Introductory Info

Date introduced: 17 June 2020
House: Senate
Portfolio: Industry, Science, Energy and Resources
Commencement: 1 October 2020

Purpose of the Bill

The purpose of the Competition and Consumer Amendment (Australian Consumer Law—Country of Origin Representations) Bill 2020 (the Bill) is to amend the Competition and Consumer Act 2010 (the CCA) to widen the definition of what constitutes the ‘substantial transformation’ of goods for the purposes of ‘safe harbour’ provisions relating to country of origin representations.[1]

The Bill is a step ‘towards implementing the Government's commitment to establish robust country of origin labelling laws for Australian made complementary medicines’.[2]

Structure of the Bill

The Bill has one schedule, and a single amendment.

Background

Country of origin claims are representations about where a good’s ingredients or components came from and/or where it underwent processing. Such representations can be made explicitly or tacitly, using words and/or pictures. Common examples include claims that a particular good or product was ‘made’, ‘produced’ or ‘grown’ in a certain country – for example, Australia. Further, certain imported goods must be correctly labelled with a trade description that includes the country where the goods were made or produced before they can be imported into Australia.[3]

Schedule 2 to the CCA sets out the Australian Consumer Law (ACL). Within the ACL are important consumer protections, including but not limited to:

• a broad prohibition against engaging, in trade or commerce, in conduct that is misleading or deceptive—or is likely to mislead or deceive[4] and
• a specific prohibition against making a false or misleading representation, in trade or commerce, about the place of origin of goods.[5]

From as early as 1998, amendments were made to the CCA (then known as the Trade Practices Act 1975) to insert what were colloquially known as ‘safe harbour’ provisions.[6] These provisions established the regime for determining when goods would, and would not, be regarded as made in, or produced in, Australia—partly by reference to the extent to which production or transformation occurred in Australia. As such, they determine when country of origin representations about goods can be made without the risk of breaching consumer protections.  

Those amendments occurred in response to an ongoing debate about the test relating to whether goods are entitled to be labelled ‘Made in Australia’. Senator Bob Brown stated:

The Greens are saying `Made in Australia' should mean `Made in Australia' ... I give the example of a bottle of cordial. It is entirely possible under this legislation, because the manufacturing costs are a major component, that you could have Tasmanian raspberries going into one bottle of cordial and being put on the shelf and a mixture of raspberries from Chile and South Africa and maybe some from Australia going into a second bottle and being put on the shelf, and both of them will have `Made in Australia'. The consumer will not be able to know which is the real homemade produce through and through and which is the fake.[7]

Concerns about what ‘Made in Australia’ means in relation to goods, food and country of origin indicators more generally, were addressed in 2017 by clarifying the meaning of the term substantially transformed.

Substantial transformation

The concept of ‘substantial transformation’ is universally recognised and of significant importance in administering the customs and trade laws, forming the basis for the World Trade Organization’s (WTO’s) international rules of origin.[8] Where the good in question is not wholly manufactured, produced, or grown within a single country, the concept of substantial transformation comes into play. The essence of substantial transformation rules is that a product cannot be said to originate in the country of exportation if it was not manufactured there, satisfies a threshold percentage value of locally or regionally produced inputs, or undergoes other processes that add a minimum value to the goods (expressed by ad valorem percentage).[9]

2017 reforms

The purpose of the Competition and Consumer Amendment (Country of Origin) Act 2017 (2017 Act) was to simplify the test that is used to justify a claim that certain foods were ‘made in’ a specified country of origin. In particular, it clarified the meaning of the term substantially transformed in the ‘safe harbour’ provisions of the ACL.[10]

Goods can claim to be grown in, produced in or made in a country only if they meet specific conditions:

• grown in and produced in mean that all of the significant ingredients of the good are from, and all, or virtually all the processing occurred in, the country claimed as origin[11]
• made in (or manufactured in) means that the goods underwent their last substantial transformation in the country claimed as origin.[12] 

A good is said to have been substantially transformed in a country if the end product is fundamentally different in identity, nature or essential character from all of its ingredients or components that were imported into that country.[13]

The ‘Australian Made’ logo

In 1986 the Australian Government commissioned the introduction of the Australian Made logo.[14] It was officially launched by then Prime Minister, Bob Hawke. It was to be administered by the Advance Australia Foundation for the next ten years. The logo reverted back to the Australian Government when the Foundation went into voluntary liquidation in 1996.[15]

The Australian Made, Australian Grown (AMAG) logo is now administered by Australian Made Campaign Limited (AMCL), a not-for-profit public company established in 1999 by the Australian Chamber of Commerce and Industry and the network of state and territory chambers of commerce, with the cooperation of the Federal Government.[16]

AMCL does not receive government funding for its core operations, which are licensing companies to use the logo and promoting Australian products both in Australia and overseas. In 2002, the Federal Government transferred ownership of the logo to AMCL via a Deed of Assignment and Management, which sets out strict conditions under which AMCL may administer the logo.[17]

At present the use of the Australian Made logo (and its variations) is permitted where the country of origin safe harbour requirements as set out in the Act and ACL are met.[18]

As a result of the 2017 Act reforms, the Commonwealth assumed responsibility for use of the AMAG logo on food products sold in Australia under the terms of the Country of Origin Food Labelling Information Standard 2016 (the Information Standard).[19] This means the AMAG kangaroo and related logos now form part of a new country-of-origin information panel which is mandatory for most Australian food products.[20] Importantly however, AMCL retains responsibility for voluntary licensing of the use of the AMAG logo on all other products and goods sold in Australia and overseas (including complementary medicines).

