Container Security: Expansion of Key Customs Programs Will	 
Require Greater Attention to Critical Success Factors (25-JUL-03,
GAO-03-770).							 
                                                                 
Since September 11, 2001, concern has increased that terrorists  
could smuggle weapons of mass destruction in the 7 million ocean 
containers that arrive annually at U.S. seaports. In response to 
this concern, the U.S. Customs Service (Customs) implemented the 
Container Security Initiative (CSI) to screen for high-risk	 
containers at overseas ports and Customs-Trade Partnership	 
Against Terrorism (CTPAT) to improve global supply chain security
in the private sector. GAO (1) describes the purpose and elements
of these new programs, (2) examines Customs' implementation of	 
CSI and C-TPAT during the first year, and (3) assesses the extent
to which Customs has focused on factors critical to the programs'
long-term success and accountability.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-770 					        
    ACCNO:   A07720						        
  TITLE:     Container Security: Expansion of Key Customs Programs    
Will Require Greater Attention to Critical Success Factors	 
     DATE:   07/25/2003 
  SUBJECT:   Counterterrorism					 
	     Customs administration				 
	     Inspection 					 
	     National preparedness				 
	     Program evaluation 				 
	     Program management 				 
	     Strategic planning 				 
	     Terrorism						 
	     Weapons						 
	     Customs Service Container Security 		 
	     Initiative Program 				 
                                                                 
	     Customs Service Trade Partnership			 
	     Against Terrorism Program				 
                                                                 

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GAO-03-770

                                       A

Report to Congressional Requesters

July 2003 CONTAINER SECURITY Expansion of Key Customs Programs Will
Require Greater Attention to Critical Success Factors

GAO- 03- 770

Contents Letter 1

Results in Brief 2 Background 5 Key Customs Programs Developed to Address
Container Security 9 Customs Quickly Rolled Out CSI and C- TPAT, Adapting
Programs to Meet Challenges 17

Customs Has Not Adequately Incorporated Factors Critical to Programs*
Success and Accountability 26 Conclusions 33 Recommendations for Executive
Action 33 Agency Comments and Our Evaluation 34

Appendixes

Appendix I: Scope and Methodology 36

Appendix II: Comments from the Bureau of Customs and Border Protection 39
GAO Comments 47

Appendix III: GAO Contact and Staff Acknowledgments 51 GAO Contact 51
Staff Acknowledgments 51

Tables Table 1: Top 10 Foreign Ports, by Number of U. S.- bound
Containers, 2001 5

Table 2: Top 10 U. S. Ports, by Number of U. S.- bound Containers, 2002 6
Table 3: CSI Budget Plans and Obligations, Fiscal Years 2002* 2004 13
Table 4: C- TPAT Budget Plans and Obligations, Fiscal Years 2002*

2004 17 Table 5: Dates of CSI Bilateral Arrangements and Deployments by

Targeted Ports, May 2003 19 Table 6: Status of C- TPAT Membership by
Industry Sector and Key

Program Elements, January 2003 and May 2003 24 Figures Figure 1: Steps in
Supply Chain and Some Points of Potential

Vulnerability 7 Figure 2: CSI Task Force Organization Chart, March 2003 12
Figure 3: C- TPAT Organizational Structure, May 2003 16

Figure 4: Time line of C- TPAT Enrollment Opportunities 23 Figure 5:
Budgets and Anticipated Growth for CSI Ports and

C- TPAT Staff, Fiscal Years 2002 and 2004 27

Abbreviations

CSI Container Security Initiative C- TPAT Customs- Trade Partnership
Against Terrorism DOD Department of Defense DHS Department of Homeland
Security PIERS Port Import Export Reporting Service WMD weapons of mass
destruction

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Letter

July 25, 2003 The Honorable Charles E. Grassley Chairman, Committee on
Finance United States Senate The Honorable Max Baucus Ranking Minority
Member, Committee on Finance United States Senate The Honorable Bill
Thomas Chairman, Committee on Ways and Means House of Representatives The
Honorable Charles B. Rangel Ranking Minority Member, Committee on Ways and
Means House of Representatives Ocean containers play a vital role in the
movement of cargo between global trading partners. In 2002, more than 7
million ocean cargo containers arrived at U. S. seaports. Responding to
heightened concern about national security since September 11, 2001,
several U. S. government agencies have

acted to prevent terrorists from smuggling weapons of mass destruction
(WMD) in cargo containers from overseas locations to attack the United
States and disrupt international trade. Because of its frontline
responsibilities for inspection at U. S. ports of entry, the U. S. Customs
Service 1 assumed the lead role in improving ocean container security and
reducing the vulnerabilities associated with the overseas supply chain. By
January 2002, Customs had initiated the Container Security Initiative
(CSI) and Customs- Trade Partnership Against Terrorism (C- TPAT) to
enhance the security of the global supply chain and deter international
acts of terrorism, as well as facilitate the smooth passage of commerce
across U. S. borders. The purpose of CSI is to enable Customs to screen
for high- risk containers in key ports overseas, while the purpose of C-
TPAT is to improve global supply chain security in the private sector.

1 On March 1, 2003, the U. S. Customs Service was transferred to the new
Department of Homeland Security. The border inspection functions of the
Customs Service, along with other U. S. government agencies with border
protection responsibilities, were organized into the Bureau of Customs and
Border Protection. Throughout this report, we will use the term *Customs*
to refer to both the Customs Service and the Bureau of Customs and Border
Protection.

In response to your interest in Customs* efforts to counter potential
threats posed by ocean containers as they move through the global supply
chain, we have (1) described the purpose and program elements of the new
CSI and C- TPAT programs, (2) examined Customs* implementation of the
programs during the first year, and (3) assessed the extent to which
Customs has focused on factors critical to the programs* long- term
success and accountability.

To address our objectives, we met with U. S. Customs officials in
Washington, D. C., with program responsibilities for CSI and C- TPAT. We
also met with private companies and industry associations in the United
States to learn how C- TPAT affects the private sector. To learn about
Customs* early experiences with CSI, we visited Canada, the Netherlands,
and France, the countries where CSI was first implemented, to meet with
the U. S. Customs attaches responsible for managing the implementation in
the ports of Vancouver, Rotterdam, and Le Havre, respectively. We also met
with members of the CSI team deployed at these three ports. In addition,
we interviewed officials representing the governments of Canada, the
Netherlands, and France who were involved in CSI negotiations and
implementation. We also spoke with private sector officials in these
countries to understand their perspectives on both CSI and C- TPAT. In
addition, we reviewed Customs* Web site for information on the programs*
status and activities. Finally, we used GAO reports on factors critical to
the long- term success of organizations such as the Department of Homeland
Security (DHS). Our methodology primarily relied on interviews with
knowledgeable officials because both programs are new and Customs was not
able to provide documentation regarding many of the issues that were the
subject of our review. (For additional information on our scope and
methodology, see app. I.)

Results in Brief Customs developed CSI and C- TPAT in response to security
vulnerabilities created by ocean container trade and to the concern that
terrorists could

exploit these vulnerabilities to transport or detonate WMDs in the United
States. Announced in January 2002, CSI allows U. S. Customs to screen
containers at CSI- designated foreign seaports. Placement of a CSI team
overseas allows Customs to work with foreign customs officials to identify

and examine high- risk containers prior to their arrival at U. S. ports.
Customs initially targeted the top 20 foreign ports that shipped 66
percent of total containers to the United States for CSI inclusion, and
then expanded the program to additional strategic ports. In November 2001,
Customs initiated C- TPAT to improve the security of containers as they

move through the global supply chain. Under C- TPAT, Customs officials
work in partnership with private industry, reviewing supply chain security
plans and recommending improvements. In return, C- TPAT members receive
the benefit of a reduced likelihood that containers traveling along their
supply chains will be inspected for WMDs. For fiscal year 2003, the CSI
budget is about $28 million, and the C- TPAT budget is about $9 million.
These budgets combined are expected to increase to more than $73 million

for fiscal year 2004 as the programs expand. During the first year,
Customs quickly designed and rolled out CSI and CTPAT, modifying
operations over time. Customs achieved strong participation among the
countries and companies, respectively, that it sought to enroll in CSI and
C- TPAT. In CSI*s first year, Customs reached agreement with 15
governments to place Customs personnel at 24 ports and placed four or
five- member CSI teams in 5 of these ports. 2 In C- TPAT*s first year,
more than 1, 700 companies agreed to participate in the program, and most
received the key benefit, a reduced likelihood of inspections for

WMDs. As participation in these programs grew, Customs implementation
evolved in response to challenges as they arose. For example, the first
CSI team deployed in Europe discovered that critical information that it
needed from the host customs administration was not readily available and,
as a result, the CSI team was unable to achieve its goal of thoroughly
screening containers overseas. To address this challenge, Customs
implemented a *24- Hour Rule* requiring carriers to supply key information
directly to Customs. Similarly, Customs initially expected that its
account managers, who had experience working with the trade community,
would recruit new

C- TPAT members and assist companies with the development of their action
plans. However, Customs later realized that C- TPAT needed staff with
greater knowledge of supply chain security to help with the action plans
as well as assist with other program elements. In response, Customs
created a new supply chain specialist position, which was announced in May
2003. These supply chain specialists will play a key role in implementing
critical program elements designed to ensure that member companies are
improving and maintaining supply chain security practices.

2 The United States and Canada do not have a CSI arrangement covering
three of these five ports because the Smart Border Accord, which was
signed in December 2001, governs the placement of Customs personnel at
three Canadian seaports, and preceded the announcement of CSI. However,
Customs refers to these seaports as CSI ports.

