See Transcription of the Video below in case you want to read and not watch!
As Veroot Vice President Joe Hurst addresses in the video above, lately, our team has been fielding a record number of questions about the correlation between AEO, MRA, and CTPAT. To many supply chain professionals, the terms probably sound like just another bowl of industry-jargon alphabet soup…but for anyone in the import / export world, the way these three little acronyms work together is a valuable (and dare-we-say fascinating) relationship to understand.
First, let’s address the acronyms: AEO stands for Authorized Economic Operator, MRA is short for Mutually Recognized Arrangement, and CTPAT represents Customs Trade Partnership Against Terrorism. But to dig deeper into the impact each term actually has on the global supply chain, we’ll start by going back in history a bit…
In 1947, right after World War II, a group of European countries came together to start a Cooperative Customs Organization. This involved putting together a standard process for categorizing all the goods being shipped between participating countries so they could tax imports and exports using a universal system, which eventually became known as the Harmonized Tariff. The Harmonized Tariff was essentially a list of goods with assigned numeric codes that were unique to each category of item being shipped (ex. men’s clothing, bananas, car tires, etc.). This made it quick and easy to identify the contents of a shipment and determine the appropriate level of taxation for containers preparing to enter or exit the country based on the specific items being transported.
Over the next few years, the Harmonized Tariff began to gain global momentum with more and more countries becoming eager to participate. So in 1950, what was originally the Cooperative Customs Organization officially became the WCO – or World Customs Organization, which was created to provide dedicated management of the Harmonized Tariff. Then, with the World Customs Organization reaching a nearly global participation rate, the concept of AEO – or Authorized Economic Operator – finally came into play.
The AEO framework is essentially made up of four main points:
- Harmonized Tariff
Countries with AEO programs use a Harmonized Tariff to ensure imports and exports are being recognized and classified the same way from the point of origin all the way through to the final destination of the shipment.
- Regulations for Risk Management
AEO requires a consistent, systematic way to ensure imports and exports meet a formal set of requirements designed to mitigate risk to the country and its supply chain. In the US, that is the CTPAT program.
AEO protocol requires that participants perform inspections prior to a shipment being exported from the country of origin as well as before it is officially imported to the destination country.
- Tangible Benefits for Program Members
AEO programs must provide real, quantifiable benefits to members for maintaining compliance. This can be in the form of lower inspection times, quicker movement through ports, or providing an assigned Supply Chain Security Specialist, just to name a few.
Some countries have different names for their AEO-equivalent programs (for example, Canada’s is called Partners in Protection, or PIP), while many others actually refer to their programs as AEO (for example, China, Taiwan, and most European countries). Due to the naming discrepancy as well as slight variations in protocol between countries, the idea of a Mutually Recognized Arrangement (MRA) exists. MRAs are essentially a joint acknowledgement that the import/export standards in one country are equivalent in practice to those of another country, even if the names of the program happen to be different. When countries have a Mutually Recognized Arrangement, it alleviates the need to perform on-site inspections, extensive audits, and other supply chain security measures – if both parties have a recognized AEO program in place, there is a trust that the countries’ supply chain standards are equivalent.
So, to connect the dots between AEO, MRA & CTPAT…an Authorized Economic Operator (AEO) program countries put in place to ensure the highest level of supply chain security for imports and exports. Some countries actually call their program “AEO” while others use a different name. But if both programs have equivalent standards and expectations, there is a Mutually Recognized Arrangement (MRA) between those countries that acknowledges their mutual trust in each other’s compliance protocol and eliminates the need to micromanage supply chain security from end to end. Finally, one of the major pillars of the Authorized Economic Operator (AEO) concept is the presence of a formalized supply chain risk mitigation system, and in the United States, that system is called Customs Trade Partnership Against Terrorism (CTPAT).
If you have any other questions regarding CTPAT or global supply chain standards, Veroot CTPAT is here to help. Visit www.verootctpat.com and fill out a form, or send an email directly to firstname.lastname@example.org to learn more about what Veroot can do for yo