Introductory Info

Date introduced: 23 August 2018
House: House of Representatives
Portfolio: Law Enforcement and Cybersecurity
Commencement: For commencement details refer to page 3 of this Digest.

Purpose of the Bill

The Customs Amendment (Comprehensive and Progressive Agreement for Trans-Pacific Partnership Implementation) Bill 2018 (the Customs Amendment Bill) and the Customs Tariff Amendment (Comprehensive and Progressive Agreement for Trans-Pacific Partnership Implementation) Bill 2018 (the Tariff Bill) are implementing Bills for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11).[1]

The basic purpose of the Bills is to implement the customs dimensions of the TPP-11 Agreement by making relevant amendments to the Customs Act 1901 and the Customs Tariff Act 1995.[2]

The Customs Amendment Bill amends the Customs Act to implement Australia's obligations under Chapter 3 of the TPP-11 which sets out rules-of-origin (RoO) criteria and related documentary requirements for claiming preferential tariff entry for goods imported from countries that accede to the TPP-11.[3] The key amendments in the Bill insert:

• a new Division 1GB into Part VIII[4] of the Customs Act providing for:
  • new rules of origin (RoO) for goods imported into Australia from TPP-11 countries: imported goods that satisfy the rules as 'Trans-Pacific Partnership originating goods' will be eligible for preferential rates of customs duty
• a new Division 4EB into Part VI[5] of the Customs Act providing for:
  • rules relating to the export of goods to TPP-11 countries: rules regarding record keeping and other obligations, which will apply to persons exporting goods that are originating goods to TPP-11 countries (and on that basis wanting to obtain preferential treatment for such goods in TPP-11 countries) and on producers of such goods and
  • verification powers relating to the exportation of goods to TPP-11 countries, such as the power of authorised officers to require particular records and/or to ask questions in order to verify the origin of the goods.

The Tariff Bill contains amendments to the Customs Tariff Act to implement the TPP-11 by:

• giving free rates of customs duty for most goods that are ‘Trans-Pacific Partnership originating goods’ in accordance with new Division 1GB of Part VIII of the Customs Act
• amending Schedule 4 to the Customs Tariff Act to maintain customs duty rates for certain Trans-Pacific Partnership originating goods in line with the applicable concessional item and
• inserting a new Schedule 8B to the Customs Tariff Act to provide for excise-equivalent rates of duty on certain alcohol, tobacco and petroleum products and for phasing rates of customs duty in accordance with the TPP-11. This is done to achieve parity with rates of duty that would be payable if those particular products were manufactured in Australia. It also provides for phasing the rates of preferential customs duty in accordance with the TPP-11.

Structure of the Bill

The Customs Amendment Bill comprises one Schedule with three Parts:

• Part 1 deals with Trans-Pacific Partnership originating goods or rules of origin
• Part 2 deals with verification powers in relation to certain trade items (implementing Article 3.27 of the TPP-11)[6] and
• Part 3 contains application provisions.

The Tariff Bill has one Schedule, which makes various consequential amendments to the Customs Tariff Act, including inserting a new Schedule 8B into that Act, which specifies the preferential tariff rates available to Trans-Pacific Partnership originating goods under the TPP-11.

Background

The precursor to TPP-11 – the Trans-Pacific Partnership Agreement

Negotiations for the Trans-Pacific Partnership Agreement (TPP) commenced in Melbourne in 2010 and were undertaken by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, the United States and Vietnam. These negotiations successfully concluded on 5 October 2015.[7]

In its scope and ambition, the TPP was the most significant international trade agreement since the completion of the World Trade Organisation (WTO) Uruguay round twenty years ago.[8]

The TPP was intended to be a comprehensive agreement, with outcomes that included new market access opportunities for Australian exporters of goods and services, as well as investors, that would be additional to Australia’s existing free trade agreements. In addition to chapters that are generally regarded as part of trade agreements, including those relating to the removal of tariff barriers, rules of origin and non-tariff barriers, access for business persons, investment, and intellectual property, the TPP included commitments on:

• government procurement
• electronic commerce
• labour and environment standards
• competition with state owned enterprises
• regulatory coherence
• transparency and anti-corruption and
• small and medium enterprises.[9]

On 30 January 2017 the United States withdrew from the TPP.[10] The TPP was then abandoned as it became clear that it could not meet one of the requirements necessary for it to enter into force. Article 30.5 of the TPP stated that the Agreement could not enter into force unless it had been ratified by six Parties which together account for at least 85 per cent of the combined gross domestic product of the parties.[11] This requirement could only be met if the United States ratified the TPP.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) is an attempt by most of the TPP parties to implement the provisions of the TPP.

The TPP-11 is a Free Trade Agreement (FTA) between 11 of the original 12 Parties to the Agreement—that is, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam.

