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March 2010
This publication was produced by Nathan Associates Inc. or review by the United States Agency or
International Development.
CUSTOMS MODERNIZATION HANDBOOK
AUTHORIZED ECONOMICOPERATOR PROGRAMS
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CUSTOMS MODERNIZATION HANDBOOK
AUTHORIZED ECONOMICOPERATOR PROGRAMS
DISCLAIMER
This document is made possible by the support o the American people through the United States Agency or International Development (USAID).
Its contents are the sole responsibility o the author or authors and do not necessarily reect the views o USAID or the United States government
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The AEO Program Handbook was developed by Robert L. Holler and Jeremy Schanck or the
USAID Worldwide Support or Trade Capacity Building project (TCBoost).
TCBoost, implemented by Nathan Associates Inc. or the GBTI II DAI/Nathan Group, works
with USAIDs Bureau or Economic Growth, Agriculture, and Trade (EGAT) to help USAID
missions determine their trade-related technical assistance needs and design and implement
trade capacity building programs and projects.
TCBoost can meet every aspect o a missions trade-related needs, rom analysis to training, in a
broad range o topics, including trade acilitation and customs reorm, trade policymaking and
negotiations, export diversication and competitiveness, and economic adjustments to tradeliberalization. Visit www.tcboostproject.com or more inormation.
Photo Credits
Cover: Paul Kent, Nathan Associates | p. vi: South Arica Customs |
Inside back cover U.S. Customs and Border Protection
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iii
CONTENTS
Acknowledgments v
Introduction 1
1. Supply Chain Security and the Safe Framework 3
Supply Chain Security 3
SAFE Framework o Standards 3
AEO Program Design Principles 5
2. Steps in AEO Program Design and Implementation 7
Step 1: Assemble Project Implementation Team 7
Step 2: Establish AEO Working Group 8
Step 3: Defne the Project 9
Step 4: Drat Project Implementation Plan 11
Step 5: Defne AEO Requirements 11
Step 6: Defne AEO Benefts 16
Step 7: Design the Application Process 18
Step 8: Recruit Supply Chain Security Specialists 20
Step 9: Announce and Promote the AEO Initiative 22
Step 10: Pilot the AEO Program 25
Step 11: Consider Mutual Recognition Arrangements 27
3. Case Studies 30
United States: Leveraging a Strong History o Private Sector Partnership 30Jordan: Using Project Management Principles and Donor Assistance Eectively 32
New Zealand: Protecting Export Markets 34
Sweden: Simpliying Processes and Improving Ser vice 35
European Union: Incorporating Diverse Members 36
Argentina: Opening AEO Programs to Businesses o All Sizes 38
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iv AEO PROGRAMS HANDBOOK
4. Best Practice References 41
AEO Benefts 41
Application Forms 41Promotional Brochures 41
Financial Viability
Inormed Compliance/Compliance Measurement
Program Planning and Management
Records Management
Security Profles
Integrity
EXHIBITSExhibit 1-1 Supply Nodes 4
Exhibit 2-1 Complications Arising rom Inormal Amendment Practices 12
Exhibit 2-2 Benefts that May Be Oered to AEOs or Participation in AEO Program 17
Exhibit 2-3 Typical Supply Chain Specialist Duties 21
Exhibit 2-4 Do These Views Sound Familiar? 24
Exhibit 2-5 Process Used by the United States to Establish Mutual Recognition Agreements 28
Exhibit 3-1 Timeline o U.S. Customs Voluntary Industry Partnerships 31
Exhibit 3-2 Timeline o the Development o the Jordan Customs Golden List Program 33
Exhibit 3-3 Timeline o the Creation o the EU AEO Program 37
Exhibit 3-4 Timeline or Implementation o Argentinas SOC 38
CONTENTS (continued)
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v
ACKNOWLEDGMENTS
The TCBoost project wishes to thank the ollowing sta o the World Customs
Organization or their guidance in developing this handbook:
Ms. Eleanor Thornton, Technical Attach rom the United States, Capacity BuildingDirectorate
Mr. Simon Royals, Senior Technical Ocer
Mr Henk van Zandwijk ,Technical Attach rom the Netherlands, Capacity Building
Directorate.
We also extend our grateul appreciation to the ollowing people who provided assistance:
Mr. Bradd M. Skinner, Director, C-TPAT/Industry Partnership Programs, U.S.
Customs and Border Protection
Ms. Louritha Green, Acting Chie, Strategic Operations Branch, International
Operations Division, U.S. Customs and Border Protection Mr. Carlos Ochoa, Customs-Trade Partnership against Terrorism (C-TPAT) Program
Manager, U.S. Customs and Border Protection
Mrs. Graciela Misuraca, Director o Risk Management, Argentina Customs
Department
Mr. Dave Haigh, Manager, Multilateral and Regional Cooperation, New Zealand
Customs Service
Mr. James McKone, Senior Adviser, International Relations, New Zealand Customs
Service
Mr. Christopher Kristensson, International Business Development Adviser, Swedish
Customs.
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1
INTRODUCTION
Customs responsibilities are evolving. In the post-September 11 world, Customs
administrations have moved ar beyond their original role as governments primary
revenue collectors. Customs administrations are now expected, among other
responsibilities, to provide security rom the threat o terrorism by securing international
supply chains. International agreements and guidance documents on supply chain
security, such as the World Customs Organization (WCO) Framework o Standards to
Secure and Facilitate Global Trade (SAFE Framework), have established best practice
guidelines emphasizing both trade acilitation and supply chain security through
Customs-to-Customs and Customs-to-business partnerships. Customs-to-business
partnerships can be strengthened through authorized economic operator (AEO)
programs, which identiy and reward businesses that comply with WCO or equivalent
standards or supply chain security. According to the WCO, as o June 2009, 157
member nations had expressed the intention to implement the SAFE Framework. Japan,
the European Union, Argentina, China, Brazil, India, Chile, and several other countries
have been inspired by the SAFE Framework to develop and implement programs, but
many WCO member nations will require guidance and training to implement the
ramework.
The Authorized Economic Operator Program Handbook is the ourth in a series o
customs modernization handbooks commissioned by USAID. This handbook is based on
the SAFE Framework and can provide Customs administrations in developing countries
with practical, detailed guidance and best practice examples in working collaboratively
with the trade community to secure the supply chain while acilitating trade, maintaining
or improving controls, and protecting revenue. The handbook does not seek to add
to the SAFE Framework concepts but rather to assist Customs administrations in
developing countries in planning and implementing national AEO programs. Thehandbook was developed by the USAID Worldwide Support or Trade Capacity Building
(TCBoost) project with signicant input rom the WCO and the U.S. Customs and
Border Protection (CBP). This collaboration is the rst o its kind.
The approach o the Authorized Economic Operator Program Handbook is based on
eective program management practices and best practices drawn rom the experience
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2 AEO PROGRAMS HANDBOOK
o Customs administrations throughout the world. USAID recognizes that management
commitment to and employee acceptance o any Customs reorm initiative can best be
achieved when the Customs administration and its employees participate in the design
and implementation o the initiative. USAID also recognizes that Customs managers
oten preer to take the lead in developing and implementing new initiatives without
relying too heavily on outside technical advisers. This handbook was designed to enable
developing-country Customs administrations to ollow its guidelines and institute the
recommended reorm measures with minimal additional technical assistancealthoughthis do-it-yoursel approach does not preclude short-term technical assistance. Customs
administrations considering an AEO program or in the process o implementing an AEO
program may contact USAID and/or CBPs Oce o International Aairs to request
technical assistance in or training on how to develop and implement such a program.
This handbook begins with a brie history o the development o the SAFE Framework
o Standards, particularly as it inorms the development o AEO programs, and discusses
the principles and preconditions that infuence the design and implementation o AEO
programs (e.g., import vs. export orientation, Customs-to-business partnerships, integrity
issues). Section 2 presents a prototype implementation plan or AEO programs that can
be adapted to address local issues and priorities. Section 3 eatures case studies that detailthe experiences o countries that have designed and implemented AEO programs. Finally,
the handbook includes a CD that provides reerence materials and sample orms and
documents rom Customs administrations implementing AEO programs throughout the
world.
