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Chapter 2 - Overview and areas of concern
2.1
This chapter explains the main provisions of each bill, briefly outlines
areas of concern raised in the Australian Law Council submission and considers
Customs' response which was provided to the committee as answers to questions
on notice.
Main provisions
Customs Amendment (2007 Harmonized
System Changes) Bill 2006
2.2
Section 269SD of the Customs Act deals with the revocation of Tariff
Concession Orders (TCOs) at the 'initiative' of Customs. The drafting of subsection
269SD of the Customs Act currently allows the Chief Executive Officer (CEO) of
Customs to revoke a TCO, and issue a replacement TCO, only after the
classification change has come into force. According to the Explanatory Memorandum
to this bill:
This means that the CEO could only
exercise this power after 1 January 2007. Therefore, in order to ensure the seamless application of
TCOs to goods before and after 1 January 2007, and to avoid any uncertainty as
to the application of TCOs to goods, it is proposed to amend the Customs Act to
give the CEO the power to revoke a TCO, and make a replacement TCO, as a result
of a tariff classification change prior to the tariff classification change
taking effect. Current TCOs would be revoked with effect from 1 January 2007 and the new TCOs
would also take effect from that day.[1]
2.3
The bill inserts a new subsection 269SD(2A) into the Customs Act to
enable the CEO of Customs to make an order revoking a TCO and to make a new TCO
in respect of the goods before the relevant tariff classifications take
effect on 1 January 2007. In short, were Parliament to pass the bill, affected
TCOs could be revoked or made between Royal Assent and 1 January 2007.
2.4
As stated in Chapter 1, these new powers are required to enable the CEO
of Customs to revoke approximately 700 TCOs affected by the Customs Tariff
Amendment (2007 Harmonized System Changes) Bill 2006 and replace them with
approximately 1200 new TCOs.
2.5
The bill inserts two new items at subsection 269SE(2) and 273GA(1)(s)
which deal, respectively, with the notification requirements for various
decisions related to TCOs and decisions that are subject to review by the
Administrative Appeals Tribunal (AAT). By including a reference to new subsection
269SD(2A) in subsection 269SE(2), the CEO of Customs will be required to inform
all interested parties of decisions to make new TCOs, by notice published in
the Gazette. Reference to new subsection 269SD(2A) in paragraph 273GA(1)(s)
will extend the jurisdiction of the AAT to the decisions of the CEO under new
subsection 269SD(2A).[2]
Customs Tariff Amendment (2007
Harmonized System Changes) Bill 2006
2.6
Schedule 1 of the bill contains almost 600 items, almost all of which
repeal or substitute new classifications of goods. Item 599 provides that the
new classifications will come into force on 1 January 2007.
2.7
The amendments to the customs tariff will implement changes resulting
from the third review (HS2007) of the Harmonized Commodity Description and
Coding System (HS) conducted by the World Customs Organization (WCO). According
to the Explanatory Memorandum to this bill:
The 2007 HS changes are spread throughout the Customs Tariff and
have at least some impact on most industries and commodity groups. In some
cases, for example plywood, veneered panels and related products of heading
4412, the resulting domestic tariff structure is complex. However, the
established rules of tariff classification will continue to apply and the
description of those goods will simply lead to classification in a different
tariff subheading.[3]
2.8
The two previous reviews were implemented in 1996 and 2002. The WCO's
recommendation to implement HS2007 on 1 January 2007 was passed by the WCO
Policy Commission on 26 June 2004.
2.9
The HS has been developed and maintained by the WCO. It is described by
the WCO as a 'multipurpose international product nomenclature' comprising 5000
commodity groups, each identified by a six digit code, arranged in a legal and
logical structure. It is supported by well-defined rules to achieve uniformity.[4]
The HS is governed by the International Convention on the Harmonized Commodity
Description and Coding System and reviewed by the WCO approximately every five
years. The Convention came into force for Australia on 1 January 1988.
2.10
The Australian Customs Service submission noted that the HS provides a
legal and logical structure within which the headings and subheadings are
grouped in 96 Chapters, which are arranged in 21 sections: 'The headings and
subheadings of the HS are also accompanied by Interpretative Rules and the
section, Chapter and Subheading Notes, which form an integral part of the
system for uniformly classifying goods'.[5]
The HS is used by more than 190 countries and economies as a basis for their
Customs Tariffs and for the collection of international trade statistics.