Customs* management and operations of CSI and C- TPAT to date show that
Customs has not taken adequate steps to incorporate factors crucial to the
programs* long- term success and accountability. More than 1 year into the
implementation of CSI, Customs has not developed a systematic human
capital plan to recruit, train, and assign the more than 120 CSI program
staff that may be needed for long- term assignments in a wide range of

foreign ports, some of which may require unique language capabilities and
diplomatic skills. Likewise, Customs has not developed such a plan to
govern the planned 15- fold expansion of C- TPAT, from a 10- person
organization to one with more than 160 staff positions. Without human

capital plans, Customs may be unable to anticipate potential challenges
and put in place the workforce needed to implement CSI and C- TPAT in a
timely manner. Similarly, Customs lacks performance measures that
demonstrate program achievements and establish accountability, although
they are tracking elements such as the number of countries and companies
involved in CSI and C- TPAT. For example, the existing performance
measures do not assess how CSI*s presence overseas helps improve the
targeting of high- risk containers beyond Customs* existing capabilities.
In addition, Customs has not developed any effective indicators to
ascertain whether C- TPAT has had an impact on the members* supply chain
security

practices. Without indicators that measure program outcomes, Customs may
not be able to accurately assess the programs* success or establish a
basis for program oversight. Finally, Customs* focus on short- term
operational planning in order to quickly implement the programs impeded
its ability to systematically carry out strategic planning. As a result,
Customs lacks elements of strategic planning that would improve the
management of the programs and allow Customs to establish accountability
for approximately $73 million in planned expenditures for

fiscal year 2004. This report makes recommendations to the Secretary of
the Department of Homeland Security to improve the management and
oversight of CSI and CTPAT as they expand by developing human capital
plans that will drive future recruitment, training and retaining
strategies, expanding on existing performance measures to reflect outcome-
oriented indicators, and developing strategic plans that clearly lay out
the programs* goals, objectives, and detailed implementation strategies.
Customs agreed with

our recommendations and overall observations that it needs to take
adequate steps to incorporate human capital planning, expand efforts to
develop performance measures and develop strategic plans* factors
necessary for the long- term success and accountability of CSI and C-
TPAT.

Background Ocean- going cargo containers are a critical link in the system
of global trade. With the rise of the *just- in- time* delivery system,
which allows companies to reduce their inventories, as well as the
efficiencies of the maritime transportation system, the U. S. and world
economies have become increasingly reliant on the cargo container to
transport their goods. In fact, approximately 90 percent of the world*s
trade moves by cargo container. Although these containers arrive from
various ports throughout the world, about 49 percent of U. S.- bound
containers arrive from the top 10 international ports listed in table 1.

Table 1: Top 10 Foreign Ports, by Number of U. S.- bound Containers, 2001
Percentage of total Number of U. S. containerized U. S.- bound Foreign
ports bound containers

cargo, by volume

Hong Kong, China 558,600 9.8 Shanghai, China 330,600 5.8 Singapore 330,600
5.8 Kaohsiung, Taiwan 319,200 5.6 Rotterdam, The Netherlands 290,700 5.1
Pusan, South Korea 285,000 5.0 Bremerhaven, Germany 256,500 4.5 Tokyo,
Japan 159,600 2.8 Genoa, Italy 119,700 2.1 Yantian, China 114,000 2.0

Total (top 10 ports) 2, 764,500 48.5

Source: GAO analysis of Customs data. Note: Number of containers has been
rounded.

In 2002, roughly 7 million containers entered U. S. seaports. About 87
percent of these ocean containers entered 10 U. S. seaports, as shown in
table 2. More than half* approximately 58 percent* of ocean container
arrivals are concentrated in three of the largest U. S. ports: Los
Angeles, Long Beach, and New York- New Jersey.

Tabl e 2: Top 10 U. S. Ports, by Number of U. S.- bound Containers, 2002
Number of U. S. bound Percentage of total containerized U. S. bound U. S.
ports containers cargo, by volume

Los Angeles 1,774,000 24.7 Long Beach 1,371,000 19.1 New York- New Jersey
1,044,000 14.6 Charleston 376,000 5.2 Savannah 312,000 4.3 Norfolk 306,000
4.3 Seattle 284,000 4.0 Tac oma 273,000 3.8 Oakland 268,000 3.7 Houston
233,000 3.3

Tot al (top 10) 6,241,000 87.0

Source: GAO analysis of Port Import Export Reporting Service (PIERS) data
as reported by U. S. Maritime Administration. Note: Number of containers
has been rounded.

According to research initiated by the U. S. Department of
Transportation*s Volpe National Transportation Systems Center (Volpe),
cargo security is affected by the number of individual companies
contracted to facilitate the handling and movement of cargo through its
supply chain. 3 To move a container from production facilities overseas to
distribution points in the United States, an importer faces various
choices regarding the logistical process such as routes and the selection
of freight forwarders. For

example, importers can own and operate key aspects of the overseas supply
chain process, such as warehousing and trucking operations. Conversely,
importers can contract with logistical service providers, such as freight
consolidators and nonvessel operating common carriers. 4 In

addition, importers must choose which modes of transportation to use, such
as rail, truck or barge, to move containers from the manufacturer*s
warehouse to the seaport of lading. According to this Volpe study, 3 DOT
Volpe National Transportation Systems Center, Intermodal Cargo
Transportation: Industry Best Security Practices (Cambridge,
Massachusetts: June 2002). 4 A freight consolidator is a firm that accepts
partial container shipments from individual shippers and combines the
shipments into a single container for delivery to the carrier. A nonvessel
operating common carrier is a company that buys shipping space, through a
special arrangement with an ocean carrier, and resells the space to
individual shippers, instead of receiving a commission.

importers who own and operate the entire supply chain route from start to
finish suffer the least amount of security breaches because they have
greater control over their supply chains. Figure 1 depicts basic
characteristics of the overseas portion of the supply chain and some areas
of vulnerability to terrorists intent on placing a WMD in a container.
Figure 1: Steps in Supply Chain and Some Points of Potential Vulnerability

A report prepared by the National Defense University*s Center for
Technology and National Security Policy states that an ocean container
itself is ideally suited to deliver a WMD. 5 The likelihood that a
terrorist will use a container to deliver a WMD depends on the type of WMD
and the likelihood an ocean container would be used as the means of
delivery. These researchers believe that it is feasible for a terrorist
group to make a

radiological *dirty bomb* which uses standard explosives to disperse
radiological material, and that the ocean container would provide an ideal
mode of transportation. On the other hand, these researchers have
concluded, a terrorist attack using a nuclear WMD has a much lower
feasibility because it is deemed less probable that terrorists have the
resources and technical ability to build or obtain a workable nuclear
weapon at this time and the nuclear WMD might be too valuable an asset to
relinquish control by shipping it in a container. But some experts agree
that the possibility of terrorists smuggling a nuclear WMD by ocean
containers merits attention because the consequences would be much more
severe than those of other types of WMDs. While there have been no known
incidents of containers being used to transport WMDs, criminals

have exploited containers for other illegal purposes, such as smuggling
weapons, people, and illicit substances. Such activities demonstrate the
vulnerability of the freight transportation industry and suggest
opportunities for further exploitation of containers by criminals,
including terrorist groups.

Various experts have estimated that the cost to the U. S. economy of port
closures due to the discovery or detonation of WMDs could be significant.
For example, in May 2002, the Brookings Institution estimated that costs
associated with U. S. port closures resulting from a detonated WMD could
amount to $1 trillion. 6 Estimating the cost of discovering an undetonated
WMD at a U. S. seaport, Booz, Allen and Hamilton reported in October 2002

that a 12- day closure would cost approximately $58 billion. 7 5 National
Defense University, The Virtual Border: Reducing the Risk of Seaborne
Container Terrorism (Washington, D. C.: August 2002). 6 Brookings
Institution, Protecting the American Homeland: A Preliminary Analysis,

Michael O*Hanlon, et al. (Washington, D. C.: 2002). 7 Mark Gerencser, Jim
Weinberg, and Don Vincent, Port Security War Games: Implications for U. S.
Supply Chains, (Booz, Allen and Hamilton, 2002).

Key Customs Programs Customs developed CSI to detect and deter acts of
container- related Developed to Address

terrorism at the earliest point feasible along the supply chain, and it
developed C- TPAT to address concerns about supply chain vulnerabilities.
Container Security

CSI placed Customs officials in key foreign ports to detect WMDs in
containers prior to their arrival to the United States and to deter
terrorists from using containers to deliver a WMD. 8 C- TPAT established a
partnership between the private sector and Customs to improve the overall
security of international supply chains, offering participating companies
the incentive that their containers will have a lower chance of being
inspected for WMDs. For fiscal year 2003, CSI*s budget is about $28
million, and CTPAT*s budget is about $9 million. Customs has proposed
budget increases, combined total of $73 million, for fiscal year 2004 to
support the programs* expansion plans.

CSI Placed Customs Announced in January 2002, CSI allows Customs to screen
for high- risk,

Officials Overseas to Screen U. S.- bound containers at key foreign ports,
9 a task previously carried out

Containers only at U. S. seaports. To do this, Customs negotiates and
enters into

bilateral arrangements with foreign governments. These arrangements
contain common language that specifies the placement of Customs officials,
on a pilot basis, at foreign ports and the exchange of information between
U. S. Customs and foreign customs administrations. Customs first targeted
for CSI the 20 foreign ports that shipped the highest volume of ocean
containers to the United States. These top 20 ports are located in 14
nations and shipped a total of 66 percent of all containers that arrived
in U. S. seaports in 2001. Customs also plans to expand CSI to an
additional 20 to 25 strategic ports that ship a significant volume of
containers to the United States and are considered to be strategic
locations. According to

Customs, these strategic ports must meet minimum requirements such as
having nonintrusive inspection equipment and having customs officials

8 CSI has two other program components: the use of detection technology to
inspect highrisk containers and the use of technology to secure
containers. However, these components were outside the scope of our
review. We have conducted previous work in the area of inspection
technology. See U. S. General Accounting Office, Homeland Security, Title
III of

the Homeland Security Act of 2002: Addendum, GAO- 02- 930T (Washington D.
C.: July 9, 2002). In a separate effort, an interagency Container Working
Group, co- chaired by Department of Transportation and Customs, is
currently working on improving the physical security of the container.

9 The CSI ports are generally the last foreign ports of lading before
vessels arrive into U. S. seaports.

capable of conducting inspections to support the CSI program. Customs
proposed to increase CSI*s budget from $28.4 million in fiscal year 2003
to $61.2 million in fiscal year 2004.

CSI Operations To prepare a CSI team for deployment overseas, Customs
sends an assessment team to the CSI port to collect information about the
port*s physical and informational infrastructure and the host country*s
customs

operations. Customs then deploys a CSI team of approximately four to five
Customs officials to work with the host country*s customs administration
to identify high- risk containers departing from these ports for the
United States. 10 Containers targeted for CSI inspection arrive at CSI
ports by land,

rail, or sea en route to the United States. The CSI team uses Customs*
Automated Targeting System to screen container data and identify high-
risk containers for inspection. 11 This system evaluates U. S.- bound
cargo manifest data electronically and determines a container*s risk
level. 12 To improve its screening capabilities, the CSI team further
analyzes U. S. bound

containers by means of data provided by host countries* customs
administration. Host countries* customs officials then inspect containers
that both U. S. and host customs officials identify as high risk. Although
the arrangements do not specify that U. S. Customs officials must be able
to observe inspections, Customs officials told us that a central tenet of
the

CSI concept is that U. S. Customs inspectors be able to observe and verify
the inspections and that all partner Customs administrations accept this
tenet.

