BILLS DIGEST NO. 54, 2016–17              19 January 2017

Customs Tariff Amendment Bill 2016

Paul Davidson
Economics Section 

Date introduced: 30 November 2016

House: House of Representatives

Portfolio: Immigration and Border Protection

Commencement: On proclamation or six months after Royal Assent, whichever occurs first.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, 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 January 2017.

Purpose of the Bill

The purpose of the Customs Tariff Amendment Bill 2016[1] (Cth) (the Bill) is to:

•       amend the Customs Tariff Act 1995 (Cth) (the Act) to remove Schedule 1 of the Act, with the intention of placing it in the Customs Tariff Regulations 2004 (Cth) (the Regulations)

•       remove spent provisions relating to safeguards for certain Thai originating goods

•       insert three additional notes to clarify the intended classification of certain goods

•       implement a measure of the 2016–17 Budget, namely to close the Enhanced Project By-law Scheme, which relates to providing concessional rates of duty to eligible goods which support defined industries.

Structure of the Bill

The Bill comprises one Schedule with 18 items:

•       Item 11 proposes to remove Schedule 1 of the Act, with the intention of placing it in the Regulations. Items 1, 3–5, 8–10 and 16–17 will then change references to Schedule 1 within the Act to instead refer to ‘Schedule 1 of the Regulations’

•       items 6 and 7 propose to remove now redundant provisions and references to safeguards for certain Thai originating goods

•       items 12–14 propose to provide additional notes to assist with the classification of various goods

•       item 15 proposes to close the Enhanced Project By-law Scheme

•       item 2 proposes a minor amendment to enhance the clarity of paragraph 12(a) of the Act

•       item 18 is a proposed application provision.

Committee consideration

Selection of Bills Committee

At the time of writing, the Bill had not been considered by the Selection of Bills Committee.[2]

Senate Standing Committee for the Scrutiny of Bills

At the time of writing, the Bill had not been considered by the Scrutiny of Bills Committee.[3]

Financial implications

The Explanatory Memorandum to the Bill provides that the closure of the Enhanced Project By-law Scheme is expected to increase customs duty collections by $220 million over the forward estimates (table 1).

Table 1: expected financial impacts as a result of closing the Enhanced Project By-law Scheme

2015–16

2016–17

2017–18

2018–19

2019–20

Revenue ($m)

-

60.0

60.0

50.0

50.0

Source: Explanatory Memorandum, Customs Tariff Amendment Bill 2016 (Cth), p. 3.

The Government considers that the other amendments in the Bill have no financial impact.[4] However, as noted below, items 12–14 provide additional notes to the classification of goods under Schedule 3 of the Act. These amendments may result in certain goods being subject to a tariff rate, generally of five per cent, where currently those goods may be imported duty-free. If this occurs, there would be additional customs duty collections for those goods when they are imported to Australia.

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 Bill’s 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 Bill is compatible.[5]

Parliamentary Joint Committee on Human Rights

At the time of writing, the Bill had not been considered by the Parliamentary Joint Committee on Human Rights.[6]

Key issues and provisions

Amendments relating to the removal of Schedule 1

Items 1, 3–5, 8–11 and 16–17 propose to enable current Schedule 1 of the Act to be moved to the Regulations, and to make related changes to the Act in order to carry out that purpose. The Explanatory Memorandum to the Bill states that by moving Schedule 1 of the Act to the Regulations it would be easier to update as required.[7] The proposed amendments therefore assume that Schedule 1 has been, and will continue to be, subject to frequent changes. Schedule 1 existed as part of the original enactment of the Act which commenced on 1 July 1996. In the 20 years since commencement, Schedule 1 has only been amended seven times, with the latest amendment commencing on 1 March 2012.[8] It is therefore somewhat curious that the rationale for the amendments is to keep Schedule 1 up to date, yet it appears that Schedule 1 does not often change. Whether there are expected to be significantly more frequent changes in the future is open to conjecture, and there is no information provided in the Explanatory Memorandum to the Bill to suggest that such an expectation will arise. Although any changes to the Regulations are subject to disallowance by the Parliament, there is generally a greater opportunity for Parliament to scrutinise primary, rather than delegated, legislation.

Amendments relating to safeguard provisions for certain Thai originating goods

Items 6 and 7 propose to amend the application of concessional tariff rates to Thai originating goods. Item 7 repeals section 16A of the Act which relates to special safeguards for Thai originating goods. In accordance with Article 509 and Annex 5 of the Thailand-Australia Free Trade Agreement, Australia had put in place special safeguards for certain agricultural products.[9] It was agreed between the countries that the safeguard provisions would expire in 2008 and are as such now redundant. Item 6 removes a reference to section 16A in paragraph 16(1)(l) relating to Thai originating goods.

