Legal Origins and Intersectoral Regulation of AEO Institution

Abstract

The main elements of AEO institution initially emerged in legislations of different countries, which legal systems belong both to common law and civil law families. In addition, there was an inevitable variability towards the tasks being solved, from general supply chain security issues to a focus on countering terrorist threats. At the same time, the modern AEO standards formed both at the level of international organizations, like WCO and WTO, and the regional level, such as the EU and associated countries. Therefore, we argue that there are several promising approaches to analyzing the legal status of AEO, including the concept of ‘legal origins’ and the institutions’ legal theories. They have a significant potential for explaining national differences in the implementation of the AEO institution, the specifics of the interaction of the norms of different branches of law in regulating the activities of the AEO, the methods, and methods of state administration of the AEO programs. Besides, the paper addresses the issue of intersectoral regulation of AEO institution, which embraces norms of several branches of law, including both public (administrative, tax and customs) ISSN 2524-101X eISSN 2617-541X 50 LEX PORTUS VOL 8 ISS 1 2022 law and private. Furthermore, the idea of delegation of competence and responsibilities towards granting supply chains security from state authorities to private entities (i.e. ‘trusted traders’) creates a shift in legal regulation where different internal rules and practices of private companies become essential to achieving the tasks assigned to AEO institution. The keywords: AEO, institution, customs, security, supply chain, legal origins, trade facilitation. Introduction After the worldwide introduction of Authorized Economic Operator (AEO) made through WCO SAFE Framework of Standards to Secure and Facilitate Global Trade in June 2005, its legal status became another internationally recognized trade facilitation standard for customs legislation. However, the fact that we speak about specific conditions for doing business for private entities enhances the AEO status goes far beyond mere customs or administrative legal regulations. Due to Tweddle (2008), the aim of AEO introduction, besides improving customs to business relations, was to provide businesses with an internationally recognized quality mark, indicating that their role in the international supply chain is secure, and their customs controls and procedures are efficient and compliant. Such AEO ‘quality mark’ embraces two basics aspects: – recognition that the company is reliable in the traditional financial and customs terms, and; – assuring that the company’s compliance with security and safety standards permits other companies to consider it as a ‘secure’ trader and thus a reliable trading partner. These facts permit to assess the AEO legal institute as the ‘intersectoral one incorporating legal norms both of public law (administrative, customs, tax legislation) and private law (specific regulations governing respective internal and external business processes of AEO). Hence, an intersectoral approach to studying AEO legal status is becoming more relevant for forming new knowledge and discoveries in the field. Such studies are often driven 51 LEX PORTUS VOL 8 ISS 1 2022 into specific doctrinal and regulatory frameworks, which directly impact the specifics of the conclusions made in such studies. Moreover, the history of AEO’s implementation shows that respective standards have been initially developed in a limited number of countries and later shared as standards through different international instruments, both binding (such as WTO Trade Facilitation Agreement) and non-binding (such as WCO SAFE Standards). Thus, for many jurisdictions, AEO institutions derived from the supranational level and in many respects may be significantly uncommon for national legal systems and practices. This points out a specific ‘legal origin’ of AEO institutions. The term ‘legal origin’ in this case is quite uneven, and however, it possesses significant explanation potential. Methodology This article discusses perspectives of approaching the status of AEO from standpoints of several theoretical concepts. Firstly, the paper investigates an explanation potential of the concept of ‘legal origins’ shown its effectiveness in comparative studies of legislation related to different aspects of economic activity. Secondly, it an institutional approach to the legal status of the AEO, which allows looking at the interaction of the legal norms of different industries and different methods of legal regulation concerning this phenomenon. 