This Digest is prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments.
This Digest was available from 27 June 1996
Date Introduced: 30 May 1996
House: House of representatives
Portfolio: Industry, Science and Tourism
Commencement: A day fixed by Proclamation being a
time after the commencement of the Customs Tariff (Miscellaneous
Amendments) Bill 1996 or if such a day is not fixed, the day after
6 months has expired since the Bill receives Royal Assent. In
practice, the Bill will commence on 1 July 1996, the day that the
Customs Tariff (Miscellaneous Amendments) Bill 1996 and other
customs legislation, principally the Customs Tariff Act
1995, come into effect.
To introduce a number of amendments to the Tariff Concession
Scheme to restrict the availability of Tariff Concession Orders.
The main amendment relates to the abolition of the 'market test'
from the grounds for eligibility for a Tariff Concession Order. The
Bill forms part of a package that will see the concessional rate of
duty applicable to goods imported under Tariff Concession Orders
increase from zero to 3%.
The Tariff Concession System (TCS) was introduced on 1 November
1992 to replace the Commercial Tariff Concession System (CTCS).
Both schemes aim to allow duty free importation of goods where this
would be beneficial to the Australian economy. The major difference
between the schemes concerned the availability of the concession
with TCS being more accessible for importers. The change from CTCS
to TCS resulted from an Industry Commission report which
recommended changes to CTCS to increase its availability.
The basis of TCS is the Tariff Concession Order (TCO) which
allows the importation of goods of a particular description without
duty if certain criteria are satisfied. The criteria contained in
section 269C of the Customs Act 1901 (the Principal Act)
- that no substitute goods are produced in Australia; or
- if substitute goods are produced in Australia in the ordinary
course of business the granting of the TCO would not be likely to
have a significant adverse effect on the market for the
substitutable goods (the market test).
The Principal Act provides for regulations to be made exempting
goods from the operation of TCS. Currently, the main categories of
exempted goods are most textiles, clothing and footwear (TCF) and
passenger motor vehicles (PMV). The exemption of these goods
reflects the higher tariff rates applicable to such goods compared
with other goods.
The TCS scheme operates as follows:
- if an importer of a non-exempt good applies to the Australian
Customs Service (ACS) for a TCO in relation to a particular good,
ACS is to consider if the criteria for a TCO is satisfied. In
considering this, the proposed TCO is published in the Gazette and
on customs computer systems that are available to both industry and
- the onus is on local manufacturers to notice the TCO
application and object;
- after receiving any input from local manufacturers it is then
up to ACS to determine if the criteria is satisfied;
- if satisfied that the criteria has been met, ACS is to issue a
TCO that will allow the duty free importation of the goods;
- if issued, a TCO will apply from 28 days before the application
- if a TCO is granted in relation to a particular good, duty free
importation will apply to anyone who imports those goods: the
exemption from duty applies to the goods rather than the applicant
for the TCO; and
- a local manufacturer who claims to produce substitutable goods
may request revocation of a TCO and if a TCO is revoked revocation
has effect from the day the request was lodged.
The importance of TCS has diminished since the gradual phase
down of tariffs began in the late 1980s. From 1 July 1996 a general
rate of tariff of 5% will apply and this means that a TCO is of
less value than if a higher rate of duty applied.
As noted above, CTCS was reviewed by the Industry Commission
(IC) in 1991. The IC found that CTCS was of benefit to the
Australian economy, that it eased the adjustment to lower general
tariff rates and that the abolition of CTCS would lower GDP by
approximately $900 million, based on the 15% tariff rate existing
when the report was made. The IC also noted that as the general
rate of tariffs was reduced the value of the scheme would decrease
and that at some stage the costs of the scheme would outweigh its
In January 1995, the Minister for Small Business, Customs and
Construction requested that the Department and the ACS review TCS.
