HLSG0005E1

/ WORLD CUSTOMS ORGANIZATION
ORGANISATION MONDIALE DES DOUANES
Established in 1952 as the Customs Co-operation Council
Créée en 1952 sous le nom de Conseil de coopération douanière
HIGH LEVEL STRATEGIC GROUP / LG0005E1/Rev.
- / (HLSG0005E1)
5th Meeting / Shanghai 1
-
24 April 2006.

AUTHORIZED ECONOMIC OPERATORS :

Conditions, Requirements and Benefits

I.Introduction

1.The World Customs Organization (WCO) has designed standards to secure and to facilitate the ever-growing flow of goods in international commerce. These are provided in the SAFE Framework of Standards (“SAFE Framework”) which was adopted by the WCO Council at its 2005 Sessions. A vast majority of Member administrations have expressed the intention to begin the process of implementing the SAFE Framework provisions.

2.In recognition of the urgency of launching the new programme without undue delay, the Council adopted the basic SAFE Framework document which provides the broad overarching principles concerning security and facilitation, and directed the WCO to develop more detailed implementing provisions, such as are provided in this document. The SAFE Framework also incorporates the concept of the Authorized Economic Operator (AEO)[1], as defined in Pillar 1 of the SAFE Framework), a concept modified and carried forward from the text of the International Convention on the Simplification and Harmonization of Customs Procedures, known as the “Revised Kyoto Convention (RKC)”.

II.The International Trade Supply Chain

3.Customs administrations recognize that the international trade supply chain is not a discrete identifiable entity. Rather, it is a series of ad hoc constructs comprised of players representing varied industry segments. Some “supply chains” possess a degree of permanence in that the same cast may play recurring roles on a long-term basis on behalf of a regular importer of goods into a given country. In other chains, participants either change frequently or are assembled for purposes of executing a single import transaction.

4.Regardless of either the regularity or temporal nature of any particular supply chain, Customs does appreciate that it does not own any portion of the trade supply chain. The supply chain is “owned” by the multitudes in the private sector who operate as part of any chain. It is for this reason that the support and participation of private sector business interests is fundamental to the success of the SAFE Framework concept.

5.In order to garner and keep industry support, it is necessary that there be a clear statement conveying what is entailed in being an AEO. In other words, there must be common understanding of the conditions and requirements of AEO status, which should also be specifically enumerated (with additional detailed arrangements) in national partnership agreementsAEO programmes. Even more fundamentally, as a first step there must be some clear presentation of the tangible benefits to be realized by participation in the SAFE Framework programme. Industry shouldThe private sector needs to be able to justify anythe additional costs that may be incurred by strengthening or enhancing current security measures through the realization of benefits provided by member Customs administrations and being an active participant in the effort to strengthen worldwide supply chains. Clear and tangible benefits will help provide such needed incentive to business.

III.Conditions and Requirements for the AEO and for Customs

6.The SAFE Framework recognizes the complexity of international supply chains and endorses the application and implementation of security measures based upon risk analysis. Therefore, the SAFE Framework allows for flexibility and the customization of security plans based on an AEO’s business model. Certain Customs-identified best security standards and practices are discussed below. These are the practices and procedures which members of the trade business community aspiring to AEO status are expected to adopt into routine usage, based on risk assessment and AEO business models. Also presented are the expectations for Customs administrations and business. Both are grouped under titled sub-categories.

7.Customs administrations shouldshall not burden the international trade community with different sets of requirements to secure and facilitate commerce., and there should be recognition of other international standards. There should be one set of international Customs standards developed by the WCO that do not duplicate or contradict other intergovernmental requirements.

8.Verifiable compliance with security requirements and standards laid downset by other intergovernmental organizations, (e.g. IMO, UNECE, ICAO) may constitute partial or complete compliance with applicable Customs-identified security standards and best practices set forth below, to the extent the requirements are identical or comparable.

