Customs and Other Cross-Border Cloud Computing Challenges

Stephen DeAngelis

May 9, 2012

Bill Mongelluzzo, writing in the The Journal of Commerce Sailings, reported, “With dozens of federal agencies having some degree of involvement in the cargo clearance process, importers are crying out for a single government portal at the border.” [“Single Border Portal Tops Importers’ Wish List,” 6 March 2012] He continues:

“Customs and Border Protection, the lead government agency at the border, agrees that importers have a legitimate gripe when it comes to the cargo clearance delays and the economic burden they face from redundant or conflicting regulations. ‘If CBP does not support a strong economy, we’re not doing our job,’ [said] Brenda Brockman Smith, executive director, trade policy and programs. … Customs actually began to develop a ‘single window’ for import documentation in the mid-1990s. The International Trade Data System is part of the umbrella automation effort known as the Automated Commercial Environment. Like ACE, however, development of the ITDS has been delayed by inadequate funding, politics and the terrorist attacks of September 11.”

Unfortunately, funding problems, politics, and concerns about terrorist attacks are not likely to go away anytime soon. Mongelluzzo reports that George J. Weise, customs commissioner from 1993 to 1997, laments the fact that Congress took the ACE and ITDS programs “out of Customs’ hands in 2001 and put it out to bid in the private sector.” As a result, the program has languished. “Customs staff was proud of the predecessor automation effort it created, the Automated Commercial System, which Customs still uses to some degree today. Customs staff soon labeled ACE an information technology project and disengaged from its development, Weise said.” Mongelluzzo continues:

“Customs is working on various initiatives designed to provide more uniformity in the filing and processing of import documentation. Smith cited the nine Centers of Excellence and Expertise the agency plans to develop. Each center will expand Customs expertise by focusing on a specific commodity. Smith said centers in Los Angeles and New York are already providing more uniform treatment of electronics and pharmaceutical imports. Other agencies are building upon programs developed by Customs to provide uniformity in the cargo clearance process and to expedite clearance of low-risk shipments, said Domenic Veneziano, director of the division of import operations and policy at the Food and Drug Administration. For example, the FDA may consider an importer certified under the Customs-Trade Partnership Against Terrorism to be a trusted partner. While participation in programs such as C-TPAT requires an investment of time and resources, the benefits in terms of expedited cargo clearance are worth the effort, said Ted Sherman, director of global trade services at Target Corp.”

Su Ross, an attorney with the Los Angeles firm of Mitchell, Silberberg & Knupp, told Mongelluzzo that “Congress continues to make the job of the agencies more difficult by thrusting upon them additional security requirements. Mongelluzzo explains:

“The laws often come with no funding for the agencies, and Congress may have only the vaguest idea of the impact the requirements will have on the competitiveness of U.S. companies, [Ross] said. The burdens placed upon small and midsize companies can be heavy. ‘If you’re a smaller company, you’re stuck,’ Ross said.”

The U.S. is not the only country that has customs challenges. Geoff Whiting reports, “When it comes to monitoring inbound trade, many developing countries’ customs administrations still rely on inefficient paper-based processes, often resulting in significant cargo clearance delays at the border and worse — a potential for corruption.” [“Cross-border cloud computing,” American Shipper, 29 March 2012] Fortunately, Whiting reports, “Microsoft … has created a platform to help customs administrations with minimal information technology to leapfrog into the 21st century and start bringing their cross-border controls in line with those of industrialized countries.” Whiting continues:

“To accomplish this, Microsoft and about a half-dozen partners have developed customs systems that use cloud technology, or the ability to more cheaply access information from the Internet via servers no matter the user’s location. More specifically, cloud technology lets Microsoft offer scalability but with a very flexible nature because of its size and the fact that many partners already use Microsoft software.”

