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House of Representatives

Customs Amendment (Product Specific Rule Modernisation) Bill 2018

Explanatory Memorandum

(Circulated by authority of the Assistant Minister for Home Affairs, Senator the Hon. Linda Reynolds CSC)

Outline

The main purpose of the Customs Amendment (Product Specific Rule Modernisation) Bill 2018 (the Bill) is to amend the Customs Act 1901 (the Customs Act) to streamline the way in which the product specific rules of origin (PSRs) of four of Australia's Free Trade Agreements (FTAs) are given effect domestically. These four FTAs are the Singapore-Australia Free Trade Agreement (SAFTA), the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA), the Japan-Australia Economic Partnership Agreement (JAEPA) and the China-Australia Free Trade Agreement (ChAFTA).

PSRs are an essential component of FTAs that must be met by importers seeking preferential tariff treatment for goods that include materials not originating in the territories covered by the FTA. If the good satisfies an FTA's PSRs, it is considered to 'originate' in an FTA Party and is entitled to receive preferential treatment of customs duty on import into Australia under the Customs Tariff Act 1995 (the Customs Tariff Act).

The second purpose of the Bill is to amend the Customs Act to align it with certain FTA provisions not yet implemented by domestic legislation. This will ensure that domestic legislation is consistent with the FTAs.

Financial Impact Statement

The amendments are technical in nature and do not change underlying revenue over the forward estimates.

Statement of Compatibility with Human Rights

A Statement of Compatibility with Human Rights in respect of the amendments contained in the Bill is at Attachment A. The Statement assesses the amendments to be compatible with Australia's human rights obligations.

Notes on Clauses

Clause 1 Short title

1. Clause 1 provides that this Act is the Customs Amendment (Product Specific Rule Modernisation) Act 2018.

Clause 2 Commencement

2. Subclause 2(1) provides that each provision of this Act specified in Column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.

3. Table item 1 provides that the whole of this Act commences on a single day to be fixed by Proclamation. However, if the provisions do not commence within the period of six months beginning on the day this Act receives the Royal Assent, they commence on the day after that period.

4. Subclause 2(2) provides that any information in column 3 of the table is not part of this Act. Information may be inserted in this column, or information in it may be edited, in any published version of this Act.

Clause 3 Schedules

5. This clause is the formal enabling provision for the Schedules to the Bill, providing that each Act specified in a Schedule is amended or repealed as set out in the applicable items of the Schedule. This Bill amends the Customs Act 1901 (the Customs Act).

6. This clause also provides that other items of a Schedule have effect according to their terms. This is a standard enabling clause for transitional, savings and application items in amending legislation.

Schedule 1 - Amendments

Background

Under Free Trade Agreements (FTAs), goods that are made wholly or partly of non-originating materials - materials that do not originate in an FTA party - may still qualify as originating goods under that FTA if the non-originating materials have been 'substantially transformed' in the other party, Australia, or both. Product Specific Rules (PSRs) set down the rules to be used to determine whether non-originating materials have undergone sufficient transformation for the final goods to be considered 'originating'.

PSRs are set out in a Schedule annexed to each FTA, which lists goods according to their Harmonized Commodity Description and Coding System (the Harmonized System) classification. The Harmonized System is a structure for classifying goods based on internationally agreed descriptors for goods and related six-digit codes administered by the World Customs Organization (the WCO). This six-digit classification uniquely identifies all traded goods and commodities and is uniform across all countries (approximately 200) that have adopted the Harmonized System. The WCO reviews the system every five years to reflect changes in industry practice, technological developments, customs practices, and evolving international trade patterns. Australia, as a signatory to the International Convention on the Harmonized System, implemented the changes arising from the fifth (and most recent) review of the Harmonized System on 1 January 2017. As a result, on this date, approximately 950 changes were made to Australia's domestic tariffs, implemented through the Customs Tariff Act 1995 (the Customs Tariff Act), by creating, amending, and clarifying tariff classifications, to make our legislation consistent with 'HS2017' nomenclature.

PSRs typically take one of three forms:

1. Change in tariff classification

Most PSRs schedules apply a change in tariff classification (CTC) approach. A CTC rule requires that any non-originating materials that are incorporated into the final good undergo a specified change in classification in one or more of the FTA Parties as they are incorporated into the final good.

For example, pure gold (HS 7108.13) has a different classification to gold jewellery (HS 7113.19). In the process of being manufactured into jewellery, the tariff classification of 'pure gold' changes to that of 'gold jewellery', representing a substantial transformation. Gold jewellery manufactured in one of the FTA Parties from non-originating pure gold would therefore count as originating, regardless of the non-originating status of the pure gold. Different products may be subject to different CTC rules indicating the necessary scale of change the non-originating material must undergo.

2. Regional Value Content

The Regional Value Content (RVC) PSR approach requires that a product include a certain percentage of originating content for the final goods to qualify as originating.

3. Product Specific Processes

Some PSRs allow a product that has undergone a specific process in an FTA Party to qualify as originating. For example, certain types of fish and seafood products may qualify as originating if they are smoked in the territory of a Party. Another kind of product specific process rules is the 'chemical chapter origin rules' as they apply to chemical products.

Ensuring the correct version of the Harmonized System is applied

The version of the Harmonized System in which an FTA's PSR schedule is drafted is usually the version of the Harmonized System that is current during the FTA negotiations. FTAs usually stipulate the procedures (or FTA committee) for revising its PSRs, including their regular review as a result of updates to the Harmonized System. As negotiations to update an FTA's PSR schedule to the prevailing Harmonized System nomenclature only begin after the latest version of the Harmonized System is implemented, domestic implementation can be several years behind Australia's domestic tariff updates.

As an example, and the subject of this Bill, the PSRs for the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA), the Japan-Australia Economic Partnership Agreement (JAEPA), the China-Australia Free Trade Agreement (ChAFTA) and the Amended Singapore-Australia Free Trade Agreement (Amended SAFTA) currently use the 2012 Harmonized System (HS2012). Processes are underway to update the PSRs for AANZFTA to the 2017 Harmonized System (HS2017).

