How Much Do You Know About The AEO System of 'One Belt One Road' Countries?

According to customs statistics, the total value of China's import and export of goods reached RMB 39.1 trillion in 2021, an increase of 21.4% year-on-year. Among them, the total value of China's imports and exports to the "Belt and Road" countries was 11.6 trillion yuan, an increase of 23.6%, 2.2 percentage points higher than the overall growth rate. As important trading partners of China, the "Belt and Road" countries have a long-term impact in promoting trade facilitation and enhancing the international image of Chinese enterprises.

Since the establishment of the AEO system in Jordan, the Belt and Road countries have developed their own AEO systems in accordance with the requirements of the Framework of Standards to Secure and Facilitate Global Trade (hereinafter referred to as the Framework of Standards) and based on their own economic and social development.

Status of AEO mutual recognition between China and "One Belt, One Road" countries

As of February 2022, China Customs has signed AEO mutual recognition agreements with 22 economies, covering 48 countries (regions), ranking first in the world in the number of mutual recognition countries (regions), including 32 countries that share the "One Belt, One Road". At the same time, China Customs is focusing on the "Belt and Road" countries, expanding the scope of AEO mutual recognition, accelerating the consultation process of AEO mutual recognition, and actively seeking more convenience for import and export enterprises in customs clearance both inside and outside China.

Analysis of the characteristics of AEO systems in some "One Belt, One Road" countries, with the legislative aim of promoting trade facilitation

Due to the growth of global trade and the increasing threats to the security of international cargo transportation, countries are strengthening supply chain security by enacting laws and regulations to recognise trusted operators and encourage best practices in the international supply chain. The AEO systems of the countries concerned have been developed with the philosophy of the Framework of Standards in mind, and all focus on promoting trade security and facilitation, reflecting in the AEO system the aim of ensuring the legitimate flow of goods in international trade, supporting the overall objectives of economic and social development and trade facilitation, and promoting cooperation between customs and the business community, although the AEO systems differ slightly from country to country.

First, the types of subjects to which they apply differ. In order to allow more supply chain operators to participate in AEO, the scope of application of the AEO system in the "Belt and Road" countries as a whole is broad, but the specific regulations on the types of AEO declaration subjects vary from country to country. In countries with faster socio-economic development, the types of enterprises allowed to apply for AEO are relatively diverse, e.g. Singapore and Israel include importers, exporters, manufacturers, customs clearance enterprises and warehouse custodians in the scope of AEO management; however, in some low and middle-income countries, only some types of operators are allowed to apply, e.g. Bangladesh only grants AEO status to manufacturers and Cambodia only grants AEO status to importers and exporters. This reflects the differences in the application subject requirements of different countries.

Secondly, the AEO system is promoted in different ways in the countries concerned. In some countries, apart from official customs promotion, the AEO system is extended through training of customs officers. In addition, other countries promote the AEO system by organising AEO forums and seminars in conjunction with industry events. In order to involve more companies, the countries concerned attach great importance to the participation of SMEs in the AEO system by including them in the AEO scheme with the aim of expanding the AEO system's base in order to enhance the security, integrity and dynamism of the supply chain.

Different levels of legislation

Firstly, the AEO system is regulated at the legal level. Most of the "Belt and Road" countries that have established AEO systems have adopted laws and regulations to regulate the various behaviours and protect the rights and interests of AEO enterprises, but the form of legislation varies according to different national conditions. For example, the countries concerned have granted three types of AEO: AEO with simplified customs procedures (AEOC), AEO with security (AEOS) and the highest level of AEOF certification, in accordance with Article 38 of EU Regulation No. 952 of 2013 (i.e. the Regulation establishing the EU Customs Code) and Article 24 of the Delegated Regulation No. 2015/2446 (containing detailed provisions supplementing Regulation No. 952/2013). AEO holders can benefit from a more favourable risk assessment, allowing operators with AEO status to enjoy customs clearance facilities such as reduced inspection rates.

Secondly, the AEO system is provided for at the regulatory level. In addition to the legal level, some countries have defined the AEO system at the regulatory level. For example, Turkey issued the Implementing Regulations of the Customs Law on 10 January 2013, which sets out the certification authority, applicable conditions and assessment process, AEO requirements and criteria, benefits of certificate status and provisions for suspension/revocation of certificates. Cambodia issued Ministerial Decree No. 452 on 11 April 2013 to implement an incentive mechanism for compliant traders.