Effect on the complementary medicines industry

Nature of complementary medicines

Complementary medicines can be defined as including ‘a diverse range of products with intended therapeutic benefits’ such as:

• vitamins, minerals and supplements
• herbal, homeopathic and traditional medicines
• sports supplements
• aromatherapy products
• weight loss products
• dietary supplements comprised of herbal and traditional ingredients (for example, echinacea, ginseng, primrose oil, olive leaf extract, spirulina and ginkgo biloba) and
• non-herbal supplements (such as fish oils and omega fatty acids, calcium, glucosamine, probiotics, proteins and other mineral supplements).[21]

The Explanatory Memorandum to the Bill notes that the complementary medicines sector ‘expressed concerns’ at the time that the 2017 Act reforms were being considered, that many of their products would no longer meet the ‘tightened requirements of the substantial transformation test’.[22] These concerns were confirmed in guidance published by the Australian Competition and Consumer Commission (ACCC) in March 2018 and a Federal Court case.[23]

About the Nature’s Care Manufacture case

The decision by the Federal Court in Nature’s Care Manufacture Pty Ltd v Australian Made Campaign Limited is illustrative of the problem for the complementary medicines industry in Australia.[24] In that case the Federal Court considered whether an Australian manufacturer could label its capsules as ‘Made in Australia’. The relevant capsules were filled with fish oil imported from Chile and Vitamin D imported from China. The capsules were made using gelatine sheets which were themselves manufactured from gelatine powder, purified water and glycerol. The glycerol is imported from Indonesia but the water and the gelatine powder were sourced in Australia.[25]

The Federal Court determined that the goods did not satisfy the definition of ‘Made in Australia’ and so was not entitled to be licenced to use the ‘Made in Australia’ logo on the grounds that mere encapsulation did not represent ‘substantial transformation’ of a product as required under the ACL.[26]

The outcome of the Nature’s Care Manufacture case was consistent with earlier guidance by the ACCC.

ACCC guidance

The ACCC publication entitled Country of Origin Labelling for Complementary Healthcare Products: A Guide for Business sets out the ACCC’s interpretation of the application of the ACL to manufacturing and production processes commonly used in the Australian complementary medicine industry. [27] It identifies a number of processes that would not bring about a substantial transformation of goods.

In relation to encapsulating imported actives (including the addition of bulking oils and other excipients such as Vitamin E (added to prevent oxidisation)), the ACCC concluded this process is unlikely to ‘constitute a substantial transformation’ as following encapsulation the finished product ‘is not fundamentally different and will have retained the identity, nature and essential character of the imported active(s)’.[28]

However the ACCC considered that tablet manufacture is likely to amount to a substantial transformation. This is because the process is a multi-step procedure that involves three key stages: the blending (wet or dry), granulation and compression of actives and excipients (including binders and disintegrants) into tablet forms. As such, where imported actives and imported excipients undergo the full tableting process to transform raw bulk materials into a tablet in Australia, the ACCC was of the view that this would likely result in a substantial transformation occurring in Australia.[29]

In relation to herbal extraction (extracting a herb’s medicinal profile (that is, the active) out of the raw or dried materials using a solution of alcohol and water or glycerine and water) the ACCC noted this process is likely to amount to a substantial transformation where ‘raw imported ingredients are processed in Australia to isolate the herbal active(s)’. However, the ACCC noted that ‘herbal extracts purchased overseas and bottled in Australia would not meet the safe harbour criteria for making a ‘made in’ claim, even if additional ingredients are added during the bottling process’.[30]

A similar approach was adopted in relation to essential oils. The ACCC noted that essential oils are found in the flowers, seeds, roots and various other parts of plants and are commonly extracted from the raw material by one of two key methods: distillation or cold pressing. The ACCC noted that processing of imported raw plant material in Australia to draw out its volatile aromatic compounds is likely to result in a substantial transformation of the raw imported product. However, merely importing essential oils and bottling them in Australia or blending imported essential oils in Australia would not meet the test for substantial transformation.[31]

Finally, the ACCC noted that in relation to semi-solid formulations (mostly creams or ointments that, unlike many therapeutic goods, are applied topically rather than ingested) the processing of ‘raw imported ingredients into a semi-solid preparation that has been chemically and physically modified to penetrate the skin or mucosa by the active may support a ‘made in’ claim’.[32] However, it also notes that ‘if a cream or lotion is imported in bulk and combined with other minor ingredients like fragrances, pigments or preservatives, the mixing of the imported ingredients’ in Australia would not amount to a substantial transformation.[33]

