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Mutual Recognition Agreements for International Trade

By Mike Faden

For companies involved in international trade, two related terms – Authorized Economic Operator (AEO) and Mutual Recognition Agreement (MRA) – are becoming increasingly important. An AEO is a company that is considered to present a low customs risk, and it therefore receives preferential treatment from customs authorities when importing or exporting goods. Mutual Recognition Agreements are agreements between countries or trading blocs to recognize each other's AEOs. Together, these classifications aim to facilitate international trade for companies that meet specific supply chain security and other requirements.1

MRAs and AEOs have expanded globally since their conception in the early 2000s. The World Customs Organization's (WCO's) 2017 Compendium of Authorized Economic Operator Programmes lists 73 operational AEO programs, with 17 more to be launched. Roughly 45 MRAs are in force, with as many again being negotiated.2

 

This article provides an introduction to AEOs and MRAs, including information about how international traders achieve AEO status. (Note that in addition to the general customs MRAs discussed in this article, there are also more specialized international agreements related to technical standards for specific products such as pharmaceuticals3 and telecommunications equipment.4)

 

How AEOs and MRAs Evolved

 

The history of AEOs is usually traced back to efforts by the U.S. to secure imports against terrorism, following the events of September 11, 2001.5,6 Dialog between the government and the business community led to the establishment of the first AEO program, the U.S. Customs-Trade Partnership Against Terrorism (C-TPAT).

 

Under C-TPAT, companies whose internal policies, systems, and procedures met strict standards designed to prevent terrorist tampering in the inbound supply chain were awarded low-risk status.7 This provided a variety of benefits, including fewer U.S. customs inspections.8 C-TPAT has since grown to include more than 11,400 companies involved in international trade, including U.S. importers/exporters, customs brokers, U.S. and Mexican carriers, and Mexican and Canadian manufacturers.9

 

Following C-TPAT, similar initiatives were established in other jurisdictions, sometimes motivated by the need to assure U.S. authorities that shippers and supply chains were secure, thus safeguarding access to the U.S. market without extensive delays at the U.S. border.10

 

In 2005, the WCO introduced the SAFE Framework of Standards, which formally introduced the concepts of AEOs and MRAs, as well as providing principles and standards for them. Many WCO member countries subsequently committed to use those standards when developing their own programs.11

 

Though the AEO concept was initially developed to counter terrorism, the SAFE Framework has broadened over time to include measures designed to prevent "any form of non-compliance with customs laws," according to one analysis, including cargo theft, transport of illegal goods, and evasion of customs duties and taxes.12

 

AEO Benefits for International Traders

 

Depending on the specific program, benefits for companies achieving AEO accreditation may include:13,14,15

 

  • Fewer customs inspections
  • Faster movement of goods through customs
  • Priority treatment if shipments are selected for examination
  • Direct contacts within customs organizations
  • Use of logos and materials indicating AEO status

Through MRAs, companies may receive these benefits not only from their own nations' customs authorities, but also from the customs authorities of other countries.

 

Achieving AEO Status

 

Though the process varies between countries, applying for AEO accreditation typically involves completing a long and detailed self-assessment questionnaire in which companies may have to demonstrate:16

 

  • Compliance with customs laws and requirements, including taxes
  • Financial viability
  • Cargo and premises security
  • Trading partner security
  • Satisfactory record keeping

AEOs may also be subject to on-site validation or audit by authorities.17,18

 

Though companies may not have to pay fees for AEO accreditation, the process may still be challenging and time-consuming – particularly for small and medium-sized companies with limited resources, some experts say.19

 

Major AEO and MRAs

 

Many AEOs have been established. The U.S. C-TPAT is among the largest. Another is the EU AEO program, which includes two different qualifications. Companies within the EU, including the U.K., may apply for customs simplification (AEOC), which provides benefits such as simplified declaration and clearance procedures across the EU. They may also apply for AEOS (security and safety), which requires meeting supply chain security standards and makes companies eligible for MRAs between the EU and other countries.

 

MRAs exist between some of the world's largest trading partners, and many others are being negotiated. The U.S. has MRAs with the EU, Canada, Mexico, Japan, and South Korea, among others. The EU, besides the U.S., has MRAs with other countries including China and several European countries outside the EU.20

 

Australia's AEO program, called the Australia Trusted Trader program, was launched in July 2016. As of August 2017, Australia has already signed MRAs with New Zealand, Hong Kong, South Korea, and Canada.21,22 Australia is also in discussions with other countries including China.23 According to the Export Council of Australia, more than 400 companies applied for membership and 13 were accredited by mid-2017.24

 

The

Takeaway:

AEOs and MRAs are becoming increasingly widespread and playing a greater role in international trade. The potential benefits include fewer customs inspections and faster movement of goods across borders. However, experts say that there's a trade-off between those benefits and the substantial effort that may be required to achieve accreditation, particularly for smaller and mid-sized companies with limited resources.

