TEARING DOWN THE WALLS
Last December, as year 2000 celebrations approached, Americans got a case of the pre-holiday jitters when news broke that an Algerian terrorist with suspected ties to Osama bin Laden had been arrested in Port Angeles, Washington. Ahmed Ressam had arrived in the United States from Vancouver in a car loaded with bomb-making materials. Only a U.S. Customs Service official's unease with the way Ressam answered her questions prevented him from driving onto American soil. What was most surprising about Ressam's arrest was that he was detected and apprehended at all -- one man amid the 475 million people, 125 million vehicles, and 21.4 million import shipments that came into the country last year. The United States has nearly 100,000 miles of shoreline and almost 6,000 miles of borders with its neighbors. People and goods arrive daily at more than 3,700 terminals in 301 ports of entry. Intercepting the ripples of danger in this tidal wave of commerce is about as likely as winning a lottery.
The global economy's movement toward more open societies and liberalized economies does not just facilitate the movement of products and workers -- it also expedites passage for terrorists, small arms, drugs, illegal immigrants, and disease. The obvious solution to the challenge of filtering the bad from the good might seem to be increased funding for border controls. On the face of it, such an investment would appear logical. Stopping threats at the frontier is better than trying to cope with them once inside the country; customs officials also have the strongest legal authority for inspecting and searching people and goods. Accordingly, if there are more people and goods to police, there should be more agents and security forces along the border to do so.
But efforts to bolster regulatory, enforcement, and security operations at busy borders may result in a cure worse than the disease. Such endeavors place governments on a collision course with easy trade, which is key to the sustained expansion and integration of the global economy. Most successful enterprises need to move workers and products quickly, reliably, and affordably around the planet. Delays associated with intensified inspections along borders undermine the competitiveness of exports by raising transaction costs. Overseas buyers are likely to avoid ports where there is a heightened risk that products will arrive damaged, spoiled, or late. And rapid, hassle-free immigration controls are essential to both global business and tourism.
Fortunately, there is an alternative to long queues and intrusive border inspections, but it requires creative thinking on the parts of the private sector, states, and international bodies. The sights of regulation and enforcement must be set beyond national borders. Properly confronting new threats without disrupting business requires a three-part paradigm shift. First, rather than relying on a hodgepodge of controls at national borders, countries must tighten security within the international transportation and logistics system to reduce the risk that importers, exporters, freight forwarders, and transportation carriers will serve as conduits for criminals or terrorists. Second, states must urge international companies to develop transparent systems for tracking regional and global commercial flows, so that regulators and enforcement officials can conduct "virtual" audits of inbound traffic well before it arrives. And third, border agencies need faster and stronger capabilities to gather intelligence and manage data. A well-informed customs and immigration agent can identify and target high-risk goods and people for inspection while quickly and confidently processing those that pose less of a danger.
THE PRICE OF TRADE
Most Americans -- particularly those clamoring for more vigorous border enforcement -- have little appreciation for the scale and sophistication of the logistical backbone underpinning global commerce. Take the automotive industry, for example. General Motors, Ford, and DaimlerChrysler buy some of the parts to build their cars and trucks from suppliers in the Canadian province of Ontario. The contract requires that within as little as six hours from receipt of an order, these Canadian suppliers must have made their deliveries to the assembly plants in the United States. Delivery trucks are loaded so that parts meant for specific vehicles can be unloaded and placed directly on the appropriate chassis as it moves down the assembly line. This "just-in-time" delivery system has given the Big Three a more cost-effective and efficient production process. But the resulting savings could evaporate with a delay at the border. If trucks carrying the parts for a Ford Explorer are stuck in an inspection queue, assembly plants can quickly fall idle, with costs running as high as $1 million per hour.
The need to move beyond old-fashioned border control becomes apparent on visiting a major port of entry. Five inspectors take, on average, three hours to conduct a thorough physical inspection of a loaded 40-foot container. Even with the assistance of new high-tech sensors, there will never be enough inspectors or sufficient hours in the day to inspect the cargo arriving in places like the Port of Long Beach, California, which received more than one million inbound containers in 1999 (more than double 1995 levels). Nor is it possible to check all the inbound vehicles at the world's busiest commercial land-border crossing -- the Ambassador Bridge between Detroit, Michigan, and Windsor, Ontario -- where a record-breaking 7,000 trucks entered the United States on a single day in February 2000. At these rates, U.S. Customs officials must clear one container every 20 seconds in southern California, and one truck every 12 seconds in Detroit.