Possible impacts

The Regulation Impact Statement noted that one impact of the 2017 Reforms is purportedly:

... the very real possibility of disinvestment and offshoring of production because the manufacturing activities undertaken in Australia are not recognised as meeting safe harbour “Made in Australia” claims under the Competition and Consumer Act 2010. Elements of the Sector have questioned what benefit there is in maintaining a domestic manufacturing presence if they are unable to claim their products are ‘Australian made’ under the safe harbour defences of the Competition and Consumer Act 2010. Manufacturers find this especially concerning given all manufacturing activity is regulated by the Therapeutic Goods Administration under the Therapeutic Goods Act 1989 and transformation of raw imported ingredients is conducted in Australia.[34]

More specifically the Regulation Impact Statement reports that before the 2017 reforms, there were around 185 licensees of the AMAG logo from the complementary medicines sector, including firms licenced to use the logo AMAG that ‘may not own production or manufacturing facilities in Australia’ and after the 2017 Act reforms, ‘34 licences were resigned due to non-compliance with the safe harbour defence’.[35]

Further, a key purported impact of the 2017 Act reforms and reduced access to the AMAG logos relates to export markets as:

... the AMAG logo is a key marketing tool for both domestic (especially in the Daigou market) and export markets, particularly markets like China...[36]

The Regulation Impact Statement noted that the complementary medicines sector believes the negative effects of the 2017 Act reforms:

... on origin labelling for complementary medicines are inadvertent, but significant damage to brands and sales is occurring, particularly in growing export markets although the Sector has not provided data that supports this contention.[37]

The Bill is predicated on the need to rectify the purported negative impact of the above changes on the complementary medicine industry in Australia.[38]

Consultation

Following representations by the complementary medicines sector about the purported impact of the 2017 Act reforms, the Minister for Industry, Science and Technology established a taskforce (the Complementary Medicine Taskforce (CMT)) to ‘review the industry's concerns and identify possible solutions’.[39] As part of this process, the CMT undertook a survey to gather the views of the sector regarding the 2017 Act reforms.[40] That survey and other consultation processes informed the CMT’s Report (the CMT Report), which was made publically available (in part) as a result of a freedom of information request.[41]

Separate to the process undertaken by the CMT, the Department of Industry, Science, Energy and Resources (the Department) undertook a public consultation process. That process included:

• notifying a range of stakeholders about the consultation process and opportunity to make submissions, including the CMT[42]
• research to examine consumer preferences for the use of the AMAG logo on a range of complementary healthcare products including both qualitative research (focus groups) and an online survey of 2,091 consumer respondents[43]
• issuing, consulting and receiving submissions regarding a Consultation Regulation Impact Statement[44] and
• consideration of the CMT survey results and the CMT Report findings.[45]

Following the CMT's report and the Department’s consultation process the Government put a reform proposal to the states and territories through the Consumer Affairs Forum (CAF), which the relevant state and territory Ministers agreed to.[46]

The Bill is part of that process.

Role of the Therapeutic Goods Administration

In Australia, complementary medicines are regulated as therapeutic goods under the Therapeutic Goods Act 1989 (TGA Act) by the Therapeutic Goods Administration (TGA). The TGA provides a national system of regulatory controls relating to the quality, safety, efficacy, performance and timely availability of therapeutic goods used in Australia or exported from Australia, including complementary medicines.[47]

One such regulatory control is the TGA’s Good Manufacturing Practice (GMP) principles and procedures.[48] The goal of the GMP is to ensure that products are consistently produced and controlled to the quality standards appropriate to their intended use. This is achieved, in part via quality control methods including sampling, specifications and testing along with documentation and release procedures to ensure that materials are not released for use, nor products released for sale or supply, until their quality has been judged to be satisfactory.[49]

Whilst not explored in detail in this Bills Digest, in simple terms complementary medicines must be entered in the Australian Register of Therapeutic Goods (ARTG) in order to be legally imported, exported, manufactured or supplied to consumers. Further, the TGA Act requires that manufacturers of certain types of therapeutic goods, including complementary medicines, hold a licence. A TGA licence is required regardless of whether the ingredients of the relevant complementary medicine are sourced internationally or locally.[50]

Importantly, in order to obtain a licence, an Australian manufacturer must demonstrate compliance with the GMP. This is usually, but not always, done through an on-site inspection. Overseas manufacturers can obtain GMP certification following a successful on-site inspection by the TGA, or via a desk-top assessment (such assessments are determined in part by the agreements and arrangements in place between the TGA and other comparable overseas regulators, provided that the products are also regulated as medicines in the other country).[51]

As noted in the Regulation Impact Statement, Australian complementary medicine manufacturing facilities generally perform one or more of the following steps:

• manufacture of dosage form (this includes blending, bulk manufacture, preparation of bulk product, and finished product manufacture)
• labelling and packaging
• testing microbial
• testing chemical and physical
• release for supply.[52]

Does compliance with the GMP amount to substantial transformation?

