It is believed that most enterprises are no stranger to customs authorized economic operator (AEO) certification, and probably understand that this is a classified management approach of enterprises adopted by Customs. However, many enterprises still have reservations about whether it is necessary to apply for AEO certification and become an AEO.

Admittedly, under the current national policy of enhancing cross-border trade facilitation, import and export customs clearance efficiency has been greatly improved, and the customs declaration of most enterprises is outsourced to third-party professional customs brokers, in which case the enterprise personnel in charge of customs affairs basically do not have to worry about it. Given such, whether to become an AEO does not seem to have a significant impact on the normal import and export business of the enterprise, and customs personnel are also very happy to maintain the status quo.

The above typical attitudes actually represent a common misunderstanding of AEO certification. Why? We should understand and interpret this issue from different perspectives. AEO certification is not only for an enterprise to obtain customs clearance convenience or international mutual recognition, but also for the enterprise to gain a competitive advantage.

Let's take a look at the following two cases, which may help you understand some of the value of the AEO certification.

Case 1: A "stepping stone" to participating in international bidding

At the beginning of 2019, a special client called to inquire about the requirements for applying to the customs to become an AEO, hoping that a professional firm could provide guidance for the AEO certification. The client is an equipment import and export trading company under the Ministry of Public Security. It is understood that the company has been in business for nearly 30 years and has been operating smoothly in foreign bidding and export over the past years. It was not until in the most recent bidding project when the company was disqualified for the bidding because it was not a customs AEO that the company's leadership began to attach importance to the customs credit rating. After the training of customs and management personnel by, and with the guidance of the professional firm together with the direction of the local customs officers, the company finally obtained the AEO certificate at the end of 2019. With the AEO certificate, the company has not only enhanced competitiveness in the international bidding market, but also obtained significant conveniences in formalities with the administration for market regulation and tax authority. It can be said that this action serves many purposes.

 

Case 2: Opportunities for enterprise survival and development

In early September 2019, Company L, a high-end xenon lamp manufacturer in the United States, emailed that it was facing unprecedented survival difficulties due to the trade war between China and the United States, and was eager to find a solution to help it out of the current predicament. Company L's products are exclusively used in high-end cinemas around the world, including China. Most of the raw materials of the products are purchased in China, processed in the United States and then sold to China and other countries. As both China and the United States impose additional tariffs on the imported products from each other, the cost of products has doubled.

The customs specialist, through analysis of the supply chain arrangement of Company L, proposed two sets of solutions, one of which involved the bonded outward processing business under the relevant China customs regime, and required Company L’s China subsidiary to apply for the relevant outbound processing handbook. From the operational perspective, this proposal was relatively simple and could also reduce the operational cost of the group, but the company had to meet the rigid credit requirements of the customs for carrying out outbound processing business. In accordance with the requirements of the Announcement on Relevant Issues concerning the Outbound Processing Business (Announcement of the General Administration of Customs [2016] No. 69), only enterprises certified as AEO general authorized or advanced authorized enterprises may apply for the outward processing handbook. To carry out the above proposal, the Chinese subsidiary of Company L immediately began to apply for the AEO certification.

 

AEO certification based on the enterprise credit status can not only provide opportunities for enterprises to break through the dilemma when they encounter difficulties, but also bring competitive advantages for the development of enterprises. As mentioned in Case 1, more and more multinational enterprises take AEO certification as one of the conditions for selecting suppliers. In practice, suppliers with AEO certification are preferred partners of enterprises even if the enterprises do not take AEO certification as a necessary condition.

