BILLS DIGEST NO. 35, 2016–17              8 November 2016

Customs Amendment (2017 Harmonized System Changes) Bill 2016 [and] Customs Tariff Amendment (2017 Harmonized System Changes) Bill 2016

Paul Davidson
Economics Section

Date introduced:  13 October 2016

House:  House of Representatives

Portfolio:  Immigration and Border Protection

Commencement: The operative provisions of both Bills will commence 1 January 2017.

Links: The links to the Bills, their Explanatory Memoranda and second reading speeches can be found on the homepages for the Customs Amendment (2017 Harmonized System Changes) Bill 2016 and the Customs Tariff Amendment (2017 Harmonized System Changes) Bill 2016, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at November 2016.

Purpose of the Bills

The purpose of the Customs Amendment (2017 Harmonized System Changes) Bill 2016[1] (Customs Amendment Bill) and the Customs Tariff Amendment (2017 Harmonized System Changes) Bill 2016[2] (Customs Tariff Amendment Bill) (collectively, the Customs Bills) are to amend the Customs Act 1901 (Cth) and Customs Tariff Act 1995 (Cth) (collectively, the Acts) to implement changes to the Harmonized System (HS) in response to the fifth review of the International Convention on the Harmonized Commodity Description and Coding System.

Structure of the Bills

The Customs Tariff Amendment Bill contains one Schedule that proposes to amend various provisions of the Customs Tariff Act, specifically:

•       Part 2 relating to fuel duty rates

•       Schedule 3 relating to the classification of goods, and general and specific rates of duty:

–      advances in technology will be reflected by creating new classifications to separately identify hybrid and electric motor vehicles, and light-emitting diodes

–      changes in classifications to better monitor trade in certain fish and tropical woods by the United Nations Food and Agriculture Organization (FAO), to support food security objectives and management of endangered species[3]

–      at the request of the International Narcotics Control Board, the insertion of new subheadings to enhance monitoring and control pharmaceutical preparations containing ephedrine, pseudoephedrine or norephedrine and for alpha-phenylacetoacetonitrile, to facilitate the monitoring and control of narcotic drugs and psychotropic substances[4]

–      new subheadings to assist data collection, comparison and monitoring of certain goods pursuant to Australia’s obligations under international conventions such as the Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and the Stockholm Convention on Persistent Organic Pollutants[5]

•       Schedule 4 relating to concessional rates of duty

•       Schedules 5 to 12 inclusive relate to various trade agreements in force.

The Customs Amendment Bill contains one Schedule that is proposed to amend Part VAA of the Customs Act. Part VAA provides for special provisions relating to excise-equivalent goods. The amendments are intended to parallel the changes to the Customs Tariff Act proposed by the Customs Tariff Amendment Bill. The Customs Amendment Bill also makes a minor amendment in relation to biofuels imported under the Chin-Australia Free Trade Agreement (ChAFTA) to make the duty treatment for biofuel imports under ChAFTA consistent with that applied to biofuel imports from other countries and regions with which Australia has trade agreements.

Background

The Harmonized System (HS) is the International Convention on the Harmonized Commodity Description and Coding System, and is the responsibility of the World Customs Organization (WCO).[6] The Harmonized System provides the description and coding system to ensure that imports (and exports) are classified on a standardised basis for customs purposes. At an international level, these goods are categorised on a consistent six-digit basis. Australia has been a signatory to the HS since 1988. The HS is implemented via the Customs Tariff Act for imported goods and via the Australian Harmonized Export Commodity Classification (AHECC) for exports. In addition to the six-digit HS classification, Australia has added further digits (four for imports, two for exports) for domestic and statistical purposes by the Australian Bureau of Statistics. Only the first two additional digits for imported products are reflected in the Customs Tariff Act.