Current legislative provisions in the Customs Act for the AANZFTA, JAEPA, and ChAFTA define "Harmonized System" for these FTAs to mean "the Harmonized Commodity Description and Coding System (as in force from time to time) that is established by or under the Convention". This definition means that the version of the Harmonized System that is referred to in Australia's domestic tariffs to implement these FTAs may not necessarily be the version that is in force for the FTA if the Harmonized System is updated after the conclusion of the FTA negotiations.

To facilitate an easier adoption of the revised Harmonized System and ensure that the correct version of the Harmonized System is applied domestically, it is proposed to replace definitions of 'Harmonized System' with new definitions. These new definitions would expressly recognise the version of the Harmonized System currently used by each of the above mentioned FTAs, while allowing subsequent versions of the Harmonized System to be recognised if and when the PSRs are updated to recognise a newer version of the Harmonized System in accordance with the specific provisions of each agreement and Australia's domestic treaty-making process.

The Customs Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Act 2017 used such a formulation to recognise that Amended SAFTA was negotiated using HS2012 nomenclature. If and when the SAFTA's PSRs are updated to recognise a newer version of the Harmonized System (HS2017), no further legislative changes will be required to recognise this newer version.

Furthermore, it is proposed that the definition of "Agreement" in the AANZFTA Division of the Customs Act be amended to define the term "Agreement" to be the Agreement in force for Australia. The revised definition enables the application of the renegotiated PSR Annexes as agreed by the Parties following the five yearly Harmonized System revisions.

For AANZFTA, JAEPA and ChAFTA, it is also proposed to amend relevant provisions in the Customs Act to apply the PSRs for each FTA by direct reference to the PSR Annex. This would provide for the PSR schedules in these FTAs to be directly referenced, without the need for a regulation under the Customs Act to prescribe the PSRs. These amendments would apply to both the schedule of PSRs and any product specific process rules included in the relevant Annex for these agreements by direct reference.

For Amended SAFTA, the PSRs contained in Annex 2 were applied by direct reference in the Customs Act by the Customs Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Act 2017. However, these amendments did not cover the 'Chemical Chapter Origin Rules' contained in Section B of Annex 2 which were implemented domestically in the Customs (Singaporean Rules of Origin) Regulations 2017 (the SAFTA Regulations). To ensure uniform domestic arrangements for FTAs, it is proposed that the 'Chemical Chapter Origin Rules' also be applied in the Customs Act by direct reference to the FTA treaty text.

Directly referring to the Annex containing the PSRs, rather than implementing them through regulations, does not change the operation of the PSRs. The amendments merely aim to simplify the way in which the PSR schedules are implemented domestically.

Other amendments

The Bill also amends the Customs Act to align it with certain provisions that are in FTAs to which Australia is a Party, but which have not yet been given force in domestic legislation. The following amendments are proposed:

·
inserting a provision for Australia to waive the requirement for the Certificate of Origin documentation specified in the relevant FTA, where such waiver has not already been provided for in the Customs Act. These amendments are required for the AANZFTA, the Malaysia-Australia Free Trade Agreement (MAFTA), the Thailand-Australia Free Trade Agreement (TAFTA) and the Australia-Chile Free Trade Agreement (ACl-FTA).
·
Inserting a provision into Division 1B of the Customs Act for determining whether sets of goods imported into Australia from Singapore under SAFTA are originating or non-originating for the purpose of claiming preferential treatment of customs duty.

Part 1 - Singaporean originating goods

Customs Act 1901

Background

7. The amendments made by this Part are to Division 1BA of Part VIII of the Customs Act, which sets out the legislative framework for Singapore originating goods. Under the Customs Tariff Act preferential customs duty rates apply to Singaporean originating goods.

8. Section B of Annex 2 to Amended SAFTA contains the Chemical Chapter Origin Rules that are used to determine if imported chemical goods are eligible for preferential customs duty treatment. The purpose of the amendments in Part 1 is to enable the direct application of Section B of Annex 2 to Amended SAFTA removing the need to prescribe the Chemical Chapter Origin Rules in regulations.

Item 1 Paragraph 153XG(1)(a)

9. Subsection 153XG(1) sets out the rules for determining whether goods that are wholly obtained or produced entirely in Singapore, or in Singapore and Australia, from non-originating materials only or from non-originating materials and originating materials, are Singaporean originating goods, where such goods are classified to a chapter, heading or subheading of the Harmonized System specified in the first column of the table in Annex 2 to the Agreement (Amended SAFTA).

10. This item repeals the words "specified in the first column of" and substitutes the words "covered by the" with reference to the table in Annex 2 to the Agreement. This amendment effects the inclusion of the goods to which the Chemical Chapter Origin Rules apply since these goods are covered by the table in Annex 2.

11. Consequential amendments are made to subsection 153XG(1) that preclude the need for regulations to prescribe requirements in that Annex that are not within the table to the Annex, as this is no longer necessary.

Item 2 Paragraph 153XG(1)(c)

12. Currently requirements relating to goods to which the Chemical Chapter Origin Rules apply are provided in the SAFTA Regulations. As a consequence of the amendment proposed in item 1, reference to requirements that must be satisfied for such goods need no longer be prescribed in the SAFTA Regulations.

13. Thus, this item repeals the current paragraph 153XG(1)(c) that identifies requirements that must be satisfied in relation to goods either in the third column to the table in Annex 2 to the Agreement or in the regulations. New paragraph 153XG(1)(c) makes reference to requirements applicable to goods in the Annex 2 only,

Item 3 Subsection 153XG(2)

14. Similarly to the amendment proposed in item 2 above, the amendment in this item is consequential to that in item 1.

15. This item repeals reference to subparagraph 153XG(1)(c)(i) and to the third column in the table in Annex 2 in subsection 153XG(2) to provide that, without limiting paragraph 153XG(1)(c), a requirement may be specified in the table in Annex 2 of the Agreement by using an abbreviation that is given a meaning for the purpose of that Annex. For example, the abbreviation of RVC(40) in the Annex means a regional value content of at least 40%. Another example of an abbreviation in the Annex is 'CC', which is an abbreviation for a specific type of classification change.

