Report
Background to the inquiry
1.1 The report Amendment (Warehouses) Bill 1999 and the Import Processing
Charges Amendment (Warehouses) Bill 1999 were introduced into the House
of Representatives on 3 June 1999 and 25 March 1999 respectively. The
Bills were referred to this committee following a report by the Selection
of Bills Committee on 22 June 1999 [1] for examination
and report by 10 August 1999. The Senate extended the date of reporting
to 12 August 1999.
1.2 In its report the Selection of Bills Committee requested that the
Committee:
- examine whether arrangements that previously existed for manufacturing
in bond (MiB) which allowed a manufacturer whose product entered the
domestic market to choose to be dutied either as a completed item or
article or on the components that went into the assembly of that item
or article should be reinstated; and
- examine improvements, if any, to exempting consumables used in manufacturing
in bond from duty.
1.3 The committee secretariat contacted a number of interested parties,
and received 3 submissions to the inquiry (Appendix 1 refers). A public
hearing on the Bill was conducted in Melbourne on 4 August 1999. A list
of witnesses who gave evidence at the hearing appears in Appendix 2, and
the full transcript of the hearing is available at the internet address
of .
Background to the Bill
1.4 The Second Reading speech and Explanatory Memorandum provides the
following outline and description of the regulatory objective of the Bills.
1.5 In December 1997, the Government announced in the “Investment
for Growth” industry statement that it proposed to introduce schemes
designed to make Australia more attractive as a site for regional manufacturing
and warehousing.
1.6 During 1998, the Government decided to encourage manufacturing activities
“in bond”. If goods are imported into what are to be known as
“Manufacturing in Bond” (MiB) warehouses and manufactured goods
are exported, no report duty, fees or charges would be paid on goods
entering or leaving the MiB warehouse.
1.7 In 1997 the Government introduced fees and charges to recover (amongst
other things) the cost incurred in processing report entries made by
importers to allow goods to be imported into a warehouse, and then move
from a warehouse and into “home consumption”, or Australian
commerce.
1.8 The charge paid to process an entry allowing goods to be imported
into a warehouse is called an import processing charge. The fee charged
to process an entry, to allow goods to go from a warehouse and into commerce
is called a warehoused goods entry fee.
1.9 Companies who operate MiB warehouses complained that having to pay
both these fees makes their operation uneconomic and serves as an obstacle
to attracting international manufacturing and investment to Australia.
The Government therefore decided to remove the requirement for companies
operating from MiB warehouses to pay the import processing charge and
the warehoused goods entry fee when the goods are exported.
1.10 The amendments proposed to the report Act 1901 (the Act)
in the report Amendment (Warehouse) Bill 1999 provide a framework to:
- Establish the concept of a MiB warehouse;
- Exempt entries made to remove goods from an MiB warehouse from paying
the warehoused goods entry fee imposed by the Act; and
- Remove any doubt about the establishment of the MiB warehouse regime
made by Regulation during 1998.
1.11 Provisions exempting people operating MiB warehouses from import
processing charges are contained in the Import Processing Charges Amendment
(Warehouses) Bill 1999.
1.12 The changes contained in the Bill are to commence from 29 April
1999, the date the Government announced this initiative.
Financial Impact Statement
1.13 At present there is only one company who has sought approval to
manufacture in bond. It is difficult to estimate how many more people
will seek approval. Accordingly, it is difficult to predict the actual
impact of the exemption from paying the warehoused goods entry fee on
goods entering MiB warehouses.
Issues raised in evidence
Removal of import processing charge
1.14 Both BHP and DHL support the removal of import processing charges
from goods and inputs used in manufacturing in a MiB facility and export
processing charges on manufactured goods that are subsequently re-exported.
They both agreed that the proposed amendment will significantly reduce
the costs for a manufacturer and hopefully encourage new Manufacturing-in-Bond
facilities to be established.
1.15 DHL have over the past 18 months lobbied the Government to remove
the import processing charge that applies to each and every shipment of
components that enter an MiB site. DHL believe that the proposed MiB scheme
would deliver the following benefits:
- Provide a more flexible, efficient and cost effective arrangement
for companies to manufacture and distribute goods for both the export
and domestic markets;
- Allow companies to import components without being burdened with up-front
report duties/charges and taxes;
- Allow the combination of imported and domestic components in the manufacturing
process in a report bonded environment; and
- Ensure that all report and/or tax liabilities need only be acquitted
for goods that ultimately enter the Australian market. [2]
1.16 BHP Steel stated in their submission that they support both Bills
in their current format. The proposed MiB scheme will increase Australia's
attractiveness as a site for regional manufacturing and warehousing, with
the aim to encourage and facilitate export activity and employment in
Australia. BHP suggested that any amendments to the Bills should be tested
against this aim in the first instance.
