ECC AEO Training Notes

Ethiopian Customs Commission (ECC) Authorized Economic Operators (AEO) Training

Welcome and Introduction

• Introduction of trainees.

• Trainees to share their name, branch, and current position.

• Class schedule: 8:30 am to 5:00 pm.

Training Expectations

• Participants' expectations from the training are to be noted.

Aim of the Training

• Trainees should understand:

  • The meaning of AEO, its requirements, and benefits.

  • The WCO SAFE Framework of Standards and its pillars.

  • The application process for achieving and maintaining AEO status.

Presentation Contents

• Overview and AEO Concepts.

• Historical Background of AEO.

• WCO SAFE Framework of Standards & Implementing Number of Countries in AEO.

• WCO-AEO Experiences of some other Countries.

• AEO Compliance Audit.

• AEO in Ethiopia.

• Eligibility to apply for AEO Programme.

• AEO Accreditation Process and Main Criteria.

• Authorization Criteria.

• Principles of AEO.

• Benefits of a company becoming an AEO.

• Duties and Responsibilities of AEO Companies.

• Monitoring and Follow Up.

• Sample Compliance Audit Analysis & Evaluation for Company XX.

Overview and AEO Concepts

• AEO stands for Authorized Economic Operators.

• AEO simplifies the process of doing business.

• AEO facilitates trade and mutual recognition.

• AEO helps ECC to allocate financial and human resources to areas requiring higher attention.

Historical Background of AEO

• The AEO program was introduced following the September 11, 2001 (9/11) attacks in the USA.

• Governments worldwide recognized the vulnerability of the international supply chain to terrorist threats.

• The attacks led to unprecedented changes in the overall supply chain.

• The US Government established Customs Trade Partnership Against Terrorism (C-TPAT) to reduce security risks and protect people.

• In 2005, the World Customs Organization (WCO) established similar safe frame of standard programs (SFSP) to increase supply chain security.

• AEO aims to control goods entry and exit with safe and reliable security standards.

• AEO, managed by WCO, has a broader scope and participation compared to earlier initiatives.

WCO SAFE Framework of Standards & Implementing

• The WCO SAFE Framework Program is organized into three basic cooperative pillars:

  • Customs-Customs Network Arrangements.

  • Customs-Business Partnerships.

  • Customs to Other Government and Inter-Government Agencies.

Pillar 1: Customs - Customs Partnership

• Central tenet: Use of advance electronic information to identify high-risk cargo early, at or before the port of departure.

• Example: Turkey and Russia.

• Involves international trade.

• Ensures customs procedures are predictable, consistent, and transparent.

• Has 11 Standards:

  • Integrated Supply Chain Management.

  • Cargo Inspection Authority.

  • Modern Technology Inspection Equipment.

  • Risk-Management System.

  • High-Risk Cargo or Container.

  • Advance Electronic Information.

  • Targeting and Communication.

  • Performance Measure.

  • Port Security Assessment.

  • Employee Integrity.

  • Outbound Security Inspection (Scanning-Machine).

Pillar 2: Customs-to-Business Partnership

• Main focus: Creation of an international system for identifying private businesses with high security guarantees in the supply chain.

• Has 6 Standards:

  • Partnership Security Benefits /Authorization/i.e. Customs administrations should seek mutual recognition of AEO status between or among programmes to enhance the benefits offered to their respective AEOs.

  • Technology.

  • Communication.

  • Facilitation (i.e. Trade).

Pillar 3: Customs- to- Other Government and Inter- Government Agencies

• Main objective: Ensure controls are efficient and effective, working toward global standards.

• Avoids duplication of requirements and inspections, streamlining processes.

• Promotes bilateral and multilateral cooperation between organizations to foster international harmonization and reduce burden on trade and governments.

• Has 12 Standards:

  • Mutual Cooperation (i.e. Governments should foster mutual cooperation between their Customs administration and other competent government agencies).

  • Cooperative Arrangements/Procedures.

  • Alignment of security programs.

  • Harmonization of national control measures.

  • Development of continuity and resumptions measures.

  • Harmonization of data filing requirements.

  • Government agencies involved with supply chain security across borders or within a Customs Union).

