Bills Digest No.
9, 2021–22
PDF version [494KB]
Ian Zhou
Economic Policy Section
4
November 2021
This Digest replaces an earlier version dated 5
August 2021.
Contents
Purpose of the Bill
Background
Committee consideration
Policy position of non-government
parties/independents
Financial implications
Statement of Compatibility with Human
Rights
Key issues and provisions
Concluding comments
Date introduced: 23
June 2021
House: House of
Representatives
Portfolio: Home
Affairs
Commencement: The
operative provisions of both Bills will commence 1 January 2022.
Links: The links to the
Bills, their Explanatory Memoranda and second reading speeches can be found
on the homepages for the Customs
Amendment (2022 Harmonized System Changes) Bill 2021 and Customs
Tariff Amendment (2022 Harmonized System Changes) 2021, 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 2021.
Purpose of the Bill
This Bills Digest relates to two Bills comprising:
The purpose of the two Customs Bills is to amend the Customs Act 1901
(Cth) and the Customs
Tariff Act 1995 (Cth) to fulfill Australia’s international obligation to
implement changes to the Harmonized Commodity Description and Coding System.
Two separate Customs Bills
are needed for this in order to comply with the constitutional requirement that
‘laws imposing duties of customs shall deal with duties of customs only’[1] and provisions regarding other matters need to be
dealt with separately.[2] As such, the Customs
Act sets out the broad administrative
rules and the offence provisions for the importing of prohibited goods into
Australia, while the Customs Tariff Act focuses exclusively on the customs duty rates
applicable to imported goods.
Background
Overview of
the Australian tariff classification system
All goods (above a set minimum
value) imported into Australia, whether by air, sea or post, must be cleared
through Australian Customs/Border Force.[3]
The typical duties and taxes paid on imported goods include import processing charge,
GST, and customs duty (also known as tariff or import duty).
Customs duty is payable as a rate/percentage of the total
value of the imported goods.[4]
Customs duty rate typically ranges from 0% to 10%. Different goods are taxed at
different customs duty rates (for example, 5%, 10%) according to the Australian
tariff classification system.
The Australian tariff classification system is based on
the Harmonized
Commodity Description and Coding System (commonly referred to as the
Harmonized System or the HS).[5]
The Harmonized System is an internationally standardised system of names and
codes to classify traded goods.
The HS entered into force in 1988 and it is monitored by
the World Customs Organization (WCO).[6]
Australia is a member of the WCO and a signatory to the International
Convention on the Harmonized Commodity Description and Coding System (HS Convention), therefore Australia has an international
obligation to adopt the HS into domestic law.
Harmonized
System codes
The HS is enforced in Australian law via the Customs
Tariff Act. The Customs Tariff Act contains thousands of HS codes.
The HS codes are typically six to 10 digits long and they describe specific
products.[7]
Each HS code has a corresponding rate of applicable customs duty – free, 5%,
10% et cetera.
For example:
- Chapter
08 of the HS codes is a broad description, titled ‘Edible fruit and nuts, peel
of citrus fruit or melons’
- Heading
06 of Chapter 08 is more specific, titled ‘Grapes, Fresh or Dried’
- Subheading
10.00 of Heading 06 of Chapter 08 is very specifically called ‘Fresh’.[8]
The HS code given to fresh grapes is 0806.10.00,
indicating the product’s classification chapter, heading, and subheading.
Businesses that wish to import fresh grapes into Australia must pay the customs
duty rate prescribed by the HS code 0806.10.00, which is currently held at 5%
of the value of the import.[9]
For example, if a business decides to import $10,000 worth
of fresh grapes into Australia, then it must pay $500 customs duty to the
Government, unless the grapes are imported from a free trade partner country
and eligible for the free trade agreement’s preferential duty rates.[10] Low value goods (that is, goods with a value of $1,000 or
less), imported into Australia by post, are generally exempt from customs duty,
however, some exceptions and limitations apply.[11]
The HS codes are used by more than 200 countries and
economies.[12]
This allows customs authorities around the world to identify goods on a
consistent basis and apply the relevant customs regulations.
The WCO describes the HS as ‘a universal language for
international trade’.[13]
Jason Wood, the Assistant Minister for Customs, Community Safety and
Multicultural Affairs, explains:
The Harmonized System provides means for identifying a good
as it moves from one country to another, ensuring that what Australia calls a
‘tomato’ is the same as what every other user of the Harmonized System calls a
‘tomato’.[14]
World
Customs Organization’s reviews of the HS
New products are being invented and traded every day. For
example, electronic cigarettes are a relatively new invention and there are
debates around whether they are ‘tobacco products’ because most electronic
cigarettes do not contain tobacco.[15]
As such, the WCO periodically reviews and updates the HS to recognise new
products and improve the uniformity in the global classification of traded
goods.