According to Customs officials, the most important benefits of CSI derive
from the collocation of U. S. Customs officials with foreign customs
officials. Prior to the implementation of CSI, Customs officials in U. S.
ports screened container data using the Automated Targeting System and
inspected high- risk containers on their arrival in the United States.
With

10 The CSI program includes a reciprocity option for partner governments
that allows foreign customs administrations to station officers at U. S.
seaports. As of May 2003, two countries have placed customs officers at U.
S. seaports: Canada and Japan.

11 In a separate review, GAO is currently assessing Customs* Automated
Targeting System and its overall ability to identify and process cargo
containers considered to be *high risk* for terrorism.

12 A manifest is a document that lists in detail the total cargo of a
vessel and is issued by a carrier or its agent or master for a specific
voyage. Examples of data elements in a manifest include shipper,
consignee, point and country of origin of goods, export carrier, port of
lading, port of discharge, description of packages and goods, and date of
lading.

the placement of officials overseas, Customs expects that the added value
of real- time information sharing will improve Customs* ability to target
high- risk containers. For example, using the Automated Targeting System,
U. S. Customs officials may identify unfamiliar consignees that have been
flagged as high risk but are later determined not to be high risk based on
the host customs* knowledge and experiences. Customs* presence overseas is
intended to help ensure that containers identified as high risk are
inspected prior to arrival in the United States. In addition, Customs
officials hope that the collocation of its officials with foreign customs
officials will result in relationships that enhance cooperation and
intelligence sharing.

Customs officials believe that CSI should facilitate the flow of trade to
the United States and could reduce the processing time for certain
shipments, because the screening at CSI ports will in most cases take
place during *down time* while containers wait at the port terminal prior
to being loaded onto vessels. In addition, CSI eliminates the necessity of
inspecting containers for security purposes, absent additional information
affecting their risk analyses, when they reach the United States. CSI also
offers benefits to foreign ports that participate in the program,
including deterrence of terrorists that may target their ports and a
shorter time frame to resume operations in the event of a catastrophic
incident. CSI Staffing Customs created an intra- agency task force to
manage and operate the

program, headed by Customs* Office of International Affairs and staffed
with representatives from different offices within Customs. 13 In
addition, the assessment teams that travel to CSI ports to survey the
operational needs comprise members from these various offices. Customs
officials state that Customs relies on its overseas attaches to facilitate
CSI negotiations with foreign governments, oversee CSI operations at one
or more CSI ports, 14 and report CSI operations to the task force, in
addition to their existing Customs duties. Each CSI team deployed at a
foreign port consists of four to five team

members: two to three inspectors from Customs* Office of Field 13 The CSI
Task Force consists of individuals from Customs offices, such as the
Offices of International Affairs, Field Operations, Intelligence,
Information and Technology, and Training and Development.

14 For example, the Attache in France is responsible for Customs
operations in Belgium, France, and Spain.

Operations, one intelligence research analyst, and one agent serving as a
CSI team leader representing the Office of Investigations. (See fig. 2.)
According to Customs officials, while Customs inspectors review container
data using the Automated Targeting System and seek assistance from local
customs to screen containers, the intelligence analyst conducts further
analyses using additional research tools and real- time information
sharing with local customs* intelligence analysts. The team leader serves
as a liaison between the CSI team and the foreign customs administration
and reports to the Customs Attache regarding CSI operations. Currently,
each

CSI team is assigned to a foreign port under a temporary duty assignment
and is replaced by other Customs personnel after a 120- day period.
However, Customs officials told us that they are currently seeking to
convert these temporary positions to permanent CSI staff positions at
foreign ports.

Figure 2: CSI Task Force Organization Chart, March 2003

CSI Funding The budget for the CSI program is expected to grow as the
program expands, as shown in table 3. In fiscal year 2002, Customs spent
about $3. 3 million, using emergency supplemental no- year funds to
support

preliminary CSI needs. 15 These funds were budgeted for such needs as
travel to promote the program to foreign customs, the purchase of computer
equipment for CSI ports, and the maintenance of a CSI team in Rotterdam.
Customs* fiscal year 2003 budget is approximately $28.4 million to support
CSI operations in an anticipated 21 foreign ports and conduct assessments
of 6 additional ports. As of March 2003, Customs had spent $3.4 million of
fiscal year 2003 funds to support operations in 9 ports. As part of the
new DHS budget, Customs requested $61.2 million to support anticipated CSI
operations in 30 foreign ports in fiscal year 2004.

Tabl e 3: CSI Budget Plans and Obligations, Fiscal Years 2002* 2004 Fiscal
year CSI budget plan Budget amount Obligations

2002 Operate in 1 port and conduct assessments in additional ports. a $4.
3 million $3.3 million b

2003 Operate in 21 ports and conduct assessments in 6

$3.4 million additional ports. $28. 4 million (as of 3/ 14/ 03) 2004
Operate in 30 ports. $61. 2 million proposed Not applicable Source: GAO
analysis of Customs information. a The budget plan for FY 2002 does not
include funds for CSI operations in the 3 Canadian ports

because these were funded separately until fiscal 2003, when they were
combined into the overall CSI program. b These funds were expended.

15 Emergency supplemental funds were provided to Customs under P. L. 107-
117. The fiscal year 2002 amounts do not include the costs of operating in
three Canadian ports, which were funded separately by Office of Field
Operations.

C- TPAT Works with Private Announced in November 2001, C- TPAT is a
voluntary partnership program

Sector to Improve Supply between the business community and Customs,
designed to enhance the

Chain Security security of international supply chains and thus reduce the
number of

containers that otherwise might be screened for WMDs because of risk
considerations. Customs plans to achieve these objectives by encouraging
importers, freight forwarders, carriers, and other logistics service

providers to improve security practices and to persuade their service
providers along their supply chain to do the same. Customs accomplishes
this through partnership agreements and by reviewing and following- up on
company supply chain security profiles. In return, Customs offers a number
of incentives, including the key benefit of a reduced likelihood of
inspection for WMDs. 16 Customs is still developing critical aspects of
the program intended to ensure that member companies respond to C- TPAT
recommendations for improving and maintaining supply chain security

practices. Like CSI, the budget for C- TPAT is expected to increase as the
program expands. C- TPAT Operations Prior to recruiting C- TPAT members,
Customs worked with industry

leaders to develop a set of recommendations intended to improve the
security practices for specific segments of the supply chain (e. g., air/
sea/ land carriers, customs brokers, importers, manufacturers,

warehouses, freight forwarders, and domestic ports). The C- TPAT security
recommendations are meant to serve as a guide for members to follow and
are not mandatory. For example, a common C- TPAT recommendation encourages
carriers, warehouses, importers, and manufacturers to affix, replace,
record, track, and verify seals on containers, but its implementation is
not obligatory. As a first step in C- TPAT membership, a company must sign
an agreement

with Customs signifying its commitment to enhance its supply chain
security by embracing C- TPAT security recommendations and to work with
its service providers throughout its supply chain to enhance security
processes. At this point, the company becomes a C- TPAT member, and its
risk score is partially reduced. 17 After signing the agreement, the
company

16 C- TPAT member companies are not exempt from Customs trade compliance
and enforcement activities. 17 Specifically, Customs reduces a company*s
overall risk score in Custom*s Automated Targeting System. A lower score
indicates lower risk and a decreased likelihood of being inspected for a
WMD.

is required to self- assess its supply chain security practices, using the
CTPAT industry security recommendations as a guideline, and document its
observations in a security profile. The security profile is intended to be
an executive summary of the company*s current and future supply chain

security practices and vulnerabilities, as well as an indication of how
these recommendations were communicated to its business partners overseas.

Using a checklist based on the C- TPAT recommendations, C- TPAT officials
review the security profile to understand the company*s security practices
and decide whether to further reduce the company*s risk score. To help
complete their assessments of companies, C- TPAT officials also seek

information from other Customs offices on the company*s historic
relationship with Customs, such as the results of trade compliance
examinations or any past criminal investigations. Once any concerns that
C- TPAT officials may have raised are resolved, Customs will further
reduce the company*s risk score. Through standard feedback letters,
Customs notifies companies of the results of the review process and
requests additional information on security practices.

According to Customs, C- TPAT participants are never rejected from the
program because of an inadequate security profile or for adverse
information discovered during the review process. On the contrary, Customs
officials say that they are committed to working with these companies,
even if there are serious security or trade compliance weaknesses.
However, Customs may, under certain circumstances, withhold or reduce C-
TPAT benefits. Furthermore, Customs officials stated that they may remove
a company from C- TPAT membership if they

determine that its commitment is not serious or that it has intentionally
misled Customs. Other program elements are intended to ensure that member
companies have taken action to improve and maintain supply chain security
practices. Customs intends to use validations to establish accountability
by verifying

that information on a company*s security profile is accurate and complete.
Customs intends to use action plans to communicate the weaknesses it
identifies and outline the steps that companies need to take to strengthen
their supply chains. Customs also plans to use annual assessments, or
questionnaires, to follow up on a variety of open- ended security issues.
C- TPAT Staffing Customs created a C- TPAT management team to oversee and
implement

the program. Currently, C- TPAT staff includes a director, four program
managers, and five program officers, working at Customs* headquarters

and organized by trade sectors that cover all aspects of C- TPAT
membership (see fig. 3). According to C- TPAT officials, program managers
provide overall program direction and guidance, as well as program
promotion within trade sectors. Program officers, with help from program
managers, provide guidance to companies on how to complete their security
profiles as well as review security profiles and prepare feedback letters.
In addition to C- TPAT staff, account managers who are located at

Customs sites across the country and manage a portfolio of companies on
trade compliance matters, also assist with the C- TPAT program. 18 Over
300 account managers promote the program and serve as points of contact
for many companies seeking information about C- TPAT.

Figure 3: C- TPAT Organizational Structure, May 2003

18 Under the Office of Field Operations* Trade Compliance and
Facilitation, account managers work with selected companies to help
increase their level of trade compliance through one- on- one interaction.
For companies that do not have an account manager, being

designated an account and assigned an account manager is considered a
benefit of joining C- TPAT.

