BEFORE THE

UNITED STATES CUSTOMS SERVICE

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19 CFR Chapter 1

Development of Regulations Regarding Mandatory Advanced Electronic Cargo Information –

Rail Transportation Destined to and Departing from the United States

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COMMENTS

submitted by

THE NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE

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The National Industrial Transportation League (“League”) submits these Comments to the United States Customs Service (“Customs”) in response to the Notice issued by Customs on November 26, 2002. See, 67 Fed. Reg. 70706 (November 26, 2002). Customs seeks comments on proposed regulations to be published by Customs under Section 343(a) of the Trade Act of 2002. In addition, in a Rail Cargo meeting held in Washington, D.C. on January 21, 2003, Customs issued a “Strawman Proposal” for rail shipments destined to and departing from the United States. These Comments by the League are thus directed both to Customs’ Federal Register Notice as well as the Strawman Proposal for rail transportation destined to and departing from the United States distributed by Customs at the January 21 meeting. The League is also separately submitting comments directed to the air, truck, vessel and air Strawman Proposals distributed by Customs at meetings held on January 14, January 16, and January 23, respectively.

The League is one of the oldest and largest national associations representing companies engaged in the transportation of goods in both domestic and international commerce. The League was founded in 1907, and currently has over 700 company members. These company members range from some of the largest users of the nation’s and the world’s transportation system, to smaller companies engaged in the shipment and receipt of goods. A copy of the League’s membership is attached to these Comments.

For many years, League membership was open only to shippers and receivers of goods. However, last year, the League broadened its membership to permit carriers and all other persons engaged in and interested in the transportation of goods to become members. Thus, the League’s members now include not only “classic” shippers and receivers of goods, but also include carriers, as well as third party intermediaries, logistics companies, and similar entities. Members of the League are engaged in all forms of transportation, including rail, motor, ocean and rail carriage. Members of the League ship huge quantities of goods both domestically and in international commerce. Numerous members of the League have operations in Canada and Mexico and in other countries, in addition to domestic United States facilities.

Since its founding in 1907, the League has sought a competitive, efficient, and safe transportation system. Toward that end, the League has participated actively in federal regulatory proceedings and legislative matters dealing with national and, and increasingly, international transportation.

However, the League would note that, in the past, the League has not frequently participated in rulemakings and other proceedings before the United States Customs Service, and has focused primarily on regulatory and legislative matters affecting and before the Department of Transportation; the Interstate Commerce Commission and its successor, the Surface Transportation Board; the Federal Maritime Commission; and similar agencies. The tragic events of September 11, 2001, and the need to make our system of transportation more secure, has changed that dramatically. The U.S. Customs Service has taken the lead in securing our nation’s borders, and its actions and proposed actions have affected and will affect our nation’s transportation system. Matters involving transportation, and matters involving customs and trade, are increasingly intertwined. Indeed, what happens at and beyond the nation’s borders affects the efficiency, safety and security of the entire supply chain. The League participated actively in Customs’ RIN 1515, Presentation of Vessel Cargo Declaration to Customs Before Cargo is Laden Aboard Vessel at Foreign Port for Transport to the United States [“24-Hour Rule”], by submitting extensive Comments to Customs. Indeed, the League was pleased to see that Customs, in that proceeding, adopted some of the League’s suggestions with respect to that rule.

Beyond its participation in that proceeding before Customs, the League has participated actively in both national and international efforts at securing our nation’s transportation system, including active participation from the beginning in the Department of Transportation’s Container Working Group; deliberations on maritime security before the International Maritime Organization; and in a number of other governmental and private efforts directed toward increasing transportation security, including consultations with the Transportation Security Administration, one of Customs’ sister agencies within the Department of Homeland Security. The League actively participated in the Congressional deliberations leading to the provisions of the Trade Act of 2002, of which this proceeding is an outgrowth.

The League would note that Section 343 of the Trade Act requires Customs to “solicit comments from and consult with a broad range of parties likely to be affected by the regulations” required under that provision of the Trade Act. The League strongly commends Customs for its efforts to date in consulting with and seeking comments from a broad range of interested persons. The League pledges to work with Customs to craft regulations that meet the requirements of the law, and that result in a efficient, safe and secure national and international transportation system.

The Types of Rail Transportation Destined to and Departing From the United States

Rail transportation destined to the United States can be divided into two broad categories: (a) carload traffic, which is itself composed of two types of traffic, further detailed below; and, (b) intermodal traffic, also divided into two types. These four categories of traffic each have different transportation characteristics and generally involve different commodities. In each case, the time of the billing information that is transmitted to the carrier by the shipper is different. It should also be noted that there are also specialized rail operations that may not precisely fit into any one of these four categories.

