left to the various supply chain  entities involved with a shipment to determine who will be responsible for  filing the ISF.  Furthermore, a shipment lacking an ISF may appear to be  noncompliant if the importer makes an error in submitting the ISF, such as  providing the incorrect bill of lading number.  In April 2010, CBP began  sending letters to importers who appeared to be noncompliant, based on  CBP’s review of data collected from ISFs and other data such as customs  entries, to notify these importers of possible noncompliance and  encourage them to contact CBP about any concerns they may have.  CBP  officials said that they have been pleased with importers’ responsiveness  to these letters.
section_title: CBP Has Shared Information with the Trade Industry to Help Improve Compliance with and Implementation of the 10+2 Rule
paragraphs: CBP is providing compliance and implementation data—specifically data  on the number of ISFs that were (1) accepted, (2) rejected, and   (3) timely—for each importer’s filings in the form of monthly progress  reports sent to the importer’s filer or directly to the importer in the case of  validated C-TPAT members.  According to CBP officials, providing the  information directly to the importer requires a manual process to set up  accounts for individual importers and, therefore, this service is only  offered to validated C-TPAT members as a benefit of participating in the  program.  For other importers, filers can register to receive a monthly  progress report with the data for each importer they represent.  The data  in the progress reports for the other importers are aggregated for each  month.  For example, a progress report will indicate the number of  rejected ISFs for an importer, but it does not provide transaction-level  data, such as which particular ISFs were rejected.  Although CBP officials  recognize some importers’ concerns that progress reports lack  transaction-level data for importers who are not validated C-TPAT  members, they said that CBP has no plans to include transaction-level data  for progress reports other than for validated C-TPAT member importers.   According to some importers we interviewed, the lack of transaction-level  data may make it difficult for an importer to identify causes of  discrepancies between its own internal data and the information presented  in CBP’s progress report.  However, according to CBP officials, importers  or their filers already receive information for each transaction, such as  messages regarding errors in the ISF or confirmation that the bill of lading  number was matched to other data.
In addition to the monthly progress reports, CBP has also conducted  outreach sessions for members of the trade industry and has received and  responded to questions and comments about the 10+2 rule.  From  December 2008 through December 2009, CBP sponsored 35 town hall  events across the country and has conducted additional outreach sessions  through trade industry associations.  In April and May 2010, CBP  conducted Web-based seminars targeted to reach and inform small and  medium importers.  CBP also responds to questions and comments from  the trade industry it receives through a dedicated e-mail address as well as  phone calls and e-mails to program officials and has posted a “Frequently  Asked Questions” (FAQ) document on its Web site.  However, some  importers we interviewed expressed concern that, rather than publish its  policies informally through its Web site and FAQ, CBP should publish its  policies in a document that is legally binding, such as a notice in the  Federal Register.  In particular, one concern is that CBP has not legally  obligated itself to treat its current proxy for measuring ISF timeliness (24  hours prior to vessel departure) as meeting the rule’s requirement of 24  hours prior to loading.  According to CBP officials, the regulation must  require the data to be submitted prior to loading because the SAFE Port  Act establishes this aspect of the requirement.  CBP officials said they  recognize that there is no existing metric for measuring the time of loading  and, therefore, CBP plans to use the proxy measure in enforcing the rule.   CBP also solicited public comments regarding the flexibilities and final  regulatory assessment.  According to CBP officials, comments that were  directly relevant to the flexibilities or the regulatory assessment will be  taken into consideration in developing the final rule.  CBP officials stated  that some comments that were not relevant to the interim aspects of the  rule were addressed in the FAQ.
section_title: CBP Is Using Information It Has Collected to Monitor and Help Improve Implementation of the 10+2 Rule
paragraphs: CBP officials said that CBP is generally satisfied with the status of ISF  implementation, based on CBP data that indicate that approximately 80  percent of shipments in July 2010 were compliant with the ISF  requirement.  CBP officials noted that this measure of 80 percent  compliance includes ISFs for U.S.-bound and in-transit cargo, and  compliance rates for in-transit cargo are lower than for U.S.-bound cargo.   In July 2010, 646,016 of 748,780 U.S.-bound shipments (approximately 86  percent) had submitted ISFs, whereas 20,811 of 84,170 in-transit shipments  (approximately 24 percent) had submitted ISFs.  CBP officials stated they  have a goal of increasing compliance to about 95 percent by fall 2010.  As a  result, CBP is monitoring performance to identify areas to improve  implementation and compliance.  CBP has identified issues with the  implementation of the ISF for in-transit cargo, such as lack of clarity  regarding the party responsible for filing the ISF for two types of in-transit  cargo (immediate exportation and transportation and exportation)  shipments, and CBP officials said that they plan to revise the requirements  through future rulemaking.