C- TPAT Funding The budget for C- TPAT is expected to increase as the
program expands. Funding for C- TPAT began in April 2002, with emergency
supplemental noyear funds totaling $8.3 million. 19 According to Customs,
it carried over unexpended funds to support a C- TPAT budget of $8.8
million for operations in fiscal year 2003. Customs* proposed C- TPAT
budget for fiscal year 2004 is $12.1 million and includes a request for
157 security specialist positions. 20 Table 4 depicts budget plans and
obligations for fiscal years 2002 to 2004. Tabl e 4: C- TPAT Budget Plans
and Obligations, Fiscal Years 2002* 2004

Fiscal year C- TPAT budget plan Budget amount Obligations

2002 Program promotion, equipment, personnel, and other expenses. $8. 3
million $184, 694 2003 Program promotion, equipment, personnel,

$4.7 million and other expenses. $8. 8 million (as of 3/ 31/ 03) 2004
Program promotion, equipment, personnel,

and other expenses. $12. 1 million (proposed) Not applicable Source: GAO
analysis of Customs information.

Customs Quickly Responding to concerns about container security, Customs
quickly rolled

Rolled Out CSI and out CSI and C- TPAT, adjusting its implementation of
the programs to meet challenges. Early on, the programs enlisted the
participation of many

C- TPAT, Adapting countries and companies, respectively. By January 2003,
Customs had

Programs to Meet entered into bilateral arrangements with foreign
governments to place

Challenges Customs officials at 24 ports and soon deployed CSI teams to 5
of them. Similarly, by the end of C- TPAT*s first year, Customs had
recruited

approximately 1, 700 companies to become C- TPAT members, received
security profiles from about half of these companies, and sent feedback
letters to half of the companies submitting security profiles. As CSI and
CTPAT evolved, Customs adapted its implementation of the programs as it

19 Emergency supplemental funds were provided to Customs under P. L. 107-
117. 20 Beginning in fiscal year 2004, C- TPAT is assuming greater level
of responsibility for funding all of Customs industry partnership
programs, such as the Business Anti- Smuggling Coalition and the Carrier
Initiative Program.

encountered challenges. For example, experiences at one of the first CSI
ports of deployment showed Customs that it needed to change the way it
collected the manifest data necessary for targeting high- risk containers
and the way it selected staff for CSI assessment teams. Similarly, as
Customs realized that its account managers, who were on the *front lines,*
were not prepared to provide companies the level of assistance they
required, Customs developed a new supply chain specialist position to
assist with key program elements and limited the role of account managers
to promoting the program. These supply chain specialists will play a key
role in ensuring that member companies are improving and maintaining
supply chain security practices.

Many Countries Agreed to In CSI*s early stage of implementation, Customs
entered into numerous

Join CSI; Program bilateral arrangements with foreign governments to place
Customs officials

Modifications Made in at CSI ports and soon deployed several CSI teams;
however, at the port of

Response to Early Rotterdam, Customs found that logistical and legal
challenges limited the

CSI team*s ability to obtain manifest data essential to screen high- risk
Challenges

containers. To ensure that it would obtain complete and timely manifest
data, Customs implemented the 24- Hour Rule, which allows Customs to
directly receive from carriers information necessary for screening
containers overseas. In addition, after realizing that the early
composition of CSI assessment teams and the survey instrument used by the
teams were inadequate, Customs modified the teams by building in
additional expertise and developed comprehensive and standardized port
surveys.

Most Target Governments During CSI*s first year of implementation, Customs
completed

Agreed to CSI in First Year, Some arrangements with 15 governments to
place officials at 24 seaports. First,

CSI Teams Deployed Canada agreed to the placement of U. S. Customs
personnel at 3 seaports

under the Smart Border Declaration, which preceded the announcement of
CSI. 21 Then, between January 2002 and January 2003, Customs concluded
bilateral arrangements with 12 governments covering 18 of the 20 seaports

that ship the highest volume of containers to the United States, as well
as 2 other governments representing 3 strategic ports.

During the program*s initial year, Customs deployed CSI teams to 5 ports,
a few months after the arrangements were signed. As of May 2003, Customs

21 U. S. Customs officials at Canadian seaports monitor containers shipped
from Canada to the United States, as well as containers shipped from other
foreign ports, off- loaded at Canadian ports, then transported to the
United States by land.

had placed CSI teams at 7 additional ports. The number of CSI deployments
as of May 2003 represented about half of the 21 anticipated CSI ports
outlined in the CSI budget for fiscal year 2003. Deployments are sometimes
delayed, according to Customs officials, for reasons such as the logistics
of placing Customs staff overseas and the readiness of the foreign ports.
(See table 5 for list of CSI arrangements and deployments.)

Tabl e 5: Dates of CSI Bilateral Arrangements and Deployments by Targeted
Ports, May 2003 Date arrangement

CSI team deployments CSI team deployments Country Port signed in first
year after first year Smart border accord

Canada Halifax December 2001 March 2002 Montreal December 2001 March 2002
Vancouver December 2001 March 2002

Top 20 por t s

Belgium Antwerp June 2002 February 2003 China Shanghai October 2002 a

Yantian October 2002 a France Le Havre June 2002 December 2002 Germany
Bremerhaven August 2002 February 2003

Hamburg August 2002 February 2003 Hong Kong Hong Kong September 2002 May
2003 Italy Genoa November 2002

La Spezia November 2002 Japan Tokyo September 2002

Nagoya September 2002 Kobe September 2002 Yo k o h a ma September 2002
March 2003 The Netherlands Rotterdam June 2002 August 2002 Singapore
Singapore September 2002 March 2003 South Korea Pusan January 2003 Spain
Algeciras January 2003 Tai wan Kaohsiung Thailand Laem Chabang United
Kingdom Felixstowe December 2002

(Continued From Previous Page)

Date arrangement CSI team deployments CSI team deployments Country Port
signed in first year after first year

CSI strategic ports

Malaysia Klang January 2003 Tanjung Pelepas January 2003 Sweden Gothenburg
January 2003 May 2003 Source: GAO analysis of Customs data.

a China has *agreed in principle* to join CSI but has not signed a CSI
bilateral arrangement.

According to Customs, between the time of the initial deployments for the
first five CSI ports and May 2003, the CSI teams screened manifest data
for more than 606,000 containers, looking for high- risk cargo. Their
screening efforts identified a total of 2,091 containers they considered
to be high risk that were then inspected by host customs administrations.
Officials from the three foreign customs administrations we visited told
us that, so far, the CSI requests for inspection had not been a burden,
and that they had often invited the CSI teams to observe inspections. At
the three CSI ports in Canada, around 343,000 containers were screened,
and 2,022 containers

were inspected between the time of the CSI deployments in March 2002 and
May 2003. At the port of Rotterdam, the CSI team screened more than
203,000 containers, and Dutch customs inspected 54 containers between
September 2002 and May 2003. At the port of Le Havre, the CSI team
screened more than 59, 000 containers, and French customs inspected 15
containers between December 2002 and May 2003. A Customs official

informed us that these inspections did not reveal any WMDs. Program
Operations Evolved as

As the first CSI team arrived in Rotterdam, Customs encountered data CSI
Team in First Port Faced

limitations that required revising its approach to obtaining needed
Challenges

information for screening containers. CSI operations overseas involve the
utilization of complete, accurate, and timely manifest data to target
highrisk containers bound for the United States. However, the manifest
information in Customs* Automated Targeting System was insufficient,
because carriers did not always submit manifest data to U. S. Customs
electronically, completely, and prior to the containers* departure from
foreign ports to the United States. Therefore, Customs planned to
supplement its own manifest database with manifest data provided by

foreign customs administrations at CSI ports. Soon after deploying CSI
teams at the first European CSI port of Rotterdam, Customs realized that
its ability to effectively screen containers was limited by the host
customs administration*s lack of sufficient export

manifest data for container traffic leaving Rotterdam and headed for U. S.
seaports. According to U. S. Customs officials, like most customs
administrations, Dutch customs does not completely track export data.
Although the CSI team was provided manifest data on U. S.- bound
containers by the host customs, this information generally was limited to
containers transferred from one vessel to another at Rotterdam, and even
then, the data sometimes arrived after the vessel*s departure. In
addition,

the CSI team did not have information for containers remaining on board a
vessel that was destined for the United States but that stopped at the
port of Rotterdam. Furthermore, the CSI team did not have manifest data
for containers leaving Rotterdam after arriving via truck, train, or barge
from other countries.

Customs also learned soon after the CSI team*s arrival in Rotterdam that
the physical layout of the port and the sovereign laws of the Netherlands
posed other challenges to the CSI team*s receipt of needed manifest
information. For example, the CSI team discovered that in the port of
Rotterdam there were 40 different physical locations where Dutch Customs
received paper manifests. In addition, the CSI team learned that under
Dutch law, paper manifests could not be removed from certain locations.
Given the logistical challenges of compiling information from the 40

locations, as well the limitations posed by existing Dutch law, the two
customs administrations realized that providing the CSI team with this
information would not be feasible. Customs officials told us that without
complete and accessible manifest data, the CSI team could not achieve its
goal of screening containers at foreign ports.

On the basis of its experiences in Rotterdam, Customs took steps to modify
its approach. First, Customs expedited the development and finalization of
its 24- Hour Rule, which established new requirements that carriers
present complete vessel cargo declarations to Customs 24 hours before
loading cargo aboard a vessel at foreign ports, regardless of whether
these ports are CSI or non- CSI ports, for transport to the United States.
22 This

22 The 24- Hour Rule is Customs* rule on the *Presentation of Vessel Cargo
Declaration to Customs Before Cargo Is Laden Aboard Vessel at Foreign Port
for Transport to the United States,* implemented in December 2002. For
example, according to Customs officials, for a U. S.- bound container
initially loaded onto a vessel in St. Petersburg, Russia that then stops
at the port of Rotterdam before arriving at a U. S. port, the carrier must
submit a manifest to U. S. Customs 24 hours before the container is loaded
onto the vessel in St. Petersburg. For a container that is transported to
the port of Rotterdam by train then loaded onto a vessel to be shipped to
the United States, the carrier must submit a manifest 24 hours before the
container is loaded onto a vessel in Rotterdam.

amendment allowed Customs to overcome the obstacle of obtaining manifest
data on containerized exports bound for the United States at foreign
ports* a critical element in the process of screening containers overseas.
Instead, the CSI teams would now have direct access to the needed manifest
data, thus lessening their dependence on foreign customs to provide it.
Customs also modified the composition and procedures of CSI assessment

teams in order to gather all information needed for a full understanding
of port operations prior to the CSI team*s arrival. Customs officials
stated that the insufficiency of information collected by the assessment
teams at Rotterdam delayed Customs* discovery that the port*s manifest
data for U. S.- bound containers was incomplete. The inadequacy of the
information collected by the team resulted, in large part, from the team*s
lack of subject matter expertise and a tool to standardize the collection
of relevant information at CSI ports. Customs officials told us that they
have since identified the required skills and have incorporated staff with
significant expertise from various offices within Customs to properly
survey foreign ports. In addition, Customs developed a standardized survey
questionnaire to obtain information about a host nation*s port, such as
the physical infrastructure and the availability of manifest and cargo
information. Furthermore, Customs now collects the same information from
foreign customs administrations in advance in an effort to inform the
assessment teams prior to their visits.

