Trade remedies, rules of origin, customs procedures and trade facilitation, SPS measures, and technical barriers to trade
Introduction
4.1
This chapter examines the regulatory arrangements in the Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) pertaining to trade in goods, specifically, trade remedies, rules of origin, customs procedures and trade facilitation, sanitary and phytosanitary (SPS) measures, and technical barriers to trade. Though the exact content may vary, these chapters are standard chapters in trade agreements as they are necessary to ensure appropriate regulatory arrangements are in place to facilitate trade in goods in general, and trade in goods where tariff reductions have been negotiated, in particular. They often refer to, and build on, relevant multilateral agreements.
4.2
Chapter 3 of the AI-ECTA establishes procedures to resolve serious threats to the domestic industry of one Party by exported goods of the other Party. These procedures are called ‘trade remedies’ and deal with dumping (anti-dumping measures), subsidies (countervailing measures), and unexpected surges in an imported good (safeguarding measures).
4.3
Chapter 4 of the AI-ECTA contains the rules of origin that permit the Parties to determine which products traded between the Parties are eligible for preferential tariff treatment. The chapter is unusual in that it is intended to be an interim arrangement while Australia and India negotiate a more comprehensive rules of origin arrangement. The chapter also deals with certificates of origin and verification.
4.4
Customs procedures and trade facilitation are dealt with in Chapter 5 of the AI-ECTA, which aims to promote more efficient and transparent procedures to facilitate bilateral trade.
4.5
SPS measures, addressed in Chapter 6 of the AI-ECTA, are measures adopted by a country to protect animal or plant life or health from risks arising from pests, diseases, disease-carrying organisms or disease-causing organisms. They also address risks arising from additives, contaminants, toxins or disease-causing organisms in foods, beverages or feedstuffs entering through international trade.
4.6
Technical barriers to trade refers to mandatory technical regulations and voluntary standards that may, amongst other things, define specific product characteristics, establish rules for production methods, or deal with packaging or labelling. While technical regulations and standards are essential for a range of reasons, the intent of the chapter is to ensure these are not used arbitrarily as a barrier to trade. These matters are addressed in Chapter 7 of the AI-ECTA, which also contains an annex on pharmaceuticals. Technical barriers to trade may also be relevant to trade in services.
Views on India’s regulatory environment
4.7
During the course of the Committee’s inquiry, participants commented on the often complex regulatory environment in India and its effect on bilateral trade. For instance, Australian Grape and Wine stated the complexity presented a barrier to greater investment in exporting Australian wine to India:
… import duties of 150%, with an additional Social Welfare Surcharge, Central Sales Tax and different state-based taxes including VAT [value-added tax], excise tax, sales tax and entry of goods tax make the market unattractive and unprofitable for most … In addition to these national taxes, each of the 28 States and 8 Union and National Territories have individual tax regimes.
4.8
Australian Grape and Wine identified a number of other regulatory obstacles to exporting to India, including:
extremely complex regulatory divergence between states and union territories
difficult import registration and audit requirements
lack of harmonisation in labelling requirements and of national standards related to allowable wine production and processes
testing methods and laboratory proficiency
trade and scientific sample provisions.
4.9
However, while acknowledging the AI-ECTA would not address all the technical or regulatory barriers to trade, Australian Grape and Wine was of the view it did ‘establish the beginning of technical cooperation with the objective of removing technical barriers to trade and the harmonisation of regulations’.
4.10
More generally, the Australian Chamber of Commerce and Industry stated:
In terms of trade facilitation issues, we look at those issues all of the time on behalf of our members on specific cases. Getting goods across borders can sometimes be a very difficult process … I think one of the benefits of having an early harvest agreement is that once it's ratified and we see it being implemented we will be able to see what more we can improve and we can then have another go at it through that comprehensive agreement. So I think that's a good process to follow.
4.11
The Business Council of Australia was of the view the AI-ECTA would improve transparency:
Non-tariff barriers including specific requirements and state-based approval processes can pose challenges when doing business in the Indian market. AI-ECTA contains commitments for both countries to make publicly available their laws, regulations, decisions, and rulings will improve transparency, which should assist Australian companies operating in India.
The creation of a Committee on Trade in Goods should assist to identify and address tariff and non-tariff barriers with the intention of ensuring that goods trade can grow and take advantage of new opportunities.
4.12
During the inquiry, the Department of Foreign Affairs and Trade (DFAT) acknowledged India’s regulatory regimes were complex, and regulations at the state and union territory level, while not reported by India, did add another level of complexity to India’s regulatory arrangements.
Trade remedies
4.13
Trade remedies are international trade processes to resolve serious threats to the domestic industry of one party by the exported goods of another party. Chapter 3 of the AI-ECTA sets out trade remedies for dealing with three of these serious threats:
countervailing measures for dealing with subsidies
safeguarding measures for dealing with an unexpected surge in an imported good.
4.14
The provisions in Chapter 3 of the AI-ECTA are based on existing World Trade Organization (WTO) agreements:
for anti-dumping, the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement)
for countervailing measures, the Agreement on Subsidies and Countervailing Measures (SCM Agreement)
for safeguarding, article XIX of the General Agreement on Tariffs and Trade 1994 (GATT 1994), the Agreement on Safeguards (Safeguards Agreement), and the Agreement on Agriculture (Agreement on Agriculture).
4.15
For safeguarding against an unexpected surge in imports, the AI-ECTA also contains an alternative bilateral process that can be used in certain circumstances.
Threats covered by the trade remedies chapter
Dumping
4.16
The Anti-Dumping Agreement defines dumping as one party introducing a product into the market of another party at less than its normal value, in other words, the product’s exported price is lower than the comparable price at which the product is sold in its home market.
Subsidies
4.17
The SCM Agreement defines a subsidy as a form of either direct or indirect financial support for a business or industry by a government with the intention of giving that business or industry a competitive advantage in international trade. Subsidies can be any one of the following:
a direct transfer of funds or a potential direct transfer of funds or loan guarantees
a forgoing or failure to collect government revenue
the provision of services by a government that does not involve infrastructure
the provision of funds by a government indirectly through an entity that uses those funds as a subsidy of the sort discussed above.