To help correct problems CBP has identified through its monitoring of ISF  data, CBP has conducted further outreach efforts to members of the trade  industry.  For example, after identifying duplicate ISFs as the most  common error and reason for rejecting ISFs, CBP officials determined that  some filers or importers were resubmitting ISFs if they had received a  message from CBP that the ISF had not been matched to a bill of lading.   In some cases, this was occurring because the ISF preceded submission of  manifest information containing the matching bill of lading number.  As a  result, according to CBP officials, CBP has conducted outreach sessions  through trade industry associations and posted information on its FAQ to  reduce the number of such resubmissions.  In April 2010, CBP also began  identifying importers who may not be complying and sent letters to these  importers notifying them of possible noncompliance and encouraging  them to contact CBP about any concerns they may have.  In general,  representatives of the four industry associations we spoke with said they  have been satisfied with CBP’s outreach efforts during implementation of  the rule.
In addition to its other outreach efforts, CBP is also working to address  concerns regarding the information contained in ISF progress reports,  specifically the number of ISFs that cannot be measured for timeliness.   In order to determine if an ISF was submitted on time, CBP must match  the ISF to the vessel departure message supplied by carriers.  According  to CBP data, about 50 percent of the ISFs it analyzed for the May 2010  progress reports could not be assessed for timeliness because they could  not be matched to vessel departure messages.  For example, an ISF may  not be matched to a vessel departure message if the bill of lading number  on the ISF does not match a bill of lading associated with cargo on a vessel  for which CBP has received a departure message.  In order to improve the  number of ISFs that can be matched to vessel departure messages, CBP is  making adjustments to the system used by importers and their filers to  submit ISFs, the Automated Broker Interface, to allow filers to query bill  of lading numbers in the system.  According to CBP officials, this will  enable importers and filers to ensure that the bill of lading information is  correct before submitting an ISF.  Under the 10+2 rule, importers are  required to submit complete and accurate information, and fewer errors in  the bill of lading information will improve CBP’s ability to match ISF data  to other data sources and monitor compliance. CBP officials also said that  CBP does not make enforcement decisions based on the information in the  progress reports.
With respect to carriers’ implementation, CBP officials said that while  there have not been many instances of major carrier companies failing to  submit vessel stow plans, some smaller companies may have had trouble  adapting to the requirement because they had not previously maintained  vessel stow plan information.  According to CBP officials, CBP has  developed a spreadsheet format that smaller carriers can use to submit  vessel stow plan information, rather than submitting it through specialized  stow plan software.
section_title: Importers’ Use of Flexibilities Has Declined over Time and Has Remained Consistently Low for a Variety of Reasons
paragraphs: The number of ISFs indicating use of flexibilities—provisions that allow  importers flexibility in the timing and content of submission for certain  data elements—has declined over time—from 11 percent of filings in  September 2009 to less than 2 percent in June 2010. CBP officials stated  that the decrease in flexibility usage can be primarily attributed to the  trade industry’s determination that flexibility use is unnecessary due to the  existence of CBP’s standard amendment process, which allows filers to  update the information in their ISF regardless of whether or not they claim  flexibility use. Additionally, importers we interviewed cited a variety of  reasons for the nonuse and use of flexibilities.
subsections: section_title: Importers’ Use of Flexibilities Has Declined over Time
paragraphs: Prior to September 13, 2009, CBP did not have a mechanism to track  importers’ intended use of flexibilities and it relied instead on analyses of  filed submissions to approximate the use of flexibilities.  For example,  CBP conducted analyses of filed submissions and concluded that relatively  few importers were using the flexibility of not providing either the  consolidator element (entity who loads the container) or the container  stuffing (packing) location element at the time of initially filing their ISFs.   Among initial ISF submissions, 99 percent provided the consolidator  element and 99 percent provided the stuffing (packing) location element.   To gauge importers’ understanding of the flexibilities, CBP implemented a  function in its electronic filing submission system in September 2009 to  allow importers to identify their intent to use flexibilities at the time they  submit filings.  However, this function did not allow CBP to monitor  whether an importer was using both flexibilities for a single ISF.  Further,  beginning in November 2009, CBP adjusted its system for receiving ISFs to  allow importers to indicate their intent to use both range and timing  flexibilities—the data element submission options provided to importers  that allow the submission of a range of acceptable responses and the  initial omission of certain data elements, respectively. Prior to this change,  importers could only indicate their intent to use one flexibility type,  although CBP’s system allowed the data to be entered in a way that  utilized both types of flexibilities.