On the inbound side, there are two general types of carload traffic. The first type includes carload traffic from Canadian and Mexican origins destined to United States that is originated at a Canadian or Mexican plant site, transported to yards or “hubs” where the individual cars are built into trains for transportation to U.S. destinations. This traffic consists of a very wide variety of commodities, usually tendered to the rail carrier in carload lots. For this traffic, billing information is available usually before the railcar arrives at the hub. Because of the time it takes for yarded cars to be built into trains, there is often a number of hours between the time billing information is received by the carrier and the departure of the train from the hub.

The second type of carload traffic consists of traffic that is not “built” into trains at hubs or yards, but is rather picked up by trains on their way to the border crossings. This traffic is in carload lots, and may especially consist of traffic such as autos, paper/wood products, or chemicals. Some of this traffic may be classified as either “bulk” or “breakbulk.” The traffic may be very time-sensitive, especially auto traffic. For some of this traffic, the origin may be very close to the border. Billing information for this traffic is available to the carriers shortly before arrival of the trains at the origins, but there is a much shorter time period between the receipt of the information and the arrival of the train at the border. Indeed, depending upon the location of the plant, the time between receipt of information by the carriers and arrival of the train at the border could be as little as one hour, or even less. It should be noted that, for both types of carload traffic, at the northern border this traffic may be waybilled to U.S. destinations on a single carrier (depending upon the origin and the carrier), or may be interchanged with a U.S. carrier at or just beyond the border. In contrast, at the southern border, traffic is carried by Mexican rail carriers to the border (since no U.S. carriers cross into Mexico), where the traffic is interchanged with U.S. rail carriers at the border. Thus, at the southern border, U.S. rail carriers entirely rely on Mexican carriers to provide the information.

The second broad type of rail traffic destined to and departing from the United States is intermodal traffic, which generally consists of two types. First, some intermodal rail traffic consists of containerized goods, arriving usually at Canadian ports for transportation into the United States. Information about this traffic is usually received by the railroad from ocean carriers before arrival of the ship at the port, often well before such traffic arrives by rail at the U.S. border. This traffic consists of a wide variety of commodities, in container or less-than-container lots.

The second general type of intermodal traffic consists of containers or trailers picked up at Canadian or Mexican intermodal facilities in those countries for transportation into the U.S. This traffic consists of a very wide variety of commodities which may be either in container or trailer lots or in less-than-container or trailer lots, and is usually extremely time-sensitive.

The types of rail transportation destined from the United States is similar to inbound rail, though the percentages of each type is different.

Customs’ Strawman Proposal for Rail Transportation and Statutory Requirements under the Trade Act

On January 21, 2003, Customs released a “Strawman Proposal” for rail transportation destined to and departing from the United States. For rail destined to the United States, all carriers or “other knowledgeable parties” will be required to provide advanced electronic paperless transmission via the Rail Automated Manifest System (“Rail AMS”) at all direct U.S. rail crossings. Under the Strawman Proposal, that transmission would need to be made 24-hours in advance, “prior to the train’s departure from its foreign point of origin.” Rail carriers would be required to begin electronic transmission via Rail AMS within 90 days of the publication of the final rule.

For commercial rail departing the U.S. under the Strawman Proposal, Customs would require all rail cargo information for exports to be electronically transmitted prior to export via the Automated Export System (“AES”) 8 hours prior to lading for rail carriers. The trade would be required to report both the External Transaction Number (“XTN”) and the Internal Transaction Number (“ITN”) for every shipment until proposed enhancements to AES are complete.

The League would note that there are a number of statutory considerations that Customs must take into account in developing rules under the Trade Act. Under Section 343 of the Trade Act, 19 U.S.C. §2071, Customs must take into account “differences among different modes of transportation, including differences in commercial practices, operational characteristics, and technological capacity to collect and transmit information electronically.” Customs must “protect the privacy of business proprietary and any other confidential cargo information . . .” except for manifest information collected pursuant to section 431 of the Tariff Act of 1930 and required to available for public disclosure. Under the statute, in determining the timing for transmittal of any information, Customs must “balance [the] likely impact on flow of commerce with impact on aviation, maritime, and surface transportation safety and security . . . .” Finally, under the statute, Customs may determine whether it is appropriate “to provide transition periods between promulgation of the regulations and the effective date of the regulations and shall prescribe appropriate transition periods in the regulations.” Customs may determine that different transition periods are appropriate for “different classes of affected parties.”