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3
1. SUPPLY CHAIN SECURITY AND
THE SAFE FRAMEWORK
SUPPLY CHAIN SECURITYIn the days ater the September 11, 2001, attacks on the United States, nearly all air
trac over the United States was grounded, and land borders and seaports were sealed.The economic impact o these shutdowns resonated within the United States and
throughout the world, demonstrating the vulnerability o international supply chains.
The United States, Canada, New Zealand, Jordan, Sweden, Netherlands, Australia,
and Singapore moved quickly to implement security programs, predecessors o AEO
programs.
Given their central role in the movement o goods across international borders, Customs
administrations helped develop and implement these security programs, but the
responsibility or securing the international supply chain does not rest with Customs
alone. No one entity owns or manages the international supply chain; securing the
chain requires the participation o manuacturers, importers, exporters, brokers, carriers,consolidators, ports, airports, terminal operators, integrated operators, warehouses, and
distributors. Recognizing the need to develop a uniorm set o strategies to secure
yet acilitatethe movement o global trade, the WCO began developing Customs
Guidelines on Integrated Supply Chain Management (ISCM Guidelines) in 2002.
Exhibit 1-1 lists the supply chain nodes where, according to the CBP, manipulation o
the supply chain can occur.
SAFE FRAMEWORK OF STANDARDSThe adoption o the ISCM Guidelines in 2004 was ollowed by the adoption o the
SAFE Framework o Standards in 2005. The SAFE Framework is based on two pillars:(1) Customs-to-Customs partnerships and (2) Customs-to-business partnerships. Pillar 1
emphasizes the harmonization o advance electronic cargo inormation requirements on
inbound, outbound, and transit shipments and the use o a consistent risk management
approach to address security threats. Pillar 2 encourages the establishment o ways or
Customs to identiy businesses that consistently demonstrate commitment to compliance
with Customs regulations and security procedures as AEOs.
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4 AEO PROGRAMS HANDBOOK
The SAFE Framework denes an AEO as a party involved in the international movemento goods in whatever unction that has been approved by or on behal o a national
Customs administration as complying with WCO or equivalent standards or supply
chain security. AEOs include manuacturers, importers, exporters, brokers, carriers,
consolidators, intermediaries, ports, airports, terminal operators, integrated operators,
warehouses, and distributors. The SAFE Framework establishes the ollowing six
standards or AEO programs:
Standard 1Partnership. AEOs engage in a sel-assessmentmeasuring their internal
policies and procedures against security standards and best practices to ensure that they
provide adequate saeguards against the compromise o their shipments and containers
until the shipments are released rom Customs control at destination.
Standard 2Security.AEOs incorporate program-dened best practices ot security
into their business practices.
Standard 3Authorization. The Customs administration, together with
representatives o the trade community, design validation processes or quality
accreditation procedures that oer incentives to businesses because o their status as
AEOs.
Standard 4Technology. All parties maintain cargo and container integrity by using
modern technology.
Standard 5Communication. The Customs administration regularly updates
the security standards and supply chain security best practices dened in the AEO
program.
Standard 6Facilitation. The Customs administration works cooperatively with
AEOs to maximize security and acilitation o the international trade supply chain
originating in or moving through its Customs territory.
EXHIBIT 1-1Supply Nodes
The U.S. Strategy to Enhance International Supply Chain Security
(June 2007) identifes 16 supply chain nodes where goods can be
manipulated:
1. Origination o cargo (supplier or actory)
2. Origination o packaging
3. Origination o container (i containerized cargo)
4. Mating o cargo and packaging
5. Consolidating o cargo or sealing o container
6. Storage beore transport
7. Movement o cargo to port o origin
8. Port o origin (airport, marine terminal or acility, trucking
company)
9. International transportation
10. Port o entry (airport, marine terminal or acility, border port
o entry).
11. Movement to deconsolidation point
12. Storage beore processing
13. Deconsolidation
14. Movement to destination
15. Destination
16. Inormation ow associated with cargo (end-to-end).
Each node presents an opportunity or requirement or gaining
access to the means o transport or cargo.
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SUPPLY CHAIN SECURITY AND THE SAFE FRAMEWORK 5
AEO PROGRAM DESIGN PRINCIPLESIn the design and implementation o an AEO program, certain principles must
be ollowed and certain conditions must be met. These include compliance with
international standards and being guided by best practices developed by international
organizations and other Customs administrations, the prioritization o either imports or
exports, the state o Customs-to-business partnerships in the country, and the level o
integrity displayed by the Customs administration.
GET SUPPORT FROM HIGHEST LEVELS OF THE CUSTOMS ADMINISTRATIONA successul AEO program requires the rm commitment o the Customs
administrations director general or chie executive. The chie executive must sponsor and
advocate or the program rom its inception. The chie executives direct involvement in
the program provides tangible support to the team developing the program, ensures that
Customs ocers understand the programs importance, and gives the program credibility
beore the trade and transport community. The chie executive must be personally
involved in introducing the AEO concept to the executive branch, to the legislature,
and to other government ministries and agencies to obtain the necessary governmental
support and unding or the program. This handbook proceeds under the assumptionthat the chie executive has obtained governmental consent or approval, been assured
o unding, and has reached out to other ministries and agencies involved in trade and
border issues.
COMMIT TO MEETING INTERNATIONAL STANDARDSThe SAFE Framework standards or AEO programs reinorce international standards or
Customs administrations (e.g., Revised Kyoto Convention). Customs administrations
ready to design and implement AEO programs understand the importance o balancing
international trade and security and are ready to play their role in acilitating legitimate
international trade and investment. They also understand the vulnerability o theinternational supply chain and their increasingly important role in securing goods and
conveyances moving across borders. They measure their success by documenting that
new procedures and working relationships have increased the degree o compliance
with Customs and related requirements. They simpliy procedures to reduce delays
and uncertainty. They establish achievable goals to improve compliance and measure
their success in achieving them. They tailor controls to risks. They communicate more
openly and eectively. They implement transparent, perormance-based human resource
management practices, provide adequate compensation, and reduce opportunities or
corruption.
COMMIT TO PROFESSIONALISM AND INTEGRITYNo matter how well designed, a program will ail i Customs managers, importers, and
exporters cannot rely on their ocers and employees to perorm their duties in an ethical
manner. I customary practices include the exchange o tips, gratuities, avors, or bribes,
both Customs and the trading community must be willing to make a change. In the
Customs administration, success begins with senior managers rm personal commitment
to provide leadership and to insist on improved policies, practices, and procedures, even
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6 AEO PROGRAMS HANDBOOK
when traditional methods o doing business are deeply ingrained. The success o an
AEO program also depends on proessionalism and integrity in the trading community,
especially importers, exporters, and brokers. The WCO has published excellent
integrity assessment tools, and USAID has published the handbook Establishing and
Implementing a Customs Integrity Program dealing specically with this issue. Both are
on the CD included with this handbook.
DETERMINE IMPORT OR EXPORT ORIENTATIONSome AEO programs ocus on imports, others on exports, depending on national
priorities. Governments must not only guard against terrorist attacks on their own soil
through the import supply chain, but they must also saeguard their competitiveness
in the international market by protecting export markets and brand names. Ideally, an
AEO program covers both imports and exports, but Customs administrations should
not try to do too much too soon. I a country considers its primary threat an attack on
its homeland, it will probably address imports rst. But i the primary threat is to export
markets, the country might preer to ocus rst on export security. Either decision does
not preclude a program covering both imports and exports later. The key issue is where to
start.
STRENGTHEN CUSTOMS-TO-BUSINESS PARTNERSHIPIn modern Customs administrations, traditional control systems have given way to
risk-based selectivity systems. These systems have made complying with Customs
requirements easier. They punish those who do not comply and reward those who
do. In developing an AEO program, a Customs administration must get to know its
trading community and understand its business practices and concerns. Adversarial
relationships are replaced with mutual respect and partnership. By adopting a less
adversarial philosophy, Customs administrations can both secure the international supply
chain and acilitate the movement o legitimate international shipments. Section 2, Step
4 o this handbook provides additional inormation on strengthening or enhancing therelationship between Customs and the trade community.
