Bills Digest 108 1995-96 Customs Amendment Bill 1996

Numerical Index | Alphabetical Index

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


Passage History

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) are:

  • 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 importers;
  • 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 is made;
  • 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 benefits.(1)

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 evaluation include:

  • TCS usage increased by 52.9% between 1992 and 1994;
  • of the 5 577 applications made in 1994, 65.8% were accepted unopposed;
  • 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 object;
  • 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; and

- 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 Australia;
  • 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 under TCOs.(4)

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.

Main Provisions

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 (Item 38).

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.

Contact Officer and Copyright Details

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 amendments.

PRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1323-9032
© Commonwealth of Australia 1996

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1996.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 26 June 1996

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