Many Companies Enrolled Customs quickly designed C- TPAT and rolled- out
some key program

in C- TPAT, Program elements, adjusting its implementation over time.
Since the beginning of

Evolving Over Time the program, Customs enrolled a large number of
companies across the

United States, receiving security profiles from half of those companies
and providing feedback letters to half of the companies that submitted
security profiles. More recently, Customs began pretesting another program
element, validations, with a few companies. Initially, Customs expected
that its account managers, who had experience working with the trade
community, could promote the program and help companies develop action
plans. However, Customs soon realized that it needed staff with a
different skill set, supply chain security expertise, to help with future
program elements, including validations and action plans. In response,
Customs created a new supply chain specialist position, which was
finalized in May 2003. Customs will continue to modify the program as it
becomes aware of needed changes and implements other key program elements.

Numerous Companies Enrolled In December 2001, the first charter members,
seven importers, signed

in C- TPAT Program agreements and enrolled in C- TPAT. 23 Beginning in
February 2002, C- TPAT invited importers that were already participating
in Customs* Low- Risk

Importer Initiative to join C- TPAT. 24 Open enrollment for all other
importers began in April 2002, and enrollment for other trade sectors
opened thereafter. Customs* outreach targeted large to medium- sized
companies in order to immediately cover a large percentage of the trade
entering the United States. C- TPAT, in consultation with private- sector
partners, plans to expand the program to foreign warehouse operators and
manufacturers. Figure 4 depicts C- TPAT enrollment time line by type of
industry. Figure 4: Time line of C- TPAT Enrollment Opportunities

According to C- TPAT officials, in January 2003, approximately 1,700
companies had signed C- TPAT agreements, becoming C- TPAT members and
receiving the benefit of a partially reduced risk score. During the first
year of the program, more than 800 of these companies had completed the
next step in the program and submitted security profiles to Customs.
Customs sent feedback letters to 429 companies, granting 416 of them full

23 The seven charter members included British Petroleum, DaimlerChrysler,
Ford Motor Company, General Motors Corporation, Motorola, Sarah Lee
Corporation, and Target Corporation. 24 The Low- Risk Importer Initiative
is a trade compliance program designed to significantly

reduce Customs examinations for high compliant importers. The low- risk
designation means that Customs has conducted a review of the importer's
compliance assessments, targeted cargo exams and document reviews, account
manager evaluations, compliance measurement, enforcement results, and
financial health.

program benefits, including a further reduction in their company risk
scores. The remaining 13 companies received feedback letters from Customs
informing them that their profiles were insufficient for the

companies to be granted full benefits. Table 6 provides information on the
status of the C- TPAT program membership by type of industry sector and
status of key program elements. By May 2003, the number of agreements
signed nearly doubled to 3,355.

According to C- TPAT officials, the 10 program staff were able to review
all 1,837 security profiles and prepare all 1, 105 feedback letters in a
timely manner. Customs officials told us that they had not removed any

companies from C- TPAT membership due to the determination that a member
company*s commitment is not serious or that a member company had
intentionally misled Customs or for other matters. As of the end of May
2003, Customs had not fully implemented other critical program

elements, such as validations, company action plans, and annual
assessments, designed to ensure that companies have taken action to
improve and maintain supply chain security practices. A few validations

had been completed, as the concept was being pretested. No action plans or
annual assessments had been prepared.

Table 6: Status of C- TPAT Membership by Industry Sector and Key Program
Elements, January 2003 and May 2003 Brokers, freight forwarders, Domestic
port nonvessel

authorities and operating

terminal Key program

Importers Carriers common carriers

operators Total elements

Jan. May Jan. May Jan. May Jan. May Jan. May

Agreements signed 1,106 2,119 134 410 466 806 0 20 1,706 3,355

Security profiles submitted to Customs 517 1,088 88 242 254 499 0 8 859
1,837

Feedback letters sent by Customs 306 623 37 163 86 312 0 7 429 1,105

Validations (pretested) 0 15 0 0 0 0 0 0 0 15

Action plans 0 0 0 0 0 0 0 0 0 0

Annual assessments 0 0 0 0 0 0 0 0 0 0

Source: Customs.

C- TPAT Program Operations Are Customs has adjusted elements of C- TPAT
operations since the program*s

Evolving Over Time inception and plans to continue doing so as it gains
experience and begins

implementing other program elements. Initially, Customs expected to use
account managers to recruit companies and field general questions about
the application process. Customs also expected that account managers

would help companies develop action plans in response to Customs
assessments of supply chain security practices. However, C- TPAT officials
later realized that account managers lacked the skill set necessary to

provide more than basic program information to companies. In response,
Customs took action to hire supply chain specialists to provide the
requisite skill set needed to implement various C- TPAT program elements
and limited the role of account managers to promoting the program. Account
managers were instructed to refer any technical inquiries from

applicants about completing their security profiles to the four C- TPAT
program managers. In October 2002, Customs began the process of developing
a new position description for supply chain specialists and obtaining
authorization to hire more than 150 such specialists. In May 2003, the
specialist position was announced. C- TPAT officials plan to hire 40
specialists by the end of fiscal

year 2003. According to C- TPAT officials and program documents,
specialists will be used to guide companies in the development of their
security profiles, conduct validations, develop action plans, and
facilitate annual assessments. However, given the need to complete over
3,000 validations and establish accountability, the C- TPAT officials most
recently told us that the specialists would focus on conducting
validations and action plans. Early implementation of the program focused
on recruiting companies and

collecting information on companies* security practices. So far, companies
have only had to report on their existing and planned security practices.
As the program evolves, validation and action plans will be used by
Customs to advise C- TPAT members to adopt new security measures that
could impose increased costs if adopted. According to C- TPAT officials,
supply

chain specialists will play a critical role in implementing the next C-
TPAT program elements while balancing the dual goals of improving security
with facilitating trade. The supply chain specialists, according to C-
TPAT officials, will increase the program*s creditability by bringing on
experts who can make feasible and meaningful recommendations that will
compel companies to change their security practices. C- TPAT officials
told us the program will continue to evolve as the other program elements
such as the

company action plans and annual assessments are developed and implemented
and lessons are learned.

Customs Has Not Although CSI and C- TPAT are evolving into major tools in
the U. S. war

Adequately against terrorism, in implementing the programs, Customs has
not taken

adequate steps to incorporate human capital planning, develop Incorporated
Factors performance measures, and plan strategically* factors essential to
the

Critical to Programs* programs* long- term success and accountability. 25
While Customs was able

Success and to meet the programs* initial staffing needs, it has not
devised a systematic

plan to recruit, train, and retain the expected fivefold increase in CSI
Accountability

overseas staff by fiscal year 2004. In addition, Customs lacks a plan for
increasing the number of C- TPAT staff almost 15- fold, from 10 to more
than 160, while it rolls out new program elements. Although Customs had
created some performance measures, such as tallying the number of
countries and companies that have enrolled in the CSI and C- TPAT,
respectively, it has not developed measures that establish accountability

and measure program achievements. For example, Customs lacks measures that
assess the impact of CSI and C- TPAT on improving targeting and security
practices, respectively* the programs* fundamental goals. In its effort to
rapidly implement the programs and enroll participants, Customs focused on
short- term operational planning. As a result, Customs lacks the elements
of strategic planning that would allow it to establish program
accountability for approximately $73 million in funds budgeted for fiscal
year 2004.

CSI and C- TPAT at Critical Customs has come to a critical point in its
management of CSI and C- TPAT,

Point as they transition from start- up programs to mature global programs
on the

front lines of the U. S. effort to address container security and protect
25 In a report on the formation of DHS, we identified from our body of
work the major success factors that DHS officials will need to consider to
successfully manage the new department. Drawing on that list, we
identified three factors critical to the management of CSI and C- TPAT.
Human capital planning includes thinking strategically about how to put
people with the right set of skills, in the right jobs at the right time.
Performance measures help demonstrate an organization*s level of progress
in achieving results and inform decision making. Strategic planning
includes involvement of stakeholders; assessment of

environments; and the alignment of activities, core processes, and
resources to support mission objectives. See U. S. General Accounting
Office, Major Management Challenges and Program Risks: Department of
Homeland Security, GAO- 03- 102 (Washington, D. C.: January 2003).

global commerce. Whereas Customs quickly launched the programs in response
to homeland security concerns, the programs have now reached the stage
where Customs projects a rapid expansion to additional countries and
companies, as well as additional C- TPAT program elements, such as
validations. Furthermore, Customs has proposed to commit significantly
more resources to both of these programs. (See fig. 5.) For example, the
CSI budget will increase from $4.3 million in the first year to more than
$61 million proposed for fiscal year 2004, and C- TPAT staff levels will
jump from approximately 10 to more than 160 by the end of fiscal year
2004.

