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July 9 2018

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38 The Journal of Commerce | July 9 2018 Government FROM THE OUTSIDE looking in, regu- lating the flow of e-commerce seems to be the classic "moving goalposts" scenario, stressing US Customs and Border Protection (CBP) resources and forcing the agency to depend on data-based targeting strategies even more than it does on containerized shipments. For beneficial cargo owners (BCOs), there may be plentiful opportunities to proactively engage directly with CBP on yet-to-be-final- ized e-commerce-focused trusted trader programs that incentivize importers and online marketplaces to provide data to the agency earlier in the shipment cycle. But the reality is that e-com- merce, heavily correlated to small package movement, is not subject to the same regulations as larger containerized or breakbulk ship- ments. Additionally, small pack- age shipments are growing at a faster clip compared to the low- to mid-single-digit growth of container volume. The number of small pack- ages, express or mail, entering the United States daily has risen from 1.2 million in 2017 to 1.7 million in 2018, CBP Commissioner Kevin McAleenan said in a speech at the Association of American Exporters and Importers (AAEI) annual confer- ence in Baltimore in June. "I see it as the biggest change in the global supply chain since the sea container," he said. "It's just a fundamental shift in how goods are moving across borders. They can hold the same health, safety, and economic security risk as a contain- erized shipment or breakbulk, but the volumes are significantly higher and growing every year. We need to respond to the volume shifts from a personnel perspective, from a tech- nology perspective." McAleenan admitted there is a "perceived lower interdiction risk" around small parcel cross-border shipments, and that his agency has had to "lean forward on e-com- merce" to address it. CBP earlier this year outlined a four-part strategy on e-commerce, in- cluding: studying possible regulatory enhancements; adapting operations; creating private sector enhancements to drive more compliance; and syncing with customs agencies abroad on regulatory standards. He said CBP has been effective in enhancing its targeted approach to small packages, primarily by work- ing with the US Postal Service to get better advanced electronic data on small international shipments. "The US Postal Service, working with China in particular but also with other governments, is doing much better in getting advanced electronic data and providing it to us so we can use it to identify risk," he said. As an example, McAleenan noted that this year CBP seized 209 ship- ments at John F. Kennedy Interna- tional Airport's mail facility in New York, and "128 of them were attrib- utable to targeting based on the new advanced data that we did not have last year and the year before." At the heart of this challenge is not just the basic growth rates of in- ternational e-commerce shipments, but also a US regulatory change in early 2016 that raised the so-called de minimis level to $800 from $200. That rule, called Section 321 in Cus- toms parlance, means that a shipper can import one shipment per day per person duty-free and with limited data elements as long as the value of the shipment is under $800. Customs brokers in the United States have long decried the increased de minimis level, which was part of a wider trade facilitation bill (the Trade Facilitation and Trade Enforcement Act of 2015). Brokers say the $800 limit is problematic for three primary reasons: It allows a multitude of e-commerce exporters to ship to the United States without needing to provide key data elements to CBP; it could induce shippers to break up large purchase orders into smaller shipments to evade duties; and the limit isn't consistent with de minimis levels in other countries. "It is a tsunami of small pack- ages, especially when you see it up close," Amy Magnus, director of customs affairs and compliance at the customs broker AN Deringer and a longtime critic of the de minimis level, said during a panel on e-com- merce at the AAEI event. "The chal- lenge for Customs officers is to do adequate inspection of a truckload filled with tiny packages. If a driver doesn't have a package valued over $800 in his truck, he doesn't need to file an advance manifest if crossing the border by land." The issue is also thorny for large shippers that struggle with how to sell their goods via third party e-commerce channels alongside their own website or physical stores. "The value of goods has no bearing on admissibility," said Susie Hoeger, director of global trade compliance and policy with Abbott Laboratories, which sells, among other products, test strips for those with diabetes. "The [US Department of Agriculture] will say we don't care if it costs a dollar. If it could kill livestock, we're worried about it. I'd argue you shouldn't facilitate goods that can hurt people." JOC Email: Twitter: @LogTechEric Testing US Customs Agency depends on data-based targeting in regulating burgeoning flow of e-commerce By Eric Johnson Daily small package shipments have risen to 1.7 million this year. International | Washington | Customs | Security | Regulation

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