A new European Union (EU) law came in to effect on 1 January 2008 that leads to a two-tier international trade community. Will you become a trusted business enjoying quicker, low cost customs clearance or a second-class citizen of the international trade community subject to additional scrutiny, suffering slower customs clearance and increase costs?

Over time, trusted businesses will find it increasingly more expensive and difficult trading with those that fail to live up to these standards. With equivalent schemes being introduced all over the world, non approved businesses will become trade pariahs with fewer supply options or customer opportunities.

This new law may be the catalyst needed to get your customs operations in top shape, ensuring you are not at risk of additional duty demands and non-compliance penalties, are only paying the duty you need pay and recover any overpaid duties in the last three years.

A New International Trade Paradigm

Governments throughout the world are looking to manage the tension between trade facilitation and supply chain security.

Businesses need quick, reliable, low cost clearance of goods through customs checks to compete on the world stage. According to the WCO, customs formalities and duties are typically adding 10-12% to the landed costs of goods. It is obviously in the Governments interest to have thriving businesses driving economic growth.

At the same time, governments need controls to manage the increasing risk that a dirty bomb can find its way in to the supply chain. The terrorist attacks on New York, London and Madrid have changed the world in which we live. The fight against terrorism and the protection of citizens has become a strategic issue. These two opposing demands are creating a tension.

The tension between trade facilitation and supply chain security is a global problem requiring a global solution, which is why the World Customs Organisation (WCO) has developed guidelines for a new global trade model, which includes the concept of trusted business status. The EU is implementing this model through Council Regulation 648/2005(framework) and Commission Regulation 1845/2006 (operational issues), which came in to effect on 1 January 2008.

The EU laws will introduce three inter-related concepts; common computerised risk management, mandatory prior notification of shipments and AEO.

These changes to customs law will tighten security and result in faster and better-targeted checks.

Introducing AEO is likely to polarise businesses within the international trade community between trusted partners and the risky unknowns. Those with AEO status will have goods fast tracked through Customs and find it easier to obtain trade facilitation simplifications that in turn reduce the burden and administrative costs of customs compliance. Those without AEO status are likely to find their compliance costs increase while their goods take longer to arrive, making it difficult to compete.

Large multi-national business will be quick to adopt AEO under pressure from its stakeholders and knowing the importance employing good corporate governance post Enron, WorldCom etc. These companies are unlikely to baulk at the investment needed to acquire and maintain AEO status.

Businesses operating in a number of EU Member States may see immediate advantages to AEO status, as they will find it quicker and easier to obtain approval to operate customs duty reliefs and other trade facilitative regimes across Europe.

Businesses trading with large US companies may find themselves pressured into adopting AEO, with the risk of their US partners having their equivalent status (C-TPAT). The EU Commission and HM Revenue & Customs make great play about the marketing benefits of AEO and that it acts like a Kite mark. Failure to acquire this badge may put some businesses of dealing with you.

So what are the key advantages to AEO

There are three types of AEO offering different benefits and set up costs, namely Customs only AEO (AEOC), Security only AEO (AEOS); and, Full AEO (AEOF), which includes all the benefits of AEOC and AEOS. In most cases business will be interested in obtaining AEOF, so for the sake of brevity the advantages listed below relate to this.

Catalyst for Change

The advantages listed above make a reasonable but not compelling case for moving over to AEO.

Many businesses may understandably think the incentives for adopting AEO are insufficient to justify the real investment needed to gain and then maintain this status. However, this ignores two of the key incidental benefits to adopting AEO:

• Suppliers, customers and other supply chain partners find it easier and more cost effective to do business with you; and,
• Better compliance with your customs obligations and lower customs costs.

Many businesses have a poor understanding or control of their customs obligations and leave compliance to third parties or staff without any formal training. The increase in electronic customs declarations and risk-based assessment makes these errors easier to find and HM Revenue & Customs is increasingly using data to profile errant companies.

Going through the process of applying for AEO or readying yourselves for this can tighten control of this area of your business ensuring you maximise the benefits and minimise the risks associated with importing (see below).

AEO status introduces discipline in to the area of customs compliance and sits well with other developments in corporate governance.

Where do you see your business?

So, does your business need to explore gaining AEO status? If so, what type of authorisation best suits your needs? How much work is involved and what is the true, quantifiable benefit to your company?

A formal multi-layered process applies to become an AEO with strict criteria to be fulfilled to achieve AEO status. ITS is currently working with a number of companies to explore these issues and, where appropriate, helping implement world class customs systems and procedures.

Next Steps

Please contact International Trade Solutions to arrange a free initial consultation to discuss:

• How AEO relates to your business;
• The potential costs and benefits involved; and if appropriate,
• A project plan for implementing AEO