EU law could throw spanner in the works when goods are shipped

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The movement of imports and exports could be held up when new legislation is introduced.

1:00 am, April 28, 2008
EU law could throw spanner in the works when goods are shipped

But it will be a boon for those with Approved Economic Operator status

By Joanne Birtwistle

Upcoming European Union legislation on export and import consignments, to be introduced in response to terrorism fears, could hold up the movement of goods and impact on manufacturers.

The legislation, an update of the European Commission's Community Customs Code, will make it mandatory for traders to electronically provide HM Revenue and Customs with advanced information on goods carried into or out of the EU.

Customs will use this to determine which consignments are high risk, and plan targeted searches ahead of their arrival.

The changes are planned for July 2009, although delays mean legislation may not be implemented until January 2010.

But those companies with Approved Economic Operator (AEO) status, proving customs compliance and supply chain security, will be at an advantage because their risk rating will already be dramatically reduced.

“Those who are AEO approved will be regarded as less risky and more in control. As a result they will be subject to less scrutiny,” said Robert Crooks, indirect tax partner at Ernst & Young.

Lengthy process

However, advisers warn that companies wanting to gain the accreditation, available since January this year, will face a lengthy process getting ready for submission and then audit. Once the application is in, HMRC has up to 300 days to audit the company, before accreditation is awarded.

“These application forms are extensive, and look at things around your customs compliance, accounting, logistics supply chain, and site security — it is as detailed as wanting to know who has access to your site and even how high the fences are,” said Myles Duckworth, Deloitte's director for indirect tax in the North West. Yet many manufacturers are doing little to prepare for the legislation, preferring a wait and see approach.

As of early March 2008, there were just 90 applications for AEO status in the UK, according to Crooks. “Businesses haven't got their heads around the benefits. Once those become clearer, more businesses will apply,” said Crooks.

Manufacturers that should particularly consider applying for AEO status, to avoid delays caused by not having the certificate, are: those that need to fulfil orders quickly; whose production line relies on the shipping of critical components; or those that operate a just-in-time model. “Can they afford to have goods delayed? It means they will have a better level of control than their competitor,” said Crooks.

The big corporates are applying for this status now. Duckworth expects a second wave of applications as global, particularly US, companies insist that manufacturers in their supply chain have AEO status. The automotive industry, dominated by so few global players, is especially likely to put strong pressure on its supply chain.

Crooks adds that there are wider benefits to manufacturers. “It is more than securing your supply chain: improving the controls and processes in a business generally does bring benefits,” he said.

But for John Reed of international trade consultancy The Export Network, based in Sale, the changes are yet another level of unnecessary bureaucracy.

“Small businesses in this country are hammered by legislation. They spend 20 to 30 per cent of their time meeting regulations and standards and while they are doing that, they are not making any money,” he said.

“All businesses will have to comply — once everyone has done this, the competitive advantage will be back down to zero.”

COMMENTS? jbirtwistle@crain.com