The HS entered into force in 1988 and it has undergone
several major changes or reviews.[16]
Table 1 below outlines the amendments to the HS and the
corresponding Australian legislation.
Table 1: amendments
to the HS and the corresponding Australian legislation
Source: As per footnotes 17 to 25.
Figure 1 below shows the scope of previous
amendments to the HS.
Figure 1: scope of previous amendments to the HS
Source: World Customs
Organization, The harmonized system: a universal language for
international trade, 2018,
p. 37.
Sixth major review
of the Harmonized System
The WCO began its sixth major review of the HS in November
2014 and invited member countries to submit proposals for changes to the HS.[26]
In January 2020, the WCO published amendments to the HS accepted by all member
countries (including Australia).[27]
The accepted amendments to the HS are known as ‘HS 2022
amendments’ or ‘2022 Harmonized System changes’. The WCO emphasises:
the importance of ensuring that the HS is kept up to date in
light of changes in technology and patterns of international trade. Adaptation
to current trade through the recognition of new product streams and addressing
environmental and social issues of global concern are the major features of the
HS 2022 amendments.[28]
[emphasis added]
Member
countries (including Australia) are obligated to implement the agreed changes
to the HS in their national tariff schedules. Jason Wood said:
Australia was an active participant in the World Customs
Organization’s sixth review of the Harmonized System … Australia is
committed to fulfilling its international obligation to implement these changes
by 1 January 2022.[29]
[emphasis added]
Consequently, the two Customs Bills arise from Australia’s
commitment to fulfil its international obligation under the HS Convention.
Committee
consideration
Senate
Selection of Bills Committee
At its meeting of 24 June 2021, the Senate Selection of
Bills Committee deferred consideration of the Bills until its next meeting.[30]
Senate
Standing Committee for the Scrutiny of Bills
The Scrutiny of Bills Committee had no comment on the
Bills.[31]
Policy
position of non-government parties/independents
At the time of writing, no comments in relation to the
Bills by non-government parties or independent Members and Senators have been identified.
Financial
implications
The Customs Amendment Bill is not expected to result in
any financial impact.[32]
The Customs Tariff Amendment Bill will preserve the
current customs duty treatment for all goods with the exception of three categories
of goods (that is, flat-panel display modules, semiconductor based transducers
and electronic waste and scrap). The Explanatory Memorandum states that it is
not possible to quantify the financial impact of these amendments.[33]
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
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.[34]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights had no
comment on the Bills.[35]
Key issues
and provisions
Schedule 1
of Customs Amendment Bill
Item 1 of Schedule 1 of the Customs Amendment Bill
amends the definition of ‘tobacco products’ to include a new HS code 2404.11.00.
The new HS code is created to better classify ‘products containing tobacco or
reconstituted tobacco and intended for inhalation without combustion’, products
commonly known as electronic cigarettes or e‑cigarettes.
If passed, this means that e-cigarettes will be classified
under the new HS code 2404.11,[36]
in the same classification chapter as ‘tobacco and manufactured tobacco
substitutes’. Furthermore, this indicates the chemicals used for e‑cigarettes
(known as e-liquids or vape juice) will be classified under a similar HS code.
As such, e-cigarettes or e-liquids will be subject to the same regulatory
requirements as existing categories of tobacco products for customs purposes.[37]
|
Commentary from the World
Customs Organization and other stakeholders
According to the WCO, the
purpose of creating a new subheading 2404.11 is:
to provide separately for
products containing tobacco or reconstituted tobacco and intended for
inhalation without combustion, as defined in new Note 3 to Chapter 24.[38]
Some stakeholders such as the
Confederation of European Community Cigarette Manufacturers disagreed with
the WCO’s position and argued it may be more suitable to classify e-cigarettes
and e-liquids under a different heading (for example, classify e‑liquids
under 3827.10 ‘miscellaneous chemical products’).[39]
Table 2 below shows the position of some stakeholders in regard
to the tariff classification of e‑cigarettes in Harmonized System 2022.
Australia has adopted the WCO’s position.
Table 2: stakeholders’
position on the tariff classification of e-cigarettes
| Stakeholder |
Position
regarding the classification of e‑cigarettes |
| WCO[40] |
2404.11 |
| Confederation
of European Community Cigarette Manufacturers[41] |
2403.92 |
|
Item 2 of Schedule 1 of the Customs Amendment Bill is
an application provision and provides for the continued operation of subsection
82(2), subsection 206(2A) and section 233BABAD of the Customs Act, these
provisions being affected by the new classification 2404.11.00.
