HONG KONG RESPONDS ON SFI EXTENSION

UNCLAS HONG KONG 000733

SENSITIVE
SIPDIS

STATE FOR EAP/CM

E.O. 12958: N/A
TAGS: ETRD EWWT HK
SUBJECT: HONG KONG RESPONDS ON SFI EXTENSION


1. (U) This is an action request. See paragraphs 2, 9, and

11.


2. (SBU) Summary and Action Request: In productive April 21
discussions on the future of Hong Kong's SFI pilot program,
Hong Kong Government (HKG) senior officials proposed to SFI
Director Todd Horton two options for a way forward. Option
One would extend the SFI pilot an additional six months to a
year, following a consultation period within the HKG and with
the private sector. Option Two would effectively end the
pilot program on April 30, 2009, as stipulated in the
exchanges of letters between the governments of the United
States and the Hong Kong Special Administrative Region. Post
seeks DHS/CBP guidance on our response to the Hong Kong
Government by April 28. End Summary and Action Request.


3. (SBU) On April 21, Department of Homeland Security,
Customs and Border Protection, Secure Freight Initiative
(DHS/CBP/SFI) Director of 100% Scanning Todd Horton,
accompanied by SFI Program Manager Adam Wysocki, CBP Attach
Richard Powell, and Consulate officers discussed extension of
the SFI pilot program in Hong Kong beyond its April 30
expiration date with Hong Kong Trade and Industry Department
(HKTID) Deputy Director General Vivian Lau. Senior officials
from Hong Kong's Commerce and Economic Development Bureau
(CEDB) and the Hong Kong Customs and Excise Department (HKCE)
also attended.


4. (SBU) Lau asked Horton for a Washington update on SFI
developments and the U.S. 9/11 Act of 2007, whereby Congress
mandated that all U.S.-bound containers must be scanned at
foreign ports by mid-2012. Horton noted that DHS Secretary
Janet Napolitano approved on April 6 a DHS-internal
memorandum calling for the adoption of a "risk-based
approach" to deploying SFI systems. On April 1, CBP Acting
Commissioner Jayson Ahern, in testimony to the House Homeland
Security Appropriations Subcommittee, stated that the mandate
for 100 percent scanning of containers needed to be
"thoughtfully reconsidered." Horton also reported that in
late March, four major international terminal operators (APM
Terminals - Netherlands; PSA International Pte Ltd. -
Singapore; Hutchison Port Holdings Americas; DP World -
Dubai, UAE) wrote to DHS Secretary Napolitano expressing
agreement with a multilayered risk-based approach for
improved cargo security of containers entering the United
States. In their letter, the four operators stated support
for an approach whereby they could charge a fee for cargo
scanning and also recommended that scanning programs be
implemented in ports that already have CSI or Megaports
programs in place. In other developments, Horton indicated
the Port of Busan, Korea commenced SFI operations on March
18, 2009, and that Government of Japan officials, interested
in SFI operations to complement their Megaports program, had
recently visited Busan.


5. (SBU) In response, Lau reiterated negative international
sentiment toward the U.S. mandate to achieve 100 percent
scanning for U.S.-bound containers by mid-2012. She claimed
that members of the World Customs Organization (WCO) and the
World Shipping Council, in particular, had responded
negatively to Hong Kong's involvement with SFI and added that
participation "hurts Hong Kong's reputation as a proponent of
free trade." She also quoted from and took affront to a
European press article that mischaracterized Hong Kong as a
"high risk" port, due to its participation in SFI.


6. (SBU) On the extension of Hong Kong's SFI pilot, Lau
stated that she had carefully studied the U.S. proposal for
continuing the SFI pilot program in Hong Kong, provided to
her by CBP Attach Powell the week preceding the April 21
meeting. Lau stressed that "the trade" continues to express
concerns regarding the continuation of the SFI pilot program.
Furthermore, the pilot phase of SFI in Hong Kong had been
successful over its 18-month span, and every "pilot" must
have some end point, Lau said.