A.Appropriate Record of ComplianceDemonstrated compliance commitment with Customs Requirements

  1. Principle. The pastdemonstrated compliance recordcommitment of a prospective AEO will warrant the AEO status. be taken into account when considering the request for AEO status.
  1. Objective. To enhance supply chain security and ensure the possibility of mutual recognition.
  1. Implementation requirements:

The AEO:

a)Should not have committed a serious infringement or repeated infringements of customs rules over the last 3 years preceding the submission of the application for AEO;

a.Owners/persons that have competence to legally bind the applicant for the AEO in customs matters should have an appropriate record ofdemonstrated commitment to Customs and/or fiscal compliance within the same time perioda reasonable period of time to be established in the national AEO programme;

b.Representative responsible in the company for customs matters should also have an appropriate record ofdemonstrated customs compliance within the same time period for a reasonable period of time to be established in the national AEO programme.

b)Applicant established for less than 3 years should be judged on the basis of records and information that are available.

B.Satisfactory System for Managing Commercial Records

1Principle. A satisfactory system for managing commercial records will ensure the timely, accurate and complete recording of information relevant to international trade supply chains.

2Objective. To secure that the AEO and Customs can rely on timely, accurate and complete information and to allow appropriate customs controls. This will enhance supply chain management and supply chain security.

3Implementation requirements:

The AEO:

a)Should have an accounting system which enables audit-based customs control;

b)Should give customs access to the records;

c)Should have a logistical system which, where appropriate, distinguishes between certain types of goods;

d)Should have an appropriate administrative organization and internal control system;

e)Should have, where applicable, procedures in place for the handling of economic authorizations and licences for the import and/or export of the goods;

f)Should have procedures in place to archive the company's records and information and to protect against the loss of information;

g)Should have appropriate information technology security measures (for example: firewall) in place to protect the applicant's computer system from unauthorised intrusion and to secure the applicant's documentation.

C. Proven Financial Solvency

1Principle. A financially sound company will offer a better guarantee against illegal practices and give an indication of the permanency of the company.

2Objective. To make certain that financial soundness contributes to supply chain security.

3Implementation requirements:

The AEO:

  1. Should not be subject to any past or ongoing insolvency procedure.

B.Consultation, Co-operation and Communication

1.Principle.At all levels, - international, national and local, -Customs, other competent authorities and the AEO should consult regularly on matters of mutual interest, including supply chain security and facilitation measures.

“The Customs shall institute and maintain formal consultative relationships with the trade to increase co-operation and facilitate participation in establishing the most effective methods of working commensurate with national provisions and international agreements.” (Revised Kyoto Convention, Chapter 1, Standard 1.3)

2.Objective.To improve two-way consultation and communication between Customs and the AEO toward enhancing supply chain security and trade facilitation, to enhance potential intelligence sources both quantitatively and qualitatively and to establish procedures which contribute toward improving risk assessment.

3.Implementation requirements:

The AEO:

  1. Shall provide clearly identified and readily accessible local points of contact or a corporate contact that can arrange immediate access to a local contact for all matters identified as being of compliance and enforcement interest to Customs (cargo bookings, cargo tracking, employee information, etc.);
  1. Individually or (as appropriate) via an industry association, shall engage in open and continuing mutual exchange of information with Customs (exclusive of information that cannot be released due to law enforcement sensitivities, legal basis or other precedent);
  1. Shall, through particular mechanisms set forth in the national partnership agreement AEO programme, notify the appropriate Customs of any unusual or suspicious cargo documentation or abnormal requests for information on shipments;
  1. Shall, through particular mechanisms set forth in the nationalpartnership agreementAEO programme, provide timely notification to Customs and any other relevant authorities when employees discover suspectillegal or suspicious packages or unaccounted for cargo as appropriate. Such packages should be secured as appropriate.