The TPP-11 was signed by the 11 countries on 8 March 2018 in Santiago, Chile. Because the intention of TPP-11 is to retain as much as possible of the original TPP, the TPP‑11’s architecture is different to that of a conventional trade agreement. The TPP-11 is a separate legal instrument to the TPP, but it incorporates nearly all of the provisions of the TPP.[12] The exceptions include mechanical provisions such as those relating to entry into force and withdrawal.[13]

In addition, the TPP-11 includes a number of bilateral side letters that incorporate the provisions of the TPP’s side letters into the TPP-11 to the extent that these apply to the TPP-11’s Parties.[14]

The TPP-11’s entry into force will occur when a simple majority of the parties have ratified the Agreement.[15]

TPP-11 implementing legislation introduced in Parliament

On 23 August 2018 the House of Representatives was presented with the two Bills that are the subject of this Digest, which implement Australia’s obligations under the TPP-11.[16] The Bills were referred to the Senate Legal and Constitutional Affairs Legislation Committee for inquiry and report by 10 October 2018. Details of the inquiry are at the inquiry homepage.[17] The Committee’s findings are discussed below.

Outcomes of TPP-11

The Agreement will eliminate more than 98 percent of tariffs in the free trade area, and provide preferential access for more than $5.5 billion of Australia's dutiable agricultural exports.[18] Some examples where the Government considers that Australian exporters will benefit from the TPP-11 include:

• new reductions in Japan’s tariffs on beef (Australian exports worth $2.0 billion in 2017)
• new access for dairy products into Japan, Canada and Mexico, including the elimination of a range of cheese tariffs into Japan covering over $100 million of trade
• new sugar access into the Japanese, Canadian and Mexican markets
• tariff reductions, and new access for our cereals and grains exporters into Japan, including, for the first time in 20 years, new access for rice products into Japan
• elimination of all tariffs on sheepmeat, cotton and wool
• elimination of tariffs on seafood, horticulture and wine and
• elimination of all tariffs on industrial products (manufactured goods).[19]

The Government considers that Australian exporters of services also stand to benefit from the TPP-11 through increased transparency and predictability of overseas regulatory environments. Examples include:

• mining equipment services and technologies and oilfield service providers will benefit from energy sector reforms in Mexico and Vietnam, and new rules on large State-Owned Enterprises, which will help Australian providers to compete on an equal footing
• financial services companies may provide the following cross-border services in Parties’ markets: (i) investment advice and portfolio management services to a collective investment scheme; and (ii) insurance of risks relating to maritime shipping and international commercial aviation and freight, and related brokerage
• preferential temporary entry arrangements for Australian business people (and their spouses) into key markets, including provision for the waiving of work permits and work rights for spouses in Brunei Darussalam, Canada and Mexico
• universities and vocational education providers will have legally guaranteed access to Brunei Darussalam, Japan, Malaysia and Mexico, and will be able to supply online education services across the region
• the phasing out of foreign equity limits in Vietnam's telecommunications sector five years after the entry into force of the Agreement and the ability to apply to wholly-owned telecommunications ventures in Malaysia and
• providers of private health and allied services will benefit from greater certainty regarding access and operating conditions in Malaysia, Mexico and Vietnam.[20]

A spaghetti bowl of FTAs?

The entry into force of the TPP-11 will mean that Australia ends up with three different FTAs with New Zealand, Singapore and Malaysia and two different FTAs with Japan, Vietnam, Peru, Chile and Brunei.[21] The terms of the TPP-11 introduce some significant differences to existing agreements and it is unclear as to what impact they may have on gains won by Australia under bi-lateral FTAs. For example, not all TPP-11 Parties had FTAs with Japan, whereas Australia had some strong gains under its FTA with Japan. It is unclear as to whether this agreement alters the strength of those gains, with other countries also enjoying preferential customs duties on particular goods.

Having regard to the number of FTAs to which Australia is party and how they operate in relation to each other, the Joint Standing Committee on Treaties has recommended:

... the Australian Government review Australia’s bilateral trade agreements with TPP 11 Parties with a view to withdrawing from those which are no longer beneficial to Australian businesses.^[22]

Non-tariff barriers

While there is no clear definition of non-tariff barriers,[23] the TPP-11 contains chapters dealing with aspects of non-tariff barriers, including:

• customs administration and trade facilitation (Chapter 5)
• sanitary and phytosanitary measures (Chapter 7)
• technical barriers to trade (Chapter 8) and
• transparency and anti-corruption (Chapter 26).[24]

While various groups have raised concerns with particular non-tariff barrier issues, it is beyond the scope of this Digest to deal with those issues as they do not pertain to the amendments proposed by the Bills.