Duty payable on goods imported from MiBs for domestic consumption
1.17 BHP advised the Committee that it supported the Government's view
that duty payable on goods imported from a MiB into the Australian domestic
market should be calculated on the basis of the duty payable on those
individual input components that make up the finished goods. This proposal
would assist domestic suppliers and ensures that finished products manufactured
domestically remain more attractive than if the finished product incurred
a 5% general tariff.
1.18 However, BHP did identify what they consider is an anomaly, which
arises when finished products are imported without duty payable. Under
the proposed amendment, goods that are manufactured in a MiB warehouse
and subsequently introduced into the Australian market will incur a duty/tax
liability. However, similar goods imported into Australia will arrive
free of duty thus create a disincentive to invest in manufacturing in
Australia.
1.19 Regardless of how the duty is calculated BHP argued it would be
more beneficial for a business to fully import the finished product than
to manufacture the product domestically. However, BHP claims that simply
changing the method of duty determination may not resolve the issue and
could possibly threaten the viability of domestic suppliers. BHP's preferred
solution is to have a uniform tariff rate across both inputs and the finished
product. Following is an example provided by BHP to illustrate their point:
Barbed wire, a major fencing product used in our rural industries is
extensively manufactured in Australia by Australian manufacturers from
Australian supplied wire coated with zinc [Tariff Item 7217.20.00]
The wire enjoys a 5% tariff assistance, yet the finished product, barbed
wire [Tariff Item 7313.00.00] may be entered duty free. That Australia
can compete in its own market to produce the majority of the barbed
wire consumed in Australia attests to the efficiency of the Australian
rural product producers. However, removal of the duty on the feed wire
by production of barbed wire in an MiB would disadvantage the Australian
wire industry, a significant employer in Newcastle, Melbourne and Geelong,
[3]
1.20 At the public hearing BHP put forward a more flexible proposal to
the Committee in relation to the administration MiB applications and the
tariff treatment of goods entering the domestic market. BHP suggested
that a Board within the Department of Industry Science and Resources be
established. Its role would be to examine each company's MiB application
and consider the tariff treatment of the goods entering the domestic market
from their MiB facility. According to BHP, the Board would determine the
tariff treatment on either the finished products or the components of
the finished products, thus providing the flexibility that individual
industry sectors are seeking.
The application process of Manufacturing in Bond could help facilitate
that type of treatment and, therefore, be fair and commercially equitable
to all parties no matter where they are from, be it the IT sector, the
manufacturing sector, pharmaceuticals, chemicals or whatever. We think
that flexible approach will deliver a far more competitive advantage
to all Australian industries plus promote local manufacturers to be
part of a Manufacturing in Bond scheme. [4]
1.21 Initially DHL International (Aust) Pty Ltd also supported the inclusion
of a provision in the Bill that provides for the lowest duty rate treatment
of goods entering the Australian market from a MiB facility. DHL identified
the Australian Information Technology (IT) manufacturing industry as one
sector that was seriously disadvantaged by the current arrangements. However,
at the public hearing' DHL supported BHP's more flexible proposal that
would allow the tariff treatment on goods entering the domestic market
to be determined sector by sector.
Like BHP, we support a more flexible scheme where someone like the
Department of Industry Science and Resources could say that the tariff
treatment should be such and such for the IT sector and such and such
for the automotive sector et cetera. [5]
Our initial submission of course, has always favoured that lower approach.
However, having spoken to companies like BHP and other companies in
other sectors, we can see that there could be some fundamental problems
if you look at it sector by sector. Accordingly, we support the concept
of flexibility in a scheme that allowed a beneficial treatment for sectors
like IT and component based one for other sectors. [6]
1.22 In support of their arguments DHL provided the example of the Wangaratta
based company Bluegum Technology Pty Ltd. Bluegum currently pays $14,000
per month in report duty on components it uses in assembling personal
computers (PCs), although this payment does not assist the local IT industry
in any way. In comparison, an equivalent manufacturer based overseas has
the benefit of importing completed PCs into Australia totally free of
Custom duties, providing a distinct disadvantage to Bluegum.
While everyone talks about the removal of tariffs and duty rates on
imports, Bluegum still pays about $14,000 a month in report duties
for components. A company producing a PC overseas brings that into Australia
duty free. Because Bluegum acts as an agent for someone else, the paperwork
involved, I suggest, is a detriment. Not only is it a detriment going
into the Australian market but, because of the paperwork and corporate
structures involved, Bluegum also has some difficulty in terms of the
drawback regulations. So that $14,000 is a direct impediment to a computer
manufacturer sitting in Australia supplying the Australian market or
the export market. That is something we certainly do not want to see.