Whiting notes that Microsoft isn’t developing this program out the kindness of its corporate heart. “Large IT companies like Microsoft, IBM, Oracle, and SAP generate considerable revenue from government contracts,” he writes. “Once these modernization practices and programs are in place, these firms are often able to establish long-term, lucrative relationships.” He continues:

“According to the World Trade Organization, international trade grew 13.5 percent in 2010 which makes the customs market a great business opportunity with solid revenue potential for Microsoft. … Luco De Bock, Microsoft’s corporate senior director for global strategic accounts in Brussels, said, ‘national competitiveness, an important priority for many of our public sector partners, is also supported through our efforts to make trade faster and helping them achieve greater economic growth.’ … ‘As with all multi-national businesses, reducing the need to resubmit trade data multiple times has been one of the driving forces behind the need for developing standard trade data elements and interoperable customs systems,’ said Frank Callewaert, global technology strategist for Microsoft. ‘Each customs authority has developed its own set of processes, procedures and levels of automation.’ Callewaert said these were strong reasons for Microsoft to pursue this market.”

No one has ever accused Microsoft of lacking ambition and its plans for customs systems are certainly ambitious. Whiting reports, “Microsoft is looking beyond national and regional customs projects to develop a global system.” He continues:

“The company is currently working with the World Customs Organization to create a Globally Networked Customs initiative. Callewaert said the initiative “will rationalize, harmonize, and standardize the secure and efficient exchange of information between customs-to-customs and trade-to-customs transactions.’ It will also put Microsoft in a position to be part of every customs organization and exporter around the globe, potentially a mountain of revenue to pursue.”

As Bill Mongelluzzo confirmed, companies are longing for a system that can help them simplify customs challenges. Whiting reports that cloud computing is likely to be an essential part of any customs solution. He writes:

“Today, nearly every country has a customs declaration system in place, but they struggle to connect with each other. This lack of connectivity causes cargo flows to slow at the border. Microsoft saw cloud technology as the means to connect these systems without the need to change the existing IT infrastructure of any individual country and thus allowing them to efficiently share non-classified trade information. In Microsoft’s view, developing countries stand to benefit the most from globalization and customs enhancements in the next five to 10 years, because many are experiencing boosts in both imports and exports. However, many of these countries’ customs systems aren’t keeping pace.”

In terms of both initial infrastructure and life-cycle/upgrade costs, cloud computing is the perfect platform for state-of-the-art customs systems. Whiting explains:

“Emerging market customs administrations with cloud-based systems also stand to benefit from the ability to efficiently respond to transportation modes and route changes during shipment. Customs applications based in the cloud give officers the ability to run reports and track shipments in real-time, and share it with other agencies in the government. … These same forces can play a positive role in developed countries as well. Customs agencies can benefit from the streamlined approach of cloud systems and the ease of use they provide for importers and exporters.”

As you recall, Su Ross was complaining about the difficulty small- and medium-sized businesses have dealing with customs regulations. Whiting reports, “As these processes get easier, more small- and mid-sized companies can move their goods to more markets.” He continues:

“The technology exists and can be used by small enterprises to find international buyers and to navigate the field of imports all from mobile phones. As customs systems add in cloud support, more reach can be given to those companies with less resources and internal infrastructure.”

Whiting concludes that “developed nations can also benefit from this type of cloud interface through a ‘community systems’ approach, which can link government and private sector reporting, further reducing the amount of data and documentation carriers send out per shipment.” He discusses a number of examples of companies that are providing cloud-based customs support to countries and the impact that such systems are having. John Treadway noted that “constraints imposed by governments on where data and processes can reside,” could have an impact on the future of cloud-based systems, including customs systems. [“Cross-Border Constraints on Cloud Computing,” CloudBzz, 18 May 2009] He reported:

“For example, Canadian government data cannot reside in the U.S. due to the Patriot Act. Similarly, the French government will not use Blackberry devices because at some point all emails route through the U.S. and also become visible to the Department of Homeland Security. And it’s not just other countries. Even in the U.S. there are different constraints on NPPI (non-public personal information) at the state level. How can enterprises use cloud services where they have no control on the physical location of their data and processes in this patchwork of conflicting laws and regulations. Can a CIO risk regulatory or even criminal liability against their company in order to get the benefits of cloud computing? It is possible that over time these constraints may seriously retard the growth of cloud computing on a global basis. At that point, is it possible that we may see a global treaty effort on cross-border privacy and infrastructure computing?”

The bottom line is that the picture is mixed concerning cross-border issues surrounding cloud computing. Dealing with non-sensitive/unclassified data is easier than dealing with sensitive/classified data, but we are still some way from having a single portal system that facilitates the movement of goods across borders.