According to data obtained through CBP, ISFs indicating an intent to use  range flexibilities or timing flexibilities declined from 11 percent of filings  each week in September 2009 to 2 percent each week in January 2010.  Further, following the start of the enforcement period on January 26, 2010,  overall use of the flexibilities has remained low, with importers indicating  use of the flexibilities in about 2 percent of ISFs submitted each week  from January 26, 2010, through June 14, 2010 (see fig. 3). From   September 13, 2009, through June 14, 2010, the percentage of importers  that indicated use of the flexibilities on their ISFs declined from more than  13 percent to less than 4 percent. Over the portion of the flexible  enforcement period for which CBP has data on importers’ indication of  flexibilities use (September 13, 2009, through January 25, 2010), 100,252 of  the 1,909,523 submitted ISFs (or 5 percent) indicated flexibilities use.  Since the start of the enforcement period on January 26, 2010, through  June 14, 2010, the percentage of ISFs for which importers claimed  flexibility use remained relatively consistent at about 2 percent of ISF  submissions (67,429 of the 3,647,476 filed). Additionally, from   December 7, 2009, through June 14, 2010, ISFs that indicated use of both  types of flexibilities remained below 0.5 percent of all ISFs each week,  which corresponds to about 1 percent or less of importers claiming both  types of flexibilities on their ISFs each week.
While importers’ use of flexibilities has remained at about 2 percent since  January 2010, the percentage of ISFs indicating use of flexibilities that  constitute incorrect or unnecessary use of flexibilities has remained  consistently high. The system changes CBP implemented to allow  importers to indicate their intent to use the flexibilities has enabled CBP  to gauge importers’ understanding of the flexibilities by analyzing whether  the data provided in ISFs indicating use of the flexibilities are consistent  with the flexibilities provisions in the interim final rule.  For timing  flexibilities, correct use of the flexibilities is indicated by an ISF missing  either the consolidator element or the stuffing (packing) location element,  or both.  For range flexibilities, correct use of the flexibilities is indicated  by multiple entries for one or more of the flexible range data elements:  manufacturer, ship to party, country of origin, or commodity Harmonized  Tariff Schedule number. During the period September 13, 2009, through  June 14, 2010, the rate of incorrect or unnecessary use of range flexibilities  has remained consistent, at around 70 percent or more of the ISFs that  indicated use of the flexibilities. The rate of incorrect or unnecessary use  of timing flexibilities declined from 85 percent to 63 percent during the  time period September 13, 2009, through January 26, 2010, but has  generally remained at around 60 percent or greater since the start of the  enforcement period. Thus, while the overall use of flexibilities remains  relatively low, the rate of incorrect or unnecessary use of flexibilities has  remained consistently high. CBP officials stated that the overall use of  flexibilities, as well as the high rates of incorrect use, will inform their  consideration of whether to eliminate, modify, or maintain the existing  flexibilities associated with the 10+2 rule. Due to the limited use of the  flexibilities, CBP officials currently question their utility.
section_title: CBP and Importers Cited Various Motivations for Deciding Whether or Not to Use Flexibilities
paragraphs: CBP officials and trade industry representatives we spoke with stated that  CBP’s standard ISF amendment process provides greater flexibility than  the timing and range flexibilities provided for in the 10+2 rule.  When an  importer indicates use of the flexibilities on an ISF, it must submit an  updated ISF to indicate that the information is final, regardless of whether  the information on the ISF has changed.  CBP’s standard amendment  process, however, provides more latitude in that it allows the importer to  initially submit information on the basis of what it reasonably believes to  be true and then requires the importer to update the filing only if any of  the information changes or more accurate information becomes available.   These updates may be filed any time before goods enter a U.S. port, in  contrast to the flexibilities, which require updates no later than 24 hours  prior to goods’ arrival at a U.S. port.
