If you are directly or indirectly connected with the global supply chain, then you must have heard the buzzword ‘AEO.’ It is an accreditation awarded by the Indian Customs not just to the importer-exporters but also to the Logistics Operators, Customs House Agents (CHAs), Freight Forwarders, Terminal Operators, etc.
Assuming that you are well informed about the AEO status and its importance, in this article we will see how AEO status is significant in actual practice, and what the positives and negatives are if you are thinking to apply for the AEO status. In past years, I had an opportunity to hand-hold to the importer-exporters to get the AEO accreditation. I have summarized the facts in a Q&A format. But before that let us investigate India’s current AEO accreditation scenario.
Who can apply for AEO status?
Any business entity that is part of the international supply chain; involved in the cross-border movement of goods and required to fulfill obligations under the Customs law in India, only can apply for AEO status. These may include exporters, importers, logistic providers (e.g., carriers, airlines, freight forwarders, etc.), Custodians or Terminal Operators, Customs House Agents and Warehouse Owners, Port operators, authorized couriers, Stevedores, etc.
In what sense AEO status holder is privileged?
AEO status holder gets the privilege to clear his consignment on a priority basis. The AEO holder clears the consignment through the green channel. The facility is available for 24 X 7 cargo clearance at all seaports and airports. If the AEO status holder is an importer, then the import activity up to the point of Out of Charge becomes hassle-free. On the other hand, if the AEO status holder is an exporter, then goods are cleared on a priority basis to file the Shipping Bill.
How does the manufacturer benefit by availing of AEO status?
One of the key benefits of the AEO is faster clearance of goods. The element of inclusion of Direct Port Delivery of imports ensures just-in-time inventory management by manufacturers – clearance from the wharf to the warehouse for AEO T1, T2, and T3. We all know that inventory becomes a liability if it is not managed correctly. There is a direct relationship of AEO status with inventory management. It bridges the gap between the international supply chain and the company’s manufacturing planning.
How does export become hassle-free for AEO status holders?
The exporter can move his consignments or factory-stuffed containers through Direct Port Entry. This means, once the container is stuffed at the factory premises and reaches the port, his containers are not opened at every single checkpoint within customs premises. This saves a lot of time for exporters.
Can the AEO status holder clear first and pay the customs duty later?
Customs made a provision of Deferred Duty Payment of duties. Basically, customs have delinked the duty payment and customs clearance procedure for all AEO tier status holders. This is because the AEO holder’s solvency status is already verified by the customs authority at the time of the AEO application process. That is how customs allowed every AEO holder to clear first and pay (duties) later.
How are the legitimate concerns and issues of AEO status holders regarding their benefits and facilitation resolved by Customs?
The Customs Administration is bound to extend all the benefits and facilitation measures to AEO status holders listed in the AEO Circular. There is a provision for the appointment of a Client Relationship Manager (CRM) at the level of Additional Commissioner / Deputy Commissioner as a single point of interaction with the AEO Status holder at the office of each Chief Commissioner of Customs. The appointment of CRM is notified by way of public notice by all jurisdictional Customs stations. The CRM is entrusted with the responsibility to attend to the legitimate concerns and issues of AEO clients. The details of CRMs are also provided online at CBIC Website.
AEO and MRA
Mutual Recognition Agreements are the international face and connecting link of the domestic AEO Programme of various countries. It acts as an equalizer that harmonizes the minor difference to allow for seamless facilitation in terms of benefits and processes for the movement of goods across borders for domestic AEO-accredited entities. Mutual Recognition of AEOs is a key element of the WCO SAFE Framework to strengthen the end-to-end security of supply chains and to multiply benefits for traders at a global level. By mutual recognition of AEOs two customs administrations agree to:
- recognize the AEO Authorization issued under the other countries' programs and
- provide reciprocal benefits to AEOs of the other countries' AEO entities.
Indian Customs has collaborated with several foreign customs administrations to align with their Authorized Economic Operator Programmes, which effectively allows Indian Customs to internationalize the core principles of the program and provide benefits to Indian trade at the international level. Indian Customs has signed two Mutual Recognition Agreements with the Customs Administrations of South Korea and Hong Kong. A couple of MRAs are in the final stages of conclusion, they include MRA(s) with the United States of America and Taiwan. Apart from this, India is constantly looking for partners abroad to enhance its MRA partners to contribute positively to global trade. To that effect, Indian Customs is already in the process of discussions with UAE, Uganda, and Philippines, to finalize the draft Joint Action Plan (JAP). JAP acts as the broad framework of the timeline and actions that need to be completed in a phased manner to conclude an MRA. Indian Customs has already conveyed the draft JAP to these three Customs Administration for their comments. Lastly, Indian Customs has also taken up a proactive approach to MRA and hence sent an ‘Expression of Interest’ to major South East Asian Countries with which India has gradually increased trade relations.
I hope this article helped you to get insights about Authorized Economic Operators (AEO) in actual practice so that you can decide your business (import-export) strategy in a more dynamic and effective manner. If you have any questions or comments, please do not hesitate to approach me!
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