Committee consideration

Senate Standing Committee on Legal and Constitutional Affairs

As mentioned above, on 23 August 2018, the Senate referred the Bills to the Senate Legal and Constitutional Affairs Legislation Committee for inquiry.[25] The Committee reported on
10 October 2018. The majority report of the Committee stated that the Bills would implement Australia’s commitment to the TPP-11, and recommended the Bills be passed.[26]

The majority report noted:

Much of the evidence received in this inquiry raised concerns about the nature and effects of the TPP more broadly, and so did not address the specific provisions of the bill in any detail. The committee also notes that some submissions provided to this inquiry have already been considered by one or more of the four previous parliamentary inquiries into the nature and potential effects of the TPP.

While the committee has given thought to the broad issues raised in this evidence, it considers that they have been amply explored in previous parliamentary inquiries, as well as in the work that the Commonwealth has undertaken as part of negotiating the terms of the TPP.[27]

In their dissenting report, the Greens expressed concern about the potential damaging effects of the TPP-11 on agriculture and manufacturing, with industry-commissioned modelling showing that grain exports will not change and all other agriculture exports may decline, as well as the potential for a two per cent decrease in durable manufacturing.[28] The Greens recommended that the Bill be rejected.[29]

The Greens (and Labor Senators in their additional comments[30]) also raised concerns about the operation and impact of Articles dealing with non-tariff barriers, such as the Investor-State Dispute Settlement (ISDS)[31] and labour rights provisions.[32] The Dissenting Report by Senator Rex Patrick of the Centre Alliance similarly raises concerns about non-tariff barriers.[33] Senator Patrick recommended that the commencement date of the Bills be delayed until Australia exchanged side-letters with each other Party to the TPP-11 agreeing that the ISDS Provisions in Chapter 9 of the Agreement do not apply to an investment in Australia and that labour market testing must occur in relation to contractual service suppliers entering Australia.[34] In the alternative, Senator Patrick recommended that the Bills be amended to include a sunset clause that would result in the amendments made by the Bills being automatically repealed on 1 January 2020 unless the side letters on ISDS provisions and labour market testing described above are exchanged by that date.[35] If neither of these recommendations is accepted, Senator Patrick recommended that the Bills be opposed.[36]

Joint Standing Committee on Treaties

The Joint Standing Committee on Treaties (JSCOT) tabled its report on the TPP-11 on
22 August 2018 and recommended that binding treaty action be taken.[37]

The JSCOT review recommended that the Government:

• review Australia’s bilateral trade agreements with TPP-11 Parties with a view to withdrawing from those which are no longer beneficial to Australian businesses and
• consider implementing a process through which independent modelling and analysis of a proposed trade agreement is undertaken by the Productivity Commission, or equivalent organisation, and provided to the Committee alongside the NIA to improve assessment of the agreement.[38]

Senate Standing Committee for the Scrutiny of Bills

The Senate Standing Committee for the Scrutiny of Bills had no comment on the Bills.[39]

Policy position of non-government parties/independents

Opposition policy position

The Opposition has stated that it supports the principles of free trade and quality free trade agreements, however it notes, among other things, the lack of economic modelling undertaken during negotiation of the TPP-11:

... the Report should also include a recommendation with respect to the provision of independent economic analysis and modelling.[40]

And:

A future Shorten Labor Government will commission independent economic modelling before signature of all new free trade agreements.[41]

The Opposition has stated that ‘it is fundamental that Australians are offered employment first and that foreign workers are brought into the country only once there is a demonstrated need’.[42] Moreover, it is concerned about the erosion of skills testing and does not support waiving labour market testing as part of free trade agreements:

Labor is concerned that the TPP-11 waives labour market testing for ‘contractual service suppliers’ for six signatory countries. This will mean jobs in Australia will be able to be filled by workers from Canada, Peru, Brunei, Mexico, Malaysia and Vietnam without being offered to Australians first. This comes at a time when many in Australia are concerned about under employment and low wages.[43]

The Opposition also opposes Investor-State Dispute Settlement (ISDS) provisions as part of free trade agreements:

A future Labor Government will not agree to Investor-State Dispute Settlement (ISDS) provisions in new trade agreements and will seek to remove these provisions from existing trade agreements as part of their scheduled reviews.[44]

Policy position of other parties/independents

As discussed above under   ‘Senate Standing Committee on Legal and Constitutional Affairs’ the Australian Greens oppose the Bill and have stated that they would like to:

... send the government back to the drawing board to negotiate an agreement that does not include investor-state dispute resolution provisions and that does not weaken labour rights in this country. We know, because we've heard everyone except the government say it during the course of this debate and in public, that this TPP agreement weakens local labour laws.[45]

The Australian Greens also oppose waiving labour market testing, stating that the Bills:

... are carving out exemptions by saying that people can come in without the proper testing and without even any assessment about what their skill level is.[46]

