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International business management

CFOs are missing the boat on Authorized Economic Operator program

Mandar Athalekar  Market Development Lead - Global Trade Management, Thomson Reuters

Mandar Athalekar  Market Development Lead - Global Trade Management, Thomson Reuters

Why aren't more CFOS helping their organizations utilize this World Customs Organization initiative?

The global Authorized Economic Operator (AEO) program helps to both secure and facilitate global trade. While many organizations that trade across borders are aware of the program (at least conceptually), an alarmingly large number continues to live in an information vacuum, with no understanding of what AEO is and how it can benefit them.

AEO is a pillar of the World Customs Organization‘s (WCO) Framework of Standards to Secure and Facilitate Global Trade (SAFE), which provides guidelines to customs administrations across the world. Essentially, it is a certification scheme with certain requirements for eligibility criteria. Once an organization meets these criteria, it is AEO-certified as a secure, efficient and customs-compliant business in the global supply chain. This provides an incentive for customs authorities and trading companies to act as partners in securing and facilitating global trade.

Cargo trains stand at the 'Bahnhof Alte Suederelbe' cargo centre of the harbour in Hamburg. REUTERS/Christian Charisius
Cargo trains stand at the ‘Bahnhof Alte Suederelbe’ cargo center of the harbor in Hamburg. REUTERS/Christian Charisius

Gaining traction globally

It is useful to examine AEO’s significance in the backdrop of recent trade data and projections. In September 2017, the World Trade Organization (WTO) raised its growth estimate of world merchandise trade volumes in 2017 from 2.4 percent to 3.6 percent, but also cautioned against several risk factors that could impede growth. These include high levels of economic and policy uncertainty, trade-restrictive actions, expanding and multiplying terror networks, and a rise in global geopolitical tensions, natural disasters, fake goods, counterfeiting, maritime piracy, armed robbery, smuggling, drug trafficking, money laundering, and data breaches.

WCO adopted the SAFE Framework in June 2005, both to counter some of these threats and promote world trade. AEO program in particular was meant to combine the security and facilitation needs of certified entities. Since then, a large number of countries have launched AEO programs, including the EU member-states, the U.S., China, Japan, Kenya, Uganda, Algeria, Argentina, Brazil, Chile, Peru, Singapore, Malaysia, Thailand, South Korea, Australia, and New Zealand.

Each has its own name for the program: in the U.S., it is known as C-TPAT (Customs-Trade Partnership against Terrorism); in Singapore as STP (Secure Trade Partnership); Australia calls it ATT (Australian Trusted Trader); and Brazil, OEA (Operador Econômico Autorizado). Most of these schemes include legislative and control measures for both import and export, but some are either export- or import-only.

Vehicles drive during sunrise in the Taiga area along the M54 highway Krasnoyarsk - Mongolia, with the air temperature at about -27 degrees Celsius (-16.6 degrees Fahrenheit) some 120 km (75 miles) south of Russia's Siberian city of Krasnoyarsk. REUTERS/Ilya Naymushin   GM1E7CE1L5C01
Vehicles drive during sunrise in the Taiga area along the M54 highway Krasnoyarsk – Mongolia, with the air temperature at about -27 degrees Celsius (-16.6 degrees Fahrenheit) some 120 km (75 miles) south of Russia’s Siberian city of Krasnoyarsk. REUTERS/Ilya Naymushin GM1E7CE1L5C01

Taking the lead: the CFO’s role

Despite the many advantages of the program, the most recent statistics available show that, across all tiers, there are fewer than 170 AEO-certified organizations in India. This is surprising, but clearly, the world’s fastest-growing economy has a long way to go, at least in this respect. It is here that CFOs can play an important role, but it demands both foresight and action.

CFOs are responsible for a range of functions, from financial planning, cost and budgetary control, to compliance, record-keeping, and, most importantly, framing corporate strategy and securing the corporation against financial risks. What must underlie all of this is an efficient information system built on strong and secure communications technology. Such a system must be equipped with error-eliminating automation processes, proactive controls, the ability to generate analytical reports, and to securely integrate with other important corporate functions, such as procurement, inventory, manufacturing and logistics, as well as with external trading partners and government agencies – almost all of which are cost centres, and sources of financial data directly involving flow of goods.

Through its security criteria alone, AEO certification helps achieve all these objectives – and more. It is therefore critically important for CFOs to push for it. The starting point is to build an efficient information management framework. Essentially, it should have three aspects. First, it should be able to automatically compile, store, update and retrieve all content related to AEO. Second, it should integrate this content into operational processes, including export/import workflows, mandatory trade-document generation, and the creation of documents for other regulatory authorities, as well as reports for audit and analysis. Third, it should empower organizations to get AEO-certified and steadily graduate to higher tiers of certification, allowing the firm to realize all the benefits that come with this. Such system would not only improve operational efficiency at the AEO-certified organization itself, but also for customs and other regulatory agencies. The gains, therefore, would spread across the entire global trade ecosystem.

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