MARCH 14, 2017

By G Mohana Rao, Assistant Commissioner (Retd)

THE AEO scheme is based on the second pillar of the WCO Safe framework of standards comprising of Customs-Business Partnership with an objective to secure the supply chain. The very first question which comes to mind is that why should Customs partner with the trade-an unheard phenomena in the past. Is it just because the government wants to involve the stakeholders in its drive to secure the supply chain? The answer lies in the fact that the supply chain is owned by the businesses,whereas no part of it was ever owned by the government. The government has no option but to partner with the business if they want to secure the supply chain against being used by the terrorists. Further,the business men know that their operations best and can identify the loopholes in a much better manner than government.

Another question which comes to the mind is that why a player in the international trade should partner with the government. Hitherto,the benefits of AEO [Authorised Economic Operator] were not visible enough to make it lucrative for businesses to adopt. The benefits were paltry and hardly any disincentives for those who do not adopt the AEO Concept. There was a feeling in the minds of the trade that the benefits were not commensurate with the costs required to meet the AEO certification requirements. Understandably, the AEO scheme was a complete failure with just about 30 odd registrants since August, 2011 when the scheme was launched. This is in complete contrast to more than 10000 CT-PAT complaint companies in US or more than 6000 AEO compliant companies in Germany. The AEO scheme in other countries has met with reasonable success.

Times are changing. CBEC has revamped the scheme and issued Circular no. 33 of 2016 - Customs dated 22nd July, 2016 and announced a host of benefits for different classes of AEOs- namely LO, T1, T2 and T3. All ACPs (accredited clients) suo-moto were given AEO status subject to applying for the scheme later. The present article is not about the benefits being accorded by the government. These are already outlined there in the Circular - like higher levels of facilitation, Direct Port Delivery (DPD), relaxed norms for bonds/ BGs, timely resolution of disputes, 24/7 clearances on request, No MOT charges, facility of deferred payment of duty (only for T2 and T3), priority scanning, faster completion of SVB, faster sanctioning of refunds/ rebates etc. The benefits appear to be huge and tempting for the stakeholders to opt for AEO scheme. Over time, the facilitation benefits may get linked to AEO certification and those without it may be denied any facilitation.

There are other implicit benefits not specifically mentioned in the CBEC Circular in so many words, which emanate from the procedures for applying for the AEO certification. The procedures require the applicant themselves to undergo a detailed Self-assessment as regards the suitability for the AEO certification. Annexure E of the Application form is on self-assessment. It has a self-assessed security questionnaire from the applicant. The form says that the self-assessment can be carried out by the applicant themselves or through a third party.

This self-assessment procedure has created a lot of benefits for the aspirants. The stakeholders in the supply chain truly work in a chain and a chain is always as strong as the weakest link. It has been experience that almost every player in the supply chain has been victim of some unscrupulous elements and have suffered. The companies while preparing for the AEO are able to introspect and look for loopholes/lapses in their respective existing systems and procedures. If the stakeholders have to attain sizeable growth, the ownership and management need to be separated and made professional. This is only possible by having robust, self-controlling procedures and systems. The AEO scheme has presented the stakeholders an opportunity to self-audit themselves and strengthen their existing systems in pursuit of bigger aims and objectives.

Thus, the implied benefits from the AEO scheme are status symbols - which a company can showcase itself to its international as well as domestic clients; plug the loopholes in its existing system and improve the same.

There is one big negative for not applying for an AEO. Under the T3 category, the AEOs have to ensure that they deal with AEOs only. The stakeholders who do not apply for AEO will find it difficult to get work from AEO clients.

The security of supply chain is in the collective interest of society as a whole. The AEO certified entities will have a duty to deal with AEOs only. If some goods of an AEO are exported, AEO benefits in the importing countries will be accorded only and only if everyone in the supply chain is AEO complaint. In the next few years, it would rather be a necessity for every stakeholder to get AEO certification.

Mutual recognition is the biggest benefit which will accrue to AEOs in future. The compliant status of an AEO will not just be recognised in India but in other countries also with whom we sign Mutual Recognition Agreement (MRA).

AEO concept appears to be a win-win situation for the Customs, stakeholders in the supply chain as well as the society as a whole. However, only future will tell us how the scheme fares.

(The author is Partner, Elysian Tax Advisors, Mumbai and the views expressed are strictly personal.)