Tax & Accounting Blog

AEO and What You Should Know

Blog, Global Trade, ONESOURCE April 15, 2016

What is an AEO?

 The European Union’s Authorized Economic Operator (AEO) program was created by the World Customs Organization as an answer to increased trade security following the September 11th attacks in the United States.  It has become a globally recognized, non-mandatory, accreditation system signifying that a company’s international supply chain and customs procedures are secure, efficient and compliant.

Similar to the U.S. Customs Trade Partnership Against Terrorism (C-TPAT) program the purpose of the AEO is to enhance international supply chain security and to facilitate the movement of legitimate goods across borders. The AEO program is focused on upgrading supply chain security, reforming and modernizing customs, and contributing to trade facilitation around the world.

 Why should companies care?

 A company that has been accredited as an AEO will be recognized as a trusted partner and be provided with incentives such as reduced or prioritized customs inspections.  Other benefits could include:

  • Worldwide recognition as a compliant, safe, and secure business partner in global trade
  • AEO status provides benefit from arrangements under Mutual Recognition Agreements (MRAs).
  • Mutual recognition of AEO status could result in faster movement of their goods through third country borders
  • Reduced data sets for entry and exit summary declarations
  • Benefiting from simplified procedures
  • Lower risk score in risk analysis systems when profiling
  • Inspection prioritization and the use of non-intrusive inspection equipment whenever physical examinations are required
  • Potential exemption from providing financial security for some Customs procedures, e.g. Customs Warehousing or Inward Processing
  • Priority treatment if physical controls are to be conducted1

All of these benefits help AEO’s move their goods internally or externally across borders with more ease.  In some countries, fast track lanes, similar to airport security have been established to help AEO’s move goods faster and under less customs regulations and scrutiny.  Less time in customs saves companies money as their goods move faster through the supply chain process.

 Why is it important?

 Over 62 countries have implemented AEO security programs with six countries in the process of development.  Countries such as Brazil have implemented their own version of AEO certification.  Currently, there are around 30,000 certified companies who take part in this program in at least one country.  This means that most global companies will be involved in this process.

Companies that are applying for such status are concerned about streamlining trade compliance and adhering to local and global recognized security measures. With a focus on security, it in turn pushes companies to show compliance to trade related activities as they are expected to provide the necessary auditing documents required for AEO status.

 AEO Application Requirements Involving Global Trade

To become an AEO accredited company several components are measured and require ongoing observation.  For organizations this means a tremendous amount of reporting to present an overall picture of their business, and to demonstrate that they are committed to maintaining compliance.  The initial information that is required ascertains whether the company is shipping goods between internal or external entities or both.  Organizations are required to provide full details of this flow of goods.

Businesses also need to submit information regarding the frequency they review classifications and update their product files.  The expectation is that these files include relevant commodity codes and duty rates, as well as the technical information and process for how they classify their goods.

Beyond this, the AEO’s are required to make available all related documents involving rules of origin and preferential origin, and demonstrate that this information is readily accessible and stored securely.  For auditing purposes, companies are required to supply these documents from the previous three years of request, and demonstrate they are compliant and have not committed any serious infringements or repeated infringements involving customs rules.

AEOs are required to have a paper trail readily available and report on any infringements that have occurred.  If there have been infringements and actions have been taken (such as implementing new systems to mitigate risk in their compliance program), it will be taken under customs consideration and help with favorability in the application and validation process.

Finally, master data files are required showing the entire flow of goods from registration procedures to storage, and manufacturing to shipping processes; ultimately covering the entire logistics process.

 Final Thoughts

As the need for securing supply chains continues in the monitoring of goods being exchanged between countries, programs such as the C-TPAT and AEO help companies accelerate the customs process through adherence to strict reporting guidelines.  Applying to become an AEO provides the added competitive advantages of limited customs delays as well as the mitigation of inefficiencies in the supply chain process.  This stringent level of ongoing reporting helps organizations maintain compliance, run more efficiently and ultimately fosters a more positive reputational partnership with customs agencies around the world.

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