Authorised Economic Operator status – Traders’ salvation or white elephant?


Written by: Simon Sutcliffe

The general consensus is that UK firms have never really ‘bought into’ the idea of Authorised Operator (“AEO”) status despite the benefits of being possibly regarded by HM Revenue and Customs (“HMRC”) as a having something akin to 'trusted trader' status.

Despite HMRC’s best efforts to encourage firms to become authorised and undergo the rigours of an application process, a compliance visit coupled with regular compliance checks; sometimes desk based and sometimes a visit or sometimes both, firms often view the process as costly and without real benefit.

Coupled with the uncertainty over the UK’s withdrawal from the EU many firms are firmly in the ‘wait and see’ camp but still looking for solutions to help them prepare for the UK’s withdrawal.

Recent changes to the under-pinning legislation in the EU with regard to the Customs Code, the tumultuous effects of the UK referendum to leave the EU and the embracing of the regime by such countries as India have still not led to a stampede to the door of AEO by British firms. In fact, approximately only 0.3% of firms that trade internationally in the UK are authorised.*

However, AEO can be a very useful tool for firms to have in their back pocket. AEO not only streamlines a business ensuring goods are cleared faster with minimal interdiction, priority treatment if selected for examination and mutual recognition with other countries but it assists cost-effectiveness by reducing the need for costly customs monetary guarantees for the various other customs regimes. Additionally, through the process of the application and beyond it helps identify potential inefficiencies in that business.


Different forms of AEO programme

AEO at present has two forms of authorisation C – customs simplifications (AEOC) which is basic compliance and enables operators to access additional UK customs simplifications and gain faster access to others, and S – Safety & Security (AEOS) which includes physical security requirements and supply chain certainty. This particular form of AEO was established to facilitate mutual recognition agreements (MRAs) with other countries to provide operators with benefits at the borders of those participating countries.

As part of the WCO SAFE programme the EU legally recognises AEO programmes from countries such as the USA, Japan, Norway and Switzerland allowing firms to trade with lower customs financial guarantees and less restrictive interdiction from fiscal and border authorities.

SMEs versus large firms

On paper the programme looks attractive but possibly only for larger firms. As such, these firms have usually become the main base of authorisations and therein possibly lays the issue. SMEs do not see the set-up costs outweighing the benefit. However, wouldn't it be easier as a smaller firm or single entity to meet the criteria; initially to be authorised and then to meet the continued obligations? Wouldn’t it give them more potential to compete with the bigger firms; less overheads? True, the system requires robust record keeping and trained and experienced staff to manage the customs processes and regular and organic monitoring of those processes. Hence, the bigger firms tend to gain from economies of scale in terms of these logistical and administrative areas.

Smaller firms who perhaps have neither the personnel numbers nor the dedicated and flexible record-keeping systems may face more of a challenge to make their systems work and gain AEO approval. Therein, I believe lies the nub of the problem. The costs of meeting the criteria for many SMEs are perceived to be not worth the cost. However, the benefits of faster movements of goods, minimal interdiction and reduced guarantees and access to other simplified Customs procedures to already compliant businesses can be a huge commercial benefit where the efficient and cost-effective movements of goods are important.


Benefits of a ‘trusted trader’ programme

So what can the UK do to build up the trusted trade programme to help both firms' confidence and to maintain and encourage trading relationships with both the EU and third countries? Firms should be assured of a ‘light touch’ from HMRC on their imports and exports into and from the UK. Secondly, the UK should seek that continuing mutual recognition of the UK AEO with the EU is maintained and extended to other countries.

Ultimately, the draw for firms will be the benefits; both real and perceived, the costs and the initial and the ongoing logistical and administrative burden. This can only be achieved by one of two ways – heightened awareness of the existing tangible benefits and expanding those advantages or a compulsory AEO programme for all exporters and importers to demonstrate to the EU of the UK’s commitment to maintaining smooth and frictionless and secure supply chain of goods moving across borders.

Those benefits could include a waiver for AEO traders for faster movements/'hands-off' approach from HMRC and subsequently extend this to all HMRC regimes and controls. An increased willingness to publicise and explain the tangible the benefits that accrue from AEO in using the other special procedures and reduced guarantees for other regimes such as Inward Processing would also be welcome. Alternatively, the UK could consider creating a new AEO GB with advantageous differentiations for differing sizes of firms and seek these MR agreements with other trading partners and possibly, but more controversially, make AEO compulsory. Hence, one size AEO may not fit all.

Lastly, subsidising the training of staff of smaller firms to become customs compliant and setting up compliance systems within the firm and hence meeting some of the criteria of AEO authorisation may sweeten the initial start-up costs.

In essence, until the perceived costs are outweighed by the benefits, AEO in the UK will remain an interesting but ultimately unloved bolt-on. With the EU withdrawal fast approaching the UK must decide in this particular regime whether AEO will form a bigger part of its attempts to maintain a smoother movement of goods with old and new trading partners.

*Customs Vision 2020 document

For more information, please contact Simon Sutcliffe.