03-20567. Confidentiality Protection for Vessel Cargo Manifest Information

AGENCY:

Customs and Border Protection, Department of Homeland Security.

ACTION:

Withdrawal of notice of proposed rulemaking.

SUMMARY:

This document withdraws a notice of proposed rulemaking (NPRM) published in the Federal Register by the U.S. Customs Service (now a bureau within the new Department of Homeland Security and renamed the Bureau of Customs and Border Protection (CBP)) on January 9, 2003, regarding the confidential treatment of certain vessel manifest information. The NPRM proposed to provide that, in addition to the importer or consignee, parties that electronically transmit vessel cargo manifest information directly to CBP 24 or more hours before cargo is laden aboard the vessel at the foreign port may request confidentiality with respect to importer or consignee identification information. Current regulations allow only the importer or consignee, or an authorized employee, attorney, or official of the importer or consignee, to make such requests. After careful consideration, CBP has decided to withdraw the proposal because of the clear lack of consensus on the part of the trade community regarding the value of the proposed amendment and the administrative burden the proposal, if adopted, would create for CBP and U.S. importers.

EFFECTIVE DATE:

The effective date of this withdrawal is August 13, 2003.

FOR FURTHER INFORMATION CONTACT:

Joanne Roman Stump, Chief, Disclosure Law Branch, OR&R, [phone], and Glen Vereb, Chief, Entry Procedures & Carriers Branch, Office of Regulations and Rulings (OR&R), at [phone].

SUPPLEMENTARY INFORMATION:

Background

On January 9, 2003, the U.S. Customs Service (now a bureau within the new Department of Homeland Security and renamed the Bureau of Customs and Border Protection (CBP)) published a notice of proposed rulemaking (the NPRM) in the Federal Register (68 FR 1173) proposing to amend § 103.31 of the Customs Regulations (19 CFR 103.31) pertaining to public disclosure of vessel manifest information and the confidential treatment of some of that information for importers and consignees. Under § 103.31(d)(1), an importer or consignee, or an authorized employee, attorney, or official of the importer or consignee, can file a request for confidentiality (referred to as a certification in the regulation) relative to the name and address of the importer or consignee and the name and address of its shippers. The proposed regulation would allow, in certain circumstances, certain carriers handling the importer's or consignee's shipments, if properly authorized, to also file a confidentiality request on behalf of the importer or consignee.

This document withdraws the NPRM.

Prior Relevant Rulemaking and the NPRM

On October 31, 2002, CBP published a final rule document in the Federal Register (67 FR 66318) that amended the Customs Regulations pertaining to the inward foreign manifest to provide that CBP must receive from the carrier the vessel's Cargo Declaration (Customs Form (CF) 1302), one document among a few that comprise the manifest, or a CBP-approved electronic equivalent of the cargo declaration, at least 24 hours before the cargo is laden aboard the vessel at the foreign port, and to require that Vessel Automated Manifest System (AMS) participants provide the cargo declaration electronically.

The regulation also provides that a properly licensed or registered non-vessel operating common carrier (NVOCC) that is in possession of an International Carrier Bond containing the provisions of § 113.64 of the regulations (19 CFR 113.64) may electronically transmit required manifest information directly to CBP through the AMS 24 or more hours before cargo it delivers to the vessel carrier is laden aboard the vessel at the foreign port. If the NVOCC chooses not to transmit the required manifest information to CBP, as described above, the regulation requires the NVOCC to instead fully disclose and present the required information to the vessel carrier to allow the vessel carrier to present the information to CBP via the AMS system (see 19 CFR 4.7(b)(3)). (The manifest information filing procedure of § 4.7(b) is sometimes referred to in this document as the “24-hour rule.”)

The final rule document (in the preamble discussion) also noted the NVOCC community's concern that certain information and data that a NVOCC would supply under the procedures of the “24-hour rule” would be subject to release for publication under 19 U.S.C. 1431 (section 1431) and § 103.31 of the Customs Regulations. The NVOCC group contended that such release would reveal confidential business information that could result in harm to the NVOCC community.

To respond to this concern, CBP indicated that it would publish another NPRM for the purpose of seeking further input from the trade regarding the value of amending § 103.31 to allow NVOCCs and vessel operating common carriers (ocean carriers) filing manifest information in accordance with the “24-hour rule” to request confidentiality under the regulation on behalf of importers and consignees. At the same time, the agency began considering whether section 1431 might accommodate expanding the parties who can file a confidentiality request on behalf of an importer or consignee. The result was publication of the January 9, 2003, NPRM and its request for public comment.

