Is this the right time to apply for Authorised Economic Operator (AEO) status? Probably not!

17 February 2011

We are coming across more and more cross-industry commentators who are advising that businesses seek Authorised Economic Operator (AEO) status as soon as possible. But is this always best advice?

Whilst we agree with the consensus of opinion that AEO will indeed become the norm rather than the exception we do not think the business case is presently strong enough for most businesses to adopt AEO. In our opinion it is the implementation of the Modernised Customs Code that will act as a catalyst for businesses to seek AEO approval because of the tangible benefits AEO will bring once the MCC is implemented.

 

The Exception to the Rule- Applying for AEO Now!

There are a number of specific cases where there is a compelling business case for applying for AEO now, including:

• Businesses that operate Customs Freight Simplified Procedures (CFSP) where the new rules are so strict that they take you three quarters of the way to AEO authorisation anyway,
• Businesses that fall within the definition of “Senior Accounting Officer (SAO) Qualifying Companies” which require Finance Executives to have robust and documented customs procedures in place and;
• Freight Forwarders (especially if they are working for companies that are CFSP authorised and those that fall within the SAO provisions).

The advantages listed in customs literature that such as quicker clearance of goods at port and greater visibility and control are added benefits to this limited group of companies but hardly justifies the investment required to gain AEO status in their own right.

The Real Advantage to AEO in 2013

The business case for AEO from 2013 onwards is convincing for the vast majority (if not all) traders involved in international business.

Financial Cost Savings

The MCC currently proposes requiring businesses to put in place guarantees through your bank for any suspended customs duties. This will include, for example, having to put in place a guarantee to cover all potential customs duties on goods held within customs warehouses, transit arrangements and duty relief schemes. As well as representing a significant potential cost and administration headache any such guarantee will also impact your banking facilities. The only businesses exempt from these proposed guarantees are those approved for AEO.

Centralised Clearance & Self Assessment

A number of other facilitative measures such as centralised customs clearance and self-assessment will be introduced through the MCC although their date of affect is still unclear. It is though that qualification for these measures will either be dependent upon being AEO approved or greatly helped by having such an approval.

Mutual Recognition of AEO

There are an increasing number of mutual recognition agreements for AEO and their equivalent approvals between the EU and non-EU partners (USA and Japan for example). This network of recognition is likely to add to the demand from multi-nationals trading throughout the world to adopt AEO. These companies will then turn to their suppliers to follow suit.

Investment in AEO

Implementing AEO will require significant financial and time investment. Someone championing the implementation of AEO will have a challenging time convincing their colleagues of the business case for undertaking AEO until these clear and tangible benefits kick in.

The actual application process for achieving AEO certification is a laborious one. One of the required forms consists of a 14-page questionnaire that drills down to the bare details of your customs, accounting, IT, reconciliation and contingency procedures and requires that you have clear documented procedures and processes in place. You are expected to detail how you have “protected” your documents from unauthorised access, how your IT systems are protected, depending on the type of AEO applied for you may be required to conduct a threat risk-assessment on the physical premises of your business as well as many more elements of your business.

Keeping any AEO certificate once it is issued will require robust internal planning and procedures and significant internal resource because one of the potential consequences of having a certificate revoked is to be blacklisted for a three year period that precludes reapplying for the certificate. Any revocation of a certificate is likely to increase your risk-score with HMRC and put you firmly on their customs radar.

One of our key concerns for businesses is that they may rush into AEO and thus rush procedures and not bed them in properly with the associated high risk of those procedures failing and subsequent revocation of AEO status. A properly and individually tailored and well-paced preparation process will enable you to maximise the benefits whilst mitigating the risks.

Benefits of preparing for AEO now

Although we are not convinced that there is always a business case for applying for AEO now we do think there are considerable advantages in preparing yourselves now for 2013, including:

• Carrying out the preparatory work is likely to lead you to identifying:
o Potential cash-Flow boosts from reclaimed overpaid duties
o Opportunities to reduce your ongoing customs costs
o Identifying and rectifying weaknesses and past failures that could otherwise lead to additional duty demands, penalties and a poor compliance record with HMRC (that could ultimately lead to removal of AEO status)
• Having the time to develop robust internal controls and processes, gaining complete control over your customs functions with better data and less risk enabling you to introduce and monitor KPI in this area
• Managing cash-flow and spreading the required investment in the AEO project over a longer period
• Once the process is complete, the ability to submit the application as and when you choose

Preparing now will put you in a stronger position both in the short and longer term. In the short term you will gain control over your customs functions, in the long term you will be able to apply for AEO as and when it best suits your business.

It is typically taking current AEO applicants between 3-9 months to prepare themselves for CFSP. Furthermore, the processing period for AEO applications can be anything up to 120 days with the potential of the processing period being extended by a further 60 days.

How many Companies are AEO authorised?

There are currently 219 UK Companies on European AEO Database (though Companies are entitled to request that their details are not published on the database so in reality the number may be slightly higher).

The reason why the numbers are slightly uneven is that some Member States are awarding AEO status to companies and then retrospectively auditing whether those companies can keep the status whereas other Member States have adopted the approach that companies must prove they fulfil AEO standards before being awarded AEO status. What is clear however is that more and more companies are going down the AEO route and that AEO will become the rule rather than the exception in the following couple of years. 

Country

AEO

Country

AEO

Country

AEO

Austria

150

Germany

1618

Netherlands

453

Belgium

128

Greece

13

Poland

314

Bulgaria

13

Hungary

65

Portugal

44

Cyprus

7

Ireland

49

Romania

25

Czech Republic

73

Italy

344

Slovakia

26

Denmark

41

Latvia

10

Slovenia

171

Estonia

10

Lithuania

16

Spain

41

Finland

35

Luxembourg

13

Sweden

219

France

383

Malta

8

UK

219

Next Steps

If you would like to get a better understanding of how AEO works and would like to arrange a free first consultation to discuss the benefits of AEO and how best approach the process or if you need help deciding when it would be most appropriate to begin the process contact us on (01905) 619229 or alternatively email us at mail@internationaltradesolutions.co.uk

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