Tuesday, June 10, 2008

The Impact of Terrorism on World Trade

Part 2 of a 2-part series

After four years of silence, last week Abdul Qadeer Khan, the father of Pakistan’s atomic bomb, gave his first interview since being placed under house arrest. A now unrepentant Khan repudiates the televised tearful confession he made back in 2004 in which he admitted to smuggling nuclear equipment and technology in shipping containers to such states as to Libya, Iran and North Korea. The resurrection of Abdul Qadeer Khan from obscurity raises anew the question of how safe is the world's trade supply chain--and specifically shipping containers--against a determined terrorist?
In my last post, I introduced the Container Security Initiative--U.S. Customs' response to the threat that a shipping container could be used by terrorists to transport a nuclear bomb to the United States. CSI is meant to "extend [the United States'] zone of security outward," by stationing U.S. Customs agents in ports all over the world (with consent of the host) where they can work with officials to identify suspect containers and inspect them before they ever arrive on U.S. shores. Opting to implement the program in three stages, Customs initially excluded from CSI membership all but the top twenty "megaports" —those ports that send the largest volume of container traffic to the United States. In Phase II of the project, ports of political or strategic significance can join, provided they meet certain criteria. Only in Phase III will ports that require technical assistance and capacity building—those ports in developing countries—be considered for CSI membership. The net result was that for years, only European and a few Asian ports were CSI-certified. Only recently have ports in Africa (South Africa was the first), the Caribbean and Latin America been added to the program. (map credit)
Membership in CSI comes with significant benefits. The idea is that containers arriving from CSI ports are deemed "safe" and ordinarily will not be subject to additional inspection in the United States. They receive "head of the line" privileges. Moreover, if the unthinkable happened and the nation's seaports were closed because of a terrorist threat, CSI-containers would again receive preferential treatment once normal business resumed.
The problem with CSI first and foremost is that the U.S. government itself acknowledges the nuke-in-the-box scenario, around which CSI is designed, is unlikely to occur. A report by the Government Accountability Office found "the likelihood of containers being used to move WMDs to the United States is low." Given that reality, it seems difficult to justify a measure that so significantly changes the trading system to the detriment of developing countries. By delaying admission of developing countries in the program until the last stage, Customs has created disincentives for businesses to source their supply from those countries. For a company, the risk of sourcing goods from a country without a CSI-certified port may be too great given the potential for such goods to stagnate at a U.S. border awaiting inspection (even a single day’s delay at Customs adds almost 1% to the cost of goods).
In a much longer piece on this question, I argue CSI violates World Trade Organization rules because it provides a benefit to some members and not other, which is contrary to the most-favored-nation requirement of GATT Article I. Although GATT Article XXI provides a general exception for national security reasons, I argue the national security exception must be read in light of a "development dimension." In other words, even as rich countries take measures to respond to terrorism and other security concerns, they must still consider the impact such measures are likely to have on developing countries.
The truth is, we cannot ensure our security without ensuring the security of others. It is far better to create a system where we raise world standards on security without relegating developing countries once again to the periphery.
In closing, I wanted to let the IntLawGrrls community know I recently launched my own all-trade-all-the-time website to talk about free trade related issues in a balanced, smart and fair way. I look forward to a long and active run with this blog, but the website gives me the opportunity to write on some of these issues in much greater depth (although not as deep as a law review article!) Check it out at http://www.tradevoices.com/

(Cross posted at Conglomerate, a business-law-economics-society blog)


Patrick S. O'Donnell said...


I'm delighted to learn of your new website, which looks promising.

It's not too late to add your voice of reason to a discussion we recently had at PrawfsBlawg initiated by a post by Rick Hills: http://prawfsblawg.blogs.com/prawfsblawg/2008/06/is-there-a-mora.html#more

Marjorie Florestal said...


Thanks for the words of encouragement--the website is in its very early stages, but I'm hopeful it will add another voice to the small (but growing) chorus of trade experts that advocate sanity about trade!

I look forward to checking out the prawfsblawg debate.