Item 4 At the end of section 153XG

16. The purpose of new subsection 153XG(9) is to give effect to Article 16 of the Amended SAFTA. It provides that if:

(a)
goods are put up in a set for retail sale; and
(b)
the goods are classified in accordance with Rule 3(c) of the Interpretation Rules;
the goods are Singaporean originating goods under this section only if:
(c)
all of the goods in the set, when considered separately, are Singaporean originating goods; or
(d)
the total customs value of the goods (if any) in the set that are not Singaporean originating goods does not exceed 10% of the customs value of the set of goods.

17. This provision applies to goods that are put up for retail sale and are comprised of multiple items that are individually classified under more than one tariff subheading. Under Rule 3(c) of the Interpretation Rules, when goods cannot be classified to a single heading or subheading, they shall be classified under the heading or subheading which occurs last in the numerical order of the Harmonized System.

18. For example a mirror, brush and comb are put up in a set for retail sale. This set is classified under Rule 3(c) of the Interpretation Rules according to the tariff classification applicable to combs. This is because 'combs' is the subheading which occurs last in numerical order among the three items concerned.

19. The effect of new subsection 153ZXG(9) is that the set will not be considered to be Singaporean originating goods unless all three of the goods in the set, when considered separately, are originating goods. However, if one or more of the goods in the set is non-originating, the set may still be Singaporean originating goods under new paragraph 153ZXG(9)(d) if the value of the non-originating goods does not exceed 10% of the customs value of the set.

Part 2 - ASEAN-Australia-New Zealand originating goods

Customs Act 1901

Background

20. The agreement establishing AANZFTA entered into force for Australia on 1 January 2010. AANZFTA was subsequently amended by the First Protocol to Amend AANZFTA that entered into force for Australia on 1 October 2015.

21. The amendments made by this Part are to Division 1G of Part VIII of the Customs Act, which sets out the legislative framework for the ASEAN-Australia-New Zealand originating goods (AANZ originating goods). Under the Customs Tariff Act, preferential rates of customs duty apply to AANZ originating goods.

22. The purpose of the amendments in Part 1 is to enable the direct application of Annex 2 to the AANZFTA to goods imported into Australia. Annex 2 contains the PSRs that are used to determine if imported goods are eligible for a preferential rate of customs duty.

23. In addition, the purposes of the amendments in Part 1 is to insert provision for a waiver of the requirement for an importer to have a Certificate of Origin at the time of import as evidence of AANZ originating goods. AANZFTA provides that a Party may elect not to require a Certificate of Origin. The amendment seeks to ensure that the Customs Act provisions in Division 1G or Part VIII relating to Certificate of Origin requirements are consistent with AANZFTA.

Item 5 At the end of section 153ZKA

24. This item adds an additional note to the simplified outline of Division 1G, to aid in the interpretation of new Subdivision G, explained below.

Item 6 Subsection 153ZKB(1) (definition of Agreement)

25. This item amends the definition of "Agreement" for the purposes of Division 1G to mean the agreement establishing AANZFTA, done at Thailand on 27 February 2009, as amended and in force for Australia from time to time.

26. The effect of the amendment is that for any goods imported into Australia by any Party to AANZFTA, the goods will be AANZ originating goods only if they listed in Annex 2 of AANZFTA, which is drafted in HS2012 nomenclature.

Item 7 Subsection 153ZKB(1)

27. This item inserts a new definition of "Harmonized Commodity Description and Coding System". The Harmonized Commodity Description and Coding System is defined to mean the Harmonized Commodity Description and Coding System that is established by or under the Convention. The Convention refers to the International Convention on the Harmonized Commodity Description and Coding System (the Convention) done at Brussels on 14 June 1983 as in force from time to time. The text of the Convention is set out in Australian Treaty Series 1988 No. 30 ([1988] ATS 30).

28. The purpose of this amendment is to give effect to the amendments made by item 8 below, which specify the version of the Harmonized System that Australia ratified upon entry into force of the First Protocol to Amend AANZFTA so that it may be directly applied under domestic legislation. The tariff classifications set out in Annex 2 of the First Protocol to Amend AANZFTA are those codes from HS2012.

Item 8 - Subsection 153ZKB(1) (definition of Harmonized System)

29. All parties to AANZFTA have committed to renegotiated PSRs based on HS2017 to enter into force on 1 January 2019. To accommodate this, and any subsequent amendments to the Harmonized System, the amendment would substitute the definition of "Harmonized System" to recognise expressly that the Annex 2 of AANZFTA (as amended by the First Protocol) is drafted in HS2012 nomenclature. Part (b) of the definition of Harmonized System also recognises any later versions of the Harmonized System (including HS2017) that the Parties may adopt in updating Annex 2 of AANZFTA.

30. The Department of Home Affairs will continue to publish the changes resulting from Harmonized System updates and relevant concordances associated with those updates on its website, at no charge. This will help traders easily identify the appropriate tariff classification codes for goods imported from other countries into Australia.

Item 9 Subsection 153ZKB(2)

31. This amendment is consequential to the amendments proposed by item 12 below, and would repeal subsection 153ZKB(2). This provision enables regulations to be prescribed to set out how the regional value content of goods is to be calculated. This head of power is proposed to be inserted into amended subsection 153ZKE(6), described below.

Item 10 Paragraph 153ZKC(1)(b)

32. This item amends paragraph 153ZKB(1)(b) to insert provision for imported goods that are wholly obtained goods of a Party to AANZFTA to be AANZ originating goods if Australia has waived the requirement for a Certification of Origin for the goods.