1. The Legal Origin Concept and AEO Status The ‘legal origins’ concept initially emerged in the late 1990th within the frameworks of comparative economic and law research of financial development and protection of investors’ rights that revealed significant differences between common law and civil law countries. Particularly, it was documented empirically that legal rules protecting investors vary systematically among legal traditions or origins, with the laws of common law countries (originating in English law) being more protective of outside investors than the 52 LEX PORTUS VOL 8 ISS 1 2022 laws of civil law (originating in Roman law) and particularly French civil law countries (La Porta et al., 2008, p. 285–286). In addition, a legal origin may proxy for institutions that are not fundamentally related to the legal system (Beck et al., 2003). Furthermore, an extensive body of research in economics and law suggests that the legal model a country follows – known as its ‘legal origins’ – has profound long-run effects on many economic, political, and social outcomes (Bradford et al., 2021). The fact that specific legal rules and regulations differ systematically across countries depending upon the typology of legal systems eventually led to four basic conclusions: – legal rules and regulations differ systematically across countries, and these differences can be measured and quantified; – these differences in legal rules and regulations are accounted for to a significant extent by legal origins; – the basic historical divergence in the styles of legal traditions – the policy-implementing focus of civil law versus the marketsupporting focus of common law— explains well why legal rules differ; – the measured differences in legal rules matter for economic and social outcomes (La Porta et al., 2008, p. 326). In these terms, a ‘legal origins’ indicates a well-established substantive characteristic of a particular legal phenomenon. Pointing to the legal status of the AEO, we thus wanted to emphasize the exclusivity of the relevant characteristics of the studied legal phenomenon. Furthermore, concerning the AEO, the ‘legal origins’ category can be utilized in two aspects. Firstly, it is the issue of legal origins of respective standards and regulations; secondly, it is the influence of national legal traditions of given countries upon the peculiarities of AEO implementation at the national level. Respective theories connect legal origins to the financial outcomes of businesses, specifying the latter influencing through political and adaptability peculiarities of a given legal system. In terms of political 53 LEX PORTUS VOL 8 ISS 1 2022 ‘channel,’ peculiarities of legal traditions may differ in terms of the priority they give to private property rights relative to the rights of the State, which is essential for economic development. In terms of adaptability ‘channel’, legal traditions, due to their responsiveness to changing socioeconomic conditions, thus inflexible legal traditions produce gaps between legal capabilities and commercial needs, whilst legal systems that adapt quickly foster financial development (Beck et al., 2003). In this regard, Civil law systems are considered to have more adverse repercussions for financial development than Common law systems. Application of the latter idea to the origins of the AEO institution itself looks not straightforward because the AEO concept emerged almost simultaneously both in Common law and civil law countries. On the one hand, we may trace AEO origins back to 1980th experiments with developing of Trusted Trader Programs in Sweden and Netherlands that possessed all distinct peculiarities of the contemporary AEO status, including voluntary entrance based on specific criteria, a partnership approach, self-assessment by the company, validation of systems, risk mapping, generous benefits programs, certification (Karlsson, 2017). On the other hand, the roots of WCO approved AEO program typically are traced to the US programs initiated in response to the September 11, 2001, attacks, including Container Security Initiative (CSI), the International Ship and Port Facility Security Code (ISPS) and the CustomsTrade Partnership Against Terrorism (C-TPAT) (Veenstra, 2019) with the primarily focus shifted from theft controls and contraband reductions to securing supply chains to heighten national security (Gupta et al., 2019). Furthermore, the whole AEO concept and thus the standards for its legal regulations have been at least twice ‘blended’ at the supranational level. Firstly, such a ‘blending’ occurred within the WCO frameworks resulting in WCO SAFE Standards of 2005 and evolving in its later revisions. Secondly, it happened within the WTO 54 LEX PORTUS VOL 8 ISS 1 2022 Trade Facilitation Agreement of 2013. Besides, one should consider regional peculiarities, such as the EU AEO regulations. In aggregate, due to the information provided by the WCO members for 2020, there were identified worldwide: – 97 operational AEO programs and 20 AEO programs under development. – 33 operational Customs Compliance programs and 4 Customs Compliance programs due to be launched. – 87 bi-lateral and 4 plurilateral or regional Mutual Recognition Agreements (MRA) of AEO status concluded and 78 MRAs under negot