The Regulation Impact Statement and CMT Report reported a common concern among complementary medicines industry participants that the ACL operates to prevent ‘Australian made’ (that is, Australian origin) claims in relation to goods where:

... all manufacturing activity is regulated by the Therapeutic Goods Administration under the Therapeutic Goods Act 1989 and transformation of raw imported ingredients is conducted in Australia.[53]

As noted in the Regulation Impact Statement:

The Sector believes the substantial transformation test is not an appropriate measure of the transformation imported raw materials undergo to become complementary medicines manufactured in Australia. Some product lines do not meet the test, despite being well established, Australian manufactured products and regulated in accordance with the Therapeutic Goods Administration’s (TGA) Good Manufacturing Practice (GMP).[54]

The CMT Report similarly noted:

... the Sector proposed a regulatory fix which would allow Therapeutic Goods Administration (TGA) compliance to be the basis of using the AMAG logo... The Sector argues that in the eyes of the consumer, the high regulatory standards of product and process safety stipulated by the TGA, not the source of ingredients, qualifies their products for an Australian country of origin claim.[55]

From this and other parts of the Regulation Impact Statement and CMT Report it can be inferred that at least some complementary medicine industry participants appear to be advocating that the mere manufacture of complementary medicines in Australia in accordance with the TGA’s GMP should provide a basis for making ‘Australian made’ / Australian-origin claims about those goods.[56]

Initial regulatory response

In December 2019, in response to the concerns raised by the complementary medicines industry the Government:

... restored access to 'Australian Made' claims for complementary medicines manufactured in Australia, by enacting the Competition and Consumer Amendment (Australian-made Complementary Medicines) Regulations 2019. These 2019 regulations were an interim solution.[57]

The effect of the Competition and Consumer Amendment (Australian-made Complementary Medicines) Regulations 2019 is that:

• complementary medicines (this may include vitamin, mineral or herbal products)
• regulated as medicines under the TGA Act and associated Regulations and
• which are either listed or registered on the ARTG

can rely on the safe harbour provision in the ACL. It does this by providing that a complementary medicine can rely on the safe harbour provision in clause 255 of the Australian Consumer Law where:

• it has undergone the last process in the manufacture of dosage form step of its manufacture in Australia and
• at premises subject to a licence in relation to that manufacturing step for that complementary medicine under the TGA Act and in compliance with the TGA’s GMP.

Importantly however, subregulation 92AA(4) provides that the following steps do not amount to the last step in the manufacture of the dosage form of complementary medicines that amounts to a substantial transformation of a good for the purposes of a country of origin claim under the ACL:

• covering of the dosage form of medicines in containers
• packaging of the dosage form of medicines
• labelling of the dosage form of medicines
• storage of the dosage form of medicines (whether in packaging or not)
• testing of the dosage form of medicines
• release for supply of the dosage form of medicines.

What the Bill does

The proposed amendment is stated to be the first of three related reforms: the other two are a change to the Competition and Consumer Regulations 2010 (Regulations) and the creation of an information standard for Australian manufactured complementary medicines.[58] The Department conducted a consultation on a proposed Information Standard for Country of Origin Labelling for Complementary Medicines from 28 August 2020 to 24 September 2020.[59] At the time of writing submissions to the consultation were not available.

The effect of the amendment and two other reforms will be to ensure that manufacturers of complementary medicines can make representations regarding the country of origin of their products without breaching other provisions of the CCA.[60]

In addition however, it appears that the intention of the additional reforms that the Bill will facilitate is to enable mere compliance with the Therapeutic Goods Administration’s Good Manufacturing Practice requirements[61] to permit an Australian-origin claim to be made about a complementary medicine and/or use of an Australian Made, Australian Grown logo on the product.

As discussed above, country of origin claims are representations about where a good’s ingredients or components came from and/or where it underwent processing. Country of origin claims can be made using words and/or pictures. Common examples include claims are that a particular good or product was ‘made’, ‘produced’ or ‘grown’ in a certain country – for example, Australia.

The rules governing the veracity of such claims are governed by Australian domestic law. However, they are also influenced by Australia’s World Trade Organization (WTO) commitments. The need for such rules is to answer the question—if goods are made, manufactured, processed or assembled in one country from articles grown, produced, made, manufactured or processed in another country or countries, which country can truly claim to be the country of origin of the finished product?

This will be achieved by creating an explicit power to prescribe one or more processes which will be deemed to satisfy the definition of ‘substantially transformed’ for the purposes of the country of origin provisions of the Act, which the Government advises is intended to be used in relation to complementary medicines.[62] However, the potential operation of the Bill is not confined to complementary medicines and could be used to alter when other goods are considered to have been ‘substantially transformed’ for the purposes of the country of origin provisions of the Act.