33. Rule 12 of Appendix 2 Section B in the Annex on Operational Certification Procedures to Chapter 3 (Rules of Origin) (Rule 12) provides, in paragraph 1 of the rule, sets out requirements to be satisfied for the purpose of claiming preferential treatment of customs duty. It states that an importer shall submit a Certificate of Origin and other documents as required at the time of import declaration, in accordance with the procedures of the Customs Authority or domestic laws and regulations of the importing Party. Paragraph 2 of Rule 12, provides that, notwithstanding paragraph 1, a Party may elect not to require the submission of the Certificate of Origin.

34. Paragraph 2 of Rule 12 has not been implemented domestically, meaning that the provisions in 1G of Part VIII of the Customs Act are not consistent with AANZFTA. The amendment made by this item will address this inconsistency by providing Australia with the discretion to waive the requirement for a Certificate of Origin.

Item 11 Paragraph 153ZKD(b)

35. For the same reason and purpose as noted in item 10, this item amends paragraph 153ZKD(b) to insert provision for imported goods that are produced entirely in a Party to AANZFTA from originating materials only to be AANZ originating goods if Australia has waived the requirement for a Certificate of Origin for the goods.

Item 12 Sections 153ZKE and 153ZKF

36. This item repeals sections 153ZKE and 153ZKF and substitutes them with new section 153ZE.

37. Previous section 153ZKE sets out the basis of the product-specific rules that are used for determining whether goods that are produced entirely in a Party from non-originating materials only or from non-originating materials and originating materials, are AANZ originating goods. Such goods must be classified to a heading or subheading of the Harmonized System specified in column 1 or 2 of the table in Schedule 1 to the Customs (ASEAN-Australia-New Zealand Rules of Origin) Regulations 2009 (the AANZ Regulations).

38. New section 153ZKE would be substantially the same as repealed section 153ZKE but would directly apply the Annex 2 to AANZFTA, for the purpose of identifying the PSRs that apply to goods as set out in AANZFTA, instead of prescribing those same rules in the AANZ Regulations.

39. New subsection 153ZKE(1) provides that goods are AANZ originating goods if:

(a)
they are classified to a Chapter, heading or subheading of the Harmonized System that is covered by the table in Annex 2 to AANZFTA; and
(b)
they are produced entirely in a Party from non-originating materials only or from non-originating materials and originating materials; and
(c)
the goods satisfy the requirements applicable to the goods in that Annex; and
(d)
either:

i.
the importer of the goods has, at the time the goods are imported, a Certificate of Origin, or a copy of one, for the goods; or
ii.
Australia has waived the requirement for a Certificate of Origin for the goods.

40. New subsection 153ZKE(1)(c) would encompass any requirements in Annex 2 that will need to be satisfied in order for goods produced entirely in a Party from non-originating materials in accordance with Annex 2 of AANZFTA. This will preclude the need for regulations to prescribe requirements in that Annex that are not within the table to the Annex.

41. The direct application of Annex 2 to AANZFTA does not change the operation of the PSRs as set out in that Annex. Rather, as that Agreement is defined in subsection 153KB(1) to be the Agreement as amended from time to time, any updated version of the Annex that would be contained in that Agreement, including when the Parties to AANZFTA implement the HS2017, will be applied immediately when any provisions of AANZFTA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

42. New subparagraph 153ZKE(1)(d)(ii) incorporates the ability for Australia to waive the requirement for the Certificate of Origin documentation, as provided for in Rule 12.2 of the Annex On Operational Certification Procedures of AANZFTA, but not yet incorporated in the Customs Act.

43. Where abbreviations are used in Annex 2 to AANZFTA, new subsection 153ZKE(2) provides that, without limiting paragraph 153ZKE(1)(c), a requirement may be specified in the table in Annex 2 of the Agreement by using an abbreviation that is given a meaning for the purpose of that Annex. For example, the abbreviation of RVC(40) in the Annex means a regional value content of at least 40 per cent. Another example of an abbreviation in the Annex is 'CC', which is an abbreviation for specific type of classification change.

Change in tariff classification

44. Minor amendments have been made to subsections 153ZKE(3), (4) and (5) to reflect modern drafting practice. The operation of these subsections has not been changed.

Regional value content

45. In addition, as noted above, new subsection 153ZKE(6) would insert the head of power previously provided by repealed subsection 153ZKB(2) such that, if it is a requirement in the new Annex 2 to AANZFTA that goods must have a regional value content of not less than a particular percentage worked out in a particular way:

(a)
the regional value content of the goods is to be worked out in accordance with AANZFTA; or
(b)
if the regulations prescribe how to work out the regional value content of the goods- the regional value content of the goods is to be worked out in accordance with the regulations.

46. The insertion of the head of power in new subsection 153ZKE(6) is necessary to recognise that, for some goods set out in the table in new Annex 2, column 4 of that table sets out a requirement on how the regional value content is to be worked out. This amendment will not change the rule intended to apply, but instead allow for such a rule to be prescribed in the regulations. The insertion of the head of power into subsection 153ZKB(6) is made together with the repeal of redundant subsection 153ZKB(2), for ease of reference.

47. Minor amendments have been made to subsections 153ZKE(6), (7) and (8) to reflect modern drafting practice. The operation of these subsections has not been changed. Overall, new section 153ZKE does not alter the operation of existing section 153ZKE.

48. Section 153ZKF sets out the rules for determining whether goods that are produced entirely in a Party from non-originating materials only or from non-originating materials and originating materials are AANZ originating goods, where such goods are classified to a heading or subheading of the Harmonized System that is not specified in the table in Schedule 1 to the AANZ Regulations. This provision was included to meet a provision in the original AANZFTA that has since been superseded by the Entry into Force of the First Protocol to Amend AANZFTA. As it no longer has any operation, it has been repealed.

Item 13 Subsection 153ZKG(1)

49. The amendments made by this item are consequential to the repeal of section 153ZKF. As a result of the repeal of section 153ZKF, subsection 153ZKG(1) need only apply for the purposes of working out if goods are AANZ originating goods under new section 153ZKE.

Item 14 Subsection 153ZKH(2)

50. Amendments to this subsection have been made to reflect modern drafting practice. Otherwise, the amendments to subsection 153ZOF(2) do not alter its operation.