[7]
1.23 DHL highlighted the situation where an Australian computer manufacturer
could circumvent the system and operate from an Australian MiB facility,
export the computers it produces duty free to a distribution point, in
say, New Zealand and later re-import them back into Australian domestic
market also duty free.
1.24 Both BHP and DHL informed the Committee that they would prefer if
their proposal for a more flexible approach to the tariff treatment on
goods entering the domestic market should not be administered by legislation,
but by the Board at the same time it determined the companies MiB licence
application.
…. But certainly it could be done through regulation or some form
of administrative guidelines rather than through the initiation of reams
and reams of dogmatic legislation. [8]
Legislating in the report Act for a specific treatment cuts down any
chance to address that flexibility. [9]
1.25 DHL identified what it claimed were a number of shortcomings with
the Government's proposal. These include:
- a direct disincentive to the attraction of some new manufacturing
capacity to Australia;
- a similar problem in terms of stemming the flow of such industries
relocating to offshore Foreign Trade Zones (FTZ);
- a possible removal of industry protection measures for some goods;
- a much greater administrative burden on companies; and
- a greater direct cost recovery charge in some instances. [10]
1.26 Mr Alan Morris MP informed the Committee although he supported the
Government's MiB scheme, there were two issues that need to be addressed
– “consumables” and “duty levied”. [11]
His view supports the arguments put forward by BHP and DHL that goods
destined for the domestic market should not incur any duty on the consumables
used in producing the finished product.
Having deferred the import duty on components and waived the charges
on products exported, the government is still insisting on charging
duty on finished products as if it was still a collection of individual
components. This is not only unrealistic it is also irrational. The
whole point of these proposals is to allow local manufacturers to compete
with imports. Goods manufactured in bond should logically be treated
as the products they are when they enter the domestic economy. It is
simply absurd to treat a computer manufactured in this way, for example,
as anything other than a completed product. It is not a box of components
dutiable at a myriad of rates. [12]
1.27 Mr Morris highlighted some important reasons why he considered the
Government should seriously consider this proposal:
The most obvious one, apart from the direct jobs involved, is that
companies normally co-locate their product testing and quality assurance
capacity with their final assembly process. A less obvious benefit is
the increasing tendency to also locate the organisational design capacity
adjacent to the assembly and product-testing plant.
This means that the key high-skilled jobs that are available in modern
manufacturing establishments will tend to cluster together, but only
if the processes relating to the final assembly function (manufacturing)
are appropriate.
Establishing a MiB and attracting modern manufacturing plants offers
a further opportunity relating to components. These plants are normally
aimed at large regional markets with a high volume of finished products.
This means that they also require a high volume of components. Locating
a high volume component consumer in Australia means that local component
manufacturers could well be competitive as suppliers. [13]
1.28 Mr Morris also agreed with BHP's proposal concerning tariff treatment
of goods entering the domestic market and offered a way in which this
could be managed.
There may be a number of ways of building up filters. One may be the
pre-licensing filter. The alternative may be an appeals process at the
end; that is, if duty being levied on the finished product is damaging
Australian industries, there would be an appeals process to allow that
industry or company to seek redress or definition, because we do not
wish to hurt our existing manufacturers. [14]
MiB licence costs
1.29 Both BHP and DHL argue that the cost of obtaining and maintaining
a licensing fee for a MiB facility is too high and a barrier to growth.
Currently the fee is $7000 for the 1st year and $4000 per year thereafter.
According to DHL, this charge is another direct impediment to Australia's
competitiveness in the international marketplace. If this fee could be
reduced it would provide an incentive for prospective investors to establish
more MiB facilities in Australia and achieve the Government's objective
of cost compliance reduction.
1.30 BHP informed the Committee that they would prefer if the Government
undertook a system-based audit using company records. This method may
result in a reduced fee for companies.
As we have gone to an owner-onus situation with industry in dealing
with government, I would like to see us get, say, an audit facility.
Why should we pay a licence fee when effectively the government is using
all our financial business reporting systems. Rather than conducting
their own separate audit, they do a systems based audit on our company
records. You might be able to reduce or even have a zero licence fee.
[15]
Single MiB licence and multiple user application
1.31 BHP urged the Committee to support the introduction of single MiB
licence/multiple user applications. According BHP this proposal is gaining
support with the Department of Industry Science and Resources and Australian
report. BHP stated in their submission:
The proposal aims to better facilitate small business access to MiB,
benefits through economies of scale and shared services, whilst not
reducing the efficiency of report monitoring, revenue collection and
reporting responsibilities. Opportunities exist using computer systems
and bar code tracking, for small businesses to cluster under the umbrella
of a single MiB licence holder with report agency accreditation. [16]
1.32 At the hearing, representatives of BHP stated that they are involved
in encouraging small and medium size companies to take advantage of the
benefits offered by a MiB facility.