Unexpected quantities of imported goods
4.18
Article XIX of the GATT 1994 establishes the right of a party to take action in the event that, due to unforeseen developments and the effect of tariff reductions, a product is being imported into a party in unexpectedly increased quantities and under such conditions that it causes or threatens serious injury to the party’s domestic producers of the same or similar products.
4.19
The WTO process for dealing with serious injury or the threat thereof to an industry as a result of a high quantity of an imported good is set down in the Safeguards Agreement.
Agreement on Agriculture
4.20
Amongst other things, the Agreement on Agriculture permits ‘special safeguard’ provisions that allow additional duties to be applied in case of agricultural products where there is a surge of imports or if the price of imports falls below a certain level.
4.21
To access the special safeguard provisions, parties to the Agreement on Agriculture must identify to the WTO the agricultural product to which the special safeguard applies.
4.22
India has never identified any agricultural product for a special safeguard. Australia has identified some cheese and tobacco products for special safeguard protection. According to Australia’s current ‘Consolidated Tariff Schedule’ lodged with the WTO, Australia continues to maintain these special safeguards.
Investigation and remedies
4.23
While there are a range of import-related serious threats to domestic producers that are covered by different agreements, the processes for establishing that a serious threat exists, and quantifying the cost of that threat, are quite similar and involve an investigative process. Where an authority finds, after an investigation, that a threat exists, the authority must then determine the scope and type of the remedy to be provided to the aggrieved party. At this stage, the authority is generally required to release its findings to the public.
4.24
A number of remedies are available in the event an investigation finds that a serious threat exists to an industry of a party under the relevant WTO agreements.
4.25
Where a finding of dumping has been made, the aggrieved party can impose an anti-dumping duty, effectively a tariff, on the dumped imports up to the full margin of the difference between the price at which it is being dumped and the normal value of the exported product in its home market. The anti-dumping duty can be imposed only for as long as is necessary to counteract the injury caused.
4.26
In relation to subsidies, if an investigation by a party finds that a subsidy exists and that the subsidy is causing injury, it may impose a countervailing duty. If a party decides to impose a countervailing duty, the party must impose the duty in a non-discriminatory manner on all sources of imports found to be subsidised and causing injury. A countervailing duty can only remain in force for as long as is necessary to counteract the subsidisation that is causing injury.
4.27
In circumstances where it has been found that the quantity of imports of a product has increased sufficiently to cause injury to a domestic industry, the Safeguards Agreement permits parties to ‘choose measures most suitable‘ to achieve the objective of preventing or remedying serious injury and to facilitate adjustment in the industry. A party is to apply safeguard measures only to the extent necessary to achieve this objective. A party imposing a safeguard measure is to endeavour to maintain concessions to the exporting party substantially equivalent to value of the measures imposed as a safeguard.
4.28
Article 5 of the Agreement on Agriculture lists two circumstances (and associated means of calculating the safeguard) in which a party can impose a special safeguard:
the quantity of imports of an agricultural good from any source exceeds a predetermined trigger point in any year
the price of imports of an agricultural good from any source falls below a predetermined trigger point.
Key provisions in the trade remedies chapter
Anti-dumping and countervailing measures for subsidies
4.29
Articles 3.1 and 3.2 of the AI-ECTA affirm the rights and obligations of the Parties under article VI of the GATT 1994, the Anti-Dumping Agreement and the SCM Agreement.
Lesser duty rule
4.30
Under article 3.3 of the AI-ECTA, if a Party takes a decision to impose an anti-dumping or countervailing duty, it may consider applying a duty less than the margin of dumping or the amount of the subsidy, as relevant, where such lesser duty would be adequate to remove the injury to the domestic industry in accordance with the Party’s laws and regulations.
Safeguards for unexpected quantities of imported goods
4.31
The AI-ECTA provides two processes for dealing the safeguards issues, the global safeguards processes provided by article XIX of the GATT 1994, the Safeguards Agreement and the Agreement on Agriculture; and a bespoke bilateral process for the AI-ECTA Parties.
4.32
In relation to the Agreement on Agriculture, the Parties agree that the agricultural goods of either Party would not be subject to a special safeguard applied under the Agreement on Agriculture. This prevents Australia from applying its special safeguard measures to Indian agricultural exports to Australia.
Dispute settlement
4.33
Neither Party would have access to the dispute settlement provisions of Chapter 13 for disputes arising in relation to trade remedies if the Parties resort to the global safeguard measures. Parties are permitted to use the Chapter 13 dispute settlement provisions for disputes related to the bilateral safeguard process.
Bilateral safeguards process
4.34
The bilateral safeguards process applies during the transition period for each particular good. The transition period, in relation to a good, is the period from the date of entry into force of the AI-ECTA until 14 years after the date on which the elimination or reduction of the customs duty on that good is completed. This transition period, according to DFAT, was included at the request of India.
4.35
The bilateral safeguard process would allow either Party to initiate a safeguard process if, as a result of the reduction or elimination of a tariff under the AI-ECTA, an originating good of the other Party is imported in quantities, in absolute or relative terms, and under conditions that would cause or threaten serious injury to a domestic industry producing a like or directly competitive good.
4.36
The importing Party may apply one of the following safeguards measures:
the Party may suspend further reductions of any tariff on the good under the AI-ECTA
the Party may increase the rate of tariff applied to the good to a level that does not exceed the lesser of the most-favoured-nation (MFN) tariff rate appliable to the good at the time the safeguard measure is imposed or the MFN rate applicable on the date immediately prior to the AI-ECTA coming into effect.
4.37
Where a Party undertakes a bilateral safeguards process, it must use the procedures and requirements contained in articles 3 and 4.2 of the Safeguards Agreement.
4.38
Any bilateral safeguards measures imposed must be limited to:
that necessary to prevent or remedy serious injury and facilitate adjustment of the domestic industry
a maximum two years, extendable by a further year.