Comments of the League

The League is Extremely Concerned That, As Currently Drafted, Customs’ Strawman Proposal Would Severely Interfere With the Efficiency of Rail Transportation Service Destined to and Departing From the United States

As noted above, Customs’ Strawman Proposal for rail traffic destined to the United States would require the transmittal of information to Customs 24 hours prior to the train’s departure from its foreign point of origin, and for rail traffic departing from the United States, 8 hours prior to lading. Either of these requirements would severely interfere with the efficiency of rail transportation destined to and departing from the United States.

The League attended Customs’ January 21 public meeting to discuss the rail Strawman Proposals, and heard the severe problems that the proposals would cause. On January 24, 2002, the League held a meeting of its Rail Transportation Committee, whose membership consists of companies concerned with rail transportation. League members at that meeting expressed deep concern about Customs’ proposals. Since that January 24 Rail Committee meeting, the League has received a number of communications from its members stating that the time period in Customs’ Strawman Proposal would severely interfere with Just in Time requirements and the demands of many shippers’ supply chains.

Customs must realize that there are certain segments of rail traffic that are extremely competitive with truck transportation, and a 24-hour period for notification would essentially destroy that traffic. Moreover, the League has heard from its members that, even where rail transportation may not be strictly “competing” with truck, manufacturing processes (for example, in automobile manufacture and sale) frequently require far less than a 24-hour period for notification for rail transportation. In addition, several League members have reported that they have plants located close to both sides of the borders, and ship by rail between those plants on a very expedited basis. Paper and forest products are an example of this type of traffic.

Accordingly, the League believes that Customs must radically revise its proposal before issuing a Notice of Proposed Rulemaking as required by the Trade Act.

The League Believes that the Requirements for Advanced Electronic Transmission of Information to Customs Should Be the Same on the Nation’s Northern and Southern Borders

Although there are certain differences in rail operations on the Canadian and Mexican borders of the United States, the League does not believe that these differences are so substantial as to require different regulatory treatment under the Trade Act. In fact, the League believes that, in the interests of consistency and simplicity, it is desirable that the rules applying to rail movements destined to and departing from the United States on both the northern and southern borders should be the same.

U.S. Customs Should Work with its Canadian and Mexican Counterparts To Be Sure That Export and Import Information Requirements in the Three Countries Are the Same

Customs’ Strawman proposal for rail service destined to and departing from the United States requires a set of information to be provided to Customs prior to arrival of goods at the border. The League understands that imported or exported movements by rail from or to Canada or Mexico, for which information will have to be provided under the Trade Act, will also be subject to various Canadian and Mexican information requirements, as exported or imported movements from those countries.

The League believes that, before a final rule is published, Customs should closely coordinate its proposed rule with the information requirements of Canadian and Mexican Customs, to be sure that both the content and format of the information to be required by Customs is consistent among the three nations, to avoid unnecessary work and confusion on the part of trade participants.

Customs’ Notice of Proposed Rulemaking Should Significantly Reduce the Time Period Now Set Forth in the Strawman Proposal for Providing Mandatory Advanced Electronic Cargo Information for Shipments by Rail Destined to the United States

Under the Strawman Proposal, Customs envisions the transmission of data 24 hours in advance, prior to the train’s departure from its foreign point of origin. This is far too long, even for goods transported through a rail hub. The League suggests that mandatory advanced electronic cargo information should be required to be provided no more than three (3) hours in advance of the train’s expected departure from its foreign point of origin, except for C-TPAT shippers utilizing a C-TPAT rail carrier, which situation if further discussed immediately below. The League believes that a three-hour minimum information cutoff would not adversely impact time-sensitive intermodal and other time-sensitive shipments by rail destined to the United States. As discussed below, Customs needs to be able to provide a “no-load” decision within this time period in order to avoid substantial dislocations in cross-border supply chains. The same minimum time period should be applicable for goods departing from the United States by rail.

Shippers Who Are Participants in C-TPAT and Who Utilize C-TPAT Rail Carriers Should Have A Less Stringent Time Period Within Which To Provide Mandatory Advanced Electronic Cargo Information to Customs for Goods Destined to and Departing From the United States

The Customs-Trade Partnership Against Terrorism (“C-TPAT”) has become a key component of Customs’ attempts to secure the nation’s borders. The League believes that shippers who are participants in C-TPAT, and who utilize C-TPAT rail carriers, should have a less stringent time period within which to provide mandatory advanced electronic cargo information to Customs for goods destined to and departing from the United States.

In its decision promulgating the 24-Hour Rule, Customs indicated that a company’s participation in C-TPAT would be a factor in “no load” decisions and perhaps in the imposition of penalties. However, in the 24-Hour Rule, C-TPAT members were still required to comply with the 24-Hour Rule in the same manner as non-C-TPAT members. The League believes that Customs should, at least with respect to rail movements, modify its advance notice requirements under the Trade Act of 2002 in the case of C-TPAT shippers utilizing C-TPAT rail carriers.

First, in public and private meetings with respect to the Trade Act requirement of mandatory advance electronic notice, Customs has already stated that it is likely that “no load” orders for rail are expected to be very rare. If that in fact will be the case, there is little incentive for rail shippers to become members of C-TPAT, since the likelihood of “no load” orders will be very small anyway. But it is clear that C-TPAT membership does enhance the nation’s security, and it is thus desirable for Customs to provide incentives to become C-TPAT members. A less stringent advance notice requirement for rail shipments could be a powerful incentive for companies to join C-TPAT and to stringently maintain C-TPAT membership requirements.

Second, there are significant differences between inbound vessel movements covered by the 24-Hour rule and inbound rail operations. It would clearly be difficult both for operators of inbound vessels, with thousands of containers on board, as well as for Customs itself, to differentiate between C-TPAT and non-C-TPAT shipments and thus police differing notice requirements for the C-TPAT and non-C-TPAT shipments. The situation is much easier for rail shipments, with far fewer shipments on a single train and far fewer shippers with shipments waybilled on that train. It will be easily possible for a C-TPAT rail carrier to know which of its shippers is a C-TPAT member, and transmit to Customs the information it receives from such a shipper within a shortened time period.

Finally, there are significant differences in risk to the nation’s security between inbound rail and inbound vessel shipments. With respect to inbound vessels, ocean-borne shipments may originate in foreign countries where there may be little cooperation or coordination between U.S. security forces and foreign police; where there is a risk of significant terrorist activity; and where terrorists in those countries may attempt to hide weapons of mass destruction in an ocean-borne container destined for the U.S.. Such circumstances increase the need for information on ocean-borne shipments to the U.S. well in advance of arrival of that shipment at a U.S. port. But that is not the case for shipments from Canada and Mexico, where there is a high degree of coordination and cooperation between security forces in those countries and U.S. security personnel; where domestic security forces in those nations are already actively engaged in rooting out terrorist cells; and where there are no known “home-grown” terrorist activity directed against the U.S. The need for information far in advance of the arrival of the shipment in the U.S. or even far in advance of the departure of the shipment from a foreign origin is therefore relatively less. Thus, Customs could be much more secure in enforcing, for C-TPAT shippers utilizing C-TPAT rail carriers, a less stringent time period within which to provide mandatory advanced electronic cargo information, especially for goods destined to the United States.

Accordingly, the League suggests that, for C-TPAT shippers utilizing C-TPAT rail carriers, transmission of data should be required at least one (1) hour in advance of the train’s expected departure from its foreign point of origin. While it may not be possible for Customs to provide a “no-load” message prior to the train’s actual departure from the foreign point of origin, it is very likely that “no-load” orders for shipments from C-TPAT consignors utilizing C-TPAT rail carriers will be extremely rare. In the very unlikely event that such an order is generated for a shipment tendered by a C-TPAT shipper utilizing a C-TPAT rail carrier, Customs and the parties will be able to utilize the time between pickup of the goods at the origin and arrival of the train at the border, to more fully investigate the shipment. The operational difficulties that would occur in this very rare situation would appear to be worth the permanent lengthening of the supply chain for shippers under tight Just-In-Time requirements, if Customs would impose a longer minimum notice period.

Customs Should Provide for a Reasonable Phase-In Period After Publication of the Rule

The Trade Act of 2002 specifically grants Customs the right to provide for a transition period between the promulgation date of the regulations and the effective date of the regulations. The League believes that Customs should provide for a reasonable phase-in period after publication of the rule, certainly no less than the 90-day phase-in period provided for in the 24-Hour Rule, and ideally somewhat longer.