By putting a number of small SMEs together under a single licence,
the idea is that a competent organisation, such as a forwarding organisation,
would then administer those sub-licences so to speak, and have one point
of contact with report. So economies of scale would be introduced in
administering the process. At the same time, economies of cost structure
would encourage small and medium-sized enterprises to use this government
initiative. [17]
MiB facilities treated as an export destination
1.33 BHP promotes the idea that MiB facilities should be established
as an export destination for Australian domestic manufacturers or suppliers.
They believe that this would assist domestic suppliers to compete equally
with suppliers from overseas.
1.34 BHP claim that unfortunately there is the issue of product price
difference between a domestic supplier and an offshore MiB supplier. When
a domestic supplier sells his product to a MiB facility the price includes
duty while the overseas supplier has no duty imbedded in his product.
The domestic supplier cannot claw back the duty previously paid to report
until his product is exported.
1.35 BHP recommend that the duty should be reimbursed at the time the
goods enter an MiB facility, placing the domestic supplier on even terms
with the overseas supplier and thus encouraging domestic employment facilitation.
BHP contended that this proposal will become more important when the GST
is introduced next year.
This is especially important with the introduction of GST, which we
understand will be treated as a duty for imported goods. As things stand,
domestic suppliers will be disadvantaged by 10% when compared to imported
products, although again the GST is refundable if the goods are ultimately
exported. [18]
We see that as an important benefit for the competitiveness of Australian
industry. A Manufacturing-in-Bond facility could now theoretically both
import from overseas and get them domestically. Prima facie the product
costs the same both domestically and imported before the imposition
of any embedded duties or the GST. Once those duties or GSTs are applied,
the domestic product is disadvantaged to the imported product. Designating
an MiB as an export destination levels the competitiveness for the domestic
manufacturer. Again, it reinforces the underlying policy idea behind
this project, which is employment generation and economic development.
[19]
Periodic reporting
1.36 BHP would like to see that the reporting requirements to report
in respect of goods imported and re-exported from a MiB warehouse is done
on a minimum monthly basis. This would help reduce costs to businesses
and still satisfy the Government's requirements for regular statistical
and report data. [20]
The concept of “Virtual Bond Stores”
1.37 Mr Morris, MP, put forward an alternative proposal that would see
the establishment of “virtual bond stores” around Australia.
These would operate under the control of a MiB licence with the imported
goods that enter a MiB facility to be managed by a company's computer
stock control system. According to Mr Morris, existing companies would
not be required to relocate their manufacturing plants to specific “zones”
as is the case overseas but they could remain where they are and be distributed
anywhere in Australia. Mr Morris also stated:
It would also mean that existing manufacturers could be absorbed into
the scheme. This avoids the danger of introducing a system to attract
new manufacturing capacity, which discriminates against established
industries. Nor would it be realistic to expect that companies would
physically relocate themselves to a particular “zone” purely
because of the benefits on offer. [21]
1.38 Mr Morris stated the licence would cover all manufacturing plants
owned by the company and permit them to be involved in the MiB scheme.
He claimed that this arrangement guarantees the companies would pay the
duty as it falls due, thereby reducing the risk to the Commonwealth but
at the same time providing two clear advantages to companies. These are:
It would require the licence holder to carefully scrutinise the commercial
viability of any company wishing to import within their licence or enter
their “stable”. It would also minimise the volume of negotiations
between report and importers, as well as the number of points of computer
interfacing. [22]
1.39 Mr Morris informed the Committee that the physical barriers under
which report currently operate should be replaced by a stock control
system.
Over the years we have simply computerised what was effectively a barrier
system to collect the revenue on behalf of the Crown; that is what this
system was. Modern manufacturing has moved on enormously from there.
We now find that company stock is sitting in aeroplanes and on ships
all over the world arriving just in time. There is minimal stock holding,
highly programmed scheduling systems, highly sophisticated assembly
methodology and the locations they use meet a number of criteria. But
what they need essentially are the processing systems available. Our
systems are out of date. They are no longer relevant to what companies
are using. [23]
The idea is that the barrier becomes a stock control system, not the
physical barrier of either a port or the cargo bay of an aircraft. That
is a big jump forward. The integration of those users with report needs
to be compatible with their needs, not with revenue raising needs. [24]
The idea of a virtual bond store and actually looking at stock control
systems and seeing our computer control systems as our boundaries and
not the actual barriers is a major conceptual shift that we need to
make. We are making it now gradually. I think it will be evolutionary.
