Supply Chain Security - Is AEO a Global Solution


The ‘Trusted Trader’ concept was established under the World Customs Organisation SAFE Framework of Standards. The SAFE Framework was a response to terrorist threats to the supply chain with the purpose of mitigating the envisaged risks thus enhancing supply chain security. Indeed, the idea of ‘trusted’ or ‘accredited’ traders is a principal pillar of SAFE in conjunction with improved customs to business co-operation. The concept is remarkable simple – traders, voluntarily, apply for accreditation and, if approved, their cargoes will be considered as low risk. This means that customs and security agencies, globally, can focus their efforts, and limited resources, on traders who are not thus accredited so who, potentially, pose a higher risk.

Every WCO Member State is obliged to implement such a scheme and this is re-enforced within the WTO Trade Facilitation Agreement. There is good guidance on what accreditation should involve. However, this is interpreted by different countries in different ways. Simplistically, accreditation requires an organisation to have a good record of customs compliance together with robust security measures and procedures in relation to their international trade in goods operations.  In some countries and regions, for example the European Union, there are accreditation options which recognise the difference between operators / premises involved in the physical handling of goods and those who do not. In the case of the latter, accreditation can be obtained solely in relation to compliance.

For AEO to be effective as a global solution in relation to supply chain security there are certain parameters which must be met:

1.       It must be recognised that AEO was always intended as a security risk mitigation tool to counter, principally, terrorism threats to international supply chains. The concept should not be, but often is, conflated with customs ‘fast track’ systems which, in many countries, allow privileges to traders with a good record of compliance. The compliance and security components are certainly not mutually exclusive and it does make sense to include both elements as accreditation criteria. To do so, facilitates the provision of useful benefits for accredited traders and, in any event, both elements are inter-linked.

2.       Accreditation criteria must be robust to provide quality, integrity and confidence in the system. This ensures credibility in the system and facilitates mutual recognition between schemes.

3.       Mutual recognition agreements must be established between major trading partners. These can take a great deal of time to negotiate, for example as with the EU AEO and USA C-TPAT systems, but are key to meeting the overall aims of the SAFE Framework.

4.       Linkages with other protocols, such as the WTO Trade Facilitation Agreement, must be exploited

5.       Schemes must be available and achievable, without losing integrity, by companies of all sizes including small and medium enterprises. Application and accreditation criteria must be appropriate, flexible and proportionate

6.       Global critical mass must be achieved. Whilst AEO, or equivalent, accreditation is voluntary, economic operators must be encouraged to apply and to meet the necessary criteria. If this is to be achieved there must be clearly articulated benefits in doing so. The business case for the time and money involved in the application process, and meeting the requirements, must be sound and clearly identified.

These parameters are, to a large extent, lessons learned since the inception of the scheme. For example, in the case of the EU, when the regional AEO programme was introduced the benefits to the trade were not well articulated. Consequently, initial take up was low and slow. Interestingly, it was initially the freight forwarding community who applied for accreditation as they saw a marketing benefit in using the AEO logo as a quality mark to attract business – it worked.  In several middle income and developing countries there has been a tendency to label their customs Fast Track systems (equivalent of Customs freight Simplified Procedures in UK) as AEO schemes. They are not, but the lesson has been learned and several have established road maps to migrate such schemes into fully fledged AEO platforms as described in the SAFE Framework.

In order to achieve its perceived aims and potential the take up of AEO, globally, needs to increase dramatically together with the establishment of many more mutual recognition agreements. Without the latter benefits to the trade are available but limited. Mutual recognition requires national or regional schemes to be robust and fit for purpose. This should not be an issue in the developed world but can be harder to achieve in developing countries which are becoming increasingly important markets for European exporters and suppliers for importers. Countries that have listed ‘accredited traders schemes’ under Category C in the WTO Trade Facilitation Agreement should be able to elicit funding and technical support to design and implement their scheme.

The proverbial ‘elephant in the room’ is whether AEO application and accreditation should be compulsory for the larger trading organisations. This would certainly provide the critical mass necessary to make AEO a more effective supply chain security risk mitigation tool, on a global basis. However, compulsion was never the intent of the WCO SAFE Programme. The WCO regulates national customs agencies rather than traders and other economic operators. It is very unlikely that any national customs agencies would wish to create a mandatory requirement for business. The better option would be to ensure that appropriate benefits accrue to AEOs, making membership of the scheme both attractive and cost efficient. 

Article written by Jon Walden - Associate of Strong & Herd LLP

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