For the past few years, importers that participate in U.S. Customs and Border Protection’s (“CBP”) Customs- Trade Partnership Against Terrorism program (“C-TPAT”) have continued to strive to achieve the benefi ts that the program claims to provide. As those importers familiar with the program know, the higher the Tier level that a participant achieves, the greater the benefi ts.

Currently the program has three Tier levels:

  • Tier I – Certifi ed. This level will provide the participant with risk score reductions pursuant to the Automated Targeting System (“ATS”) of not greater than 20% of the high risk threshold established, eligibility for the FAST lanes at land borders, eligibility to the Importer Self Assessment Program (“ISA”), and the ability to attend the CBP C-TPAT Training Seminars.
  • Tier II – Validated. This level provides all the benefi ts of Tier I, plus further risk score reductions, lower levels of random compliance examinations, and priority searches of cargo (e.g., front of line privileges).
  • Tier III – Validated and Exhibiting “Best Practices”. This level provides all the benefi ts of Tier II, plus expedited processing of cargo during all threat levels, further reductions in examinations, priority examinations and further risk score reductions.

The China Challenge

Although the true value of Tier III benefi ts has been questioned by importers on a regular basis, most do not argue that there is a noticeable increase in benefi ts between Tier I and Tier II. However, to achieve Tier II an importer must successfully complete validation by CBP of both a domestic and foreign site. Where this poses a problem is for those importers who have very high percentages of imports from China. To date, the Chinese government has not granted access to CBP to conduct foreign site validations within China.

This inability to access Chinese manufacturers presents a signifi cant problem for CBP to validate members. Without validation, importers remain at the Tier I level and receive the lowest level of benefi ts. Until the supply chains of these importers have been validated in China, the importers and their suppliers are at a competitive disadvantage. Data from 2006 indicates that 55 C-TPAT importer partners currently have exclusive supply chains from China (100% of imports originating from China). An estimated additional 245 C-TPAT importers source over 75% of their imports from China.

The Proposed Solution

Although CBP has stated that they would prefer that all validations are conducted by CBP Supply Chain Security Specialists, they recognize that under the circumstances, there needs to be some fl exibility. Congress agrees as well and as a result, Section 218 of The SAFE Port Act (signed by the President on October 13, 2006), requires CBP to develop a 1- year voluntary pilot program to test and assess the feasibility, costs and benefi ts of using third party entities to conduct validations. The pilot program has been developed by CBP in consultation with the Departmental Advisory Committee on Commercial Operations of the Bureau of Customs and Border Protection (“COAC”) and is now ready to get underway. CBP has compiled a list of importers that source 75% of more of their imports from China would be eligible to volunteer for the pilot program (approximately 300 importers), and will notify these importers via the CTPAT Security Link Portal and solicit volunteers. The pilot program will remain active up to twelve calendar months, starting on or about May 1, 2007.

Importer Requirements For importers that are interested in participating in the pilot program, there are a number of requirements to be aware of:

  • The C-TPAT importer must agree to be validated by a third party validator.
  • The importer must agree to pay all costs associated with the validation.
  • The importer cannot have any benefi cial interest in or any direct or indirect control over the third party fi rm or validator.
  • The importer may not enter into any future supply chain security services contract with the third party fi rm or validator for 12- months following completion of the validation.
  • A confl ict of interest form will need to be signed prior to the start of the validation.

For those importers that elect to participate in the pilot and meet the above requirements, the choice of a third party validator will be left to the importer who will be free to select any of the third party fi rms approved by CBP for the pilot (only one third party can be used). All contracts that are entered into by the third party fi rm and C-TPAT participant are made exclusively between those parties without government intervention and the importer is responsible for all associated costs and charges.

Third Party Requirements

For companies that are interested in becoming a certifi ed third party validator under this pilot program, CBP has posted the opportunity on the Federal Business Opportunities (“FBO”) website at As with the importers, there are specifi c requirements that must be met for a company to be considered as a third party validator under the pilot program, including the following (among other requirements):

  • Capability to properly document all validation fi ndings, recommendations and actions in the required format and be capable of transmitting to CBP electronically.
  • Maintain liability insurance coverage at policy limits suffi cient to satisfy claims arising from an incident fulfi lling their duties as a validator, and in addition apply for protection under the SAFETY Act.
  • Must provide CBP with documentation attesting to its established operations existing in China and copies of personnel screening procedures or policies in place.
  • Sign an agreement to protect all proprietary information of the C-TPAT participant from public disclosure and not further disclose any CBP validation techniques and procedures.
  • The third party cannot have any benefi cial interest in or any direct or indirect control over the importer.
  • The third party may not enter into any future supply chain security services contract with the importer for 12-months following completion of the validation.
  • The third party must provide CBP with their fee schedules for posting on the CBP website and the fees must be opening available to the public on the third party’s website.
  • Must provide CBP with documented training procedures that for their validators.
  • The fi rm’s principle management and all validators must agree to background investigations/ criminal records check to be performed by CBP/ICE.

The deadline for third parties to submit their applications is April 30, 2007. CBP plans to identify three or four fi rms who best meet the requirements identifi ed by CBP for participation in this pilot program.

Despite the use of third party validators, it should be noted that the decision to validate a C-TPAT partner is solely within the discretion of CBP. CBP will determine the facilities to be validated abroad, including the point of stuffi ng, drayage of the container to the port of export, and the port of export. Upon completion of the validation, CBP will retain all decisions over the status of the C-TPAT partner, not the third party validator.

The initiation of this pilot program is an example of one more step that CBP is taking in their attempt to ensure that C-TPAT participants are receiving their promised benefi ts. In addition, it is also a step by CBP that will put the agency more in line with the WCO SAFE Framework Authorized Economic Operator program (“AEO”), as under the WCO program, third party validators are allowed and will likely be used (especially in developing countries). If your company does extensive sourcing from China and to date has not been able to achieve Tier II status due to lack of foreign validation, this will be the opportunity to remove that obstacle and start receiving greater benefits.