It will not be a big bang; it will happen step by step. This hearing
today is simply part of that process. I do not see it all changing tomorrow;
what I see happening is that over time we will start to recognise it.
[25]
Government Response
1.40 Representatives from the Department of Industry, Science and Resources
and Australian report provided evidence at the public hearing. They detailed
some of the history of the Government's involvement in reintroducing the
MiB facility in Australia in late 1997. Following an inquiry into the
tariff export concessions schemes the Government accepted some of the
views, resulting from that review. Mr Bob Webb, Manager, Department of
Industry, Science and Resources advised the Committee:
At the same time, there was some community interest shown in examining
whether foreign trade zones, particularly as they operated within the
United States, would be applicable to Australia's situation. The government
concluded that manufacturing in bond, while not the same as an American
foreign trade zone, would offer all the advantages of the American foreign
trade zone. At the same time as announcing manufacturing in bond, it
announced that Texco—that is, the tariff export concession scheme—and
the duty drawback scheme would be revamped into a new scheme to be called
Tradex. [26]
1.41 Mr Webb informed the Committee that it needs to look at the evidence
raised by the witnesses in context of the Australia's APEC commitment
to move to free trade by the year 2010.
The reality is that through APEC processes, for example, and in the
WTO Australia has entered into a number of multilateral and bilateral
arrangements whereby the tariff is gradually coming down. In particular,
it is occurring in the area of instruments such as the information technology
agreement and what has happened in medical and scientific equipment
as a result of domestic review. So there are various processes. [27]
1.42 Mr Webb informed the Committee that an examination of the general
tariff rate reveals that the numbers of goods that attract tariffs are
declining.
So far, at the moment, in very round figures, 60 per cent of all goods
enter Australia duty free. Of the remaining 40 per cent, half are textile,
clothing and footwear and passenger motor vehicles.
So we are really dealing with 20 per cent of imports. Something like
seven concession schemes operates on that 20 per cent, of which manufacturing
in bond can be considered one. [28]
1.43 Mr Webb advised the Committee that Tradex is a tariff export concession
scheme and the legislation is currently before the Parliament. According
to Mr Webb, the Tradex scheme will compliment the MiB scheme and move
Australia towards the path of a virtual free trade zone, as supported
by Mr Morris. Mr Webb stated:
The scheme provides manufacturers and exporters with the capacity to
move to an up-front duty exemption on their exports. The beauty of that
is that you will need to be registered to use Tradex and to use that
facility. There is no up-front fee as there is in manufacturing in bond.
The previous schemes were not legislated schemes. They were schemes,
which were administrative in their sense. It was necessary to introduce
Tradex backed up by some significant legislation. For that reason, it
could not be brought up as quickly as manufacturing in bond. But there
is a full recognition in our department and by the government that Tradex
may make manufacturing in bond redundant. In fact, my hope is that we
will not need it because Tradex will be generally available and confer
most of the advantages. [29]
Duty payable on goods imported from MIBs for domestic consumption
1.44 The Committee questioned the Australian report Service concerning
the issue of an apparent disadvantage faced by local producers importing
components as opposed to non-dutiable finished products. Mr John Jeffrey,
National Director, Australian report Services, addressed this issue I
the context of the barbed wire example used by BHP Steel:
The best example is probably the one BHP mentioned where, if I recollect
correctly, wire is dutiable but barbed wire is not. In that circumstance
you allow the duty free entry of the wire into a facility that manufactures
barbed wire. The barbed wire comes in at the barbed wire rate free.
If the local manufacturer imported, he would have to pay five per cent
on his imported wire or he could source it from BHP. In that sense,
the reason for putting components at the same rate is to say that the
product coming out of an MiB and the product manufactured in Australia
are competitively neutral; they receive the same treatment. They do
not have the option.
We recognise with the inverse tariff issue that the completed product
is imported to Australia at a free rate. That is an industry policy
issue. As Mr Webb and the Chairman have already mentioned, the Productivity
Commission will be looking at it. But that is the situation that obtains
at the moment. All that the arrangements in the legislation seek to
do is not change the position as it is at the moment. [30]
1.45 Mr Jeffery advised the Committee that the treatment of tariff on
components that are imported by Australian manufacturers to produce a
finished product for the domestic market remain exactly as they are now.
