Business: Security rule would cost $20B

U.S. companies are up in arms over an arcane security rule backed by the Department of Homeland Security (DHS) that they say could cost them about $20 billion a year and would force many out of business.

The Customs and Border Protection (CBP) rule would require U.S. importers and manufacturers to provide a host of new data on U.S.-bound shipments. The intent is to improve port security and prevent the shipment of terrorist weapons into the United States, but business groups charge it would disrupt supply chains without improving security at a time when the U.S. economy is in the doldrums.

{mosads}“A major concern is that this promises to be a hideously expensive rule that can disrupt manufacturing production without increasing our security,” said Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers (NAM), which has been leading the effort to modify the proposed rule.

Other business groups opposed to the rule include the U.S. Chamber of Commerce, the European-American Business Council, the Association of International Automobile Manufacturers, the American Petroleum Institute and the Consumer Electronics Association.

The delay in the supply chain and additional costs that companies would have to spend on computer systems and personnel for the new requirements would cost U.S. businesses about $20 billion a year, according to NAM.

DHS anticipates the new rule will initially delay shipments by 24 hours, but that the delay will eventually drop to 12 hours. Businesses, however, argue it is more realistic to expect a two-to-five-day delay, depending on the complexity of the supply chain.

Businesses ranging from Michigan’s Big Three automakers to recreational boat makers and small, family-owned companies have pushed hard in recent weeks to convince DHS and the Office of Management and Budget (OMB) to consider several modifications: They want a pilot program implemented before the final rule is issued, an exemption for already recognized low-risk shippers and further analysis of the impact on national security and the economy.

These groups and their supporters in Congress have bombarded OMB Director Jim Nussle with letters asking him to send the proposed rule back to DHS to be modified.

Sen. Carl Levin (D-Mich.), the chairman of the Senate Homeland Security and Government Affairs Committee, sent a letter to Nussle last week raising concern on behalf of Michigan’s automakers and pressing him to recommend a pilot program.

But the clock may be running out, as DHS has been pressing for the rule to be published before the end of the Bush administration. A CBP spokeswoman said OMB is currently leading an interagency review of the rule, but would not comment on the importance of the rule or why the agency wants to proceed without a pilot program.

{mospagebreak}The proposed rule was born out of the SAFE Port Act of 2006, which called on CBP to establish new requirements for cargo destined for the United States. As a result, the agency proposed 12 new categories of data on shipments to the United States to be provided 24 hours before loading in foreign ports.

Businesses have argued that it would be difficult and time-consuming to provide that information before the shipper actually closes the container once it is full. Instead of the several days importers now have to provide data to customs while a shipment is on its way to the United States, the new rule would prohibit a shipment from leaving its foreign port until DHS has the required data for each container.

Business groups argue this would not help security because the nitty-gritty nature of the reporting could expose cargo to risk and tampering while it is being delayed in foreign ports or unguarded off-site as data is gathered.

Opponents emphasize the costs would come during a turbulent economy, and that small businesses would be hit hard.

{mosads}The rule “will place small businesses at a significant competitive disadvantage,” Karen Kenney, president of the Coalition of New England Companies for Trade, wrote to Nussle in September. “Not only do small businesses lack the resources needed to comply with [the] proposal … small businesses will also face significant increases in operating costs.”

Small importers would have to stock and store extra inventories, pay increased bond charges and insure goods for up to an additional five days if the sailing-away deadline is missed, Kenney said.

“We are especially concerned that these delays are significant enough to cause many businesses to leave the marketplace,” Bryan Zumwalt, the counsel for the National Marine Manufacturers Association, told The Hill. The association represents nearly 1,700 boat builders, engine manufacturers, and marine accessory manufacturers — many of which are small, family-owned companies.

“We are concerned that extra expenses needed to implement [the rule] could hit small boat-related businesses hard, especially those that are already struggling in these tough economic times,” Zumwalt said.

DHS, in a published notice related to the proposed rule, said that it “likely affects a substantial number of small entities,” but claimed that because of data limitations, “we cannot determine if these effects will be significant on a per-entry basis.”

Businesses have stressed that they are not against strengthening national security. Many companies are members of the Customs Trade Partnership Against Terrorism (CTPAT) and have worked with the World Customs Organization to establish an international framework to get advance shipping data to ports.

Companies charge that the proposed rule does not take into account members of CTPAT and other cleared and trusted shippers, making the requirements apply to everybody unilaterally.