CRITICAL CONVERSATION TRANSCRIPT

CIP Port Security Conference

The National Press Club.
June 29, 2004.

JOHN McCARTHY, DIRECTOR OF CRITICAL INFRASTRUCTURE PROTECTION PROGRAM, GEORGE MASON UNIVERSITY SCHOOL OF LAW:  Good afternoon and welcome.  I’m John McCarthy, the Director of the Critical Infrastructure Protection Program at George Mason University School of Law.  We’re extremely pleased to sponsor today’s critical conversation, Turning the Tide, Securing America’s Ports.  This is the third in a series of important discussions about our nation’s critical infrastructures.

The CIP Program began over two years ago as a congressional initiative to build an interdisciplinary and multi-institutional program to find solutions and offer vital analyses of infrastructure and Homeland Security issues.  James Madison University is a key partner in this endeavor.  To date, the CIP Program has sponsored over 80 projects in law, policy, economics and technology, touching dozens of institutions and leading researchers.

The CIP Program enjoys a strong reputation with federal partners, state governments and the private sector.  In addition to our core research, the CIP Program has also taken on the responsibility of leading the critical infrastructure vulnerability assessment of the National Capitol region and has become a focal point for DHS to interface with a private industry, sector coordinator and the information sharing and analysis centers or ISACs.

Ports and the associated shipping sector are the primary entry points into this supply chain.  It’s not secret that they are vulnerable to both physical and cyber attacks.  The connectiveness, speed and efficiency to which we are custom, are strengths, but these same strengths can be turned against us by those with malicious intent.

I’m a retired Coast Guard officer. I began my career in 1977, while as a freshman in college I enlisted in the Coast Guard Reserves.  In the late ‘70s, Port Security was a part-time back order mission and represented a small Fraction of the Coast Guard’s overall budget.  Clearly, times have changed.

Today’s maritime security is a hot ticket to promotion and is a major budget line item.  This sea change is reflected both in the intent of our adversaries and the intensity of our efforts to protect this important sector.

In just the last few weeks, three headlines caught my attention:  Al-Qaeda wave air attack on super tanker; terrorists publish naval manual on sea mines; operatives in the Persian Gulf turning small craft into suicide boats.  As many here are aware, July 1, 2004 is the looming deadline for initial compliance to comprehensive change in international laws concerning shipping and port security protection.

Implications for both the industry and government for securing America’s security are staggering, both economically and operationally.  I cannot imagine a more qualified group of people to discuss this important topic than today’s panel.  On behalf of George Mason, I welcome you all.

Here to lead today’s critical conversation is my distinguished colleague and award-winning journalist, Mr. Frank Sesno.  Frank spent 17 years at CNN and currently is a Professor of Public Policy and Communications at George Mason University.  I’m also pleased that he’s a Senior Fellow with the CIP project.

F RANK SESNO, PROFESSOR, PUBLIC POLICY AND COMMUNICATIONS, GEORGE MASON UNIVERSITY AND SENIOR FELLOW, CIP PROJECT:  Thank you very much John and as I’m fond of saying, I’m from the media and I’m here to help.  So with due deference from my colleagues, we will start. 

It’s an exceptionally timely conversation as John indicated and the CIP project is doing some very important work related not only to ports but to critical infrastructures more broadly.  So I think that some of what we do and say and learn here today can feed into the research and other innovative and original work that the University is doing.  It is with great pleasure that I introduce this amazing panel.

To begin with, Secretary Asa Hutchinson, Under Secretary for Border and Transportation Security, thank you very much for coming.  The Secretary was a three term Congressman from Arkansas, served on the House Judiciary Committee and the Select Committee on Intelligence.

Rear Admiral, Larry Hereth, is the Director of Port Security, U.S. Coast Guard, is here too.  Director of Port Security, he is responsible for developing goals, objectives, and procedures for the Coast Guard’s Port Security mission. He’s a 1973 graduate of the U.S. Coast Guard Academy and among his many accomplishments and quite relevant, sea duty and command of a unit in Turkey after which he specialized in port security and pollution response.

Carl Bentzel, who is the Senior Counsel with the Senate Commerce, Science and Transportation Committee, currently working on issues related to marine safety, the Coast Guard, maritime issues.  He’s worked on legislation dealing with, among many other things, hazardous materials transportation and he has a degree in admiralty law from Tulane University.

Jim White, Executive Director with the Maryland Port Administration, which oversees the Port of Baltimore.  One of the things Jim is going to do today is really bringing us a real world perspective on this conversation.  The Port of Baltimore is growing fast.  It’s now the second largest handler of cars in the United States, is that correct? More than a million tons of paper pulp, lumber last year and container traffic, up something like 10 percent.  And I noted this comment from Governor Erlich.  “The port’s role, referring to Port of Baltimore, he said, as an economic engine for Maryland, cannot be underestimated and it creates tremendous numbers of jobs.  How many people are there?”

Jim White:  120,000 people.

SESNO:  120,000 people from the Ripple effect from the Port …

Jim White:  More than 18,000 direct.

SESNO:  So not a bad business to be in.  Dr. James Carafano, Senior Research Fellow with The Heritage Foundation.  His research focuses on developing national security in long term and the long term interest of the United States with a perspective on security, economic growth and civil liberties. He was the principal author of the budget analysis of the 2003 Independent Task Force Report, Emergency Responders drastically under funded, dangerously unprepared, which was published by the Council on Formulations. 

P.J. Crowley, is Senior Fellow and Director of National Defense and Homeland Security for the Center for American Progress, focusing largely on Homeland Security. Three years with the National Security Council and another administration. 

And finally, Joseph Cox, he’s President of the Chamber of Shipping of America and he knows the sea very well.  He’s a graduate from the U.S. Merchant Marine Academy.  He’s been in shipping, government and professional organizations for quite some time and his chamber, the Chamber of Shipping of American, represents 22 U.S. based companies that own, operate or charter ocean-going tankers and vessels.

So welcome to you all.

I would like to start today with page two of today’s Washington Post, which you may have seen.  The FBI warns that terrorists may use floating bombs; homemade bombs and mines hidden in inner tubes or other harmless-looking flops that may be bobbing in U.S. waters; a confidential FBI bulletin warned shortly before new anti-terrorist shipping laws take effect.

The warning about possible homemade explosives and suspicious floating objects came about a week before the United Nations Security Code designed to avert maritime terrorist attacks comes into force.  The United Nations new International Ship and Port Facilities Security Code, related U.S. Maritime Transportation Security Act, are considered the most comprehensive security measures to be imposed on the Maritime industry since World War II.

Mr. Secretary, why don’t we start.  First, on this FBI warning, what is the specific and credible threat to American shipping to our ports, to our waterways?  What’s going on out there?

ASA HUTCHINSON, UNDER SECRETARY, BORDER AND TRANSPORTATION SECURITY:  Well, if you put it in terms of specific credible threats, historically there’s been reporting obviously that Al-Qaeda would use various means to bring in weapons, something to harm the United States, and obviously the ports of the United States is one of the venues that that could happen.  There has been historic reporting.

I wouldn’t point to anything currently.  I think what this FBI story related to is the fact that we have to anticipate what might happen next.  We have to anticipate what the next creative terrorist mind might come up with.  It does not necessarily mean there’s going to be another 9/11, which has the same type of synchronized attack.

They will certainly look at what is symbolic, something that is large and dramatic, so we have to have creative minds as well thinking about what they might target and how they might accomplish that.  And obviously one of those vulnerabilities you have to look at would be the ports of the United States and they’ve been built for 300 years without security in mind.

We do not replace that type of thinking overnight, but we’re working very hard, to accomplish it.

SESNO:  But the FBI has sent out this bulletin.  Do you believe that there is something out there now or an actual intent to get something out there imminently?

HUTCHINSON:  The report is designed for law enforcement.  It always somehow winds up in the newspaper, but it’s a law enforcement information packet as to something that could be utilized.  It doesn’t mean that it will.  So I would not point you to specific intelligence.  I’ll leave that for the FBI to comment on.

SESNO:  All right.  Well, before we open this up more, are you going to go sailing around the 4th of July?

HUTCHINSON:  If I have that opportunity.

SESNO:  These new regulations that we spoke about in the paper quoted to go into effect on the 1st of July refer and have as their objective to detect and assess security trips, to take preventive measures, improve information and security, and yet, from the International Maritime Organization, we hear that most of the ports around the world are not in compliance yet.

What about the 361 ports in this country?  How do they measure up and how safe are they?  What changes on the first of July?