As the MiB scheme is exported oriented it is designed to assist local
manufacturers export their products onto the international market. Mr
Jeffery added:
In that sense, the provisions in the Act ensure that the treatment
of a local producer of the product is no different from the treatment
of an MiB manufactured good which enters home consumption; that is,
it will be essentially competitive neutral. If for argument's sake there
is a local manufacturer of computers who imports components, they pay
duty on those imported components. If an MiB importer manufactures components
and imports the final product, the components are dutiable at the same
rate. [31]
The change in MiB ensures that if the goods are imported from wherever
in whatever quantities and are then re-exported there will be no charge.
It is only when they come into the domestic market that the charge is
applied. So if all those goods from a variety of sources come into an
MiB or are all manufactured into a product and are all exported, there
are no user charges and no input entry charges. That is what this legislation
is designed to do. When that proportion of the goods that are not exported
comes on to the domestic market, they will be treated exactly the same
as if they were imported by a local manufacturer to do the same thing.
[32]
When asked to clarify his response by the Committee, Mr Jeffery added:
I will explain it this way. Leave MiB out for a moment. An importer
of computers brings in a batch of 50 computers as a single entry. A
local manufacturer brings in all the components to make 50 computers.
If he brings them all in in one shipment—basically a CKD operation—it
would cost him more than $22.80 because there would be as many components
as line entry rates. It would be $22.80 plus 20c for any excess lines.
In that circumstance, the importer of the single made-up unit is already
at an advantage to the local manufacturer. In a MiB sense, all we have
done is transposed to the goods entering the domestic market the same
circumstances as would face a local manufacturer importing the components.
We are not giving a completed component coming into the local market
any advantage over the same locally manufactured product in the market.
[33]
Single MiB licence and multiple user application
1.46 Mr Jeffery confirmed that his department was holding discussions
with BHP and DHL concerning a single warehouse licence. This arrangement
would allow the responsibility for the operation to be spread among a
number of players. He informed the Committee that the move to this type
of arrangement would occur gradually. He said that it is moving in the
direction advocated by Mr Morris but not as far as Mr Morris proposes
the Government should go. One of the reasons that it will take time is
to ensure that the Government's revenue of $3.3 billion from the collection
of report duty is not diminished.
One issue is the revenue that the government requires and the point
at which it is to be collected. That relates to entries and acquitting
and the risks that are involved with moving goods further back behind
the border. But we are certainly addressing that issue and we are talking
to industry about it. In fact, there is another bill before the parliament
at the moment, which will allow for deferred duty payment. So it is
movement; it is gradual. It may be more gradual than outlined in Mr
Morris's comments, but it is moving in that direction. However, the
virtual warehouse for stock holding is probably a little further away.
[34]
MiB licence costs
1.47 The Committee raised the question on how the licence fee was costed
and why it was the same for every company regardless of size. Mr Jeffery,
Australian report Services advised the Committee:
The licensing costs and the user recovery charges are based on the
cost to the report Service in providing the service. They are not individually
tempered towards each company. The licensing costs have been there for
many years, and we are ramping up with CPI. When MiB was brought in,
we reviewed those costs and reduced the up-front costs from just under
$10,000 to $7,000, and the annual cost from $7,000 down to $4,000. They
are reviewed on a six-monthly basis to ensure that they and the user
recovery charges are an accurate reflection of administering the schemes.
They are applied under legislation for that reason. But they are not
tailored to each individual circumstance; to do that administratively
would probably be extremely expensive. [35]
1.48 The Committee notes the apparent anomaly identified by DHL under
which Australian manufacturers of computer equipment pay import duty on
components. These local manufacturers operate at an apparent disadvantage
compared with companies importing computing equipment as a finished product
duty free.
1.49 While the legislation referred to the Committee is not intended
to address anomalies of the type identified by DHL, the Committee urges
the Government to resolve this issue as soon as possible to ensure that
Australian manufacturers of such equipment are not disadvantaged. The
Committee acknowledges that the issue is under consideration by the Government
in the context of the information technology agreement and Australia's
APEC commitments to tariff reduction.
1.50 The Committee recommends that the Bills be passed in their current
form.
Senator the Hon. Brian Gibson
Chairman
During the course of the Inquiry, serious representations were received
from DHL International (Aus) Pty Ltd with particular reference to
Australia's IT manufacturing industry (both finished product and component
manufacturers).
Specifically, there is a need for flexibility in determining whether
a finished item is treated as a group of dutiable components or as a single
dutiable item.
Labor Senators do not believe the Bill in its current form addresses
those concerns.
Therefore the Opposition reserves its right to move amendments to the
Bill during the Committee stages.