Item 15 At the end of Division 1G of Part VIII

51. This item inserts new Subdivision G, which contains new section 153ZKJA. New Section 153ZKJA sets out the head of power for regulations that may provide for, and relate to, determining whether goods are AANZ originating goods under Division 1G.

52. The purpose of new section 153ZKJA is to enable PSRs relating to change in tariff classification, regional value content and other rules for the purposes of determining whether goods are AANZ originating goods to be prescribed should this become necessary in the future.

Part 3 - Japanese originating goods

Customs Act 1901

Background

53. The amendments made by this Part are to Division 1K of Part VIII of the Customs Act, which sets out the legislative framework for Japanese originating goods. Under the Customs Tariff Act preferential rates of customs duty applies to Japanese originating goods.

54. The purpose of the amendments in Part 2 is to enable the direct application of Annex 2 to JAEPA. Annex 2 to the Agreement contains the PSRs that are used to determine if imported goods are eligible for a preferential rate of customs duty.

55. The amendments made in the Part for this purposes noted above mirror those made to Division 1G of Part VIII of the Customs Act in Part 1 of Schedule 1 to the Bill.

Item 16 At the end of section 153ZNA

56. This item adds an additional note to the simplified outline of Division 1K, to aid in the interpretation of new Subdivision F, explained below.

Item 17 Subsection 153ZNB(1) (note to the definition of Agreement)

57. New subsection 153ZNB(1) repeals the current note and substitutes it with an updated Note 1 and new Note 2. Note 2 refers to a separate agreement known as the Implementing Agreement that sets out the details and procedures for the implementation of JAEPA. The Implementing Agreement is in that same treaty series as JAEPA.

Item 18 Subsection 153ZNB(1)

58. This item inserts a new definition of "Harmonized Commodity Description and Coding System". The Harmonized System is defined to mean the Harmonized System that is established by or under the International Convention on the Harmonized Commodity Description and Coding System (the Convention) done at Brussels on 14 June 1983. Further detail about the Harmonized System is provided above.

59. The purpose of this amendment is to give effect to the amendments made by item 19 below, which specify the version of the Harmonized System directly applied under in domestic legislation for the purpose of JAEPA.

Item 19 Subsection 153ZNB(1) (definition of Harmonized System)

60. The definition of "Harmonized System" under subsection 153ZNB(1) is omitted and substituted with a new definition. The new definition recognises that the JAEPA's PSRs are currently drafted using HS2012 nomenclature. Part (b) of the definition and allows subsequent versions of that System that the parties may adopt (including HS2017) to also be recognised.

Item 20 Subsection 153ZNB(2)

61. This amendment repeals subsection 153ZKB(2). This provision enables regulations to be prescribed to set out how the regional value content of goods is to be calculated. This head of power is proposed to be inserted into amended subsection 153ZNE(6), described below.

Item 21 Section 153ZNE

62. Current section 153ZNE sets out the basis of the product-specific rules that are used for determining whether goods that are produced entirely in Japan, or entirely in Japan and Australia, from non-originating materials only or from non-originating materials and originating materials, are Japanese originating goods. Such goods must be classified to a heading or subheading of the Harmonized System specified in column 1 of the table in Schedule 1 to the Customs Japanese Rules of Origin Regulation 2014 (the JAEPA Regulations).

63. New section 153ZNE would be substantially the same as repealed section 153ZNE but would enable direct application of Annex 2 to JAEPA, for the purpose of identifying the PSRs that apply to goods as set out in JAEPA, instead of prescribing those same rules in the JAEPA Regulations.

64. New subsection 153ZNE(1) provides that goods are Japanese originating goods if

(a)
they are classified to a Chapter, heading or subheading of the Harmonized System that is covered by the table in Annex 2 to the Agreement; and
(b)
they are produced entirely in Japan, or entirely in Japan and Australia, from non-originating materials only or from non-originating materials and originating materials; and
(c)
the goods satisfy the requirements applicable to the goods in that Annex; and
either:

i.
the importer of the goods has, at the time the goods are imported, a Certificate of Origin, or a copy of one, for the goods; or
ii.
Australia has waived the requirement for a Certificate of Origin for the goods.

65. New subsection 153ZNE(1)(c) would encompass any requirements in that Annex that will need to be satisfied in order for goods produced entirely in Japan only, or Japan and Australia only, from non-originating materials in accordance with Annex 2 of JAEPA. This will preclude the need for regulations to prescribe requirements in that Annex that are not within the table to the Annex.

66. The direct application of Annex 2 to JAEPA does not change the operation of the PSRs as set out in that Annex. Rather, as that Agreement is defined in subsection 153KNB(1) to be the Agreement as amended from time to time, this will ensure that any updated version of the Annex that would be contained in that Agreement when the parties to JAEPA implement the HS2017 will be applied as soon as any provisions of JAEPA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

67. Where abbreviations are used in Annex 2 to JAEPA, new subsection 153ZNE(2) provides that, without limiting paragraph 153ZNE(1)(c), a requirement may be specified in the table in Annex 2 of the Agreement by using an abbreviation that is given a meaning for the purpose of that Annex. For example, the abbreviation of QVC(40) in the Annex means a qualifying value content of at least 40%. Another example of an abbreviation in the Annex is 'CC', which is an abbreviation for specific type of classification change.

Change in tariff classification

68. Minor amendments have been made to new subsections 153ZKN(3), (4) and (5) to reflect modern drafting practice. The operation of these subsections has not been changed.

Qualifying value content

69. In addition, new subsection 153ZNE(6) inserts the head of power previously provided in repealed subsection 153ZNB(2) such that, if it is a requirement in the Annex 2 to JAEPA that goods must have a qualifying value content of not less than a particular percentage worked out in a particular way:

(a)
the qualifying value content of the goods is to be worked out in accordance with the Agreement; or
(b)
if the regulations prescribe how to work out the qualifying value content of the goods- the qualifying value content of the goods is to be worked out in accordance with the regulations.

