The introduction of the Authorized Economic Operator (AEO) program in the European Union in 2008 brought exponential growth in this supply chain security program that has slowed as it has matured and the pool of non-AEO traders has declined. That growth curve is documented in this EU AEO valid Authorizations per year chart.
The goal of the European Commission and the Customs Authorities was that companies create a self-sustaining process in which any non-compliance is identified and corrected as per the company's written procedures to increase supply chain security and facilitate trade. Tradewin consistently sees that companies become better by documenting their procedures and expectations for a secure supply chain and acquiring AEO status.
Based on the number of companies acquiring AEO certification since inception and evaluating the exceedingly good results within those businesses, AEO certification has been found to be not only a broadly relevant and competitive advantage but a useful tool to maximize growth, accuracy, and timeliness within your supply chain. If your company has the resources to monitor and maintain AEO status, there will be direct and indirect benefits that strengthen the company.
A company's AEO program, if well-constructed, should give board members the confidence that their enterprise complies with Customs and Trade regulations when trading internationally. There are direct benefits that we outlined in our previous blog post. Still, the indirect benefits are, in our opinion, the main value proposition on why AEO certification can make your company better.
Since its inception, the Authorized Economic Operator program has been built on five main criteria:
- A record of compliance with customs requirements
- Satisfactory system of managing commercial and, where appropriate, transport records, which allows appropriate customs controls
- Proven financial solvency
- An adequate level of competency of knowledge of Customs and Compliance regulations
- Security and safety standards.
To apply for AEO authorization, the five criteria listed above need to be documented in written procedures. The written procedures define the expectation of the tasks performed and, at a high level, how they need to be executed. These procedures need to closely match the operational execution of the work. The control mechanism, which validates that the tasks are executed according to the expectations, should help to create a process of self-assessments, identifying gaps, and correcting those gaps.
As part of acquiring AEO authorization, a company needs to analyze all its related international supply chain processes in detail. Activities in all concerned departments are assessed during the preparation for the AEO application.
A thorough review of current procedures against the actual execution of the tasks is required to have a clear picture of where the company is in relation to the requirements. This is referred to as a GAP Analysis. If there are no procedures, they need to be thoughtfully drafted, and if the procedures exist but are not in line with how the work is executed, they need to be updated. A key part of these procedures is to set expectations for the work execution and to define criteria to validate that the work is completed compliantly and according to the regulatory requirements.
Once the procedures are updated and a GAP analysis has been completed, the company is ready to apply for AEO authorization.
So how can this make your company better?
The written procedures, which are part of the AEO program requirements, allow every employee and department to understand their role within the supply chain. The procedures set clear goals and guidelines on how the work needs to be completed compliantly and successfully. In addition, the control mechanism, which is part of the procedures, allows managers to keep track of performance and validate that everything they are doing complies with the regulations.
Our experience supporting companies applying for AEO authorization has been that they are grateful for having gone through the process. It has clarified the responsibilities of the parties involved and made them a better organization. They are more aware of the evolving regulations and the changing International trade environment. More than 18,000 companies in Europe are already benefitting from these indirect benefits.
If you are interested in acquiring AEO authorization or want to understand how written procedures can benefit your organization, please reach out to your local Tradewin representative.
Read the previous blog in this series: Becoming an Authorized Economic Operator in the EU (AEO). Is It Worth It?
Read the next blog in this series: Want to Apply for a Customs Procedure: Are You AEO-Ready?