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7
2. STEPS IN AEO PROGRAM DESIGN
AND IMPLEMENTATION
Every Customs administration incorporates its own experience and approach into AEO
program design and implementation. Some Customs administrations have project
management or modernization and reorm departments, but others may not have theresources or training to apply project management techniques. This guide to AEO
program implementation
Suggests a course o action incorporating project management techniques or Customs
administrations that do not have in-house project management expertise;
Outlines a strategy that will enable Customs administrations and business clients to
work in partnership on incorporating the SAFE Framework into a national AEO
program; and
Describes best practices and the approaches taken by Customs administrations that
have already implemented AEO programs.
The design and implementation o an AEO program are complex and time-consumingprocesses. The best way to prime an AEO program or success is or the partners in the
public and private sectors to collaborate in designing the program. This collaboration
entails the ormation o two groups:
A project implementation team made up o Customs ocers
A working group o representatives o the trade (importers, exporters, carriers, brokers,
warehouse operators, manuacturers) and other government agencies with responsibili-
ties relating to imports and exports.
The ormation o these two groups is addressed in Steps 1 and 2.
STEP 1: ASSEMBLE PROJECT IMPLEMENTATION TEAMThe rst step in developing an AEO program is assembling a project implementation
team. The project implementation team is made up o Customs managers and ocers
responsible or working with the private sector to design the AEO program and or
managing project implementation.
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Although the Customs chie executive serves as the project sponsor, ew managers in
such a high position can devote the time and attention necessary to manage the design
and implementation process. The chie executive thereore should appoint a trusted
subordinate as the ull-time project manager.
The project manager should have strong motivation and excellent project management
skills and the demonstrated ability to bring together people with diverse points o
view in a productive manner. The project manager leads the project implementationteam and works closely with the AEO working group (see Step 2). He or she will
have to have the authority to speak or the chie executive and to make decisions and
commitments (within dened parameters) or the project. The project manager keeps
the chie executive inormed o progress and any obstacle encountered in the design and
implementation process. Although the chie executive may have delegated signicant
authority to the project manager, the chie executive must remain visible and accessible.
The project manager nominates the rest o the project implementation team, including
specialists in risk management, human resource management, policy and procedure
development, postclearance auditbased controls, inormation technology, legal and
policy advice, and public inormation. Field ocers should also participate. Having local
champions who are well inormed about the program will help later. Nominees should
demonstrate motivation to pursue progressive Customs modernization and be able to
work well with others. It is recommended that the project manager and implementation
team members have a good command o English, one o the WCOs primary languages.
The ability to research WCO reerences and other best practices without having to call
on a translator will be valuable.
The project implementation team can have both ull-time and part-time members.
In either case, team members must be ree to contribute meaningully to the project.
Supervisors o team members must recognize that the AEO project is a high priority,
understand that they are expected to support it, and ensure that their subordinates have
sucient time to ulll their project implementation roles and responsibilities. The chieexecutive acilitates this by ensuring that supervisors are made aware o the importance
o the AEO program through correspondence and sta meetings and by conveying the
expectation that the design and implementation process be ully supported.
When a project implementation team is ormed, the team members ability to remain on
the team long term should be taken into consideration. Customs ocers who participate
in this process will learn how businesses operate and will see rsthand the successes and
challenges that play out during the design and implementation o the program. To lose
this experience as the program progresses would be very detrimental to the program.
These knowledgeable ocers should be kept on to lead the AEO program.
STEP 2: ESTABLISH AEO WORKING GROUPThe second step in developing an AEO program is to bring the private sector and
other government agencies into its planning and implementation by creating an AEO
working group. The Customs chie executive should take the lead in identiying and
inviting representatives rom the private sector and other government agencies to work
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STEPS IN AEO PROGRAM DESIGN AND IMPLEMENTATION 9
with the project implementation team. The project implementation team, private sector
counterparts, and representatives rom other relevant government agencies orm the AEO
working group.
The working group will lay the oundation or the AEO program and ensure that the
private sector and other government agencies are represented. In some countries, a
Customs consultative committee made up o representatives o border agencies and
segments o the private sectorsuch as importer and exporter associations, Customsbroker and agent associations, reight orwarder associations, transport company
associations, and airport and seaport management companiesalready exist. I such a
committee exists, the Customs administration should use it to develop a partnership-
riendly environment or the AEO program by inviting the consultative committee to
designate representatives to participate in the AEO working group.
Because other government agencies exert additional controls over imports and exports,
an AEO program cannot succeed without their input and cooperation, especially in
simpliying and harmonizing procedures. Involving other agencies in AEO program
design and implementation helps avoid unproductive and embarrassing interagency
arguments in the presence o the trade community. I Customs wants to develop a
good relationship with the trade community, it has to ensure that other trade-related
government entities share that motivation.
When the working group is established, an introductory meeting should be held.
Although the quality and success o the AEO program depend on the participation o the
private sector, the program is essentially a Customs program, and the Customs project
manager should serve as chairperson and an industry counterpart should serve as deputy.
The chie executive and project manager provide a detailed brieng on the AEO concept.
The working group selects the deputy chair and ocers or the group.
STEP 3: DEFINE THE PROJECTThe rst steps or the AEO working group are to drat a charter and a scope o work or
the project.
PROJECT CHARTERThe project charter
Denes the project and provides broad direction,
Explains the importance o the project to the Customs administration and its
stakeholders,
Names the project manager and establishes his or her decision-making authority, Names the project implementation team members and establishes their roles,
Emphasizes senior managements support or the project and the project manager,
Emphasizes the importance o the private sector in the design o the AEO program,
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10 AEO PROGRAMS HANDBOOK
Spells out the working groups role as the primary communication conduit between
Customs and private industry partners, and the rules by which the working group
operates,
Species that the AEO working group is a permanent part o the AEO program, and
Is made available to everyone associated with the project.
The project manager submits the drat charter to the chie executive and incorporates the
chie executives modications into the nal charter. The issuance o a project charter signed
by the Customs chie executive serves as ocial notication o the initiative and o the
expectation that they ully support the concept and those charged with implementing it.
SCOPE OF WORKWhen the Customs chie executive has approved and disseminated the charter
throughout the Customs administration, the project implementation team develops
a preliminary scope o work or the project implementation team. The scope o work
includes project objectives and rationale; project sponsor and major stakeholders; the
project scope or boundaries (i.e., the work that will and will not be perormed); expected
dates and duration o implementation; assumptions, constraints and risks; initial projectorganization; initial work breakdown structure; project deliverables, timelines, and
milestones; and cost estimates and resource requirements. The scope o work builds on
the project charter by laying out the broad parameters o the project; the AEO working
group will develop a project implementation plan, more detailed than the scope o work,
in step 4. In drating the scope o work, the project implementation team must consider
organizational and resource issues such as
What department assumes management responsibility o the AEO program ater the
project implementation team completes its work? Is there a department suited or and
capable o taking on this responsibility or must a new department be created? Will the
organizational structure have to be revised?
Does Customs have the resources necessary to support an AEO program? How many
personnel will be required to manage the program? Where will they come rom?
Will new oce space be required? What computers, vehicles, and other equipment
will be needed?
I Customs does not have the resources needed, where does it turn to request them?
A key variable or determining resource needs is the number o AEOs the program can
reasonably expect to support. This handbook recommends that a new AEO program start
with importers and exporters because they select the other links in the supply chain. Ater
the rst participants gain experience and condence, the program can be expanded to
include brokers, transporters, and ports.
The chie executive publishes the scope o work. The charter is made available to all
Customs managers, ideally on the Customs intranet and website. The Customs chie
executive also approves organizational and resource recommendations so that Customs
can begin to implement the decisions made.
The U.S. Departmento Agriculture Project
Management Handbook,ound on the CDaccompanying thishandbook, providesdetailed instructions ondrating project chartersand preliminary scopeso work.