Country of origin labelling framework: the WTO Agreement on Rules of Origin

A more broadly and deeply integrated global economy has made it more difficult to determine a product’s country of origin, with raw materials and other inputs criss-crossing different parts of the globe to be used as inputs in dispersed manufacturing facilities before a final product is market ready.[63] Rules of origin criteria have therefore been developed to define where a product was made so as to enable attribution of one country of origin to each product.

The effective determination of where a product was made is significantly implicated in the practical application of other trade policy measures, including trade preferences under free trade agreements (preferential rules of origin).[64]

Australia is a signatory to the WTO Agreement on Rules of Origin (the RoO Agreement) which seeks to ensure that country of origin requirements do not restrict, distort or disrupt international trade and are applied without discrimination across countries on a consistent, uniform and impartial basis.[65] The RoO Agreement also allows each WTO member to determine its own country of origin regime.[66] Australian laws and regulations on rules of origin are designed to conform to the RoO Agreement.

The RoO Agreement

The RoO Agreement represents an on-going attempt by WTO member states to harmonise non-preferential rules of origin in relation to goods.[67] The purpose of the RoO Agreement was to achieve a harmonised system of determining the country of origin of goods[68] including complementary medicines. The Harmonisation Work Programme (HWP) is a joint effort by the WTO and the World Customs Organization (WCO), tasked with drafting binding international non-preferential rules of origin.[69]

The RoO Agreement and the work to date by the HWP when viewed alongside each other provide guidance regarding when goods have been ‘substantially transformed’ in relation to the country of origin of goods. Despite commencing in 1998, the HWP is not completed.[70] As such about 40 WTO members, including Australia, currently apply national rules of origin for non-preferential purposes along WTO guidelines.[71]

Australia applies its non-preferential rules of origin in accordance with the RoO Agreement, and participates actively in the work of the WTO Committee on Rules of Origin (CRO), as well as the Technical Committee on Rules of Origin (TCRO).

The RoO Agreement endorses the ‘last significant transformation’ concept as the main origin-determining principle that will be adopted once the HWP is completed.[72] Importantly the RoO Agreement allows for different methods to help determine whether a ‘significant transformation’ has taken place including:

• a change in tariff heading
• specific processing operations and
• value added percentages.[73]

In summary, when more than one country is concerned in the production of the good (for example, a complementary medicine) then its origin is the country where the last ‘substantial transformation’ was carried out, and this can be assessed by one of the methods noted above.[74]

Relevance of the RoO agreement to the Bill

The above origin-determining mechanisms entered into force on 1 January 1995.[75] At present, only the obligations contained in Article 2 of the RoO Agreement are binding on Australia and other WTO members.

Article 2 provides that Australia and other WTO members can enact laws in relation to the country of origin of goods based on a change in tariff heading, specific processing operations and value added percentages, provided the rules applied to imports and exports are ‘not more stringent’ than those applied to determine ‘whether or not a good is domestic’ and:

• shall not discriminate between other Members, irrespective of the affiliation of the manufacturers of the good concerned
• are not used as instruments to pursue trade objectives directly or indirectly
• create restrictive, distorting, or disruptive effects on international trade and
• are administered in a consistent, uniform, impartial and reasonable manner.[76]

That is, Article 2 of the RoO Agreement allows members to specify manufacturing processes as a prerequisite for the determination of the country of origin of goods[77] and hence allows Australia to determine what manufacturing processes can support the origin of a good (such as a complementary medicine) being ‘Australian’. However, members have the obligations noted above when doing so.

Substantial transformation

Whilst not explored in this digest in detail, the consolidated text draft of non-preferential rules of origin provides that processes that can amount to ‘substantial transformation’ include:

• purification, provided the reduction or elimination of impurities results in a good suitable for various applications, most relevantly including pharmaceutical and medical grade substances[78]
• chemical reactions that result in a molecule with a new structure by breaking intramolecular bonds and by forming new intramolecular bonds, or by altering the spatial arrangement of atoms in a molecule other than dissolving in water or other solvents, the elimination of solvents including solvent water or the addition or elimination of water of crystallization[79]
• mixture and blending provided it results in the production of a good having physical or chemical characteristics which are relevant to the purposes or uses of the good and are different from the input materials.[80]

Importantly however, the consolidated text draft of non-preferential rules of origin provides that ‘mere pressing of tablets or by mere encapsulation’ is not a process that amounts to substantial transformation in relation to a number of ‘medicaments’ where the medicaments consist of:

... mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses or in forms or packings for retail sale.[81]

‘Medicaments’ is a term for substances used for medical treatment and therefore encompasses complementary medicines. As such, the above applies to goods including ‘medicaments containing vitamins or other products’.[82]

GMP manufacturing processes and substantial transformation

As noted above, Australian complementary medicine manufacturing facilities generally perform one or more of the steps noted earlier. Whilst these processes may result in manufacturers incurring significant costs, it is likely that under current RoO Agreement rules, the consolidated text draft of non-preferential rules of origin and ACL only some of them would be considered to meet the ‘substantially transformed’ requirement that allows an origin claim to be made.