Even if the number of inspectors were to rise in proportion to the growth in traffic, there is little room for trucks or containers to wait for inspection. The explosion in international trade is pushing port, bridge, rail, and road infrastructures to their capacity and beyond. Congestion along the access routes, within port and airport terminals, and at border crossings is becoming more commonplace. For instance, the parking lot for secondary and tertiary inspections at Detroit's Ambassador Bridge can accommodate only 90 tractor-trailers at a time. Although it might be possible to double the number of inspectors doing primary inspections, there is no room for the labor-intensive and time-consuming follow-ups. Once the parking lot fills, trucks back up onto the bridge. The resulting pileup virtually closes the border, generating roadway chaos throughout metropolitan Windsor and Detroit.
Faced with these volumes, the U.S. Customs Service must still monitor compliance with more than 400 laws and 34 international treaties, statutes, agreements, and conventions on behalf of 40 federal agencies. One of the Customs Service's top priorities is to interdict illicit narcotics -- a daunting task when one considers that all the pure cocaine to feed America's annual coke habit could be transported in just 15 40-foot containers. As the southern California and Detroit statistics make clear, drug traffickers have more and more haystacks in which to hide their contraband needles. Nationally, 16.4 million trucks and more than 5 million loaded 40-foot maritime containers entered the United States in 1999, and trade is expected to more than double in the next two decades.
Rising volumes are not the only consequence of economic globalization making the lives of border control agents so difficult. In addition, agents must bear in mind that delayed shipment clearance raises costs for any business that engages in cross-border trade -- and few companies can survive today without at least a minimum level of participation in other countries' markets. Media and scholarly discussions about the wonders of the modern global economy are ubiquitous, but most dwell on liberalized trade rules and the rapid spread of information-age technologies. Not enough attention goes to affordable and reliable transportation, the third leg of the global-market stool. Legal access to a distant client and instantaneous ordering will mean very little if the number of hours required, expense, and uncertainty of these transactions are high. Only efficient and rapid transportation can render large distances irrelevant; only when distance means little in economic terms does the construction of global assembly lines become possible.
More and more firms in a diverse array of industries are finding themselves (and their profit margins) dependent on international transportation. To retain their competitive edge, international companies must outsource production, have ready access to customers worldwide, and invest in new technologies to adapt the production process to its widening geographical breadth. The automotive giants' just-in-time delivery system, one such adaptation, means that the automakers do not need large inventory reserves to guarantee that the assembly line keeps running. Inventory guarantees that supply will be available to meet demand. But maintaining large stockpiles of goods consumes capital and may be wasteful if they sit around forever. According to one industry study based on U.S. Commerce Department sales and inventory reports for 1997, the total value of retail sales in the United States for that year was $2.6 trillion. To support these sales, retailers, merchant wholesalers, and manufacturers held $300 billion, $250 billion, and $450 billion in inventory, respectively -- a total of $1 trillion. In order to help lower this cost, logistics and transportation providers are investing in faster and more efficient shipping, aviation, rail, and trucking fleets; constructing seamless chains; consolidating distribution networks; upgrading warehouse management systems; and incorporating state-of-the-art tracking, communications, and database technologies. This "value-chain inventory opportunity" is a powerful driver of the transportation and logistics revolutions.
After making such massive capital outlays in technology and infrastructure, companies now want the state to do its part to enhance the savings and efficiency resulting from these private-sector investments. Not surprisingly, customs, immigration, and other officials are finding themselves under mounting pressure to improve the "facilitation" of transborder flows. After all, a just-in-time delivery system works only if the goods actually do arrive just in time.
Large corporations are not the only ones that would suffer in a world of heavily policed borders. Developing countries would be worse off as well, especially those hoping that export development will lead them to future prosperity. In Central Asia, through which 40 percent of the heroin consumed in western Europe flows, Uzbekistan has been busy installing electronic sensors, erecting barbed-wire barricades, and mobilizing its military to patrol its once largely open borders with neighboring Kyrgyzstan and Tajikistan. Although it is unclear if such measures will succeed in blockading illicit drugs, they certainly keep the region's prospects for cross-border trade and cooperation at a distance. For those developing countries that find their exports all dressed up with no place to go, the benefits of opening up to the world will not materialize. This, in turn, might lead to greater civil unrest, higher emigration, and a backlash against globalization. Thus unilateral border-control initiatives that disrupt the flow of trade and travel could end up fueling the very flames of transnational threats that led to the adoption of tighter controls in the first place.
CLEAR AND PRESENT DANGER
Advocates of better-policed borders are battling against rising volume and mounting pressure for expedited customs clearance. Even if they somehow prevail against the powerful market forces arrayed against them, their victory will prove hollow. The economic costs of supply-chain disruption would be huge. On the other hand, if the market prevails and border controls collapse -- leaving no suitable security alternative in place -- the resulting price in insecurity may also be more than most societies are willing to pay.
