Tuesday, June 3, 2008

The Impact of Terrorism on World Trade

Part 1 of a 2-part series

You probably have never given much thought to shipping containers, but you really should. Those narrow, windowless 40 x 8 feet steel structures, ubiquitous in port cities, revolutionized business. In fact, it would not be too much of a stretch to say that without shipping containers globalization would not have been possible. How? Before Malcolm McLean invented the shipping container in the 1950s, goods were individually and manually loaded onto a ship piece by piece in "break bulk," an expensive process that often took days to complete and subjected goods to theft or breakage. Worse yet, when they arrived at their destination port, the process had to begin all over again. The shipping container allowed goods to be packed at the place of production; later, the same container would be transported by rail or truck to a seaport where it would be hoisted by crane onto a ship and delivered to the ultimate consumer.
McLean’s invention did for maritime shipping what Henry Ford’s assembly line did for the automobile industry—making the system faster, more efficient and cost effective. Businesses could now cheaply export (and import) computers, bicycles, clothing, toys, and all manner of goods. And that, in part, led to the globalization explosion. Today, over 90 % of world trade in goods moves by container, but that’s not all it brings.
Only one month after the September 11 attacks, the shipping container was transformed from a link in the trade supply chain to a possible means of exporting terrorism. On October 26, 2001, Italian officials intercepted Rizik Amid Farid, an Egyptian national and reputed Al-Qaeda member, in a container bound for Canada. Farid carried with him a Canadian passport, along with several airport security passes, and an aircraft mechanic certificate that allowed him entry into sensitive areas in New York’s John F. Kennedy airport, as well as Newark International, Los Angeles International and Chicago-O’Hare. Unfortunately, this was not the first high-profile example of people using shipping containers to advance potentially dangerous ends. In 2004, Abdul Qadeer Khan, the father of Pakistan’s atomic bomb, confessed to smuggling nuclear equipment and technology to Libya, Iran and North Korea in a smuggling network that spanned 15 years. Khan purportedly shipped all of his nuclear materials inside containers.
If a shipping container could house an Al Qaeda operative and nuclear paraphernalia, could it also hold a "dirty bomb"? Could a terrorist stow a nuclear device in a container, ship it to one of the nation’s busiest ports, and then detonate that device by remote control upon arrival? The "nuke-in-a-box" scenario, which would have seemed far-fetched before September 11, now drives U.S. container security policy.
In 2002, U.S. Customs adopted The Container Security Initiative ("CSI"), a program designed 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. CSI has been called a "hidden revolution," because it has quietly but radically altered the way international maritime trade is conducted. In the process, it has transformed the world trade system creating winners and losers. Next week, I want to explore who gains and who loses under the new CSI system. For a more detailed version of this post (and to preview next week’s arguments!) please visit my website.

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

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