In relation to manufacture of dosage form the CMT Report notes this process usually entails:

... the process of formulating the active ingredient(s), usually in combination with excipients, into the form in which they are marketed for administration to the patient/consumer, e.g. tablet, cream either ready for assembly into final containers or in individual containers ready for assembly to final packs.[83]

As such, in some circumstances this could amount to a substantial transformation as understood under the RoO Agreement and consolidated text draft of non-preferential rules of origin. For example, the pressing of tablets which contain a number of active ingredients may well qualify as a substantial transformation, but this will turn on the number of active ingredients in the tablets, whether they are mixed in the process and whether the active ingredients were otherwise processed or altered in the country before being pressed into a tablet.

However, the RoO Agreement and consolidated text draft of non-preferential rules of origin make it clear that ‘mere encapsulation’ of active ingredients, or pressing of tablets with only one active ingredient, will not amount to a substantial transformation, a position that the Federal Court confirms applies in relation to encapsulation under the ACL.[84]

This means that it is likely that only certain forms of the manufacture of dosage forms of complementary medicines could potentially meet the substantial transformation requirement in order to provide a basis for an Australian-origin claim as understood under the RoO Agreement and consolidated text draft of non-preferential rules of origin and ACL.

Committee consideration

At the time of writing the Bill had not been referred to any committee for inquiry.

Senate Standing Committee for the Scrutiny of Bills

The Senate Standing Committee for the Scrutiny of Bills made no comment about the Bill.[85]

Policy position of non-government parties/independents

The Opposition supports the Bill.[86]

At the time of writing the position of other non-government parties and independents on the measures proposed by the Bill could not be determined.

Position of major interest groups

Complementary medicine industry

The complementary medicine sector appears supportive of the proposed changes in general terms, given its advocacy for easier access to the origin-claim safe harbour defences in the Act and ACL and use of AMAG logos on products manufactured in Australia in compliance with the TGA’s licencing requirements (including the GMP).[87]

Consumers and consumer groups

In contrast, the CMT Report noted that consumer groups did not support the use of TGA compliance as a basis for using the AMAG logo and rather wanted:

... to see the same labelling on complementary medicine products that apply to priority food labelling. Furthermore they expressed support of upholding the current safe harbour defences including the definition of substantial transformation, as reducing the strictness around the safe harbour defences would not be in the interest of consumers or the reputation of the AMAG logo.[88]

The CMT Report also noted that the results of a consumer survey it had conducted found that:

Most participants believed that both the current and previous AMAG labelling rules were too relaxed. Although the new rules were seen to be a slight improvement by some, they were still perceived as not strict enough.[89]

Whilst the CMT Report noted that consumers agreed products that are ‘Made in Australia’, even with imported ingredients ‘should be able to use the AMAG logo’ provided the product was ‘accompanied by the origin of ingredients and proportion’,[90] this would appear to suggest that consumers may not support changes to the current AMAG labelling rules which are linked to the current safe harbour rules in the Act and ACL, which the Bill seeks to amend specifically to make it easier for complementary medicines to make Australian-origin claims.

The Regulation Impact Statement (RIS) notes that consumers preferred that the existing rules on substantial transformation for all products remain in force and applicable to complimentary medicines.[91] The RIS also noted that the survey conducted as part of the consultation process ‘clearly indicated that consumers want accurate information on the origin of their products’ and that this includes ‘whether or not the products they consume contain imported ingredients’.[92] The survey also found that:

Consumers expressed a preference that if the government is to seek a regulatory outcome to allow for “Australian Made” claims for Australian manufactured complementary medicines, then that origin claim should be accompanied by a representation of the proportion of Australian ingredients.[93]

In this regard the RIS noted:

The Consultation RIS stepped out for consumers some of the regulatory activities the TGA undertook and the manufacturing processes conducted by manufacturers in Australia using imported ingredients, but consumers were not convinced that the AMAG logo could be appropriately applied.[94]

The RIS also noted a ‘strong assumption’ by consumers that a vitamin tablet, or similar claiming to be of Australian origin was made from Australian ingredients, in an Australian manufacturing facility.[95]

In that regard, the RIS further noted that prior to the 2017 Act reforms consumers wanted the requirements for making Australian origin claims tightened, particularly where ingredients were imported, but cared little about relative costs of production.[96] The CMT report conducted its own research into the views of consumers and found similar attitudes in consumers despite the 2017 Act reforms.[97] In particular the CMT Report noted: 

Once consumers had questioned the origin of ingredients, they became concerned about the ‘Made in Australia’ message being misleading as although ‘Made in Australia’, it may in fact be from imported ingredients.[98]

