Canada: Canada’s Cargo Security Program Overhaul: More Stringent Requirements For Participants

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on International Trade, August 2008

In June 2008, significant developments were announced in connection with Canada's cargo security program, Partners in Protection. Current participants, including importers and carriers among others, as well as prospective participants, should take note of these developments and the opportunities and implications they entail.

For the past several months, the Canada Border Services Agency (CBSA) has been working towards two significant milestones which culminated in June 2008 with respect to Canada's Partners in Protection (PIP) program: a complete overhaul of the program affecting both current and prospective participants; and a mutual recognition agreement with the United States Customs Border Protection (CBP) respecting the U.S.'s own cargo security program.

OVERVIEW OF PARTNERS IN PROTECTION

The PIP program is a co-operative effort between the Government of Canada and private industry to ensure cargo security from supplier to customer. The PIP is intended to contribute to protecting the border against potential threats to Canada's health, security and economy.

PIP is the Canadian equivalent of the U.S. Customs-Trade Partnership Against Terrorism (C-TPAT). The benefits of PIP to the participant, ideally, include the more efficient customs processing of shipments, reputational benefits and a reduction in the likelihood that the organization will be used to smuggle contraband. Furthermore, PIP participants may be eligible to participate in the Free and Secure Trade program (FAST), which is available only to PIP participants in Canada.

To partake in the PIP program, organizations must sign a memorandum of understanding (MOU) with the CBSA. In connection with this agreement, organizations must self-assess the security of their supply chain. To do this, companies must submit a completed security profile to the CBSA. The security profile requires the applicant to provide information regarding physical security (e.g., security of company's premises against theft, shipping and receiving controls, etc.), personnel security (e.g., pre-employment screening, training, etc.), and the security of service providers (e.g., standards affecting owner-operators, driver agencies, etc.). In the past, the CBSA would then review the self-assessment and provide suggestions and guidance regarding how the company should address potential gaps in security. In accordance with these recommendations, the organization and the CBSA develop a joint plan of action. Thereafter, the organization is expected to participate in awareness sessions and consult with the CBSA on a regular basis.

MUTUAL RECOGNITION AGREEMENT

On June 28, 2008, the CBSA and CBP signed an arrangement that recognizes the compatibility of the countries' respective cargo security programs – Canada's Partners in Protection program and the U.S. Customs–Trade Partnership Against Terrorism. The arrangement recognizes that both countries apply similar security standards and perform similar site validations when approving companies for membership in their respective cargo security programs.

Both countries now use similar criteria when granting companies membership to their respective cross-border programs. A ceremony was held in Brussels attended by Alain Jolicoeur, then President of the CBSA, and CBP Commissioner W. Ralph Basham.

The mutual recognition agreement is intended to streamline the flow of commerce and to contribute to the development of an international standard for cargo security. The mutual recognition agreement was concluded after extensive collaboration between CBSA and CBP and after detailed comparisons of each countries cargo security programs – both principles and practices, were undertaken.

The mutual recognition agreement should be a welcome development by companies who are involved in Canada – U.S. trade and wish to participate in both PIP and C-TPAT. Although separate applications must be submitted for PIP and C-TPAT, the application and approval process should be significantly streamlined under the mutual recognition agreement. PIP and C-TPAT members can continue to benefit from membership in the FAST program which will enable them to use the FAST border crossing lane when travelling from Canada to the U.S., or vice versa.

MODERNIZED PIP PROGRAM

On June 30, 2008, the CBSA unveiled the new PIP program. The new PIP introduces different categories of participation, new mandatory minimum standards and aims to be more compatible with its U.S. equivalent.

The CBSA has been consulting extensively with stakeholder organizations over several months, and continues to do so, in connection with all aspects of the new PIP. These consultations included issues such as: minimum security requirements; the content of the memorandum of understanding which all participants must enter into with the CBSA; the transition strategy for existing members; process issues such as cancellation/suspension, acceptance/rejection, approval/denial, and appeal/reinstate; and, most recently, cargo sealing guidelines.

Program Categories

Applicants will fit into one of two categories within the modernized PIP program: members or associates. Members receive the benefits of full participation in the PIP program, which includes the ability to register for FAST, as well as the receipt of program information, updates and consultation in respect of future changes to the program. To be eligible for PIP membership, companies must meet certain defined criteria. The applicant must be either an importer, exporter, carrier (by either highway, marine, rail or air), customs broker, courier, warehouse operator, freight forwarder or shipping agent. The applicant must also own or operate facilities in Canada that are directly involved in the import or export of goods from the U.S. Alternatively, the applicant may be a U.S. company applying for a FAST (Canada) membership. Finally, the applicant must be in "good standing".