Figure 5: Budgets and Anticipated Growth for CSI Ports and C- TPAT Staff,
Fiscal Years 2002 and 2004

Customs Has Not Created Over 1 year into the implementation of CSI and C-
TPAT, Customs has not

Human Capital Plans for CSI developed a human capital plan that
systematically addresses long- term

and C- TPAT staffing needs such as recruiting, training, and retaining
personnel for these programs. A key element of human capital planning
includes thinking

strategically about how to put the right people in the right jobs at the
right time. By the end of fiscal year 2004, Customs will need to attract
at least 120 CSI employees with the skills to identify high- risk
containers at 30 ports and who are willing to live in challenging
environments. Ultimately,

Customs envisions maintaining CSI teams at 43 or more ports. C- TPAT
intends to hire and train more than 150 supply chain specialists within
the next few years to review company security profiles for weaknesses,
identify solutions, and maintain company relations to ensure that
voluntary improvements are made. While short- term human capital decision
making

was necessary in the programs* first year to address the challenge of a
rapid start- up, Customs is now required, as a result of its transfer to
DHS, to face these and other important human capital questions to ensure
CSI*s and CTPAT*s long- term success. 26 Deploying Customs staff to
overseas CSI ports will be a complex, multiyear

task. Customs seeks CSI candidates with targeting, diplomatic, and
language skills. Customs officials stated that they did not experience
significant difficulties in finding qualified staff to fill its short-
term human capital needs from among the pool of existing Customs
employees, such as inspectors from the Office of Field Operations.
However, Customs anticipates creating 2- to 3- year permanent assignments
to replace its current 120- day temporary duty assignments, which could
strain existing resources. In spite of the potential challenges Customs
could face, CSI officials said that they had not documented a human
capital plan and would instead, in the near term, rely exclusively upon
other Customs offices such as the Office of Field Operations to use their
own standards to screen and

make final selections of CSI staff for placement at CSI ports overseas.
Customs faces a daunting task as it prepares for its future human capital
needs at key CSI ports overseas, including strategic ports in countries
where it may be difficult to attract U. S. personnel. Specifically,
Customs* port status planning document projects the deployments of CSI
teams in fiscal year 2004 to seven countries (Brazil, China, Greece, Sri
Lanka, Thailand, Turkey and the United Arab Emirates) for which the
Department of State requires pay compensation to U. S. government
officials for hardships they may encounter while working in these
locations. 27 As an example of how challenging it can be to place staff
overseas, we found that the Department of State, whose staff routinely
serves overseas, had

difficulty filling positions in hardship posts and that, as a consequence,
the affected embassies were hampered in their ability to effectively carry
out U. S. foreign policy objectives. The difficulties faced by the
Department of State demonstrate that staffing posts abroad with
appropriately skilled

26 P. L. 107- 296, Nov. 25, 2002, established the new department. The
legislation requires all agencies moving into DHS, such as Customs, to
appoint chief human capital officers and include human capital planning in
performance plans and performance reports. See U. S. General Accounting
Office, Homeland Security: Management Challenges Facing Federal
Leadership, GAO- 03- 260 (Washington, D. C.: Dec. 20, 2002).

27 As of May 2003, Customs had not reached agreements with six of these
countries, but had reached *agreement in principle* with China.

personnel is a challenge even for agencies with a long history of
recruiting and placing staff overseas. Without a human capital plan that
includes recruiting and training strategies, Customs may be unable to
identify and develop the human resources necessary to handle the staffing
for the expanded number of CSI ports.

As with CSI, Customs plans to expand C- TPAT by hiring over 150 additional
staff that will help implement new program elements such as validations
and actions plans. The duties of these new staff, or supply chain
specialists, are to identify, recommend, and negotiate with member
companies to undertake corrective actions to improve supply chain
security, as well as to guide companies through the C- TPAT process.
Customs officials said that they expect to hire 40 supply chain
specialists in

fiscal year 2003 and the remaining number after that. However, although
Customs acknowledged the importance of human capital planning for CTPAT,
Customs officials indicated that they have been unable to devote resources
to developing a human capital plan that outlines how C- TPAT will increase
its staff 15- fold and implement new program elements that

will require training. A human capital plan that emphasizes recruitment,
retention, and training is particularly important given the unique
operating environments and personnel requirements of the two programs.
According to Customs

officials, the professional and personal relationships that CSI team
members and C- TPAT supply chain specialists build with their clients over
time will be critical to the long- term success of both programs. For
example, Customs has indicated that a key benefit of CSI is the ability of
Customs officials to work with their foreign counterparts to obtain
sensitive information that enhances its targeting of high- risk containers
at the foreign ports. If Customs fails to establish these good working
relationships, the added value of targeting from foreign ports is called
into question. Similarly, Customs officials indicated that C- TPAT*s
success at improving supply chain security will depend, in large part, on
supply chain specialists* ability to persuade companies to voluntarily
adopt C- TPAT recommendations. Given the reliance of CSI and C- TPAT staff
on

relationships and persuasion rather than authority, a human capital plan
that regularly places personnel with language skills and the ability to
work effectively in these environments will maximize the programs*

performance. In the absence of a human capital plan, Customs may be unable
to anticipate potential obstacles to placing the right people in the right
jobs at the right time.

Customs Developed Limited Customs has attempted to create some performance
measures for CSI and

Performance Measures C- TPAT, but neither program has developed measures
that reflect progress

in achieving program goals. Organizations use performance measures to help
demonstrate the level of progress in achieving results, to inform decision
making, and to hold managers accountable. To better articulate a results-
orientation, organizations create a set of performance goals and measures
that addresses important dimensions of program performance.

Using intermediate goals and measures, such as outputs or intermediate
outcomes, would allow Customs to measure progress toward enhancing the
security of U. S.- bound ocean container trade, the primary goal of these
programs. 28 As other programs are proposed to address homeland security
needs, DHS and the Congress must have access to credible performance
information that allows them to make resource allocation decisions across

programs and hold managers accountable. Customs officials had developed
some measures for CSI and C- TPAT that simply quantify program results
like operational activities and efforts. For example, Customs tracks the
number of CSI teams operating in foreign ports and the number of countries
that have signed up to participate in CSI, as well as the number of CSI
inspections. Similarly, for C- TPAT, Customs tracks results like the
number of companies from different industrial sectors that participate in
the program and the percentage value of cargo imported by C- TPAT
companies. These measures have served as useful indicators of operational
results.

However, Customs had not developed measures to help assess how CSI*s
presence overseas helps improve targeting of high- risk containers beyond
Customs* existing capabilities. As previously discussed, Customs officials

stated that the most important benefit derives from the collocation of U.
S. and foreign customs officials, which provides them with additional
information that should enhance Customs* targeting abilities. However,
Customs does not analyze statistics to ascertain the nature and extent of

the contributions made by foreign customs administrations in determining
whether a particular container should be targeted or inspected. Customs
officials told us that they had not had the opportunity to prepare
performance measures that will help evaluate CSI*s outcomes. In the

28 U. S. General Accounting Office, Agency Performance Plans: Examples of
Practices That Can Improve Usefulness to Decisionmakers, GAO/ GGD/ AIMD-
99- 69 (Washington, D. C.: Feb. 26, 1999).

absence of performance indicators that provide a measure of the program*s
success, the benefits of placing personnel overseas are unclear. On the
other hand, Customs developed a performance measure to indicate

whether C- TPAT has resulted in improved security practices, using the
results of trade compliance audits as a proxy. This indicator uses select
data elements derived from trade compliance audits, such as whether the
container seals indicated possible tampering and whether the manifest
contained data discrepancies (e. g., whether cargo weight significantly
changed between export and arrival). While this is a useful first step,
its effectiveness is limited by the fact that it compares two different
populations, contrasting the behavior of C- TPAT members with that of
nonC-

TPAT members. A more reliable measure of program impact would compare
companies* trade compliance before and after they enroll in CTPAT. As of
May 2003, Customs had not developed any other indicators to ascertain
whether C- TPAT has had an impact on the members* supply chain security
practices. Recent efforts to validate the C- TPAT security profiles
provide Customs with an opportunity to establish baseline data to later
determine whether members* security practices improve over time. The
validations also provide Customs an opportunity to authenticate the
information contained in security profiles and determine whether the
company merits a continued reduction in its risk score.

Customs Planning Efforts Customs does not have a strategic plan that
describes how it intends to

Do Not Reflect Strategic achieve CSI and C- TPAT goals and objectives and
that makes full

Approach accountability possible. According to Customs, the short- term

requirements of implementing the programs quickly and encouraging program
participation by countries and companies impeded Customs* ability to
systematically carry out strategic planning. Strategic planning helps
organizations manage their programs more effectively by requiring that
they clearly establish mission goals and objectives and, after assessing
their environment and involving stakeholders, describe how program
activities serve program goals. In addition, strategic plans can provide a
basis for communication and mutual understanding between stakeholders and
contribute to program accountability.

Although Customs has taken some steps that demonstrate operational
planning for CSI implementation in key ports throughout the world, its
efforts do not reflect a strategic approach to planning. While Customs
intends to continue deploying CSI teams to the 20 top ports and to 20 to
25 strategic ports, it has not prepared strategic plans that show how it
will

accomplish this enormous task. Whereas Customs told us that it intends to
develop strategic plans, so far, the only available record regarding its
expansion plans is a table outlining when Customs expects to deploy CSI
teams to foreign ports for fiscal years 2003 and 2004. Without the benefit
of strategic planning, Customs quickly rolled out CSI in

France but failed to involve primary stakeholders in making key decisions.
Although Customs officials pointed to their collaboration with the French
government as a model of cooperation in setting up this port, a lack of
communication between the partner countries caused French customs
officials to impose unnecessary demands on private industry shipping out
of Le Havre to provide the CSI team with complete manifest information
needed for effective targeting. Customs had failed to inform the French
that it was implementing the 24- Hour Rule, which essentially negated the
need for the French effort. When we met with French government officials,
they expressed frustration that they had not been kept informed. Poor
communication, as evidenced by this experience, can lead to a lack of
cooperation between the two partners and make attainment of CSI goals more
difficult. Good communication is essential for a program like CSI, which
relies on the exchange of information between the U. S. and foreign
customs administrations to improve the targeting of high- risk containers.

Customs* experience in rolling out C- TPAT similarly demonstrates a lack
of strategic planning. This is particularly true with regard to Custom's
communicating how it plans to implement critical C- TPAT program elements*
validations, action plans, and annual assessments* designed to verify that
companies have security measures in place and follow through with
recommended changes. Customs does not have a planning document that
describes the operational objectives for each element, how those
objectives support C- TPAT's overall goals, and how they intend to meet
those objectives. Although Customs recently pilot- tested the validation
process with 15 companies, they have yet to incorporate results and
lessons learned into a planning document to guide the validation process
for the more than 3,300 companies currently receiving C- TPAT's key
benefit of reduced risk scores.

Customs lacks a strategic plan that describes how Customs intends to
achieve its programs* goals and establish program accountability for
approximately $73 million in funds budgeted for fiscal year 2004.
Furthermore, Customs does not have strategic planning documents that
establish measurable objectives, detailed implementation strategies,
resource needs, and project time frames for CSI and C- TPAT. The effective

implementation of CSI and C- TPAT programs depends, in part, on rigorous
strategic planning. Without strategic plans, Customs may discover that CSI
cannot place CSI teams in strategic ports in a timely fashion, or that
they place the teams but do not achieve any improvement in security.
Similarly, Customs may find that the security of C- TPAT companies' supply
chains is

not improved and that, as a result, reductions in risk scores are granted
to undeserving companies.