As discussed above, Senator Patrick of the Centre Alliance recommended that the Bills be opposed unless steps are taken to ensure that the ISDS provisions in the TPP-11 do not apply to investment in Australia and that labour market testing be required in relation to contractual service suppliers entering Australia.[47]

Position of major interest groups

Agricultural industry organisations

Submissions to the Joint Standing Committee on Treaties (JSCOT) inquiry on TPP-11 from agricultural producers were strongly supportive of the agreement. For example, the National Farmers Federation stated:

To ensure that Australian agriculture can reap the benefits of TPP-11 that will increase global market opportunities for Australian produce, it is vital that the measures outlined in the agreement are implemented as soon as possible.[48]

Similarly, the Australian Red Meat and Livestock Industry submitted:

Based on the CPTTP text, accompanying tariff elimination schedules and the Australia-Canada side letter in relation to beef, the Australian red meat and livestock industry recommends that the Joint Standing Committee on Treaties endorse the CPTPP (TPP-11) agreement and that binding treaty action be taken without delay.[49]

The Australian Dairy Industry Council stated its approval for all trade agreements that increase access to export markets:

Any initiative to reduce trade barriers and improve market access is welcomed. In the global dairy marketplace, we are one of the least subsidised and protected industry’s in the world...

If this agenda is progressed the dairy industry believes the CPTPP will increase exports to Canada, Japan, Malaysia, Mexico, Vietnam and Peru and cultivate the expansion of regional and global food value chains and manufacturing hubs.[50]

Other industry organisations

Overall, industry organisations considered that the TPP-11 form would bring benefits to Australia. For example, the Minerals Council of Australia (MCA) stated that the TPP-11:

... will deliver direct economic benefits in its own right. It will also build on the benefits delivered by the 35 years of trade agreements that have preceded it. And it will pave the way for future trade agreements in the Asia-Pacific region which is so critical for Australia’s future prosperity.[51]

The MCA considers that the cuts to tariff rates implemented by the Bills represents a tax cut for Australian households and businesses, and that the TPP-11 will create significant new export market opportunities for Australian businesses.[52]

The Business Council of Australia expressed support for the TPP-11 and submitted:

It is now important that ratification of the TPP-11 proceed as soon as possible. In addition to boosting Australian exports and jobs, the TPP-11 provides a positive example of international cooperation for mutually beneficial trade and investment liberalisation, and comes against the backdrop of increasing international trade tensions. Thus, beyond its immediate economic benefits for Australia, the TPP-11 is a timely and far-sighted contribution towards stabilising the current situation and encouraging cooperative approaches internationally.[53]

The Australian Industry Group is supportive of TPP-11, however it states that further work is needed in addition to TPP-11 to ensure that non-tariff barriers do not impede access to export markets:

Our experience with some FTAs has been that non-tariff barriers have increased post ratification, negating the benefits of tariff reductions and market access. We are pleased to see that negotiators have taken the pragmatic steps to include mechanisms to address non-tariff barriers within the agreement, ensuring that it is a dynamic and practical tool for ongoing trade access.

Which is why the Government’s work does not end at the conclusion of negotiations, nor does it end when the agreement is signed or ratified. In order to ensure that businesses gain full advantage of FTAs and the broader community understands and supports free trade, it is essential that the whole of government works together to support Australian businesses to take advantage of new opportunities, and remain competitive in the face of new threats.[54]

Other interest groups

Health and environmental concerns

The Public Health Association of Australia stated the TPP-11 should not be ratified until a comprehensive, independent health impact assessment is conducted and considered that there were health risks associated with the introduction of the TPP-11, namely:

Intellectual property provisions that hamper access to affordable medicines, particularly the ambiguous biologics provisions which hold significant risks for Australians, along with a range of other provisions that reduce policy flexibility to reform our intellectual policy settings in the future. While many of these provisions have now been suspended, they may be reinstated at a later stage. Provisions remain in the TPP-11 that would affect access to medicines in developing countries.[55]

And:

Provisions that have the potential to be used to deter parties from introducing evidence-based alcohol policies, including mandatory alcohol health warnings.^[56]

The Australian Fair Trade and Investment Network (AFTINET) raised the following concerns:

There is no independent assessment of the economic, environmental, health and other impacts of the agreement.[57]

The TPP-11 still contains ISDS rights for foreign investors to bypass national courts and sue governments for millions of dollars in unfair international tribunals if they can argue that a change in law or policy has reduced the value of their investment. The question from a civil society point of view is still whether these rules that suit global corporations but tie the hands of governments from regulating them are in the interest of most Australians.[58]

The TPP-11 trade-in-services chapter remains unchanged from the [TPP]. The structure of the chapter treats regulation of services as if it were a tariff, to be frozen at existing levels or reduced over time, and not to be increased in future, known as the 'ratchet' structure. The negative list structure means that all services are included, unless specifically exempted. Exemptions are intended to be reduced over time. The exemptions do not apply to ISDS, and do not prevent ISDS cases on exempted services.