Customs:

  1. Shall establish, in consultation with an AEO or its agents, procedures to be followed in the event of queries or suspected Customs offences;
  1. Shall engage, wherewhen appropriate and practical, engage in regular consultation, at both the national and local level, with all parties that are involved in the international supply chain, to discuss matters of mutual interest including Customs regulations, procedures and requirements for premises and consignment security;
  1. Shall provide the AEO appropriate opportunities to share insight and views in developing the AEOCustoms risk-management strategy;
  1. Shall, aside from inherent feedback mechanisms provided for in the national partnership agreement,upon request of the AEO, provide (to fully engaged business partners that request as such) specific feedback on the performance of the AEO in addressing security issues related to the international supply chain;
  1. Shall provide the AEO or its agents with telephone numbers where appropriate Customs officials can be contacted.

C.Education, Training and Awareness

1.Principle.This element encompasses the education and training of personnel regarding security policies, encouraging alertness for deviations from those policies and knowing what actions to take in response to security lapses.

2.Objective.To educate and train both Customs and the AEO staff to improve their contribution to supply chain security and trade facilitation and to raise awareness in identifying potentially suspicious circumstances.

3.Implementation requirements:

The AEO:

  1. Shall make every reasonable and prudent effort (as logically based on its business model) to educate its personnel, and where appropriate its trade communitytrading partners, with regard to the risks associated with movements of goods in the international trade supply chain;
  1. Shall provide educational material, expert guidance and appropriate training on the identification of potentially suspect cargo to all relevant personnel involved in the supply chain, to include (for examplesuch as security personnel, cargo-handling and cargo-documentation personnel, as well as employees in the shipping and receiving areas) to the extent they are within the AEO’s control;
  1. Shall keep adequate records of educational methods, expert guidance provided and training efforts undertaken to document the delivery of such programmes, as well as the indicative results of the application of those methods (to the extent that it is practicable);
  1. Shall make employees aware of the procedures the company has in place to identify and report suspicious incidents;
  1. Shall conduct specific training to assist employees in maintaining cargo integrity, recognizing potential internal threats to security and protecting access controls;
  1. Shall, upon request and if practicable, make Customs familiar with relevant internal information and security systems and processes, and assist Customs in appropriate training in search methods for those premises, conveyances and business operations the company controls.

Customs:

  1. Shall undertake efforts to educate affected Customs personnel with regard to the risks associated with movements of goods in the international trade supply chain in co-operation with AEO’s;
  1. Shall make educational material and expert guidance on the identification of potentially suspect cargo available to all affectedrelevant Customs security personnel;
  1. Shall make affected Customs personnel awarenotify the AEO’s designated contact person of the procedures the administration has in place to identify and respond to suspicious incidents;
  1. Shall conduct specific training to assist affected personnel in maintaining cargo integrity, recognizing potential threats to security and protecting access controls;
  1. Shall, upon request and if practicable, make an AEO familiar with relevant Customs information and processes, in order to assist in appropriate training and research;
  1. Shall, upon request and if practicable, assist the initiatives of the AEO in development and implementation of voluntary company guidelines, security standards and best practices, training, accreditation schemes and materials, etc., calculated to raise security awareness and assist in taking measures to minimize security risks;
  1. Shall, upon request and if practicable, make educational material and expert guidance on the identification of potentially suspect cargo available to all relevant personnel in an AEO, including (for example) persons associated with security, cargo-handling and cargo-documentation. Such materials should include awareness of risks such as :
  • contracts that foresee cash payment;
  • clients offering cash incentives for the transport of goods over and above the market price;
  • clients offering the transport of goods that have passed their “sell by date” or are past the storage date;
  • clients offering the transport of goods with low value, making any commercial transaction uneconomical;
  • illogical routing instructions, entailing a detour from the direct route to the delivery point;
  • requests for transport of high-value goods in general, and in particular if from a company not normally engaged in such activities;
  • consignments whose marks and numbers are anomalous, and whose weights are different than similarly described shipments;
  • consignments which are different than as described on documentation such as invoices;
  • importers habitually or unusually urging the rapid clearance of goods and frequently asking for clearance status;
  • containers showing evidence of alteration, such as welds, fresh paint and dead spaces in walls and floors.
  • Is the client (customs brokers, freight forwarders, shipping companies):

- Overly anxious about the clearance of a particular consignment?