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STEPS IN AEO PROGRAM DESIGN AND IMPLEMENTATION 11
STEP 4: DRAFT PROJECT IMPLEMENTATION PLANNext, the AEO working group drats a project implementation plan. The working
group must work as a team, considering each others point o view and being willing to
compromise. The project implementation plan should include each task to be completed,
the person or persons responsible or each task, and the date each task is expected to be
completed. Steps 511 speciy these tasks.
When the AEO working group has produced a rst drat o the project implementationplan, they present it to the Customs chie executive or review. The chie executive should
circulate the drat within Customs and solicit comments. The working group reviews the
comments and adjusts the drat as appropriate. The working group can expect to revise
and resubmit the plan several times to the chie executive and other senior managers
beore receiving approval to proceed. Ater the nal drat o the project implementation
plan is approved, the project implementation team publishes the plan, making it a public
document. As with the project charter, the approved project implementation plan should
be made available to all Customs managers and be posted on the Customs intranet and
website.
The AEO working group can then begin implementing the project implementation plan: Dene AEO requirements (Step 5)
Dene AEO benets (Step 6)
Develop the application process (Step 7)
Recruit supply chain security specialists (Step 8)
Announce and promote the AEO concept (Step 9)
Pilot the AEO concept (Step 10)
Consider mutual recognition (Step 11)
The AEO working group should begin reporting to the chie executive on its progress in
implementing the plan. Reports are made in writing, usually monthly, detailing the work
accomplished, tasks completed, unexpected obstacles or delays encountered, adjustmentsmade to the plan, and other relevant inormation. The Customs chie executive should
meet with the working group at least once in each reporting period to discuss progress.
STEP 5: DEFINE AEO REQUIREMENTSThe rst major task in developing a national AEO program is to dene the requirements
to become an AEO. These requirements may be written in drat regulations (or
sublegislation) but are more practical when published in a less-ormal ormat that allows
modication on the authority o the Customs chie executive (acting on recommendation
rom the working group) rather than requiring legislative amendments. Because
participation in AEO programs is voluntary, this inormal approach is usually sucient.The AEO working group should drat national requirements in compliance with the
guiding standards established by Chapter 5 o the SAFE Framework, with respect to
regulatory compliance, business record management, nancial viability, security, crisis
management, communications, and training. Each o these guiding standards is briefy
discussed below.
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12 AEO PROGRAMS HANDBOOK
Part 2 Section 1 (1.2.2)o the European Unions
Authorised Economic
Operator Guidelines andthe U.S. Customs andBorder Protectionsbulletin What Every
Member o the Trade
Community Should
Know About: Reasonable
Care (A Checklist
or Compliance) andImporter Sel Assessment
Handbook, ound onthe CD accompanyingthis handbook,demonstrate best
practices in compliancemeasurement.
REGULATORY COMPLIANCETo participate in an AEO program, a potential industry partner must demonstrate a
record o compliance over a certain period o time. A critical and oten dicult question
the AEO working group must consider is whether Customs has sucient, reliable data to
determine past compliance levels.
The project implementation team works with the Customs risk management department
to analyze declarations rom the preceding 12 months and identies the importers,exporters, transporters, and brokers with the most declarations, the highest Customs
value, and greatest revenue contribution. Because this inormation is condential,
participation in this review has to be limited to Customs ocers who are constrained
rom revealing this inormation to others. The team also reviews declaration amendments
and penalty cases to determine whether a past level o compliance can be reliably
determined or those companies.
The team reviews declaration processing at clearance centers and all penalty cases issued
or undervaluation during the preceding 12 months to determine i procedures have
inadvertently created a lack o documented amendments, inappropriately identied
legitimate Customs valuation disagreements as violations, or encouraged undervaluationas a negotiating ploy.
Accurately gauging past compliance may not be possible, however, because o a lack
o reliable data. Even i Customs cannot accurately ascertain past compliance, an
appropriate record o compliance must be dened. The AEO working group may
choose to dene this record dierently or past and uture compliance. This recognizes
that Customs compliance tracking measures may not have been adequate beore the
implementation o the AEO program and does not unairly penalize traders or this
inadequacy. Exhibit 2-1 describes a scenario in which the issue o traders compliance is
clouded by local valuation practices.
I past or current Customs practices have contributed to less-than-satisactorycompliance, setting the initial compliance standard will be challenging. Setting it too
high may be counterproductive. I Customs cannot accurately analyze compliance levels
EXHIBIT 2-1
Complications Arising rom Inormal Amendment Practices
When Customs ofcers do not register (ofcially accept) a
declaration until the importer or broker has agreed to change
the declared value, the increase in declared value is not recorded
because the declaration is not changed ater it was registered. Bydealing with valuation disputes inormally when a declaration is
presented, Customs may unintentionally create an atmosphere
o negotiation, encouraging importers to undervalue their
declarations and to see their original valuation as an opening bid,
knowing that they will not be penalized or undervaluation and
hoping that the fnal value will be lower than i they had declared
the true transaction value at the outset.
Furthermore, increasing the originally declared Customs value
at the time the declaration is presented but beore it is ofcially
accepted does not necessarily mean that the importer or broker
committed an oense, fled a alse document, or attempted toderaud the government. Transaction value is problematic. The
price that dierent importers pay suppliers or the same or similar
goods varies according to many actors. Customs ofcers generally
do not have adequate inormation at the time the declaration is
presented to correctly dispute the declared transaction value and
assess an alternative value.
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STEPS IN AEO PROGRAM DESIGN AND IMPLEMENTATION 13
on the basis o its records, what can it do? Absent a reliably documented pattern o an
AEO applicants willul misconduct, Customs must rely on the applicants willingness
and ability to conorm to AEO requirements in the uture.
In any case, Customs must correct any procedure that contributes to a lack o compliance
and begin documenting and tracking amendments to declarations accurately, i it is not
already doing so. Customs must record all violations (o whatever type), as well as positive
and negative examination ndings, in a manner that is accurately attributable to thecompany involved. Customs, i it has not already done so, also must pursue renements
in postclearance audit, risk management programs, IT solutions, and integrity programs.
I Customs has not yet started promoting voluntary compliance and measuring
compliance, an AEO program oers an ideal opportunity to begin establishing
compliance measurements and implementing more transparent proceduresor example,
requiring brokers and importers to register electronic declarations when they le rather
than allowing a Customs ocer to register the declaration ater haggling over valuation.
I a declaration is revised to refect a higher Customs value, the revision must be recorded
through a ormal amendment process to create the record necessary to measure a
companys compliance.
This will probably require an organizational change o philosophy about how to
gain compliancerom negative reinorcement (penalties and seizures) to positive
reinorcement. This sort o culture change is not easy. The AEO working group will have
to use proven change management techniques to promote the voluntary compliance
approach and gain the acceptance o all stakeholders, Customs ocers in the eld
included. The diculty o making this change should not be underestimated. Many will
resist it and be skeptical o the new approach.
BUSINESS RECORDS MANAGEMENT
National legislation usually denes recordkeeping requirements, including whichdocuments must be retained and or how long. Redening national standards or
establishing new national standards or an AEO program is usually not necessary.
Generally speaking, an AEO should be able to demonstrate that it understands the legal
requirements or recordkeeping, including the nature o the records to be maintained and
the length o time that records must be kept and that it has
Procedures to explain the recordkeeping requirements to employees preparing,
maintaining, and producing the records;
Security measures to protect records rom loss or unauthorized access;
Procedures to prepare and maintain required records and to produce the records or
Customs, including documents relating to imports and exports, powers o attorney,
and licenses;
Assigned responsibility or recordkeeping compliance and maintaining amiliarity with
Customs recordkeeping requirements; and
Procedures to notiy Customs o variances rom or violations o the recordkeeping re-
quirements as well as procedures to take corrective action when notied by Customs o
violations or problems involving recordkeeping (U.S. Customs Service 1998).
The U.S. Customs andBorder Protectioncompliance bulletin,What Every
Member o the Trade
Community Should
Know About Records
and Recordkeeping
Requirements and Section1.2.3.3 (Internal ControlSystem) o the EuropeanUnionsAuthorisedEconomic Operator
Guide, ound on theCD accompanying thishandbook, demonstraterecords control bestpractices.