According to Customs:
The HS can be used by Customs administrations, statisticians,
transporters, freight forwarders...for a variety of purposes. Among the more
important uses of the HS are the following:
- as a basis for the collection of customs duties or internal
taxes;
- as a basis for the collection of international trade statistics;
- as a basis for rules of origin;
- as a basis for trade negotiations (eg at the WTO, or
bilateral/plurilateral Free Trade Agreements;
-
for transport or freight rates and statistics;
- for the monitoring of controlled goods (eg hazardous wastes,
narcotics, chemical weapons, ozone layer depleting substances, endangered
species); and
-
as a vital element of border controls and procedures, including
risk assessment, information technology and compliance.[6]
2.11
According to information published by the WCO, the HS:
...is also used extensively by governments, international
organizations and the private sector for many other purposes such as internal
taxes, trade policies, monitoring of controlled goods, rules of origin, freight
tariffs, transport statistics, price monitoring, quota controls, compilation of
national accounts, and economic research and analysis. The HS is thus a
universal economic language and code for goods, and an indispensable tool for
international trade.[7]
2.12
The Explanatory Memorandum to this bill noted that:
The third review has focused on deleting those headings and
subheadings where there are low levels of international trade, amending the
system to reflect changes in industry practice and technological developments
and providing new subheadings, to allow signatory parties to separately
identify new products as certain narcotic substances.[8]
2.13
The Bills Digest noted that in addition to technology changes,
evolutions in trade patterns and various administrative updating, the proposed
changes are necessary '...to assist in the monitoring and control of various
commodities to which various environment and other international agreements
apply'.[9]
The Customs submission elaborated by noting that a number of amendments brought
about by HS2007, particularly in the area of organic and inorganic chemicals, have
been implemented as a result of the Rotterdam Convention on the Prior Informed
Consent Procedure for Certain Hazardous Chemicals and Pesticides in
International Trade (the Rotterdam Convention). The submission further
observed:
Australia signed this Convention in July 1999 and ratified it on
20 May 2004. The core of the Rotterdam Convention is the facilitation of
information exchange, ensuring that governments have the information they
require about hazardous chemicals, in order to assess risks and to take
informed decisions on chemical imports and exports.[10]
2.14
As a result of the changes to the Customs Tariff, 700 existing TCOs will
be revoked and replaced with approximately 1200 new TCOs.
2.15
The Customs submission noted that amendments to the HS are proposed and
discussed at a technical level at the WCO by the Harmonized System Committee.
While most amendments are agreed by consensus, some specific decisions are
voted on. Australian Customs attends the meetings of the committee and seeks
the views of policy departments, major industry groups and other stakeholders
prior to each meeting.[11]
Customs further informed the committee that:
No Contracting party (including Australia) lodged objections
with the World Customs Organization (WCO) during the six months to 12 January 2005. This is because the amendments had been proposed and discussed at a
technical level in meetings of the WCO's Harmonized System Committee during the
five years since the previous HS review. The International Chamber of Commerce
has observer status on this Committee.
...
As no Contracting Party objected to the proposed HS2007
amendments, under Article 16 of the Convention the changes at four-digit
(heading) and six-digit levels were deemed to have been accepted.[12]
2.16
The Attorney-General in his second reading speech noted that the HS is a
hierarchical system that uniquely identifies all traded goods and commodities.
It is used uniformly throughout most of the world. The goods and commodity
classifications used by Australia have been based on the HS since 1988 and are
contained in the Customs Tariff for imports and the Harmonized Export Commodity
Classification for exports. The Attorney-General stated that the bill ensures,
to the greatest extent possible: 'the preservation of existing duty rates and
levels of tariff protection for Australian industries and margins or preference
accorded to Australia's trading partners'.[13]
2.17
However, as noted by the Australian Customs Service submissions, it has
not been possible to preserve existing duty rates for the following groups of
goods which are imported in very small quantities:
- certain plywood and veneered panels containing bamboo. The general
rate of duty will increase from Free to 5 per cent;
- certain forms of carbonising base paper imported from Canada. The
duty rate applicable will fall from 5 per cent to either Free or 2.5 per cent,
depending on the exact nature of the goods;
- carbonising paper imported from certain developing countries. The
preferential rate will increase from 4 per cent to 5 per cent or decrease to
free, depending on the exact nature of the goods; and
- adhesive paper classified in heading 4823. The general rate of
duty of 5 per cent is preserved.[14]
2.18
The bill also contains amendments which are relevant to the Australia-US
Free Trade Agreement and the Thailand-Australia Free Trade Agreement. Under
both agreements, there is no customs duty payable for imported goods
originating in the United States and Thailand unless a rate of customs duty is
specifically provided for relevant goods originating in these countries under
schedules 5 and 6 of the Customs Tariff Act 1995. The bill ensures that
the duty applicable to those products that are affected by the classification
changes remain unchanged.