Active introduction of third party assessment agencies in line with national characteristics

The focus of the assessment basis for AEO enterprises varies from country to country, with some national certification standards also adopting the assessment basis provided by third-party auxiliary certification bodies. Generally speaking, the AEO certification standards of each country cover a number of elements such as legal compliance, financial status and internal control, and are a comprehensive consideration for enterprises, but different countries set slightly different standards due to their own circumstances. For example, in terms of years of operation, Iran requires that applicants "should have at least three years of experience in international business activities and should be involved in customs import and export activities to varying degrees", while Vietnam requires that the applicant should have been "engaged in import and export business for at least two consecutive years". In terms of enterprise size, Vietnam requires exporters to export at least US$100 million per year, export goods manufactured in the country at least US$40 million per year, and enterprises exporting agricultural or fishery products produced and processed in the country at least US$30 million per year. In terms of information system construction, each country requires AEO certified enterprises to have a grade of goods, an inventory system and an information system for data linkage between customs and the enterprise. In terms of financial status, the relevant national certification standards stipulate that enterprises can achieve financial solvency by posting a bond or submitting a letter of guarantee. The inspection of financial indicators basically endorses the audit report of the accounting firm. In the practice of AEO certification, some countries will rely on the certification results of third-party institutions to make up for the lack of customs certification power.

Inspiration from the AEO system of "One Belt One Road" countries to China

In order to maintain a leading position in the construction and certification practice of China's customs AEO system, it is necessary to update and improve it with the times based on the actual economic and social development of China, and to absorb the good experiences and practices of the "Belt and Road" countries, so as to promote the continuous development and improvement of China's AEO system.

Increasing support for AEO certification of SMEs to stimulate economic vitality

In order to make it easier for SMEs to pass AEO certification, economies such as the European Union and Serbia have proposed that the specific characteristics of SMEs should be given due consideration when customs review the fulfilment of AEO standards by enterprises, and that corresponding detailed procedures should be developed. In the context of China's reality, many SMEs are less confident and less motivated to apply for AEO because their internal structure is different from that of traditional large enterprises, with a more flexible governance structure and a more refined staff structure. When formulating the AEO certification standards, especially the internal control standards, China should take into account the operational characteristics of SMEs with simple structures and flexible management, and provide clear guidelines for SMEs in specific codes of practice and enterprise guidelines; at the same time, it can promote the strengthening of special funding arrangements by local governments and the establishment of a credit-based SME financing service system in cooperation with financial service institutions, so as to provide an upgrade for SMEs with tight capital and good integrity records. At the same time, by promoting local governments to strengthen special funding arrangements and cooperate with financial service institutions to establish a credit-based SME financing service system, we can provide financial support for SMEs with good credit records to upgrade their operation and management, so as to create convenient conditions for SMEs to participate in AEO certification and improve their credit level.

Explore the participation of third-party organisations to facilitate efficient AEO work by Customs

As most third-party organisations are non-governmental organisations, they are generally independent, fair and professional, and can provide authoritative assessment results in certain specialised areas to improve the quality of AEO certification on the one hand, and reduce the workload of AEO certification and the pressure on customs-related human resources on the other. For this reason, many Belt and Road countries are gradually trying to strengthen the role of third-party organisations in AEO certification. For example, the UAE requires that an enterprise's Dun & Bradstreet rating should not be lower than B in terms of financial criteria, which in effect means that the credit rating of Dun & Bradstreet is a pre-requisite for an enterprise to apply for AEO certification. Serbia, for example, clearly stipulates that the third party certification of trade security will be used as the basis for the enterprise's trade security certification. At present, only the financial indicators of the AEO certification standards are credited to the audit reports of third-party institutions, i.e. auditors. It is therefore recommended that the participation of third-party organisations in the AEO certification and credit management of Customs be gradually increased, such as exploring the establishment of a white-list system for certification bodies and conducting assessments of the internal management, business standards and certification quality of certification bodies. For those who pass the customs assessment, the customs can approve their certification results in terms of quality management, trade security and other indicators in the certification standards; at the same time, they can adopt random checks and reviews to verify their certification results from time to time, and strictly implement the withdrawal mechanism for those who falsify or do not meet the requirements.

Strengthen international cooperation in customs and actively promote mutual recognition of AEO

The unbalanced economic and social development of the "Belt and Road" countries determines that the level of AEO system construction varies from country to country. In promoting AEO mutual recognition cooperation, China Customs should strengthen the sharing of practical experience and take the initiative to help countries that have not yet implemented the AEO system or whose AEO system is not yet perfect to standardise the system and lay the foundation for the development of AEO mutual recognition. At the same time, we should promote China's system and experience through various channels such as the Global AEO Conference and the AEO International Symposium to continuously expand the influence of China's customs AEO work. For example, the Eurasian Economic Union comprising Russia, Belarus, Kazakhstan, Kyrgyzstan and Armenia has already achieved mutual recognition of AEO. For example, the Eurasian Economic Union comprising Russia, Belarus, Kazakhstan, Kyrgyzstan and Armenia has already achieved AEO mutual recognition, so we can explore the path of "one-to-many" regional AEO mutual recognition with China, so as to promote the further speed of AEO mutual recognition.