Over the last two decades there has been steady progress towards more integrated regional economies in almost every part of the world. The levels of regional integration in Latin America, however, are pale in comparison to those of other regions. The disproportionately high costs of trading within the region arising from outdated trade policies, poor transportation and logistics infrastructure, as well as inefficient trade facilitation, are significant obstacles to closer integration.
Latin American and Caribbean countries remain with the lowest international trade rates as a share of GDP in the world (43.3% in comparison to 55.3% for OECD Members, or 59.4% for Europe and Central Asia, according to the 2020 World Development Index), and Brazil weighs in the regional performance with a share of just 32% of trade to its GDP.
For business owners who operate on the principle that time is money, delays that hold up the delivery of goods represent an agonizing loss of potential earnings. When those delays result in empty factories and workers with nothing to do, the waste of resources is even more frustrating.
Complicated border procedures—neither business-friendly nor aligned with international standards—are often to blame. Changing this is key to unlocking the countries’ economic potential, increasing competitiveness and positioning the region as an effective trade destination. Trade facilitation and regional integration helps local companies create new jobs and contribute to the economic growth.
The Authorized Economic Operator (AEO) program, which was created by the World Customs Organization in 2005, is set to make a major change in this scenario. It is among the most effective measures to facilitate intraregional trade and is gaining momentum in Latin America. The requirements for obtaining AEO status are strict, and operators are usually assessed and accredited based on their trade compliance, financial records, operating systems, communication and information quality, and international supply chain security.
AEO programs translate into several benefits for business, including more simplified border procedures for AEO-certified traders, expedited processing and release of shipments, and reduced clearance times. They also represent less paperwork, fewer inspections, reduced fees and costs, fewer challenges and delays, and increased trust between traders and border authorities, as well as between traders and clients.
Governmental agencies also benefit from AEO initiatives. For example, better use of human resources enables the agencies to allocate funds to more urgent needs. Improved business processes result in faster processing and clearance times. Enhanced compliance and better alignment with international standards also facilitate trade by simplifying procedures.
Since the Department of the Federal Revenue introduced the AEO program in Brazil in 2014, it has grown to almost 500 accredited companies, representing over 27% of all import and export declarations currently representing 40% of all imports (in value). The AEO program has helped boost exports and streamline import processes. It has also promoted low-risk trade environment for importers and exporters and led to greater speed and predictability of cargo in international trade flows.
In 2018, Brazil’s National Confederation of Industry (CNI) estimated that the AEO program can lead to cost savings of US$17.8 billion for exporters and importers in the country between 2018 and 2030 if it is fully implemented. CNI also predicted a potential to increase the flow of international trade by around US$30.7 billion in the same period.
Some of these anticipated impacts have already been verified by the private sector. According to General Electric/CELMA – a company that exports maintenance services for aircraft engines – the AEO program coupled with other trade facilitation reforms have substantially reduced the time (by 68%) and costs (by 67%) related to international trade for the company.
The success of the Brazilian AEO program is crossing the border to other Latin American countries. In 2019, the Heads of Customs Administrations from 11 Latin American countries met to discuss matters related to border management in the region, resulting in the Sao Paulo Declaration on enhanced collaboration. On May 18th, 2022, the countries met again to sign a regional mutual recognition agreement of AEO programs. Participating countries included Brazil, Argentina, Bolivia, Colombia, Chile, Costa Rica, Guatemala, Paraguay, Peru, Dominican Republic and Uruguay.
The agreement is an important step in improving integration in the region. The harmonization of the AEO program across the 11 countries is expected to facilitate mutual market access by eliminating duplicative certification and requirements. This in turn would reduce cargo inspections based on risk management measures and speed up the clearance of goods. It also includes the prioritization of measures to respond to disruptions in the flow of trade due to increased security alert levels, border closures and/or natural disasters, dangerous emergencies, and other serious incidents.
While the signing of the regional recognition agreement is an important step towards closer regional integration, a lot of work remains to further secure and facilitate trade. In order to achieve best performance, the countries still need to expand the accessibility of the AEO program to small and medium enterprises and develop a single-government AEO program, with a priority focus on the agriculture and health agencies’ border controls that most often are not fully integrated. The countries should also implement a monitoring framework to track the benefits under the framework of the agreement. Improving regional and trade integration is critical for the growth and development agenda for Brazil and the region.
This article was coauthored by World Bank colleagues Ernani Checcucci, Heidi Stensland W., and Marisa Zawacki.