4.39
A range of provisions specify further conditions for the use of the bilateral safeguards process, deal with provisional safeguard measures, and liberalisation requirements on safeguards measures.
4.40
Article 3.9(1) of the AI-ECTA states:
A Party applying a bilateral safeguard measure shall, in consultation with the other Party, provide mutually agreed trade liberalising compensation in the form of concessions that have substantially equivalent trade effects or are equivalent to the value of the additional duties expected to result from the bilateral safeguard measure.
4.41
If this consultation process does not work, the Party whose goods are subject to the bilateral safeguard measure could suspend the application of substantially equivalent concessions to the trade of the Party applying the bilateral safeguard measure. The right to take this action cannot be exercised for the first two years a measure is in effect.
Rationale for global and bilateral safeguards measures
4.42
According to DFAT, the bespoke bilateral safeguards measures under the AI-ECTA, and global safeguards under article XIX of the GATT 1994 and the Safeguards Agreement, have different scope and application.
4.43
While both require proof of serious injury to a domestic industry, or threat thereof, and are subject to similar procedural requirements, a bilateral safeguard measure can only be applied during the transition period, where serious injury to a domestic industry results from increased imports of originating goods due to tariff elimination or reduction under the AI-ECTA.
4.44
Global safeguards address increased imports of a product causing serious injury, irrespective of source, and are not subject to a specified transition period.
4.45
Bilateral safeguards cannot be applied to any good imported under a tariff rate quota established under the AI-ECTA and can only be in force for a period of two years, with an extension provision of up to one year. In comparison, the WTO global safeguards can be imposed for up to four years with the possibility for extension up to a total of eight years.
4.46
DFAT stated the inclusion of bilateral safeguards in the AI-ECTA was not unusual. Australia has transitional safeguards in a range of its free trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Regional Comprehensive Economic Partnership Agreement, and bilateral agreements with China, Japan, the Republic of Korea and Peru.
Rules of origin
4.47
Rules of origin are an essential development of trade agreements. Trade agreements allow preferential access to products (goods) that are produced in the contracting parties. For the trade agreement to work, the contracting parties need to agree on a threshold, a ‘rule of origin,’ that defines a product as originating in one of the contracting parties. In other words, rules of origin answer the question: does this product qualify for preferential tariff treatment?
4.48
Chapters on rules of origin usually establish a set of rules for determining whether a product qualifies as an originating product of a contracting party, and contain a schedule listing which rules apply to each good. This is not the case for the AI-ECTA. Chapter 4 of the AI-ECTA instead contains an annex (Annex 4B) of ‘product specific rules of origin’ with an incomplete list of products from the harmonised system for which rules of origin have been agreed between the Parties. For products not contained in the product specific rules of origin list, a general rule of origin applies.
4.49
The reason for this is the chapter, and particularly the product specific rules list contained in Annex 4B, is intended to be an interim step in negotiating a more comprehensive rules of origin chapter. Article 4.3 commits the Parties to begin negotiations on a ‘Product Specific Rules Schedule’ that would contain product-specific rules for all tariff lines in the harmonised system, and to make appropriate amendments to the body of Chapter 4 once the AI-ECTA is ratified. If the Parties reach agreement, article 4.3 would incorporate the negotiated Product Specific Rules Schedule in Annex 4B and make any necessary changes to the body of the chapter following from this.
Key provisions in the rules of origin chapter
Originating products
4.50
Article 4.2 of the AI-ECTA states that unless otherwise provided in Chapter 4, a product shall be considered as originating if it is:
wholly obtained or produced in the territory of one or both Parties (wholly obtained or produced products)
produced in the territory of one or both Parties using non-originating materials and meets all the requirements of Annex 4B (products listed in the ‘product specific rules of origin’ in Annex 4B)
produced in the territory of one or both Parties using non-originating materials and meets all the requirements of article 4.3 (products not listed in the ‘product specific rules of origin’ in Annex 4B).
Wholly obtained or produced products
4.51
For the purposes of article 4.2, a product wholly obtained or produced in a Party is one of the following:
plant and plant products including fruit, vegetables, flowers, trees, seaweed, fungi, algae, and live plants grown, harvested or picked there
live animals born and raised there
products obtained from live animals born and raised there
products obtained by hunting, trapping, fishing, aquaculture, gathering or capturing there
minerals and other naturally occurring substances extracted or taken from the soil, waters, seabed or subsoil beneath the seabed there
fish, shellfish and other marine life extracted or taken from the sea, seabed or subsoil beneath the seabed beyond the outer limits of the territories of each Party and outside the territorial waters of non-Parties by vessels that are registered with a Party and are entitled to fly the flag of the Party, and products extracted from marine life on factory ships that are registered with a Party and are entitled to fly the flag of that Party
products other than fish or shellfish extracted from the seabed or subsoil beneath the seabed outside the territorial waters of a Party provided the Party has rights to exploit those products
waste and scrap derived from production or consumption there for recycling purposes only
products produced in the Parties from the above-mentioned products.
Product-specific rules of origin—Annex 4B
4.52
Section B of Annex 4B sets out the product specific rules for a range of products in the harmonised classification system. As discussed above, Annex 4B lists only the products for which there is a product specific rule pending further negotiations between the Parties on a complete harmonised classification system schedule of product specific rules.
4.53
To qualify under the rules of origin, the non-originating materials used in products produced entirely in the territory of one or both of the Parties must have undergone some kind of transformation. These requirements are set out in Annex 4B, where that product is covered by Annex 4B.
4.54
The product specific rules of origin currently in Annex 4B are limited to a handful of chapters of the harmonised classification system, including:
some chapters or partial chapters of the harmonised system relating to primary produce for human consumption or to agricultural or horticultural products (chapters 1-3, 5-12, 14-17, 19, 21, 22)
some tariff lines listing animal hides, including raw hides of bovine and equine animals and sheep, and raw fur hides
tariff lines for waste and scrap paper
tariff lines for silkworm cocoons, raw silk and silk waste, raw cotton and cotton waste
tariff lines for jewellery of precious metal or clad in precious metal
tariff lines for goldsmiths’ or silversmiths’ wares in – precious metal or clad in precious metal
some tariff lines for iron and steel (including stainless steel and alloy steel) in ingots or other primary forms, semi-finished products, flat rolled products, bars and rods, angles, shapes and sections, and wire.