Conclusions Customs quickly launched CSI and C- TPAT to secure ocean
containers bound for U. S. seaports. However, accomplishing the desired
outcome of

securing containers bound for the United States and achieving the longterm
effectiveness of both programs would be aided by human capital planning,
the development of performance measures, and strategic planning, elements
that Customs has not fully incorporated into the programs. As CSI and C-
TPAT make the transition from early implementation to full- scale
operations, Customs* management of these programs has not evolved from its
short- term focus to a long- term strategic approach. Customs faces
unprecedented demands as it expands CSI to other countries and C- TPAT
begins rolling out the critical validation phase of the program. Planning
and measuring program performance to determine if goals and objectives are
being met play an important role in the management of Customs operations
and enable internal and external

decision makers to assess the programs* effectiveness, make resource
allocation decisions, and hold managers accountable. Recommendations for
To help ensure that CSI and C- TPAT achieve their objectives as they
Executive Action transition from smaller start- up programs to larger
programs with an increasingly larger share of the Department of Homeland
Security*s budget,

we recommend that the Secretary of Homeland Security, working with the
Commissioner of Customs and Border Protection and the CSI and C- TPAT
program directors, takes the following steps: Develops human capital plans
that clearly describe how CSI and C- TPAT will recruit, train, and retain
staff to meet their growing demands as they

expand to other countries and implement new program elements. These plans
should include up- to- date information on CSI and C- TPAT staffing and
training requirements and should be regularly used by managers to identify
areas for further human capital planning, including opportunities for
improving program results.

Expands efforts already initiated to develop performance measures for CSI
and C- TPAT that include outcome- oriented indicators. These measures
should be tangible, measurable conditions that cover key aspects of
performance and should enable agencies to assess accomplishments, make
decisions, realign processes, and assign accountability. Furthermore, the

measures should be used to determine the future direction of these Customs
programs.

Develops strategic plans that clearly lay out CSI and C- TPAT goals,
objectives, and detailed implementation strategies. These plans should not
only address how the strategies and related resources, both financial and
human, will enable Customs to secure ocean containers bound for the United
States, but should also reinforce the connections between these programs*
objectives and both Customs* and the Department of Homeland Security*s
long- term goals. Agency Comments and

Customs provided written comments on a draft of our report. Customs Our
Evaluation

agreed with our recommendations and overall observations that it needs to
take adequate steps to incorporate human capital planning, expand efforts
to develop performance measures and develop strategic plans* factors
necessary for the long- term success and accountability of CSI and C-
TPAT. Customs reported that is has already taken some steps and will
continue to

take prudent steps to address these factors. Customs, however, raised
concerns about the draft report*s characterization of some information.
Customs also provided technical comments, which we incorporated as
appropriate. The following summarizes their general comments and our
responses. Customs* comments, along with our responses to specific points,
are contained in appendix II.

We made changes to our report to address Customs* concerns that we
overlooked CSI*s central tenet* U. S. Customs inspectors must be able to
observe the inspections conducted by host customs officials* which,

according to Customs, is accepted by all partner Customs administrations.
We revised the report to note CSI*s central tenet and its acceptance by
all partners, but we also noted that the bilateral arrangements do not
specify that U. S. inspectors must be able to observe inspections
conducted by host customs officials. Although Customs requested, we did
not drop our statement that CSI teams are often invited to attend
inspections because this is what officials from three foreign customs
administrations told us.

Customs raised concerns about our characterization of the expected role of
account managers in C- TPAT. In its general comments, Customs noted that
account managers were never expected to help companies develop action
plans. This statement directly contradicts previous statements by Customs
officials as well as an early program document. Therefore, we maintain
that Customs account managers were initially expected to help companies
develop action plans.

Customs noted that its policy is not to reject companies because of an
inadequate security profile or for adverse information discovered during
the review process. However, Customs provided further clarification that
it may, under certain circumstances, withhold or reduce C- TPAT benefits.

Furthermore, Customs stated that it may remove a company from C- TPAT
membership if it determines that its commitment is not serious or that it
has intentionally misled Customs. We incorporated changes in our report to
reflect these clarifications. We are sending copies of this report to
other interested members of

Congress, the Secretary of the Department of Homeland Security, and the
Commissioner of Customs. We also will make copies available to others upon
request. In addition, the report will be available at no charge on the GAO
Web site at http:// www. gao. gov.

If you or your staff have any questions about this report, please contact
me on (202) 512- 4347. Other GAO contacts and staff acknowledgments are
listed in appendix III.

Loren Yager Director, International Affairs and Trade

Appendi Appendi xes x I

Scope and Methodology To describe the Container Security Initiative (CSI)
and the Customs- Trade Partnership Against Terrorism (C- TPAT), we met
with U. S. Customs officials in Washington, D. C. with program
responsibilities for CSI and CTPAT. Specifically, we met with officials in
the Office of International Affairs to discuss the planning and start- up
of the CSI program. In examining the CSI program, we limited the scope of
our work to two of the CSI program*s four elements*( 1) identifying *high-
risk* containers and (2) screening the *high- risk* containers at the
foreign CSI ports before they are shipped to U. S. ports. Our examination
of those two elements focused on the planning and management issues
specific to the rollout of this program

abroad in the program*s first year. We did not examine the adequacy of
Customs- wide tools and technology, such as the Automated Targeting
System, for successfully targeting high- risk ocean containers. We
reviewed documents on CSI including testimony and speeches by Customs
officials, as well as information on the Customs Web site, which outlined
CSI goals, implementation strategies, and operations plans. In addition,
we reviewed Customs documentation, to understand CSI procedures including
agreements with the foreign countries to set up CSI at designated ports,
CSI assessment teams* survey questionnaire at ports, and CSI budget and
staffing data. We visited the ports of New York- New Jersey, Los Angeles,
and Long Beach to familiarize ourselves with Customs* standard operating

procedures in a seaport environment. At the ports, we interviewed Customs
officials and observed operations, with particular emphasis on Customs
cargo container targeting units charged with using the Automated

Targeting System to screen cargo containers entering U. S. ports. We also
met with C- TPAT officials from the Office of Field Operations to discuss
program goals, implementation strategies, and plans. We reviewed C- TPAT
program documents outlining the early planning efforts for the program. We
also met with private companies and industry associations in the United
States to obtain their views on C- TPAT, supply chain vulnerabilities and
corroborate information provided by Customs. We attended conferences in
Phoenix and Chicago that included remarks by

Customs officials and private sector representatives on the start- up of
CTPAT, including the process for application for membership. We met with
officials from both the Office of Naval Intelligence and the National
Defense University to understand threats and vulnerabilities associated
with the overseas container supply chain.

To examine Customs* implementation of CSI and C- TPAT during the first
year, we interviewed Customs officials at the Washington, D. C.,
headquarters as discussed earlier. For CSI, we reviewed Customs press

releases to learn the status of CSI bilateral arrangements with various
countries and the deployment of CSI staff at foreign ports. We also
reviewed and analyzed Customs documentation, including arrangements with
the foreign countries to set up CSI at designated ports, trip reports to
prospective CSI ports, port assessments, plans for CSI operations at the

port of Rotterdam, and statistics on the number of containers screened by
CSI teams and the number of containers inspected by local customs at CSI
ports to date. For the C- TPAT program, in Washington, D. C., we reviewed
and analyzed C- TPAT paperwork for selected member companies, including
partnership agreements, company profiles of their supply chains, and
security measures taken to secure their supply chains, as well as CTPAT*s
feedback letters welcoming companies as certified members and recommending
improvements to their supply chains. We discussed with

representatives of U. S. companies their experiences in becoming members
of C- TPAT and their efforts to improve the security of their supply
chains, particularly those parts of the supply chain controlled by their
foreign

suppliers. As part of our examination of the first year of implementation
of CSI and CTPAT, we also visited four countries* Canada, the Netherlands,
France, and Germany. In Canada, the Netherlands, and France, we met with
U. S. Embassy officials, particularly the U. S. Customs attaches
responsible for

managing CSI implementation in the ports of Vancouver, Rotterdam, and Le
Havre. We discussed the issues that came up during the CSI negotiations
and the substance of the final arrangements between the U. S. and host

governments. We also discussed the start- up of the CSI program, as well
as any issues that had arisen during implementation in each country. We
interviewed CSI team members at each port to obtain detailed explanations

of CSI operations there and any available related documentation. At the
ports of Vancouver and Le Havre, we were able to observe customs
operations and the interaction of the CSI team with its host country
officials. We were not able to observe CSI operations at the port of
Rotterdam, owing to a decision by the Dutch government to restrict the
number of foreign delegations that could access customs operations at
Rotterdam. However, in the Netherlands, as well as in France and Canada,
we were able to interview foreign government officials about the
negotiations to start up CSI in their ports, issues and problems related
to the start- up of the program, and their views regarding the future of
the CSI

program in their ports. For the C- TPAT program, we interviewed trade
associations, port authorities, suppliers, and supply chain service
providers during our visits to Canada, Germany, France, and the
Netherlands. With trade associations, we discussed their impressions of C-
TPAT, and the

potential impact that C- TPAT security expectations could have on members*
operations. With port authorities, suppliers, and supply chain service
providers, we observed their operations and discussed the potential

impact that implementing C- TPAT security recommendations could have on
their operations and the vulnerabilities that they faced. To assess the
extent to which Customs has focused on factors critical to

the long- term success of the programs, we first reviewed a broad range of
GAO reports examining management factors that were necessary components
for the successful management of cabinet departments, agencies, and, by
extension, individual programs. As the result of our review of GAO*s work
on best management practices, we chose to focus this analysis on three
management factors* human capital planning, the development of performance
measures, and strategic planning *because of their general importance in
the literature. (In particular, a recent GAO report identified critical
factors, including the three listed above, that the new Department of
Homeland Security would need to incorporate for the successful long- term
management of the new department. 1 ) In addition to interviewing Customs
officials in Washington, as described above, we examined available
budgetary and other documentation to ascertain management plans for the
expansion of CSI and C- TPAT. We assessed the extent to which Customs
expansion plans incorporated human capital planning, the development of
performance measures, and strategic planning. We performed our work from
April 2002 to June 2003 in accordance with generally accepted government
auditing standards.

1 U. S. General Accounting Office, Major Management Challenges and Program
Risks: Department of Homeland Security, GAO- 03- 102 (Washington, D. C.:
January 2003).

Comments from the Bureau of Customs and

Appendi x II

Border Protection Note: GAO comments supplementing those in the report
text appear at the end of this appendix.

See comment 1. See comment 2.

See comment 3. Now on p. 3. See comment 4. Now on pp. 10 and 20. See
comment 5.

Now on p. 15. See comment 6.