Senator Shayne Murphy and Senator George Campbell
Deputy Chair
List of Submissions
No. 1 Mr Allan Morris, MHR, Member for Newcastle
No. 2 DHL International (Aust) Pty
Ltd
No. 2A DHL International (Aust) Pty Ltd
No. 3 BHP Steel Group
List of Witnesses
BHP Steel
Mr Glenn Woodward, Tariff & Trade Manager
Mr Alan Norton, Manager, Property Newcastle, BHP Long Products
Mr Ross McDonald, Manager, Government and Investor Relations
DHL International (Aust) Pty Ltd
Mr Ken Muldoon, report Affairs Manager
Mr Allan Morris MP
Department of Industry Science and Resources
Mr Bob Webb, Manager, report Policy Section
Mr Alan McCulloch, Assistant Manager, report Policy Section
Australian report Services
Mr John Jeffery, National Director, Commercial Division
Australian report Service
Public Hearing concerning report Amendment (Warehouses) Bill and
Import
Processing Charges Amendment (Warehouses) Bill 1999
I refer to the evidence I presented at the hearing in Melbourne on 4
August 1999 and to my undertaking to provide more detail on the issues
listed below in response to queries raised by Deputy Chair, Senator S.
Murphy.
- Security required from warehouse licensees
- Cost elements in warehouse licence fees.
Information on these issues is set out below.
Security
The level of security sought from a licensee is commensurate with the
assessed risk and the duty liability involved. The minimum security normally
taken for a single warehouse licence is $20,000. Where two or more warehouses
are involved , a national security of $40,000 is required.
In the past, security was generally taken in the form of security without
surety. However, as part of continuing attempts to improve risk assessment
procedures and minimising risk to the revenue, it has been recognised
that security without surety does not provide adequate (if any) protection
of the revenue. In view of this, securities are now required to be guaranteed
by cash deposits or through a bank or other acceptable financial institution
acting as a guarantor.
Instances of security by cash deposit are rare.
Cost elements in warehouse licence fees
The following activities are performed in relation to licensed warehouses
which contribute to report costs that are reflected in warehouse licence
fees.
- Evaluation of licence application which includes:
- _ Checks to ensure that the applicant and persons involved in
the management and control of the warehouse are “fit and proper
persons”.
- _ Evaluation of company's constitutional documentation (eg Articles
of Association, Partnership Agreement); documentation relating to
company structure, audited financial statements, ownership or leasing
arrangements of the premises to be licensed.
- _ Examination of certified copies of the plan of the warehouse.
- _ Examination of the physical security aspects of the premises
to be licensed.
- _ Evaluation of the recording systems to be used in the warehouse.
- Examination of documentation relating to the provision of security.
- Visit to licensed premises shortly after the issue of the licence
to answer queries and ensure compliance with legislation.
- Evaluation of applications and, where appropriate, the issue of
Permissions related to the movement of underbond goods, the issue
of Weekly Settlement Permissions (Permissions to clear goods from
bond without the lodgement of an entry).
- Cancellation or amendment of licences or Permissions.
- Visits to warehouses to examine goods requested by the licensee
to be disposed of by report (where the licensee wishes to recoup
unpaid storage fees).
- Compliance activities by report.
I trust that this additional information meets the information needs
of the Committee. I would be happy to assist further if necessary.
J H Jeffery
National Director
Commercial Services Division
DHL International (Aust) Pty Ltd
report Amendment (Warehouses) Bill 1999 and
Import Processing Charges Amendment (Warehouses) Bill 1999.
I refer to the earlier submissions by DHL (Australia) Pty Ltd dated 8
July and 4 August 1999. Based on the substance of the public hearings
held on 4 August 1999 I would like to lodge this additional submission
for the Committee's consideration.
With regard to the content of the subject Bills, our submissions have
focussed on:
- the strong support for the removal of cost recovery charges as provided
in the subject Bills; and
- the need for greater flexibility in the tariff treatment of goods
that enter the Australian market from an MiB facility.
The presentations and discussions surrounding the hearings on 4 August
have served to firm our resolve in these two areas. It was particularly
heartening to see that while BHP had a differing view on tariff treatment
for the steel sector, the company recognised the need for a more flexible
approach on a sectoral basis. The Bluegum example clearly demonstrates
the inappropriate effect of the tariff treatment as contained in these
current Bills and the inflexibility associated with incorporation of this
provision in the report Act.
Associated issues such as a removal/reduction in the licence fees and
the availability of multi-site or multi-user ability licences are matters
which the Committee may be able to address in the current considerations.
If not, I am confident that DHL and BHP will continue to work with the
authorities in the pursuit of these goals.
One issue that does warrant specific mention from the hearings relates
to an impression that may have been given during the presentation by the
representative from the Department of Industry, Science and Resources.