4.55
Article 7 of Annex 4B lists the rules that apply for the product to meet the rules of origin. Each tariff line in Annex 4B indicates which of these rules must be met:
WO—wholly obtained in the territory of one or both Parties
CC—all non-originating materials have undergone a change in classification at the two-digit (chapter) level
CTH—all non-originating materials have undergone a change in classification at the four-digit (heading) level
CTSH—all non-originating materials have undergone a change in classification at the six-digit (sub-heading) level
QVC (X)—the good must have a qualifying value content (QVC) as calculated under article 4.6 of not less than (X) per cent whether using the build-up or build-down method
melt and pour—the product must have undergone a melt and pour in one or both of the Parties wherein the product must be produced in an iron or steel making furnace in a liquid state and then poured into its first solid state.
Products meeting the requirements of article 4.3
4.56
Article 4.3 states that products that do not meet the requirements of article 4.2 and are not covered by Annex 4B shall be considered originating if:
all non-originating materials have undergone at least a change in tariff sub-heading (CTSH) level of the harmonised system, and
the QVC of the good is not less than 35 per cent of the free on board value (FOB value) as per the build-up formula, or not less than 45 per cent of the FOB value as per the build-down formula, provided the final production process is undertaken in one the Parties.
Qualifying value content
4.57
The QVC can be calculated in one of two ways: build-down formula or build-up formula.
Build-down formula
Build-up formula
4.60
There are a number of ancillary clauses in article 4.6 that qualify what material and production costs can be used to calculate the QVC:
the value of material used in production
the value of originating production applied to non-originating material and the value of originating materials used in the production of non-originating material
the costs that can be added to the value of originating material
the expenses that can be deducted from the value of non-originating material.
4.61
The chapter also contains a number of other rules concerning what can and cannot be considered originating including rules dealing with:
insufficient working to confer on a good the status of an originating product
flexibility concerning some non-originating materials that do not satisfy the change in tariff classification in Annex 4B
fungible (interchangeable) goods or materials
Certificates of origin
4.62
Certificates of origin are required to obtain preferential treatment, that is, access to the tariff rates negotiated in the AI-ECTA. A significant portion of the chapter deals with certificates of origin to ensure transparency and integrity in the process of issuing certificates of origin and granting claims for preferential treatment.
4.63
Each Party is required to grant preferential tariff treatment to an originating good based on a certificate of origin provided by an exporter or producer. Provisions in the chapter deal with:
applying for a certificate, including information requirements
risk-management systems, examination activities, information preservation requirements, and penalties for misrepresentation
the content and issuing of a certificate of origin
procedures to grant claims for preferential treatment, including customs import declarations, and claiming preferential treatment after importation.
4.64
The chapter establishes the grounds for an importing Party to deny a claim for preferential treatment:
the product does not qualify as originating within the terms of this chapter
it has not received enough information to make a determination, or the producer or exporter refuses to respond to a request for information, under a verification procedure, outlined below
the exporter fails to comply with any of the requirements for obtaining preferential tariff treatment
the exporter, producer, or issuing bodies or authorities of the exporting Party have failed to provide sufficient information within the prescribed timelines to verify origin or in response to a request in relation to a verification procedure
the exporter or producer does not give consent to a verification visit by the customs authority of the importing Party.
4.65
Under article 4.15(5), the Parties would commence a review of article 4.15 (certificates of origin) two years after the AI-ECTA comes into force with a view to permitting declarations of origin by exporters to qualify as certificates of origin.
Verification
4.66
The customs administration of the importing Party may conduct a verification process to determine whether products imported from the exporting Party qualify as originating. The verification process would include a written request for information from the importer of the product and a written request for information from the issuing authority of the exporting Party if the information provided by the importer is not sufficient. Where required, in certain circumstances the verification process may include a visit to the premises of the exporter or producer in the territory of the other Party, and any other procedures to which the Parties may agree.
4.67
The verification process can take place at the time the customs import declaration is lodged, or before or after the release of the products by the importing customs administration.
4.68
Where a verification process has been initiated, the issuing body or authority of the exporting Party shall provide confirmation pertaining to the certificate of origin along with a copy of the minimum required information within 90 days, with extensions permitted in certain circumstances. At the conclusion of the verification process, the customs authority must issue a written determination.
4.69
Other provisions deal with requests for assistance, the release of products, and suspending preferential tariff arrangements.
Joint Technical Subcommittee
4.70
The Parties agree to establish a Joint Technical Subcommittee on Rules of Origin and Customs Procedures and Trade Facilitation (Joint Technical Subcommittee) to consult to ensure the chapter is administered effectively, and to discuss amendments to the chapter and relevant annexes in the event of amendments to the harmonised system. The article establishing the Joint Technical Subcommittee does not mention the Joint Technical Subcommittee being involved in the negotiations concerning the product specific rules schedule.
Customs procedures and trade facilitation
4.71
In trade agreements, the notional point at which an importer can make a claim for preferential tariff treatment is when a good passes through customs. Chapter 5 of the AI-ECTA builds on commitments under the WTO Agreement on Trade Facilitation (Agreement on Trade Facilitation) and supports transparency of rules and procedures.
4.72
Broadly, the chapter requires the Parties to:
endeavour to ensure that their customs procedures are applied in a manner that is consistent, predictable, and transparent
adopt or maintain simplified customs procedures for the efficient release of goods to facilitate trade between Parties
endeavour to provide single point of entry or a single window mechanism for electronic customs transactions.
4.73
In general, non-tariff measures such as customs procedures can contribute significantly to market access challenges. Customs duties along with import licences, standards and certification requirements add cost and complexity to trading. The India Economic Strategy noted despite India’s efforts to improve customs procedures by introducing a risk management system and self-assessment process, its customs tariff and fee system remained complex and lacked transparency in determining net effective rates or other duties and charges.