CBP officials also explained that using the flexibilities could subject  importers to additional fees if they are using a third-party filer that charges  for each filing because the importers would have to pay for the initial filing  in addition to any updated filings.  However, if the importer does not use  flexibilities, the importer would only be subject to additional filing fees if  shipment information changes and use of the standard amendment  process is required. Some of the importers we spoke with concurred with  the benefits offered by the standard amendment process as compared to  use of the flexibilities.
Importers we spoke with cited a variety of reasons for not using  flexibilities, and one importer cited benefits for using them. Some  importers echoed CBP officials’ explanation that the standard amendment  process provides more flexibility and can be less costly than using the  flexibilities provided for in the interim final rule. Additionally, some  importers who are C-TPAT members said they are reluctant to use  flexibilities because it could convey to CBP that they do not have  complete awareness of their supply chains. Further, some importers cited  no need for the flexibilities because they collect all of the required 10+2  data elements prior to the ISF submission deadline. One importer,  however, stated that use of the range flexibilities has allowed it to develop  a template through which it can submit multiple entries per flexible range  element, which in turn improves the efficiency of its submission process.  This importer stated it is not concerned about the expense of filing  flexibility updates because that cost is expected to be offset by savings  associated with automation of its filing process.
section_title: CBP Has Not Yet Finalized Its Targeting Criteria to Identify Risk Factors in 10+2 Data, and CBP’s Use of the Data Has Not Impacted Trade Flow
paragraphs: Data generated by the 10+2 rule are available for use in targeting efforts,  such as identification of unmanifested containers, but CBP has not yet  finalized the ATS national security weighted rule set—CBP’s primary  targeting criteria within ATS for identifying high-risk cargo containers—to  identify risk factors present in the ISF data set. Additionally, CBP officials  and trade industry representatives report that CBP’s use of the data to  enforce rule compliance has not impacted trade flow.
subsections: section_title: CBP Is Using 10+2 Data to Target High-Risk Shipments, but Has Not Finalized the ATS National Security Weighted Rule Set to Identify Risk Factors in 10+2 Data
paragraphs: CBP targeters have access to data generated by the 10+2 rule, and tactical  rules can identify risk factors based on any of the 10+2 data elements. In  particular, CBP has updated the TECS rules in ATS to incorporate the  additional 10+2 data elements to identify shipments that could pose a  threat to national security. ATS uses the updated TECS rules to compare  10+2 data—such as the identities of the buyer, seller, or manufacturer—to  certain high-risk TECS national security threats. These rules use the data  to affect containers’ risk scores, which can affect whether a shipment is  inspected for dangerous cargo.  If ATS determines that any of the data  elements are connected to high-risk TECS national security threats, it then  increases the overall national security weighted rule set risk score for that  shipment. For example, CBP officials said that the TECS tactical rules  have identified potential risk factors for hundreds of thousands of  shipments based on information from the additional 10+2 data elements.
Additionally, CBP officials stated that access to vessel stow plans—one of  the two data elements provided by carriers—has enhanced CBP’s ability to  identify potentially dangerous unmanifested containers—containers and  their associated contents not listed on a ship’s manifest that pose a  security risk in that no information is known about their origin or  contents.  CBP officials explained that they are able to use vessel stow  plans to mitigate the risk posed by unmanifested containers by taking  investigative actions, such as contacting carriers and trade associations to  collect missing shipment data or assigning the containers for additional  inspection upon reaching a U.S. port. For example, CBP officials stated  that from April 22, 2010, through July 14, 2010, targeters used vessel stow  plans to identify 1,050 cargo-laden unmanifested containers bound for U.S.  ports. Without access to the carriers’ vessel stow plans, CBP officials  said that they would not have been able to identify, investigate, and  mitigate the risks posed by these potentially dangerous containers.  See  figure 4 for an example of a cargo-laden container vessel in transit.