  • Development of Mutual Cooperation (i.e. Governments should foster mutual cooperation between Customs administrations and other competent operative Arrangements or Protocols).

  • Harmonization of security program.

  • Harmonization of cross-border control measures.

  • Establishment of Mutual Cooperation.

  • Development of cooperative arrangements or protocols

• The WCO Authorized Economic Operator is a key driver for a solid Customs-Business Partnership (Pillar 2).

• The total number of standards is twenty-nine: eleven in Pillar 1, six in Pillar 2, and twelve in Pillar 3.

Customs to Business Partnership

• Leads to a mutually beneficial situation between Customs Administration and Private Sectors.

• Helps reduce anxieties.

• Facilitates discussion of efficient and effective approaches to achieving regulatory compliance.

• A successful customs-business relationship requires:

  • Trust.

  • Respect.

  • Open mind.

  • Mutual understanding.

  • Appreciation of each other’s requirements.

  • Two –way communication.

  • Cooperation.

  • Sharing of information.

  • Transparency.

  • Consistency.

  • Commitment at all levels of both parties – from top management to the operational level.

Number of Countries in AEO

• The AEO program is not unique to the EU.

• Besides the 27 EU Member States, AEO programs exist in 24 other countries, including China, Japan, Korea, Malaysia, Mexico, New Zealand, Singapore, Argentina, Canada, Costa Rica, Guatemala, India, USA, Norway, Switzerland, and Jordan.

• Other countries plan to introduce AEO programs soon.

• AEO programs in Africa are generally in an early stage of development.

Countries Using Different Names for AEO

WCO -AEO Experiences of some others Countries

• The initial aim of AEO was to ensure safe, secure, and fast customs services in the international supply chain (WCO Safe Frame of Standards).

• WCO Compendium Members of Authorized Economic Operator indicates two ways of AEO implementation:

  • Customs Compliance Programs.

  • Customs Compliance and Security Programs.

Compliance Programs

• Mostly used in developing nations.

• Based on compliance risk management, using checklists based on Domestic Tax and Customs Compliance Audit.

• Examples of Countries: Egypt, Salvador, and Ethiopia.

Compliance and Security Programs

• Implemented more in Developed and highly Industrial Nations.

• Traces the WCO Safe frame-Work of Standards and AEO Guidelines.

• Examples: Argentina (2006), Colombia, and EU.

• Ethiopia is closer to the 1st Programme (i.e. Compliance Authorized Economic Operators) - Tax & Customs issues.

What is AEO Compliance Audit?

• A systematic, independent, and documented verification process to objectively obtain and evaluate audit evidence.

• Determines whether specified criteria are met for granting AEO status.

• Focuses on economic operator’s organization, fiscal and non-fiscal processes, procedures, and administration activities.

• Assesses the operator’s administrative organization and its internal control system.

The AEO Compliance Audit process

• Involves tasks grouped into pre-site visit activities, on-site activities, and post-site visit activities.

Pre-site visit activities

• Planning and preparing for the audit.

• Collecting background information.

• Evaluating the self-assessment and compiling checklists.

On-site Activities

• Conducting an opening meeting.

• Collecting audit evidence through information, observations, and interviews.

• Conducting a closing meeting.

Post-site visit activities

• Evaluating audit evidence.

• Compiling a compliance audit report.

• Grading the Auditee.

AEO Procedure in Ethiopia

• Started as a pilot project in 2010, using risk management to balance facilitation and control.

• 13 Companies were selected for the pilot test.

• Currently, 193 Companies are involved in the AEO Program.

Commission Mission

• To increase voluntarily taxpayers compliance.

Spectrum of Taxpayers Attitude to Compliance

• Based on the WCO study, Taxpayers Risk Management Strategy compliance can be divided into 4 ranks:

  • Voluntarily Taxpayers /simplified service, clear Customs rules, procedures, laws, etc./.

  • Try to be legal taxpayers, but not succeeded /help & protect to becoming compliance /e.g. here is cash register machine/.

  • Tax avoidance /try to cheat in line with the law gap/.

  • Already plan to evading /use law, punish, property seizer/ & follow by intelligence/.

Why AEO in Ethiopia?

• To reward those who comply with the law while enforcing noncompliance using administrative discretion.