70. The insertion of the head of power in new subsection 153ZNE(6) is necessary to recognise that, for some goods set out in the table in Annex 2, column 3 or 4 of that table sets out a requirement on how the qualifying value content is to be worked out. This amendment will not change the application of the rule, but instead allow for such a rule to be prescribed in the JAEPA Regulations.

71. Minor amendments have been made to subsections 153ZKNE(6) and (7) to reflect modern drafting practice. Otherwise, as explained above, the new section 153ZNE does not alter the operation of existing section 153ZNE.

Item 22 Subsection 153ZNF(2)

72. Amendments to this subsection have been made to reflect modern drafting practice. Otherwise, the amendments to subsection 153ZNF(2) do not alter its operation.

Item 23 At the end of Division 1K of Part VIII

Subdivision G-Regulations

73. This item inserts new Subdivision F, which contains new section 153ZNI. New Section 153ZNI sets out the head of power for regulations that may provide for, and relate to, determining whether goods are Japanese originating goods under Division 1K.

74. The purpose of new section 153ZNI is to enable PSRs relating to change in tariff classification, qualifying value content and other rules for the purposes of determining whether goods are Japanese originating goods to be prescribed should this become necessary in the future.

Part 4 - Chinese originating goods

Customs Act 1901

Background

75. The amendments made by this Part are to Division 1L of Part VIII of the Customs Act, which sets out the legislative framework for Chinese originating goods. Under the Customs Tariff Act preferential rates of customs duty apply to Chinese originating goods.

76. The purpose of the amendments in Part 3 is to enable the application of Annex II to ChAFTA. Annex II to the Agreement contains the PSRs that are used to determine if imported goods are eligible for a preferential rate of customs duty.

77. The amendments made in the Part for this purposes noted above mirror those made to Division 1L of Part VIII of the Customs Act that are noted in the notes to items in Parts 2 and 3 of the Bill.

Item 24 At the end of section 153ZOA

78. This item adds an additional note to the simplified outline of Division 1L, to aid in the interpretation of new Subdivision H, referred to below.

Item 25 Subsection 153ZOB(1)

79. This item inserts a new definition of "Harmonized Commodity Description and Coding System". The Harmonized System is defined to mean the Harmonized System that is established by or under the International Convention on the Harmonized Commodity Description and Coding System (the Convention) done at Brussels on 14 June 1983. Further detail about the Harmonized System is provided above.

80. The purpose of this amendment is to give effect to the amendments made by item 26 below, which specify the version of the Harmonized System directly applied under domestic legislation for the purpose of ChAFTA.

Item 26 Subsection 153ZOB(1) (definition of Harmonized System)

81. The definition of "Harmonized System" under subsection 153ZOB(1) is omitted and substituted with a new definition. The new definition recognises that ChAFTA's PSRs are currently drafted using HS2012 nomenclature. Part (b) of the definition allows subsequent versions of that System that the parties may adopt (including HS2017) to also be recognised.

Item 27 Subsection 153ZOB(2)

82. This amendment repeals subsection 153ZOB(2). This provision enables regulations to be prescribed to set out how the regional value content of goods is to be calculated. This head of power is proposed to be inserted into amended subsection 153ZNE(5), explained below.

Item 28 Section 153ZOE

83. Previous section 153ZOE sets out the basis of the product-specific rules that are used for determining whether goods that are produced entirely in the territory of China, or entirely in the territory of China and the territory of Australia, from non-originating materials only or from non-originating materials and originating materials, are Chinese originating goods. Such goods must be classified to a heading or subheading of the Harmonized System specified in column 1 of the table in Schedule 1 to the Customs Chinese Rules of Origin Regulation 2015 (the ChAFTA Regulations).

84. New section 153ZOE would be substantially the same as repealed section 153ZOE but would directly apply Annex II to the ChAFTA, for the purpose of identifying the PSRs that apply to goods as set out in ChAFTA, instead of prescribing those same rules in ChAFTA Regulations.

85. New subsection 153ZOE(1) provides that goods are Chinese originating goods if

(a)
they are classified to a Chapter, heading or subheading of the Harmonized System that is covered by the table in Annex II to ChAFTA; and
(b)
they are produced entirely in the territory of China, or entirely in territory of China and the territory of Australia, from non-originating materials only or from non-originating materials and originating materials; and
(c)
the goods satisfy the requirements applicable to the goods in that Annex; and
(d)
either

i.
the importer of the goods has, at the time the goods are imported, a Certificate of Origin, or a copy of one, for the goods; or
ii.
Australia has waived the requirement for a Certificate of Origin for the goods.

86. New subsection 153ZOE(1)(c) would encompass any requirements in that Annex that will need to be satisfied in order for goods produced entirely in the territory of China only, or the territory of China and the territory of Australia only, from non-originating materials in accordance with Annex II of ChAFTA. This will preclude the need for regulations to prescribe requirements in that Annex that are not in the table to the Annex.

87. The direct application of Annex II to ChAFTA does not change the operation of the PSRs as set out in that Annex. Rather, as that Agreement is defined in subsection 153KOB(1) to be 'the Agreement as amended from time to time', this will ensure that the current Annex contained in the Agreement will be applied, and that any revised PSR Annexes in a later version of the Harmonized System will be applied when relevant domestic treaty-making processes are completed.

88. Where abbreviations are used in Annex II to ChAFTA, new subsection 153ZOE(2) provides that, without limiting paragraph 153ZOE(1)(c), a requirement may be specified in the table in Annex II of the Agreement by using an abbreviation that is given a meaning for the purpose of that Annex. For example, the abbreviation of RVC(40) in the Annex means a regional value content of at least 40%. Another example of an abbreviation in the Annex is 'CC', which is an abbreviation for specific type of classification change.

Change in tariff classification

89. Minor amendments have been made to subsections 153ZOE(3) and (4) to reflect modern drafting practice. The operation of these subsections has not been changed.