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14 AEO PROGRAMS HANDBOOK
The AEO applicant is responsible or demonstrating that it has a recordkeeping system
that satises the standards established by the AEO working group. The applicant
meets this burden o proo by documenting its records management system in its AEO
application. This, o course, is subject to Customs validation.
FINANCIAL VIABILITY
The SAFE Framework requires that an AEOs nancial standing be sucient to ulllits commitments with due regard to the characteristics o its business activity. In other
words, small amily businesses with one or two employees should not be held to the
same nancial viability standards as a large company with a high volume o Customs
transactions. Flexibility and common sense should be used in determining the suciency
o the applicants nancial standing. Customs probably has a documented working
relationship with an AEO applicant that will demonstrate the applicants nancial
responsibility with respect to Customs obligations. The applicants history o maintaining
bank guarantees or other nancial securities required by Customs and its ability to obtain
the bank guarantee required by the AEO program can urther demonstrate nancial
viability.
Customs and the applicant establish to Customs satisaction that the applicant meets
reasonable nancial viability standards agreed to by the AEO working group. Customs
reviews the applicants past perormance in meeting its nancial obligations, and the
applicant certies in the application process that it meets any additional nancial
solvency or related standard.
SECURITYSections 5.2.G through 5.2.K o the SAFE Framework require that AEOs incorporate
predetermined security best practices into their business practices. The AEO working
group establishes national security standards based on the SAFE Framework and
establishes the ormat by which AEO applicants demonstrate that they meet thesestandards. Working group members must understand that the SAFE Framework
standards were written with fexibility in mind. Rather than speciying the type o
encing, number o cameras, means o securing buildings, and the like, the SAFE
Framework uses terminology such as reasonable precautions, as necessary, i
necessary, adequate lighting, and appropriate barriers.
The goal o the security standards is the implementation o meaningul Customs-specic
security enhancement protocols. In this context meaningul calls or an approach
that takes into consideration that what is reasonable or one company may not be
reasonable or another. AEOs that have large acilities or a large feet o vehicles and a
correspondingly large number o personnel require more substantial security systems than
AEOs that have only one oce and a handul o employees. A Customs administration
implementing an AEO program must take this into account as it reviews applications
and security proles. The test is whether the security measures in place are reasonable or
the size and activities o the company and accomplish the goals o the standard.
The Trading Partner Security Standard (5.2.K) is crucial to the supply chain security
concept and calls or AEOs to contractually require their business partners to implement
Part 2 Section 1 (1.2.4)o the European Unions
Authorised EconomicOperator Guide, ound on
the CD accompanyingthis handbook,demonstrates a fnancialviability best practice.
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STEPS IN AEO PROGRAM DESIGN AND IMPLEMENTATION 15
security practices. The ultimate goal o the SAFE Framework is to secure the entire
supply chain, not just portions o it. Thus, or an export manuacturer to be designated
an AEO, the manuacturer is expected to ensure that its business partners also meet the
appropriate security standards. Such partners include land transportation companies
contracted to move the manuacturers export product to the place o export, the clearing
agent who prepares the export declaration, the air or sea transport company, and other
service providers. Standard 5.2.K requires that the AEO, when entering into negotiated
contractual arrangements with a trading partner
Encourage, i necessary, the other contracting party to assess and enhance its supply
chain security;
Include such language in those contractual arrangements, to the extent practical or its
business model;
Retain documentation to demonstrate its eorts to ensure that its trading partners
meet these requirements;
Make this inormation available to Customs upon request; and
Review relevant commercial inormation about the other contracting party beore en-
tering into contractual relations.
CRISIS MANAGEMENT AND INCIDENT RECOVERYTo minimize the impact o a disaster or terrorist incident, Section 5.2.L o the SAFE
Framework requires that the AEO and Customs develop and coordinate contingency
plans or emergency security situations and or disaster or terrorist incident recovery.
These plans must strike a balance between security and trade acilitation.
Although the United States, Mexico, Canada, and other countries have developed
contingency plans, this aspect o the AEO security standards is still in development and
need not be incorporated into the AEO program until the WCO develops guidelines.
COMMUNICATIONS AND TRAININGSections 5.2.D and 5.2.E o the SAFE Framework establish requirements or Customs
and AEOs with respect to cooperation, communication, and training on matters o
mutual interest. The ormation and maintenance o an AEO working group satises the
requirements that Customs consult regularly with all parties involved in the international
supply chain at the national and local levels and that AEOsthrough an industry
associationopenly and consistently exchange inormation with Customs.
The requirement that Customs and AEOs clearly identiy and make readily accessible
points o contact is routinely met during the application process described in Step 8.
These standards require that Customs and AEOs establish procedures and mechanisms
to identiy and report incidents, suspected Customs oenses, suspicious or unaccounted-
or cargo, and any other risk associated with the movement o goods in the international
supply chain. The standards call or Customs to designate contacts (names and phone
numbers) in Customs or reporting purposes, to make AEOs aware o reporting
procedures, and to give AEOs a way to provide eedback. Similarly, they require AEOs to
Singapore CustomsGuide or Completing
Security Profle andU.S. Customs andBorder ProtectionsSupply Chain Security
Best Practices Catalogand activity-specifcminimum securitystandards, ound on theCD accompanying thishandbook, demonstratesecurity standard best
practices.
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16 AEO PROGRAMS HANDBOOK
notiy Customs o any unusual or suspicious cargo documentation or other abnormality
and to notiy Customs and other relevant authorities in a timely ashion when employees
discover illegal, suspicious, or unaccounted-or cargo. These requirements can be met
by the AEO working groups collaborating on a Customs directive outlining reporting
requirements, procedures, and means.
The standards also address training or Customs and AEO personnel on security policies
and the responses required in case o security lapses.
Customs training responsibilities include
Training its own security personnel;
Assisting AEOs in developing guidelines, security standards, best practices, training,
and authorization schemes and materials calculated to raise security awareness and to
assist in minimizing security risks; and
Providing AEOs with educational materials and expert guidance, amiliarizing them
with Customs practices, and providing training on maintaining cargo integrity.
An AEOs training responsibilities include
Working with Customs to educate the AEOs personnel and trading partners on therisks associated with the movement o goods in the international trade supply chain;
Training its employees to recognize potential internal threats to security and preventing
unauthorized access to secure premises, goods, vehicles, automated systems, seals, and
records;
Familiarizing Customs with relevant internal inormation and security systems and
processes, and assisting Customs in training on search methods or AEO premises,
conveyances, and business operations;
Making employees aware o the procedures or reporting suspicious incidents; and
Keeping adequate records o educational methods, guidance provided, and training.
The AEO working group enlists the assistance o the Customs risk management
department and training department in developing training materials. When the
standards and orms are drated, the AEO working group presents them to the Customs
chie executive or review and approval.
When the Customs chie executive approves the standards and orms, the AEO working
group ormats the AEO application orm and company prole template and prepares
instructions or lling out the orms.
STEP 6: DEFINE AEO BENEFITSBecause AEO programs are voluntary and participation has nancial costs orparticipants, to encourage participation and oset costs, Customs administrations must
oer measurable and tangible benets to AEOs, deciding on what the benets will
be in cooperation with the trade community. Potential AEOs must understand how
participation will benet them in terms o simplied processes and in making them more
attractive business partners when the security o the global supply chain is increasingly
Singapore Customs
Secure Trade PartnershipGuidelines (AppendixA, STP GuidelinesSecurity Measures,section 8), on the CDaccompanying thishandbook, demonstratesa crisis management andincident recovery bestpractice.
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STEPS IN AEO PROGRAM DESIGN AND IMPLEMENTATION 17
important. I the benets do not outweigh the costs, or i potential participants have
become cynical about the prospects or improvement, the chance o success will suer.
Expected benets include inventory cost reduction; reduction o cost to move goods in
transit; reduced losses due to lost, pilered, or damaged merchandise; lower rejection rates
at the port o destination; and lower stang costs.
Section 5.3 o the SAFE Framework lists the our groups o benets that AEO programs
can provide to AEOs. These are shown in Exhibit 2-2.