The negative list and ratchet structure are specifically intended to prevent governments from introducing new forms of regulation, which are seen as potential barriers to trade.[59]

Despite promises that the agreement would include enforceable commitments by governments to at least seven international environment agreements, the text mentions only four, and only one—on trade in endangered species—has clearly enforceable commitments. The text does not refer to climate change, but only to voluntary measures for lower emission economies with no benchmarks or timeframes.[60]

A perceived lack of environmental standards in the TPP-11 was also noted in multiple submissions, including the CPSU/SPSF, the Electrical Trade Union and Friends of the Earth.[61]

ISDS provisions

Submissions to the JSCOT inquiry into the TPP-11 varied in their opinions of the impact that the ISDS provisions would have, with ISDS discussion covering 17 pages of the Committee’s report. For example, the Australian Council of Trade Unions (ACTU) does not support any trade agreements that contain ISDS provisions, stating:

These provisions mean that when Australian governments make new laws or policy in the interests of Australian people, foreign investors can sue our government in international tribunals if they consider those laws harm their investments or disadvantage them in some way. [62]

In contrast, a submission from Dr Luke Nottage, Professor of Comparative and Transnational Business Law at the University of Sydney claimed that there is good evidence that ISDS has contributed to a rise in foreign direct investment worldwide.[63]

Labour market issues

There was support from industry groups for easing restrictions over the movement of persons for business purposes between TPP-11 signatories. The Business Council of Australia stated that such liberalisation would:

... help deepen Australia’s international connectivity, networking, people-to-people links and global business engagement, and therefore promote economic growth, resilience and adaptability.[64]

The Minerals Council of Australia agreed with the above point, while stating that there would be minimal impact from this change:

There has been concern about the impact on Australia’s labour market of movement of persons provisions in trade agreements.

... However real-world experience shows that these concerns have not been realised. Immigration statistics show that the number of workers from China granted 457 visas has fallen in the two years since the China-Australia Free Trade Agreement came into effect. The statistics also show no increase in 457 visa grants to workers from Japan and Korea since FTAs with those countries came into effect. In any case, the six TPP-11 countries covered by the temporary entry provisions – Brunei Darussalam, Canada, Malaysia, Mexico, Peru and Vietnam – are not significant sources of temporary migration to Australia. In 2015-16 these countries accounted for only 1.2 per cent of primary 457 visas granted.[65]

The ACTU disagrees with easing restrictions over the movement of persons, and states:

That is why the labour market testing requirements currently in place under the TSS (old 457) visa program and enshrined in the Migration Act 1958 are so important in ensuring that employers have a legal obligation to employ Australians first. This obligation should not be undermined or removed by labour mobility provisions in free trade agreements.[66]

Financial implications

The Government states that the cost of implementing the TPP, as signed on 4 February 2016, was included in the 2016–17 Budget and was estimated to reduce customs duty collections by $195 million over the forward estimates.[67] The 2018–19 Budget estimated that there would be no additional cost in implementing the TPP‑11.[68]

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.[69]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights considered that the Bills did not raise human rights concerns.[70]

Key issues and provisions

Rules of Origin and their significance

All preferential and free trade agreements contain rules of origin (RoO). These rules govern whether or not a product is eligible for the tariff preferences that are provided in a given trade agreement. The key objective of RoO is to ensure that the economic benefits from trade preferences are granted only to the countries that signed the trade agreement. In order to ensure that preferential customs duties are only granted to countries which are party to the TPP-11, rules of origin take into account where the goods are produced and what materials are used to produce them.[71] Only goods defined as Trans-Pacific Partnership originating goods will be entitled to receive duty-free or reduced tariff treatment under the TPP-11.

The Rules of Origin are very complex, and one cannot make assumptions without a careful reading of the rules. As an example and stated in simple terms, the RoO for the TPP-11 allow goods to qualify as Trans-Pacific Partnership originating goods if the goods ‘are wholly obtained or produced entirely in the territory of one or more of the parties’.[72] On the face of it, it would seem that a particular product may qualify because all components used to produce the finished product were purchased from companies located in the territory of one or more of the parties to the TPP-11. However as discussed in the key provisions, this simplistic reading is not actually the case. The term wholly obtained or produced entirely is defined in proposed subsection 153ZKV(2) of the Customs Act (item 3 of Schedule 1 to the Customs Amendment Bill) by way of a list of specific criteria.