Regional value content

90. New subsection 153ZOE(5) inserts the head of power previously provided in repealed subsection 153ZOB(2) such that, if it is a requirement in the Annex II to ChAFTA that goods must have a regional value content of not less than a particular percentage worked out in a particular way:

(a)
the regional value content of the goods is to be worked out in accordance with the Agreement; or
(b)
if the regulations prescribe how to work out the regional value content of the goods- the regional value content of the goods is to be worked out in accordance with the regulations.

91. The insertion of the head of power in new subsection 153ZOE(5) is necessary to recognise that, for some goods set out in the table in Annex II, the third 'Product Specific Rule of Origin' column of that table sets out a requirement on how the regional value content is to be worked out. This amendment will not change the application of the rule, but instead allow for such a rule to be prescribed in the regulations.

92. Minor amendments have been made to subsections 153ZKOE (5), (6) and (7) to reflect modern drafting practice. Otherwise, as explained above, the new section 153ZOE does not change or alter the operation of the existing section 153ZOE.

Item 29 Subsection 153ZOF(2)

93. Amendments to subsection 153ZOF(2) have been made to reflect modern drafting practice. Otherwise, the amendments to subsection 153ZOF(2) do not alter its operation.

Item 30 At the end of Division 1L of Part VIII

Subdivision H-Regulations

94. This item inserts new Subdivision H, which contains new section 153ZOJ. New Section 153ZOJ sets out the head of power for regulations that may provide for, and relate to, determining whether goods are Chinese originating goods under Division 1L.

95. The purpose of new section 153ZOJ is to enable PSRs relating to change in tariff classification, regional value content and other rules for the purposes of determining whether goods are Chinese originating goods to be prescribed should this become necessary in the future.

Part 5 - Other amendments

Customs Act 1901

Background

96. The amendments in Part 5 are proposed to implement certain provisions of Australia's FTAs which have not yet been implemented into domestic legislation.

Waiver of requirement to have a Certificate of Origin

97. Several of Australia's FTAs require an importer to provide a written declaration or certificate of origin ("origin documentation"), or a copy of one, in order to claim preferential treatment of customs duty in respect of an originating good. The same FTAs also include a provision allowing the importing party to waive the requirement for that origin documentation. While several Divisions of the Customs Act pertaining to Australia's current FTAs contain provisions for Australia to waive the requirement for Origin Documentation, many, particularly older Divisions, do not contain these provisions.

98. It is proposed to amend the Customs Act to insert provisions into Divisions related to these four FTAs to enable Australia to waive the requirement for origin documentation. Such amendments would properly align the provisions of the relevant Divisions in Part VIII of the Customs Act with the corresponding FTA, ensuring consistency of domestic implementation. The four FTAs are:

(a)
AANZFTA;
(b)
the Thailand-Australia Free Trade Agreement (TAFTA);
(c)
the Australia-Chile Free Trade Agreement (ACl-FTA); and
(d)
the Malaysia-Australia Free Trade Agreement (MAFTA).

99. For other FTAs that contain a provision enabling the importing Party to waive the requirement to have and provide origin documentation in order to claim and be granted preferential treatment of customs duty for imported originating goods, this has already been implemented domestically with provision in the relevant Division of Part VIII of the Customs Act.

Item 31 Paragraph 153ZB(1)(b)

100. Under paragraph 1 of Article 410 (Claims for Preferential Treatment) of TAFTA, the importing Party shall grant preferential treatment of customs duty to goods imported into its territory from the other Party, provided that the goods are originating goods, the consignment criteria specified in Article 406 have been met, and the importer claiming preferential treatment has a valid Certificate of Origin or a copy of it relevant to the goods when claiming preferential treatment, and provides a copy of it, if requested, by the importing Party. Under paragraph 2 of Article 410, the importing Party may waive the requirement for a Certificate of Origin in certain circumstances, in accordance with its laws, regulations and policies.

101. Amendments are proposed to be made to Division 1D of the Customs Act that implements to TAFTA, such that Australia would have discretion to waive the requirement for a Certificate of Origin, so as to be consistent with the provisions in TAFTA.

102. To that end, this item repeals paragraph 153ZB(1)(b) and substitutes a new provision with the effect that goods are Thai originating goods, under subsection 153ZB(1), if they are wholly obtained goods of Thailand and either the importer of the goods holds, at the time the goods are imported, a Certificate of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Certificate of Origin for the goods. The amendment inserts the provision for Australia to waive the requirement for a Certificate of Origin, but otherwise does not change the operation of the subsection.

Item 32 Paragraph 153ZD(1)(d)

103. This item amends paragraph 153ZD(1)(d) in the same way that item 31 amends paragraph 153ZB(1)(b). That is, paragraph 153ZD(1)(d) is repealed and substituted with a new provision with the effect that goods are Thai originating goods, under subsection 153ZD(1), if they meet the requirements of paragraphs 153ZD(1)(a), (b) and (c), and either the importer of the goods holds, at the time the goods are imported, a Certificate of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Certificate of Origin for the goods. The amendment inserts the provision for Australia to waive the requirement for a Certificate of Origin, but otherwise does not change the operation of the subsection.

Item 33 Paragraph 153ZE(d)

104. This item amends paragraph 153ZE(d) in the same way that item 31 amends paragraph 153ZB(1)(b). That is, paragraph 153ZE(d) is repealed and substituted with a new provision with the effect that goods are Thai originating goods, under section 153ZE, if they are produced entirely in Thailand or entirely in Thailand and Australia, they meet the requirements of paragraphs 153ZE(b) and (c), and either the importer of the goods holds, at the time the goods are imported, a Certificate of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Certificate of Origin for the goods. The amendment inserts the provision for Australia to waive the requirement for a Certificate of Origin, but otherwise does not change the operation of the subsection.

Item 34 Subsection 153ZJB(1) (definition of Certificate of Origin)

105. Division 1F of Part VIII of the Customs Act provides the framework for ACl-FTA. This item amends the definition provided in subsection 153ZJB(1) to remove reference to requirements set out in paragraph 2 of Article 4.16, so that the reference would be to the requirements in all of Article 4.16. This is a more accurate description of Certificate of Origin and ensures all the requirements in Article 4.16 must be met in order for a certificate to qualify as a Certificate of Origin.