4.74
While acknowledging the complexity of India’s customs system, DFAT was of the view progressive reduction, elimination and binding of India’s tariffs would help reduce some of this complexity.
Agreement on Trade Facilitation
4.75
The principal multilateral agreement on customs and trade facilitation is the Agreement on Trade Facilitation. The Parties affirm their rights and obligations under the Agreement on Trade Facilitation.
4.76
The Agreement on Trade Facilitation contains the following:
an obligation to publish in readily available formats relevant customs details, including customs procedures, costs, restrictions and prohibitions on imports, penalty provisions, and information concerning trade agreements with customs and trade facilitation provisions
an obligation to provide a ruling on the tariff and origin particulars of a good to an applicant before importation takes place, provided the applicant has submitted a complete application within the relevant timeframe
a commitment that fees for customs processing shall reflect the approximate cost of that processing
in relation to the processing of goods through customs, parties must provide pre-arrival processing of customs paperwork, electronic payment for tariffs and fees, and issue permits for the release of the goods before customs clearance
parties are to adopt a risk management-based system for assessing which consignments of goods will undergo inspection, and each party shall adopt a process for post-clearance audit of customs processes to ensure compliance with laws and regulations
parties must establish a system for expedited customs processing when requested for goods that arrive by air, and perishable goods must be released in the shortest possible time.
Key provisions in the customs procedures and trade facilitation chapter
4.77
Chapter 5 of the AI-ECTA applies to customs procedures applied to goods traded between the Parties and is to be implemented in accordance with each Party’s respective customs laws, subject to the competence and available resources of the customs administration of each Party.
Customs procedures
4.78
Each Party is to endeavour to apply their customs procedures in a manner that is consistent, predictable, and transparent. In addition, the customs procedures of each Party are to conform, where possible and to the extent permitted by its customs laws, to the recommended practices of the World Customs Organization (WCO).
4.79
The chapter requires Parties to provide for pre-arrival processing to expedite the release of goods. It requires Parties to have procedures for the release of goods that:
release goods within a period no longer than that required to ensure compliance with the customs laws of a Party and as rapidly as possible after the arrival of the goods, provided certain requirements are met
endeavour to allow goods to be released without temporary transfer to warehouses or other facilities, to the extent possible, and where consistent with laws and regulations and customs procedures
allow for the release of goods prior to the final determination of customs duties, taxes, charges, and fees not determined prior to or promptly upon arrival, provided certain conditions are met
provide, to the extent possible, the clearance of certain goods with a minimum of documentation.
4.80
Notwithstanding these requirements, a Party retains the right to examine, detain, seize, confiscate, or refuse entry of goods, or to carry out post-clearance audits, including in connection with the use of risk management systems. A Party can also require, as a condition of release, the submission of additional information.
4.81
Other provisions deal with the release of perishable goods, including that they are, under normal circumstances, to be released in the shortest time possible after arrival and submission of required information.
Transparency
4.82
In a manner consistent with domestic laws and regulations, Parties are to publish in advance draft laws and regulations relevant to trade between the Parties. Each Party is also to publish regulations governing customs matters that it proposes to adopt and to provide, to the extent possible, the opportunity for interested parties to comment prior to their adoption. Subject to available resources, each Party is to establish or maintain one or more enquiry points to address reasonable enquiries concerning customs matters. Information relating to enquiry points is to be available online.
Risk management
4.83
To the extent possible, the Parties are required to adopt a risk management system for customs control that enables customs authorities to focus on inspecting high-risk consignments while expediting the release of low-risk consignments. Risk management is to be applied in a manner that avoids arbitrary or unjustifiable discrimination, or disguised restrictions to international trade.
Single window
4.84
Article 5.7 requires each Party to endeavour to adopt or maintain a single-entry point or single window that allows importers and exporters to electronically provide standardised information related to imported and exported goods. Various requirements for such a facility are established, including that it implements common standards under the WCO Data Model and takes into account other international standards and models.
Review and appeal
4.85
Importers wishing to appeal an administrative decision are to be provided access to an administrative review of that decision, or a judicial appeal or review of the decision.
Advance rulings
4.86
An importer in the territory of a Party or an exporter in the other Party’s territory can apply for an advance ruling, including regarding:
the tariff classification of a good
whether the good meets the rule of origin requirements
the appropriate method or criteria used for determining the customs value in accordance with the Customs Valuation Agreement
any other matters that may be specified under a Party’s domestic advance ruling system.
4.87
An advance ruling can only be provided if the applicant has met all the obligations required to obtain such a ruling. Ideally, an advance ruling should permit goods to pass through customs unhindered. A Party may refuse to issue an advance ruling if there is some dispute as to the facts and circumstances at issue.
4.88
Advance rulings are to remain in effect for at least three years. An advance ruling may be modified or revoked, including if the ruling was based on incorrect facts or mistake of law, if there is a change in law or circumstances, or if the ruling has been obtained by fraud or misrepresentation of facts.
Customs cooperation
4.89
Parties are to, in accordance with their laws, regulations and customs procedures, encourage cooperation and exchange information with each other on customs matters. The Parties’ customs administrations are to assist each other, where possible, in relation to:
the implementation and operation of the chapter
developing and implementing customs best practice and risk management techniques
simplifying and harmonising customs procedures
application of the Customs Valuation Agreement
exchanging information, including information on best practices, relating to customs matters
other customs issues mutually determined by the Parties.
SPS measures
4.90
SPS measures are measures adopted by a country to protect animal or plant life or health within a country from risks arising from the entry, establishment or spread of pests and diseases. In addition, the measures are designed to protect human or animal life or health within a country from risks arising from additives, contaminants, and toxins or disease-causing organisms in foods, beverages, or feedstuffs. SPS measures also prevent or limit other damage within a country from the spread of pests.
4.91
SPS measures include relevant laws, regulations, requirements, and procedures. Procedures include processes and production methods; measures applying to the final product of a production process; testing, inspection, certification and approval procedures; quarantine procedures for the transport of animals or plants, or with the materials necessary for their survival during transport; methods of risk assessment; and packaging and labelling requirements directly related to food safety.