Areas of concern
2.19
The committee majority notes that the Australian Customs Service
submission acknowledged that the large number of changes to tariff
classifications resulting from HS2007 might, in turn, result in an unintended
change to the duty treatment of a particular good. However, in the event such
an error was identified, Customs would rely on a Customs Tariff Proposal which the
Government can introduce in the House of Representatives without notice.
According to the Customs submissions:
The moving of a Customs Tariff Proposal is normally treated as a
formal procedure for the purpose of initiating the collection of a duty.
Collection of duties is commenced on authority of an unresolved motion, and
that has been accepted by convention...[15]
2.20
In the event that Parliament is prorogued, dissolved or adjourned for a
period of time exceeding seven days, Notice of a Customs Tariff Proposal may be
published in the Gazette by the Chief Executive Officer of Customs. The
Proposal is deemed to have effect from the time specified in the Notice. It is
normal for a Customs Tariff Amendment Bill to be introduced in the Parliament
at a later time to consolidate the outstanding Customs Tariff Proposal.
2.21
Other areas of concern were raised in a submission by the Customs and
International Transactions Committee (Customs Committee) of the Business Law
Section of the Law Council of Australia. The submission provided commentary on three
separate issues. First, the Law Council is concerned about the timing of the
bills' introduction in the Parliament, given that they contain significant
amendments and technical changes to the Customs Tariff. It believes that
Customs may not have had enough resources to implement the amendments contained
in the bills. In the light of this concern, the Law Council submission
recommended that the committee ask Customs:
- for a timetable setting out the process since the resolution of
the WCO to adopt the HS20007 changes, and the preparation of materials to
implement the changes to the HS in the Customs Tariff; and
-
if adequate resources were provided by the Government to enable
it to implement the HS2007 changes in a timely and comprehensive manner.[16]
2.22
Second, the Law Council holds the view that Customs has a history of not
consulting sufficiently with stakeholders about significant proposed
legislative changes. In relation to the current bills, the Law Council
submission speculated that Customs may not have consulted widely enough or in a
timely manner, especially with stakeholders likely to be affected by the
proposed changes. The submission raised a particular concern that the current
level of dissemination of information regarding the amendments may not have
been adequate. The Law Council also referred to other customs amendment bills recently
introduced in the Parliament and examined by the Senate's Legal and
Constitutional Affairs Legislation Committee, which apparently were not subject
to an adequate consultative process by Customs.
2.23
A final area of concern relates to the potential liability for incorrect
information on reports provided to Customs. The liability could range from an
infringement notice, prosecution for a strict liability offence or prosecution
in circumstances where Customs believes that there has been a deliberate or
reckless fraud or misstatement. Given the potential for importers and customs
brokers to make inadvertent errors by using 'outdated' information in reporting
to Customs, the Law Council submission strongly recommended that:
...Customs provide a moratorium period (for example, 6 months)
during which no importers, customs broker or other person making a report to
Customs will face any liability in terms of infringement notice or strict
liability prosecution if the error which exposes them to liability to Customs
arises from the changes effected by the Bills.[17]
2.24
The submission noted further that a moratorium may assist in preventing
any unintended consequences, arising from legislative oversight or otherwise,
which may not become apparent for some time.
Comment
2.25
The committee majority believes that the Custom Tariff Proposal
mechanism referred to in paragraphs 2.19 and 2.20 provides an adequate
safeguard against errors which might affect the rate of customs duty applicable
to particular goods. It agrees with Customs that it is unnecessary for the
proposed legislation to include a provision to enable the CEO of Customs to
make orders or regulations to overcome any unintended consequences.[18]
The Customs submission noted that in implementing the 800 changes to the
Customs Tariff following the second review of the HS in 2002, Customs
identified one error that resulted in a higher rate of duty being applied to
fur-lined leather mittens. This error was apparently corrected by a Customs Tariff
Amendment Bill, which was backdated to the commencement date of the changes.
