Introductory Info
Date of introduction: 2024-11-07
House introduced in: House of Representatives
Portfolio: Home Affairs
Commencement: Various dates as set out in the body of this Bills Digest.
Purpose of the Bill
The purpose of the Customs Amendment (ASEAN-Australia-New Zealand Free Trade Area Second Protocol Implementation and Other Measures) Bill 2024 (the Bill) is to amend the Customs Act 1901 to give effect to the customs obligations under the Second Protocol to amend the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA).
Structure of the Bill
The Bill comprises two Schedules:
Both schedules propose to harmonise and streamline trade procedures between Australia and the signatory countries to those Agreements.
Background
Australia’s treaty-making process
The power to enter into treaties is an Executive power within section 61 of the Constitution. The Minister for Foreign Affairs and the Department of Foreign Affairs and Trade have responsibility for treaties. The steps in Australia’s treaty-making process include:
- seeking a mandate to negotiate from the Minister for Foreign Affairs
- negotiating and finalising the text of the treaty
- seeking the approval of relevant Ministers and the Executive Council for Australia to enter into the treaty
- arranging for signature of the treaty
- tabling the treaty in Parliament for scrutiny by the Joint Standing Committee on Treaties (JSCOT) and
- any other steps, such as passage of any implementing legislation, required to enable entry into force of the treaty.
Even though the Parliament has enacted provisions of the Customs Act to implement AANZFTA it is necessary to pass additional legislation to implement the intended amendments to the AANZFTA.
ASEAN-Australia-New Zealand Free Trade Area
The AANZFTA is an agreement between ASEAN Member States, Australia and New Zealand which entered into force in Australia in January 2010. Its purpose is to reduce barriers to trade and investment among the signatory countries. AANZFTA is complemented by bilateral free trade agreements with Indonesia, Malaysia, Singapore, Thailand, and New Zealand.
The First Protocol to Amend AANZFTA (First Protocol) entered into force in Australia on 1 October 2015. The First Protocol was a response to concerns about on the implementation problems associated with Certificates of Origin (p 20) and Rules of Origin. The Customs (ASEAN-Australia-New Zealand Rules of Origin) Amendment Regulation 2015 (No. 1) (no longer in force) enacted the provisions of the First Protocol on 30 April 2015.
The Second Protocol was signed by the Assistant Foreign Minister, Tim Watts, on 21 August 2023 (JSCOT, p 5). Primarily, the Second Protocol further revises Rules of Origin procedures (National Interest Analysis para 16).
An impact analysis by DFAT reports that all relevant Australian stakeholder concerns were included in the Second Protocol of the AANZFTA (pp 25–26). According to the impact analysis (p 3):
The original AANZFTA has not kept pace with new opportunities in the ASEAN region, such as in education, services, investment, mobility, and digital trade. Since AANZFTA entered into force in 2010, best practice for FTAs has changed as a result of technological developments in the digital economy and uptake of e-commerce, in order to facilitate greater e-commerce in the region and enhance consumer confidence, data transfers, promote privacy and combat fraud. The original AANZFTA also lacks modern FTA outcomes on areas such as environmental protection, competition, government procurement, labour rights and gender equality.
The upgrade to AANZFTA solves the problem of the current version of AANZFTA no longer meeting the consumer and business requirements for a high-quality, contemporary FTA.
Harmonized System
The rules and procedures within and between countries should be consistent, so definitional consistency is essential. Definitional clarity is captured in the Harmonized System and Product Specific Rules.
Australia’s tariff classification system is based on the International Convention on the Harmonized Commodity Description and Coding System (referred to as the Harmonized System). It entered into force for Australia on 1 January 1988. The Harmonized System (HS) has been developed by and is the responsibility of the World Customs Organization (WCO). The Harmonized System is enforced in Australian law via the Customs Tariff Act 1995.
The Customs Tariff Act contains thousands of Harmonized System codes (HS codes). The HS codes are typically 6 to 10 digits long and they describe specific goods. The information in Box 1 below demonstrates how they operate.
Box 1: HS code for fresh grapes
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- Chapter 8 of the HS codes is a broad description, titled ‘Edible fruit and nuts, peel of citrus fruit or melons’
- Heading 6 of Chapter 8 is more specific, titled ‘Grapes, Fresh or Dried’
- Subheading 10.00 of Heading 6 is very specifically called ‘Fresh’.
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| The HS code given to fresh grapes is 0806.10.00, indicating classification Chapter, Heading and Subheading. Businesses that wish to import fresh grapes into Australia must pay the customs duty rate associated with the HS code 0806.10.00. |
The HS codes are used by more than 200 countries and allow customs authorities around the world to identify goods consistently. Additionally, the HS codes are used to consistently apply relevant customs duties, taxes and regulations.