The Customs Bills implement changes that emanated from the fifth review of the Harmonized System. The review resulted in an initial 234 sets of amendments to the current Harmonized System and a recommendation to implement those changes was accepted by the WCO Council at its 123rd and 124th sessions in June 2014. As part of the review it was agreed that the new Harmonized System (HS 2017) would enter into force on 1 January 2017.[7]

Committee consideration

Selection of Bills Committee

At the time of publication, the Selection of Bills Committee had not considered either of the Customs Bills.[8]

Senate Standing Committee for the Scrutiny of Bills

At the time of publication, the Senate Standing Committee for the Scrutiny of Bills had not considered either of the Customs Bills.[9]

Financial implications

The Customs Amendment Bill is not expected to result in any financial impact.[10]

The Customs Tariff Amendment Bill may result in a loss of revenue associated with reclassifying certain electronic integrated circuits to include multi-component integrated circuits. Some of the multi-component integrated circuits may currently be subject to a customs duty rate that is not free. As a result of Australia entering into the expanded Information Technology Agreement, the duties (such as they exist) cannot be maintained, and will reduce to a customs duty rate of free.[11]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Customs Bills’ compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bills are compatible.[12]

Parliamentary Joint Committee on Human Rights

At the time of publication, the Parliamentary Joint Committee on Human Rights had not considered either of the Customs Bills.[13]

Key issues and provisions

Customs Amendment Bill

Part VAA of the Customs Act covers special provisions relating to excise-equivalent goods. Excise-equivalent goods are goods that, if manufactured in Australia, would be subject to duties of excise under the Excise Tariff Act 1921 (Cth). An excise-equivalent duty is imposed on imported goods at the same rates as excise for identically produced domestic goods in order to maintain equivalent treatment.

Section 105B currently provides for rules around the extinguishment of duty on excise-equivalent goods. That is, if the criteria set out in section 105B are met, then the excise-equivalent duty amount may be extinguished. There are a number of exceptions to section 105B and item 1 of the Customs Amendment Bill proposes to extend the exceptions to include certain items in Schedule 12 of the Customs Tariff Act, which deals with Chinese originating goods. The relevant goods are biofuel blends originating in China. Item 1 would ensure that these goods would not be eligible to have their excise-equivalent rate of duty extinguished. That is, item 1 ensures that excise-equivalence duties are maintained on biofuel blends originating in China. This means that biofuel blends from China will be treated in the same way as biofuel blends originating from other countries.

Item 2 updates the six-digit HS nomenclature in the definition of ‘biofuel blend’ in subsection 105B(4) to reflect the HS 2017 updates.[14] Specifically, there are two tariff lines that are substituted for the new nomenclature as they relate to biofuel blends. Item 3 ensures that item 2 applies to Chinese originating goods by extending its application to include items in Schedule 12 of the Customs Tariff Act.

Customs Tariff Amendment Bill

Section 19 of the Customs Tariff Act provides for the automatic indexation of customs duty rates for certain alcohol and fuel products. Section 19AAC sets out the HS classifications for fuel products that are subject to automatic indexation under section 19. Section 19AA sets out the relevant HS classifications for alcohol products subject to automatic indexation. Items 1 and 2 propose to amend subsection 19AAC(1) and section 19AA of the Customs Tariff Act to change some of the listed HS classifications to reflect updated nomenclature arising from the HS review relating specifically to identified blends of gasoline and ethanol, and wine products holding at least two but not more than ten litres.

Schedule 3 of the Customs Tariff Act classifies goods according to the HS (with additional digits for domestic and statistical purposes) and provides for the rate of duty that applies to such goods. Items 3 to 284 of the Customs Tariff Amendment Bill propose to amend Schedule 3 to reflect the updated nomenclature that arose from the WCO review. The updates reflect technical amendments to the classification of goods, as well as establishing new classifications of goods reflecting new technologies, and removing obsolete or otherwise unwarranted classifications of goods based on trade flows or industry standards.

By way of illustration, item 3 proposes to amend paragraph (c) of Note 1 to Chapter 3 which classifies fish and crustaceans, molluscs and other aquatic invertebrates. Note 1 provides for a number of goods not covered under Chapter 3 and item 3 proposes to add milt to the list. Items 3 to 38 propose to amend various descriptions of Chapter 3 largely as a result of improved coverage of species and product forms which can then be monitored for food security and resource management through trade statistics. The changes include a further split for more detailed product forms for crustaceans, molluscs, and other invertebrates such as cuttlefish and squid.

Amendments relating to Chapter 30 (Pharmaceuticals) propose new subheading notes and some tariff changes (items 99 to 102). The Chapter also amended to provide detailed information for several categories of products that are used as anti-malarial drugs.

