The global economy demands that businesses expand beyond borders, but they face hurdles from customs and regulatory barriers in other countries and regions which make this expansion challenging. In 2005, the World Customs Organisation (WCO) introduced the Authorised Economic Operator (AEO) programme as part of the SAFE Framework. The aim of the WCO was to establish a global system for identifying private companies that provide significant security assurances regarding their involvement in the supply chain.
The AEO programme serves several important purposes, including preventing international terrorism, improving revenue collection, and facilitating trade. Moreover, the AEO programme aims to establish and enhance Customs-to-Customs network arrangements, which streamline the movement of goods through secure international trade supply chains. The second pillar of the SAFE Framework focuses on Customs to Business arrangements.
In 2015, the WCO released its Customs-Business Partnership Guidance to assist Customs administrations in building favourable and collaborative relationships with businesses. The Customs-Business Partnership Guidance contains precise and inclusive instructions to apply to various situations and conditions. It also presents flexible models that can benefit Customs administrations, regardless of their current dealings with businesses. This comprehensive guide has been thoughtfully structured into four parts, each of which dives deep into the subject matter. The first part explains the processes involved in working with Customs. The second part outlines a step-by-step approach to partnership formation. The third part shares valuable insights and tips from other members. Finally, the fourth part includes advanced ideas and strategies to improve understanding.
Considering the above, the SARS AEO programme adheres to the minimum standards set by WCO under the SAFE Framework and Customs-Business Partnership Guidance.
In May this year, Botswana, Eswatini, Lesotho, Namibia and South Africa, the Member States of the Southern African Customs Union (SACU), signed the Mutual Recognition Arrangement to recognise SACU importers and exporters that have been granted AEO status. The SACU Revenue Administration is also committed to facilitating cross-regional trade and being alert to all its risks, to reduce poverty, inequality and unemployment.
For South African businesses involved in trade within the regional market of the SACU and internationally, there is an opportunity to achieve AEO status. AEO status is available to businesses such as manufacturers, importers, exporters, brokers, carriers, consolidators, intermediaries, ports, airports, terminal operators, integrated operators, warehouses, distributors and freight forwarders. In addition, Small, Medium and Micro Enterprises (SMMEs) within the same trade zone are eligible for the AEO programme. However, SARS Customs approval is necessary before AEO status can be achieved. The AEO programme is divided into different accreditation levels, as explained below.
Level 1 Accreditation AEO: Compliance
In 2017, SARS launched AEO Compliance by granting accreditation status to 28 traders, including importers and exporters. In July 2021, section 64E of the Customs Act 91 of 1964 (Customs Act), was amended to widen the scope of participation in the SARS AEO programme, allowing more role-players in the supply chain to participate. In addition, these amendments align with the standards of Pillar 2 of the WCO Framework of Standards, which introduces a safety and security element that adheres to international best practices. As a result, entities or traders in international trade can participate in the voluntary Level 1 Accreditation programme with SARS Customs. This will enable them to maintain standards in their internal processes and computer systems. As of 31 January 2022, there were 144 accredited traders.
Certain requirements must be met for the above entities or traders to acquire accreditation. These include demonstrating a compliance record spanning three years before application. They also include maintaining a computer system that aligns with the user agreement and knowing customs and excise laws and procedures. Audited financial statements for the last three years must be provided as alternative evidence of financial viability. Additionally, outstanding taxes, interest, penalties or other amounts due and payable to SARS must be paid. All tax returns and documents must be submitted for tax purposes.
This level offers several benefits, including lower security amounts, fewer inspections, and the ability to use the unique SARS AEO logo to brand the business.
Level 2 Accreditation AEO: Safety and Security
Level 2 Accreditation, or the AEO Safety and Security programme (AEO-S) is a voluntary programme designed to enhance supply chain security. It utilises a documented process to identify and mitigate risks throughout the international supply chain. In July 2021, the AEO-S programme started with one trader.
To be eligible for consideration, applicants must ensure that their premises, buildings and facilities have adequate and appropriate security measures. This is to prevent unauthorised access by individuals or vehicles. Personnel and other individuals accessing the premises must also be protected. Additionally, applicants must identify any business partners involved in the supply chain and ensure that they meet security requirements. Under the applicant’s supervision, cargo and conveyances must be kept secure and their integrity maintained. Applicants must have procedures to mitigate the risk of losing or destroying their records and information. Staff must be trained in recognising potential threats and taking appropriate action. Adequate information technology security measures must be employed to protect the applicant’s information technology systems.
Communication with SARS is necessary in customs matters. Applicants must comply with the latest revision of the King Report on Corporate Governance guidelines, to the extent applicable.
Investing in the AEO-S programme may yield several advantages beyond Level 1 Accreditation for businesses. Benefits may include exemptions from specific customs supervision. They may also include targeted training sessions, and reduced documentary and physical inspections for regulatory compliance and supply chain security risk. In addition, they may include exemptions from security payments.
These are the summarised benefits of becoming an AEO:
Boost international trade: The AEO Programme can help businesses streamline customs procedures, leading to faster and more efficient trade. This can result in increased competitiveness and profitability.
Importance of trust: Trust is crucial to becoming an AEO. By achieving AEO status, businesses demonstrate their commitment to compliance and security standards. This can help to build trust with trading partners and increase collaboration and growth opportunities.
Role of technology: Technology plays a vital role for AEOs; for example, electronic systems enable businesses to manage customs procedures more efficiently, reducing the risk of errors and delays. This can help businesses save time and money while improving their overall performance.
Crucial for small businesses: SMMEs play a vital role in the South African economy, contributing significantly to GDP and job creation. SARS is exploring the benefits of the AEO programme to support and ensure compliance among SMMEs. By becoming an AEO, small businesses can compete on a level playing field with larger companies. They can improve their reputation and access new markets by eliminating barriers to entry, facilitating business growth and enhancing trade. Additionally, AEO status can provide benefits such as expedited inspections and refund claims. It can also provide education on customs and excise, cost savings on security and embargo fees, and leverage on current government offerings.
Foster collaboration across borders: The AEO can facilitate business collaboration across borders. AEOs enjoy mutual recognition of other AEOs in different countries, simplifying procedures and reducing costs. This can help businesses forge new partnerships and expand their operations.
The AEO status accreditation takes effect on the date specified in the accreditation letter or certificate and remains valid for five years. However, if a holder’s registration or license is suspended or cancelled according to section 60(2) of the Customs Act, or if they voluntarily give up their accredited client status and notify the Commissioner, their status will expire before the end of the five-year term. To renew their status, holders must apply no later than 30 days before their expiration date and comply with the Rules under Section 64E of the Customs Act. If the renewal application is not processed before expiration, the SARS Commissioner can extend the validity period.
The AEO programme greatly benefits businesses seeking to grow regionally and internationally, and to improve performance. By becoming an AEO, a business can reap various advantages, such as faster and more efficient trade, improved reputation and trust, and increased opportunities for collaboration. Businesses trading within the regional market of the Southern African Custom Union and internationally are encouraged to take advantage of SARS’ efforts to strengthen global supply chain security and facilitate the movement of legitimate goods through the AEO programme.
Dyondzo Kwinika is a Candidate Attorney and Virusha Subban a Partner and Head of Tax | Baker McKenzie Johannesburg.
This article first appeared in DealMakers, SA’s quarterly M&A publication.
DealMakers is SA’s M&A publication
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