The AEO working group should review, research, and discuss the list o potential benets
and agree on those it considers relevant and practical in the national environment. It
should also determine whether those benets are permissible under existing legislation
or whether legislative changes are required. The working group should also determine i
the benets, small and large, can be easibly delivered. It is important not to overpromise.
EXHIBIT 2-2
Benefts that May Be Oered to AEOs or Participation in AEO Program
Measures to expedite cargo release, reduce transit time, and
lower storage costs
Areduceddatasetforcargorelease
Expeditedprocessingandreleaseofshipments
Fewercargosecurityinspections
Whenexaminationisrequired,useofnonintrusiveinspection
techniques frst
Reductionofcertainfeesorcharges
KeepingCustomsofcesopenaroundtheclockwhenaneed
or such coverage has been identifed
Access to inormation o value to AEOs
NamesandcontactinformationforotherAEOs,withtheconsent o those participants
ListofcountriesadoptingtheSAFEFramework
Listofrecognizedsecuritystandardsandbestpractices
Special measures during periods o trade disruption or elevated
threat level
Priorityprocessingduringperiodsofelevatedthreat
conditions
Priorityprocessingafteranincidentrequiringtheclosingand
reopening o ports and/or borders
Priorityinexportingtoaffectedcountriesafteranincident
First consideration or participation in any new cargo processing
program
Account-basedprocessingratherthantransaction-by-
transaction clearance o accounts
Simpliedpostentryorpostclearanceprograms
Best-practice examplesrom dierent Customsadministrations areprovided on the CDaccompanying thishandbook.
Seminars, points o contact, and newsletters are small benets that can be added to larger
benets. Some potential benets, such as dedicated trac lanes, will depend on unding
and inrastructure.
Ater the AEO working group has drated the list o specic benets to be incorporated
into the AEO program, the Customs legal department determines i the proposed
benets are permissible according to the national Customs code. I any proposed benetdoes not comply with legislation, the legal department explains, in writing, why those
benets cannot be provided under current legislation. The Customs chie executive must
then determine, ater hearing rom the AEO working group and the legal department,
the extent to which Customs should pursue new legislative authority and task the legal
department with drating the appropriate and necessary changes.
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18 AEO PROGRAMS HANDBOOK
The AEO working group nalizes the list o benets. The Customs chie executive and/or
the legal department pursues expedited enactment o any legislative change required, and
the AEO working group drats implementing instructions or each approved benet.
STEP 7: DESIGN THE APPLICATION PROCESS
Applicants have to complete an application and security prole to join the AEO program.Now is time or the AEO working group to design the application process, laying out
standard, transparent procedures or the review and approval o the application. Beore
the working group designs the review and approval process, it must rst design detailed
instructions on completing the application and security prole, a memorandum o
understanding template or the AEO applicant and Customs; and perhaps an AEO
certicate. Then the working group can begin drating standard operating procedures or
reviewing, veriying, and approving applications. The group must also drat procedures
or removing or suspending an AEO rom the program, and procedures or a rejected
applicant to appeal its denial o AEO status. The process should also allow or internal
checks and controls. Section 5.5 o the SAFE Framework provides an application process
outline.The ollowing describes a typical application process.
APPLICATIONThe applicant completes an application or the AEO program, including a questionnaire
and security prole, which an ocer o the company signs. By completing the
questionnaire and security prole, the applicant
Demonstrates that it uses standard accounting practices, prepares sound nancial
statements, and maintains a complete record o contracts, purchase orders, shipping
documents, import duties, and taxes paid;
Demonstrates that it has an internal control system that creates an audit trail romaccounting records and payments to Customs entry records and provides ull
documentation to ensure that accurate values are reported to Customs;
Demonstrates that it meets specic security and procedural requirements published by
Customs;
Agrees to allow Customs ocers to review all company documents related to imports,
exports, and other Customs activity and to periodically inspect company premises on
request;
Demonstrates a record o a high level o compliance with Customs requirements and
agrees to maintain a supportive attitude and cooperate with Customs to ensure that the
companys procedures and practices result in a high level o compliance;
Commits to continue meeting all program requirements, acknowledging that ailure to
do so may result in suspension or removal rom the program; and
Agrees to provide annual notication to Customs conrming the name, title, e-mail
address, and postal address o the company contact or the AEO program and asserting
that the company continues to meet the requirements o the AEO program.
Best-practice exampleso application ormsand security proflesrom the EuropeanUnion and Singaporeare provided on theCD accompanying thishandbook.
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STEPS IN AEO PROGRAM DESIGN AND IMPLEMENTATION 19
APPLICATION REVIEWCustoms reviews the application to determine the applicants readiness to assume the
required responsibilities. Customs considers
The companys history o trade compliance, including compliance measurement data,
previous penalty or other enorcement action, and the companys standing with tax
and other government agencies;
Inormation about the companys risk exposure, such as
Volume o import/export activity;
Imports rom suspect manuacturers or suppliers;
Imports rom countries known as transshipment points;
Large volumes o imports under special duty provisions or trade programs; and
Large volumes o imports under complex tari classications; and
Verication o security measures.
APPLICATION REVIEW MEETINGAter the application has been reviewed, an application review meeting is held. The
Customs review team leader Provides the applicant with written notication o the application review meeting
at least 10 days beore the start o the meeting and includes a request or supporting
documentation or material, i needed;
Contacts the applicants primary point o contact to answer preliminary questions and
explains the application review meeting process; and
Makes opening comments about the AEO program and welcomes the applicants in-
terest in the program.
The company
Provides an overview o corporate structure and lines o authority and describes
its import/export and other relevant departments and the extent to which the sta
members are trained, the companys relationship with brokers, and how it ensures the
fow o Customs-related inormation and communication within the company;
Gives a tour o its acility so the review team can observe controls and procedures in
action; and
Gives the review team a private room where members can meet.
The review team
Discusses the inormation presented by the company, meets with the company
representatives, and raises questions about the companys application.
Reviews the companys internal control processes and procedures, selecting three orour declaration numbers and asking the company to demonstrate and explain the
documentation or the entire declaration process or those declarations.
Documents its ndings and gives them to the applicant. I the team nds signicant
weaknesses, it recommends an action plan to address the weaknesses and species a
deadline by which the company must complete the plan.
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20 AEO PROGRAMS HANDBOOK
APPLICATION APPROVAL OR DENIALTo ensure that the AEO program is managed in a air and impartial manner, the approval
authority is separate rom the review process. The ocers who perorm the review make
their recommendations in writing to a chie executive or senior manager in Customs who
has approval authority.
When Customs determines that the applicant has met the requirements or acceptance
into the AEO program, Customs signs the partnership agreement memorandum ounderstanding and advises the applicant that its application has been approved.
I the applicant does not meet the value or volume requirements or participation or
has committed a serious inringement or repeated inringements o Customs rules, the
application is denied.
I Customs determines that an application should not be approved, it issues a notice
speciying the reasons or denial and advising the applicant o its right to le a written
appeal. I deciencies cited as the reason or denial are corrected by the deadline (which
the AEO working group sets), the applicant may request in writing the reinstatement o
the application.
The approval o an application can be annulled i the application was approved on
the basis o incorrect or incomplete inormation, and the applicant knew or should
reasonably have known that the inormation was incorrect or incomplete, and the
avorable decision would not have been taken on the basis o correct or complete
inormation. The companys point o contact or the AEO program is notied o the
annulment o the authorization, and the annulment takes eect immediately on the date
the decision to annul was made.
The AEO application process will vary rom country to country; the AEO working group
should adjust the process described here to ensure that the process meets local objectives.
STEP 8: RECRUIT SUPPLY CHAIN SECURITY SPECIALISTSAEO programs are based on risk management principles promoted by the WCO and
practices used by Customs administrations throughout the world; thereore, the logical
entity to assume responsibility or the management o an AEO program is the risk
management department o the Customs administration. This department, normally
responsible or employing analytical skills to identiy and target high-risk shipments,
must expand its ocus and use its skills to identiy low-risk, compliant companies
qualiying or simplied and expedited procedures.