Chapter 3 of the TPP-11 provides for governing provisions on rules of origin and implementation procedures for various goods that will be subject to tariff reductions.[73] As previously stated, it is not sufficient that the goods are exported from either Australia or another Party to the TPP-11. The goods must satisfy the rules of origin under the FTA to obtain preferential treatment. There will be different rules of origin for different goods. As part of the implementation procedures, an amendment to the Customs Act is required in order to facilitate the Agreement’s provisions.

Schedule 1—Amendments

Part 1—Trans-Pacific Partnership originating goods

Customs Act 1901

Part 1 of Schedule 1 to the Customs Amendment Bill inserts Division 1GB into Part VIII of the Customs Act, and comprises seven Subdivisions (A-G).

Proposed Subdivision A provides key definitions for the purposes of proposed Division 1GB.[74]

Harmonized Commodity Description and Coding System means the Harmonized Commodity Description and Coding System (the HCDC System) that is established by or under the International Convention on the Harmonized Commodity Description and Coding System.[75]

The HCDC System is the worldwide classification system that has been adopted by all countries that are members of the World Customs Organization (WCO). In Australia, the HCDC System has been adopted in the Customs Tariff Act.

The HCDC is a structure for classifying goods based on internationally agreed descriptors for goods and related six-digit codes administered by the WCO. This six-digit classification uniquely identifies all traded goods and commodities and is uniform across all countries that have adopted the HCDC System. The WCO reviews the system every five years to reflect changes in industry practice, technological developments and evolving international trade patterns.

Trans-Pacific Partnership originating goods means goods to which preferential rates of duty apply under the Customs Tariff Act. These are goods under proposed Division 1GB of Part VIII of the Customs Act.

Proposed Subdivisions B-E outline the circumstances (rules or preference criteria) under which goods are to be considered Trans-Pacific Partnership originating goods under the TPP-11 rules of origin.

Rule 1—goods wholly obtained or produced entirely the territory of one or more of the parties to the TPP-11 Agreement (proposed Subdivision B)

In simple terms, goods will meet the requirement of being ‘TPP originating goods’ if they are wholly obtained or produced entirely in the territory of one or more of the Parties to the Agreement, and either:

• the importer of the goods has, at the time the goods are imported, or a certification of origin, or a copy of one, for the goods or
• Australia has waived the requirement for a certification of origin for the goods.[76]

Thus it does not include goods or materials that were imported from a non-TPP-11 country.

The certification of origin (COO) is a document to certify the place of growth, production or manufacture of goods. It is required when exporting to specific countries, when requested by the consignee for customs clearance. The COO identifies goods and contains an express certification, normally by a government authority or other empowered body, that the goods in question originate in a specific country.

Certifications of origin will be self-certified. This means that they can be completed by the manufacturer, exporter or importer. While there will be specified data fields, there will be no set format.[77] Self-certification makes the practical operation of the TPP-11 more user-friendly, even though it places a deal of responsibility on the exporter or other party issuing that document. The 2018 Customs Compliance priority areas for the Australian Border Force include monitoring to ensure proper use of free trade agreements and concessions.[78]

A COO means a certification that is in force and that complies with Article 3.20 of the TPP-11.[79]

Proposed subsection 153ZKV(2) provides for eleven possible ways that goods can be ‘wholly obtained or produced’ in the territory of TPP-11 party.

Rule 2—goods produced from originating materials (proposed Subdivision C)

Articles 3.2(b), 3.20(1) and 3.23(b) of the TPP-11 are given effect to by proposed section 153ZKW which sets out rules for goods that are produced entirely in the territory of one or more of the Parties from originating materials only.[80] In relation to such goods, there are relevant requirements under those rules which must be satisfied if the goods are to receive preferential customs duty treatment.

Goods are Trans-Pacific Partnership originating goods if ‘they are produced entirely in the territory of one or more Parties, from originating materials only’ and the importer has a COO (or a copy of one), or the need for this has been waived by Australia.

Originating materials are defined as:

• goods that are originating goods, in accordance with Chapter 3 of the Agreement and that are used in the production of other goods
• recovered goods derived in the territory of one or more of the Parties and used in the production of, and incorporated into, remanufactured goods or
• indirect materials.[81]

Recovered goods means goods in the form of one or more individual parts that:

• have resulted from the disassembly of used goods and
• have been cleaned, inspected, tested or processed as necessary for improvement to sound working condition.[82]

Indirect materials means:

• goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods or
• goods or energy used in the maintenance or operation of equipment or buildings associated with the production of goods

including:

• fuel (within its ordinary meaning)
• tools, dies and moulds
• spare parts and materials
• lubricants, greases, compounding materials and other similar goods
• gloves, glasses, footwear, clothing, safety equipment and supplies and
• catalysts and solvents.[83]

Rule 3—goods produced from non-originating materials (proposed Subdivision D)

Even if they contain non-originating materials, goods may originate in the territory of a party to the TPP-11 if the materials satisfy this rule. The rules which deal with the treatment of goods produced from non-originating materials are commonly referred to as specific rules of origin and are based on a change in tariff classification, a regional value-content requirement, or both.

