AEO program enhances supply chain security, facilitates trade
Customs law in India has been evolving to meet current needs and has undergone significant changes in the last few years. One of the key developments is the introduction of an accreditation as an “Authorised Economic Operator” (AEO) for importers/exporters and logistics solution providers.
An AEO is a business entity involved in the cross-border movement of goods in compliance with India’s national customs law and is approved by or on behalf of the national administration in accordance with World Customs Organization (WCO) supply chain security standards. AEO status enables customs administration resources to focus less or noncompliant or risky businesses and to exercise appropriate controls. The programme allows Customs to share its responsibility with businesses, while at the same time rewarding them with additional benefits.
Background of AEO scheme
The origin of the AEO scheme dates back to the 11 September 2001 event in the U.S., which made national governments realise that supply chains could be used for terror activities and prompted them to make secure global supply chains. Since the supply chain is controlled by trade, the Customs administration is partnering with trade to secure the supply chain.
The U.S. started the CT-PAT (Customs Trade – Partnership Against Terrorism) programme in November 2001. The WCO then adopted the SAFE Framework of Standards in 2005 to secure and facilitate trade. The SAFE framework has three pillars: a “Customs to Customs” partnership, a “Customs to business” partnership and “Customs to other government stakeholders.” The AEO programme forms the core of the second pillar.
Implementation of SAFE framework of Standards and AEO programme in India
The SAFE Framework of Standards sets forth criteria by which businesses in the supply chain can obtain status as a “secure” partner. The AEO programme was introduced as a pilot project in August 2011, and was later amended to include SAFE Framework Standards in 2012. With international developments such as the Trade Facilitation Agreement (TFA) on securing and facilitating international trade and the government of India’s focus on the World Bank’s “Ease of Doing Business” index, a comprehensive, unified trade facilitation initiative was launched by merging the then-existing Accredited Client Programme (ACP) and the ongoing AEO scheme of 2012 in the form of a revised AEO programme in July 2016. Further simplification for financial solvency and decentralisation of the AEO application processing took place during 2018.
The AEO scheme is purely an optional scheme, and application for AEO status is a business decision that depends on the role of the business entity in the supply chain and its willingness to acquire the benefits flowing from the accreditation, subject to fulfilment of the programme’s criteria and requirements.
Structure of Indian AEO programme
India’s AEO programme is a three-tier programme for importers and exporters--AEO-T1, AEO-T2 and AEO-T3-- with AEO T3 as the highest level of accreditation. Furthermore, there is a single-tier AEO programme for logistics providers (such as carriers, airlines and freight forwarders), custodians or terminal operators, customs brokers and warehouse operators, who receive accreditation as AEO-LO.
- AEO–T1: Importers/Exporters that fulfil the eligibility criteria must apply with documents/information pertaining to legal compliance, records maintenance compliance, and financial solvency.
- AEO–T2: In addition to satisfying the criteria to qualify under AEO T1, AEO T2 applicants must fulfil seven safety and security aspects (procedural security, premises security, cargo security, conveyance security, personnel security, business partner security, security training and threat awareness).
- AEO-T3: Businesses that have received AEO T2 status for at least two consecutive years would be eligible to file an application for AEO-T3 status. Alternatively, they must be AEO T2 certificate holders and all business partners must have received accreditation as AEO T2 or AEO LO or the equivalent granted by a foreign customs authority.
- AEO-LO: This is for logistics service providers, and the requirements are the same as for AEO T2 status.
The central government recently introduced a liberalised AEO package for micro-, small and medium-sized enterprises (MSMEs) that helps reduce the “order-to-cash” cycle by improving logistics and reducing the customs clearance turnaround time.
The objectives of the AEO programme include:
- A secure supply chain from point of export to import
- Compliance with security standards on overseas supplies
- Minimal disruption to the flow of cargo
- A reduction in dwell time and related costs
- An internationally recognized certification
- Recognition as a “secure and reliable” trading partner
- Incentivizing businesses with defined benefits to save time and cost
- Border clearance privileges through Mutual Recognition Agreements (MRAs) with other countries
- Customs support in case of unexpected issues with Customs in an MRA jurisdiction
Special features of AEO programme
Accreditation under the AEO programme can bestow significant benefits, including:
- MRAs with other Customs administrations
- “Direct port delivery” of imports to aid in inventory management
- Direct port entry for factory-loaded export containers
- Special focus on MSME--any entity that handles at least 25 import/export documents annually can apply for accreditation
- Deferred payment of duties--delinking of duty payment and customs clearance
- Faster disbursal of duty drawback (refund of non-creditable input taxes)
- Fast tracking of refunds and adjudications
- Facilitation available for exporters in addition to importers
- Self-certification of Certificate of Origin required under trade agreements
- Request-based on-site inspection/examination
- Paperless declarations
- Recognition by partnering government agencies (PGAs) and other stakeholders
Considering the operational and other tangible and intangible benefits, over 4,000 business industry players have subscribed to the scheme, and many more are in process. Indian Customs has worked with several foreign Customs administrations to ensure collaboration under the scheme. In addition, India’s location in South Asia positions it to play a vital role in helping other countries in the region to develop their domestic AEO programmes and provide meaningful support in that direction.
Indian Customs is also actively working to bring other PGAs on board to ensure that its AEOs get “green channel” treatment by PGAs by way of basic benefits, such as waiver of the requirement for a physical examination of consignments and categorization of AEOs as low-risk by all PGAs.
Dinesh Kumar B