Why Should Customs Focus on Strategic Trade Controls Enforcement?
Deputy Assistant Secretary for Nonproliferation Programs , Bureau of International Security and Nonproliferation
Ladies and Gentlemen:
Good afternoon! I am privileged to discuss the evolving role of Customs in strategic trade enforcement with such a diverse and distinguished audience! I would like to extend my thanks to the World Customs Organization (WCO) for hosting this important, first-of-its-kind, conference. The United States enjoys a fruitful partnership with the WCO in enhancing global customs enforcement and trade facilitation capabilities. This conference offers a unique opportunity to develop an enhanced understanding of the risks to international trade and global security posed by the proliferation of advanced technologies and materials used in developing weapons of mass destruction -- or WMD. We also hope this conference serves as a first step toward developing universal strategic trade enforcement standards.
Today, I will describe the challenges we face in combating the abuse of legitimate trade channels for proliferation of WMD-related materials and technologies, the critical role of Customs services in addressing these challenges, and the possible role of the WCO for your consideration.
First, what are some of the challenges associated with preventing the proliferation of weapons of mass destruction (WMD), including their means of delivery?
WMD proliferation is among the gravest threats to global security and regional stability. Proliferant states and terrorist networks continue to seek to acquire mankind’s most deadly and destructive weapons. We have complicated their efforts by growing numbers of potential supplier countries adopting international best practices in regulating trade in such strategic commodities. These best practices include implementing national legislation that requires authorization process for export or transit of strategic items, as well as compliance with the United Nations Security Council Resolutions, including UNSCR 1540, requiring states to control and prevent various proliferation-related transfers.
The proliferators and their support networks, however, are responding in increasingly creative ways, exploiting the vulnerability of the interconnected global trading system. They obscure the actual destination of their illicit shipments by using circuitous shipping routes and multiple intermediate transshipments. They cover up the true end-users of strategic goods on shipping declarations by providing false names of companies or agents, some of which exist only on paper. They state false end-uses for controlled good – such as listing chemical weapons precursors as goods “for production of pesticides.” They seek out liberal trading environments and unsuspecting suppliers to circumvent existing trade restrictions. In short, they exploit well-intentioned trade facilitation efforts as a vehicle to undermine the international nonproliferation regime.
These challenges are compounded by ever-increasing pressure to expedite trade transactions and lower trade barriers to spur economic development. Yet supply chains must be made secure in the face of WMD proliferation, illicit trade, terrorism, and other forms of transnational crime. These competing interests necessitate finding the proper balance between strategic trade control and trade facilitation.
It is hard to overestimate the contribution of national Customs services to the fight against WMD proliferation. I also would suggest that implementing international strategic trade control best practices provides Customs services an effective means of bridging these demanding and sometimes competing responsibilities: to secure the global supply chain against proliferation threats while contributing to greater trade efficiency and economic development.
Strategic trade controls best practices include establishing a comprehensive strategic trade control system resting on several key principles. One is the establishment of a transparent and comprehensive legal framework consistent with the guidelines and control lists of the four multilateral regimes and relevant Security Council Resolutions. This framework identifies proliferation-sensitive dual-use and munitions items and enables regulation of their export, re-export, transit and transshipment.
Another key principle is effective enforcement. This includes harmonized customs clearance procedures; effective means to detect, identify, interdict, seize, and dispose of proliferation sensitive cargo; and the capacity to investigate customs and border security violations and prosecute offenders.
The third principle of comprehensive strategic trade controls is government-industry partnership, including government efforts to educate the industry about its obligations and encourage compliance.
Finally, the fourth principle of effective strategic trade control system is cooperation and information exchange with domestic and international partners, including mutual assistance on customs and border security issues.
These strategic trade control principles are fully consistent with the two pillars and the core elements of the WCO’s own Framework of Standards to Secure and Facilitate Global Trade (SAFE Framework) and draw directly on existing WCO security and facilitation measures and initiatives developed by national Customs administrations.
Specifically, within the Customs-to-Customs pillar, the SAFE Framework calls for a risk management approach to address safety and security. It relies on the sharing of advance electronic information prior to export and import for optimal use of inspection resources and improved revenue collection. Likewise, effective strategic trade enforcement relies on the employment of proliferation risk profiles to detect consignments of proliferation concern through targeted examination of outbound cargo based on advance information sharing. Accordingly, automation of customs functions serves both traditional customs enforcement objectives and Customs’ growing role in strategic trade management.
The improved cooperation between Customs and the private sector called for under the second pillar of the SAFE Framework also is central to strategic trade enforcement. After all, industry – including manufacturers, exporters, freight-forwarders and shippers – bears critical responsibility in the fight against proliferators and is a key source of intelligence on WMD acquisition efforts. Customs services can play a major role in enhancing industry’s awareness of transaction risks associated with strategic goods and provide industry with the tools to detect suspicious orders and customers. For example, in 2001, Homeland Security Investigations launched Project Shield America designed to prevent illicit export of WMD technologies from the United States. Since then, U.S. agents have conducted over 21,000 outreach events with U.S. technology suppliers in order to improve their awareness of proliferation risks, reduce the risk of unintentional transfers, and solicit their cooperation in combating proliferation threats.
Customs also can play a role in providing incentives for industry compliance with enforcement regulations. The SAFE Framework calls for establishment and mutual recognition of authorized economic operator (AEO) programs to achieve end-to-end supply chain security and reward responsible traders. In the United States, our program is called Customs-Trade Partnership against Terrorism (C-TPAT). C-TPAT was launched in 2002 and is available to freight carriers, brokers, manufacturers, and traders, who import goods into the United States. The United States also has already signed Mutual Recognition arrangements with several countries and the EU, which means that the AEO validation of a company in one country is recognized in the other.
While not explicitly set forth in the SAFE Framework, Customs cooperation with other national, regional, and international organizations that have trade and border security responsibilities has been emphasized by WCO leaders. To ensure a timely, coordinated response to transnational security threats, the WCO has engaged many international organizations. In strategic trade enforcement, Customs’ capacity to classify strategic commodities and assess the risks associated with their import, export, or transit of these goods also depends on interagency coordination and information exchange between law enforcement and licensing agencies. Such coordination also facilitates analysis of traders involved in transactions with controlled commodities as well as their potential end-users.
Customs administrations have important powers that exist nowhere else in government - the authority to inspect cargo and goods shipped into, through, and out of a country, and to refuse or expedite entry or exit of goods. Given these unique authorities and expertise, Customs can and should play a central role in strategic trade enforcement. Full implementation of the SAFE Framework will strengthen a Customs service’s ability to detect, identify and interdict illicit shipments of proliferation concern; however, officers must be aware that proliferation trade is distinct from other forms of smuggling. For example:
- Controlled dual-use goods have legitimate commercial applications, which make it easier to hide them in the flow of legitimate commercial traffic.
- Denying export of such technical items may have a seriously detrimental economic impact on the originating country.
- Outside technical assistance may be needed to determine if an item has WMD-related applications and should be interdicted.
- Officers should be alert to questionable end-users for a product.
- For effective targeting of proliferant shipments, Customs services may require more information than broad consignment descriptions and product specifications.
- Given the transnational nature of WMD procurement, investigating these violations may require special investigative powers and close coordination between Customs, industry, and their interagency counterparts at home and abroad.·
Thus, controlling dual-use goods is more challenging and requires development of comprehensive, layered strategic trade control standards and the establishment of dedicated, interagency-based Customs enforcement units for WMD targeting, detection, and interdiction.
The WCO’s Role
This leads me back to the WCO as the appropriate vehicle for developing universal strategic trade enforcement standards.
First, the WCO has the membership and thus the participation of 178 Customs administrations, representing 99 percent of global trade and most major suppliers of proliferation technologies. As such, it offers the best platform for legal and institutional reform necessary to develop and implement these standards.
Second, as an international capacity-building organization, the WCO has a mandate to assist its member states in satisfying their obligations under UN Security Council Resolution 1540.
Third, Full implementation of the SAFE Framework by WCO members will create institutional basis and capabilities that may be applied to strategic trade enforcement.
Fourth, the revised Kyoto Convention includes a non-binding annex on Free Trade Zones (FTZs), which are recognized by the WCO as posing a risk of exploitation by proliferators, terrorists, and organized crime organizations. Annex D identifies best practices concerning management of Free Trade Zones that could provide a good baseline for the adoption of binding international standards related to effective regulation of strategic trade in these environments.
