What are Authorised Economic Operators?
Registering as an Authorised Economic Operator (AEO) enables businesses engaged in international trade to avoid the full administrative and practical burden of dealing with customs controls when moving goods across borders. Within the EU, the scheme is available to any business which is involved in the international supply chain and which carries out customs related activities, irrespective of their size or of the volume or value of their international activities.
The voluntary regime is based on internationally recognised standards which allow for traders who meet a range of criteria to work in close cooperation with customs authorities to take advantage of simplified customs procedures. The regime allows for two nations to enter into a ‘mutual recognition’ agreement which results in:
- recognition by one nation of a business registered as having AEO status by another nation
- provision of reciprocal benefits to AEOs registered under another nation's programme.
The EU, as a single trading entity, currently has mutually recognised AEO programmes with Norway, Switzerland, Japan, Andorra, China and the USA.
Becoming an AEO is not mandatory within the EU but it is encouraged for businesses that export outside of the EU. Despite this, businesses in the UK have largely failed to engage with the process, with just 537 approved AEO registrations compared to 6301 in Germany and 1514 in the Netherlands.
How does a UK business apply for AEO status?
EU established businesses can apply for registration under the EU ‘Community Customs Code’ for either:
- AEOC status: this provides for simplified customs authorisations, procedures and either a reduction or waiver of guarantees for customs duties; or
- AEOS status: this provides for enhanced security and safety clearance.
Key requirements for a business to become an AEOC include evidencing a good tax and compliance history, good commercial and transport record-keeping, financial solvency and professional qualifications or appropriate standards of competence in relevant activities. Registration to become an AEOS requires evidence of all of these, plus evidence of physical integrity and access controls, logistical processes and personnel and business partner identification.
In the UK, applications for registration to AEO status are made to HMRC.
What are the benefits of registering as an AEO?
Benefits for AEOs include centralised, simplified and speedy customs clearance procedures, reduced documentary and physical checks, improved safety and security and self-assessment.
AEOs will be given access to a number of commercial benefits, including:
- fewer security and safety controls
- priority treatment at customs clearance
- reduced administrative burdens
- traceability of flow of goods
- increased transport security
- improved security between supply chain partners.
Relevance of AEOs to post-Brexit trade
Half of UK exports and imports are with the EU (valued at £423 billion), while 70% of UK agri-food imports come from the EU and 50% of the UK’s overall food requirements are imported. Consequently, in a post-Brexit world the UK is likely to remain heavily reliant upon trade with the EU and, in particular, heavily reliant upon trade with the EU and the wider-world to put food on the nation’s tables.
Whatever the outcome of the Brexit negotiations, it is likely that once the UK leaves the EU the customs controls between the UK and the EU will be more complicated and burdensome for businesses than the current system. In addition, unless the UK government can obtain frictionless procedures for clearing goods coming into the UK for onward travel to the EU, and vice versa, there is a strong likelihood of an increase in the complexity of customs controls for business trading in relevant goods coming from outside the EU.
As at the date of publication, it is still unclear whether the UK will be able to simply ‘lift and shift ' the existing EU mutual recognition agreements with the countries mentioned above, or whether it will be required to enter into new agreements. However, the government’s recent white paper on the future relationship between the UK and the EU makes it clear that the UK government wishes to retain, and even increase, the number of AEO agreements. AEOs are being offered up as a means of aiding frictionless trade, controlling delays and minimising customs administration at UK borders in the future.
Should I register as an AEO?
Some UK businesses are beginning to see the potential advantages of AEOs and recent demands for registration has seen HMRC’s turnaround time jump to over 18 months, making it difficult for those who have not already completed their application process to get in ahead of the UK’s EU exit date and any potential transition period.
Nonetheless, it may well be sensible for any business which regularly trades at an international level (whether with the EU or further afield) to start the registration process if it hasn’t already done so. Although the registration process is fairly admin-heavy (for example, HMRC will require assessment of a business’s finances, site security, procedures, compliance with customs controls and compliance with legal and safety regulations), the longer-term commercial benefits are potentially significant.
As the number of AEO registrations increases, so will the pressure on other businesses to comply. There is a real risk that unregistered organisations will be dealt with as secondary concerns in the future and this could cause problems, not least in the food and drink sector where the limited shelf life of goods means that time is often of the essence. As customs procedures will almost certainly become more onerous, it makes sense for business to properly consider whether going through the administrative pain of the AEO registration process now is likely to reap long term rewards.