The Statute and the Regulation

At the heart of the NPRM were the provisions of section 1431 regarding public disclosure and confidential treatment of vessel manifest information. Under section 1431(c)(1), certain vessel manifest information must be made available for public disclosure, including, among other things, the name and address of each importer and consignee, the name and address of the importer's or consignee's shipper, the general character of the cargo, the name of the vessel or carrier, and the country of origin of the shipment. Under section 1431(c)(1)(A), the importer or consignee may request that its name and address and the name and address of its shipper be kept confidential by filing a biennial certification in accordance with regulations adopted by CBP. Under § 103.31(a) of the Customs Regulations (19 CFR 103.31(a)), vessel manifest information must be made available, under rules set forth in the regulation, to accredited representatives of the press, including newspapers, commercial magazines, trade journals, and similar publications. As stated previously, under § 103.31(d), an importer or consignee, or an authorized employee, attorney or official of the importer or consignee, may request confidentiality relative to the importer's or consignee's name and address, and the name and address of its shippers, by filing a request with CBP every two years.

The statute and regulation thus require that certain manifest information be made available to the public and, at the same time, that importers and consignees be permitted to keep their identity confidential, along with that of their shippers, should they so choose. In passing section 1431, Congress struck a balance between freedom of information (the requirement to release/disclose manifest information) and fair competition (the right to request confidentiality of certain information by importers and consignees) (hereinafter referred to as the “freedom of information—confidentiality balance”). Many in the trade community and related businesses benefit from the availability of manifest information, and some importers and consignees utilize the confidentiality provision to protect their competitive posture. Regarding this balance, it is noted that Congress stated that “greater disclosure of manifest information will facilitate better public analysis of import trends, and allow port authorities and transportation companies, among others, more easily to identify potential customers and changes in their industries.” (S. Rep. No. 308, 98th Cong., 1st Sess. 30 (1983), reprinted in 1984 U.S.C.C.A.N. 4910, 4939.) Congress further stated that section 1431 “retains sufficient protection for business-confidential data of importing firms, while encouraging greater competition among those in the import-servicing trades.” Id.

Discussion of Comments

A total of 60 comments were submitted in response to the NPRM. A substantial majority of the comments were opposed to amending § 103.31 as the NPRM proposed, and most of the minority in favor of the proposal indicated that it did not go far enough and recommended ways to improve it.

Comments in Favor of the Proposed Amendment

Eight of the 60 commenters favored adoption of the amendment proposed in the NPRM. These commenters include organizations representing customs brokers, freight forwarders, NVOCCs, importers, exporters, and/or retailers, and one organization representing producers and marketers of distilled spirits. All of these commenters favored adoption of the proposal, claiming that it would protect from disclosure what they consider commercially sensitive business confidential information submitted in accordance with the “24-hour rule.” These commenters contended that release of this information will harm their competitive posture, expose their and their customers' shipments to a greater risk of theft, and pose a terrorist security threat to the nation. They pointed out that their information was not subject to disclosure prior to promulgation of the “24-hour rule” and contended that the “24-hour rule's” implementation, which they do not oppose, should not impose this negative impact on their businesses.

Despite their support for the proposed amendment, most of these commenters indicated their dissatisfaction with the particulars of the proposal and recommended several ways to improve it, variously including:

(1) dropping the documentation requirement (power of attorney and/or letter of authorization) applicable to the additional parties that could request confidentiality under the proposed regulation, on the grounds it is time consuming and onerous for importers/consignees to produce it and for the additional parties (NVOCCs and ocean carriers) to manage and submit it (many commenters, both for and against, were unsure whether the proposed regulation, which requires that the importer/consignee designate the NVOCC or ocean carrier as its attorney-in-fact, requires a power of attorney);

(2) allowing the additional parties filing confidentiality requests under the proposed regulation to retain the required documentation in their records rather than submit it with the confidentiality request;

(3) adding a general exclusion from the disclosure requirement for any information relative to FROB (Freight Remaining on Board) merchandise;

(4) allowing all NVOCCs to request confidentiality, whether or not they are licensed or registered with the Federal Maritime Commission or they have the capacity to file information electronically;

(5) providing that a general grant of confidentiality apply to all information submitted by NVOCCs and ocean carriers under the “24-hour rule,” not just importer/consignee identification information; and

(6) improving the process by reducing the incidence of erroneous disclosures and eliminating the biennial filing requirement.

Comments in Opposition to the Proposed Amendment

Fifty-two of the 60 commenters opposed adoption of the amendment proposed in the NPRM. These commenters include: U.S. manufacturers, producers, and importers; a publisher of trade information; a United States Attorney, Department of Justice; ocean carriers and shipping companies; market researchers and consultants; trade associations; port authorities; local and regional economic and business development organizations; offshore suppliers; and a U.S. Congressman. From their comments, several significant reasons for opposition to the proposed amendment emerged. Because of the number of individual comments opposing the proposal, they are consolidated and presented below according to subject.