2.26
The committee does not accept the Law Council's criticism that Customs
may not have consulted widely enough or in a timely manner, especially with
stakeholders likely to be affected by the proposed changes. The committee is
satisfied that extensive consultation has taken place with relevant government
departments and, where necessary, with industry associations. As noted by the
Explanatory Memorandum to the Customs Tariff Amendment (2007 Harmonized System
Changes) Bill 2006:
As a result of these consultations, the Bill has been designed
to give effect to the HS changes while maintaining, to the greatest possible
extent, existing levels of tariff protection and margins of tariff preference
accorded to Australia's trading partners.[19]
2.27
The committee notes in particular the detailed answer provided by
Customs in response to a question on notice about the process which Customs had
followed since the resolution of the WCO to adopt the HS2007 changes:
At the outset Customs would like to affirm its commitment to
providing timely advice to importers or their agents about forecast changes in
the regulatory environment. In administering Customs laws, these
responsibilities are shared with policy agencies. In adopting changes to
international conventions, there is obviously a balance to be struck between
giving early notice about changes where possible, and providing up-to-date and
accurate information that reflects the Government’s policy intentions, and
takes account of Parliamentary processes.[20]
2.28
Customs advised the committee that it had taken the following key
actions to provide more detailed advice to importers about the impending
changes:
- regular dialogue with industry groups as changes have been
gradually developed through the WCO;
- consultation with Australian policy agencies;
-
careful development of Australian-based tariff classification
changes so that duty rates are maintained where practicable, and import
reporting is not unnecessarily complex;
- publishing the 2002 and 2007 proposed classification concordances
to coincide with introduction into Parliament of the related legislation;
- establishment of an HS2007 section on Customs website, with links
to all key documents;
- circulation of Australian Customs Notices about key issues;
- setting up a project team which acts as a contact point on
HS2007; and
- planned additional communication, subject to successful passage
of the Bills.[21]
2.29
The committee is satisfied that Customs is currently endeavouring to
provide a seamless transition into HS2007 and its associated changes by
notifying affected parties about the proposed changes. Evidence to the
committee clearly shows that Customs had consulted with policy agencies and
industry groups at an early stage when issues were being considered by the
WCO's HS Committee. Customs advised the committee that following the
introduction of the bills in the Parliament on 7 September 2006, it formally informed interested parties of the pending changes. Customs issued Australian
Customs Notice (ACN) 2006/44 about the proposed HS amendments and ACN 2006/45
about changes to Tariff Concession Orders, Tariff Advices and Precedents, and
Origin Advice Rulings. Both ACN's are available on the Customs website and
provide directions to the HS2007 information page.[22]
2.30
The submission from Customs advised that it had undertaken a large
number of proof reading exercises to reduce the possibility of errors
occurring, and had already published a concordance of changes to tariff
classifications between HS2002 and HS2007, both electronically on the Customs
website and in hard copy.[23]
2.31
In answers to question on notice, Customs provided detailed responses to
the suggestion by the Law Council that importers and customs brokers are at
risk of liability for making incorrect statements, and that Customs provide a
six-month moratorium for inadvertent errors made by importers. Customs argued
persuasively that the risk of liability has been overstated and that a
moratorium is not appropriate in the light of the existing legislated
Infringement Notice Scheme (INS) that deals with non-compliance:
The Infringement Notice Scheme...Guidelines (a legislative
instrument tabled in Parliament) provide the importer or customs broker with
some protection from penalties issues under that scheme. A decision to issue an
infringement notice can only be made by a delegate of the CEO of Customs. A
judgement is made in each case based on the individual circumstances of the
case. The delegate of the CEO may exercise discretion in this process,
including whether an offence occurred as a result of legislative change or a
reliance on Customs advice.[24]
2.32
The committee emphasises that the INS Guidelines provide importers and
customs brokers with protection from penalty by requiring a delegate of the CEO
of Customs to consider a number of factors, including the significance of the
breach, any effort made to comply, reliance on Customs advice, and reasons
beyond the person's control.
2.33
Customs advised that the Customs Act contains two legislative defences
to liability for a false and misleading statement: the 'amberline' defence and
the 'voluntary disclosure' defence:
These defences can protect importers and their customs brokers
from liability where they are awaiting a tariff advice. For example, penalties
may not apply in certain circumstances where a person specifies uncertainty as
to the accuracy of information included (or omitted)—that person will not be
considered to have committed an offence if the statement as incorrect.[25]
Conclusion
2.34
The committee believes that passage of these bills through the Parliament
is important to ensure that Australia, as a signatory to the International
Convention on the Harmonized System, implements the changes that resulted from
the WC's third review of the Harmonized System. The committee notes in
particular that the bills will ensure the preservation of existing duty rates
and levels of tariff protection for Australian industries and margins of
preference accorded to Australia's trading partners.
2.35
In considering the bills, the committee has taken into consideration the
concerns raised by the Australian Law Council in its submission. However, it
believes that the concerns are too speculative and broad and the submission
draws conclusions which are not supported by any concrete evidence. The
committee believes that Customs has satisfactorily addressed all of the
concerns raised by the Law Council in written answers provided to questions on
notice (see Appendix 2).
Recommendation
2.36
The committee recommends that these bills be passed without
amendment.
SENATOR DAVID JOHNSTON
CHAIR
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