As the December 1999 Port Angeles terrorist arrest made clear, Americans have reason to worry about the porousness of their borders. Considering that more than 2.7 million undocumented immigrants have succeeded in entering the United States simply by walking, swimming, or riding across the Mexican and Canadian borders, a terrorist could just as easily slip by the Border Patrol and the Immigration and Naturalization Service. Five to ten million pounds of chlorofluorocarbons are smuggled into the United States each year to supply the large black market for these ozone-depleting products, so it is probably a safe bet that a few pounds of a deadly biological or chemical agent could make their way into the United States undetected. One of the dark jokes circulating through the Pentagon is that if a terrorist wants to smuggle a weapon of mass destruction into the United States, the best place to hide it would be in a shipment of illicit drugs.
American concern over the spread of weapons of mass destruction may soon translate into an investment of more than $60 billion in ballistic missile defense. But why should a rogue state or terrorist organization invest in ballistic missile technologies when a weapon of mass destruction could be loaded into a container and sent anywhere in the world? Osama bin Laden could have a front company in Karachi, Pakistan, load a biological agent into a container ultimately destined for Newark, New Jersey, with virtually no risk that it would be intercepted. He could use a Pakistani exporter with an established record of trade in the United States. The container could then be sent via Singapore or Hong Kong to mingle with the half a million containers that are handled by each of these ports every month. It could arrive in the United States via Long Beach or Los Angeles and be loaded directly onto a railcar or truck for the transcontinental trip. Current regulations do not require an importer to file a cargo manifest with U.S. Customs until the cargo reaches its "entry" port -- in this case, Newark, 2,800 miles of American territory away from where it first entered the country -- and the importer is permitted 30 days' transit time to make the trip to the East Coast. The container could be diverted or the weapon activated anywhere en route, long before its contents were even identified as having entered the country.
Let us hope such a scenario will be only grist for a future Tom Clancy novel. But if such an incident did take place, the political repercussions would be swift and brutal. All eyes would turn to Capitol Hill for the congressional postmortem. The public would be outraged when the U.S. Customs commissioner testified that routine practice allows 40-foot containers with multi-ton shipments to roam around the United States for up to 30 days without anyone declaring the contents or the sender. At a minimum, one could expect a serious public backlash against the current systems that facilitate trade, travel, and commerce. The political base for global liberalization could be severely and irreparably eroded.
UNITE AND CONQUER
Policymakers may soon find themselves in a rather tight spot. Calls for greater vigilance in ports of entry and along national frontiers will be met by private-sector warnings of the dire economic consequences of disrupting the global supply chain. The only way around this potential deadlock requires the private sector to become a part of the solution. The age when improving border security meant simply reinforcing national reporting and inspection processes is past. Reforms must instead work backward from "point of entry" controls to the networks that take goods from their "point of origin" toward their destination. If greater security and accountability can be embedded within transportation networks, then much of the traffic can be audited, cleared for entry, or targeted for inspection well before it arrives at national borders.
It is in an international firm's own interest to clean up the logistical quagmire of its transportation procedures. The same competition driving just-in-time delivery also mandates greater levels of oversight and control throughout the international transportation process. Virtual global assembly lines with minimally stocked shelves require a degree of logistical choreography impossible just a few years ago. Given the high costs associated with cargo losses or delays, managers want guarantees that goods will arrive by the date specified in the contract. Transportation and logistics firms have responded by embracing new tagging, tracking, communications, and information technologies that make it possible to monitor in near real time the flow of products and passengers as they move from their points of origin to their final destinations. Shipper Web sites, such as those developed by the Ohio-based Roadway Express, provide customers with their own personal home page where they can monitor all their active shipments aboard the company's global positioning system-equipped trucking fleet, including their current locations and a constantly updated estimate of the expected delivery times.
Security concerns also receive new priority in the global marketplace, since the importance of guaranteeing delivery has placed a premium on tightening safeguards within the transportation industry. According to the National Cargo Security Council, American companies lost $10 billion in stolen cargo in 1999. The computer industry has been particularly hard hit, with theft and insurance costs adding an estimated ten percent to the cost of the average personal computer. Sixty high-tech companies with combined annual revenues of $750 billion have responded by forming the Technology Asset Protection Association (TAPA). Founded in 1997, TAPA has identified a comprehensive set of security practices to govern the shipment of members' supplies and products. If a freight forwarder or carrier wants to do business with any of TAPA's well-heeled members, they must adopt these practices.
Thus market pressures are mounting for the transportation and logistics industries to embrace standards and adopt processes that can make some border-control activities redundant or irrelevant. In response to these pressures, companies are becoming better able to implement safeguards, police themselves, and provide useful and timely information necessary for public security -- information that states have traditionally tried to verify independently at border crossings. Theft-proof transportation networks are more difficult for criminals and terrorists to compromise. Should there be advance intelligence of such a compromise, these computer systems will make it easier to locate and interdict a contaminated shipment before it enters a crowded port; alternatively, authorities can put together a "controlled-delivery" sting operation, where the contraband is allowed to reach the intended recipient so that the appropriate arrests can be made.
