The new AEO Scheme
MAY 21, 2018
By G Mohana Rao, Assistant Commissioner (Retd.)
THE hottest topic in Custom Houses these days is the AEO Scheme.
In continuation of my earlier article dated 14.03.2017, it is worth mentioning that the Authorised Economic Operator (AEO) scheme, a fallout of the fall of twin towers in the year 2001 in USA, was introduced in India in 2011. However, the scheme badly failed with negligible AEO applications received in the next five years. The scheme failed because Indian customs could not market it or demonstrate any visible incentives for choosing the AEO scheme. In one case, an applicant after applying was asked to make changes in their system. The applicant found the investment needed to come up to the expectations of the department was not viable economically and practically in relation to the benefits offered. Therefore, the applicant simply withdrew the application.
With scarce AEOs, India was not in a position to take the scheme further forward like signing mutual recognition agreements (MRAs) with other countries and implementing the other three pillars of the WCO SAFE Framework of standards of which AEO was just one of the limb.
Come 2016, CBIC reinvented the whole wheel, by issuing a new circular no. 33/2016-Customs dated 22nd July, 2016 and implemented a revised scheme with conspicuous and enhanced benefits. The scheme was marketed in a big way with the department holding workshops all over the country. A new energy was discerned in the scheme for the first time. The accredited clients programme (ACP) as well as the existing scheme were merged together into a new AEO scheme. The number of workshops conducted in the last one year are more than the number of workshops conducted in the last seven years. The officers are helping the operators to help in filing the applications.
The deferred payment of duty; direct port delivery(DPD) and direct port entry (DPE) are the real benefits of the scheme which can go a long way in reducing the costs of the imports and exports. The AEO scheme is being implemented by Indian Customs as part of the implementation of Trade Facilitation Agreement (TFA)which India ratified in April, 2016. Article 7.7 of the TF Agreement mandates India to implement the Authorised operator scheme. The agreement lists seven measures namely-
a) low documentary and data requirements, as appropriate;
b) low rate of physical inspections and examinations, as appropriate;
c) rapid release time, as appropriate;
d) use of comprehensive guarantees or reduced guarantees;
e) deferred payment of duties, taxes, fees, and charges;
f) a single customs declaration for all imports or exports in a given period; and
g) clearance of goods at the premises of the authorized operator or another place authorized by customs.
The first four benefits were also there in the earlier schemes and are nothing new, except that the degree and quantum of these have been enhanced. The last three benefits, if implemented, can provide a real stimulus to the scheme. The deferred payment of duty has been introduced in AEO scheme . However, single customs declaration for all imports and exports and clearance of goods at the premises of authorised operator, if implemented, can give immediate impetus to the AEO scheme. Such benefits are unheard of in the history of customs and can surprise the potential authorised operators. Though these are not mandatorily required to be implemented by India, as TF agreement provides for implementing any three of the seven measures listed above. However, if implemented, the benefits are far reaching. The department instead of going for the mandatory provisions, should go for implementing the other recommendations as well. The OECD report as well references this point and projects that the benefits in terms of reduction in trade costs will be more by 3-4 % for those who implement the non-mandatory provisions, as well.
One hiccup in filing the AEO application is that some of the annexure's are fairly complex and requires expertise. The operators, especially small ones, may have the best systems but may not have documented them in the form of SOPs/ Check Lists. The application form for AEO insist more on documenting all the processes and submitting the documented procedures. An effort shall be made to simplify the procedure. The fact of facing difficulties in the preparation of respective forms shall have to be noticed by the authorities concerned, so that they can take up remedial measures including releasing FAQ's, Guidance Notes etc. Further, in order to make the AEO scheme more attractive and more worthwhile, all the seven measures of TF Agreement may be considered for implementation in a phase-wise manner.
(The author is G Mohana Rao, Managing Partner, Elysian Tax Advisors, Mumbai and the views expressed are strictly personal.)
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