Item 35 Paragraph 153ZJC(1)(b)

106. Under paragraph 1 of Article 4.16 (Certificate of Origin) in Chapter 4 of ACl-FTA, a claim that a good should be treated as originating and accepted as eligible for a preferential tariff shall be supported by a Certificate of Origin. However, subparagraph (b) of Article 4.17 in Chapter 4 of ACl-FTA provides that, notwithstanding paragraph 1 of Article 4.16, the Customs Administration of the importing Party shall not require a Certificate of Origin from importers when it has waived the requirement for evidence.

107. This item repeals and substitutes paragraph 153ZJC(1)(b) with the effect that goods are Chilean originating goods if they are wholly obtained goods of Chile and the importer of the goods has, at the time the goods are imported, a Certificate of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Certificate of Origin for the goods. The amendment inserts the provision for Australia to waive the requirement for a Certificate of Origin, but otherwise does not change the operation of the subsection.

Item 36 Paragraph 153ZJD(b)

108. This item amends paragraph 153ZJD(d) in the same way that item 35 amends paragraph 153ZJC(1)(b). That is, paragraph 153ZJD(b) is repealed and substituted with a new provision with the effect that goods are Chilean originating goods if they are produced entirely in the territory of Chile from originating materials and the importer of the goods has, at the time the goods are imported, a Certificate of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Certificate of Origin for the goods. The amendment inserts the provision for Australia to waive the requirement for a Certificate of Origin, but otherwise does not change the operation of the subsection.

Item 37 Paragraph 153ZJE(1)(d)

109. This item amends paragraph 153ZJE(1)(d) in the same way that item 35 amends paragraph 153ZJC(1)(b). That is, paragraph 153ZJE(1)(d) is repealed and substituted with a new provision with the effect that, under subsection 153ZJE(1), goods are Chilean originating goods if they meet the requirements of paragraphs 153ZJE(1)(a), (b) and (c), and the importer of the goods has, at the time the goods are imported, a Certificate of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Certificate of Origin for the goods. The amendment inserts the provision for Australia to waive the requirement for a Certificate of Origin, but otherwise does not change the operation of the subsection.

Item 38 Paragraph 153ZLC(1)(b)

110. Under paragraph 1 of Article 3.17 (Claim for Preferential Tariff Treatment) of Chapter 3 MAFTA, the importing Party shall grant preferential treatment of customs duty to a good imported into its territory from the Part, provided that the good is an originating good, that the consignment criteria outlined in Article 3.14 (Consignment) have been met, and the importer claiming preferential treatment has met the Declaration or Origin or Certificate of Origin requirements specified in Article 3.15 (Declaration of Origin or Certificate of Origin).

111. Paragraph 2 of Article 3.17 provides that, notwithstanding paragraph of Article 3.17, the importing Party may elect to waive the requirement for a Declaration of Origin or Certificate of Origin or any of the requirements of Rule 7 of the Annex on Operational Certification Procedures.

112. This item repeals and substitutes paragraph 153ZLC(1)(c) with the effect that goods are Malaysian originating goods if they are wholly obtained or produced in Malaysia or in Malaysia and Australia, and the importer of the goods has, at the time the goods are imported, a Declaration of Origin or a Certificate of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Certificate of Origin for the goods. The amendment inserts the provision for Australia to waive the requirement for a Certificate of Origin, but otherwise leaves the operation of the subsection the same as it was previously.

Item 39 Paragraph 153ZLD(b)

113. This item amends paragraph 153ZLD(b) in the same way that item 38 amends paragraph 153ZLC(1)(b). That is, it repeals and substitutes it with a new provision with the effect that goods are Malaysian originating goods, under section 153ZLC, if they are produced entirely in the territory of Malaysia, or in the territory of Malaysia and the territory of Australia, from originating materials only and the importer of the goods has, at the time the goods are imported, a Declaration of Origin or a Certificate of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Declaration of Origin or a Certificate of Origin for the goods. The amendment inserts the provision for Australia to waive the requirement for a Certificate of Origin, but otherwise does not change the operation of the subsection.

Item 40 Paragraph 153ZLE(1)(d)

114. This item amends paragraph 153ZLE(1)(d) in the same way that item 38 amends paragraph 153ZLC(1)(b). That is, it repeals and substitutes it with a new provision with the effect that goods are Malaysian originating goods, under subsection 153ZLE(1) if they meet the requirements of paragraphs 153ZLE(a), (b) and (c), and the importer of the goods has, at the time the goods are imported, a Declaration of Origin or a Certificate of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Declaration of Origin or a Certificate of Origin for the goods. The amendment inserts the provision for Australia to waive the requirement for a Certificate of Origin, but otherwise does not change the operation of the subsection.

Part 6 -Application provision

Item 41 Application provision

115. This item sets out application provisions such that the amendments made by this of Schedule in relation to:

(a)
goods imported into Australia on or after the commencement of this Schedule; and
(b)
goods imported into Australia before the commencement of this Schedule, where the time for working out the rate of import duty on the goods had not occurred before the commencement of this Schedule.

Attachment A - Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Customs Amendment (Product Specific Rule Modernisation) Bill 2018

This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Bill

The Customs Amendment (Product Specific Rule Modernisation) Bill 2018 (the Bill) amends the Customs Act 1901 (the Customs Act) to allow the product specific rules of origin (PSRs) of four of Australia's existing free trade agreements (FTAs) to be applied to Customs Act. The Bill also makes minor amendments to existing FTA Divisions in the Customs Act, to ensure consistency between domestic legislation and individual FTA Rules of Origin.

Human rights implications

The amendments are technical in nature and do not engage any of the applicable rights or freedoms.

Conclusion

The Bill is compatible with applicable rights and freedoms recognised or declared in the international instruments listed in the definition of human rights in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.


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