• To achieve ECC’s strategic objective of creating a climate of voluntary compliance.

• To promote and support the manufacturing industry.

AEO Service and Communication

• The Authorized Program is planned to be strengthened based on the six Standards of Customs Trade Partnership stipulated in WCO Safe frame-work

• A one client coordinator is assigned in every branch, responsible for facilitating, communicating, and reporting AEO specific cases to the head quarter AEO Unit.

Who is eligible to apply for AEO Programme

• Manufacturers

• Importers

• Exporters

• Carriers

• Consolidators

• Intermediaries

• Ports

• Airports

• Terminal Operators

• Integrated Operators

• Warehouse owners

• Distributors.

AEO Accreditation Process

• AEO - Application

• Pre - Audit criteria

• Self – Assessment Questionnaire /SAQ/

• System Compliance Audit

• The compliance auditor arranges a company tour to assess the company tax and customs system based on the compliance audit template operation.

• The template is available to the company on the web site- (i.e. www.ecc.gov.et) and can be downloaded and prepared in advance.

AEO Accreditation Process Flow chart

Pre- Audit Criteria

• Based on best practices and experiences of different countries, pre-Audit criteria has been set for each targeted operators (manufacturers, importers, exporters, freight forwarders, carriers, customs clearing agents).

• The common Pre-Audit Criteria include:

  1. Firms or branches of foreign companies must be established in Ethiopia for at least 3 years before applying unless it is decided by the Commissioner in a special case.

  2. Obtaining a favorable rating from the Customs’ Risk Management System (medium risk level).

  3. The companies must integrated with IT (esp. Finance with Ware-house)

  4. Unless the firms has exemption, the Commission not tolerate the Comp. loss up to last year.

  5. Should disqualify that more than 5% Audit findings both Revenues & Customs) i.e. in each - not>5% Revenues, and not >5% Customs).

• In general, unless the company has got a grade of 75 % & above, it is automatically rejected (according to the New Manual).

Authorization Criteria

1. Contribution of the company to the national agenda

2. Leading by planning (execution and monitoring culture )

3. Volume of business

4. Financial solvency

5. Demonstrated Compliance history

6. Internal control system
   6.1. Internal control procedures
   6.2. Flow of goods

7. The applicant’s accounting and logistical administration
   7.1. Logistical administration
   7.2. Financial administration/Accounting system

8. Organization of the applicant's computerized environment

9. Standing data, back-up, recovery, protection of computer systems, fall- back and archival Procedures

10. Security and safety Requirements

MAIN CRITERIA

• To qualify for the AEO Program, a company needs to have (in line with the new Procedure):

  • Compliance History in Domestic Tax and Customs (35%).

  • Contribution to National Economy (15%).

  • Systematic Management Resources /HR/ (15%).

  • Information Management Infrastructure (15%).

  • Financial Solvency /capacity/ (10%).

  • Security Requirements (10%).

Grading Each Criteria

• Companies applying for AEO status are graded from 75-100 based on Compliance Audit findings, considering the maturity of their processes.

• The grading system is scored based on a table where the criteria have standard score scenarios set by ECC.

Score and Compliance Audit Findings

PRINCIPLES OF AEO

• Voluntary participation

• Benefits

• Tone at the top

• Partnership

• Mutual trust

• Self control

• Own responsibility

Key elements

• AEO

• compliance

• transparency

• auto-control

• cooperation

• trust

• simplification

• facilitation

• Customs

Benefits of a Company becoming an AEO

• Low security risk (Automatic passing of declaration).

• Differed Payment.

• Customs simplifications.

• Priority clearance (Pre arrival clearance).

• Priority service in all customs branches.

• Priority service in all government office.

• Global recognition as a safe, secure, and compliant business partner in the international supply chain.

• Priority treatment if physical customs checks are required.

Indirect benefits

• Mutual recognition of AEO Programs globally will guaranty faster movement of goods through international borders.

• Fewer delays in dispatch

• Enhancing safety and security standards may lead to:

  • reduced theft and losses,

  • fewer delayed shipments,

  • improved planning,

  • reduced security and safety incidents,

  • reduced crime and vandalism,

  • improved security and communication between supply chain partners,

• Speed, Predictability, Cost Savings and Service are Key Benefits.