Mike Faden - The Author

The Author

Mike Faden

Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners

Sources

1. Review of Accredited Operator Schemes, Charles Sturt University Centre for Customs and Excise Studies; https://www.border.gov.au/AustralianTrustedTrader/Documents/review-of-accredited-operator-schemes.pdf
2. Compendium of Authorized Economic Operator Programmes, World Customs Organization; http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/facilitation/instruments-and-tools/tools/safe-package/aeo-compendium-en--2017_final.pdf?la=en
3. “Mutual Recognition promises new framework for pharmaceutical inspections for United States and European Union,” U.S. Food & Drug Administration; https://www.fda.gov/newsevents/newsroom/pressannouncements/ucm544357.htm
4. “APEC-Tel MRA,” Asia-Pacific Economic Cooperation; https://www.apec.org/Groups/SOM-Steering-Committee-on-Economic-and-Technical-Cooperation/Working-Groups/Telecommunications-and-Information/APEC_TEL-MRA.aspx
5. The Post-9/11 Global Framework for Cargo Security, United States International Trade Commission; https://www.usitc.gov/publications/332/journals/cargo_security.pdf
6. Review of Accredited Operator Schemes, Charles Sturt University Centre for Customs and Excise Studies; https://www.border.gov.au/AustralianTrustedTrader/Documents/review-of-accredited-operator-schemes.pdf
7. Ibid.
8. “C-TPAT: Customs-Trade Partnership Against Terrorism,” U.S. Customs and Border Protection; https://www.cbp.gov/border-security/ports-entry/cargo-security/ctpat
9. Ibid.
10. Review of Accredited Operator Schemes, Charles Sturt University Centre for Customs and Excise Studies; https://www.border.gov.au/AustralianTrustedTrader/Documents/review-of-accredited-operator-schemes.pdf
11. “A Global Perspective of the Authorized Economic Operator (AEO) Program,” Thomson Reuters Tax & Accounting Blog; https://tax.thomsonreuters.com/blog/onesource/a-global-and-indian-perspective-of-the-authorized-economic-operator-aeo-program/
12. Review of Accredited Operator Schemes, Charles Sturt University Centre for Customs and Excise Studies; https://www.border.gov.au/AustralianTrustedTrader/Documents/review-of-accredited-operator-schemes.pdf
13. “Authorised Economic Operator (AEO),” European Commission; http://ec.europa.eu/taxation_customs/general-information-customs/customs-security/authorised-economic-operator-aeo/authorised-economic-operator-aeo_en
14. “Benefits of Australian Trusted Trader,” Australian Department of Immigration and Border Protection; https://www.border.gov.au/Busi/cargo-support-trade-and-goods/australian-trusted-trader/benefits
15. “C-TPAT: Customs-Trade Partnership Against Terrorism,” U.S. Customs and Border Protection; https://www.cbp.gov/border-security/ports-entry/cargo-security/ctpat
16. “Authorized Economic Operators: Costs and Benefits of Certified Supply Chain Safety and Security,” Strategic Trade Review;http://www.str.ulg.ac.be/wp-content/uploads/2016/10/Authorized-Economic-Operators-Costs-and-Benefits-of-Certified-Supply-Chain-Safety-and-Security.pdf
17. Ibid.
18. Review of Accredited Operator Schemes, Charles Sturt University Centre for Customs and Excise Studies; https://www.border.gov.au/AustralianTrustedTrader/Documents/review-of-accredited-operator-schemes.pdf
19. “Authorized Economic Operators: Costs and Benefits of Certified Supply Chain Safety and Security,” Strategic Trade Review;http://www.str.ulg.ac.be/wp-content/uploads/2016/10/Authorized-Economic-Operators-Costs-and-Benefits-of-Certified-Supply-Chain-Safety-and-Security.pdf
20. Compendium of Authorized Economic Operator Programmes, World Customs Organization; http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/facilitation/instruments-and-tools/tools/safe-package/aeo-compendium-en--2017_final.pdf?la=en
21. “Benefits of Australian Trusted Trader,” Australian Department of Immigration and Border Protection; http://www.border.gov.au/Busi/cargo-support-trade-and-goods/australian-trusted-trader/benefits
22. “ECA congratulates Australian Customs and Border Protection Service on Mutual Recognition Agreement signings with Hong Kong, South Korea, and Canada,” Export Council of Australia; http://www.export.org.au/global-trade-updates/eca-congratulates-australian-customs-and-border-protection-service-on-the-recent-signing-of-a-mutual
23. Compendium of Authorized Economic Operator Programmes, World Customs Organization; http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/facilitation/instruments-and-tools/tools/safe-package/aeo-compendium-en--2017_final.pdf?la=en
24. “Do you have what it takes to become an Australian Trusted Trader?” Export Council of Australia; https://globaltradevoice.wordpress.com/2017/06/06/do-you-have-what-it-takes-to-become-an-australian-trusted-trader/

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