- Asking questions about the likelihood and/or intensity of Customs

examinations?

- Attempting to conceal their identity by declining to leave a contact telephone number or address?

- Providing a hotel/motel or other transient location as an address?

- Really the ultimate consignee?

- Preferring to settle accounts early and in cash or bank cheque?

- Planning to collect own shipment?

- Requesting a suspicious or unusual re-direction of cargo?

- Changing the delivery address at the last minute?

  • The address:

- Is it misspelled, incomplete or vague?

- Is it appropriate for the goods described eg residential address when

goods are clearly commercial?

- Does the consignee or consignor address appear to be abandoned?

- Is the consignee or consignor waiting at the front of the premises?

- Is the address a hotel or public place?

- Are the delivery instructions unusual?

  • The consignee:

- Is the person acting nervously?

- Is the person refusing to open the door or let you see their face?

- Is the person refusing reasonable assistance or keen for you to leave the premises in a hurry?

- Has the person arranged a third person or a taxi to collect the package?

- Has there been a last minute change in delivery instructions?

  • The goods:

- Do the goods emit an unusual odour, eg coffee, glue?

- Is the weight and packaging consistent with the type of goods described and country of origin?

- Are there sounds or movements from the goods?

- Has the package been tampered with?

  • - Are there any unusual modifications to the packaging?

(one administration suggests deleting the entire list as shown above)

  1. Shall assist, upon request and if practicable, the AEO in recognizing potential threats to security from a Customs perspective.

D.Information Exchange, Access and Confidentiality

1.Principle.Documentation processing security, both electronic and manual, ensures that information is legible and protected against the alteration or loss of data or introduction of erroneous information.

2.Objective.To provide forsecure access to information, ensure the timely and accurate provision of information and protect against its misuse and unauthorised alteration.

3.Implementation requirements:

The AEO and Customs:

  1. Shall ensure the confidentiality of commercial and security-sensitive information. Information provided should be used solely for the purposes for which it was provided;
  1. Shall actively pursue the full and timely implementation of electronic data exchange capability amongst all relevant parties of information used to release merchandise/cargo subject to appropriate data privacy laws. Continued reliance upon documents and hand signatures should be discouraged;
  1. Shall employ the use of international standards developed regarding electronic data structure, timing for submission and message content. Data elements required for security reasons should be compatible with the AEO’s existing business practices and limitations and must not exceed in any case the 27 security-related data elements set forth in the SAFE Framework.

The AEO:

  1. Shall have a documented information-security policy;
  1. Shall have security-related controls in appropriate computer areas, to include (but not limited to) optimal placement of equipment to avoid unauthorized access, usage restricted by personal passwords, appropriate “firewall” protections and use of other internal security regimes;
  1. Shall control access to data systems by level of job responsibility and level of information security;
  1. Shall ensure that electronic systems include necessary back-up capabilities and ideally be capable of monitoring employee use of those systems in keeping with applicable legislation.
  1. AEO importers shall have appropriate procedures in place to ensure that all information used in the clearing of merchandise/cargo is legible, complete and accurate and protected against the exchange, loss or introduction of erroneous information. Similarly, AEO carriers should have procedures in place to ensure the information in the carrier’s cargo manifest accurately reflects the information provided to the carrier by the shipper or its agent, and is filed with customs in a timely manner;
  1. Shall have a documented information-security policy and procedures and/or security-related controls (such as firewalls, passwords, etc.) in place to protect the AEO’s electronic systems from unauthorized access;
  1. Shall have procedures and back up capabilities in place to protect against the loss of information

Customs: