Imagine that the place where you work has experienced a constant increase in business over the past 20 years. Imagine also that it has been forced to assume new responsibilities in order to satisfy the needs of its clients. And if that’s not enough, imagine that there’s been no increase in the human and financial resources available despite the increase in the workload and the new responsibilities. How would you deal with that situation?
This is the reality faced today by customs agencies because of the unprecedented increase in international commerce, which has grown six-fold in the past 20 years. They must simplify procedures and assure the integrity of the merchandise and passengers, without forgetting their historical function of collecting revenues.
To meet this challenge and maintain the difficult balance between the need for security and ease of transactions, the World Customs Organization 10 years ago created what is today called the Authorized Economic Operator (AEO) program.
AEO promotes alliances between customs agencies and the private sector to secure and facilitate a supply chain made up of producers, transporters, importers, exporters, customs agents and ports, among many others.
This alliance provides for priority handling of merchandise from enterprises that have a solid history of meeting their customs and tax obligations and meet specific security requirements for their business sectors. Among those requirements are the physical security of access and of work places, computer systems, transportation and warehousing procedures, employees and other people and companies doing business with the enterprise, among others.
AEO certification offers a great variety of benefits to the private sector that generate reductions in time and cost, thereby increasing the ability to compete in international markets.
Among the most important benefits are priority handling of shipments, a reduction in physical inspections, the creation of express lanes, the simplification of customs procedures, the ability to carry out the required controls on the premises of the enterprise and the deferred payment of taxes.
These benefits have been enjoyed by enterprises such as the Ford auto company, which according to supply chain security expert José Alberto Méndez has improved its logistical operations through reductions in the number of customs inspections and quicker border crossings. Brugal & Co., S.A. in the Dominican Republic also has benefited from the program. Active in 32 markets around the world, it imports about 1,200 containers per year with materials for its rums and exports 800 containers of finished product.
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“The AEO certification allows us to use the express lane in the ports, considerably reducing our time spent on port operations by an average of two hours and saving us $25 in customs procedures for each container not inspected,” said Igor Rodriguez Duran, the company’s head of customer service and international logistics. “It also strengthens the security of our supply chain, allowing us to provide better service to our clients in the different markets where our brand is present.”
Cristian Ramón Apodaca, director of the administration, accounting and human resources divisions at PIMS S.A. in Mexico, a manufacturer of electronic goods, said that “thanks to the AEO certification our parent company selected our factory to manufacture a new line of products instead of using factories in China and Thailand that did not have this certification.” He added that the decision led to an increase in the number of specialized jobs and improvements in the infrastructure and relations with suppliers.
These testimonies were corroborated by data obtained during a recent IDB survey of AEO-certified enterprises in the region:
- 91 percent reported their supply chain security has improved significantly.
- 65 percent reported reductions in physical inspections and dispatch times.
- 72 percent reported their relations with customs agencies had improved.
For the customs agencies, the AEO program allows them to optimize the management of their human and financial resources by focusing on the most risky operators and operations. The program also allows customs agencies to work more efficiently, reducing time and costs, as Rafael Bonilla, Costa Rica’s Former Customs Director, explains in this video.
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The AEO program has experienced strong growth around the world in the last five years, with the participation of more than 50 countries, including 13 in Latin America and the Caribbean: Argentina, Bolivia, Brazil, Colombia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Jamaica, Mexico, Panama, Peru and Uruguay. Several other countries are well along in the process of joining the program (Chile and El Salvador) and more than 800 companies have been certified.
There also are four Mutual Recognition Agreements (MRA) signed by Mexico and the Dominican Republic with South Korea and the United States respectively, and others still under negotiation, including one under the Pacific Alliance initiative, designed to apply the benefits of the AEO to exports and imports, thereby facilitating and securing supply chains around the globe.
The high regard for the AEO program among customs agencies and companies, as well as its positive impact on competitiveness and regional integration, reinforce the IDB’s commitment since 2009 to support the program financially and technically, with technical assistance, internships, training and support in the negotiations for MRAs, contributing in that way to the creation of a world where doing international business is easier and more secure for all.
This post is part of a series of preparations for the outlook for Development Effectiveness (DEO), which provides an analysis of the experiences and lessons learned from IDB projects. You can read and download the latest DEO report here. Subscribe to our new blog!