HUTCHINSON:  Well, I think that you’ll see significant changes.  You’ll see increased law enforcement presence.  There will be availability of canine teams.  It could be I.D. checks, but I think what is even more significant is what you do not see.  The surveillance camera that will be installed pursuant to security plans, the background checks, the greater security of areas that ought to be protected.

I think all of these security measures in place, unique to each port and perhaps each facility, you won’t see but are very significant enhancing security.  I think what’s important here on these international assessments is that it creates more information for us.

If in fact that statistic is right, that there will be a large number of international ports that are not in compliance, that’s important information for our targeting systems to utilize in trying to determine if this container went through this port that was not in compliance, do not have security measures.  That’s a good reason to enhance inspection criteria for that particular container or ship or crew list that would go through there.

It is information that is very critical for us through the proper targeting society.

SESNO:  If a terrorist tried to sail a dirty bomb into one of our ports, would it be detected?

HUTCHINSON:   I believe that we have the systems in place in order to detect that.

SESNO:  Do you think we could stop a dirty bomb?

HUTCHINSON:  Well, I think we can stop the dirty bomb.  Is it possible for a radiological device to get through?  I think everybody here in the audience that knows the ports, that knows the system of the United States, the freedom of the United States, that there always can be a means, but I believe we have the systems in place.  It’s our job to make those systems work.

SESNO:  All right.  Let’s open it up now and turn to the Coast Guard.  You wear the uniform and you get this job, right?

REAR ADMIRAL LARRY HERETH, DIRECTOR OF PORT SECURITY, U.S. COAST GUARD:  At the risk of asking you to agree or disagree with the Secretary here.

SESNO:  Well, Jim was just saying not in Baltimore.  Do you share his confidence?  Could the Coast Guard detect and stop dirty bombs if somebody wanted to get it in?

HERETH:  Well, it’s not just the Coast Guard.  This really is a multi-agency effort that is very well coordinated behind the scenes and there is a great emphasis on gathering intelligence and looking for those anomalies.

And you know, Under Secretary’s guidance in the CBP and the Coast Guard really have I think worked very well in terms of tracking cargo anomalies, that we have exchanged people, we have an intelligence coordination center where there’s CBP folks over in a Coast Guard element.

We have Coast Guard folks working with CBP, so there’s a lot of cross connects there looking for anything that might be considered to be out of the ordinary that we can then drill down into and see if there’s a problem.

SESNO:  How do the July 1st requirements change the life of the Coast Guard?

HERETH:  Well, pretty dramatically and for those folks that are affected by the new standards much more dramatically.  This is the first time a security code will be imposed across the entire United States, and indeed, the entire world, changing the nature of how shipping occurs and providing a much more secure environment for the shipping, the ships and the port facilities that they are served by.

This all takes place on the 1st of July.  As a result of this new international code, to which 147 countries have agreed to, a lot of collaboration went into the development of that code, which is very much in harmony with the domestic legislation that applied to all U.S. facilities and vessels and we’re talking about dramatic changes.

So 9,000 overnight, 1,000 vessels and over 3,000 facilities around the entire United States are affected by this code.  So it’s a big change on the waterfront.

SESNO:  Jim White, what about the Port of Baltimore?  Specifically what’s being done that’s going to be done differently?

JIM WHITE, EXECUTIVE DIRECTOR, MARYLAND PORT ADMINISTRATION:  We’ve done a lot since 9/11 and I agree with what we said here earlier prior to 9/11.  If you had a friendly wave and you knew your way around the terminal, all you’ve got to do is wave and you’re on 85 percent of the Marine terminals in the United States.  That has changed drastically.

At the Port of Baltimore, we’re not waiting until July 1.  We started a long time ago, improving our fence line.  We put fiber optic cable through the fence, with surveillance cameras, so if there’s an intrusion on the fence line, the camera will go there.

So I think we’re ahead of the curve.  We go to zero tolerance on July 1, on access.

SESNO:  Access?  What does that mean?

WHITE:  It’s access to our Marine terminals through our field lead gates.  You don’t get in unless you have a port issued pass or you have photo I.D. and the companies who are coming to visit have to give us 24 hours notice that you’re coming.  Of course, there will be exceptions, we’ll accommodate those, but we’re trying to establish a zero tolerance level at the Marine terminals.  And customs has been a great partner with us.  Ben Cardin has been very important to us in getting the Backus machines placed on Marine terminals.  We have two of them today and a lot of you in this room know that prior to 9/11, we were only expecting two percent of the containers coming through the port.

SESNO:  What are you expecting then?

WHITE:  We at the Port of Baltimore are over 10 percent.

SESNO:  Where is that inspection happening?

WHITE:  It’s happening right on the Marine terminal.

SESNO:  But they’re already there.  Is that a problem?

WHITE:  That’s part.

SESNO:  Part of it is to push the borders out, right?

WHITE:  Well, you also have the 24-hour rule overseas and I think customs is going after that in a right manner.  They’re trying to be smart about what they’re inspecting or identifying because you can’t do it all.

SESNO:  Joe Cox, I want to keep on our real world conversation going here.  You represent shipping companies.  There’s cost, there’s efficiency, and there’s security.

JOSEPH COX, PRESIDENT, CHAMBER OF SHIPPING OF AMERICA:  Yes, thank you.  I should start off by saying that we have hardened the Maritime industry, but we’re not perfect and we’re not going to be perfect.  But we certainly have hardened it much more than we had two years ago.

SESNO:  You sleep well at night now?

COX:  Well, I probably wake up at 3:00 in the morning as frequently as any government official does, but yes, there are worries and I think we haven’t covered one of the worries.  But along that line of your questioning to government officials on is I think the government is probably our officials are probably doing a much better job investigating cargo anomalies than they are permitted relative to the security rules to tell us about it.

I think they are doing a good job and probably better.  Now, the area where I’d like to talk is that the Maritime industry is a partnership as I see it.  The ship operator, the ports themselves and the government.  Now I can tell you that the Chamber of Shipping members are in 100 percent compliance with the ISBS code.

I can also with authority step into Admiral Hereth’s shoes, and say, no ship is going to come into the United States on July 1 that doesn’t have a certificate attesting to its security preparedness.  However, the ship may come from a port that does not have a certificate of preparedness, and we are dealing today with how do you take the ship and deal with that issue.

SESNO:  What will you do with that?

HERETH:  Well, it’s really a two-part question.  First of all, what do we do with the ship coming from a non-compliant port after the 1st of July?  And the answer is, we just give it a little more scrutiny and ask that they follow certain procedures to make sure that that ship remains secure when they’re in a port that’s unsecured and it’s overseas.

In the meantime then, we take notice of the ports around the world that are going to be non-compliant or not in step with the new international code, and then we have a new program, International Port program, that’s going to work bilaterally with these countries to share practices on security, make sure they’re in line with the U.S. approach to security and visit the country and make sure that we engage in discussions about (INAUDIBLE) up security to the appropriate level.

COX:  There was a second point that came up that Secretary Hutchinson mentioned and it was I.D. checks.  And last year, the International Community through the International Labor Organization drafted an international convention on seafarer’s identification.  Now that’s currently under consideration for ratification by the European Union countries.

When it’s ratified by any two countries that come into force and at that point, any nation can avail them of that I.D. check.  Our problem with I.D. checks come from the ship owner’s side.

SESNO:  Ship owners don’t want I.D. checks?

COX:  We want it.  We want it very much.  We want it to be uniform worldwide.  But the problem we’re having in the U.S. is that not all government officials are choosing to identify themselves when they try to board our vessels.  Now we have extraordinary control mechanisms to prevent unauthorized people from coming on board.  Part of that are I.D. checks, photo I.D. checks.

SESNO:  What does that mean?  You mean, government officials are coming on the ships without photo I.D.’s?

COX:  In some ports, they are refusing to show their photo I.D.

SESNO:  Why would they be doing that?

COX:  Well, that’s a question that I would pose to others on the panel.

SESNO:  OK.  Mr. Secretary, why would they do that?

HUTCHINSON:  We’d be happy to check it out.  Which agency might I ask?

COX:  I think the Coast Guard, we have not heard any problems about.  Another government agency representative, you know, has shown us some problems, but I think that they’re taking it well in hand.

HUTCHINSON:  Well, of course, if they don’t identify themselves, you might not know what government agency they represent.

COX:  It actually got to the point where we were talking to the industry and the industry was under the idea that government officials would come on and not identify themselves to “test” the vessel security preparedness and if the vessel let them on, then the vessel was going to be fined.  And the number going around was $50,000 and so I was going to tell them, for $5, I’ll tell them how to present that.

SESNO:  Carl, P.J., James, what is your sense as to how much safer or where the gaps are still going to be post July 1st?

DR. JAMES CARAFANO, SENIOR RESEARCH FELLOW, HERITAGE FOUNDATION:  I think the Secretary is correct.  We’ve got a system in place.  It’s a very important system.  I think the challenge is now with its enforcement.  What the date means is it means actually in the United States, that a port facility has submitted a plan for approval. 

That said, I mean, some time has to occur before we actually get in a posture that will allow us to be secure, but we have – we have a number of issues to resolve with respect to how these security measures are actually enforced.  And I think that the next year or two years will be the most important time.

SESNO:  Well, why don’t you give us a quick two or three quick examples?

CARAFANO:  Cargo.  Cargo, we have started to bolster security of cargo movement.  But right now, our system is to evaluate cargo by the submission of manifest data and that’s submitted by someone who wants to ship something.  So you know, there’s an issue of credibility.

There’s an issue of what sort of information you can get from that and so we need to make sure that that data is the best data from the best source and ultimately, you’d like to really know what’s in the container before it moves or what’s not in the container most importantly, is not in the container when it moves.

P.J. CROWLEY, SENIOR FELLOW AND DIRCTOR OF NATIONAL DEFENSE AND HOMELAND SECURITY FOR THE CENTER FOR AMERICAN PROGRESS:  I think the other larger question is, who pays for the implementation of the new standards that are put into place on July 1st, and largely speaking, port security right now, if you look at the private/public partnership, is a non-funded requirement.  According to the Coast Guard implementation of the MTSA, it’s going to run somewhere in the vicinity of $7.3 billion over a number of years.  The administration has requested only $46 million in the current in the projected '05 budget in terms of port security.

When you look at the current state of affairs in terms of public agencies that run many of the ports in the United States today, somewhere around, you know, 153 of them or so, only Long Beach and Los Angeles make a profit.

When you look at the state of the economies of most of our states today, they are in the read by somewhere in the neighborhood of $70 billion.  Unlike the federal government, they're required to balance their budget.

So there’s an issue here over if we are now mandating an appropriate but higher level of security than the just-in-time delivery world has required up to this point, you know, is there a federal imperative to really lead this effort?  And if that's the case, right now the resource is not there.

SESNO:  All right.  We're going to come back collectively to the cost issue.

CARAFANO:  Yes. 

SESNO:  Go ahead.

CARAFANO:  Let me mention one bad thing and two good things.  One bad thing is the ISCO codes I think are great and MIPPS (ph) is a great step forward.  It mainly deals with ports and big ships.  And maritime domain is made up of a lot more than that.  There are thousands of small boats that apply our waters every day.

There's tens of thousands of miles of coastline between the ports that also need to be concerned about.  So it's much bigger than just port security and even security of big ships.  It's security in the maritime domain as a whole because there are many threats that can come from any way.  So we really need to look at the big picture when we talk about maritime security.

Let me just mention very quickly two good things.  One is I think the administration taken overall is taking exactly the right approach.  And that's they've adopted a layered strategy.  There is no silver bullet.  There is no one single answer.  It's more security to ports, a continued security initiative at CTPAT. 

None of these things are perfect, all of them of them are terribly flawed.  But what they do is they each provide a certain measure of security, and then what you would hope is that cumulatively the parts, the sum is equal to more than the parts, and you're having multiple opportunities to stop terrorists. 

So even if they're only 50-percent effective at the end of the day you may have a system, which is somewhere between 80 and 90 percent effective.  So I think that's the right approach because there is no single answer that's going to work.

And the other thing is we can't lose sight of the enormous progress that's been made.  I mean security in the maritime community today is just not comparable with what it was three years ago. 

You know, I was at the Port of Miami a couple of months ago, and I walked one of the terminals with a young Coast Guard officer.  And every place we went, he knew everybody by their first name.  I mean the ice guy, he knew he CEP guy, he knew the sheriff guy…they all knew each other, and they were all talking and working together. 

I mean that was enormously encouraging.  So I mean there's an awful lot of energy and emphasis that's been put on by the community as a whole, and we can find lots of things wrong with the current system.  But it is just not comparable to the state of security and the state of awareness that we had three years ago.

SESNO:  Let's focus on the cost issue.  Did you want to jump in here?

CARL BENTZEL:  I just want to pick up on a couple of themes.  First of all, the layered defense kind of idea but also to what Carl mentioned about the trust but verify idea.

First of all, let me just frame this by saying the multilateral approach we believe provides a much stronger approach to U.S. security because we've been joined 147 countries to build up security around the world.  And that affects our security in a positive way.

Because of the code and the way it was negotiated there are several layers that help protect us and assure us that vessels coming to the United States are, in fact, secure and have implemented security programs. 

First of all, the Flag Administration has to certify that they aligned with the code and that they've developed and approved a plan that aligns with the code.  We developed the code and we know what's in the code, so we're satisfied with that.

Secondarily, they have to have an inspector go down to the vessel and make sure that they've certified that the plan has been implemented.  And then thirdly, the master has to attest in a certification statement to where they come to the United States that they have, in fact, implemented the code and have a valid certificate onboard.

Lastly, in the trust but verify category, the Coast Guard has geared up this large surge effort to deal with what we call port-state control.  We send Coast Guard boarding teams on the vessels to make sure that the security plans, in fact, have been implemented and they're approaching security in an appropriate fashion. 

So it's a layered security approach that has enjoined the whole world to ratchet up security.  And really we're going to be the beneficiaries to some degree of that improved security. 

And that's an important theme because our approach has been shipping is global, and terrorism is global, and therefore, we need a global solution.  And so, enjoining and building a maritime coalition was an important part of this whole concept. 

But at the end of the day it's still on a trust but verify basis, and that's an important part of this whole thing.  And we've ramped up a large surge effort that we're putting into place to associate with this one July date.

SESNO:  And you're also putting additional people onto the task.  How many?

HERETH:  We have about 700 people that are dedicated to implementing the MTSA and the new international code all told around the country. There's about 500 new people.

SESNO:  OK.  Let's come back, Mr. Secretary, to what P.J. Crowley raised and talk about this for a moment, and that's money.  All right.  What were the numbers you cited?

HUTCHINSON:  According to the Coast Guard, $7.3 billion to implement over several years.  And right now, Congress is undoubtedly going to increase this.  But the administration's request for port security for 2005 is 46 million.

SESNO:  So what about that, that there are not enough resources being put to this task?

HUTCHINSON:  Well, first of all, let's go back to the $7.3 billion, and you hear all kinds of figures out there as to what's needed to enhance security. 

We have to recognize, though, that when you're looking at the Port of New Orleans, what are you talking about, 50 miles of port facilities?  And many of those are owned by the private sector. I believe that if you're going to enhance security, you have to have investment by the private sector. 

There is a responsibility to provide leadership by the federal government.  In the last couple of years, we've had round one $93 million, 140 projects, round two $225 million, 370 projects, round three 179 million, 442 projects were funded by homeland security grants.

This is a significant federal investment that spurs other private sector investments.  Is it enough?  I think that that is a debate we continue to have, but I think there has to be a recognition, though. 

And I think that's what these security standards that are worldwide but here in the United States apply to, is that it's a partnership.  And there has to be private sector investment as well as public investment.  And I think we can continue both to do a significant part to enhance security.

SESNO:  Jim White, you want to jump in, and then over to James.

JIM WHITE:  Yes.  Well, I think P.J. asked a great and a seminal question, which is what does the federal government spend its money on?  And I think it's an enormously important issue. 

And the federal government is responsible for making maritime security overall better.  So the question is where do you get the biggest bang for the buck?  And I'm not opposed to port security grants if they're properly targeted and focused on critical things. 

But you have to ask the question where are you going to get the most security for the dollar that you're going to spend to make the overall system more secure? 

I think that we really need to take a hard look at the Coast Guard.  I mean if you look at the Coast Guard's missions, which cover every aspect of the maritime domain from safety to security, I mean they're virtually involved in everything from law enforcement to looking at containers to looking at the ports to looking at ships at sea.

And we have a Coast Guard that is grossly under funded and grossly undermanned for the mission that it has.  We have an acquisition program that was designed before September 11th, which looks at funding modernizing the force over 30 years. 

So, until we've fully funded the Coast Guard, until we really modernize and gotten the force we need, which is involved in all kinds of maritime security, then throwing money in any aspect of maritime security in a major way and anything else to me is just penny-wise and pound foolish.

SESNO:  So what should be happening?

WHITE: I think we need to target that specifically at the Coast Guard modernization program and we need a bigger Coast Guard.

SESNO:  By what order of magnitude?

WHITE:  About a billion dollars a year.

SESNO:  All right. Admiral?

HUTCHINSON:  He can't comment on that.  I don't want you to lose your job.

SESNO:  You got a resource crisis, funding crisis?  You're being asked to do these things?  You've dramatically changed the amount of time and effort that you spend on security.  Right?

HERETH:  It is.  And we appreciate the comments.  It's being aggressively addressed.  The Coast Guard does need an improved resource picture.  But it's being with.  The administration has moved up our budget significantly in the last couple of years. 

So the trends are very positive.  There have been lots of development as an organization to expand organization in key areas where we can get field inspectors out there working with the port communities around the country to do good things on improving security. 

And that's necessary and we'll continue to need that.  Also, the modernization of the fleet is vital to the Coast Guard.  Our deep water program needs to be funded at the appropriate levels, and we're getting good, positive attention on that.

HUTCHINSON:  Let me just add on, and I agree, the Coast Guard has the lead here, do a terrific job.  And the administration has increased their funding.  And the secretary has been a big supporter of that.

We also have, though, a broader picture of homeland security for port security.  It is also the containers that come in that customs and war protection has a very robust container security initiative that we funded sufficiently adding ports on the horizon for that.

We also have TSA, Transportation Security Administration, that has a role to play.  And again, it goes back to the layered approach.  But all of these are a very important part of what we're doing security-wise. 

I think that the question that was asked where do you put your money pertains to leadership.  I think the federal role is that leadership role, that partnership role, helping to invest in technology, you know, I think that's what we're doing.

SESNO:  What's the view from the port?

WHITE:  Well, at the port we've really taken our lead from the Coast Guard.  They have stepped forward and put together the right means of communication that we all needed in the fort.

We have an area maritime security group that meets regularly.  We have a steering committee made up of federal, state, local. 

SESNO:  How about cost and resources?  I mean does this feel to you like an unfunded mandate?  You've got a business to run, right?

WHITE:  Absolutely have a business to run.  And the East Coast is so competitive that there's no way the ports on the East Coast can absorb these costs.

SESNO:  What are you absorbing at?

WHITE:  Well, if you look at the Baltimore and look where we're seated, all right, we're seated in the middle, in the mid-Atlantic range. 

And 75 miles to the north, I got Philadelphia, I have Wilmington, and I have New York.  New York's probably 150 miles away.  To the south I have Virginia and coming down into Wilmington, North Carolina, Charleston.  We're right in the middle there.  It's fiercely competitive. 

And as we said earlier, there's only two ports in the United States that can turn a profit.

SESNO:  So, are you being asked to shoulder this additional cost?

WHITE:  The federal government's just come forward with a program where we've benefited to the tune of about $10 million in the three grants that went through.  We have to contribute 20 percent to that, so there's a $2 million expenditure there.

And prior to submitting our request for federal funding, we put $2 million into our existing marine terminal.  So we're already $4 million that we've spent in securing the terminal.  And we can't continue under that pace.  The means just aren't there.

SESNO:  Where should those funds be coming from? 

WHITE:  In, I look at the airports, and I look at all the moneys that they're getting, and it was said earlier that the airports get $1, each port gets a nickel.  That doesn't seem fair.

HUTCHINSON:  You know, it's funny, I went to Europe, and they, you know, are having to shoulder a lot of the investment.  And I think there's a misunderstanding that our airports are not investing in security and, in fact, they are.

We are from the federal government perspective putting a lot of money into airport security, but the airports are investing.  The airlines are investing in security. 

I think what you're seeing is that we as a nation and as a Congress, and Congress, many of this is congressional mandate said we've got to address the 9/11 attacks and security breeches were there, and that was the focus.

I think that as we move to other modes of transportation you'll see a little bit different solution package that goes in there following the same strategy of partnerships and technology.  But I think that we're investing in the ports. 

You can always make a comparison, but I think that comparison is a little bit difficult to sustain when you're looking at a variety of modes of transportation with different characteristics.

SESNO:  Joe Cox, what's the take from the shippers on this discussion about cost?  .

COX:  I think I'm going to refer back to Dr. Carafano in a second because I think he made an important relationship connection that we may be missing something here.

But from the ship owners' standpoint, the international requirements are there.  We have to meet them.  And I can tell you that I've been telling people in the press and others that in the two-and-a-half years that we've been working with the Coast Guard and the international community, the Chamber of Shipping among its own membership has probably met 25-30 times.

Not once have we raised the issue of what the cost of security is.  What the question has been from ship owners is what does the government want us to do?  And then we do it. 

Now from our standpoint, we are in a competitive arena, but if everybody has to do the same thing, then you have an equalization of the cost structure.  Where I think the cost structure here is getting a little bit bogged down is the fact that Dr. Carafano mentioned maritime domain awareness.

I think it was a very important point that this nation has an incredible artery of waterways, the coast and the inland waterways, 26,000 miles of waterways.

The only attacks in the maritime community on the deep sea that were against vessels were by small boats coming up against the side of a vessel and exploding themselves.

SESNO:  Three years ago about, right?

COX:  About a year-and-a-half ago.

SESNO:  Yes.

COX:  But she was a constructive total loss, but more important, all that oil spilling out of that tanker caused an ecological shutdown of that particular port for a period of time.

When I opened my comments by saying that there is a partnership among ships, ports, and the government, I understand that the ports are having a question about their relationships with the government. 

But my question to the government is what assurances does a ship owner have calling into a port where the ship is compliant with what the government has asked us to do and we've paid for?  We're calling into a port which is doing what it has been asked to do and the question of who pays is coming up. 

Is the United States Government able to tell us that the waterway that we're in is a safe waterway to traverse?

SESNO:  Admiral, Secretary? Coast Guard?

UNIDENTIFIED PARTICIPANT:  Well, you know -- you know, comparing it to the Coast Guard, this is a mission they simply didn't have a couple years ago. 

I mean everybody knows several major U.S. ports have a system called VTS, which is kind of a radar system that looks out and tells you who's coming into port and who's going out.  It's mostly just these big ships.  But it was designed because of safety, because they didn't want ships running into things in the fog.  Every U.S. port doesn't have that. 

Now the if you go to San Francisco, for example, they've taken their VTS system and they've tried to turn it into a security system. 

And they actually have analysts there, and they look at it and they try to say gee, how can we use this to kind of increase domain awareness so we can figure out, you know, if somebody's coming in here who doesn't need to be here or doing something they shouldn't and how can we translate that? 

It's very innovative and very creative, and they're doing the best they can.  But this is all new.  This is just something they simply didn't have to do a couple years ago.

SESNO:  The question is relevant.

UNIDENTIFIED PARTICIPANT:  It is.

SESNO:  The question is a relevant question. 

UNIDENTIFIED PARTICIPANT:  It's absolutely a relevant question.  And I think the most important thing is that I think the Coast Guard more than any other branch of the federal government is aware of the importance of increasing domain awareness and awareness of their own incredible shortfalls in being able to do that and that it's a problem that needs to be addressed.  They even tell us how we're going to do it.

UNIDENTIFIED PARTICIPANT:  I think there's a -- there's another issue here.  I mean while the Coast Guard has a role to play in these things, so many of these facilities are under the control of the private sector. 

And the question is what role is the government going to pay -- play in paying for a portion of that cost, and what's the respective responsibilities for security?

I was talking to Admiral Hereth a couple of months ago about nuclear facilities.  And I read an article in the "USA Today," and there was an article about how close small airfields were to nuclear facilities. 

So I called the Coast Guard and I said well, here's a list of the nuclear facilities, and I want you to tell me how many of them are on navigable waterways?  And I got back a response that basically every single one was on a navigable waterway, and they use it for cooling for their water intake systems.

So it's a challenge that the Coast Guard may not be able to address, and it's going to have to be a sort of coordinated policy with private and public sector officials that'll cost a lot.

SESNO:  Let me come back to the relevant question that was asked about the waterways.  Our concern is we're not there in a perfect security environment yet. 

The Coast Guard plays a major role.  I've seen what they have the capability of doing in protecting the waterways.  I think it's very impressive.  But I think also that whenever you're looking at the private sector, you're looking at the port owners, but you're looking at the public as well.  It's a sense of responsibility that passes. 

When you look at the borders of the United States, we rely a lot upon the private sector as well, not enforcing the law but in terms of reporting anomalies.  I think the public has to accept that and I think that it is that layered approach that we have to apply there as well.

SESNO:  Let me ask you both to address the question that Joe raised.  And that is a certified ship comes in, it's done its job, right, the port has done its job, but now they're in a waterway.  Is there an assurance that every other ship has done its job essentially?  Can you offer that assurance?

HERETH:  Certainly not.  I don't know that anybody can ever offer any assurance like that.  There's risk in everything that we do.  In fact, that's the basic approach that we take to everything the Coast Guard does.  Safety, security, environmental protection is all risk based, and we try to manage risk as intelligently and reasonably as we can.

But let me pick up on a theme that Joe raised, and that was the partnership idea.  In building these standards, there's been a ton of collaboration that has happened between port authorities and shippers and shipping companies. 

And I think that has really helped engender a very collaborative atmosphere on the waterfront.  And that is really necessary because as we go forward one of the important things is that we now have designated security officers on vessels, facilities, and at companies, and we didn't have that before. 

And now as these standards take effect on the first of July, we now have this network of people that we can rely on to look for problems.  And I think that's what's going to help us continue to prevent some issues.

SESNO:  That designated security officer on a ship with hundreds or thousands of containers is not going to be able to know what's in every one of those containers, is not going to be able to know where they were necessarily packed, loaded, whether the manifest is legitimate.  That's one guy on a big ship.

UNIDENTIFIED PARTICIPANT:  Well, that one guy is networked in a very elaborate fashion beginning with a container security initiative overseas, all the way across for tampering and preventing encouragements into the cargo while the vessel is in transit and as it's off loaded. 

He links and completes a security arrangement with the facility that's the off load facility.

SESNO:  Jim White, if there were an attack in the Port of Seattle and New Orleans, for example, what would be going on at the Port of Baltimore?  Would you shut down?

WHITE:  That's really up to the Coast Guard. 

SESNO:  But what happens?

WHITE:  First of all, you make individual decisions.  I mean if there's a risk to the Port of Baltimore or Boston or LA, you make a decision that the Coast Guard would make recommendations on and reference that particular port for the security of that port.

But if you're looking at a 9/11 circumstance, do you shut down our economic system of this country?  I think we learned that you can't do that.  Grounding the planes was a very specific operation response. 

Whenever we shut down the Detroit Ambassador Bridge for security reasons, it was an operational response, but it was not appropriate in the long term, and we had to open it up very quickly.  If you were, shutting down our car manufacturers they couldn't get parts and just-in-time delivery from Canada.

The same thing would be true with our ports.  So, obviously I don't see a way that you could effectively do that.  But you get the war game scenario, there is some real touchy circumstances.

SESNO:  But now the question comes, do we have a system in place that allows us to effectively seal off the damage to a port or a couple of ports that may have been attacked while letting the rest of the system continue to function? 

You know, if you're shortchanging the investment on the front end, we're not going to have that confidence on the back end.  And there's going to be a very large political impulse for the next president that faces a decision to do something that's in essence going to be involved with the largest economic cost for the next attack. 

SESNO:  Which is what? 

UNIDENTIFIED PARTICIPANT:  And we do that to ourselves.

SESNO:  What, to shut down the ports?  I'm not following you.

UNIDENTIFIED PARTICIPANT:  Well, gee, you know, the issue is the President is going to have to stand before the American people and say he has confidence that we know what's happened and we have an effective system so that we can isolate the area that's been damaged without necessarily changing.  In other words, you've got to have an economy that can function regardless of the color of the alert.

SESNO:  Sure.

UNIDENTIFIED PARTICIPANT:  And that takes an investment.  And when you get to that kind of national imperative, that's where I come back to $46 million that we're investing in ports to protect our economy.  I just don't think it's enough.

UNIDENTIFIED PARTICIPANT:  I think this is really a crucial issue.  We have to have a security posture that at the end of the day allows the United States to reopen its ports to navigation.

And I think the challenge is correct.  If it's a container that comes in the Port of Los Angeles and it has something in it that we don't want, are you going to keep open all other ports with containerized cargo?  I think it becomes difficult to...

SESNO:  Why wouldn't you?  Why wouldn't you?

UNIDENTIFIED PARTICIPANT:  Well, I mean I think it would be difficult because the attack came through the means of the importation of a container.  And that's your system was to deter that, you would have to come up either with a way of inspecting 100 percent or effectively closing down commerce for a period of time.

UNIDENTIFIED PARTICIPANT:  I think you'd look to tailor your response, you know, after some very quick assessment, you know, rough order of magnitude, if it related to a particular port of origin that you could focus your concern on, and then you could look for other vessels and track cargo bound from that port.

I mean there's all sorts of different scenarios you could throw on the table for discussion.  But I think at the end of the day we do in the United States presently have system to have legal controls to shut down ports or to reopen ports very quickly. 

And we do it -- we do it when other incidents occur in ports.  And we're trying to build on that -- on that model through the use of these area maritime security committees, which Jim mentioned.

And I think that network is going to be key to managing the recovery of a system or screening a system to make sure that there are no other problems.

SESNO:  Let me read to you from the "Middle East Report," week of June 29th, 2004, this week.  You cited this in your introduction, this story.

"Al Qaeda has been developing its naval strike capability.  Western intelligence sources say Al Qaeda operatives in the Persian Gulf and Arabian Peninsula have been turning small civilian vessels into suicide boats.  In some cases the boats are packed with explosives.  In other cases, the high-speed boats contain rocket-propelled grenades.  The first attacks have already taken place in the southern Iraqi port of Um Qasr."

How serious is this, what do we know about this, and is this going to come to our shores?

HUTCHINSON:  Well, it's a serious threat.  Now, is it a likely scenario for the United States?  I think it's much more difficult.  Clearly they have the intent.  They'll use whatever means they can.  But they have not utilized suicide bombers in the United States in a narrow sense.  They did on September 11th.

This is a threat.  We believe that it's much more difficult here, one to get the people in across the border, secondly to get the explosives, thirdly to get the boats without detection and then to operate in the waters of the Coast Guard and the other protective systems that we have.  It is a concern to us.

SESNO:  Do you have any indication they're here now?

HUTCHINSON:  No, not in that context.

SESNO:  Do you worry about this, Port of Baltimore?

WHITE:  Well, what concerns us is running a business, and it is just so competitive on the East Coast that any interruption that we have in shutting down a port is going to have a huge economic impact on the state of Maryland.

Now, you have to realize, through our marine terminals, we have about 2,000 ship calls a year.  To put it into perspective, out of 361 ports, we rank number eight in value of goods moved to the port, so we're a tier one port.  

But you have about 2,000 ship calls a year the Coast Guard is going to be responsible for.  We have 2,500 trucks moving out of a terminal every day.

SESNO:  You don't worry about suicide boats out in those waterways?

WHITE:  No, I don't.

SESNO:  Admiral?

HERETH:  Well, let me go back to what somebody raised before.  Maritime domain awareness is a term that's developing.  There's an immense degree of focus on exactly what that means. 

But long story short, we want to know every single thing that moves on the water, who is in it, where they're going, and what their purpose is.  And that's kind of a large vision or target. 

But the reality is there are enough agencies out there that if we pull together we can eventually do that using current technology and future technology as it's employed to build something that we're calling a common operational picture so that ports and so that agencies and so that everybody has a need to know has a common understanding about the traffic that's out there and what their intentions are.

SESNO:  But what about this technology?  What's the next generation of this technology?  Is that the answer?

UNIDENTIFIED PARTICIPANT:  Well, if you have a GPS system to track the container, it doesn't do any good unless you know what's in the container, and the supply chain is an essential part of it. 

And so, I think the next step is to have a uniform standard for a secure lock that industry is ready for, we set the federal standard for.  We want to make sure it's the right technology.  But that at least gives you some assurance that that is not going to be interfered with through shipment.  You still have to protect the supply chain that we have to address more significantly with our international partners.  But protecting that container is a very important part of it from point of origin to destination

CROWLEY (?):  I would agree with that.  I would take that one step further.  I think you actually have to know and use technology not only to lock the box but to make sure that there's no radiological, nuclear or anything else that we don't want chemical.  And I think that it's up to the government to take a leadership role here and work.  Some of the large retailing companies have come in and they visit commonly, some of them from Arkansas, very big companies, indicating this may be one of the most important issues that they face.  And it's because they are concerned that there's no way to protect their possibility to sell their goods in the event of some sort of attack or disruption.  So, I think this is one of the challenges to be able to set up a system to protect that supply chain and use technology aggressively here.

