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Trusted traders in the food and drink industry

With Brexit now just months away, businesses and the government are increasingly focused on how international trade will change once the UK leaves the EU.

The impact on supply chains of security issues and customs controls, with fears of goods encountering delays at borders, is a particular concern, especially for limited or short shelf-life goods in the food and drink industry.

An integral part of the government’s Brexit white paper is the concept of ‘trusted traders’, hoping to ensure cross-border trade remains as frictionless as possible.

However, at present the UK lags significantly behind other countries in the EU when it comes to Authorised Economic Operator (AEO) accreditation, with just 653 businesses registered as approved trusted traders compared with 6,289 in Germany, 1,628 in France and 1,567 in the Netherlands.

What is AEO?

Trusted trader programmes rose in prominence following post-9/11 security concerns, with the EU establishing its AEO concept in 2008.

It is part of a bid by the World Customs Organisation to develop a global framework for standards and provide joined-up security and customs processes across international supply chains.

AEO status is internationally recognised as a mark of quality indicating your role in the supply chain is secure. While not mandatory, it sends an important message to other parties in your supply chain, and the EU has been active in encouraging businesses exporting outside the community to sign up to the worldwide initiative.

There are two types of AEO status issued by HMRC in the UK: AEOC shows customs controls and procedures are efficient and compliant, and AEOS recognises that the holder’s position in the international supply chain is secure. It is possible for a business to apply for, and to hold, either status individually or both at the same time.

Benefits of AEO

“Many of these benefits can be obtained now and will remain available irrespective of the Brexit outcome, so including achieving AEO status in your Brexit strategy really is a ‘no regrets’ step and is basically best practice,” said tax manager Richard Morley.

By becoming AEO certified, businesses can equip themselves to deal with potential problems arising in the aftermath of Brexit, particularly the predicted delays in clearing ports. Holding AEO status after Brexit could provide faster customs clearance by giving priority access to pre-assessed and HMRC approved companies. It also gives quicker access to certain simplified customs procedures, such as custom warehousing, and may reduce the frequency of physical customs checks.

Being a trusted trader also enhances the reputation of a business, as it signals the high standards to which it operates. “AEO approved businesses want to trade with other AEO approved businesses, thereby increasing transparency throughout the supply chain,” said Richard Morley. “If you are a large tier one supplier or retailer you will want your suppliers to have AEO, and therefore will put pressure on the rest of your supply chain.”

As a holder of AEO you can effectively claim zero duty guarantee relief, giving you an instant cashflow benefit and helping to better manage working capital. Under the Union Customs Code (UCC), a waiver for the new financial guarantee requirement for suspended duty is granted to AEO certified businesses.

Non-AEO businesses are required to secure financial guarantees, often at a significant cost. And with the level of guarantees required potentially set to increase post-Brexit, due to additional duty payable on movements of goods from and to the EU27, this is potentially a very valuable benefit to importers to, and exporters from, the UK.

The AEO accreditation process requires businesses to install ‘best-practice’ processes and procedures. As a result, other indirect business benefits could include:

  • reduced theft and losses
  • fewer delayed shipments
  • improved planning
  • improved customer loyalty
  • reduced security and safety incidents
  • lower inspection costs of suppliers and increased co-operation
  • reduced administration.

Why should businesses apply now

There is expected to be a scramble to obtain AEO status the closer it gets to the March 2019 date for leaving the EU – and also in the first year after Brexit – as UK businesses realise the additional benefits of being accredited.

But the application process is not guaranteed and is subject to robust scrutiny from HMRC. The Institute of Export & International Trade describes achieving AEO status as “a time consuming and often daunting exercise.”

“It is not something you want to rush,” Richard Morley added. “Now is the moment to invest the time to pull together the full application and get it lodged ahead of the queue. You then would have that AEO in place regardless of what the UK’s relationship actually is with Europe. It is a no regrets action.”

A helping hand can often contribute to faster AEO certification while keeping costs manageable and under control. Our flexible approach of obtaining AEO status is based on a set of proven methodologies that we have refined through experience in conducting various AEO status projects across the EU.

If you are interested to learn more, please contact Richard Morley.

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