The Proposed Amendment Goes Beyond the Terms of the Statute and Is Contrary to Congressional Policy

Many of the commenters opposing the proposed amendment contended that: (1) The proposed expansion of the parties authorized to request confidentiality under the regulation strains the language of the statute and the intent of Congress and (2) this expansion would wrongly upset the “freedom of information—confidentiality balance” provided for under section 1431.

These commenters stated that allowing additional parties to request confidentiality under the regulation would lead to the filing of more requests and a corresponding reduction of available information. Also, according to these commenters, most or perhaps all of these additional requests would be authorized by importers or consignees who otherwise would not make the request of their own volition; instead, the NVOCCs and ocean carriers allowed to request confidentiality under the proposed regulation would seek authorization, for their own reasons, from their importer and consignee clients to file the confidentiality requests. Thus, these commenters stated, access to information would be blocked, to the detriment of those who rely on that information, while the purpose of section 1431—excluding from disclosure the identities of importers and consignees for their protection—would not be served.

The Proposed Amendment Is Not Necessary

Many commenters contended that there is no need to amend the regulation. This contention has two parts. The first asserts that there is no need to amend the regulation because the “disclosure-confidentiality process” that is now in place under the statute and the regulation works well for both the trade community that utilizes the information and the importers and consignees who may request confidentiality if they so desire. These commenters repeatedly stated that the current law strikes the right balance between freedom of information and confidentiality. In this regard, these commenters pointed out that the NPRM did not identify a single problem, difficulty, or impediment facing importers or consignees under the current system that might warrant a fix to further the intent of the law.

The second part of the contention questioned the NVOCC community's claim to need protection from harm that would result from disclosure of the manifest information for which it now seeks to request confidentiality. These commenters pointed out that, for many years, under the current system, ocean carriers have not suffered harm requiring remedy despite the fact that they have not had the right to request confidentiality on behalf of their importer or consignee clients. They thus questioned the contention that a level of harm requiring remedy would result upon the release of that same manifest information submitted by NVOCCs authorized to file confidentiality requests under the proposed amendment.

The Proposed Amendment Harms Those Entities That Utilize Publicly Available Trade Information

Many commenters in opposition cited the broad extent of the harm that the proposed amendment would inflict on those many elements of the trade and related communities that utilize the disclosed manifest information for a wide variety of reasons. A long list of users of and uses for the information emerged from the comments. Some of the users are: Trade associations and other advocates for U.S. manufacturers/producers, importers, and exporters; port authorities; advocates for local, state, and regional economic and business development; carriers and others involved in shipping and shipping related businesses; a publisher of trade information; a market researcher and consultant; and law enforcement entities. Some of the uses are to: identify overseas markets; locate overseas suppliers; attract and develop customers; promote increased international trade and resulting economic growth; plan port expansion and development; compete with other ports for business; compile trade information to advise/assist business and trade clients; and enforce laws concerning counterfeit trademarks and unlawful foreign competition.

These commenters asserted that allowing additional parties to request confidentiality for importers and consignees, and the corresponding reduction of available information caused by this expansion, would result in serious harm to their competitive advantage and damage or ruin their businesses. These commenters asserted that CBP should not limit its evaluation of the matter to the harm that the NVOCC community alleges it would suffer, but should also consider the negative impact the change would have on other elements of the trade community.

Operational Burdens

A few commenters objected to the proposal on grounds that it would impose additional operational burdens on all parties and would result in a more bureaucratic and less efficient system. First, the NVOCC or ocean carrier would have to contact its importer and consignee clients to solicit the authorizations, requiring a considerable effort and a major document management task. The importers and consignees would have to prepare a power of attorney (or other document for attorney-in-fact designation) and a letter of authorization for a NVOCC or ocean carrier seeking to file a confidentiality request on their behalf, something they do not have to do under the current regulation. A few commenters asked if a set of such documents would have to be prepared for each NVOCC or carrier seeking authorization and if confidentiality would then be applied on a shipment-by-shipment basis or on a NVOCC/carrier-by-NVOCC/carrier basis.

Second, the NVOCC or ocean carrier would then have to submit the request along with the authorization letter to CBP, a more onerous task than merely submitting a request in the manner the current procedure provides. Several asked whether a power of attorney would have to be submitted with the request and authorization letter. Others asked about recordkeeping requirements.

Third, these commenters indicated that the burden on CBP also would increase significantly in verifying and tracking authorizations and requests, suggesting creation of a more bureaucratic system with a more complicated document management component. Some asked how multiple requests (from different NVOCCs or carriers) for the same importer or consignee would be handled. Even if only one request per importer or consignee were required, which is not clear under the proposed regulation, CBP would have to determine if a request had already been filed on behalf of an importer/consignee each time it received a request for an importer/consignee. Also, if requests were not accompanied by the required document(s), CBP would have to request the document(s) or send the certification back to the filer, holding acceptance and processing of the certification in abeyance. If questions were raised about the legitimacy or details of the authorization letter or the power of attorney (or other document), if required and submitted, CBP would have to make inquiries.