Duties and Responsibilities of AEO Companies

• Cooperate during goods examination.

• Correct unethical behavior of employees.

• Provide necessary documents in PCA process.

• Follow advice of the AEO team.

• Inform Customs of any changes (address, procedure, etc.).

• Settle tax liability on time.

Monitoring and Follow Up

• Based on post clearance audit and Intelligence and risk based control.

Monitoring and follow up mechanism

1. PCA (both Desk Audit and Comprehensive), this audit should be done at least once within three years for every AEO.

2. The AEO compliance Audit Team should made a system Audit (security and customs compliance) at least once within two years.

3. Intelligence

• If Intelligence directorate may informed and gather illegal activities on the side of AEO companies, then based on real and fact information, they should automatically react (i.e. examine) as like as any other companies (non-AEO’s) and follow up seriously.

• This information will be analysed and stored in the new system and graded also.

• The controlling mechanism is also planed to be supported by IT (i.e. e-CMS)

  • In Branch Level; examine the declarations seen accidentally, Making Desk Audit, Examine import goods accidentally, and Follow-up when they observe unexpected changes in goods movements.

• The AEO monitoring Procedure is developed mainly based on vertical and horizontal cooperation( with out which there will not be effective and efficient AEO).

AEO Legal Frame Work

1. Customs Proclamation 859/2016 (as amended by proc. 1160/2019),

   • Article 21, termination of transit, proc. 1160, article. 2(4),

   • Article 28, pre-arrival clearance,

   • Article 85, simplified declaration,

   • Article 84, simplified customs procedure,

   • Article 86, clearance at their premises,

   • Article 87, self assessment of duty and tax,

2. Customs Regulation 518/2022,

   • Article 13, Priority service in all customs service,

   • Article 14(1), Priority service in all Government office,

3. Directive 166/2012,

   • Article 3(1), Deferred payment beneficiary companies.

Quick memory

• AEO Meaning

• Type of Pillars

• How many standards

• Features of AEO

• Benefits of a company becoming an AEO

Sample Compliance Audit Analysis & Evaluation for Company XX

• Background COMPANY XX is a legal person established by the Ethiopian Ministry of Trade and Industry under the Legal Registration Number …. Filled Application form for request for the status AEO has been supplied to ECC including the internal organization chart of the company and the self-assessment report.

• The Company’s economic sector of activity is …. As stipulated in the Application Form, the scope of the request for AEO Customs facilitation status is currently limited to ….that used for the use of manufacturing leather products supplied from the following companies and countries respectively.

• The Company has submitted the filled and duly signed Application Form for AEO on …. Following the same compliance audit has been performed at company’s compound from date… by the ECC compliance auditors.

• The company has applied for the status of AEO in the framework of supply chain described as follows: COMPANY XX. AEO SUPPLY CHAIN FRAMEWORK

Evaluation Report

• The compliance level of the company has been evaluated according to the following scoring grade applied to each eligibility criteria:

  • 95-100% ---------Very Satisfactory

  • 90-94% --------- Satisfactory

  • 81-89% --------- Acceptable

  • 75-80% --------- Passable

  • <75% ---------- Need Deep Improvement/Unacceptable

• The company uses …….ESLCE; The company uses ……. as customs clearing agent …XX; Transporter /local ………; Type of Goods ……. And then, see the detailed Criteria; i.e. Contribution to national Agenda; Volume of business ; Statistics on customs matters ; Compliance history; Intelligence information ; Audit trail; Accounting system ; Internal control system9 Flow of goods ; Customs and Tax routines11 Procedures as regards back- up, recovery and fall- back and archival options ; Information security - protection of computer systems ; Information security - documentation security; Financial Solvency & Logistical processes must be evaluated during the compliance audit.

Provisional Memorandum of Understanding (MoU)

• i.e. Memorandum of Understanding Between Ethiopian Customs Commission And …………………..PLC. For the Accreditation Certification of its Compliance based on Authorized Economic Operator of the AEO Program.

• Certificate Issued. And, the Certificate seems like this

Thank You

Address:

• Dawit Alemayehu,

• E-mail elfalatda2011@gmail.com