Non-originating materials means goods that are not originating materials.[84] Goods are considered to be Trans-Pacific Partnership originating goods under proposed Subdivision D if:

a)      the goods are classified by the regulations for the purposes of the Subdivision (that is, according to a Chapter, heading or subheading of the Harmonized System that is covered by the table in Annex 3-D (product-specific rules of origin) to Chapter 3, or in Annex 4-A to Chapter 4 (Textiles and Apparel Product-Specific Rules of Origin) of the TPP-11

b)      they are produced entirely in the territory of one or more of the Parties to the TPP-11, from non-originating materials only or from non-originating materials and originating materials

c)      each requirement that is prescribed by the relevant Annex in relation to the goods is met and

d)      the importer of the goods has, at the time the goods are imported, a COO, or a copy of one, for the goods, or the need for one has been waived by Australia.[85]

Proposed subsection 153ZKX(2) provides that in determining whether textile or apparel goods satisfy the requirements of paragraph (c) (though without limiting paragraph (c)) use will be made of paragraphs 7 and 9 of Article 4.2, and Appendix 1 to Annex 4-A to Chapter 4 of the TPP-11.[86]

Change in tariff classification

In order to meet the requirements of paragraph (c), above, a good may be required to have undergone a change in tariff classification. In such a case, each of the non-originating materials used in the production of the goods must undergo the applicable change as a result of production occurring entirely in the territory of one or more of the TPP-11 countries. This means that the
non-originating materials are classified under one tariff provision prior to processing and classified under another upon completion of processing. The specific rule of origin defines exactly what change in tariff classification must occur for the goods to be considered originating.

Proposed subsection 153ZKX(3) provides that if each non-originating material used in production of a good is required to satisfy a change in tariff classification, the regulations may prescribe when such a requirement is satisfied.

A change in tariff classification relates to Article 3.10 of the TPP-11, and Annex 3-D to the Agreement which provides for product-specific rules of origin.[87]

Rules for goods that are not a textile or apparel good

Proposed subsection 153ZKX(4) provides that in the case of goods are not a textile or apparel good, if:

• in relation to the goods there is a requirement that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification and
• one or more of the non-originating materials used in the production of the goods do not satisfy the change in tariff classification

the requirement is taken to be satisfied providing that the non-originating materials that do not satisfy the change in tariff classification requirement do not exceed ten per cent of the customs value of the goods.

Regional value content (RVC)

Regional value content is a variation on rules of origin, and prescribes that a certain minimum percentage of the total value of a good must be from regional (i.e. domestic) origin. The method of calculation is prescribed in Article 3.5 of the TPP-11. Proposed subsection 153ZKX(8) provides that where there is a requirement that particular goods have a regional value content of not less than a particular percentage calculated in a given way, then the RVC is to be worked out in accordance with the method set out in Article 3.5, or as prescribed in the regulations.

Goods put up in a set for retail sale

‘Goods put up in a set for retail sale’ refers to a set of two or more articles classifiable in different headings that are packed for sale as a unit and are used together to meet a particular need or to carry out a specific activity.[88] Proposed subsection 153ZKX(12) provides that where goods are put up in a set for retail sale and the goods are classified in accordance with Rule 3(c) of the General Rules for Interpretation of the Harmonised System,[89] they are only TPP originating goods under this section if:

• all of the goods in the set, when considered separately, are TPP originating goods, or
• the total customs value of the goods (if any) in the set that are non-TPP originating goods does not exceed ten per cent of the customs value of the set of goods.

Packaging materials and containers

Rule 5 of the General Rules for Interpretation of the Harmonised System provides guidance regarding the treatment of cases and packing containers. In most cases, according to this rule, containers are classified together with the goods they contain; they are not classified separately. This is true of containers that are made for only one item as well as general containers such as crates.[90]

Proposed subsection 153ZKY(1) provides that if goods are packaged for retail sale in packaging material or a container and the packaging material or container is classified with the goods in accordance with Rule 5 of the General Rules for Interpretation, then the packaging material or container is to be disregarded for the purposes of Subdivision D.

However, if there is a requirement that the goods have a regional value content of not less than a particular percentage, calculated in a particular way, then the regulations must provide for the value of the packaging material or container to be taken into account, for the purposes of calculating the RVC of the good (proposed subsection 153ZKY(2)).