The Proposed Amendment Poses a Security Risk

Another reason for opposition to the proposed amendment mentioned by a few commenters was the matter of security. Some contended that curtailing the quantity of available information would harm local, state, and federal security and law enforcement interests. Some stated that the fact that the information is not disclosed until after a shipment has arrived and been processed/released does not mean that the information would lack value. Meaningful investigative information could be gleaned after the fact, revealing patterns or past conduct that could be helpful in law enforcement or anti-terrorism security initiatives. One commenter's letter included a letter from a U.S. Attorney whose access to trade information assisted his office in obtaining convictions for a smuggling related crime.

Business Practices Adjustment

Several commenters in opposition complained that altering the disclosure/ confidentiality process under the regulation would require further adjustments by those involved in the import and import servicing trades. For example, one commenter stated that changing the content of information disclosed would result in an unfavorable change to its business practices and a negative impact on its bottom line.

CBP's Determination

After reviewing the comments, and upon further consideration of the matter, CBP has determined to withdraw the proposal. It is apparent that most of those who favored the idea behind the proposed regulation nevertheless believe that the regulation, as drafted, does not go nearly far enough; however, the plain language of the statute will not allow CBP to go nearly as far as they would prefer. Those who objected to the proposed regulation believe that it went much too far and that the status quo was preferable for many reasons. Thus, because such a substantial majority of the commenters did not favor the actual proposed regulation and the comments revealed such a strong split within the trade community, CBP has decided not to engage in any rulemaking activity in this area for these reasons and the reasons explained below.

CBP agrees with those commenters who stated that adoption of the proposed amendment would result in an increase in the number of confidentiality requests made under the regulation. CBP acknowledges that most of that increase would likely result from the solicitation of importer and consignee authorizations by NVOCCs and carriers allowed to make the request under the proposed regulation. In a recent month since publication of the NPRM, although certainly premature, one quarter of the confidentiality requests CBP received were made by NVOCCs on behalf of their importer/consignee clients. If the proposed amendment were adopted, the increase in the volume of confidentiality requests would, to a corresponding extent, result in less available information for those segments of the trade community that utilize and rely on that information. This, in turn, raises a legitimate question as to whether the proposal would have a deleterious impact on the “freedom of information—confidentiality balance” that the statute provides.

Regarding the terms of the statute, because most of the additional requests would be made on behalf of importers and consignees who might not otherwise make the request of their own volition, CBP has had to consider whether the proposed amendment would serve the interests of parties not intended to be beneficiaries of the law, i.e., NVOCCs and ocean carriers handling the importer's/consignee's shipments. CBP agrees that the statute is designed to protect the identities of importers and consignees (and their shippers if desired) for reasons that are related to their own competitive well being, not for reasons related to the competitive well being of the NVOCCs and ocean carriers filing manifest information in accordance with the “24-hour rule.”

Thus, upon review of the comments and further review of the matter, CBP recognizes that allowing these other parties to file confidentiality requests for their importer and consignee clients will not further the intent of the law's confidentiality provision to protect the interests of the importers/consignees, but will instead serve the interests of these other parties at the expense of users of manifest information whose interest this law is also intended to serve. Importers and consignees already enjoy the benefits of this law through the current regulation, which allows confidentiality requests to be made by their authorized employees, attorneys, or officials.

Moreover, CBP is further persuaded by several of the other comments opposing the proposed amendment and submits that the weight of these other comments, taken together, provides additional support for a decision to abandon the NPRM. Primary among these other reasons against adoption of the proposal are that the proposal, if adopted, would cause some degree of harm to certain elements of the trade community without producing a beneficial impact on the law's beneficiaries or achieving a result mandated by law; the proposal would create an unacceptable operational burden on CBP; and it would create additional operational burdens on all involved parties, including the importers and consignees who may request confidentiality under the current regulation without preparing a power of attorney or authorization letter. Also, the proposed amendment raised a number of significant questions, as made clear by the comments for and against, and as discovered by CBP during its further review of the matter, indicating that amending the process as proposed is more complicated and problematic than initially contemplated. This recommends to an additional extent abandonment of the project.

In summary, it is clear that there is no consensus among members of the trade community on the value of adopting the proposed regulation and that the greater weight of the comments is persuasively against adoption. Also, the proposed regulation, if adopted, would have presented a considerable challenge to administrative efficiency for both CBP and importers and consignees.

Dated: August 7, 2003.

Robert C. Bonner,

Commissioner, Customs and Border Protection.