The evaluation was released in mid 1995 and recommended substantial
modification to TCS. Major findings and recommendations of the
- TCS usage increased by 52.9% between 1992 and 1994;
- of the 5 577 applications made in 1994, 65.8% were accepted
- the number of CTCOs and TCOs in force increased by
approximately 75% since the introduction of TCS;
- while the policy intention on the introduction was to make
concessional entry more accessible without adversely affecting
local industry, this is not reflected in the legislation as the
market test requires significant adverse affect;
- costs in monitoring TCO applications are such that many small
and medium enterprises do not monitor them and therefore do not
- Bureau of Industry Economics analysis of the scheme completed
as part of the evaluation found:
- that the previous IC review was no
longer applicable mostly due to the reduction of general tariff
rates since the IC study;
- costs of compliance, administration, reduction in
opportunities for new manufacturers (as they would have to compete
against duty free goods) and other costs now outweigh the
advantages in the scheme by approximately $30 million a year;
- recommended that the scheme be abolished; and
- based on a general tariff rate of 5%, TCS will result in lost
revenue of approximately $600 million a year.
The evaluation then considered options for the future of TCS.
Retaining TCS as it currently stands was dismissed as TCS was not
capable of meeting its policy intention, would see an increase in
duty free imports and the uncertainty of whether a TCO existed in
relation to a good was such that a zero tariff would be preferable
to the current scheme.
The recommendation of the BIE that TCS be abolished was rejected
in the short term, principally on the grounds that would result in
duty being imposed on goods that are not manufactured in Australia.
The evaluation recommended that TCS be significantly modified to
allow duty free importation where there were no substitutable goods
manufactured in Australia and to impose most of the cost of the
scheme onto those who benefited, importers, rather than those who
currently bear the cost of monitoring the scheme, Australian
manufacturers. To achieve this, the evaluation recommended:
- the abolition of the market test so that TCOs would only be
available where there are no substitutable goods manufactured in
- the definition of substitutable goods be widened to include
goods of the same type and usage, and not be based on the quality
or price of the good; and
- where a revocation of an existing TCO is considered it be based
on the new criteria.
The evaluation also noted that concessions for imports that
subsequently had value added in Australia were available under
Customs by-laws, so that imported goods subsequently exported with
added value would be imported duty free.
The then government's response to the evaluation formed part of
the Innovation Australia statement released on 6 December 1995. The
Minister accepted the recommendation that the market test be
abolished, but rejected alterations to the definition of
substitutable goods. It was estimated that the abolition of the
market test would increase revenue by approximately $320 million
over four years.(2)
The next proposed change to TCS was announced by the then
Treasurer in a Press Release dated 11 February 1996. The proposal
was to abolish TCOs for business inputs from 1 July 1996. The
proposal was based on the BIEs recommendation to the evaluation
that TCO be abolished. The term 'business input' was not defined
but, as the Customs Tariff Act stands, would have been likely to
involve the identification of individual tariff items that would be
classified as business inputs. Due to the length and complexity of
the Act and the fact that it identifies goods by their description,
rather than use, this may have involved considerable administrative
expense. It was estimated that the announced proposal would result
in savings of $1763 million over four years.
The proposal to abolish TCOs for business inputs was adopted by
the then Opposition during the 1996 election campaign, principally
due to the revenue impact it would have.
Following the 1996 election, the government was faced with
industry criticism for proposing the abolition of TCOs on business
inputs. On 1 April 1996 the Minister announced that there would be
a meeting with business representatives to discuss the proposals.
The Minister's Media Release of 1 April 1996 states:
The consultations will help
serious transitional difficulties for industry or consumers
stemming from the 1 July implementation date and will enable the
government to consider possible alternatives.
The meeting took place on 11 April 1996 and, although no final
decision was announced, further submissions on changes to the
proposals that would not effect the revenue gained were invited, as
were further discussions with officials. The Minister is reported
as telling the meeting that:
It was a dreadful policy, but we
have a revenue problem.(3)
Reported alternatives to the government's proposal were to slow
down the reduction in the general rate of tariff, which is
scheduled to fall to 5% from 1 July 1996, or to reduce the
concession available and extend this rate to all goods imported
The proposal to be implemented by this Bill, ie the retention of
TCOs for all goods but making such goods subject to a 3% rate of
duty, is reported to have been adopted at a Cabinet meeting on 6
May 1996 which also approved other changes to TCS, including the
abolition of the market test.(5)
Industry generally welcomed the new policy as preferable to that
proposed during the election campaign, although some groups noted
that as a TCO would now bring only a 2% reduction from the general
rate of duty the cost of application may outweigh any benefit in
many cases. The Opposition accused the government of introducing a
new tax, ie the 3% duty that will now apply to non-business inputs
which were previously subject to duty free entry if subject to a
TCO, and so breaking an election promise.