Amendments relating to the classification of certain goods

Schedule 3 of the Act classifies goods according to the International Convention on the Harmonized Commodity Description and Coding System (the Harmonized System) and sets out the rate of duty that applies to such goods.[10] The Harmonized System aims to ensure that imports (and exports) are classified on a standardised basis for customs purposes throughout the world. Australia has been a signatory to the Harmonized System since 1988.

Items 12–14, according to the Explanatory Memorandum to the Bill, propose to ‘correct the treatment’ of certain types of vegetables, fruits and nuts, and pasta, following decisions of the Administrative Appeals Tribunal (AAT), so that these goods are ‘classified in a consistent manner with Australia’s trading partners and its international obligations’.[11] The Explanatory Memorandum to the Bill does not provide the decisions, although there appear to be two decisions that are relevant to the proposed amendments.[12]

The first decision related to an import of gherkins and in summary the issue to determine was whether the gherkins were properly classified under Chapter 7 of Schedule 3 of the Act (which deals with edible vegetables and certain roots and tubers), or under Chapter 20 (which deals with preparations of vegetables, fruit, nuts or other parts of plants). The Australian Customs and Border Protection Service (as it then was) argued that the gherkins should be classified under Chapter 20 and in doing so relied on the Explanatory Notes to the Harmonized System, as approved by the World Customs Organization. Those Explanatory Notes (as currently relevant) referred to Chapter 7 as the appropriate classification for vegetables ‘which have been treated solely to ensure their provisional preservation during transport or storage prior to use’.[13] This contrasted with the description provided in the Act itself, which merely referred to ‘vegetables provisionally preserved’.[14] The AAT decided that the gherkins should be classified under Chapter 7 and that the Explanatory Notes ‘cannot be used to override or contradict the meaning in plain language of the legislative provision as enacted’.[15]

Item 12 adds an additional note to Chapter 7 of Schedule 3, to incorporate the ‘sole purpose’ test set out in the Explanatory Notes to the Harmonized System that the Government unsuccessfully sought to rely on in the AAT case. This attempts to ensure that products such as the gherkins that were the subject of the AAT case will be classified under Chapter 20, rather than Chapter 7. The consequence of being classified under Chapter 20 is that they will become subject to a five per cent tariff, whereas if the products are imported under Chapter 7 they are imported duty-free.[16]

Item 13 proposes to amend Chapter 8 of Schedule 3 of the Act in an analogous manner to item 12, to confine the circumstances in which fruits and nuts may be classified under heading 0812 to situations where they ‘have been treated solely to ensure their provisional preservation during transport or storage prior to use’. Fruits and nuts that meet the current classification requirements of 0812 (that is, that have been ‘provisionally preserved’) are currently duty-free. If such goods do not meet the stricter requirements set out in item 13, they may be classified under Chapter 20. In that case, they will generally be subject to a five per cent tariff.[17]

The second AAT decision related to an import of frozen dumplings and wontons with a seafood filling. In summary, the issue to determine was whether such goods should be classified under heading 1605 which broadly relates to seafood,[18] or under heading 1902 which broadly relates to pasta.[19] Customs argued that the goods should be classified as stuffed pasta and item 14 attempts to ensure that such products will be classified under heading 1902. The decision noted that pasta tends to refer to a group of products made from flour and water, and that even though the frozen dumplings and wontons in question were made from identical ingredients, they would not be considered by consumers, retailers and restaurant proprietors as pasta products.[20] The consequence of frozen dumplings and wontons being specifically classified under subheading 1902.20.00 as stuffed pasta is that they will generally become subject to a five per cent tariff, whereas if the products are imported under heading 1605 they are imported duty-free.

The potential economic effects of the amendments relating to the classification of certain goods

The potential effects of items 12–14 are that they could be expected to provide additional customs duty collections (see discussion in the financial implications section above). A further effect would be that subjecting such goods generally to a five per cent tariff would provide a level of protection to domestic producers of like products (to the extent that any are produced). It would also be expected that consumers would be forced to pay more for such goods—potentially from both domestic and international producers—as a result of the imposition of the tariffs.

