Lots of Hope, Little Information: Authorized Economic Operators in Ukraine

Hans Holbein the Younger: The Merchant Georg Gisze // Public domain

Ukrainian exporting and importing businesses have recently got the much-awaited opportunity to register as Authorized Economic Operators (AEOs). This status will make them trusted companies in the country’s Customs Office’s eyes and considerably facilitate their cross-border trade.

Simultaneously, awareness about this status is low, while even those familiar with the AEO concept often do not know how to become one. It is essential to inform companies what benefits they will get from the AEO status and how to apply for it.

Ukraine is getting closer to fully instituting the Authorized Economic Operator (AEO) scheme. In 2019, the Ukraine Parliament adopted a milestone law on the AEO and in 2020, the Ukrainian government passed critical bylaws. That set up the essential part of the legislative framework needed for the AEOs to operate. While some official orders and instructions remain to be issued, Ukrainian companies can now apply for AEO status.

Two companies have already submitted their applications, and more are expected to follow suit. Not surprisingly: the AEO status facilitates customs procedures, saving time, money, and organizational resources and improving the experience of trading across borders.

According to a survey of 1000+ Ukrainian exporting and importing businesses conducted by the IER in 20201, 68% would like the duration of customs clearance to shorten, and 66% wish to see more automation and less human involvement at customs.

The benefits of the AEO go beyond cutting back paperwork. This status is expected to improve the predictability of customs procedures, which in Ukraine are often associated with corruption and selective treatment of businesses.

Moreover, reducing the number of customs procedures and customs clearance time for reliable companies will increase Ukraine’s competitiveness globally. And if Ukraine and the EU mutually recognize the companies with the AEO status, it will improve these companies’ business potential even further.

To obtain AEO status, a company must meet specific criteria, such as complying with the customs and tax legislation, having a proper reporting system and stable financial condition. Relatively large and stable companies are more likely to fit these criteria and will probably first obtain the AEO certification.

However, AEO status is not restricted to large businesses. In the future, Ukrainian small and medium companies with regular and uniform foreign trade operations will join the list of AEOs. That is why it is vital to raise awareness of Ukrainian exporting and importing businesses about the opportunity to obtain the AEO status.

At present, the awareness of Ukrainian companies about the AEO and the procedure for obtaining this status is insufficient. Almost 70% of the 1000+ exporters and importers surveyed by the IER in 2020 said they did not know what the AEO status means.

In early 2021, the IER conducted an online survey focused on the AEO status and its advantages and disadvantages2. The 30+ participants of the survey represented Ukrainian exporting and importing enterprises, customs brokers, and business associations.

This sample of companies demonstrated a noticeably higher familiarity with the AEO: 65% knew about this status. The fact that the discussion of the AEO has been more active recently in Ukraine may be a reason for this better awareness.

It could also be explained by the fact that the respondents follow the IER on social media and most likely know more about the transformations at the customs.

Yet, even the better-informed respondents of the online survey do not necessarily know how to apply for the AEO status and how it may impact their business.

78% do not understand the procedure of obtaining this status. 71% say they lack information regarding the AEO, particularly how to submit application documents and whether their business meets the AEO requirements.

Benefits of the AEO identified by the survey participants range from faster and cheaper customs clearance to decreased pressure of the customs authorities on businesses. Meanwhile, 50% of the respondents could not name a single benefit of the AEO due to lack of information.

In sum, Ukrainian businesses associate AEO status with the opportunity to bypass extensive and complicated customs procedures. Still, potential applicants remain largely uninformed about what they need to do to obtain the AEO status.

Therefore, while the Ukrainian government finalizes the AEO system, business owners and managers should get familiar with the AEO status, which will help their companies facilitate foreign trade.

Key information about the AEO is available on the website of the Ukrainian Customs Service3. This source describes the benefits of the AEO status, explains how to obtain it and links to relevant Ukrainian legislation.

[1] Analytical report “Trade Facilitation in Ukraine: Estimates and Expectations of Businesses 2020”, IER, Kyiv 2021 http://www.ier.com.ua/ua/publications/reports?pid=6509 [in Ukrainian]

[2] Presentation of the results of the online survey “Authorized Economic Operators (AEO) Program. Do you need facilitation of customs clearance procedures?” http://www.ier.com.ua/ua/institute/news?pid=6528 [in Ukrainian]

[3] https://customs.gov.ua/en/deiaki-pitannia-funktsionuvannia-avtorizovanikh-ekonomichnikh-operatoriv

Continue exploring:

Results of Ukraine’s 2015 Wood Moratorium: Trade Protectionism Versus Forest Protection

Impact of EU-Ukraine Association Agreement: Viewpoint of Exporters, Importers

Andriy Butin
Iryna Fedets
The Institute for Economic Research and Policy Consulting - Kyiv