These technological innovations could reduce the need for time-consuming and personnel-intensive physical examinations at the border. In principle, government inspectors can remotely examine commercial tracking and monitoring systems for compliance with regulations. If customs agents can verify that a company is using such safety checks when transporting goods and people, they will feel confident enough to allow that cargo expedited passage through border crossings.
To put principle into practice, laws and regulations are needed that compel companies to maintain and provide access to supply-chain information that can assist inspectors in their work. Since border-control activities can cause long and unpredictable holdups, companies should be receptive to alternative arrangements that can reduce that disruptive risk. Left to its own devices, it is unlikely that the private sector would willingly allow remote inspections. Happily, however, borders offer governments substantial leverage to encourage international firms to do so. Governments enjoy the power of having the final say over who and what can enter their land -- the key is for the state to exploit its power to make or break the success of international supply chains.
Wielding the stick of entry delays or denials over companies that are unwilling to develop viable and transparent security systems, governments could hold out a carrot to those who have made such developments. Manufacturers, freight forwarders, travel agents, carriers, importers, and retailers who maintain tight control over their transportation flows and provide detailed and timely information to support customs and immigration activities would qualify for expedited border passage. Those private-sector actors who facilitate compliance with regulations and reduce the risk of serving as criminal or terrorist conduits could be allowed to move through the equivalent of a trade and travel "E-Z lane," garnering the benefits of lower transportation costs by way of prescreening and clearance through border entry points. Border-control agents would continue to conduct spot checks to ensure compliance, but the overwhelming majority of these goods and people would be allowed to travel with few restrictions. Private-sector actors who were unwilling to adopt the requisite security and transparency systems could inch through the "slow lane" of traditional inspections as they move across borders. Similarly, private-sector actors who have signed up for the E-Z lane but fail to comply with its mandates would, at a minimum, be placed back in the slow lane for a probationary period.
THE NEW FRONTIER
The U.S. Customs Service has taken some tentative steps toward such a preventive approach to border control. Rather than taking a gamble on waiting to intercept illicit drugs at the border, given the daunting odds of identifying and intercepting narcotics at a busy port of entry, the agency has sought to lower the risk of drugs' entering the transportation processes upstream. Beginning in 1998, the Customs Service launched the Americas Counter Smuggling Initiative (ACSI), which sends customs officers throughout Latin America to assist exporters, carriers, manufacturers, and other businesses in developing and implementing security programs to reduce their risk of being exploited by drug smugglers. As an incentive for participation, the Customs Service agrees to reduce penalties should a company's good-faith efforts prove less than foolproof.
To lower congestion at the border, U.S. Customs has also begun experimenting with an automated clearance system that encourages carriers to provide advance customs documentation electronically. Revenue Canada, the Canadian customs agency, adopted a similar program in 1991 for single-load trucks. Companies that enroll in these programs and comply with their mandates receive immediate release of the cargo when their conveyances arrive at the border.
Although these systems are designed primarily for high-volume, low-risk shippers, the approach could be readily applied to the movements of people as well. The promise of expedited immigration processing through airports and borders could encourage frequent travelers to carry a "smart" passport containing immunization records, travel history, or handprint or even retina information. Such a system is already in place in Bermuda, where IBM has developed the FastGate immigration "smart" card system aimed at shortening passport queues. Passengers who want to bypass the normal immigration procedures can encode passport details and an identifying handprint on something resembling an ATM card. On arriving at the airport, passengers must swipe their card through a machine and place their hands on an electronic reader before proceeding.
As the FastGate system suggests, the days of tedious, paperbound, labor-intensive border inspection systems -- the bane of every legitimate international traveler and business -- should be numbered. The time losses and geographic constraints inherent in traditional border-control practices guarantee their continuing inability to tame the surge in international commerce and the growing array of threats that confound the international system.
The days of private-sector opposition to all reporting and inspection requirements -- criticized as bad for the bottom line -- should be over as well. Although existing methods are often inept and at times even counterproductive, states have important and legitimate reasons to control their borders. Governments need to manage the flows of contraband such as weapons, drugs, and child pornography. Immigration policies require that states possess the means to regulate who enters and who leaves their jurisdictions. Many public-health strategies aimed at managing the spread of disease require the identification and isolation of people, livestock, and agricultural products that could place the general population at risk. Safety and environmental threats connected with unsafe shipping and trucking mandate that the transportation sector be monitored. And particularly in the developing world, many states continue to rely on the collection of import duties as an important source of government revenue.