Guest article by Marius Gaiță
The term “customs compliance” is used in various official documents drafted by some of the most important international institutions, such as: The World Customs Organization, or the World Trade Organization. In spite of this, a precise definition of the term is currently lacking.
The International Compliance Association describes compliance as the capacity of taking action based on a decision or ruling, a set of rules or a request. Generally speaking, we can talk about complying with regulations, external norms which are imposed upon an organization in its whole and compliance with internal control systems, which are applied in order to ensure compliance with external norms.
The main functions of a compliance department should be: prevention, identifying and monitoring risks, advising the company regarding relevant regulations and controls and solving any non-conformities as quickly as possible.
Customs compliance can be characterized by the ability and obligation of parties involved in the international trade of goods to take actions which observe customs laws and regulations, as well as different procedures and requirements.
In practice, the role of customs compliance is complex, and requires deep knowledge not only of customs legislation, but also about connected norms regarding fiscal regulations, food safety, phytosanitary controls, as well as import, export and transit regimes of chemical and dual-use items, just to name a few.
The constant change of laws and commercial treaties forces companies, regardless of their size, to implement adequate systems and procedures to prevent or minimize possible fines.
Companies that do not understand legal requirements or do not apply them correctly can face harsh consequences, including the reduction or complete halt of international trade activity. At the other end of the spectrum, companies which optimize processes integrated into their customs conformity departments can have substantial benefits, transforming this department from a cost center into a profit center.
After a quick glance at the current political and economic climate, we can conclude that observing customs compliance plays a much bigger role than ever before. We can thus be reminded of the approximately 400 ratified international free trade agreements, out of which the EU has over 40, of the Brexit negotiations and of the implementation, until 2020, of the Union Customs Code (UCC).
The key domains of these documents target the marketed product, the business partner, the transitioned country, supply chain risks, and, last but not least, the accuracy of the customs statement. If we are to analyze the product, we can find the pylons of customs compliance: price classification, origin, and customs value.
Observing all laws, rules, and regulations mentioned above represents a great responsibility for the managers of the customs compliance departments, in order to avoid any risks associated with non-compliance, but also to apply for certain preferential treatments which facilitate and simplify commercial and logistic activities.
The basic policies for this sector are :
- Finding practical solutions to access regulatory updates and analysis;
- Correct understanding and application of all the requirements which govern the import/export of goods
- Defining a control system (eg. Internal and external audit, manual quality) in order to ensure that these requirements are fulfilled;
- Creating a permanent contact for constructive dialogue with customs representatives and/or the customs authority;
When we are planning on building a complete and pragmatic image of the risk management process, we have to consider the activity of AEO certified companies against the non-AEO certified ones. Despite the fact that those who do not have this certification have thoroughly studied and defined systems and controls, they might have compliance breaches compared to authorized economic operators (AEO).
Furthermore, the most significant expression of the bond between the business world and the customs authority based on conformity is the institution of an authorized legal person, with the statute of authorized economic operator, which holds maximum credibility.
The AEO concept should ensure an efficient flow of goods in a more secure logistic chain, which is governed by end-to-end security measures, from one end of the supply chain network to the other. Being recognized as an AEO, a trustworthy partner, will become a competitive edge with much added value, through the exclusive benefits this certification offers.
Reliability, keeping records, professional qualifications and practical competency standards are the general criteria based on which the AEO certification is accorded, and the customs compliance symbolizes the basic condition – sine qua non.
At the beginning of 2018 we have celebrated 10 years since the AEO certification has become a standard in the entire EU, established on the 1st of January 2008, through a resolution of the European Committee.
The Union Customs Code has radically transformed the image of the authorized economic operator, who benefits from security and safety facilities, has access to significant simplifications compared to prior regulations and holds a privileged partnership with the customs authority.
This new code, whose keywords are efficiency around customs regulations and procedures, is a real source of opportunities for AEO-certified companies, completely justifying the credibility of the operator and the possibility of for the customs representative, approved as AEO, to conduct services in another member state that he is domiciled in.
For companies who perform logistic services, there is no backup option, as it is “do or die”. Especially because, in essence, the UCC is characterized by a dual-track system which has special channels for AEO, unlike uncertified companies which must go through standard customs procedures.
Without any doubt, such a model, with the already mentioned operational constraints, including control and audit obligations, has become a perfect place for paperless procedures. The UCC reserves exclusive access for AEO to the following simplified operations: centralized customs, auto-evaluation and using a smaller global guarantee, or even exoneration of guarantee.
We should not neglect the difficulties through which this standard is “built” and, above all, maintained through monitoring internal processes and partner activity.
Subcontractor control, for which the AEO is permanently responsible, surely represents a mandatory task. It is said that the strength of a chain (in this case, a supply chain) is only as big as its weakest link, and any interruption makes the entire process invalid. Obviously, the fact that you are AEO-certified and subcontract a part of your logistic activity to a company which is not AEO-certified can minimize the safety and security principle you have adhered too.
Thus, subcontractors don’t just have to be approved, they have to be regularly controlled and audited in order to ensure that their services are correct and remain valid. For companies who have only chosen AEO-certified subcontractors, the shade of “Damocles’ Sword” can be removed by using the security statement.
The AEO certification has become a key element and main requirement in international logistic services tenders and constitutes a standard for safety and security reasons applied along the supply chain. It has also become a suggestive indicator of adequate customs management, becoming the main instrument of measuring and “defending” customs compliance.