4.92
The objectives of Chapter 6 of the AI-ECTA, which addresses SPS measures, are to:
reaffirm rights and obligations under the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement), while supporting its enhanced implementation
provide a framework to facilitate bilateral trade between Parties while protecting human, animal, and plant life
enhance transparency and mutual understanding of each Party’s regulations and procedures relating to SPS measures and ensure that measures do not create unjustified barriers to trade
strengthen cooperation, communication, and consultation between the Parties.
4.93
The general principles governing SPS measures, which are contained in the AI-ECTA, either directly or through the affirmation of the SPS Agreement, are that Parties:
only adopt measures to the extent necessary to fulfill the purpose of SPS measures
adopt measures that do not arbitrarily or unjustifiably discriminate against other Parties when identical conditions exist
ensure a Party’s SPS measures do not create unjustified barriers to trade.
SPS Agreement
4.94
The chapter invokes the SPS Agreement and decisions of the WTO SPS Committee in several provisions. Amongst other things, the Parties affirm their rights and obligations with respect to each other under the SPS Agreement; the AI-ECTA does not affect the rights and obligations of each Party under the SPS Agreement; the definitions in the SPS Agreement apply to the chapter; and the Parties agree to support the enhanced implementation of the SPS Agreement and to strengthen cooperation on equivalence in accordance with the SPS Agreement. The Parties also agree to apply certification requirements and undertake audits in accordance with the SPS Agreement.
4.95
To harmonise SPS measures internationally, parties to the SPS Agreement must attempt to base their SPS measures on international standards and guidelines. Parties should only adopt SPS measures over and above international standards where there is a scientific justification for doing so.
4.96
Parties must accept the SPS measures of other parties as equivalent to their own if the exporting party can demonstrate to the importing party an appropriate level of SPS protection.
4.97
At the core of the SPS Agreement is the mechanism for assessing the SPS risk and balancing the SPS measures limiting risks with the economic costs such measures may inflict. Article 5.2 of the SPS Agreement discusses what needs to be taken into account in assessing risk:
In the assessment of risks, [parties] shall take into account available scientific evidence; relevant processes and production methods; relevant inspection, sampling and testing methods; prevalence of specific diseases or pests; existence of pest — or disease — free areas; relevant ecological and environmental conditions; and quarantine or other treatment.
4.98
Assessing risk must also take into account the potential damage, the cost of control or eradication, and the relative cost-effectiveness of alternative approaches to limiting risks.
4.99
The SPS Agreement also requires parties to avoid arbitrary and unjustifiable differences in the level of SPS protection considered appropriate in different situations if it results in discrimination or a disguised impediment to international trade.
4.100
In the event sufficient scientific information is not available on an SPS risk, a party may provisionally adopt SPS measures on the basis of available pertinent information, including from relevant international organisations, as well as from SPS measures applied by other parties. In these circumstances, parties must seek to obtain the additional information necessary for a more objective assessment of risk within a reasonable period of time.
Key provisions in the SPS chapter
Recognition of regional conditions
4.101
The Parties recognise that SPS measures can be adapted to recognise regional conditions through the application of concepts such as pest or disease-free areas, or areas of low pest or disease prevalence. When developing measures based on regionalisation, the Parties are to take into account the relevant decisions of the WTO SPS Committee and relevant international standards, guidelines and recommendations.
4.102
When an importing Party establishes or maintains an SPS measure applicable to the exporting Party, the exporting Party may request the importing Party recognise its regional conditions for any relevant pest or disease. Article 6.5 contains provisions that establish the procedure for responding to a request for recognition, undertaking an assessment, and notifying the other Party of the outcome. The article also deals with situations where a Party may modify or revoke a determination to recognise regional conditions.
Equivalence
4.103
Under article 6.6, an importing Party is required to recognise the equivalence of an individual SPS measure, group of measures or systems if the exporting Party objectively demonstrates to the importing Party that its measure achieves the same level of protection as the importing Party’s measure, or that its measure has the same effect in achieving the objective as the importing Party’s measure. However, the final determination of equivalence rests with the importing Party, which is required to adhere to international guidelines, standards and recommendations.
4.104
In determining equivalence, the importing Party is required to take into account available knowledge, information and experience as well as the regulatory competence of the exporting Party. Article 6.6 provides a procedure for consultations with the aim of achieving bilateral recognition of arrangements of equivalence.
4.105
The equivalence provisions promote the principles of accountability and transparency. Where a Party concludes an equivalence determination of the other Party’s measures, the Party is to notify the other Party in writing, and where equivalence is not granted, provide reasons for the determination.
Transparency and exchange of information
4.106
Parties are required to take certain actions to promote transparency and the exchange of information between Parties, including to:
notify the contact point of the other Party of any new or revised SPS measure that may affect trade between the Parties, including emergency measures (in accordance with the SPS Agreement)
respond within a reasonable period of time to any request for information or clarification from the other Party regarding its SPS measures
when receiving a reasonable request for information, provide available information to the requesting Party within a reasonable period of time
notify the exporting Party of a significant and sustained or recurring pattern of non-conformity with an SPS measure
normally allow at least 60 days for the other Party to provide written comments on a proposed measure, and to consider a reasonable request to extend this comment period.
Certification
4.107
The Parties agree to work cooperatively to promote the implementation of paperless trade through electronic SPS certification. The Parties are required to accept certificates issued by the competent authorities of the exporting Party where they are compliant with the regulatory requirements of the importing Party.
Audits
4.108
Audits, which are to be undertaken in accordance with Annex C of the SPS Agreement, must be systems-based and conducted to assess the effectiveness of regulatory controls in order to provide required assurances and meet the SPS measures of the importing Party. Prior to an audit, the Parties are to endeavour to agree on the objective, scope and commencement of the audit.
4.109
The importing Party is to provide the other Party an opportunity to comment on the findings of an audit, with the comments being taken into consideration before making conclusions and taking action.