Amendment relating to the closure of the Enhanced Project By-law Scheme

Item 15 proposes to implement a decision of the 2016–17 Budget to close the Enhanced Project By-law Scheme (EPBS) from 3 May 2016 to new applicants.[21] The EPBS was introduced in 2001 as a Budget measure which rolled a number of Policy and Project By-Laws together.[22] The EPBS was a voluntary scheme and provided for the waiving of five per cent tariffs on goods not produced in Australia for projects valued over $10 million.[23] The EPBS provides duty-free tariff concessions for eligible goods which support the mining, resource processing, agriculture, food processing, food packaging, manufacturing, gas supply, power supply, and water supply industries.[24]

Other amendments

Item 2 proposes to provide clarification that the reference in paragraph 12(a) of the Act to ‘column 1’ relates to the table in Part 1 of Schedule 1.

Item 18 proposes that items 1 to 14 will apply in relation to goods imported into Australia on or after commencement of Schedule 1 of the Bill, as well as to goods which have been imported prior to commencement but where the time for calculating any applicable duty has not yet occurred.

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[1].              Parliament of Australia, ‘Customs Tariff Amendment Bill 2016 homepage’, Australian Parliament website.

[2].              Senate Standing Committee for Selection of Bills, Report, 10, 2016, The Senate, 1 December 2016.

[3].              Senate Standing Committee for the Scrutiny of Bills, Index of bills considered by the committee, 2016, The Senate, Canberra, 30 November 2016.

[4].              Explanatory Memorandum, Customs Tariff Amendment Bill 2016, p. 3.

[5].              The Statement of Compatibility with Human Rights can be found at page 4 of the Explanatory Memorandum to the Bill.

[6].              Parliamentary Joint Committee on Human Rights, Report 10 of 2016, 30 November 2016.

[7].              Explanatory Memorandum, Customs Tariff Amendment Bill 2016, op. cit., p. 2.

[8].              Items 1 and 2 of the Customs Tariff Amendment (2012 Measures No. 1) Act 2012 (Cth) provided for the application of concessional rates of duty to apply to goods imported into Australia from Saudi Arabia, generally from 1 March 2012.

[9].              Australia-Thailand Free Trade Agreement, done in Canberra 5 July 2004, [2005] ATS 2, (entered into force 1 January 2005).

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

[11].              Explanatory Memorandum, Customs Tariff Amendment Bill 2016, op. cit., pp. 2, 7.

[12].              Australian Frozen Foods Pty Ltd and Chief Executive Officer of Customs and Border Protection (2009) 112 ALD 201, [2009] AATA 795; and Pacific Worldwide Pty Ltd and Chief Executive Officer of Customs [2015] AATA 253.

[13].              Australian Frozen Foods Pty Ltd and Chief Executive Officer of Customs and Border Protection (2009), op. cit., [29] (Member Webb).

[14].              See heading to 0711 in Chapter 7 of Schedule 3 to the Act.

[15].              Australian Frozen Foods Pty Ltd and Chief Executive Officer of Customs and Border Protection (2009), op. cit., [25] and [35] (Member Webb).

[16].              Compare 2005.99.00 (‘Other vegetables prepared or preserved otherwise than by vinegar or acetic acid, not frozen, other than products of 2006’) with 0711.40.00 (‘Vegetables provisionally preserved (for example, by sulphur dioxide gas, in brine, in sulphur water or in other preservative solutions), but unsuitable in that state for immediate consumption’).

[17].              Compare 2008.99.00 (‘Fruit, nuts and other edible parts of plants, otherwise prepared or preserved, whether or not containing added sugar or other sweetening matter or spirit, not elsewhere specified or included’) with 0812.90.00 (‘Fruit and nuts, provisionally preserved (for example, by sulphur dioxide gas, in brine, in sulphur water or in other preservative solutions), but unsuitable in that state for immediate consumption’).

[18].              Heading 1605 covers ‘crustaceans, molluscs and other aquatic invertebrates, prepared or preserved’.

[19].              Heading 1902 covers ‘pasta, whether or not cooked or stuffed (with meat or other substances) or otherwise prepared, such as spaghetti, macaroni, noodles, lasagne, gnocchi, ravioli, cannelloni, couscous, whether or not prepared’.

[20].              Pacific Worldwide Pty Ltd and Chief Executive Officer of Customs, op. cit., [50] (Senior Member Handley).

[21].              Australian Government, Budget measures: budget paper no. 2: 2016–17, p. 14.

[22].              Australian Government, Budget measures: budget paper no. 2: 2001–02, pp. 7, 182.

[23].              Productivity Commission (PC), Review of Australia’s general tariff arrangements, Inquiry report, 12, PC, Canberra, 22 July 2000, pp. XXV, 110, 170–173.

[24].              Customs Tariff Act 1995 (Cth), Schedule 4, item 44.