The risk management department must develop its own expertise in supply chain
security. As Customs ocers review AEO program applications and validate securityprolesvisiting acilities, meeting with company managers, and reviewing security
processes and controlsthey gain amiliarity with business practices. Although Customs
administrations oten already establish and enorce basic physical security standards or
bonded warehouses, ree trade zones, duty-ree shops, and bonded carriers, ew have
had the need or opportunity to acquire the expertise in business operating procedures,
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STEPS IN AEO PROGRAM DESIGN AND IMPLEMENTATION 21
internal controls, employee security, and inormation security that implementing an
AEO program will require.
To meet the challenges o managing an AEO program, a Customs administration may
have to increase stang or redeploy existing stang to create a new group o supply
chain specialists. Supply chain specialists develop ocused expertise in and knowledge
about the international supply chain and the means o securing it. Ideally, supply chain
specialists have university degrees and two or more years o experience in Customs-relatedactivities. They may have backgrounds in enorcement, trade matters, transportation,
or trade logistics, and they should have organizational, computer, interpersonal, and
verbal and written communication skills as well as the ability to perorm detailed work.
Training or practical experience in commonly applied security principles, concepts, and
methodologies is especially welcome, as are language skills, because supply chain security
specialists review correspondence, purchase orders, and other documents that may be
in a oreign language. The experience and knowledge that project implementation team
members gain in AEO program design and implementation are invaluable to the ongoing
management o the program, and the Customs administration should take care to retain
these ocers so that the institutional memory o the program is not lost.
EXHIBIT 2-3
Typical Supply Chain Specialist Duties
In the United States, the CBPs AEO program is called the
Customs-Trade Partnership Against Terrorism (C-TPAT). A new
kind o specialistthe supply chain security specialistis critical
to implementing the program. The specialist physically inspects and
validates member companies domestic operations and oreign
business partners. In 2007, C-TPAT security specialists validated
3,011 supply chains, visiting manuacturing and logistics acilities in
79 countries. (CBP 2008a).
Supply chain specialists perorm the ollowing duties:
ServeassubjectmatterexpertsontheWCOSafeFramework
o Standards, the Revised Kyoto Convention, the International
Ship and Port Facility Security Code, and international
standardization related to security o the supply chain (ISO/
PAS 28000 and related)
ProvideguidancetoprospectiveAEOsonhowtopreparea
security profle and complete their application
Vetapplicationsandsecurityprolesforcontentand
completeness
Preliminarilyrateeachapplication(compliant/satisfactory,
partially compliant/more inormation needed, unsatisactory) Requestfurtherinformationtoresolvedecienciesand
answer questions about application and profle inormation
Leadorparticipateinapplicationreviewmeetingsand
validation visits to applicants premises to meet with the
companys ofcers and inspect acilities and procedures to
veriy that the inormation in the application and profle is
accurate and that the described procedures and saeguards
are in place
Resolvedecienciesobservedduringtheapplicationreview
meetings, including meeting with rejected applicants to provide
guidance on how these can be corrected
Documentndingsandprovideawrittenrecommendationofapproval or disapproval to the deciding authority and drating
the correspondence to the applicant
ServeastheprincipaladviserandprimaryCustomspoint
o contact to assigned AEOs or security issues and as the
primary liaison or promptly resolving non-security-related
issues
Maintainaccuratelesofactionstakenwithrespectto
applications and participants so that an audit trail is maintained
Prepareassessmentreports,givingspecialattentionto
identiying unusual trends that could become security
problems
Recommendtheappropriateresponsetoincidentsof
noncompliance by AEO partners, including working with theAEO partner to identiy ineective procedures or internal
controls and providing recommendations or improvement
ServeasatrainerandpublicspeakertoCustomsandprivate
sector partners on supply chain security issues
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22 AEO PROGRAMS HANDBOOK
The human resources department o the Customs administration should establish a
supply chain security specialist position, prepare descriptions o duties and qualications,
and recruit in accordance with local practices. Each Customs administration has its own
ormats and systems or documenting the duties o specialized positions. Exhibit 2-3
lists the unctions a supply chain security specialist typically perorms. The training and
employee development department o the Customs administration should ensure that
training or the new specialists is organized promptly.
The size o the implementing country, the number o Customs oces, and the
geographical distribution o AEOs should be taken into consideration in determining
whether all supply chain security specialists should be based in headquarters or posted to
regional oces. I the decision is made to disperse some supply chain security specialist
to certain regions, the specialists should still come under the unctional supervision o the
department designated to manage the AEO program.
In addition to an oce and urnishings, each supply chain security specialist requires
a computer with access to risk management databases and the automated Customs
declaration processing system. Laptop computers and digital cameras should be
available or documentation o validation visit ndings. Because working with
AEOs requires supply chain security specialists to visit company premises regularly,
dedicated transportation is required as well. Secure (i.e., lockable) ling cabinets are
required because AEO applications, security proles, and related les contain sensitive
inormation that must be saeguarded. Communications capabilities, including mobile
telephones and Internet access, are also required. The administrative department o the
Customs administration should take the necessary actions to ensure that these logistical
resources are provided.
STEP 9: ANNOUNCE AND PROMOTE THE AEO INITIATIVE
Ater the AEO standards, benets, and application process have been nalized andsupply chain security specialists have been recruited and trained, Customs should launch
an outreach campaign announcing Customs new role as protector o the international
supply chain and its commitment to acilitating the movement o legitimate shipments.
The importance o this campaign cannot be underestimated. For a voluntary AEO
program to work, Customs must have the support and participation o stakeholders rom
inside and outside the government; it thereore must promote the AEO program both
within Customs and among other government stakeholders, as well as to the business
community and other interested parties. For this reason, the Customs chie executive
should assume primary responsibility or outreach. The chie executive can be the ace o
this program to the public and to other ministers, but he or she probably does not have
the specialized skills to design the communications strategy or the program. This shouldprobably be done by the public inormation oce in cooperation with the AEO working
group.
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STEPS IN AEO PROGRAM DESIGN AND IMPLEMENTATION 23
OUTREACH WITHIN CUSTOMS AND TO OTHER GOVERNMENT AGENCIESThe success o the program depends on the Customs workorces understanding o the
program and willingness to support it. Employee buy-in is essential. The chie executive
and project manager brie eld oce managers on the AEO concept, the role o Customs
in supply chain security, and voluntary compliance. The AEO working group makes
arrangements or the chie executive and other managers to speak at public orums and
schedules the chie executive to meet with employees at major Customs oces. At least
one member o the working group should accompany the chie executive at each venue
to assist in answering technical questions and to document the presentation, to record
questions or issues that need urther consideration and response, and to ensure that
ollow-up actions are carried out promptly.
Other government agencies that have import or export requirements must also
understand how an AEO program aects them. Simplied procedures are not just a
Customs concern; other agencies concerns and processes must be actored into the
program and issues solved to everyones satisaction. This may be dicult: other agencies
or ministries may think that Customs is trying to take charge and that this could result
in a cut in their budgets, stang, or responsibilities. In this event, the Customs chie
executive will probably have to enlist the support o the minister who oversees Customsto engage potentially problematic government departments at the ministerial level.
OUTREACH TO THE TRADE COMMUNITY AND THE GENERAL PUBLICThe outreach program must also explain the AEO program to the trade, the general
public, and the press, emphasizing supply chain security, voluntary compliance,
industry partnerships, and expedited procedures. The public inormation ocer or
communications coordinator helps schedule and prepare talking points and seeks
to attract media attention to the AEO program. The public inormation ocer or
communications coordinator also publishes inormational brochures, newsletters, and
the like. Field managers brie employees, traders, and interested organizations in their
communities and report to the project implementation team about each presentation.
Customs managers must convince potential AEOs (1) that the benets o voluntary
participation will exceed the cost o meeting program requirements and (2) that
the Customs administration is committed to a partnership approach. International
organizations and donors should be kept apprised o the projects progress, beginning in
the earliest planning stages. They understand the importance o an AEO program and
may be willing to provide nancial or technical support. It would be wise to maintain a
dialogue with the WCO as the project develops.