Companies that are ineligible to be PIP members may still participate in the program by applying for associate status. Associates receive program information and updates and are consulted on changes to the program, but do not receive membership benefits. Among the categories of people that may be regarded as associates are associations, companies, groups, port authorities, lawyers and consultants.

Mandatory Security Standards

In an October 2006 study, the CBSA's Evaluation Division concluded that PIP's effectiveness was inhibited by the lack of mandatory participant requirements. In response to key recommendations in the Evaluation Division's report, standards will no longer be "recommendations" under the modernized program; instead, they will be prerequisites to registration. In the past, when participants were approached with recommendations by the CBSA, they had a choice regarding whether to follow the recommendation. Particularly in situations where implementing the recommendation would be expensive, PIP members could simply choose not to. Under the new program, PIP partners will be required to adhere to stricter, more defined and targeted security measures to further enhance the security of supply chains.

At a minimum, PIP members must place physical barriers or deterrents that guard against unauthorized access to cargo handling and storage facilities. All external doors, gates, windows and fences must be secured with locking devices, a criterion which could be somewhat problematic in situations where the member is not the owner of the property. Members must also have in place an employee identification system to control access to its facilities. Visitors, regardless of whether they are known to employees of the member, must present photo identification upon arrival, have an escort and visibly display temporary identification while visiting a member's facilities. Standards are also established for lighting, parking controls, signage, deliveries and document security, among other things.

There will be consequences for failure to abide by the mandatory standards, including removal from the program.

Cargo Sealing Guidelines

The CBSA is currently consulting with stakeholders concerning the new requirements for the sealing of cargo containers. The initial proposal contemplates that PIP members will be required to affix high-quality mechanical seals to their containers and trailers prior to shipping and these must remain continuously affixed while the goods are in transit. In particular, it is proposed that seals meeting or exceeding the current International Organization for Standardization Publicly Available Specification (ISO/PAS) 17712 Standard for Freight Containers – Mechanical Seals will be required for PIP purposes. The CBSA intends to verify the integrity of the seals upon presentation at the Canadian border.

CBSA Security Review And Assessment

Another new addition to the PIP program is that the CBSA will be introducing site visits as part of the approval process. These will be performed in an effort to confirm the information provided in the applicant's security profile, as well as to review the participant's security measures and procedures and to identify any vulnerabilities in their premises, processes and procedures. Where the applicant has been validated under C-TPAT within the past two years, the CBSA may opt to forego a site visit.

Current Participants Must Re-apply

As a result of revised membership criteria, all PIP members that joined prior to June 30, 2008 are required to reapply in order to continue their participation in the program. The deadline for reapplication is December 31, 2008. Participants will need to renew their PIP membership every three years, at which time participants must provide an updated security profile and submit to a site visit by the CBSA. The CBSA has indicated that it will process applications on a "first in" basis and that current members who apply before the deadline will have their privileges (e.g., FAST) extended until the CBSA is in a position to make a final determination about their membership.

ELIGIBILITY FOR FAST TO BE BROADENED

One of the major benefits of participation in PIP is considered to be potential participation in FAST. In particular, a participant in FAST may use a designated lane (where available) at border crossings to expedite customs clearance and entry of goods into Canada. One of the criticisms raised with FAST is that it is only available to companies that are participants of both PIP as well as the Customs Self Assessment (CSA) program. A further complicating factor is that non-resident importers are not eligible to apply for participation in the CSA program. However, it appears that this may be changing. Recently, the CBSA indicated an intention to recommend a review of the FAST requirements to enter Canada and, in particular, to permit PIP-only members to be eligible for FAST.

COMMENTS

While participation in PIP remains voluntarily, more and more companies involved in international trade are considering the benefits of participation. In this connection, the CBSA has been urged by stakeholders to enhance the benefits available to participants and to make these more transparent and tangible.

From a drafting perspective, more and more companies involving in cross-border trade are inserting clauses into their agreements with suppliers and carriers insisting that their supply chain partners are members and fully participate in voluntary cargo security programs and related programs such as FAST. Therefore, companies not yet members of PIP should take a closer look at it and re-evaluate the benefits of participation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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