All about the AEO Package for MSME

Navdisha Sehgal

05 Apr, 2021

AEO is a voluntary program developed by the World Customs Organization (WCO) as a safe framework for global trade standards. It aims to boost the international supply chain security and to ease the movement of lawful goods. The article talks about the AEO Package and the relaxations given to MSME in relation to AEO.

What is an AEO Package?

AEO stands for Authorized Economic Operator. This program is based on the partnership between the business & customs, wherein the economic operator is granted such status. The program determines the reliability & trustworthiness of the economic operator.

The reliability of the operator is determined based on:

• Accounting system
• Compliance with customs legislation
• Appropriate security standards
• Solvency standards.

It allows simplified procedures to be followed by the company’s security-related custom control and simplifying compliance with the customs legislation.

It aims to boost the international supply chain security and to ease the movement of lawful goods.

It incorporates the following objectives:

• To delink payment and clearance;
• To accept paperless declaration;
• Increases efficiency;
• Self-certification;
• Earliest refund and drawback;
• Request based examination/inspection etc.

AEO is a voluntary program and includes various international supply chain participants. It enables the Indian Customs to develop and restructure the cargo security via close co-operation with the principle stakeholders of the global supply chain (includes importers, exporters, custodians, etc).

Some certificates allow different permission:

• AEO authorization “Customs Simplifications” (AEOC)
• AEO grant “Security” (AEOS)
• AEO authorization “Customs Simplifications & Security” (AEOC & AEOS) (The Combined Authorization).

Origin of AEO Package

AEO is a program developed by the World Customs Organization (WCO) as a safe framework of the standards to facilitate global trade in 2005. After that, India has started to adopt the framework developed by WCO, and it has brought ease in the Customs compliance.

In India, the AEO program was introduced by CBIC (Central Board of Indirect Taxes & Customs in 2011 and in 2012, the Government approached with rules  and instructions to reference to AEO program.

Benefits of the AEO

Under the program, the entity that is granted the AEO status has certain benefits. It has the following advantages:

• Recognition as safe, secure, & compliant business partners in global trade
• Faster clearance
• Deferred Payment of Duty
• MRA recognition
• The facility of Direct Port Delivery (DPD)/ Direct Port Entry (DPE)
• Waiver of whole or part of the Bank Guarantee requirements
• Waiver of Merchant Overtime Fees (MOT)
• Faster disbursal of drawback amount
• Fast-tracking of refunds and adjudications
• Access to Client Relationship Manager.

Who can apply for the AEO Package?

Anyone who is involved in global supply chain carrying custom related activities can apply for AEO certification notwithstanding of business size:

• Importer & Exporter
• Warehouse operator
• Logistic service provider (i.e., carriers, airlines, etc.)
• Custom bankers
• Custodians or terminal operators
• Custom house agents
• Port operators, Stevedores, etc.

The eligibility criterion for the AEO Package

Anyone who wants to apply for AEO certification must be eligible to do so. The eligibility criterion is as follows:

• The business must be established in India;
• It must be involved in activities related to Custom;
• It must have dealt with at least 25 Customs documents, either bill of entry or shipping bill; and
• Must be in business for the last three Financial Years.

It is a mandate for the company to be in place for the last 3 Financial Years preceding the financial year of the application date. However, in exceptional circumstances, the newly established business can be granted AEO certification, based on the physical verification of internal controls by considering:

• its financial status;
• maintenance of approved security & safety standards;
• commercial management system; and
• Transport record (if necessary).

What is the Validity & Renewal of the AEO Package?

AEO certificate is issued for a certain period and is to be renewed from time to time.

The same is explained in the tabular form below:

What are the relaxations given to MSME in relation to the AEO?

MSME stands for Micro, Small, and Medium Enterprises. It has come out as a dynamic sector of the Indian economy over the last few decades. Acknowledging the efforts of MSME in sustaining India’s economy in the difficult times of the Covid-19 pandemic, CBIC has introduced an initiative with the PM’s Aatma Nirbhar Bharat Abhiyaan to support the MSMEs and has designed a policy, ‘Liberalized MSME AEO Package’ especially for MSMEs.

The ‘Liberalized MSME AEO Package’ visualizes the easiness in the compliance & procedural requirements along with the additional benefits to streamline the procedure for trade.

Conclusion

AEO is a voluntary program developed by the World Customs Organization^[1] (WCO) to boost international supply chain security and ease lawful goods’ movement.

It was difficult for MSME to cope up against the Covid-19 Pandemic; the CBIC (Central Board of Indirect Taxes & Customs) has introduced ‘Liberalized MSME AEO Package’ designed for MSME especially.

Read our article:Steps to protect MSMEs from getting liquidated under IBC during Covid-19