Securing the Asean-China supply chain with 'authorised economic operators'
Facilitating the movement of cargo in a secure international supply chain is one of the goals of the World Customs Organization, which has developed the SAFE Framework to help meet those goals. A key component of the framework is the Authorised Economic Operator (AEO) programme.
AEOs are essentially "partners" with their respective national customs agency, receiving preferential treatment at the border in return for being a low-risk trader using a secure supply chain. Currently 69 countries operate AEO programmes. As participation increases, the aim is to have national AEO programmes mutually recognise each other so that the preferential treatment of low-risk traders extends along their entire global supply chain.
In late 2014, China launched its AEO programme, which classifies traders based on risk criteria into one of four categories: AEO Advanced Certified, AEO General Certified, General Credit or Discredit, with the first category receiving the full benefits.
To attain the top status, the trader must satisfy China Customs that it has fully complied with all relevant national laws, is solvent, and has proper internal controls, proper records and secure logistics providers as determined by an audit conducted by China Customs. In return, the trader enjoys "trusted release", which includes priority clearance, low likelihood of inspection and a waiver of the requirement to place a guarantee bond ahead of duty and tax payments.
China has also sought to identify a number of key trading partners and institute mutual recognition agreements (MRAs) of AEO programmes now in place in Hong Kong, Korea, Singapore and the European Union.
The MRA process with Southeast Asia has emerged as a priority for China under its One Belt, One Road initiative now that the region has formed the Asean Economic Community (AEC). Under the AEC, with its greater integration and freer trade, China sees Asean as a possible starting point for the massive transport infrastructure and trade network it proposes to develop under One Belt, One Road.
Within Asean, Indonesia, Malaysia, Singapore and Thailand have established AEO programmes, and discussions have begun between them to develop MRAs that eventually will enhance supply chain security and further facilitate intra-regional trade.
Thailand has also begun MRA talks with Hong Kong, China, South Korea and Australia. As mentioned, Singapore has signed an MRA with China in recognition of the latter being its largest trading partner. The two parties considered the occasion sufficiently important that the signing in 2015 was witnessed by both Prime Minister Lee Hsien Loong and President Xi Jinping.
China is also looking to expand its MRAs into the China, Japan and South Korea Free Trade Area; the Greater Tumen Initiative (China, South Korea, Mongolia and Russia); as well as the EU and the US. Consequently, it is important that other members of Asean enter into discussions with China so that exports originating in Asean are not at a disadvantage when competing in the Chinese market.
The logistics industry has much to consider in the AEO environment. A trader must be able to demonstrate a secure supply chain to get access to the benefits of an AEO, and the role of the logistics provider will come into the evaluation process of any trader applying to join.
A trader that cannot convince its national customs agency that goods and data are secure at every stage of the supply chain is unlikely to become an AEO, and if that is because of a failing of a logistics provider, then the trader will likely move its business.
Third-party logistics providers in particular will come under close scrutiny as they take on a primary role in moving and managing a trader's goods and records.
In general, supply chain security will be evaluated in terms of any premises used to store goods, especially measures to prevent interference with those goods.
In addition, there will be a look at processes such as how goods are received and unpacked as well as packed and dispatched. Security of goods during transport is also of interest, and what precautions are in use to prevent interference with the goods, including integrity of staff.
More than just actual measures themselves, traders or their logistics providers will need to show that those measures are being operated correctly and that they are regularly reviewed, assessed and adapted as risks evolve and change.
Rob Preece is the course director of Excise Studies and the Southeast Asian representative for the Centre for Customs & Excise Studies at Charles Sturt University in Canberra. Tong Hua is a programme manager at the World Customs Organisation's Asia Pacific regional office in Bangkok, and operations manager of the CCF/China Fund. The Link is coordinated by Barry Elliott and Chris Catto-Smith as an interactive forum for industry professionals. We welcome all input, questions, feedback and news at: BJElliott@ABf1Consulting.com, firstname.lastname@example.org