Customs Needs to Commit to Providing a “No Load” Message Within a Time Certain After Receipt of Advanced Electronic Cargo Information to All Trade Participants

As Customs has done with the 24-Hour Rule, Customs should commit to providing an affirmative “no-load” message via electronic means within the minimum time period required under the Trade Act rule. Such a commitment would permit certainty in the loading process, and provide an incentive to parties to provide information in advance of the minimum time period, so that they might obtain an affirmative clearance to load well before they are required to load the goods on the train, to insure a smoothly-operating supply chain.

As It Did With the “24 Hour Rule” for Goods Imported Into the United States Via Vessel, Customs Should Exempt Bulk and Breakbulk Cargo

In its decision promulgating the “24-Hour Rule” for shipments via vessel into the United States, Customs completely exempted bulk shipments and exempted breakbulk shipments on a case-by-case basis. See 67 Fed. Reg. 66318 (October 31, 2002). The League was one of the parties that believed that bulk and breakbulk shipments should be so exempted. Customs believed – correctly, in the League’s view – that bulk and breakbulk shipments did not pose the same risks to the nation’s security as did containerized shipments.

Precisely the same considerations apply to bulk and breakbulk shipments by rail. The loading of bulk shipments by rail is done under controlled conditions that make entry of a weapon of mass destruction into a bulk rail shipment extremely unlikely, and the conditions of a bulk shipment make the transportation of such a weapon within a shipment of a commodity in bulk in a railcar difficult. Similarly, breakbulk shipments by rail (such as automobiles), can be easily viewed from outside the railcar to determine if there are articles on the railcar that would compromise the nation’s security.

Accordingly, the League believes that Customs should completely exempt bulk movements by rail from the reach of the rule, and exempt breakbulk movements on a case-by-case basis. If Customs believes that it does not want to go as far as it did in the 24-Hour Rule, then at the very least Customs should exempt bulk and breakbulk movements by rail tendered by C-TPAT participants. The League would note that it believes that an exemption for bulk and breakbulk shipments could solve some of the most vexing difficulties for Just-In-Time movements originating near the nation’s northern and southern borders that Customs’ Strawman proposal might cause.

Customs Needs to Devise Some Method for Clearing Special or Expedited Shipments Destined to the U.S. in Less Than the Standard Advance Notice Period

Customs needs to recognize that, unlike transportation by vessel, which by its nature takes days between the port of origin and the port of destination, there are some situations where shipments by rail need to be expedited. For example, where a factory might experience a shutdown because of the lack of parts or a piece of equipment, or in some other emergency, Customs should have a procedure where shipments can be made in less than the standard advance notice period. Such an emergency might require a special certification from a corporate executive, for example, but there needs to be some practical procedure that still meets Customs’ need to feel “secure” about a particular shipment when there is some unusual or emergency situation that requires an expedited movement in less than the standard advance notification period.

Confidentiality of Data Should Be Maintained

Unlike movements by vessel, there are no statutory requirements that would mandate Customs’ release of information provided pursuant to the requirements of the Trade Act, since Section 431 of the Tariff Act of 1930 applies only to movements via vessel. The League strongly believes that data provided to Customs should be kept confidential by the agency, and should not be released to the public. Of course, aggregated data could be used by government agencies for statistical purposes.

For Goods Departing the United States, Customs Should Require Only the ITN

Under the Strawman Proposal, the trade would be required to report both the XTN and the ITN for every shipment until proposed enhancements to AES are complete. The League understands that, starting in April 2004, the Customs computer network will only require that the ITN be submitted by the exporter to the railroad. The League believes that, assuming that Trade Act rules are published on October 1, 2003 with an effective date of at least January 1, 2004, the League believes that the ITN should only be required to be submitted during the January through April period

Customs Needs to Operate on a 24/7 Basis At All Rail Border Crossings and Be Fully Staffed for Any Needed Inspections

The League understands that, for the large majority of rail movements on the northern and southern borders, Customs normally operates on a 24/7 basis. However, the Trade Act requirements are going to place extra pressure on all trade participants, and Customs should take steps to insure that its offices are fully staffed, not only for seven-day-a-week, ‘round-the-clock operations, but also for any train inspections that might be required as a result of Customs inquiries or holds generated as a result of the Trade Act requirements.

Conclusion

The League respectfully requests that the above comments be taken into account as Customs drafts its Notice of Proposed Rulemaking to implement the requirements of Section 343 of the Trade Act of 2002.

The National Industrial Transportation League

1700 North Moore St..

Suite 1900

Arlington, Virginia 22209

By its Attorney:

Nicholas J. DiMichael

Thompson Hine LLP

1920 N St. N.W.

Suite 800

Washington, D.C. 20036

Dated: February 18, 2003