Getting Economic Operators Authorised
some observations from our MD, Steve Plowman …
In this context, an economic operator “means a person who, in the course of his business, is involved in activities covered by customs legislation”
1. Being labelled as such, and going about their normal business, why should you concern yourself about enhancing that status to an Authorised Economic Operator (AEO)? The application process and audit by Customs seems profoundly complicated and protracted. At a time when businesses are fully focussed on just trying to make a profit, the commitment to such an undertaking appears quite intimidating. Don’t be put off! Have a good look at what it might mean for your business in the medium term.
2. There are standards which must be present before your application can be officially accepted:
a) You are a properly established business (sole proprietor, partnership, limited company) in the EU and you are engaged in some way in “an international supply chain” whether as manufacturer, warehouse keeper, freighter or agent.
b) Your business must have a track record of tax compliance (preferably at least 3 years), with no record of serious financial errors, irregularities or fraud; in tax, customs duties and VAT.
c) The business must be financially solvent
3. Before proceeding it would be helpful to identify the benefits to you of getting authorised. These would fall under the following headings:
a) Strategic placement in key markets; for example if your business exports goods to theUSAyou will need to be an AEO to be compatible with their Authorisation system C-TPAT. Pressure is already being placed on US companies to ensure their trading partners comply.
b) Supply chain security: if you, your supplier, customer, logistics provider and other agents are all AEOs, Customs have promised to clear your goods in a fast track system without the need for routine examinations. Again, theUSAwill be a major factor as it is estimated that C-TPAT traders are 5 time less likely to have goods searched: this advantage will accrue to AEO holders when the US-EU mutual recognition comes into force.
c) Customs simplifications; when the Union Customs Code becomes effective, AEOs will not have to provide a guarantee or duty deferment on some Customs procedures (IPR, Customs warehousing, temporary admission). You will be aware how significant a cash-flow advantage this could be to you.
d) Centralised clearance from any port in the EU into free circulation. For example, localised industrial action could be mitigated.
e) Insurance; Marine and Air Freight insurance premiums may reduce for AEOs, because of enhanced security, they have effectively reduced risks in the International Supply Chain.
4. If you go ahead with your application, do it sooner than later. In theUK the number of applicants has been quite low to date and it is anticipated that there will be a rush to sign up before the Union Customs Code comes into force.
5. Go on line and print off the C117 (application form) and C118 (questionnaire) from the HMRC web site. You will also find detailed guides and a reference to Business Link which also provides user friendly guides. Reading through the C117, you will see that you have most of the answers at your fingertips – so far so good. Now go to the C118 sections 1 to 5. If you apply for AEOC then you will have to complete sections 1 to 4. If you apply for a full Authorisation, then you will also have to complete Section 5 -Safety and Security.
6. The way forward is not a total “belt and braces” examination of your business and all its procedures; just mark down what section of the C118 you cannot answer, or where there is a written procedure required, where one might be known to you and your staff but not yet written down. This methodology should help you to instigate a top-down approach to target what needs to be brought up to scratch for the C118.
7. The way you are operating already, the authorizations and licences you may hold, will also enhance your AEO application.
8. In relation to Safety and Security, it is important to have a safety review performed by a competent person or an independent specialist, who can guide you through the required Threat and Risk Assessment and whose recommendations to improve physical security and access controls can then be implemented as part of your application process. The independent specialist will be able to give an impartial overview of your current security set up and procedures.
9. Written procedures should be drafted for the major customs and logistic functions of the day to day operations as well as those for physical security, access controls, training and recruitment. You will have noticed the extensive reference in the C118 to ISO standards. We can advise on their actual relevance (or not), but procedures should indicate a reporting chain, a provision for absence and a process for identifying, rectifying and reporting irregularities.
10. Sub contractors who work for you and are involved in the International Supply Chain should be monitored and controlled by you, and work to the standards you expect of yourself; the best way forward here may be instigate Service Level Agreements.
Customs Compliance for AEO
The new questionnaire – C118, gives us a clear indication of where the main HMRC compliance tests are to be applied during the audit of the aspirant company. It does not matter whether the applicant is: an agent, forwarder, shipper, importer, exporter or manufacturer. The emphasis remains as follows:
- Accuracy and auditing of customs declarations
- Management of customs agents
This is not an exhaustive list, but these subjects sit at the heart of the matter, namely: the correct declaration of VAT and Duty, and the written procedures and management checks to ensure excellence in accountability.
Most companies operating in the International Supply Chain use bespoke software systems to create and manage records of import and export movements and to complete customs declarations. These systems are linked to CHIEF and NES. Embedded data checks including interactive access to the Tariff limit the chances of mistakes. Intelligence programmes calculate revenues and can also indicate whether prohibitions, licences and preference certificates are required. Nevertheless, the old adage of “rubbish in rubbish out “can undermine all the technology if the source information is false.
Agents and forwarders do not have direct control or involvement in the drafting and content of commercial invoices, they do however, rely on these documents for the valuation and classification of consignments about which they may be the declarant. In the same way as the principals in the import and export of goods, agents and forwarders need to demonstrate that they check and verify the accuracy of information on the commercial documents, and are alert for any perceived abnormalities.
Auditors should be looking for meaningful written procedures for import and export movements which are cross referenced to written procedures for the valuation and classification of goods. In the event of any irregularities – incident logs, reporting chains and procedures for absence should also be part of these written procedures. The audit officers need to be satisfied that the valuation and classification of goods is carefully managed and irregularities reported and acted upon.
Management of Customs agents should also be documented in a written procedure to ensure that instructions are carried out faithfully. A schedule of audits should be part of a service level agreement which includes a security declaration.
The last three years compliance records and reported incidents will give the auditors a useful indication of the quality of management of customs procedures prior to AEO application.