See comment 6. See comment 6. Now on p. 18. See comment 4. See comment 7.
Now on p. 18. See comment 8.

Now on p. 25. See comment 4.

Now on p. 25. See comment 9. See comment 10. Now on p. 30. See comment 11.

Now on p. 32. See comment 12.

The following are GAO*s comments on the letter from the Bureau of Customs
and Border Protection, dated July 16, 2003. 1

GAO Comments 1. Customs agreed with our findings that human capital
planning is needed, and Customs indicated that it is developing a
comprehensive

training plan for Customs- Trade Partnership Against Terrorism (C- TPAT).
However, while training is an important aspect of human capital planning,
our report shows that human capital plans should also systematically
address other long- term staffing needs, such as recruitment and retention
for the more than 150 supply chain specialists Customs plans to hire.

2. Customs commented that it is making progress in developing further
performance measures that are based on trade compliance data. As our
report states, to ensure that C- TPAT performance indicators are reliable,
the measures should compare trade compliance data for companies before and
after they enroll in the program. Customs also indicated that it intends
to review the results of the validation process in order to develop
possible baselines for measurements. These efforts are responsive to the
recommendation in our report.

3. Customs noted that more accurate budget data are available. Between the
fall 2002 and June 2003, we requested clarification and updated budget
information for our report. Our report presents the budget data that
Customs provided us. Furthermore, we did not use the fall 2002 container
data in our report; our report presents the number of ocean containers
inspected under the Container Security Initative (CSI) program through May
2003, which was provided by Customs officials in June 2003.

4. Customs raised several concerns about our characterization of the
expected role of account managers in C- TPAT. Customs indicated that *at
no time was it certain or probable that account managers would 1 On March
1, 2003, the U. S. Customs Service was transferred to the new Department
of

Homeland Security. The border inspection functions of the Customs Service,
along with other U. S. government agencies with border protection
responsibilities, were organized into the Bureau of Customs and Border
Protection. Throughout this report, we used the term *Customs* to refer to
both the Customs Service and the Bureau of Customs and Border Protection.

become involved beyond the communication function.* This statement
contradicts previous statements by Customs officials and an early CTPAT
program document that account managers would be involved in developing
action plans. Therefore, we maintain that Customs account managers were
initially expected to help companies develop action plans.

5. Regarding Customs* assertion that U. S. Customs inspectors must be able
to observe inspections at CSI ports, we do not question the need for
Customs inspectors to make such observations. However, our analysis of the
bilateral arrangements show that the arrangements do not specify that U.
S. Customs must be able to inspect containers or observe inspections. In
addition, our analysis of Customs* documents

and our discussions with Customs officials reveal that bilateral
arrangements with foreign governments are not legally binding documents.
We will not revise the sentence that states *Officials from

the three foreign customs administrations visited told us that, so far,
the CSI requests for inspections had not been a burden and that they had
often invited the CSI teams to observe inspections* because this is what
foreign customs officials told us. However, we will revise the report to
clarify that the ability of the U. S. Customs officials to observe and
verify inspections is a central tenet of the CSI concept and, according to
U. S. Customs officials, all partner Customs administrations accept this
tenet.

6. Customs stated that company participants are not rejected from the
program and are instead engaged by C- TPAT to increase the security of the
international supply chain. This statement is consistent with information
in our report. Customs also noted that it withholds benefits when this
action is warranted by adverse information or identified security
weaknesses and that it can reduce benefits, for less serious reasons, to
encourage a company to rectify a security gap or problem. We revised the
report to clarify these two points. We also added a footnote to capture
Customs* comments that C- TPAT participants are not exempt from Customs
trade compliance and enforcement activities. We further revised the report
to clarify that

Customs can remove a company from C- TPAT membership if it determines that
the company has not made a serious commitment or has intentionally misled
Customs. To date, Customs reported that it has

not removed a company from C- TPAT membership.

7. Customs noted the evolution of the supply chain specialist position.
This is consistent with our report. 8. We believe that our portrayal of
the relationship between the 24- Hour

Rule and CSI is accurate. Our report states that the 24- Hour Rule was
implemented to ensure that Customs would obtain complete and timely
manifest data. This is based on specific evidence found in our examination
of the 24- Hour Rule, as published in the Federal Register.

The 24- Hour Rule, as found in the Federal Register, specifically states,
under the heading Necessity for Advance Presentation of Vessel Cargo
Manifest to Customs, that *CSI is already operational in Canada and the
Netherlands*. Given this explosive growth, it is critical that the
information necessary to implement CSI fully be provided to Customs in the
near term. For this reason, Customs proposed this rulemaking on August 8,
2002.*

9. Customs noted that the development of action plans and assessment of
security improvements are part of the validation process. In earlier
interviews with Customs officials, we were told that supply chain
specialists would focus on validating the company security profiles,
because Customs needed to validate the large number of security profiles
that they had received. We revised the report to eliminate the statement
that other program elements would be a lower priority and clarified that
supply chain specialists would focus on validations and action plans. We
also added that supply chain security specialists would help facilitate
the annual assessments.

10. We have deleted the second paragraph. 11. Customs noted that the
statement in our report that Customs does not track the contributions made
by foreign customs administrations in determining whether a particular
container should be targeted or inspected is inaccurate. We revised the
report to reflect that Customs does not analyze statistics to ascertain
the nature and extent of the contributions made by foreign customs
administrations in determining whether a particular container should be
targeted or inspected.

12. We disagree with Customs* assertion that our report implied that U. S.
Customs imposed unnecessary demands on private industry. To the contrary,
our report states that French Customs imposed demands on private industry
that proved unnecessary. However, our central point still stands. French
Customs officials told us that they updated their

manifest system in anticipation of the implementation of CSI in the port
of Le Havre, but without knowledge of the imminent implementation of the
24- Hour Rule. In our interviews with French Customs officials, they
expressed dissatisfaction with the confusion surrounding the

implementation of the 24- Hour Rule. That benefits derived from French
Customs* efforts to update the manifest system is beside our point that
good communication is vital between CSI partners.

Appendi x III

GAO Contact and Staff Acknowledgments GAO Contact Christine Broderick
(415) 904- 2000 Staff

In addition to the individual named above, Patricia Cazares- Chao, Richard
Acknowledgments

Boudreau, Hector Wong, Victoria Lin, Jill Johnson, and Reid Lowe made key
contributions to this report.

(320106)

a

GAO United States General Accounting Office

Announced in January 2002, CSI places Customs staff at designated foreign
seaports to screen containers for weapons of mass destruction. In November
2001, Customs also initiated C- TPAT, in which private companies improve
the security of their supply chains in return for the reduced likelihood
that their containers will be inspected for weapons of mass destruction.

Customs quickly implemented both programs in the first year. It concluded
bilateral arrangements with foreign governments to place Customs personnel
at 24 foreign ports and deployed staff to 5 of these ports under CSI, and
it enrolled more than 1,700 companies in C- TPAT. Customs is developing
critical program elements intended to ensure that C- TPAT companies
improve and maintain their security practices. GAO found that Customs*
implementation of these programs evolved in response to challenges it
encountered.

Although Customs is preparing to devote significantly more resources to
CSI and C- TPAT as it expands the programs, it has not taken adequate
steps to incorporate factors necessary for the programs* long- term
success and accountability. These factors include human capital planning,
development of performance measures, and strategic planning. GAO found the
following:

 Although CSI seeks to staff Customs officials at more than 30 overseas
ports and C- TPAT expects to hire more than 150 additional staff, Customs
has not devised systematic human capital plans to meet longterm

staffing needs for both programs.  While Customs has created some
performance measures to quantify operational activities and efforts, it
has not developed measures to establish accountability and measure program
achievement.  In its efforts to rapidly implement the programs and enroll
participants,

Customs focused on short- term planning. Customs lacks a strategic plan
that would allow it to establish accountability for approximately $73
million in planned expenditures for fiscal year 2004. Budgets and
Anticipated Growth for CSI Ports and C- TPAT Staff, Fiscal Years 2002 and
2004

Since September 11, 2001, concern has increased that terrorists could
smuggle weapons of mass destruction in the 7 million ocean containers that
arrive annually at U. S. seaports. In response to this concern, the U. S.
Customs Service (Customs) implemented the Container Security Initiative
(CSI) to screen for high- risk containers at overseas ports and Customs-
Trade Partnership Against Terrorism (CTPAT) to improve global supply chain
security in the private sector. GAO (1) describes the purpose and elements
of these new programs, (2) examines Customs* implementation of CSI and C-
TPAT

during the first year, and (3) assesses the extent to which Customs has
focused on factors critical to the programs* long- term success and
accountability. To ensure that CSI and C- TPAT

achieve their long- term objectives, GAO recommends that the Secretary of
Homeland Security, working with the Commissioner of Customs and Border
Protection and managers for both programs

 develops human capital plans that clearly describe how the programs will
recruit, train, and retain staff;  expands efforts to develop performance
measures that include outcome- oriented indicators; and

 develops strategic plans that clearly lay out the programs* goals,
objectives, and implementation strategies. www. gao. gov/ cgi- bin/
getrpt? GAO- 03- 770. To view the full product, including the scope

and methodology, click on the link above. For more information, contact
Loren Yager at (202) 512- 4347 or yagerl@ gao. gov. Highlights of GAO- 03-
770, a report to

congressional requesters

July 2003

CONTAINER SECURITY

Expansion of Key Customs Programs Will Require Greater Attention to
Critical Success Factors

Customs expects increased budgets and rapid expansion of two programs to
address container security. CSI budget increase represents an anticipated
growth from 1 to 30 ports. C- TPAT budget

increase represents an anticipated growth from 10 to 167 staff.

Page i GAO- 03- 770 Container Security

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Appendix I

Appendix I Scope and Methodology

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Appendix I Scope and Methodology

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Appendix II

Appendix II Comments from the Bureau of Customs and Border Protection Page
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Appendix II Comments from the Bureau of Customs and Border Protection

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Appendix II Comments from the Bureau of Customs and Border Protection Page
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Appendix II Comments from the Bureau of Customs and Border Protection

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Appendix II Comments from the Bureau of Customs and Border Protection

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Appendix II Comments from the Bureau of Customs and Border Protection

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Appendix II Comments from the Bureau of Customs and Border Protection Page
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Appendix II Comments from the Bureau of Customs and Border Protection

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Appendix II Comments from the Bureau of Customs and Border Protection

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Appendix II Comments from the Bureau of Customs and Border Protection

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Appendix II Comments from the Bureau of Customs and Border Protection

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Appendix III

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