India launched its pilot of the Authorized Economic Operators Program (AEO) in August 2011 in harmony with the “SAFE Framework” developed by the World Customs Organization (WCO). India’s Customs administration developed an AEO Program that includes various members in the international supply chain such as importers, exporters, warehouse owners, customs brokers, forwarders, and carriers. The objective of the AEO Program is to provide businesses with an internationally recognized ‘quality mark’ indicating their commitment to security in the international supply chain. These players are also required to certify that their Customs procedures are efficient and compliant. Entities that receive an AEO status are considered a ‘secure’ trader and a reliable trading partner.
Following are some brief highlights of the program:
Indian AEO Program Eligibility Criteria
- AEO is available for any organization established in India involved in global trade like Importers, Exporters, Cargo Agents, Warehouse Operators, Port Operators, Carriers, and Customs House Agents irrespective of the size of its business.
- Organizations not involved in customs-related work (e.g. general banks, insurance companies, consultants, etc.) do not qualify for participation in AEO.
- AEO status to a particular entity is not applicable to its group company. Each entity has to apply for AEO separately.
Indian AEO Program Benefits
Similar to the other AEO Programs around the world, there are various benefits to AEO status holders. Following are some major benefits that can be availed by different types of organizations involved in global trade:
Overall Benefits:
Benefits of AEO-LO certificate
– Waiver of bank Guarantee.
– Facility of Execution of running bond.
– Exemption from permission in case of transit of goods.
– Faster approval for new warehouses within 7 days
– Waiver of solvency certificate.
– Waiver of security
– Waiver from fee for renewal of license.
– Facility of Execution of running bond.
– Exemption from permission in case of transit of goods.
– Faster approval for new warehouses within 7 days
– Waiver of solvency certificate.
– Waiver of security
– Waiver from fee for renewal of license.
Business segment-wise Benefits of AEO
- Importers: Reduced examination and inspection, higher facilitation than ACP clients, and acceptance of pre-arrival import declarations
- Exporters: Reduced examination and inspection, acceptance of export declarations without bringing goods into the Customs area
- Warehouse Operators: Faster approvals for a new warehouse, reduced audits
- Custom House Agents: Acceptance of pre-arrival import declarations for client importers.
- Logistics Providers (Carriers / Forwarders / etc.): Transit of goods without case-by-case permissions, and customs escort
Type & Applicability, Validity & renewal of AEO Certification
| Types of Certificate | Applicability | Validity | Time limit* |
|---|---|---|---|
| AEO-T1Certificate | Only Importer and Exporter can have T1, T2 & T3 certificates. | 2 Year | 30 Days |
| AEO-T2 Certificate | 3 Year | 60 Days | |
| AEO-T3 Certificate | Applicant must have continuously enjoyed the status of AEO-T2 for at least two years preceding the date of application for grant of AEO-T3 status. | 5 Year | 90 Days |
| AEO-LO Certificate | Other than importers and exporters, namely Logistics Providers, Custodians or Terminal Operators, Customs Brokers, and Warehouse Operators. | 5 Year | 90 Days |
Compliance is the most important aspect of AEO Programs and organizations are required to maintain them to avail the AEO benefits. The Indian AEO Program requires:
- Organizations applying for AEO status must demonstrate an adherence to customs, central excise, and service tax laws, as well as allied laws for the preceding three years.
- Technical and procedural errors in records that have no significant impact on revenue, or compliance, may not be considered for disqualification.
- Applicant organizations must demonstrate they have procedures in place to identify and disclose any irregularities/errors to the Customs authorities or, where appropriate, other regulatory bodies. They must also demonstrate they have in place appropriate remedial actions when irregularities/errors are identified.
- Applicant organizations must have a satisfactory system for managing commercial and transport records. Such a system may include the following:
- An accounting system consistent with Generally Accepted Accounting Principles (GAAP) / International Financial Reporting Standards (IFRS) facilitates audit-based Customs control.
- Allowing the AEO Program Team physical or electronic access to Customs and transport records.
- An administrative process and documented procedures to control and manage the movement of goods.
- Internal controls are capable of detecting illegal or irregular transactions.
- Satisfactory procedures for the handling of licenses, authorizations, and documents connected to export/import.
- Satisfactory procedures to archive and retrieve records and information, including the protection against the loss of information.
- Ensure that a company’s employees are made aware of the need to inform the Customs authorities whenever compliance difficulties are discovered, including establishing suitable contacts for this activity.
- Satisfactory procedures for verifying the accuracy of Customs declarations.
- Appropriate information technology security to protect against unauthorized intrusion.
- Applicant organizations must demonstrate they have all proper arrangements in place to ensure the safety and security of import/export cargo, conveyances, premises, etc. compliant with global standards.
Developments: In its first release for AEO certification (July 2012), the Directorate General of Inspection Government of India awarded AEO certificates to three entities with a validity of 3 years. Since, November 2012 when the government launched AEO on a full scale, there have been a total of 18 entities who have received their AEO certification.
To achieve full utilization of the AEO Program, one AEO Program operating country or region should have MRA with other AEO Program operating countries or regions. The Indian government has already signed an MRA with Hong Kong and is currently negotiating with Korea as an extension to its MRA list.
Although the AEO Program is capable of providing a safe and secure international supply chain with various benefits, it still has a long way to go in achieving its full objectives worldwide. There is an expectation that the benefits are instantly realized by the organizations already working within AEO-compliant standards in countries or regions where AEO is operational. For organizations not compliant with AEO standards, this program may require additional investments to be compliant. Considering the benefits of the AEO Program, and proven success stories, this additional investment appears to be one that inevitably provides a competitive advantage in this rapidly growing global trade environment.
To achieve full utilization of the AEO Program, one AEO Program operating country or region should have MRA with other AEO Program operating countries or regions. The Indian government has already signed an MRA with Hong Kong and is currently negotiating with Korea as an extension to its MRA list.
Although the AEO Program is capable of providing a safe and secure international supply chain with various benefits, it still has a long way to go in achieving its full objectives worldwide. There is an expectation that the benefits are instantly realized by the organizations already working within AEO-compliant standards in countries or regions where AEO is operational. For organizations not compliant with AEO standards, this program may require additional investments to be compliant. Considering the benefits of the AEO Program, and proven success stories, this additional investment appears to be one that inevitably provides a competitive advantage in this rapidly growing global trade environment.