Fifth, WCO’s unifying standards and capacity building assistance would help mitigate the risk of proliferators seeking to exploit WCO members who are not party to multilateral export control regimes and have no explicit controls on trade in strategic commodities for illicit trafficking in these items.
Sixth, the WCO is the only organization with a clear international mandate to pursue integration of strategic trade controls with other customs control functions. This holistic approach is essential in order to facilitate global trade while strengthening the nonproliferation regime.
I recognize that calling for Customs services to assume additional responsibilities for strategic trade enforcement while Customs administrations are already under pressure to meet so many threats may seem difficult. Yet I would stress that strategic trade enforcement is complementary to the economic development, trade facilitation, and traditional enforcement objectives already embraced by the WCO. Some have already embraced these responsibilities. For instance, the European Union adopted a security amendment to its Customs Code in 2011, introducing mandatory submission of advanced electronic cargo declarations. This development was beneficial for both strategic trade enforcement and trade facilitation as it resulted in better risk analysis and expedited process and release times for legitimate shipments.
The Netherlands established a specialized customs enforcement team responsible for ensuring compliance with international sanctions, embargoes, and UN resolutions and violations involving dual-use and defense goods. Maltese Customs has adopted a memorandum of understanding with the Malta Free Port in order to facilitate coordinated approach to combating illicit trade. In 2009, Homeland Security Investigations collaborated with Royal Canadian Mounted Police in preventing the export of twenty pressure transducers, which can be used in the gas centrifuge process used in uranium enrichment. Their joint investigation and interdiction was a result of a tip received during a Project Shield America presentation to industry. Earlier this year, an East Asian partner interdicted 70kg of vanadium, a controlled material that can be used to make jet engines, missile casings, and superconducting magnets, concealed among a shipment of fruits. There are many other examples of Customs services taking a proactive role in strategic trade enforcement and working with industry and international counterparts to secure international supply chains against proliferator networks.
The security benefits of these enforcement efforts are evident. But implementation of effective strategic trade controls also produces tangible economic benefits. For example, the harmonization of regulatory framework with respect to strategic goods promotes exports by leveling the playing field for domestic exporters of high technologies. A more coordinated interagency export process is a step towards development of single window systems that cut the time and bureaucratic requirements of doing business and increase economic competitiveness. In addition, greater transparency and efficiency of Customs operations reduce operational losses associated with diversion and theft of legitimate consignments, while enhanced detection and interdiction capacities enable Customs to combat illicit smuggling efforts. Moreover, our experience shows that implementing stringent national strategic trade enforcement measures increases the confidence of trading partners, foreign investors, and domestic industry by creating a safe and transparent trading environment.
One of the central tenets of President Obama’s “Prague Agenda,” unveiled in 2009, is denying non-state networks and proliferant states access to WMD-related materials and technologies.
The United States government is prepared to provide technical assistance in support of the WCO’s strategic trade control initiatives, particularly development of universal strategic trade enforcement standards. The U.S. Department of State’s Export Control and Related Border Security Program – known as EXBS – works with partner governments and international agencies to establish, strengthen, and enforce responsible strategic trade management systems consistent with international norms. Tomorrow you will hear a presentation about EXBS’s efforts to build enforcement capacity, foster international cooperation, and develop partnerships that create what we call the “network of nonproliferators.”
This afternoon, you will hear about the U.S. Department of Energy’s International Nonproliferation Export Control Program that aims to increase border security officials’ capabilities to detect and identify and interdict trafficking in strategic commodities. U.S. Customs and Border Protection (CBP) and Homeland Security Investigations have long-term cooperation agreements and technical assistance programs with a number of foreign partners. We hope to share our experience in managing strategic trade with the World Customs organization in this important effort.
I’m confident we can forge closer partnerships to prevent the spread of weapons of mass destruction while enjoying the benefits of liberalized trade. We look forward to cooperating with you as our countries continue the important work of strengthening strategic trade control enforcement. Thank you. I look forward to your questions and ideas.
 North Korea does not appear to be a member of the WCO.