If I could just make a point, and that is we're focusing on the U.S. side of that supply chain.  And I think that anybody who wants to take an action to interdict on our trade should be certainly aware that they would affect us, but they affect the other end of that supply chain too. And our ships call on a lot of developing countries that are making goods that are sold in the United States and Western Europe.  And certainly that end of the supply chain is going to be perhaps more immediately affected than this side of the supply chain.  So, I think the people who want to take those actions should keep in mind that they're affecting more than just the developed world. 

CARAFANO (?):  Many ports in the Caribbean, for example, are complaining that they cannot afford and they do not have the resources, whether they can afford it or not, the sorts of things that are required by the July 1st regulations.

HUTCHINSON:  But the marketplace is going to work a little bit here.  In South America, for example, we've been contacted by ports who want to be a part of the container security initiative.  They're going to become invest in security.  They're going to have greater capabilities.  Where are the shipping companies going to gravitate to?  The secure ports.  And that's a good thing and it makes it more competitive.

SESNO:  Let me ask about those ports.  You've got people out 20 ports or so.  Is that right?

CROWLEY (?):  Customs.

SESNO:  Customs rather.

CARAFANO (?):  Twenty CSI ports. 

SESNO:  And you're boarding vessels' flights of convenience so that you've got a piece of that as well.

CARAFANO (?):  There's about 8,400 vessels that trade with the United States, making about 50,000 port calls.  And we board 12,000 to 15,000.

SESNO:  What would it take for you to deny access to an American port?

CARAFANO (?):  From a vessel?

SESNO:  Yes.

CARAFANO (?):  On first of July we expect that they will be certificated, have a new international certificate.  If they don't have an international certificate we will deny them entry.

SESNO:  You will deny them entry.

CARAFANO (?):  We will deny them entry.  But the statistics, which we were tracking daily, are actually pretty good.  I think 84 percent of 85 percent was a day or so ago, and that trend line is going like this.  We just got word that some vessels thought that reporting that to us was voluntary until the first of July.  So, hopefully those numbers will shoot up and the impact will be minimal.

SESNO:  That's certifying that they have a security plan, correct?

CARAFANO (?):  Correct, and it's been implemented.  And the master is saying, “Before it gets here, it is implemented.”  And then we exercise our ports to take control responsibilities by boarding that vessel to verify that it has in fact implemented the security plan.

SESNO:  Is that enough?  Is that OK?

CROWLEY (?):  I think so, yes.

SESNO:  OK.

CROWLEY (?):  I think it depends on how good the Coast Guard does their job in terms of making sure that they have a plan and that they know what the plan is.

CARAFANO (?):  I can tell you this.  The reaction we're getting from all the articles that we've seen over the last week about concerns being expressed I think the message is out there that we're taking this seriously. 

Let me just add on that front that security is being treated differently by the Coast Guard and by other agencies and companies on the waterfront because I think everybody recognizes that, just as your example, if something happened in Seattle it may affect the Port of Baltimore.  And so, that ripple effect can be moderate or huge.  And so, we have to be very careful about how we deal with security and take it very seriously.  So, that's why we have that particular fairly hard line approach.

CROWLEY:  Well, I think there are also different levels of investment.  And I'm not suggesting that all of this or even most of this is a federal responsibility.  But it seems to me in line with the MTSA, where you are mandating an increase in security, changing the way that ports do business and other players on the waterfront do business, in ways that are not directly connected to their business, that's where you need a greater federal rule.  I'm not -- and then, conversely, where you find other mechanisms in the security area that both improve security and improve efficiency and there is a valid direct business investment.  That's where you're going to get the partnership that you're really seeking. 

One other point has been raised here just tangentially is the dilemma when you go among all the players here is that ports aren't just about the immediate local economic impact.  Ports have ripple effects across regions, if not across nations.  So, it's very difficult to put on the taxpayers of a particular municipality the entire responsibility for something that has a broader national benefit.  Where you've got those kind of crossover effects, that's again where the federal government has to play a lead role.

CARAFANO:  I agree with a lot of what PJ said.  I just question the assumptions of this notion that security is not part of the business model.  A hundred years ago if you went and said safety is part of the business, well, people would laugh you out of the room.  You need packing safety?  What?  Are you kidding me?  That's a factor in my bottom line?  I don't think so.  Thirty years people rejected the notion that environmental protection was part of their business model.  The reality is doing business in the global community today that environmental protection, security and safety are all part of your business model.  And it's not all bad. 

I'll give you one good example. Target, which is the second largest importer in the United States, one of the things they did on their own kind of anticipating some of the requirements for providing information on their supply chain is they instituted a new data system to manage their supply chain.  Well, one of the things they found was they gained enormous economic benefit from gaining transparency and knowledge of their supply chain.  So, not only was it a security cost but it also had enormous benefits.

And I just want to make one other point.  It's not just about how much.  It's not just having a system in place today.  It's about having sustainable security, because the one mantra that we always have to keep telling ourselves is that it took five to seven years to plan the 9-11 attack.  And if we give you $40 billion and we have great port security over the next year-and-a-half, that's interesting but irrelevant. We need security that's going to be in place for decades.  And so, in my mind the right strategy is to have one that's sustainable, sustainable by the business model, not dependent on gobs of annual federal funding every year because sustainable security at the end is going to be much better than a rash of money which we'll spend.

SESNO:  I understand that.  Here's the question, and you raised this earlier.  And this is really very interesting.  It goes to a very big issue, it seems to me.  We were built for convenience, not for security.  9-11 comes along and we fundamentally have to rethink what we're all about.  It's the fishing vessel.  It can be anything.  It can be some crackpot in South Boston who decides he's going to cause real or he's going to cause real havoc, right?  At what point do we fundamentally rethink some of this model?  Are there gigantic projects where you move the LNG away from the population center?  And if so, who funds that, or do we say that's part of our risk analysis?  We'll layer it.  We'll live with it.  There are limits to what we can do.

HUTCHINSON:  I think we're in transition and we're thinking through all of that.  But at the Port of Boston they have to think through is the federal investment by asking, “are the federal security measures in place sufficient for them?”  We believe that we have a responsibility and we're exercising there to protect the people of Boston, the Port of Boston.  But ultimately they might decide we don't like the environmental impact, we don't like the security risk, and we'll discourage that type of commercial traffic in that port.  And that's a decision that they're entitled to make.

SESNO:  They make that.  That's not a federal response.  It's not a federal cost. 

HUTCHINSON:  Not if they make a decision there, and I'm not advocating.  We do have a responsibility there, but ultimately there are decisions that have to be made as to what's good for a particular community. 

SESNO:  So, expenses and the surveillance and layering and Coast Guard and intelligence and what gets put together, in that fashion?  That's the response?

CROWLEY (?):  Yes.  I think we've done a good job in reacting to the challenge before us, but long-term we still have a long way to go.

SESNO:  John McCarthy, you're looking at this and you've got scholars and others researching it.  From your perspective, what's the question that confronts the ports in this country and perhaps in the world?  What are the things that you're looking into that this group should be aware of and maybe you should address here?

JOHN MCCARTHY:  Actually, I'm very encouraged by the discussion. I think what we've actually seen is an evolution of the discussion before our eyes.  What you have is groups both from the industry and government that are responsible for the immediate response.  And I think in academia, certainly with the CIP Project, we focus on some of those immediate solutions.  Technology was brought up with respect to this concept of emerging reliance on the maritime sector and other critical infrastructures on information technology and databases to begin to help us enable the decision making process of both industry and government.   Well, there are security concerns with that.  There are vulnerabilities associated with that.  The vulnerabilities are constantly evolving relative to our response.  So, we have that kind of near term research that is very important. 

What's more exciting for me, both from Jim and P.J.'s comments particularly, and the articulated need from the industry is for people to be looking ahead five, 10 years across the policy, the law, the technology, the economics and how that picture is changing relative to the immediate threat.  Admiral Harris used the term called "defense and depth".   And in information security there is an evolving concept with defense and depth, which I think is very relevant to the port security and maritime security and any critical infrastructure domain.  And it's an emerging concept called defense and breadth.  And defense and depth primarily focuses on the processes and the technology, which you've heard a lot about in the immediate discussion.  In the broader, farther range discussion is the notion of incorporating people.  We heard about the need to look at the immediate social networks, both in industry and government, and how better realignment within the government, better realignment with the industry to address it. Academia plays and think tanks also play a role in helping us look forward and begin to realign those processes, those economic processes.

