The AEO Philippines Program

By Victor C. De Dios

First Published in Business World (10/22/2012)

BECAUSE of terrorist attacks in certain parts of the world, security against acts of terrorism has heightened. This has, in turn, resulted in the development of measures to safeguard supply chains from security threats.

One such measure is a globally recognized Authorized Economic Operator (AEO) Program under the World Customs Organization Framework of Standards to Secure and Facilitate Global Trade (more commonly known as the WCO SAFE Framework of 2005).

The AEO Program is an international tool designed to strengthen “Customs-to-business” partnerships, by treating supply chain security as a shared responsibility between customs authorities and players in global trade.

Players in global trade are tagged internationally as “AEOs.” These AEOs could include manufacturers, importers, exporters, brokers, carriers, consolidators, ports, airports, terminal operators, integrated operators, warehouses, and distributors.

Under a rewards-based system, the program also aims to encourage AEOs to comply with minimum standards for supply chain security.

In essence, what the AEO Program does is to ensure protection for the importing country by placing the burden of responsibility on the exporting country.

According to the 2012 WCO Compendium of AEO Programs, the Philippines is one of 166 (out of 177) WCO members that have signified prior commitments to implement the WCO SAFE Framework.

The Bureau of Customs (BoC) recently issued Customs Administrative Order (CAO) No. 1-2012 establishing an AEO-Philippines Program applicable specifically to exporters. The CAO, which took effect on Aug. 30, 2012, embodies the Philippines’ commitment to implement the WCO SAFE Framework.

What is the AEO Philippines Program?

The AEO Philippines Program is the localized mechanism adopted by the BoC to encourage economic operators, particularly exporters, to adopt acceptable control measures that enhance supply chain security.

Through the AEO Philippines Program, exporters are given the opportunity to be accredited under a voluntary certification program.

This is to encourage adherence to supply chain security standards. The BoC will then recognize them as “trusted allies” and following a “rewards-based” system, they would be entitled to the following benefits:

• Specifically dedicated processing lanes for the exporter’s goods, which may result in a reduced processing period;

• Renewal of the “accreditation as an exporter” will be for a period longer than the usual annual basis;

• Last-priority status in audit selection for post-entry audits;

• Recognized as a low-risk company for enhanced branding;

• Shipment of goods may be subject to a reduced inspection or expedited clearance by customs authorities abroad, should certified status also be recognized by overseas countries under a mutual recognition program established by bilateral or multilateral arrangement; and

• Other trade facilitation benefits that may be afforded by the BoC under existing laws and regulations.

In order to qualify for accreditation, exporters must file an application with the concerned BoC accreditation committee. The application must be accompanied by supporting documents, including the company’s security profile consisting of a security management system, a risk assessment process and the company’s security measures. The application process may involve certain security assessment reviews and validation procedures by the BoC, through an authorized third party validator.

Accreditation under the AEO Philippines Program carries with it not only benefits but also certain responsibilities, such as the renewal of the accreditation every two years, the submission of an annual statement of commitment, providing information to the BoC of any non-conformity with the AEO Philippines Guidelines, and updating the BoC of any significant changes to its security profile.

At present, the BoC is in the process of drafting a Customs Memorandum Order which, after consultations with private stakeholders, will provide specific guidelines for accreditation.

What are the limitations of the AEO Philippines Program? Initially, however, CAO No. 1-2012 limits its application to exporters inside the Clark Freeport Zone that are within the jurisdiction of the BoC-Port of Clark. Unless otherwise stated, the AEO Philippines Program, in its current state, does not apply to exporters outside the Clark Freeport Zone, and notably, to the numerous importers in various Philippine air and sea ports.

Because of this, the AEO Philippines Program may be viewed as a “partial” implementation of the Philippines’ commitment to implement the WCO SAFE Framework. Despite its limitations, CAO No. 1-2012 may nonetheless be considered as a preliminary step towards the full roll-out of the AEO Philippines Program to all exporters and importers throughout the country — a welcome and positive initiative toward strengthening supply chain security.

Victor de Dios is a Tax Director at SGV & Co.