CBP officials said that they are in the process of updating the ATS national  security weighted rule set to identify risk factors in the 10+2 data elements  and intend to test them thoroughly prior to implementation, but CBP has  not established time frames or milestones for when integration of a  finalized weighted rule set will be completed.  The finalized national  security weighted rule set is intended to analyze relationships between the  10+2 data elements to identify risks in these relationships beyond those  that are analyzed by TECS. According to best practices in project  management, the establishment of project milestones and time frames can  help ensure timely project completion. According to CBP officials, the  updated weighted rule set will be tested prior to deployment by executing  it in tandem with the existing weighted rule set.  This test is intended to  determine the ability of the updated weighted rule set to identify all  potential risk factors and assign scores based on all available shipment  data, including the 10+2 data elements.  The test will also determine the  number of shipments that would face mandatory examination because of  their high risk scores.  If the updated weighted rule set does not perform  according to specification, or if there is an unexpected change in the  number of shipments facing mandatory examination because of their risk  scores, CBP plans to review and possibly amend the weighted rule set.   CBP plans to continue to retest the amended weighted rule set to ensure  that the system is performing according to design and that the flow of  trade is not unduly impacted.  Thus, until this testing is complete, CBP  officials said that they will not be able to determine a date when the  finalized weighted rule set will be in place.  We recognize that the results  of such testing could require adjustments to tasks that make it difficult to  adhere exactly to established dates for completing a project.  However,  establishing milestones and time frames for having the finalized weighted  rule set in place could help guide CBP in such testing and provide CBP  with goals for completing interim steps and finishing this project, thus  better positioning it for targeting high-risk cargo, thereby fulfilling the  statutory purpose of the requirement to collect the additional data  elements.
According to CBP, the potential effectiveness of the additional 10+2 data  in enhancing cargo security has been demonstrated in analyses it  conducted on cargo containers arriving at the ports of Los Angeles, Long  Beach, New York, and Newark in February 2006.  The analyses indicated  that risk scores assigned while a shipment is in transit, which are based on  manifest data, may differ from the final assigned risk scores, which are  based on customs entry data. For certain shipments, the difference in the  risk scores assigned at these two times, in transit and at arrival, is  significant enough to affect CBP’s response to these shipments.  For  example, twice as many containers were targeted as high risk based on  entry data compared to manifest data.  Therefore, earlier access to  information that approximates entry data could allow CBP to (1) address  risk factors before cargo is loaded on U.S.-bound ships at foreign ports, or  (2) obtain more information that indicates the cargo is not high risk before  the cargo arrives in the United States. The goal of the 10+2 rule is to  prevent dangerous shipments from being loaded onto U.S.-bound vessels  and CBP may issue “Do Not Load” orders for shipments identified as high  risk based on analyses of shipment data.  CBP has yet to issue any “Do Not  Load” orders as a result of the 10+2 rule and does not plan to begin issuing  such orders for ISF noncompliance any earlier than January 2011.
section_title: CBP Officials and Trade Industry Representatives Report That Enforcement of the 10+2 Rule Compliance Has Not Measurably Impacted Trade Flow
paragraphs: According to trade industry representatives, to date, CBP’s use of the  additional 10+2 data elements to target noncompliant shipments for  inspection has not impacted trade flow. In particular, none of the 30  importers we interviewed stated that their trade flow has been impacted  by 10+2 rule enforcement efforts such as shipment inspections or holds.  According to CBP officials, individual ports have begun to use the  additional 10+2 data elements to target noncompliant shipments for  inspection, but CBP cannot identify the number of shipments held  specifically due to 10+2 noncompliance because the data it collects do not  discern between different types of holds.  CBP officials added, though,  that they have not received any complaints from the trade industry  regarding inspections of noncompliant shipments impacting the flow of  trade. According to CBP officials, individual ports make compliance  enforcement decisions based on their own discretion. CBP believes that  the potential impacts of noncompliance, which can include cargo  inspection fees of $100 to $150 and a delay in cargo release of 1 to 3 days,  are sufficient incentives for the trade industry to comply with the ISF  requirements.  As a result, CBP’s current enforcement strategy is to  exercise the least punitive measures necessary to obtain full ISF  compliance. CBP does not have any plans for initiating mandatory holds  on noncompliant shipments and will continue to monitor compliance rates  and its application of a measured enforcement approach for the immediate  future.  CBP officials stated, though, that if CBP determines that additional  enforcement actions are necessary, it may consider measures, such as  mandatory inspections for all noncompliant shipments.  CBP officials  added that they do not believe that they would take such actions before  November 2010.
section_title: Conclusions
paragraphs: The stated purpose of the SAFE Port Act requirement for CBP to collect  additional data on U.S.-bound cargo is to enhance CBP’s ability to target  high-risk cargo containers at an earlier point in the shipping process than  can currently be done.  To determine the benefits and costs of requiring  such additional data, applying best practices, such as those in OMB  guidance, to the development of regulatory assessments could help to  determine the likelihood that the benefits of a regulation justify the costs  and also identify which possible actions would be most cost-effective.  To  this end, transparency in the assessment regarding why certain  alternatives were selected for analysis and how estimates were derived is  important to ensure that stakeholders can clearly see how the information  in the regulatory assessment informs the regulatory action an agency  takes.  Furthermore, to achieve the proposed benefits of collecting  additional data, CBP would need to incorporate the additional data into its  targeting practices.