4.110
Measures taken by the importing Party as a consequence of its audit are:
to be supported by objective evidence and data
take into account the importing Party’s knowledge of, relevant experience with, and confidence in, the exporting Party
not to be more trade restrictive than necessary to achieve appropriate levels of protection.
Import checks
4.111
Import checks are to be based on the SPS risk associated with importations and carried out in the least trade-restrictive manner.
4.112
If import checks reveal non-compliance:
final decisions or action must be appropriate to the SPS risk associated with the non-compliant product
the importing Party must ensure that the plant, animal or other product and its packaging is inspected using appropriate risk-based sampling methods.
4.113
An importing Party is to provide means other than destruction to manage risk (such as treatment or re-export), unless there is clearly identified high-risk.
Technical consultations
4.114
If a Party has specific trade concerns regarding SPS measures (proposed or implemented), it may request technical consultations.
4.115
Where a Party considers that an SPS measure from the other Party is affecting its trade with the other Party, it may request a detailed explanation of the SPS measure including the scientific basis of the measure.
Emergency SPS measures
4.116
A range of provisions deal with emergency SPS measures, including notification and consultation requirements, and arrangements with regard to consignments being transported at the time of the adoption of an emergency measure.
4.117
If a Party adopts an emergency measure, it is to review the scientific basis of that measure within six months with the aim of developing a revised measure that would permit trade to recommence.
4.118
In the event that the measure is maintained after the review, the measure must be reviewed at least every six months thereafter periodically, based on the most recent available information.
Subcommittee on SPS matters
4.119
Article 6.15 establishes the Subcommittee on SPS Measures, which would be comprised of representatives from the relevant government agencies of each Party. It is to:
review the progress made by the Parties in implementing their commitments under the chapter
provide a forum for either Party to raise any SPS matter related to trade between Parties and for further discussion and information exchange, including on request for recognition of equivalence or of regional conditions, or on specific requirements and innovations for certification.
Non-application of dispute settlement
4.120
Neither Party shall have recourse to dispute settlement (Chapter 13) for any matter arising under Chapter 6.
Technical barriers to trade
4.121
Chapter 7 of the AI-ECTA utilises the terms and definitions set out in Annex 1 of the Agreement on Technical Barriers to Trade (TBT Agreement), and the Parties affirm their rights and obligations under that agreement. Technical barriers to trade, according to the TBT Agreement, are mandatory technical regulations and voluntary standards that:
define specific characteristics that a product should have, such as size, shape, design, labelling, functionality or performance
establish rules, guidelines or characteristics for processes and production methods
deal with terminology, symbols, packaging, marking or labelling rules as they apply to a product, process or production method.
4.122
They are usually introduced by governments for legitimate public policy objectives, such as:
labelling of food ingredients
technical specifications of cars
safety and energy efficiency of home appliances.
4.123
The term ‘technical barriers to trade’ also encompasses procedures used by regulatory authorities (conformity assessment procedures) to verify compliance with regulatory requirements, such as product testing, inspection or certification. Conformity assessment procedures may also involve testing the technical regulations or standards of an exporting party to determine if those technical regulations or standards meet the equivalent standards of an importing party. Conformity assessment facilitates market access by eliminating technical barriers to trade with respect to particular products.
4.124
Chapters on technical barriers to trade are included in trade agreements because technical regulations and standards can have an impact on the competitiveness of exporters. Exporters may need to adjust products and production processes to comply with different requirements in export markets, and demonstrate compliance with these requirements. The significance of technical regulations and standards in international trade has also increased as tariffs have been removed or reduced and governments have introduced regulatory requirements to address health, safety or environmental concerns.
4.125
The objective of the TBT Agreement, and chapters in bilateral agreements on technical barriers to trade, is to ensure technical regulations and standards are not used to discriminate or arbitrarily restrict international trade, and to prevent technical regulations and standards inadvertently restricting international trade. According to the WTO, the TBT Agreement is not intended to undermine the right of governments to take measures to pursue legitimate public policy objectives. Rather, the TBT Agreement is intended to ensure such measures are prepared, adopted and applied according to some basic principles in order to minimise the negative impact on trade.
4.126
In response to questions about technical barriers to trade in India, DFAT stated that while it was not possible to numerically quantify the extent of technical barriers to trade in India:
One approximation is the number of technical notifications notified by India to the WTO. From the period 2015 – 2020 (ending June), India notified 102 new technical regulations … Not all of these notified measures necessarily represent barriers to trade. However, over the same period, 24 Specific Trade Concerns were raised against India in the WTO Committee on Technical Barriers to Trade.
Recent developments in Indian standards and technical regulation
4.127
According to a recent report by the Asian Development Bank and South Asia Subregional Economic Cooperation, in 2016 India overhauled its standards legislation and, amongst other things, introduced a compulsory certification regime for certain goods and services and simplified conformity assessment procedures. According to the report, India has made ‘substantial progress’ in reforming its SPS and technical barriers to trade environment.
4.128
Nevertheless, the report found India ‘still faces multidimensional challenges’ in its domestic legislative and regulatory framework for SPS and technical barriers to trade measures including:
the absence of a robust legislative framework and technical regulations in sectors such as telecommunications, electronics, information technology products, toys and chemicals
complex and overlapping regulations administered by a large number of regulatory bodies under various ministries
lack of alignment of national standards with international standards
enforcement related issues, including a lack of uniformity in the interpretation of legislation and its implementation, weak enforcement infrastructure, inadequate testing agencies, a shortage of skilled inspectors, and a lack of skilled personnel
lack of information on regulations of other countries.
Key provisions in the technical barriers to trade chapter
Objectives and scope
4.129
The objective of Chapter 7 of the AI-ECTA which addresses technical barriers to trade, is to facilitate trade in goods between the Parties by:
ensuring that standards, technical regulations, and conformity assessment procedures do not create unnecessary obstacles to international trade.
furthering cooperation on matters related to the TBT Agreement
promoting mutual understanding
facilitating information exchange and cooperation among the Parties in specific fields including in the work of relevant regional and international bodies
addressing the issues that may arise under the chapter.
