New WCO Criteria for Authorized Economic Operator

Jul. 10, 2006

In June 2005, the 168 member nations of the World Customs Organization (WCO), which together account for 99 percent of global trade, agreed to adopt the Framework of Standards to Secure and Facilitate Global Trade, a strategy aimed at securing international commerce against terrorism while allowing trade to move faster and more reliably.   The Framework is voluntary and not binding upon members.  The Framework supports customs-trade partnerships, such as C-TPAT.  Companies that demonstrate a high degree of security guarantees and engage in best practices will be identified as "authorized economic operators” (AEO) and will receive tangible benefits.  The hoped-for goal is that WCO members will recognize the AEO qualified in another WCO member as equivalent to its own certification and afford that AEO the same benefits as those compliant with its own national program. 

The AEO program, which is not yet in place, is still evolving to meet the needs both of the national customs administrations and of business.   In late June, 2006, the WCO Council adopted a document that defines and sets the criteria for AEOs.  AEOs include manufacturers, importers, exporters, brokers, carriers, consolidators, intermediaries, ports, airports, terminal operators, integrated operators, warehouses, and distributors 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.  Companies that qualify for C-TPAT would likely qualify as an AEO. 

The ‘best practices’ for AEOs are: 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 & management, etc.), conveyance security, premises security, personnel security, trading partner commitments to increase security, crises management and incident recovery procedures, and constant measurement, analysis and planning for improvement of all aspects of the security management system.

Potential benefits for AEOs include measures to expedite cargo release, reduced transit time, lower storage costs, minimum inspections, access to information of value such as names to other AEO participants, special measures including priority processing relating to periods of trade disruption or elevated threat level, and first consideration in any new cargo processing programs (e.g. self-audit, priority rulings, remote customs clearance).

Once an AEO application has been made, the AEO will establish a self-assessment process and shall appoint an individual to manage and monitor it, but authorization as an AEO will be granted by the national customs administration after validation of the AEO conditions and requirements (which may be by review of documents, worksite inspections, or review of procedures).  Additionally, there will be a supply chain validation process undertaken by customs of the security procedures/best practices.  The validation may be audits based on risk or cause or random spot checks.  The WCO contemplates experienced, knowledgeable third party validators being utilized (with the AEO having the option to request validation by the customs authority directly).  The Framework also contemplates periodic reviews and reports by and to the national customs administration.  A phased implementation for the AEO program has been suggested.

However, some controversy still exists over the ability of the national Customs organizations to adapt the AEO program criteria to its own needs.  The AEO document was recently changed to allow for such flexibility; however the WCO Private Sector Consultative Group has stated that it feels this allows for too much latitude for national customs organizations and thus that businesses may have to requalify in each country in which they operate.  Negotiations on this issue between the WCO Private Sector Consultative Group and the WCO Policy Council are ongoing.  Any questions about the AEO program can be directed to Rick Van Arnam or Helena Sullivan.