Subsection 82(2) provides:
A warehouse
licence is subject to the condition that no tobacco products will be warehoused
in the warehouse.[42]
Item 2 will have the effect that from the date of
commencement, this section will apply to products (for example, e-cigarettes)
covered by the new subheading 2404.11.00.[43]
Similarly:
- the
disposal power for prohibited imports (subsection 206(2A)) will apply to
products (for example, e-cigarettes) covered by the new subheading 2404.11.00 seized
on or after the commencement of the Bill and
- the
criminal offence provision for illegally importing, possessing, or conveying
tobacco products (section 233BABAD) will apply to products (for example, e-cigarettes)
covered by the new subheading 2404.11.00 imported on or after the commencement
of the Bill.[44]
The amendments ensure that the Australian Border Force
will be able to seize and dispose of e‑cigarettes (covered by the new
subheading 2404.11.00) that arrive in Australia illegally on, and after, the
commencement of the Bill. Figure 2 below is a visual representation of a
sample of the products commonly known as e-cigarettes.
Figure 2: visual representation of e-cigarettes
Source: Queensland
Department of Health, The known harms of e-cigarettes and vaping, 2021.
Schedule 1
of Customs Tariff Amendment Bill
Schedule 1 of the Customs Tariff Amendment Bill
contains more than 400 items, almost all of which repeal or substitute new
classifications of goods for the purposes described in the background to this
Digest.
As described by Jason Wood, Assistant Minister for
Customs, Community Safety and Multicultural Affairs, in his second reading
speech for the Customs Tariff Amendment Bill:
The amendments proposed under
this Bill will preserve existing rates of customs duty for the majority of
goods. There are exceptions to this general approach for three categories of
goods: flat-panel display modules, semiconductor based transducers and
electronic waste and scrap … each of these categories of goods will have new
dedicated tariff subheadings and will apply a 'free' rate of customs duty.[45]
Concluding comments
The two Customs Bills amend Australian law to implement
changes that emanated from the most recent review of the HS. The changes have
been endorsed by the WCO and will preserve existing rates of customs duty for
the majority of goods. As such, the Bills do not introduce controversial policy
issues.
[1]. Australian
Constitution, section 55.
[2]. D
Elder and P Fowler, House
of Representatives practice, 7th edn, Department of the House of
Representatives, Canberra, 2018, Chapter 11, ‘Taxation
bills’.
[3]. Australian
Border Force (ABF), ‘Import
declaration’, ABF website, 9 June 2021.
[4]. Importers
must pay customs duty according to the estimated total value of imported goods,
known as ‘ad valorem’ which is Latin for ‘tax according to value’. The most
common method for valuing imported goods is to use the ‘transaction value’,
which is the price the importer actually paid for the goods.
[5]. 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).
[6]. World
Customs Organization (WCO), ‘What
is the Harmonized System (HS)?’, WCO website, n. d.
[7]. Internationally,
the HS is a six-digit products classification system. Individual countries have
extended it to up to ten digits for customs purposes.
[8]. Customs Tariff Act
1995 (Cth), Schedule 3, Chapter 8, Heading 6, Subheading 0806.10.00.
[9]. Ibid.
[10]. As
at the time of writing, Australia has concluded 16 free trade agreements. The
text of the free trade agreements are available on the Department of
Foreign Affairs and Trade website.
[11]. ABF,
‘Importing
by post or mail’, ABF website, 10 February 2021.
[12]. WCO,
‘List
of contracting parties to the HS Convention and countries using the HS’,
WCO website, n. d.
[13]. WCO,
The
harmonized system: a universal language for international trade: 1988–2018: 30
years on, WCO, Brussels, December 2018.
[14]. J
Wood, ‘Second
reading speech: Customs Tariff Amendment (Incorporation of Proposals and Other
Measures) Bill 2020’, House of Representatives, Debates, 3 December
2020, p. 10444.
[15]. M
Munafo, ‘Are
e-cigarettes tobacco products?’, Nicotine and Tobacco Research, 21(3),
2019, p. 267.
[16]. United
Nations (UN) Trade Statistics, ‘Harmonized
Commodity Description and Coding Systems (HS)’, UN website, n.d.
[17]. E
Lindsay (Parliamentary Secretary to the Minister for Industry, Science and
Technology), ‘Second
reading speech: Customs Tariff Bill 1995’, House of Representatives, Debates,
19 October 1995, p. 2511.
[18]. Explanatory
Memorandum, Customs Tariff Amendment Bill (No. 5) 2001, p. 2.
[19]. Explanatory
Memorandum, Customs Tariff Amendment (2007 Harmonized System Changes) Bill
2006, p. 2.
[20]. Explanatory
Memorandum, Customs Tariff Amendment (2012 Harmonized System Changes) Bill
2011, p. 2.
[21]. Explanatory
Memorandum, Customs Amendment (2017 Harmonized System Changes) Bill 2016,
p. 5.
