On 19 September 2019 the Senate referred the provisions of the Customs Amendment (Product Specific Rule Modernisation) Bill 2019 (the bill) to the Legal and Constitutional Affairs Legislation Committee (the committee) for inquiry and report by 20 November 2019.
The Senate referred the bill to the committee following a recommendation of the Selection of Bills Committee. The Selection of Bills Committee report that recommended the referral noted that the bill '[r]elates to the implementation of a number of significant free‑trade agreements'.
Conduct of the inquiry
Details of the inquiry were advertised on the committee's webpage. The committee called for submissions to be received by 14 October 2019 and also wrote to a range of organisations inviting them to make a submission. The committee received three submissions, which are listed at Appendix 1. All submissions are available on the committee's webpage.
The committee did not conduct any public hearings.
The committee thanks all submitters for their contribution to this inquiry.
Purpose of the bill
The explanatory memorandum to the bill states that the main purpose of the bill is 'to streamline the way in which the product specific rules of origin of six of Australia's free trade agreements are given effect domestically'.
The six free trade agreements are the:
Australia-Chile Free Trade Agreement;
Australia-New Zealand Closer Economic Relations Agreement;
Australia-United States Free Trade Agreement;
Korea-Australia Free Trade Agreement;
Malaysia-Australia Free Trade Agreement; and
Thailand-Australia Free Trade Agreement.
Previous passage of similar legislation
A bill for the Customs Amendment (Product Specific Rule Modernisation) Act 2018 (the 2018 Act) was introduced into the House of Representatives on 19 September 2018 by the then Minister for Immigration, Citizenship and Multicultural Affairs, the Hon David Coleman MP. The House of Representatives passed the bill for the 2018 Act on 16 October 2018. On 3 December 2018 the Senate also passed the bill for the 2018 Act.
The explanatory memorandum states that the amendments in the bill 'are similar in nature' to those made by the 2018 Act, and 'represent the second tranche of amendments to the provisions in the Customs Act relating to FTAs'.
Australia's free trade agreements (FTAs) contain rules of origin, which are used to determine whether goods are eligible for preferential tariff treatment under the FTA. These include product specific rules of origin (PSRs).
PSRs apply to goods containing material sourced from a non‑party to an FTA. Such goods may qualify as originating goods under an FTA (and therefore be eligible for preferential tariff treatment) if the non-originating materials have been 'substantially transformed' in Australia, the other party, or both. PSRs are used 'to determine whether non-originating materials have undergone sufficient transformation for the final goods to be considered "originating"'.
PSRs are set out in an annex to each FTA, which lists goods according to their classification under the Harmonized Commodity Description and Coding System (the Harmonized System).
The Harmonized System is 'a structure for classifying goods based on internationally agreed descriptors for goods'. It is administered by the World Customs Organization, which reviews and updates the system every five years. The classification system is uniform across the approximately 200 countries that have adopted the Harmonized System.
Key provisions of the bill
On 12 September 2019 the Assistant Minister for Customs, Community Safety and Multicultural Affairs, the Hon Jason Wood MP, introduced the bill into the House of Representatives. When doing so, Mr Wood said:
The changes proposed by this bill are technical in nature and are not controversial. They do not make any changes to the benefits that are available under any of the FTAs.
The bill would amend the Customs Act 1901 (the Customs Act).
The explanatory memorandum raises an issue with how the Customs Act currently defines 'Harmonized System' in relation to the six FTAs affected by the bill. The current definition:
…means that the version of the Harmonized System that is referred to in Australia's domestic tariffs to implement these FTAs may not necessarily be the version that is in force for the FTA if the Harmonized System is updated after the conclusion of the FTA negotiations.
To address this, the bill would replace the existing definitions of 'Harmonized System' in the Customs Act with new definitions. These new definitions would expressly recognise the version of the Harmonized System currently used in each of the six FTAs. They would also automatically recognise subsequent versions of the Harmonized System if and when the PSRs in an FTA are updated 'in accordance with the specific provisions of each FTA and Australia's domestic treaty-making process'.
The bill would also amend the Customs Act to directly reference the section of the FTA that contains the PSRs. The explanatory memorandum states that this would remove the need for a regulation under the Customs Act to prescribe the PSRs. As a result, implementing future versions of the Harmonized System in the PSRs 'will be administratively simpler'. The explanatory memorandum clarifies that this approach 'does not change the operation of the PSRs'.
For each of the six FTAs, the bill also provides a head of power for regulations that provide for, and relate to, determining whether goods originate from the relevant country under the Customs Act. The explanatory memorandum states that the purpose of this is to enable PSRs and other rules 'to be prescribed should this become necessary in the future'.
