INDUSTRY INSIGHTThought Leadership

The Case for Wide-Spread AEO Adoption in the GCC and beyond

By Dr. Abdulwahab Al Sadoun, Secretary General, GPCA

Dr. Abdulwahab Al-Sadoun, Secretary General, GPCA, explains how the Authorized Economic Operators (AEO) program is helping to improve chemical supply chains in the GCC and why it is good for business, the economy and trade

Trade among the world’s nations is in a growing state of flux. Geopolitical tensions, changes in national trade policies and growing protectionist sentiment have led to a rise in deglobalization, spreading ever greater uncertainty across the world and curbing global economic prosperity. The chemical industry, as one of the largest exporting sectors globally, is already feeling the strain, with experts warning of catastrophic consequences from a potential global trade war.

To counter the threat of isolationism and safeguard the future of international trade, in February 2017 the landmark Trade Facilitation Agreement (TFA) entered into force. Today the WTO has 164 members, with full implementation of the TFA estimated to reduce trade costs by an average of 14.3% and boost global trade by up to USD 1 trillion per year.

Arabian Gulf chemical producers are important players in the international supply chain, accounting for 70.3 million tons of exports in 2017, worth USD 55.6 billion. Complying with international standards and adopting best-in-class processes and procedures ensures the global competitiveness of chemical producers in the region, and a level playing field for regional exports overseas. Furthermore, it reinforces supply chain transparency and sustainability and safeguards chemical players’ reputation as safe and reliable global trade partners.

Earlier this year, GPCA welcomed the news of several of its members including Sadara Chemical Company, Sipchem, S-Chem group of companies, TASNEE and SABIC receiving Authorized Economic Operators (AEO) certification from the Saudi General Customs Authority. Introduced in 2007, as the WCO’s flagship Customs-Business partnership program, the AEO is part of the SAFE Framework of Standards to Secure and Facilitate Global Trade adopted by WCO members in 2005. The SAFE framework was launched to enhance the security of end-to-end goods movement and promote better cooperation between customs authorities, thus facilitating global trade.

“The AEO program creates strategic partnerships to ensure security within the business community and facilitate an uninterrupted flow of services and goods.”

 The AEO program

An internationally recognized program adopted by over 80 countries across the globe, the AEO creates strategic partnerships to ensure security within the business community and facilitate an uninterrupted flow of services and goods. The program contributes to greater cost savings, fewer customs controls, and recognition of recipients as safe and secure business partners globally. There are a range of benefits for companies operating under AEO. These include simplified customs declarations and EIDR (Entry in Declarant’s Records), transit simplifications, guarantee reductions or waivers, and many more. The program further aims to facilitate legitimate trade, harmonize and standardize the application of customs controls and provide an electronic environment for streamlined and efficient customs procedures.

To achieve certification, companies are required to meet a number of intensive criteria in specific areas, including meeting their customs liabilities, having an organized and traceable record system, being in compliance with financial qualification, safety and security standards and being capable of self-assessment in customs procedures.

The UAE launched an AEO program in 2016 to comply with the GCC Common Customs Law and the Unified Guide for Customs Procedures. So far only Dubai Customs have launched the program and the other Emirates are in the process of rolling it out. The Saudi AEO program is the first in the region at a national level and is currently engaged in securing mutual recognition with other states. Of the six organizations involved in the pilot, two were SABIC and TASNEE. Orpic is among other chemical companies in the region to receive the certification.

AEO benefits for trade

GPCA supports the implementation of the AEO program in the GCC in line with our position advocating the removal of both tariff and non-tariff barriers to trade. As one of the most export-oriented industries in the region, with 83% of chemical output being shipped to over 100 countries worldwide, the GCC chemical industry has one of the longest and most sophisticated supply chains. Transportation costs of Arabian Gulf chemical producers are estimated to account for 5% of total chemical sales, warehousing for 3.5%, and additional costs related to supply chain planning and administration account for 1.5%, thus, overall supply chain costs take up 10% of total chemical sales.

Sustained cost leadership, alongside greater supply chain agility, optimization and efficiency are among the top enablers for ensuring the competitiveness of GCC chemical producers abroad. Therefore, adopting the AEO program will only add to the future competitiveness of regional producers as it helps expedite chemical imports and exports from and to the region and reduces customs inspections and holding times for ships. Built on inclusion, the program is open to all roles in the supply chain and provides importers, exporters, brokers and logistics service providers significant benefits in terms of speed, predictability, cost reduction, compliance and marketing competitiveness. It also leads to a decreased number of negative incidents and disruptions in the supply chain thanks to an adequate set of security measures. In most cases the program provides the right to ‘fast-track’ shipments through the customs process at the ports, reduces financial security requirements and provides full access to customs special procedures and privileges. In fact, regional customs authorities estimate that an AEO will save 25% in operational costs, lessen the lead-time of clearing procedures, and facilitate sustainable trade between Arabian Gulf states and the world, thus contributing to national economic growth and enhancing the region’s position as a prominent logistics hub globally.

“Built on inclusion, the program providers significant benefits in terms of speed, predictability, cost reduction, compliance and marketing competitiveness.”