SESNO:  What are you looking for us now?

MCCARTHY:  Specifically, Dr. Vernon Smith is looking at economic processes in the energy sector and how to model those processes, which have a direct bearing on the maritime sector.

SESNO:  So that that builds into the business model, the security?  Is that the purpose of that?

MCCARTHY:  Correct.  And that gets into the cascading effect that PJ pointed out before.

SESNO:  OK.  Go ahead.

CARAFANO (?):  One aspect that we think is important from a business standpoint has been this idea of consistency.  And that's been a theme that we've held throughout this implementation process, because there's consistency on several different levels, not only from company to company on the waterfront but from state to state because ships trade between states.  We need consistency there.  And also from country to country we need consistency there so we're not at a competitive disadvantage, for instance, with Canada.  So, that whole theme of consistency, if you can build a consistent system, then we believe business can institutionalize those costs hopefully over time, just as they have with safety and environmental protection standards.  And it will become five or 10 years from now a part of doing business and built into the costs in a more efficient way.

CROWLEY (?):  I would add in this particular area it's difficult to pass along cost.  I've been dealing with the ports for 15 years and they've been bred to compete, to be the most economically efficient mover of cargo.  And there is incredible reluctance on their own to undertake measures which do not have an impact on their ability to compete.  I do agree that there's some efficiency that can be got, but in this particular area you have to take a look at the industry itself.  And the challenge here is you have an industry that wants to compete and be efficient, not perhaps be secure.

SESNO:  More intent on competition than security? 

CARAFANO (?):  We're trying to meld together both.  Obviously what's going to bring the business to your port is being a low cost.

SESNO:  If he said today, "I'll give you $20 million for port security," what would you do that you're not doing now?

CROWLEY (?):  Probably look more into technology as opposed to spending the money on additional man to cover our security needs.  I think that there are tremendous gains in the future that we can do through security through the implementation of better technology.

SESNO:  OK.

CARAFANO (?):  I just have one comment, real quick.  I think in the future security is competition.  I'll give you a great example, the cruise industry.  The cruise industry is fairly cohesive.  I mean, in matters of safety and security they share, they cooperate, because they realize from the Achille Lauro experience when they had a hostage and hijacking if something happens to one cruise liner it affects all their bottom line. Nobody pays attention to whether it's the big red boat or the other boat.  So, they all realize that as a matter of all of them to compete successfully in the world security is important to all of them.

In thinking the long-term, the one issue that does concern me is the developing world, because if you look at our strategy towards developing world it's, hey, compete, enter the global economy, transparency, deregulate, trade, and at the other time we were creating homeland security regimes, which require technology, human capital programs, sophisticated critical infrastructure.  And my greatest concern is that we're not going to be able to close the loop.  And the developing world's ability to get into the global trade lanes and be secure is tough.  They're going to fall further behind rather than catching up.  So, to me, scoring that circle is one of the long-term problems ...

SESNO:  I'd like to turn this open to some questions from the audience now.  I would like to ask you, if you could, to identify yourself.  We've got a microphone here.  And if you could be succinct with your question we can get a few of them.   We've got about 15 minutes here and then we're going to wrap it up.

WIL DAJARASIC:  My name is Wil Dajarasic.  I have a question to all panels.  It seems to me that we will spend billions and billions of dollars out of security.  Isn't a good idea when our human resources from this country can be posted outside to those ports?  In recent, I was in somewhere in third world country.  I just walked through the port.  Nobody checked.  Just see everybody else.  Hi.  Hi, and pretty walking by.   So, my question to the secretary is the government role to have some organization international, whether we can organize better and create better ports for our human resources to go overseas and do their job?  Because we don't have insurance from those countries?

HUTCHINSON:  Absolutely.  Frank used the phrase one of our strategies expanding the border, put one of the layers further out.  And so, both in terms of people and in terms of cargo we're getting more information in advance of whenever they leave to come to the United States so that we can make assessments, increase inspection based upon that information, particularly in containers.  We have the container security initiative, where I was in Port of Le Havre, France.  We have U.S. customs border protection inspectors there in the port working side by side with the French customs inspectors before they leave to the ports of the United States.  The same thing will be true in Hong Kong, in true in 19 ports around the world.

SESNO:  How many ports are we present in?

HUTCHINSON:  We're present in 19 of the 20 major ports that cover 70 percent of the cargo coming to the United States.  And we have another probably 10 and we're adding on to it on a regular basis.

CROWLEY (?):  Conceptually moving the boundaries outward is a good policy, but there are some issues as well.  And that is when a customs officer is in the United States he's a law enforcement officer.  He can take any action he wants.  If he is in a port in China he's a guest of that country and has no legal authority.  So, there's some legal issues that need to be worked through. And every country has their own security force and they're used for securing their borders.  So, there are issues there.  And I agree that we have to move those borders up, but it's not a golden arrow.

SESNO:  It's so daunting.  I was reading about the port in Santos in Brazil, which is the largest in Latin America, eight miles of docks, 20,000 people working there, 86 separate points of entry into this port.  So, that's a big job.  And a couple of people aren't going to be able to plug all those holes. 

CARAFANO (?):  I was just going to add one thing to that discussion, and hopefully that'll change as of the first of July and that security will be improved at that port facility.  But economics are on our side in this because if that port facility continues to be noncompliant, then we can scrutinize the vessel coming from those ports, from that port in particular, with what will eventually end up in delaying the vessel.  Joe and I can speak to this -- vessel owners do not want to be delayed a second.  And so, they will look for and encourage those port facilities to ratchet up their security to the appropriate level.

SESNO:  Will that be the Coast Guard's deliberate strategy, that if you're sailing from a port that's noncompliant or whatever that you're going to slow that ship down?

CARAFANO (?):  Absolutely.  And it's not meant to penalize the port facility.  It's meant to deal with risk in an appropriate way.  If a port facility is not compliant we don't know what's happening to that vessel.  The vessel may be in total compliance and the vessel operators have gone to great degrees to try to get in compliance.  If they're now calling on a noncompliant port, we deserve to scrutinize that vessel as it comes because it  can be affected by the noncompliant port.  And those port operators will be very concerned.

CARL BENTZEL, SENIOR COUNSEL WITH THE SENATE COMMERCE, SCIENCE AND TRANSPORTATION COMMITTEE (?):  Frank?

SESNO:  Go ahead.

BENTZEL (?):  There's a slight disagreement between the ship owner community and the Coast Guard on this?

SESNO:  Go ahead.  Imagine that.

CARAFANO (?):  Well, unfortunately, the ship owners are caught in the middle.  And ...

CROWLEY (?):  Yes.  We've indicated ...

SESNO:  They're the guys in uniform.

CARAFANO (?):  I was just going to say we recognize that dilemma.  And a good ship operator we don't want to put them in an unfortunate circumstance.  So, the MTSA has given us specific authority to begin the process to deny trade to a country that refuses to get in compliance with the new international code.  Now, we're working that on a very broad inter-agency front.  And as Carl pointed out, there are sovereignty issues.  There's lots of issues surrounding that dilemma.  But nevertheless, the good news in our mind is at least now we have a benchmark to point people to.  And through encouragement and outreach in the last six months we've talked to 71 countries out of the maybe 130 that trade with us, carrying most of the cargo that comes to the United States.  We'll continue to press hard in that front to encourage people to ratchet up security appropriately.

BENTZEL (?):  I only have one cent now.  But the issue there is we are a very poor mechanism to use to try and pry a foreign port into compliance. The proper tool is the cargo coming out of that port so that the U.S. targets the cargo and says to the cargo you're not coming into the U.S. if you've come from a non-compliant port.  I'm very, very encouraged that the admiral has said the U.S. government is going along those lines.  It's the appropriate way.

SESNO:  Right. 

DAN SHEEHAN:  Dan Sheehan.  International registries, which is the shipping registry for the Marshall Islands, this question is for Carl Bentzel, Secretary Hutchinson and Admiral Parrot (ph).  It involves a different issue.  It involves consequence management.  Let's presume a lot has been done, a lot still left to do.  But let's presume a worst-case scenario.  You have a suicide bomber that hits a ship in a vital shipping channel.  The ship sinks and blocks the channel. We have a notoriously bad and poor salvage capability here in the United States in terms of consequence to not only that immediate port but the other ports in terms of externalities.  It is an issue which needs to be looked at in my mind.  And I'm curious what is being done both at the congressional level and within Homeland Security and the Coast Guard to address this potential consequence.  Thank you.

