Last reviewed 7 August 2013
Wouldn’t you know it? Just when everyone thinks they understand all there is to know about export compliance, someone comes up with a bit of new terminology. Authorised Economic Operators (AEO) have actually been with us for five years, but new developments suggest the status may become much more important in the near future. Tim Hiscock takes a look at the legislation behind the status, the reasons for its introduction and what businesses involved in international trade need to know and do.
Our story starts in November 2001, just weeks after the horrific terrorist attack on the Twin Towers in New York. Seven large US companies agreed to participate in a new initiative to guard their supply chains against future terrorist incidents; the sense of urgency to protect the country was, of course, pressing at that time. The Customs Trade Partnership Against Terrorism (C-TPAT) now has more than 9000 signatory companies, comprising manufacturers, importers, freight companies, port authorities and customs brokers. The signatory companies have all introduced systems to comply with standards on security practices and to require that their suppliers’ practices meet the same requirements.
AEO status is the EU’s response to C-TPAT. It provides a compatible certification system that ensures that qualifying companies meet the requirements of C-TPAT and can therefore carry out business as a supplier to a C-TPAT-registered company in the USA. The principles of C-TPAT are now incorporated into the World Customs Union’s SAFE Framework and numerous other countries have introduced their own compliant systems or are bringing them on-stream.
What AEO means for business
So that’s where it all started. What do British businesses need to do?
From a strictly legal basis, there’s no need to panic. AEO registration is not mandatory, and there is no current proposal to make it so. To date, only 300 British businesses have registered. However, there is a growing commercial drive to comply and, in some cases, a real danger that some companies will get left behind as the system gains acceptance. It ought to tell us something that in Germany there are almost 20 times more companies than in the UK that have already achieved AEO certification. Germany, of course, is the developed world’s leading exporter of goods, so it might serve as an early warning that British businesses need to at least understand what AEO is all about and make an informed decision on applying for certification.
The AEO scheme is open to all registered businesses in the EU that are involved in trade with non-EU countries. According to HMRC, this includes logistics operators, carriers, freight forwarders, customs agents, importers, exporters, manufacturers, ports and many more. It gives the right for consignments to be “fast-tracked” through customs clearance and, when such goods are subjected to inspection, they will get priority over others. So for any business that places an emphasis on timely delivery (and let’s face it, who doesn’t these days?) there’s a crucial benefit in getting AEO status.
How to apply
The application system in the UK is operated by HM Revenue & Customs (HMRC). There are three levels of certification: security and safety (AEOS); customs compliance (AEOC); and full (AEOF). The AEOC certificate isn’t accepted under Mutual Recognition Agreements and doesn’t grant the benefits of frontier facilitation either.
There is an application form and self-assessment questionnaire that can be downloaded from the HMRC website. The application can also be completed via the GOV.UK website, which HMRC suggests is the most secure method. Applicants will need to satisfy HMRC that they are:
financially solvent (have the ability to pay their legal debts)
compliant with customs requirements
able to demonstrate a satisfactory management system.
If the applicant is applying for the security status, they will also need to show compliance in respect of security and safety standards. HMRC will need personal details of company directors and details of employment history, usually over the past five years. Evidence of background checks and security screening will be needed, including any staff supplied by agencies.
Benefits of AEO status
The main benefits of AEO status are connected to changes in the Modernised Customs Code (MCC). This was scheduled to be introduced in June 2013 but has now been delayed until 2016. When the new legislation does come into force, it is expected that businesses that are not AEO compliant will be required to provide a guarantee if they want to use special procedures such as Inward Processing, Customs Warehouse or Temporary Storage.
Other countries are also developing their own regimes that are SAFE compliant and are expected to have an impact on trade with the EU. These include the APEC countries, Singapore and New Zealand.
HMRC has up to 180 days to reach its decision on each application.
AEO status is available to all registered businesses regardless of size, and it seems clear that there are some very important benefits to be gained. The process can seem fairly daunting to smaller enterprises in particular, and HMRC is taking a number of initiatives to facilitate the process. The EU has introduced an e-learning tool to help businesses prepare for application. The tool comprises five sections and takes just a few hours to complete.
HMRC is also co-hosting a conference on AEO and Customs Compliance in London on 19 and 20 November 2013. HMRC is encouraging small and medium-sized enterprises in particular to attend and there will be a special session aimed at such companies that are considering applying for AEO status.
There are a number of training organisations offering short courses in applying for AEO status.
The full impact of the AEO initiative has not yet been realised, but it is clear that many businesses involved in trade with countries outside of the EU stand to save themselves a lot of time and trouble, as well as putting themselves in a strong position to win new business, by achieving the AEO status. As the process can take some time to complete, it’s probably well worth looking into the details now.