CBP’s regulatory analysis is not transparent regarding how the alternatives  were selected for analysis or why the selected alternative is preferable  over the others.  If CBP publishes an update to its regulatory assessment,  as CBP officials said that CBP may do, further transparency could help  clarify CBP’s decision making in formulating the 10+2 rule.  In addition, a  more complete analysis—with further analysis of uncertainty for both  costs and benefits, as well as certain costs to foreign entities—could help  to provide better information about the circumstances under which  benefits justify costs.  An update to the regulatory assessment with this  additional information could make the assessment more transparent to the  trade industry and other stakeholders who are affected by the rule.
To accomplish the statutory purpose of collecting the 10+2 data, which is  to enhance CBP’s ability to target high-risk cargo containers, CBP plans to  update the ATS national security weighted rule set to identify risk factors  in 10+2 data.  CBP is in the process of updating the ATS national security  weighted rule set to identify risk factors in submitted 10+2 data elements,  but it has not determined when updates to the ATS national security  weighted rule set will be finalized.  Establishing milestones and time  frames for updating the ATS national security weighted rule set could help  guide CBP staff in its efforts and provide CBP with goals for completing  interim steps and finishing the project, thereby better positioning it to  fulfill the purpose of the SAFE Port Act requirement and enhance its  capability to identify high-risk shipments.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Commissioner of CBP take the following two  actions:  If CBP updates its Regulatory Assessment and Final Regulatory  Flexibility Analysis, provide greater transparency in the updated  assessment regarding the information which contributed to decisions  made in developing the 10+2 rule by including information, such as:  1.  a discussion of how the alternatives were selected for analysis,  including alternatives that were considered but not included in the  analysis, and what information CBP considered in addition to the  regulatory assessment to conclude that the alternative requiring the  Importer Security Filing, with an exemption for bulk cargo, and the  Additional Carrier Requirements was preferable over the other  alternatives analyzed;   2.  an uncertainty analysis for the costs to importers for a day of delay  and for the value of statistical life; and   3.  to the extent data are available, estimates for lost profits borne by  foreign entities.
To help guide CBP in updating the ATS national security weighted rule  set, establish milestones and time frames for updating the ATS national  security weighted rule set to use 10+2 data in its identification of  shipments that could pose a threat to national security.
section_title: Agency Comments
paragraphs: DHS provided written comments on a draft of this report, which are  reprinted in appendix I. DHS concurred with our two recommendations.   Regarding our recommendation to provide greater transparency in an  updated regulatory assessment, if CBP publishes such an assessment, DHS  concurred. Specifically, it stated that the potential elements we cited for  improving transparency will accompany the publication of a final rule for  the ISF and Additional Carrier Requirements. Such actions should address  the intent of our recommendation, provide greater transparency to the  trade industry and other stakeholders, help clarify CBP’s decision-making  process, and provide better information about the circumstances under  which benefits justify costs. Regarding our recommendation to establish  milestones and time frames for updating the ATS national security  weighted rule set to use 10+2 data in its identification of shipments that  could pose a threat to national security, DHS commented that it had  already updated the weighted rule set for certain risk factors, some of  which are discussed in this report, and identified requirements for  modifying the weighted rule set for other risk factors, many of which it  stated have been incorporated into ATS and are available for preliminary  evaluation and analysis. Moreover, DHS stated that it has plans to fully  integrate these updates by November 2010. Establishing a time frame for  fully integrating these updates into ATS provides DHS with a goal for  completing the project to fulfill the purpose of the SAFE Port Act  requirement to collect additional data and can better position it to  effectively target high-risk container shipments. Therefore, although DHS  did not specifically discuss actions being taken to establish interim  milestones for integrating these requirements, effectively integrating the  updates into ATS by November 2010 would address the intent of our  recommendation.  CBP also provided technical comments, which we  incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date.  At that time, we will send copies of this report to interested  congressional committees, the Secretary of Homeland Security, and other  interested parties.  The report will also be available at no charge on the  GAO Web site at http://www.gao.gov.