HUTCHINSON:  Quickly, we have a uniform capability in the Department of Homeland Security.  Homeland Security would be in chart of that effort.  We have FEMA, of course, that would help in that effort, would be the lead agency.   As to the specifics of it, that would be a massive response.  It would be a highly coordinated response.  It would take a lot of dollars.

Now, you asked about the impact on other ports.  If you shut down one I don't think you need to make a decision to shut down others.  I think your object would be to keep those open and keep the commerce flowing.

CARAFANO (?):  We've actually looked at this issue in the United States with Congress.  Actually the salvage capacities in the United States and in fact the world are not robust, let's put it.  It could take months to clear a channel.

SESNO:  Months?

CARAFANO (?):  Months, depending on the location of the debris and the vessel, re-floating a tanker in a major channel we had a small offshore supply vessel that was struck in the Mississippi River.  That's a 200-foot vessel.  And that closed, I think, the Mississippi three days, as it was a incredibly large tanker.  It would take a much longer period of time.  And there is limited resources.  Actually, during the Oil Pollution Act we passed one of the safety requirements to establish a national salvage plan to harmonize and get the government to work with the entities.  And that is actually, I think, over on the desk of the Coast Guard right now, that being evaluated.  But it's an issue that right now hasn't been addressed and could be a huge economic issue, especially in a port like Houston where I guess 50 percent of all gasoline used in the United States goes down the Houston-Galveston channel.  So, we'd be out of gas in a short period of time.

MCCARTHY (?):  This is one of those areas where there needs to be something like a national continuity of operations plan where the real partnership can take effect, because you think about 9-11 I think the economic impact of 9-11 was somewhere around $85 billion, of which only about a third of that was covered by insurance.  The rest of it was covered one way or the other by the American taxpayer.  To the extent that you take a port out or, more importantly, a terrorist can leave the port alone but take out the rail and highway links that can effectively close a few of our major ports as well, then what do we do?  And if you close the Port of Baltimore, where the ships go and how do you manage the impact on the economy so that you don't give the terrorists that higher measure of success, I think that's something that really everyone needs to be involved in.  It doesn't necessarily have to involve a lot of dollars, but it does have to involve a lot of planning.

HELEN BENTLEY:  We've been talking about $7.1 billion, as quoted by the Coast Guard for the cost.  Mr. Secretary, you and I know that any federal program that's ever been started has not only doubled, but it's usually tripled before it's done. So, we're really talking $15 billion to $20 billion.  And one of the problems is funding.  You mentioned $46 million this year.  That's a tiny little bit of what's needed.  Why don't we do something on the cargos moving in that would pay and provide the necessary funds? 

And also, on July 1 everybody's supposed to be in compliance.  If they're n compliance why do we need more funds?  Last question why don't we have an offshore floating pier that would take care of the bad ships and the bad containers?

SESNO:  Fees, compliance, offshore.

HUTCHINSON:  Congress can always address the fee issue.  I suppose that we could as well.  Obviously you resist additional burdens as necessary and want to make sure that it's fairly spread through the industry and the consumers, but that's just an option.  That's not on the table now.  It does not necessarily mean that it would not be an option down the road.  There's other ways to pass on the cost.

The offshore facility we actually utilize the ship itself.  If in fact we know that there is a ship coming in that we have a concern about, we keep it offshore.  And we would have inspections or make sure that that is dealt with before it would come to the shores of the United States.  Obviously that is an investment that could be considered.

SESNO:  OK. 

HERETH:  I was just going to add one thing about the cost, since I was involved in working those estimates up with our economics staff, I'm confident that those numbers are as accurate as we could possibly make them.  And let me just mention the first year cost estimated for the standards that are being put in place on the waterfront across the United States is $1.3 billion for the first year and $7.3 billion over ten years.  And that includes every cost that we could possibly think of.  And we were very open in all of our public meetings to ask about cost, I mean down to how much a radio cost.  And I can tell you that they're very conservative estimates.  We upped the ante in terms of salary costs.  We upped the ante in terms of estimates of cost of equipment to make sure that it was as a conservative estimate as we could make it.  So, we don't think that there'll be a two or three fold increase in those particular costs, but that's just a piece of the cost discussion.

SESNO:  We don't have $7.3 billion at hand either.

HERETH:  We don't have that at hand.  That's all share responsibility. 

LIBBY LEE:  Hi.  Libby Lee from Port Security International.  We are a private sector.  This question is regarding the technologies for the secretary and the Coast Guard.  The IMO's ICS code is mandatory, which does not require non-intrusive cargo inspection system at ports.  But the CSI does require that, but it's voluntary.  What if a port from an emerging country such as Central America and Latin America that we spend $2 million to comply the July 1st deadline, but there's no recourse of CSI certification or requirements?  The Coast Guard will not do anything to us.  We're not going to spend our money.  What will CSI do?  Are you going to certify all the ports other the 18 or 19 you have now?

HUTCHINSON:  Well, in follow-up the CSI is a separate initiative that we do require for a foreign part to be a part of because they have inspection capability at their ports.  So, they would need to invest in non-intrusive inspection equipment, have that capability there.  And we need that obviously if we're going to inspect it before it leaves to come toward the United States.  And it's an incentive program that once we have that assurance or we have that capability, then it will move more quickly through our ports without having to be inspected here.

LEE:  What are the incentives?  Where is the punishment?  There is no compliance.  So, are there any requirements on that?  I don't see any recourse of non-compliance with that.  Without being enforced they will not spend any money.

HUTCHINSON:  Well, the ports are standing in line to be a part of the CSI initiative.  They see it as a huge competitive advantage if they can have that security regime to advertise their customers.

SESNO:  I'd like to actually call very quickly on Jay Grant here, who is the executive director of this newly created Port Security Council, which is part of the American Association Port Authorities.  I'd like to frame the question in a way that may or may not work for you. But having listened to this conversation here and thinking of Port Authorities across the country, what encourages you most and what concerns you the most?

JAY GRANT, EXECUTIVE DIRECTOR, PORT SECURITY COUNCIL:  Well, I guess the discussion here today encourages me.  It's obviously what's come out as the mindset that was brought out.  We're just at the beginning and we're just starting.  And so, we have a long ways to go.  I think there is disagreement on the funding aspects.  You go back to the Port of New York would tell you that it's going to cost them $132 million to comply with MTSA alone.  So, I think that we're working with the agencies and we have a long ways to go.  But the real bottom line is that there's still a lot of work to go to make this happen.

SESNO:  Chief concerns across that?

GRANT:  No.  I think the chief concern is security.  Most of the port security costs have quadrupled since 9-11.  It was brought up earlier.  I think ports were worried about security before 9-11, just maybe not at the same level they are obviously today.  Most of the ports spend over $15 million immediately after 9-11.  So, number one is security, but obviously it costs a lot of money.  And I think we are talking billions of dollars.  And we're just seeing a fraction of that, but a lot to go.

SESNO:  OK, thank you.

Mr. Secretary, I'd like to conclude with you, if I may.  We started with you. We had a very robust conversation here.  The other day Secretary Ridge said that the Department of Homeland Security working group is looking into performance metrics, measuring success built around a very simple question.  It goes right to what you were just saying. Are we safer?  What are the metrics?  What should they be?  How are we going to measure?  You talked about everything from salvage capacity to cost fences, containers, you name it.  If you had a scorecard, what are those measurements going to be to determine success and safety?

HUTCHINSON:  I don't think the measurements will be successful and true unless they figure in the deterrent value.  And the fact is that when you enhance security, whether it's in aviation or in ports, that is a deterrent for someone trying to ship a weapon or contraband in that arena.  But I think you can also have some other measuring sticks such as the economic benefit to the businesses that are impacted by it, what is their reduction in theft, in cargo loss.  I think you can have measurements in terms of other cargo that is detected through our security measures, whether it is from intellectual property counterfeiting to drugs or illegal arm shipments, as we found going through the Port of Portland.  So, there's those type of measuring performance that has to be a part of it, but I think we have to be somewhat creative and never underestimate the importance of deterrence. And it's the wrong measuring stick if you start saying, as some people have asked me, well how many terrorists have you caught.  I don't think that is exclusively the judge of the success of the security investments.

SESNO:  Well, to our panel, to secretary and admiral and to the other panelists and participants, I'd like to thank you on behalf of the Critical Infrastructure Project and for all the work that we're all doing to make the country a safer one.  So, thank you very much.  It's been an interesting meeting.

END