Authorized Economic Operator Programs
In the Islamic Countries:
Enhancing Customs-Traders Partnership
9
1.4. How do AEOs Contribute to More Trade?
The benefits listed in the previous section can be considered as the building blocks of
increased gains from trade for countries through adoption of the AEO programs. This section
discusses the main channels -that emerged in the recent literature- through which these
benefits translates in to economic gains overall.
Custom authorities are in charge of the security and safety of the country through regularizing
the flow of goods, preventing smuggling, avoiding the loss of revenue and securing the supply
chain. This is why such procedures, if they are not efficiently undertaken, can lead to
substantially higher trade costs since they affect the whole supply chain in any country. Three
main reasons explain why AEOs matter in bilateral trade.
First, the cost of administrative barriers to trade, with inefficient Customs, is particularly high
due to complicated, lengthy and redundant procedures. Their cost accounts for 2% to 15% of
the value of traded goods (OECD, 2002). Therefore, elimination of these costs would likely to
affect both exports and imports in a positive manner.
Second, intra-industry trade and trade in intermediate goods have substantially increased in
the last three decades. On the one hand, differentiated products need to be supplied more
promptly since the diversity of tastes is sensitive to time. If products are released more
quickly, demand should be satisfied more regularly. Thus, the transaction costs and the sellers'
margin will be lower which in turn should increase their sales. On the other hand, as a result of
an increasing reliance of domestic production on foreign inputs, growth in trade of
intermediate inputs outpaced that of final goods. Since the production process critically
depends on imported intermediate goods, they should be quickly delivered from Customs. The
delivery of these types of trade needs to be quicker and more efficient.
Third, regional and global supply chains have become more interdependent. In fact,
multinational firms (MNF) that multiply their production sites are in a dire need to quickly
deliver their semi-final goods and intermediate inputs. This helps them use the “just-in-time”
production techniques leading to: reduction in their stocks and benefiting from offshoring
advantages. Improved trade facilitation would lead to more efficient production lines, rise in
domestic production, higher exports and thereby greater benefits from economies of scale.
Shorter Time to Trade
This first channel through which AEO boosts exports and imports is shorter time to trade. The
study by the Urcioli et al (2013) shows that AEO programs lead to a 29 percent reduction in
transit time and 28 percent reduction in delivery time. Indeed, due to less lengthy procedures,
Carballo et al. (2016) support that AEO certification was associated with an increase of
between 1.8 and 2.8 percentage points in the growth rate of exports by certified firms in
comparison with their noncertified counterparts between 2012 and 2014. They show that the
effects seem to be stronger on the frequency of shipments and on consumer goods, industrial
inputs, and capital goods. They explain this increase by the reduction in the frequency of
physical inspections of certified firms’ shipments. This is in line with the findings of Morini
(2013) and Sa Porto et al. (2013) who argue that, in Brazil, adopting AEO standards prevents
conflicting requirements and unnecessary inefficiencies leading to a lower time to trade and
hence more exports. At the global level, Sa Porto et al. (2015) find that while the presence of an
AEO program and the existence of a Single Window program will improve countries’ trade