4.130
Chapter 7 applies to standards, technical regulations, and conformity assessment procedures at the central level of government that may affect trade in goods between Parties.
4.131
Parties are required to take reasonable measures, as may be available, to ensure compliance in the implementation of this chapter by local government bodies and non-governmental bodies.
4.132
The chapter does not prevent Parties from adopting or maintaining standards, technical regulations, and conformity assessment procedures, providing they are consistent with the TBT Agreement and the chapter.
Standards
4.133
Under the TBT Agreement, where certain technical regulations or standards are to be developed or procedures for conformity assessment are to be established, members are generally required to base these on relevant international standards, guides or recommendations, where they exist. The AI-ECTA specifies that in determining whether an international standard, guide or recommendation exists in relation to the TBT Agreement requirements, the Parties are required to apply the principles set out in the Decision of the Committee on Principles for the Development of International Standards, Guides and Recommendations with relation to Articles 2, 5 and Annex 3 of the TBT Agreement.
4.134
Where international standards are modified in the development of national standards, on request, a Party shall encourage its standardising bodies to identify the differences and provide a rationale, if not provided within the standard itself. Similar requirements are made with regard to technical regulations under article 7.6.
4.135
Each Party shall ensure that standards are not adopted or applied with a view to creating unnecessary obstacles to international trade.
4.136
The standardising bodies of Parties are encouraged to cooperate through exchange of information and cooperation in areas of mutual interest. The Parties agree, as appropriate, to strengthen coordination and communication with each other regarding discussions on international standards and related issues in international fora.
Technical regulations
4.137
Upon request, each Party is to give positive consideration to accepting as equivalent, technical regulations of the other Party, even if these regulations differ from its own, provided the Party is satisfied the regulations adequately fulfill the objectives of its own regulations.
4.138
Except in the cases of urgency, Parties are to allow reasonable intervals between the publication of technical regulations and their entry into force to provide time for producers to adapt their products or methods of production.
Conformity assessment procedures
4.139
Conformity assessment can generally take two forms:
recognising the equivalence of technical regulation for products subject to equivalent regulations between parties, which involves mutual recognition that products of an exporting party meet the regulations and standards of the importing party
mutual acceptance that products not commonly regulated, and for which the importing party has no technical regulation or standard, can be exported by the other party.
4.140
Under the AI-ECTA, where positive assurance is required to confirm that products conform with technical regulations or standards, and relevant guides or recommendations issued by international standardising bodies exist, Parties must ensure that they use those as the basis for their conformity assessment procedures, except where such standards are inappropriate for the concerned Party.
4.141
The AI-ECTA requires that Parties are to:
ensure that, whenever possible, results of conformity procedures in the other Party are accepted, provided the Party is satisfied that those procedures offer an assurance of conformity with applicable technical regulations or standards equivalent to its own procedures
upon request, explain reasons for not accepting results of conformity assessment procedures.
Acceptance of facilitation mechanisms
4.142
The Parties recognise that a broad range of mechanisms exist to facilitate the acceptance of the results of conformity assessment procedures conducted by the other Party. These may include mutual recognition agreements, voluntary cooperative arrangements, using accreditation to qualify conformity assessment bodies, designation of conformity assessment bodies, unilateral recognition of conformity assessment results of the other Party, or manufacturers’ or suppliers’ declaration of conformity.
4.143
Upon reasonable request, Parties are required to exchange information on facilitation mechanisms with a view to promoting the acceptance of conformity assessment procedure results.
Conformity assessment procedure cooperation
4.144
The AI-ECTA also contains some cooperative provisions specifically dealing with conformity assessment, including:
recognising the important role that relevant international and regional organisations play in cooperation on conformity assessment
agreeing to encourage cooperation between the relevant conformity assessment bodies with a view to facilitating acceptance of conformity assessment results between the Parties
where possible, permitting the participation of conformity assessment bodies of the other Party in the Party’s conformity assessment procedures on the same terms as those accorded to the conformity assessment bodies of the Party, and providing reasons if participation is refused.
Cooperation
4.145
The Parties are to encourage cooperation between organisations responsible for standardisation, conformity assessment and accreditation, with a view to facilitating trade, and the chapter suggests a range of cooperative activities the Parties may undertake.
Transparency
4.146
The Parties affirm their commitment to ensuring that information regarding proposed new or amended standards, technical regulations, and conformity assessment procedures is made available in accordance with the relevant requirements of the TBT Agreement as well as the Decisions and Recommendations Adopted by the WTO Committee on Technical Barriers to Trade since 1 January 1995, and any subsequent revisions.
Ongoing consultation
Information exchange and technical discussions
4.147
Parties may request information on matters arising under the chapter through their respective contact points. This information is to be provided in a reasonable period of time.
4.148
Parties may also request, in writing, technical discussions with the other Party to resolve trade-related issues or other matters arising under the chapter. Technical discussions must be entered into within 60 days unless otherwise mutually determined.
Subcommittee on Standards, Technical Regulations and Conformity Assessment Procedures
4.149
Article 7.12 establishes the Subcommittee on Standards, Technical Regulations and Conformity Assessment Procedures. The functions of the subcommittee may include:
monitoring the implementation of the chapter
coordinating cooperation (pursuant to article 7.8)
facilitating technical discussions
reporting, where appropriate, to the Subcommittee on Goods
carrying out other functions as may be delegated by the Subcommittee on Goods.
Annex on pharmaceuticals
4.150
Annex 7A of the AI-ECTA stipulates that the Parties’ therapeutic goods regulators will work together to facilitate trade in human prescription medicines (including prescription generic and biosimilar medicines) and medical devices.
4.151
To facilitate this trade, regulators are to utilise, as appropriate, reports from comparable overseas regulators in relation to the pre-market evaluation of products manufactured in the territory of the other Party, and may utilise as appropriate, good manufacturing practice inspection reports from comparable regulators.
4.152
There is no recourse to dispute settlement under Chapter 13 for any matter arising under the annex.