Should you or your staff have questions concerning this report, please  contact me at (202) 512-8777, or caldwells@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made major contributions to this  report are listed in appendix II.
section_title: Appendix I: Comments from the Department of Homeland Security
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: Key contributors to this report were Christopher Conrad, Assistant  Director; Alana Finley, Analyst-in-Charge; Lisa Canini; and Matthew  Tabbert.  Charles Bausell contributed economics expertise, Stanley  Kostyla assisted with design and methodology, Frances Cook provided  legal support, and Katherine Davis and Lara Miklozek provided assistance  in report preparation.
section_title: Related GAO Products
paragraphs: Supply Chain Security: Feasibility and Cost-Benefit Analysis Would  Assist DHS and Congress in Assessing and Implementing the  Requirement to Scan 100 Percent of U.S.-Bound Containers. GAO-10-12.  Washington, D.C.: October 30, 2009.
Combating Nuclear Smuggling: DHS’s Program to Procure and Deploy  Advanced Radiation Detection Portal Monitors is Likely to Exceed the  Department’s Previous Cost Estimates. GAO-08-1108R. Washington, D.C.:  September 22, 2008.
Supply Chain Security: CBP Works with International Entities to  Promote Global Customs Security Standards and Initiatives, but  Challenges Remain. GAO-08-538. Washington, D.C.: August 15, 2008 Supply Chain Security: Challenges to Scanning 100 Percent of U.S.- Bound Cargo Containers. GAO-08-533T. Washington, D.C.: June 12, 2008.
Supply Chain Security: U.S. Customs and Border Protection Has  Enhanced Its Partnership with Import Trade Sectors, but Challenges  Remain in Verifying Security Practices. GAO-08-240. Washington, D.C.:  April 25, 2008.
Supply Chain Security: Examination of High-Risk Cargo at Foreign  Seaports Have Increased, but Improved Data Collection and Performance  Measures Are Needed. GAO-08-187. Washington, D.C.: January 25, 2008.
Maritime Security: The SAFE Port Act: Status and Implementation One  Year Later. GAO-08-126T. Washington, D.C.: October 30, 2007.
Combating Nuclear Smuggling: Additional Actions Needed to Ensure  Adequate Testing of Next Generation Radiation Detection Equipment.   GAO-07-1247T. Washington, D.C.: September 18, 2007.
Combating Nuclear Smuggling: DHS’s Cost-Benefit Analysis to Support  the Purchase of New Radiation Detection Portal Monitors was Not Based  on Available Performance Data and Did not Fully Evaluate All the  Monitors’ Costs and Benefits. GAO-07-133R. Washington, D.C.:   October 17, 2006.
Cargo Container Inspections: Preliminary Observations on the Status of  Efforts to Improve the Automated Targeting System. GAO-06-591T.  Washington, D.C.: March 30, 2006.
Homeland Security: Key Cargo Security Programs Can Be Improved.  GAO-05-466T. Washington, D.C.: May 26, 2005.
Container Security: A Flexible Staffing Model and Minimum Equipment  Requirements Would Improve Overseas Targeting and Inspection  Efforts. GAO-05-557. Washington, D.C.: April 26, 2005.
Preventing Nuclear Smuggling: DOE Has Made Limited Progress in  Installing Radiation Detection Equipment at Highest Priority Foreign  Seaports. GAO-05-375. Washington, D.C.: March 31, 2005.
Cargo Security: Partnership Program Grants Importers Reduced  Scrutiny with Limited Assurance of Improved Security. GAO-05-404.  Washington, D.C.: March 11, 2005.
Homeland Security: Summary of Challenges Faced in Targeting  Oceangoing Cargo Containers for Inspection. GAO-04-557T. Washington,  D.C.: March 31, 2004.
Homeland Security: Preliminary Observations on Efforts to Target  Security Inspections of Cargo Containers. GAO-04-325T. Washington,  D.C.: December 16, 2003.
Container Security: Current Efforts to Detect Nuclear Materials, New  Initiatives, and Challenges. GAO-03-297T. Washington, D.C.:   November 18, 2002.