Supply Chain Security Study Guide

5. International Response

5.2. Authorized Economic Operators (AEO)

1	What it does Recognizes and rewards businesses that meet WCO supply chain security standards with faster Customs clearance and reduced examinations.
2	When it applies Across the international supply chain, in countries that operate an AEO program.
3	Who is responsible National Customs administrations (validation); businesses (compliance with security criteria).
4	Status Voluntary; established under SAFE Pillar 2 and adopted by the WCO Council in June 2006. Mutual recognition between national programs is expanding (US has 19 MRAs; China and Korea each have over 30).

The standards of Pillar 2 speak extensively of Authorized Economic Operators (AEOs). The Framework defines an AEO as:

…. a party involved in the international movement of goods in whatever function that has been approved by or on behalf of a national Customs administration as complying with WCO or equivalent supply chain security standards. Authorized Economic Operators include inter alia manufacturers, importers, exporters, brokers, carriers, consolidators, intermediaries, ports, airports, terminal operators, integrated operators, warehouses, distributors.

In June 2006 the WCO Council adopted a document defining and setting the criteria for AEOs. AEOs include companies that have been approved by, or on behalf of, a national Customs organization as complying with WCO or equivalent supply chain security standards. The WCO has emphasized that the AEO program shall be voluntary, not mandatory.

In 2007 the WCO incorporated the AEO Guidelines into the Framework of Standards document. Under "Conditions and Requirements for Customs and the Authorized Economic Operator", the WCO has set out the following elements to consider when deciding whether a company should be granted AEO status:

AEO eligibility criteria
Demonstrated compliance with Customs requirements
Satisfactory systems for management of commercial records
Financial viability
Regular consultation, cooperation and communication with Customs and other competent authorities at local, national and international levels on supply chain security and facilitation, personnel education, training and awareness
Information exchange with Customs that is secure and confidential
	Cargo security (manuals, seals, inspection procedures, secure access, verification of carrier identity, cargo description verification, cargo control and management, and similar)
	Conveyance security
	Premises security
	Personnel security
	Trading partner commitments to increase security; crisis management and incident recovery procedures
	Constant measurement, analysis and planning for improvement of all aspects of the security management system

Further Reading: AEO and Customs Compliance scheme

Now, a significant number of countries now operate AEO programs. The full list of AEO and Customs Compliance schemes is at https://aeo.wcoomd.org/list .

An issue that emerged with the global roll-out of AEO programs is mutual recognition: where Customs in one country recognizes a company's AEO status in another country and provides equivalent benefits. For companies that operate across many countries, recognition of AEO status across borders is essential. Although mutual recognition is a key principle of the WCO guidelines, the practical work of getting each country comfortable with another's standard of validation has proved more difficult. Mutual recognition between the United States CTPAT program and the EU AEO program took more than four years to develop.

In 2007, the United States and the EU started work on Mutual Recognition between the CTPAT and EU AEO supply chain security programs. The initial steps were an in-depth comparison of the United States and EU AEO programs and a pilot in which CBP observed security components of the EU's AEO audit process.

To achieve mutual recognition of their respective CTPAT and AEO programs, the United States and EU had to work on the following:

Establish guidelines regarding information exchanges, including the exchange of validation/audit results and legalities associated with the disclosure of membership details
Perform joint verifications to determine remaining gaps between AEO/C-TPAT and resolve any discrepancies
Explore and test an export component for CTPAT
Exchange best practices through joint visits and conferences
Continue dialogue on legal and policy developments under the respective administrations
	Endorse and sign a Mutual Recognition Arrangement
	Evaluate Mutual Recognition benefits for AEO/CTPAT members

CBP and the EU Taxation and Customs Union Directorate agreed language for the United States-EU Mutual Recognition Decision, and it was signed in May 2012. The United States now has 19 MRAs in place, while China and Korea both have more than 30.

Further Reading: Customs trade partnership against terrorism

For more on the United States agreements, see Customs Trade Partnership Against Terrorism - Mutual Recognition.

To make mutual recognition work, the key issues are common AEO requirements and consistent risk management approaches. Customs administrations need to use uniform criteria when assessing AEO status if companies are to benefit from worldwide participation in AEO programs. Companies need to be able to present information in the same format across different countries; otherwise the administrative burden makes full participation difficult.