Post 9/11, the United States has been looking at various ways of strengthening its borders and increase its security. Consequently, the United States legislation "Implementing Regulations of the 9/11 Commission Act (2007)" unilaterally introduced a 100% scanning requirement for US-bound maritime cargo at port of export, to be implemented by 1 July 2012. The European Union strongly opposes this measure and below is a summary of the background to the legislation, the reasons for the opposing it and the possible consequences should agreement fail to be reached.

First Impressions

In April 2008, the European Commission carried out a preliminary impact assessment of 100% scanning and sent the report to US Customs and Border Protection (CBP). The report concluded that if 100% scanning at export was implemented in European ports, it would:

• Be excessively costly
• Be unlikely to improve global security
• Absorb resources currently allocated to EU security interests and
• Disrupt trade.

The EU suggested that rather than compulsory scanning the priority should be in enhancing multi-layered risk-management systems for targeting and inspecting dangerous cargo and to strengthen international co-operation to facilitate this process.

Projected material implications

The European Commission decided it was necessary to back this preliminary assessment with projected statistics and has conducted three complementary studies which highlighted four main areas of concern:
(1) European port procedures and regulations would have to be fundamentally re-designed:

- A total of EUR 430 million would be required for investments for scanning and radiation detection including significant investment in port infrastructure to create additional space for extra facilities for ports and terminals involved in US-bound container traffic.

- Operational costs in EU ports would rise by more than EUR 200 million (including expenditure for 2200 extra staff).

The EU studies have indicated that the majority of EU ports would not be willing to carry out 100% container scanning. At present, most EU ports have container scanning abilities but the number of containers actually scanned ranges from 0.1% in bigger ports to 3% in smaller ones. According to the studies, neither the terminal operators nor the customs authorities would be ready to bear the additional costs.

(2) Transport would be disrupted and costs increase significantly:

- Direct transport costs of US-bound consignments would increase by circa. 10%
- Ports that are unable to implement the 100% scanning requirement would lose access to the US-market. This would thereby create congestion and other costs for ports that do have the facilities.

The studies highlighted that if all containers that had been shipped from the EU to the US in 2007 had been scanned, the total extra transport bill would have amounted to between EUR 243 million and EUR 440 million. This estimate does not actually include the extra operational scanning costs and the indirect costs associated!

(3) The annual welfare loss from trade disruption could lead to a loss of some EUR 10 billion for the EU and US combined. Estimated figures for worldwide loss could be as high as EUR 17 billion. It is also estimated that if 100% scanning was replicated on a worldwide basis, the annual welfare loss could be as high as EUR 150 billion.

The EU is extremely concerned about the effects that 100% scanning would have on the EU economy. There is great concern that higher transport costs would be passed onto consumers through product price-increases. Furthermore, the costs incurred would be added to the final bill that US importers of EU parts will have to pay on top of longer delays and the EU is concerned that US importers may actually decide to source products from within the US (where possible) even if those products are more expensive in the US.

(4) In addition, there are other issues to take into account:
- Scarce EU financial and human resources would have to be diverted away from EU security objectives.
- Over-focussing on the 100% scanning requirement leading to a false sense of security and neglecting other security risks (chemical/biological etc)
- The EU would adhere to a unilateral US requirement without a reciprocal commitment by the US.

Comments

Understandably, the US was forced to re-examine its security strategy post 9/11 and one element was the vulnerability of the international supply chain to international terrorism. The tension between trade facilitation and supply-chain security is a global problem which is why the World Customs Organisation has developed guidelines for a new global trade model which includes the concept of trusted-business status. This led to the US introducing the Customs-Trade Partnership against Terrorism (C-TPAT) and the EU introducing Authorised Economic Operator certification (AEO). Essentially, businesses have to prove that they are "reliable" and their supply chains "secure" in order to gain from numerous trade-benefits. This risk-based approach to customs management should mean that customs authorities can more efficiently focus their resources on "less-reliable" businesses and thus the vulnerable areas of the international supply chain.

However, the US requirement of 100% scanning of US-bound containers will inevitably cause significant issues for EU ports, customs authorities and exporters unless the US can be persuaded somehow to ease their stance. US-EU relations are arguably a little strained at present, US-EU trade relations are arguably even more strained and even though the EU Working Paper is framed in friendly and conciliatory language, unless this issue is resolved amicably there may be serious ramifications for EU-US trade. We have already seen the long-running "Beef War" between the EU and US and how long that took to resolve as well as numerous disputes at the World Trade Organisation so another area of potential conflict is highly undesirable.

The EU and the US form the largest bilateral trade partnership in the world in goods and services combined. According to European Commission figures, goods trade in 2008 amounted to EUR 435 billion and in the same year the EU enjoyed a trade surplus of EUR 63 billion with the US, importing EUR 186 billion while exporting EUR 249 billion. At a time of global economic insecurity, we hope both sides to reach an amicable compromise. Putting at risk such an important and successful bilateral relationship seems extremely disproportionate to the potential risks involved on both sides.