7. (SBU) Given the fast-approaching April 30 termination
date, the Hong Kong Government (HKG) has "insufficient time"
to extend or roll over the existing SFI pilot agreement
before its termination, said Lau. She indicated the HKG
would need at least one month, possibly two, to reach
internal consensus and brief "the trade," though she would
work to minimize this timeframe. However, the SFI systems
"would have to be shut down" until an agreement could be
reached.


8. (SBU) Horton told Lau that to relocate the SFI equipment
deployed in Hong Kong to other ports would cost more than to
continue local operations, where USG, HKG, and Modern
Terminals, Ltd. (the operator) had already made large
investments. Further, any movement away from the current
operational SFI status in Hong Kong would send a negative
message. "Why stop a security program that is functional and
operationally effective?" he asked. Horton agreed that SFI
in Hong Kong is beyond the "pilot" stage and rather than
extending the pilot for a specific duration (i.e., six months
to a year),suggested that SFI cooperation in Hong Kong
continue until one or both governments opted out of the
program. Horton noted that other ports participating in SFI
utilize existing Container Security Initiative (CSI)
protocols to handle operational issues such as adjudication
of alarms, eliminating the need for a renewed SFI agreement.
Horton noted another possible option would be for the current
SFI terminal operator in Hong Kong (Modern Terminals, Ltd.)
to continue scanning operations and providing data on
U.S-bound containers to CBP with or without the direct
day-to-day participation of Hong Kong Customs, as is
successfully done at the Port of Southampton, United Kingdom.
CBP officers would then adjudicate alarms based on screen
data and request assistance from Hong Kong Customs officials
on a case-by-case basis. Horton stressed to Lau that a
shutdown in systems operations while the two governments
negotiated only a short extension to the existing SFI pilot
agreement seemed unnecessary and undesirable and DHS might
prefer to move the equipment to a port where the USG
investment could gain longer-term returns.


9. (SBU) Lau reported that Hong Kong could not accept the
notion of an informal, open-ended continuation of the SFI
program (i.e., one not based on a written understanding),nor
could it accept a program absent direct Hong Kong government
participation. She summed up the discussion and offered two
possible options for the SFI pilot in Hong Kong, going
forward:

Option One - The SFI pilot program would conclude as
scheduled on April 30, 2009, pending an agreement to extend
the existing arrangement. Once consultations conclude and an
agreement is reached, the SFI pilot could be extended for a
period of six months to one year, to allow CBP to collect
additional scanning data. The scanning equipment would be
shut down during the HKG's internal deliberations and
consultations with "the trade," which Lau estimated could
take "one to two" months. Lau undertook to minimize as much
as possible the "consultations" period, but would need
notification by DHS/CBP to go forward prior to the April 30
expiration date. She promised to engage "the trade" as soon
as she is notified that the U.S. Government would accept this
option.

Option Two - The SFI pilot would conclude on April 30 as per
the existing exchanges of letters of July 27, 2007 and April
29, 2008. The SFI scanning equipment would be shut down and
CBP could re-deploy equipment from Hong Kong, thus concluding
a successful 18-month SFI pilot project between the U.S.
Government, the Hong Kong Government, and Hong Kong's private
sector.


10. (SBU) Horton said he would pass the offered options to
DHS/CBP leadership in Washington, DC for guidance on a way
forward, and would report our response to Hong Kong
immediately. For her part, Lau again assured she would
expedite deliberations with "the trade" if Option One were
chosen, but stressed the need for a response no later than
April 30. Cargo scanning data collection could then resume
under a new understanding.


11. (SBU) Action Request: Request Department/DHS/CBP provide
decision no later than April 28 (WashDC time) on the
preferred option from the two provided on paragraph 9. End
Action Request.


12. (U) This cable was reviewed at Post by SFI Director
Horton and CBP Attach Powell.

DONOVAN