Rule 4—goods that are accessories, spare parts, tools or instructional or other information materials (proposed Subdivision E)

Proposed subsection 153ZKZ(1) gives effect to Article 3.13 of the TPP-11 by providing rules which apply to goods that are accessories, spare parts, tools or instructional or other information materials.[91] Goods are TPP originating goods if the following requirements are met:

• they are accessories, spare parts, tools or instructional or other information materials in relation to other goods
• the other goods are imported into Australia with the accessories, spare parts, tools or instructional or other information materials
• the other goods are TPP originating goods
• the accessories, spare parts, tools or instructional or other information materials are classified with, delivered with and not invoiced separately from the other goods and
• the types, quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the other goods.

Rule 5—Consignment (Subdivision F)

In simple terms the issue of consignment means preference goods must comply with the consignment rules of the TPP-11, which requires that the originating goods must not undergo any operation outside TPP-11 countries, other than unloading, reloading, or storage, whilst remaining under the customs control of the relevant border authority of a non-party (proposed section 153ZKZA).

Subdivision G—Regulations

Proposed section 153ZKB provides that regulations may make provisions for and in relation to determining whether goods are Trans-Pacific Partnership originating goods under new Division 1GB.

Part 2—Verification powers

Item 4 amends Part VI of the Customs Act to insert new Division 4EB, which is titled ‘Exportation of goods to Parties to the Pacific Agreement for Trans-Pacific Partnership’.

Proposed sections 126AKI, 126AKJ, 126AKK and 126AKL combine to set out new obligations on exporters of eligible goods to a Party of the TPP-11 who wishes to obtain preferential treatment of customs duty in respect of those goods, and on people who produce such goods.

Definitions

Proposed section 126AKI provides definitions of key terms used in Division 4EB including: Customs Administration, producer and Trans-Pacific Partnership customs official.

Producer means a person who engages in the production of goods.

Customs Administration has the same meaning given by Annex 1-A of Chapter 1 of the TPP-11 Agreement. It means ‘the competent authority that is responsible under the laws of a Party for the administration of customs laws, regulations and, where applicable, policies’.

Trans-Pacific Partnership customs official means a person representing the Customs Administration of that Party. This term is referred to in new sections 126AKK and 126AKL.

Record keeping obligations

Proposed subsection 126AKJ(1) provides that regulations may prescribe record keeping obligations in relation to goods that are exported to a territory of a TPP-11 Party and are claimed to be originating goods, in accordance with Chapter 3 of the Agreement, for the purposes of obtaining preferential tariff in the Party. Proposed subsection 126AKJ(2) provides that record keeping obligations may be imposed on the exporter or producer of goods.

Power to require records

Proposed subsection 126AKK(1) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may require a person who is subject to record keeping obligations under regulations made for the purposes of section 126AKJ to produce to the officer, records as the officer requires.

Under Article 27 of Chapter 3 of the TPP-11, the Customs Administration of a Party to the Agreement may take action to verify the eligibility of goods for preferential treatment, including requesting the supply of records relating to the production or export of the goods. Proposed section 126AKK gives effect to this Article in respect of goods that are exported to a Party of the Agreement and that are claimed to be originating goods for the purpose of obtaining a preferential tariff in that Party.[92]

Proposed subsection 126AKK(2) provides that an authorised officer may disclose any records so produced to a Trans-Pacific Partnership customs official for the purpose of verifying a claim for a preferential tariff in that Party.

The note to this subsection states that where an authorised officer has requested a person to produce a record in order to verify the origin of goods in accordance with this section, a failure to do so may be an offence under existing section 243SB of the Customs Act. This is a strict liability offence. The note also indicates that, under existing section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

Power to ask questions

Proposed subsection 126AKL(1) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may require a person who is an exporter or producer of goods that:

(a)  are exported to a Party and

(b)  are claimed to be originating goods, in accordance with Chapter 3 of the Agreement, for the purpose of obtaining a preferential tariff in the Party

to answer questions in order to verify the origin of the goods.

Proposed subsection 126AKL(2) provides that an authorised officer may disclose any answers to a Trans-Pacific Partnership customs official for the purpose of verifying a claim for a preferential tariff in that Party.

The note to this subsection states that where an authorised officer has requested a person to answer questions in order to verify the origin of goods in accordance with this section, a failure to answer questions by that person may be an offence under existing section 243SA of the Customs Act. This is a strict liability offence. The note also indicates that, under existing section 243SC of the Customs Act, a person does not have to answer a question if doing so would tend to incriminate the person.

Part 2—Application provisions

Item 5 gives effect to Article 3.28 of Chapter 3 of the Agreement, with the effect that the amendments made by Part 1 of Schedule 1 of the Bill will apply in relation to:

• goods imported into Australia on or after the commencement of that Part and
• goods imported into Australia before the commencement of that Part, where the time for working out the rate of import duty on the goods had not occurred before the commencement of that Part.

The amendment made by Part 2 of Schedule 1 of the Bill, will apply in relation to goods exported to a Party on or after the commencement of that Part (whether the goods were produced before, on or after that commencement).