Where China is now vigorously promoting streamlining administration and delegating powers as well as building social credit system, for enterprises under equal conditions, local regulators are more willing to grant subsidies and preferential measures to AEO certified enterprises that are subject to more stringent examination. In accordance with the Memorandum of Cooperation on Joint Incentives for Customs Advanced Certified Enterprises jointed issued in October 2016 by 40 central departments, including the National Development and Reform Commission, the People's Bank of China, the General Administration of Customs and the Ministry of Commerce, six categories and specifically 49 joint incentive measures will apply to enterprises with high credit ratings recognized by the customs, including green channels, reduced inspection and random checks, simplified procedures, priority for decision-making and priority for reform pilot projects. These measures provide practical convenience for AEO certified enterprises from a policy perspective, including convenient green channels for government bidding, credit financing, environment, taxation, production safety supervision, food and drug supervision, and so on.

Regarding the entry into and exit from customs, each customs area has a Convenient Customs Clearance List for AEO advanced authorized enterprises, including convivences in respect of price examination, classification and certificate of origin. Advanced authorized enterprises will be assigned enterprise coordinators to assist in coordinating with relevant customs officers and other government agencies when the enterprise encounters import and export problems, so as to provide practical guarantee for the supply chain and product delivery of the enterprises.

In the following series of articles on AEO certification, we will use case examples to further introduce the classification of AEO certified enterprises, competitive advantages, application conditions and things to be noted.


Q&A

1. What is AEO?

AEO is the abbreviation of "Authorized Economic Operator". The AEO system is a system advocated by the World Customs Organization (WCO) to realize the WCO Framework of Standards to Secure and Facilitate Global Trade, under which the Customs will provide clearance facilities for law-abiding, trustworthy and safe enterprises, build a partnership between the customs and the business community, and to achieve mutual benefit and win-win goals.

AEO certified enterprises may include entities that participate in the international trade in any way and are determined by Customs to be compliant with the WCO or corresponding supply chains safety standards, including manufacturers, importers and exporters, customs brokers, carriers, warehouse operators and distributors.

2. How to classify the customs credit rating of enterprises? What are the categories of AEO certification in China?

In accordance with the Measures of the Customs of the People's Republic of China for the Classified Administration of Enterprises (Order No. 197 of the General Administration of Customs) effective in 2011, the Customs shall, in light of the enterprises' performances in observing laws, administrative regulations, customs rules, and their respective business management, establish five administrative categories of AA, A, B, C and D to evaluate and classify relevant enterprises. Enterprises in categories of AA and A shall be subject to corresponding convenient customs clearance measures, enterprises in category of B subject to common management measures, and enterprises in categories of C and D subject to strict control measures.

In October 2014, the General Administration of Customs issued the Interim Measures of the Customs of the People's Republic of China for the Administration of Enterprise Credit (Order No. 225 of the General Administration of Customs), pursuant to which the Customs classifies enterprises into authorized enterprises (including advanced and general authorized enterprises), general credit enterprises and dishonest enterprises according to their credit standing, and adopts appropriate management measures according to the principle of providing convenience for enterprises acting in good faith and in compliance with laws and punishing those acting in bad faith and in breach of laws.

The currently effectively Measures of the Customs of the People's Republic of China for the Administration of Enterprise Credit (Order No. 237 of the General Administration of Customs) still follows the provisions on the classification of enterprises in Order No. 225, but it has further implemented the relevant requirements of the national social credit system for “Joint Incentive for Keeping Faith and Joint Punishment for Losing Faith”, highlighting the differential principle of customs credit management.

Therefore, what we call AEO certified enterprises, including advanced authorized and general authorized enterprises, respectively enjoy different trade facilitation treatment as well as incentive and convenient management measures.

3. Which organization grants the AEO certification? Is it certified and issued by a third party?

At present, the customs enterprise management department is in charge of the AEO certification of enterprises in China. Unlike the ISO or other certifications, AEO certification is not issued by a third-party organization. Enterprises need to prepare application documents on their own under the guidance of professional organizations based on the AEO certification requirements. Customs in different regions will provide training and guidance for enterprises in the region. Considering the limited resources of the customs and the complexity of certification application, enterprises usually engage a third-party professional organization to provide specific guidance.