Finally, the explanatory memorandum states that the bill makes various amendments to 'reflect modern drafting practice', including amalgamating existing sections of the Customs Act without altering their operation.
Consideration by other parliamentary committees
The Senate Standing Committee for the Scrutiny of Bills stated that it has no comment in relation to the bill. It also had no comment in relation to the 2018 bill.
The Parliamentary Joint Committee on Human Rights stated that it has no comment in relation to the bill. It previously stated that the 2018 bill did not raise human rights concerns.
Key issues raised in submissions
Both the Australian Border Force (ABF) and the Department of Foreign Affairs and Trade (DFAT) supported the bill.
The ABF explained that, under current arrangements, it undertakes a lengthy process of transcribing PSRs from an FTA into the regulations that implement that FTA. It stated:
Given each FTA can have thousands of rows in the Annex [of the FTA] containing the PSRs, this process creates additional risks. It also draws heavily on the resources of the ABF.
The ABF submitted that the bill would 'significantly reduce the amount of time and resources that otherwise would need to be regularly committed to updating PSRs in the regulations for each of the FTAs'.
DFAT submitted that the bill would enable revised PSRs for the six FTAs to 'enter into force as quickly as possible, and in concert with our FTA partners'. DFAT noted that since the six relevant FTAs entered into force, 'total goods and services exports to these countries have increased'.
DFAT also proposed that the bill would 'ensure predictability' for Australian businesses using these FTAs, but not affect how businesses do so. The ABF advised that there will be 'no additional cost for traders or consumers for goods imported under any FTAs as a result of the passage of this Bill'.
The ABF submitted that the 2018 Act demonstrated the efficacy of the approach proposed by the bill. It stated that '[a]s a consequence' of the 2018 Act, Australia was able to meet its commitment to implement revised PSRs for the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area by 1 January 2019. In addition, the FTA regulations for three FTAs affected by the 2018 Act were reduced from a total of 2,740 pages to 48 pages. There was also no adverse feedback from traders about the approach taken by the 2018 Act.
The ABF confirmed that the bill 'is technical in nature and will not affect the operation of any of the FTAs that are the subject of the Bill, or affect any domestic legislation'. DFAT also confirmed that the bill will not change the PSRs negotiated under Australia's FTAs with the six relevant countries.
The ABF advised that it has consulted DFAT, parts of the Attorney‑General's Department, and the Office of Parliamentary Counsel 'to ensure the Bill is consistent with Australia's commitments under the six affected FTAs'.
Further, DFAT stated that Harmonized System transpositions for each of the six FTAs 'will occur in accordance with the specific provisions of each agreement and Australia's domestic treaty-making process'.
The ABF submitted that Australia's domestic treaty making process allows for parliamentary scrutiny, as the Joint Standing Committee on Treaties would have an opportunity to:
…scrutinise the transposition of the PSRs to ensure that the updated Annex [of the FTA] that is agreed by an FTA's parties only includes changes that are technical in nature and does not alter the commitments made in the treaty.
The Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) submitted that 'other reforms', aside from the bill, 'are needed to modernise the [Customs] Act to ensure that it is fit for purpose'. In particular, the CFMMEU drew attention to:
…the anomaly of the Productivity Commission being the authority in Australia responsible for the administration of safeguard investigations as opposed to the body responsible for the administration of other trade remedies, the Anti‑Dumping Commission.
The CFMMEU highlighted that the Senate Economics References Committee has previously recommended that:
…responsibility for safeguards inquiries should be transferred from the Productivity Commission to the Anti-Dumping Commission, in line with international best practice.
The CFMMEU expressed dissatisfaction with the government's response to this recommendation, and advanced that the bill should not proceed until the issue is remedied:
Our submission is that Customs Act amendments, including this bill which would have the effect of more efficiently facilitating trade liberalisation provided by Free Trade Agreements should not proceed while Australia's trade remedies system remains ill equipped and under resourced. Having the Productivity Commission remaining the responsible authority for the Safeguards investigation is very much part of the problem.
The bill will streamline processes relating to six of Australia's FTAs, and thereby greatly reduce the costly administrative burden currently borne by government authorities. The bill will also support the implementation of revisions to Australia's FTAs in concert with our trading partners.
The committee accepts advice from government departments that the bill is technical and will not substantively affect the operation of the six relevant FTAs. The committee is also reassured by the reported success of the 2018 Act, including that industry has not raised any concerns about that legislation.
The committee did not receive specific concerns about the provisions of the bill. While the CFMMEU opposed the passage of the bill, this was due to a concern about Australia's broader customs arrangements. The committee does not consider this a reasonable basis for the bill to not proceed.
The committee considers that the weight of evidence supports the passage of the bill.
The committee recommends that the Senate pass the bill.
Senator Amanda Stoker