In response to a Question on notice in the Senate, the
government provided a list of 2 600 items that are subject to TCOs
and may be considered consumer goods. The answer notes that the
determination of a consumer good and a business input is dependent
on the usage of the good and notes that the goods were selected on
a subjective and arbitrary basis. Goods on the list include:
domestic food processing appliances; sporrans; various religious
goods including shrines, crucifixes and rosary beads; various
tools, such as grinders, jigsaws, riveters and DC operated hedge
trimmers; hand held video cameras; home use pregnancy test kits;
and glass marbles.
Also refer to the Digest for the Customs Tariff Amendment Bill
(No. 1) 1996 which changes the rates of duty applicable to goods
imported under a TCO.
The definition of substitutable goods will be amended by
Item 3 of the Schedule to the Bill to include
goods that are capable of being put to a corresponding use as a
substitute. Currently, only goods being put to a corresponding use
as the imported goods are considered substitutes.
The current core criteria in section 269C of the Principal Act
will repealed by Item 4 which will substitute new
core criteria which will be that a TCO will be granted where there
are no substitutable goods produced in Australia in the ordinary
course of business on the day the application is made (ie. the
market test is abolished).
Item 7 inserts proposed section 269FA into the
Principal Act which deals with the onus to prove that the core
criteria has been met. The proposed section provides that it is the
responsibility of an applicant for a TCO to establish that the
applicant has meets the core criteria after taking reasonable steps
to acquire all information, and make all reasonable inquiries, to
show that there are grounds for the making of the TCO.
Item 8 is similar to Item 7 as it relates to
the onus of proof in relation to applications. Section 269H will be
amended to provide that the CEO of ACS is only to issue a TCO if,
having regard to the information provided under proposed section
269FA and the CEOs own opinion, the CEO is unaware of any producer
of substitutable goods in Australia.
The time from which a TCO will have effect, which is currently
28 days before the application was made, will be altered so that
TCOs will only have effect from the date of application
(Items 16 to 20).
New obligations will be placed on ACS in relation to TCOs by
Item 24 which will insert a new section 269SD(1AA)
into the Principal Act, which provides that if a TCO is in force
and the CEO is of the opinion that on a particular day an
application for that TCO would be refused, the CEO may declare and
publish the intention to revoke the TCO and invite submissions on
the matter. The CEO will have 60 days from the publication of the
notice of intention to determine if the TCO will be revoked.
Part 2 of the Schedule contains transitional provisions.
Item 37 provides that applications lodged and not
determined before the commencement of the Bill are to be determined
by reference to the law applicable before this Bill commences.
Revocation of a CTCO or a CTO after the commencement of the Bill
is to be determined by the law as modified by the Bill. Similarly,
the CEOs power to revoke a TCO on the CEOs initiative and
applications for revocation made after commencement are to be
determined by the law applicable after the commencement of the Bill
Applications for internal review of a decision, or to the
Administrative Appeals Tribunal or a Court challenging a
determination, made before the commencement of the Bill are to be
determined in accordance with the law as in place before the
commencement of the Bill (Items 39 to 41).
(1) Department of Industry, Science and technology and
Australian Customs Service, Evaluation of the Tariff Concession
System, 1995, p.21.
(2) Minister for Small Business, Customs and Construction, Press
Release, 6 December 1995.
(3) The Australian Financial Review, 12 April 1996.
(4) The Age, 23 April 1996.
(5) The Age, 8 may 1996.
Chris Field Ph. 06 277 2439
26 June 1996
Bills Digest Service
Parliamentary Research Service
This Digest does not have any official legal status. Other
sources should be consulted to determine whether the Bill has been
enacted and, if so, whether the subsequent Act reflects further
PRS staff are available to discuss the paper's contents
with Senators and Members and their staff but not with members of
© Commonwealth of Australia 1996
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Last updated: 26 June 1996
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