The RIS also noted that consumers did not identify the mismatch between TGA regulation of manufacturing and the substantial transformation tests under the ACL as contributing to consumer confusion or that the 2017 law change affected consumers in any way.[99] The CMT Report noted that the consumer research it commissioned did not support the contention that ‘in the eyes of the consumer, the high regulatory standards of product and process safety stipulated by the TGA, not the source of ingredients, qualifies their products for an Australian country of origin claim’.[100]

The precise details of any changes to when Australian-origin claims can be made under the ACL will be affected by changes to the Regulations and creation of a new Information Standard applicable to complimentary medicines facilitated by passage of the Bill.[101] However, the above appears to suggest that consumers are unlikely to support changes that would allow easier access to the origin-claim safe harbour defences in the Act and ACL and use of AMAG logos on products manufactured in Australia under a licence issued by the TGA, particularly if such changes were not accompanied by a requirement to display the origin of ingredients and their proportion of the product.

Financial implications

The Explanatory Memorandum notes that the Bill is expected to have nil financial impact on the Commonwealth.[102]

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 Bill’s 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 Bill is compatible.[103]

Parliamentary Joint Committee on Human Rights

At the time of writing the Parliamentary Joint Committee on Human Rights had not considered the Bill.

Key issues and provisions

The Bill contains one item in Schedule 1; proposed paragraph 255(2)(c) of the ACL. As noted elsewhere in this Digest, currently clause 255 of the ACL provides the safe harbour defences with respect to country of origin claims. Table item 3 to subclause 255(1) provides that a representation that goods were ‘made in’ a particular country (for example, Australia) can be made where the goods were last substantially transformed in that country.

As such, and as examined in detail in the background section of this Digest, a key issue is whether the relevant goods are substantially transformed in Australia. If they are, then a ‘made in’ or other similar Australian-origin claim can be made. If not, then such claims would, for example, expose the manufacturer to liability on the basis of engaging in misleading or deceptive conduct under the ACL with respect to the origin of the goods.

Currently subclause 255(2) provides that:

(2) Goods were substantially transformed in a country if:

(a) the goods met, in relation to that country, the requirements of item 1 or 2 in the second column of the table in subsection (1); or

(b) as a result of one or more processes undertaken in that country, the goods are fundamentally different in identity, nature or essential character from all of their ingredients or components that were imported into that country. (emphasis added)

Paragraph 255(3)(a) then provides that the Regulations can prescribe (in relation to particular classes of goods or otherwise) processes or combinations of processes that ‘do not have the result’ of the goods being ‘fundamentally different in identity, nature or essential character from all of their ingredients or components’ and therefore substantially transformed.

In addition, paragraph 255(3)(b) provides that the Regulations can also ‘include examples’ (in relation to particular classes of goods or otherwise) of processes or combinations of processes that ‘for the purposes of’ subclause 255(2) do ‘have the result’ of the goods being fundamentally different in identity, nature or essential character from all of their ingredients or components that were imported into that country.

The Regulations introduced as an interim measure operate by defining which of the TGA’s GMPs performed under a TGA-issued manufacturing licence within Australia can or cannot support an Australian-origin claim. That is, which TGA GMP-compliant manufacturing processes performed in Australia under a TGA-issued manufacturing licence amount to a substantial transformation and which do not.

Proposed paragraph 255(2)(c) will provide that goods will have been substantially transformed in a country if ‘the goods underwent in that country one or more processes prescribed by the regulations’. That is, it would not contain the requirement that such specified processes result in the good having a ‘fundamentally different’ identity, nature or essential character from ‘all of their ingredients or components that were imported into that country’.

Role of information standards

Table item 4 to subclause 255(1) provides that a representation in the form of a mark specified in an Information Standard relating to country of origin labelling of goods (such as those the Government notes its intention to introduce if the Bill is passed) may be used if the requirements under the Information Standard are met. Currently the AMAG logo is specified as a mark relating to the origin of goods in the Country of Origin Food Labelling Information Standard 2016.[104]

The power to make Information Standards in clause 134 of the ACL can be used to provide a safe harbour for country of origin claims under table item 4 to subclause 255(1).

Issue: is the amendment legally necessary?

The drafting of subclause 255(3) and the interaction with subclause 255(2) is open to different interpretations.

On one hand, it appears arguable that the drafting of subclause 255(3) means that the regulation making power is limited to prescribing or including examples of processes that do or do not otherwise ‘have the result’ of the goods being ‘fundamentally different in identity, nature or essential character from all of their ingredients or components’ (that is, substantially transformed). 

On the other hand, paragraph 255(3)(a) could be interpreted as allowing the regulations to prescribe that certain processes do not result in a substantial transformation occurring when otherwise under the legislation they would be regarded as doing so. Likewise paragraph 255(3)(b) could be interpreted as allowing the regulations to include examples of processes that substantially transform goods when otherwise they would not meet the legislative requirements.

