HONG KONG RELUCTANT TO EXTEND SFI PILOT

C O N F I D E N T I A L HONG KONG 002277

SIPDIS

STATE FOR EAP/CM

E.O. 12958: DECL: 12/15/2033
TAGS: PREL PGOV HK
SUBJECT: HONG KONG RELUCTANT TO EXTEND SFI PILOT

Classified By: Acting Consul General Chris Marut, Reason 1.4 b/d


1. (C) Summary: In negotiations with the Department of
Homeland Security's Secure Freight Initiative (SFI) team,
Hong Kong officials said they are not interested in extending
the SFI pilot program beyond its agreed April 30, 2009 term.
Hong Kong officials cited minimal evidence of trade
facilitation benefits and worried that the local trade would
object to anything that potentially increases shipping costs
and slows down the flow of goods through the port. DHS SFI
staff offered to continue to provide statistical information
on trade facilitation benefits and regular updates on
prospects for amendments to the SAFE Port Act. End Summary.


2. (C) Secure Freight Initiative, Director of 100 Percent
Scanning Todd Horton led a Department of Homeland Security
delegation that included the U.S. Consulate General Hong Kong
Customs and Border Protection attach and economic unit chief
for discussions December 12 with Hong Kong Trade and Industry
(HK TID) on the Secure Freight Initiative pilot project in
Hong Kong. The Hong Kong government delegation was led by HK
TID Deputy Director General Vivian Lau and included
representatives from Hong Kong's Commerce and Economic
Development Bureau (CEDB),Customs and Excise (HKCE)
Department, and Transport and Housing Bureau.

=========================================
Praise for Hong Kong's SFI Implementation
=========================================


3. (C) Horton began by recapping recent SFI-related events,
including the release of first SFI report analyzing the
program's implementation in June 2008. He noted that DHS is
advocating a new strategy for the SFI program that focuses on
Strategic Trade Corridors. Twenty ports account for 48
percent of all shipments to the U.S., said Horton, and the
volume of cargo passing through Hong Kong makes it an
important partner in SFI implementation. According to the
most recent statistics, 220 alarms have been triggered since
the beginning of the SFI pilot project in Hong Kong's Modern
Terminal, approximately 1.6 percent of all containers passing
through the system. All of these have been successfully
resolved by HKCE officials without requiring secondary exams
in Hong Kong. No weapons of mass destruction or WMD
components have been discovered. Horton praised HKCE
officials for their efficiency and professionalism.


4. (C) Horton acknowledged that the SFI program has not
expanded to new ports in several months as DHS considered
ways to meet the congressionally-mandated goal of 100 percent
scanning of all U.S.-bound cargo by 2012. The Government
Accountability Office (GAO) is currently working on a report
on SFI implementation that is expected to be delivered to
Congress early in 2009. Horton expressed optimism that the
GAO report would endorse DHS' Strategic Trade Corridor
strategy.

==========================
Obstacles to SFI Expansion
==========================


5. (C) Implementation of the SFI program has encountered
some obstacles. In the Port of Southampton, United Kingdom,
the U.K. Royal Customs decided not to support the
continuation of the program once the pilot period had
expired. SFI in Southampton continues to operate but is
fully staffed by U.S. Customs and Border Patrol officers.
DDG Lau noted that the government of Singapore had also
declined to participate in the SFI program. Horton confirmed
that negotiations on Singapore's SFI program have been
temporarily suspended due to the excessive demands of the
terminal operator in Singapore.


6. (C) DDG Lau asked how the new DHS Strategic Trade
Corridor strategy is consistent with the goal of 100 percent
scanning. Horton and his team responded that the new
strategy is an implementation guideline that would deploy SFI
equipment first at sites where it could be most useful. DHS
will suggest ten additional ports for SFI implementation in
the first quarter of 2009. Continuing the project in Hong
Kong demonstrates that DHS is serious about achieving full
implementation of the SFI mandate.

===================================
Hong Kong Finds SFI Hard to Justify
===================================


7. (C) DDG Lau noted that the statistics provided by DHS'
SFI office suggested there is little trade facilitation
benefit for Hong Kong containers that pass through the SFI
system. 0.093 percent of SFI-scanned containers are
reinspected, while 0.098 percent of unscanned containers are
reinspected. Horton replied that many explanations could
account for the small difference, including the success of
the Customs-Trade Partnership Against Terrorism (C-TPAT)
program in Hong Kong and the Pearl River Delta. As much of
Hong Kong's cargo originates from C-TPAT tier three
signatories, it is less likely to be reinspected for security
reasons at the U.S. port of entry. Horton noted that other
ports are definitely seeing trade facilitation benefits.
U.S.-bound cargo from SFI-participant Port of Qassim in
Pakistan, for example, is up seven percent since
implementation of the program.


8. (C) Referring to the statistics on container reinspection
at U.S. ports of entry, Lau said it would be very difficult
for Hong Kong to continue to participate in the SFI program
when the pilot program expires in April 2009, absent clear
evidence of trade facilitation benefits. Horton responded
that DHS would like to be able to continue to test SFI in
another terminal in Hong Kong with a new system that is more
robust than the current non-intrusive inspection and
radiation portal monitor system, adding that Hong Kong
terminal operators have expressed interest in participating
in an expanded trial. The data obtained from the
non-intrusive inspection system is a particular asset to
customs officials seeking to enforce export controls, he
added.


9. (C) Horton also noted that the U.S. government had not
previously pressed for expansion of the program in response
to Hong Kong government sensitivities about the September
2008 legislative council elections. He warned that Hong
Kong's withdrawal from the SFI program could lead the new
U.S. Congress to doubt DHS' commitment to 100 percent
scanning. Additional Congressional oversight could reduce
DHS' scope for interpretation of the 100 percent scanning
mandate, said Horton -- potentially leading to less
implementation flexibility and increased demands on terminal
operators.


10. (C) Hong Kong CEDB Permanent Secretary Wendy Cheung said
Hong Kong industry has raised concerns about the impact of
the SFI program on the efficiency and competitiveness of Hong
Kong ports. Without concrete benefits to the trade, it is
difficult to convince them of the need for these measures,
she said. Lau added that industry players are aware of SFI's
difficulties in Southampton, Pusan, South Korea (where truck
drivers have expressed reservations about the safety of the
system),and Singapore. If the SFI pilot program continues
beyond April 2009, the Hong Kong government will have to
convince the industry that it is worth doing. Since Hong
Kong cargo is not considered high-risk, it is difficult in
the current economic climate to justify programs that reduce
efficiency or raise costs, said Lau.


11. (C) Horton replied that the SFI process is seamless for
traders. The current project proves that containers are not
slowed in any way by passing through the system. He
re-emphasized the value of container scans to enforcement
officials seeking to stem smuggling or identify export
control violations and suggested the additional data points
provided are a valuable complement to any risk-based
enforcement strategy. Horton offered to continue to provide
statistics to determine the trade facilitation benefits of
the SFI pilot project for Hong Kong cargo and update the Hong
Kong government on the status of any proposed amendments to
the SAFE Ports Act. CEBD's Cheung asked Horton to inform DHS
that Hong Kong is currently unwilling to extend the SFI pilot
program when it expires in April 2009.
MARUT