BILLS DIGEST NO. 9, 2021–22    4 November 2021

Customs Amendment (2022 Harmonized System Changes) Bill 2021 [and] Customs Tariff Amendment (2022 Harmonized System Changes) Bill 2021

Ian Zhou
Economic Policy Section

This Digest replaces an earlier version dated 5 August 2021.

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 Customs Amendment (2022 Harmonized System Changes) Bill 2021 (the Customs Amendment Bill) and

• the Customs Tariff Amendment (2022 Harmonized System Changes) Bill 2021 (the Customs Tariff Amendment Bill).

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

Year

Major reviews of the HS

Australian legislation implementing amendments to the HS

1992

Mainly editorial changes to the HS

1996

First review of the HS

Customs Tariff Act 1995¹⁷

2002

Second review of the HS

Customs Tariff Amendment Act (No. 5) 2001¹⁸

2007

Third review of the HS

Customs Tariff Amendment (2007 Harmonized System Changes) Act 2006¹⁹

2012

Fourth review of the HS

1 Customs Tariff Amendment (2012 Harmonized System Changes) Act 2011²⁰

2017

Fifth review of the HS

Customs Amendment (2017 Harmonized System Changes) Act 201621

Customs Tariff Amendment (2017 Harmonized System Changes) Act 2016²²

2022 (expected implement-ation year)

Sixth review of the HS, this is also known as ‘HS 2022’ or the seventh edition of the HS.²³

Customs Amendment (2022 Harmonized System Changes) Bill 202124

Customs Tariff Amendment (2022 Harmonized System Changes) Bill 2021²⁵

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.

2 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

3 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.

4 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

5 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

WCO⁴⁰

2404.11

Confederation of European Community Cigarette Manufacturers⁴¹

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.

A range of colourful electronic cigarettesFigure 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

6 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.

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Notes

[←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.