From January 1 next year, a rigorous new procedure aimed at improving security in the supply chain will be introduced within the European Union. The Authorised Economic Operator (AEO) regime will affect nearly every business that undertakes international trade. Changes will be required in systems, supply chains, buyer and seller relationships and Customs procedures.
AEO is, in effect, an accreditation regime to approve Customs compliance and supply chain security. The result is likely to benefit most businesses but may have a less positive effect for others. It encourages companies to increase security in their international supply chain, even where freight forwarders are used, in exchange for certain incentives which improve the efficiency of the supply chain and ultimately reduce costs. The incentives include few physical border controls, easier reporting, reduced Customs risk rating and priority treatment for goods selected for examination.
Companies without AEO status will not receive these benefits and may find that international trade becomes more difficult and costly.
It is clear that AEO-certified businesses will prefer to do business with other certified entities. This, they believe, will quicken the supply chain, remove the risk of delayed delivery times and reduce costs. Therefore, even if a business operates at high compliance levels, the absence of certification may have a negative effect on supply chain partners and the perception of Customs authorities globally. A database of AEO companies will be publicly available from 2009 and this may give further impetus to this approach.
There will be a significant impact on businesses which do not have AEO status, including: More Customs inspections of cargo and containers; increased demurrage charges and likelihood of penalties; Customs focus on non-AEO businesses; non-AEO goods arriving in ‘slow lanes’; Customs simplification procedures more difficult to obtain; and potential delays on exports to international markets where local Customs may require AEO status for import entry, such as the US Taken together, these direct risks and commercial implications of not having AEO status could easily lead to increased costs and loss of business.
David Dutt is a partner in consulting and Tajinder Bhalla a director in Tax at Deloitte