As such, it would appear that the Bill is only legally necessary if:

• the current regulation making power is limited to prescribing processes that do not otherwise result in the goods being substantially transformed and/or
• the current regulation making power to include examples of processes that result in the goods being substantially transformed has no legal effect because the requirement that the goods be genuinely substantially transformed imposed by subclause 255(2) must still be satisfied, even where the relevant processes are listed as examples in the regulations under paragraph 255(3)(b).

This would appear to suggest that the amendment proposed by the Bill is only necessary if there is an intention to expand the definition of substantially transformed to allow Australian-origin claims to be made in circumstances where at a facility in Australia, a relevant TGA licensed manufacturing process, which would not otherwise result in the good having a ‘fundamentally different’ identity, nature or essential character from ‘all of [its] ingredients or components that were imported into that country’ (for example, mere encapsulation of imported fish oils, of the pressing of tablets that only contain one active ingredient), is to be specified in the Regulations. That is, if a process otherwise meets the requirement for substantial transformation in Australia then the ACL already allows an Australian origin claim to be made, regardless of whether or not the process is listed in the regulations as an example of a process that results in the goods being substantially transformed.

Proposed paragraph 255(2)(c) will allow the Regulation to provide that certain processes that occur in Australia amount to a substantial transformation (and therefore permit Australian-origin claims) even if that process does not result in the goods having a ‘fundamentally different’ identity, nature or essential character from all of ‘their ingredients or components that were imported into that country’.

 Issue: lowering the substantial transformation test for a specific sector

Depending on the final contents of the Regulations and Information Standard to follow the passage of the Bill, there is a risk that sector-specific reforms enabled by the Bill would undermine the ‘consistency of a single Australian origin test’ – a feature attractive for consumers and that promotes greater consumer confidence in products making such claims.[105]

The author of this Digest was unable to locate any current examples of where mere compliance with Australian manufacturing, safety or other Regulation enables an Australian-origin claim to be made about goods. For example, mere compliance with Australian food standards does not, of and by itself, permit Australian-origin claims to be made about food products.

This means that if mere compliance with a TGA-regulated, GMP-compliant manufacturing process at a facility in Australia that does not result in the good being substantially transformed allows Australian-origin claims to be made about the product in question, this would appear to place the complementary medicines industry in a unique position compared to other Australian industries and sectors. Such a use of the Regulations would appear, for complementary medicines alone, to equate ‘made in accordance with Australian law’ and ‘Australian made’.

It is, however, difficult to state this with any certainty as the proposed amendment only opens the way for future Regulations. As far as can be ascertained, no exposure draft Regulations have yet been prepared. If and when the appropriate Regulations are prepared, they will be subject to review by the Senate Standing Committee for the Scrutiny of Delegated Legislation, and to disallowance motions in the Parliament.[106] This will provide the Parliament with the opportunity to consider whether the Regulation appropriately or inappropriately allows certain GMP-compliant processes to support a claim that goods were substantially transformed (for example, mere encapsulation).

Issue: is the amendment the optimal regulatory response to the issue?

The Regulation Impact Statement specifically recommended against making any changes to the country of origin rules in ACL generally and in relation to complementary medicines specifically. As noted in the RIS:

On the basis of the scant ‘evidence’ received to this RIS in the form of data, such as lost jobs, a slowing industry, widespread consumer confusion or plant closures and the like, a clear case for change has not been demonstrated. In circumstances, where there is a lack of evidence of a problem, the maintenance of the status quo is preferred.[107]

In coming to this conclusion the RIS noted:

• information presented by the complementary medicine sector during the consultation process ‘was limited and consequently, a problem with existing laws was not demonstrated’[108]
• changes of the type proposed by the Bill would be ‘likely to offer more benefits to complementary medicine companies than consumers’[109] and
• changes of the type proposed by the Bill may ‘also create a risk to Australian producers of actives, excipients, fillers and the like as complementary medicine manufacturers will potentially be able to source these ingredients cheaper from overseas and continue to use the AMAG logo’.[110]

The CMT Report released under a Freedom of Information request does not contain its recommendations, and appears to be missing other information that could assist in determining whether any substantive evidence supporting the proposed change that the industry has advocated for was provided to the CMT, but not provided or examined in the RIS consultation processes.

Concluding comments

The Bill has its genesis in industry representations to the Government about purported negative impacts on the sector by the 2017 Act reforms. Whilst the entirety of the CMT Report is not publically available, the parts of it that are, along with the Regulation Impact Statement, suggest that there is little in the way of substantive evidence of negative impacts on the sector (including into the future) flowing from the reforms.

Further, the RIS expressed an unequivocal recommendation that no changes to the Act and ACL regarding country of origin claims be made. In addition, it was noted that reforms of the type the Bill will enable are likely to disproportionately advantage the interests of the complementary medicine over consumers and may result in increased usage of imported ingredients in Australian-manufactured complementary medicines at the expense of locally grown or produced inputs.

As such, based on publically available information it appears that the Bill and the mooted reforms that will follow should it be passed by Parliament do not reflect a regulatory response informed by a substantive body of evidence.