[22]. Explanatory
Memorandum, Customs Tariff Amendment (2017 Harmonized System Changes) Bill
2016, p. 2.
[23]. HS
2022 is known as the seventh edition of the HS because there have been six
major reviews since the HS came into effect in 1988.
[24]. Explanatory
Memorandum, Customs Amendment (2022 Harmonized System Changes) Bill 2021,
p. 2.
[25]. Explanatory
Memorandum, Customs Tariff Amendment (2022 Harmonized System Changes) Bill
2021, p. 2.
[26]. United
State Federal Register, ‘WCO
Sixth Review Cycle: Request for Proposals To Amend the International Harmonized
System for Implementation in 2022’, Federal Register, 80(216), 9
November 2015, p. 69248.
[27]. World
Customs Organization (WCO), ‘WCO
has published accepted amendments to HS 2022’, WCO website, 29 January
2020.
[28]. Ibid.
[29]. J
Wood, ‘Second
reading speech: Customs Tariff Amendment (2022 Harmonized System Changes) Bill
2021’, House of Representatives, Debates, (proof), 23 June 2021, p.
1.
[30]. Senate
Standing Committee for the Selection of Bills, Report,
7, 2021, The Senate, Canberra, 24 June 2021, [p. 4].
[31]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 10, 2021, The Senate, Canberra, 13 July 2021, p. 17.
[32]. Explanatory
Memorandum, Customs Amendment (2022 Harmonized System Changes) Bill 2021,
p. 2.
[33]. Explanatory
Memorandum, Customs Tariff Amendment (2022 Harmonized System Changes) Bill
2021, p. 2.
[34]. The
Statement of Compatibility with Human Rights can be found at page 5 of the
Explanatory Memorandum to the Customs Amendment Bill and page 133 of the
Explanatory Memorandum to the Customs Tariff Amendment Bill.
[35]. Parliamentary
Joint Committee on Human Rights, Human
rights scrutiny report, 9, 2021, Parliament House, Canberra,
5 August 2021, p. 11.
[36]. Which
will be inserted into Chapter 24 of Schedule 3 to the Customs Tariff Act
by item 86 of Schedule 1 to the Customs Tariff Amendment Bill.
[37]. Explanatory
Memorandum, Customs Amendment (2022 Harmonized System Changes) Bill 2021,
p. 2.
[38]. WCO,
Table
1 – correlating the 2022 version to the 2017 version of the Harmonized System,
WCO, Brussels, November 2020, p. 6.
[39]. Confederation
of European Community Cigarette Manufacturers (CECCM), The
customs classification of tobacco heating product consumables and chemical
preparations used in ENDS in the WCO’s Harmonized System tariff nomenclature,
Discussion paper, CECCM, Brussels, August 2018, p. 2.
[40]. WCO,
Table
1 – correlating the 2022 version to the 2017 version of the Harmonized System,
op. cit., p. 6.
[41]. CECCM,
‘The
customs classification of tobacco heating product consumables’,
CECCM website, 2 January 2018.
[42]. Customs Act 1901
(Cth), subsection 82(2).
[43]. Explanatory
Memorandum, Customs Amendment (2022 Harmonized System Changes) Bill 2021,
p. 4.
[44]. Ibid.
[45]. J
Wood, ‘Second
reading speech: Customs Tariff Amendment (2022 Harmonized System Changes) Bill
2021’, op. cit., p. 1.
For copyright reasons some linked items are only available to members of Parliament.
© Commonwealth of Australia
Creative Commons
With the exception of the Commonwealth Coat of Arms, and to the extent that copyright subsists in a third party, this publication, its logo and front page design are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia licence.
In essence, you are free to copy and communicate this work in its current form for all non-commercial purposes, as long as you attribute the work to the author and abide by the other licence terms. The work cannot be adapted or modified in any way. Content from this publication should be attributed in the following way: Author(s), Title of publication, Series Name and No, Publisher, Date.
To the extent that copyright subsists in third party quotes it remains with the original owner and permission may be required to reuse the material.
Inquiries regarding the licence and any use of the publication are welcome to webmanager@aph.gov.au.
Disclaimer: Bills Digests are prepared to support the work of the Australian Parliament. They are produced under time and resource constraints and aim to be available in time for debate in the Chambers. The views expressed in Bills Digests do not reflect an official position of the Australian Parliamentary Library, nor do they constitute professional legal opinion. Bills Digests reflect the relevant legislation as introduced and do not canvass subsequent amendments or developments. Other sources should be consulted to determine the official status of the Bill.
Any concerns or complaints should be directed to the Parliamentary Librarian. Parliamentary Library staff are available to discuss the contents of publications with Senators and Members and their staff. To access this service, clients may contact the author or the Library‘s Central Enquiry Point for referral.