The amendments do not affect the rate of duty that applies to the classification of goods, apart from consequential amendments as a result of item 229 which relates to expanding the definition of electronic integrated circuits to include multi-component integrated circuits (MCOs). Item 229 implements agreed commitments under the expanded Information Technology Agreement (eITA) administered by the World Trade Organization to include MCOs under heading 8542.[15] Amendments to the scope of heading 8542 may result in a change of tariff classification of certain goods from Chapters 84, 85, 90, 93 and 95. As part of the eITA, it has been agreed that all goods under heading 8542 will become duty free on 1 January 2017. Some of the goods that are transferred from other headings to heading 8542 may currently be subject to a rate of duty that is not free.[16]

Items 285 and 286 propose to amend Schedule 4 of the Customs Tariff Act which relates to concessional rates of duty. Item 285 ensures that the new classifications of vehicle components as brought about by the HS review are maintained in the concessional rates of duty schedule. Item 286 proposes to expand the operation of heading 3907 (which relates to ‘polyacetals, other polyethers and epoxide resins, in primary forms; polycarbonates, alkyd resins, polyallyl esters and other polyesters, in primary forms’) to reflect the fact that the classification of goods covered under it will become more refined (see item 113).

The remainder of the Customs Tariff Amendment Bill amends Schedules 5 to 12 of the Customs Tariff Act, which set out the rates of duty that apply to goods that originate in countries or regions with which Australia has trade agreements.[17] The changes to the HS classifications recommended in the fifth review of the HS and made to Schedule 3 of the Customs Tariff Act by the amendments discussed above will also be reflected in changes to Schedules 5 to 12 of the Customs Tariff Act, to ensure those Schedules reflect the updated classification arrangements.

Commencement

Item 322 proposes that the amendments contained in Schedule 1 of the Customs Tariff Amendment Bill apply in relation to goods imported into Australia on or after 1 January 2017, and goods imported prior to 1 January 2017 in circumstances where the time for calculating the applicable duty on the goods does not occur prior to 1 January 2017.

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[1].              Parliament of Australia, ‘Customs Amendment (2017 Harmonized System Changes) Bill 2016 homepage’, Australian Parliament website.

[2].              Parliament of Australia, ‘Customs Tariff Amendment (2017 Harmonized System Changes) Bill 2016 homepage’, Australian Parliament website.

[3].              Explanatory Memorandum, Customs Tariff Amendment (2017 Harmonized System Changes) Bill 2016 (the Customs Tariff Amendment Bill 2016), p. 2.

[4].              Ibid., p. 3.

[5].              Ibid., p. 2.

[6].              International Convention on the Harmonized Commodity Description and Coding System, done in Brussels, 14 June 1983, [1988] ATS 30 (entered into force 1 January 1988).

[7].              World Customs Organization, New Harmonized System standards to enter into force on 1 January 2017, media release, 11 July 2014.

[8].              Senate Standing Committee for Selection of Bills, Report, 7, 2016, The Senate, 13 October 2016.

[9].              Senate Standing Committee for the Scrutiny of Bills, Index of bills considered by the committee, 2016, The Senate, Canberra, 12 October 2016.

[10].              Explanatory Memorandum, Customs Amendment (2017 Harmonized System Changes) Bill 2016 (the Customs Amendment Bill), p. 2.

[11].              Explanatory Memorandum, Customs Tariff Amendment Bill, op. cit., p. 3.

[12].              The Statement of Compatibility with Human Rights can be found at page 3 of the Explanatory Memorandum to the Customs Amendment Bill, and on page 4 of the Explanatory Memorandum to the Customs Tariff Amendment Bill.

[13].              Parliamentary Joint Committee on Human Rights, Index of bills and legislative instruments considered by the committee, 2016, The Senate, Canberra, 14 October 2016.

[14].              As previously noted, Australia has provided for additional digits for domestic and statistical purposes, and the amendments therefore relate to the eight-digit nomenclature.

[15].              Amendment of Australia’s Schedule of Concession under the General Agreement on Tariffs and Trade 1994 (GATT) and the Marrakesh Agreement establishing the World Trade Organization for Implementation of: Ministerial Declaration on the Expansion of Trade in Information Technology Products, done at Nairobi on 16 December 2015, [2016] ATNIF 34, (has not yet entered into force)

[16].              Explanatory Memorandum, Customs Tariff Amendment Bill, op. cit., pp. 86–87.

[17].              These Schedules deal with goods originating from: the USA—Schedule 5; Thailand—Schedule 6; Chile—Schedule 7; the Association of Southeast Asian Nations (ASEAN) and New Zealand—Schedule 8; Malaysia—Schedule 9; Korea—Schedule 10; Japan—Schedule 11; and China—Schedule 12.