Product Specific Rules of Origin
The origin or economic nationality of goods is an essential component of international trade. It allows nations to determine where goods come from and their terms of entry.
Free Trade Agreements (FTAs), including the AANZFTA, use Rules of Origin to ensure that products receiving preferential FTA tariff treatment come from the geographical free trade area included in the agreement.
Goods fall into 2 categories:
- goods of 100% originating inputs
- goods of mixed origins (that is goods with components from countries that are not party to the AANZFTA) with product-specific rules.
AANZFTA Product Specific Rules are rules that specify that the materials used to produce the good:
- have undergone a change in tariff classification or
- have undergone a specific manufacturing or processing operation or
- satisfy a regional value content criterion or
- a combination of any of these criteria.
Annex 2 to the AANZFTA contains the official PSR data. The Product Specific Rules are linked by HS codes.
Commencement
Sections 1 to 3 of the Bill commence on Royal Assent.
Schedule 1 to the Bill commences on the later of Royal Assent and the day the Second Protocol enters into force for Australia. That date must be announced by the Minister, by notifiable instrument. This will be when Australia, New Zealand and at least four ASEAN Member States ratify. However, the provisions do not commence at all if that does not occur.
Schedule 2 to the Bill commences on the earlier of proclamation or 6 months after Royal Assent.
Key issues and provisions
Schedule 1 to the Bill amends the Customs Act to give effect to the Second Protocol of the AANZFTA.
Items 1 and 2 repeal the definition of certificate of origin and insert a new definition of proof or origin respectively into subsection 153ZKB(1) of the Customs Act. The updated definition is intended to comply with Rule 1 of Annex 3A to Chapter 3 of the AANZFTA (3A-1, p. 66).
Item 7 amends paragraph 153KZB(1)(b) to update the definition of Harmonized System in the Customs Act to ensure the preferential tariff treatment is applied only to those goods intended by AANZFTA and set out in the Second Protocol (3B-1, p. 85).
Item 8 inserts the definition of Product-Specific Rules into subsection 153KZB(1) to ensure that these Rules reflect the changes made by the Second Protocol.
Item 14 inserts proposed Division 4EAA—Exportation of goods to Parties to the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area into part VI of the Customs Act. New Division 4EAA:
- allows the regulations to impose record keeping obligations on an exporter or producer of goods exported from Australia to a party to AANZFTA: proposed section 126AKDB
- empowers an authorised officer to require records: proposed section 126AKDC and/ or to ask questions: proposed section 126AKDD. Failing to answer a question when required may be an offence under section 243SA. Failing to provide a document may be an offence under section 243SB. However, section 243SC of the Customs Act operates so that a person need not answer a question or produce a document if doing so would tend to incriminate the person.
- allows for regulations to be made for the approval of entities as approved exporters, including, but not limited to making applications for approval and the eligibility criteria that an entity must meet in order to be given approval: proposed section 126AKDE and
- allows the Comptroller-General of Customs to maintain a register—called the ASEAN Register of Approved Exporters. This is not a mandatory requirement. However, if such a Register is established, the Comptroller-General must make it publicly available: proposed section 126AKDF.
The amendments in Part 1 of Schedule 2 to the Bill relate to approved exporters for the RCEP Agreement. Item 2 of Part 1 to Schedule 2 inserts proposed sections 126AQE to 126AQG into the Customs Act.
Proposed section 126AQE allows an exporter or producer to make a Declaration of Origin under Clause 3.16.1(b) of Chapter 3 of the RCEP Agreement if the importing and exporting parties have implemented this provision within the period outlined in paragraphs 2 and 3 of Article 3.16 (Explanatory Memorandum, p. 23). In the alternative, an exporter may complete a Declaration of Origin for the goods if the exporter is an approved exporter. Proposed subsection 126AQE(2) permits regulations to be made for the approval of entities as approved exporters for the purposes of the RCEP Agreement. The matters which may be set out in those regulations are listed in proposed subsection 126AQE(3).
Items 3 and 4 in Part 2 of Schedule 2 to the Bill contain amendments to the definitions of Harmonized System and Product-Specific Rules in section 153ZKL of the Customs Act in relation to Pacific Islands originating goods.
Items 9 and 10 in Part 2 in Schedule 2 to the Bill update the definitions of Harmonized System and Product-Specific Rules in subsection 153ZLB(1) of the Customs Act in relation to Malaysian originating goods.
The amendments to the Customs Act will only affect the adjustments to the Harmonized System and the Product Specific Rules applicable to the PACER Plus, the MAFTA and the RCEP Agreement. The amendments are in similar but not equivalent terms given that they relate to various clauses of each of those agreements.