As noted in Step 6, companies must understand how participation in the AEO program
will benet them by simpliying processes and making them more attractive businesspartners in a global environment in which the security o the supply chain is increasingly
important. They must be persuaded that the benets o participation will outweigh the
costs.
Customs administrations that have successully used the partnership approach or
consultative committees in previous initiatives to develop a working relationship will
have a head start on promoting the AEO program. Administrations with less experience
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working with consultative committees may be all too amiliar with the attitudes and
opinions cited in Exhibit 2-4.
Adversarial attitudes and opinions raise the ollowing potential impediments to AEO
program implementation:
Trader cynicism based on partially unmet promises (GATT valuation) Mutual distrust
Failure to communicate eectively or develop productive working relationships
Potential inability to quantiy compliance levels.
Whether traders complain openly or mutter their criticism quietly, the Customs
administration must ace the issues and demonstrate its willingness to discuss mutual
rustration and desire or improvement in a nondeensive way. Even in the worst cases,
there is good news: an AEO program does not just require change, it also provides the
impetus and the means or making change happen.
For Customs administrations whose potential partners doubt that a partnership is
possible or that Customs will ollow through on its promises o meaningul benets
or joining the program, an AEO program can acilitate the transition rom mistrust to
mutual respect. I this transition has not yet been realized, those on both sides must be
willing to strive to reach mutually acceptable solutions to what may have been considered
insurmountable dierences.
EXHIBIT 2-4
Do These Views Sound Familiar?
CUSTOMS PERSPECTIVE TRADE PERSPECTIVE
Weve modernized. Our new Customs code now includes the
GATT Agreement on Customs Value.
Customs ofcers ignore our declared valuations and rely on
market research or whatever the individual ofcer thinks the
goods are worth.
We cant trust traders. They routinely undervalue their goods.
Their suppliers in other countries are well known or alse invoicing.
Transaction value just doesnt work here.
We cant trust Customs. No matter what values we declare,
Customs arbitrarily raises them. Theres no uniormity and no
predictability.
Weve modernized. We accept electronic declarations. Customs doesnt ofcially accept the declaration until we deliver
the hard copy to their ofce. Then they make us change the
electronic version to raise the declared values beore they accept
it.
We give the traders reasonable options: revise the value now and
get the goods released, or insist on the value and appeal. Well hold
the goods until you get a decision rom our headquarters.
Headquarters always accepts the ofcers recommendation. In the
meantime, were paying storage costs and dont have access to our
goods. Its cheaper to pay the higher duties.
We dont penalize the trader i he agrees to our valuation uplit;
We simply change the declaration in our automated system beore
we register it. Its easier this way.
Customs ofcers dont use the amendment unction in the
automated system so there is no record o which ofcers are raising
values or how much theyre raising them. This allows each individual
ofcer to do whatever he pleases.
Traders will never change. Theyre always going to undervalue their
goods.
The valuation process is just a negotiation. Why shouldnt I start at
the lowest amount?
Traders complain constantly. Customs never listens to us.
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STEPS IN AEO PROGRAM DESIGN AND IMPLEMENTATION 25
Examples o promotional
brochures andpublications o theCustoms administrationso New Zealand,Sweden, Singapore, theUnited States, and theUnited Kingdom areprovided on the CD
that accompanies thishandbook.
How does the trading community win the trust o Customs? By
Demonstrating a continued record o compliance,
Establishing good communications and reporting suspicious activities,
Demonstrating a desire to collaborate,
Ensuring that all employees behave ethically, and
Demonstrating respect and not immediately assuming the worst.
How does a Customs administration win the trust o the trading community? By
Being transparent and consistent;
Ensuring that the trading community has access to decision makers;
Reducing administrative burdens;
Demonstrating a desire to collaborate;
Ensuring that all employees behave ethically; and
Demonstrating respect and not immediately assuming the worst.
This calls or vigorous outreach, training, and emphasis on compliance. Behaviors may
not change overnight across the board, but i Customs can win the cooperation and
commitment o the largest companies and demonstrate that compliance has its rewards,
that message will gain impetus and the AEO program will grow in size and impact.
OUTREACH TO OTHER NATIONAL CUSTOMS ADMINISTRATIONSAs the AEO concept spreads around the world, mutual recognition between countries
will become increasingly important. Key trading partners or ellow Customs union
members will probably be the rst candidates or mutual recognition agreements, and
they should be made aware o the AEO initiative. See Step 11 or details.
STEP 10: PILOT THE AEO PROGRAM
In Step 5, the project implementation team and the risk management departmentanalyzed 12 months o Customs declarations and identied the importers, exporters,
transporters, and brokers with the most declarations, the highest Customs value, and
greatest revenue contribution. The initial purpose o that analysis was to determine
whether a past level o compliance could be determined or the most active companies.
These active companies are the most likely candidates or piloting the AEO program.
Pilot testing should include only a representative sample o companies rom dierent
industry segments that are the most procient in Customs compliance, have the highest
volume o transactions, and have eective internal processes. The WCO recommends
instituting a pilot with no more than 10 companies. This ensures that requirements,
documentation, procedures, and day-to-day operations mesh and enables the quick
identication and resolution o unanticipated problems. Pilot companies should also
be located in the same city as Customs headquarters or in close proximity. This allows
Customs to ocus in the pilot on implementing simplied procedures and providing
benets at a single Customs clearance oce.
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When the candidates or the pilot have been identied, representatives o the AEO
working group brie the companies decision makers on the requirements and benets o
the AEO program and invite their participation in the pilot.
A senior supply chain security specialist is responsible or the day-to-day supervision o
the Customs processes and personnel associated with the AEO program, including
Developing an annual work plan to address security vulnerabilities;
Serving as the primary liaison with the WCO and counterparts at other Customs
administrations;
Assigning workload;
Reviewing work products;
Periodically contacting AEOs to ensure that an eective working relationship is being
maintained by the supply chain security specialist assigned to them;
Ensuring the integrity o ocial relationships between supply chain security ocers
and their assigned companies and points o contact;
Ensuring the integrity o oce les and records, and
Reviewing appeals and recommending appropriate action to the Customs chie execu-tive.
A subordinate supply chain security specialist should be assigned as a liaison ocer
to each pilot company. I the company requests, the specialist assists the company in
developing its procedures and security prole.
The AEO working group works with the Customs training and development department
to develop and provide training on the AEO program to the companies in the pilot. The
AEO working group and supply chain security specialists develop and provide training to
pilot company managers and sta. Because supply chain security specialists, in carrying
out their duties, orm relationships with company points o contact, attention must be
given to ensuring that these relationships are conducted with proessional and personal
integrity and do not become overly amiliar.
The AEO working group and project implementation team determine the period o
pilot testing (three to six months is recommended) and commence implementation.
The AEO working group monitors the perormance o the companies and the Customs
administration. Procedural or policy adjustments may be made during the pilot. At
the end o the pilot, a detailed report is made to the Customs chie executive and
stakeholders. I adjustments to the program guidelines are necessary, they are made.
Ater the pilot has been completed, the AEO program can be expanded incrementally.
The AEO working group determines the pace o the expansion. It makes a publicannouncement explaining the process in broad terms and inviting interested companies
to attend briengs at Customs oces. The Customs chie executive announces the
ull implementation o the AEO program. Customs may nd it advantageous to
incrementally expand the program by opening it to additional categories o companies
according to the volume o companies Customs transactions. Each entity is dierent,
so piloting with a ew importers/exporters rst and then opening the pilot to other
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STEPS IN AEO PROGRAM DESIGN AND IMPLEMENTATION 27
importers/exporters works well. Then, i resources permit, a pilot can be conducted
with brokers, and so on. Expansion would progress in this manner until all the types o
companies envisioned to be eligible or AEO status have been pilot tested.
When the AEO program has been ully implemented and permanent management o
the program has been transerred to a Customs department, the project implementation
team ceases to participate in the AEO program, but the AEO working group continues
to oversee it and serve as the vehicle or industry input. Ideally, Customs assigns at leasttwo representatives to the AEO working group: a deputy to the chie executive and the
head o the risk management department (or whatever department is in charge o the
program). The AEO working gr