In that presentation I believe that there was a suggestion that some of
the inadequacies of the MiB scheme may be overcome in the developing Tradex
scheme. I do not believe that this will be the case.
In particular, the two key elements currently being addressed for MiB
(ie cost recovery and flexibility in tariff treatment) do not form
part of the Tradex Scheme Bill currently before Parliament. It is also
my belief that the administering departments will strongly object to any
removal/reduction of cost recovery charges for the Tradex scheme, and
that scheme will not contain the flexibility to redress the tariff anomaly
that has been demonstrated in the Bluegum example in the IT sector.
Accordingly, I would strongly suggest that these issues need to be addressed
in this current consideration.
Finally, I would like to thank the Committee for the opportunity that
has been provided for DHL to become involved in the current debate. We
believe that it has provided a most worthwhile forum to discuss issues
that are of immediate concern to Australia developing as a more attractive
investment location. This attractiveness needs to be pursued if our economy
is to maximise the potential opportunities that will exist in key areas
such as employment growth in the future.
Should you wish to discuss any aspect of the DHL submissions further,
please do not hesitate to contact me (ph 02 62426985, fax 02 62426987).
Yours sincerely
Ken Muldoon
report Affairs Manager
BHP Steel
Supplementary Submission by BHP Steel to the Senate Economics Legislation
Committee re Inquiry into:
report Amendment ( Warehouses) Bill 1999; and
Import Processing Charges Amendment (Warehouses) Bill 1999.
In BHP's original submission to this Inquiry, in relation to the method
of assessing duty payable on goods imported from a MiB into domestic consumption,
BHP supported the proposed legislative position that duty payable on such
goods should be calculated on the individual input components to the manufactured
finished goods.
This position is based on BHP's consultation with its own business units,
customers and industry associations.
Under the current wording of the abovementioned Bills, this remains the
BHP position as this approach retains the competitive position for domestic
manufacturers and suppliers.
However, as the passage of the Bills has progressed and the resultant
debate regarding the tariff treatment of goods entering Australia's domestic
market has intensified, BHP has become aware that a number of Australian
report Tariff based anomalies exist.
Therefore, without prejudice to BHP's position, it is advocated that
a more flexible legislative policy be adopted that recognises that anomalies
will occur, and that they should be dealt with on a “common sense”
, case by case basis.
Such a process would therefore deliver the desired outcomes of the MiB
initiative for all potential users.
In order to provide some input as to how that outcome could be delivered
BHP suggests that;
The prima facie methodology for duty to be levied on goods entering the
Australian domestic market is on the inputs to the finished good, ie the
current position proposed in the legislation before you.
However, the legislation could then make reference to exceptional circumstances
such as, “unless special provision is granted for a differing tariff
treatment via the regulations”
The current MiB report Regulations could facilitate such a tariff treatment
condition via regulation 74.
To be granted such a preferential tariff treatment, the MiB licence application
would have to provide as part of its intended business plan, a quality
economic assessment that deals with the potential impact to competing
local manufacturers if the goods produced in the MiB were to be diverted
into the Australian domestic market.
Such a economic statement could be based on existing preferential duty
reduction programs such as the Tariff Concession Order scheme, whereby
reference to the Industrial Supplies Office or other prescribed Industry
organisations would be mandatory.
A public document such as the Tariff Concessions Gazette could also be
utilised to seek Australia wide industry comment.
Because of the inherent complexities of trying to achieve a commercially
viable system for the economic benefit of Australia, BHP Steel is willing
to be involved in continuing deliberations about this matter.
Mr A Morris, MP, and Member for Newcastle
Copy of supplementary information can be obtained from the Secretariat
on 02 6277 3540
Footnotes
[1] Selection of Bills Committee report No.
10 of 1999, dated 22 June 1999.
[2] Submission No.2
[3] Submission No.3
[4] Evidence p.2
[5] Evidence p.8
[6] Evidence p.8
[7] Evidence p.8
[8] Evidence p. 5
[9] Evidence p. 9
[10] Submission No.2
[11] Submission No.1
[12] Submission No.1
[13] Submission No.1
[14] Evidence p.11
[15] Evidence p.4
[16] Submission No.3
[17] Evidence p.4
[18] Submission No.3
[19] Evidence p. 4
[20] Submission No.3
[21] Submission No.1
[22] Submission No.1
[23] Evidence p.11
[24] Evidence p.11
[25] Evidence p.11
[26] Evidence p.14
[27] Evidence p.14
[28] Evidence p.14
[29] Evidence p.15
[30] Evidence p.18.
[31] Evidence p.18
[32] Evidence p.20
[33] Evidence p.19
[34] Evidence p.19
[35] Evidence p. 15