Referral
1.1
The Customs Amendment (Controlled Trials) Bill 2021 (the bill) was introduced and read a first time in the House of Representatives on Wednesday, 24 November 2021.
1.2
On 2 December 2021, on the recommendation of the Senate Selection of Bills Committee (Selection of Bills Committee) the provisions of the bill were referred to the Senate Legal and Constitutional Affairs Legislation Committee (the committee) for inquiry and report by 22 March 2022.
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The Selection of Bills Committee’s report did not provide specific reasons for recommending that the bill be referred to the committee.
Conduct of the inquiry
1.4
The committee advertised the inquiry on its webpage, and set 31 January 2022 as the closing date for submissions. The committee also wrote to a range of key stakeholder groups and organisations, drawing their attention to the inquiry and inviting them to make written submissions.
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The committee received 2 submissions to its inquiry, which are listed at Appendix 1. The submissions were also published on the committee’s inquiry webpage.
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The committee agreed not to hold public hearings, and to instead conduct the inquiry on the papers, with reference to submissions, information contained in the bill’s Explanatory Memorandum, and the bill itself.
Purpose of the bill
1.7
The bill is part of the government’s Simplified Trade System (STS) agenda, announced in the 2020-21 Budget with an allocation of $37.4 million for STS reform. An STS Taskforce has been established, which will “review international trade regulations and modernise outdated ICT systems” to assist both importers and exporters. The STS agenda will aim to reduce red tape and simplify border processes, to the benefit of Australian exporters.
1.8
To this end, the bill would establish a new regulatory framework and facilitate proof‑of‑concept trials of new technology, business models and regulatory approaches, with appropriate regulatory oversight. It is envisioned that the trial results will support the process of simplifying the Australian customs framework, while at the same time maintaining and achieving Australia’s border security objectives.
1.9
It is intended that the new regulatory framework will encourage innovation through testing new business models, technologies and regulatory approaches in a defined area, with appropriate safeguards. The new framework would also facilitate the government’s ability to build an evidence-base for future, larger-scale deregulation and technology reforms, as well as the development of best practice regulation.
1.10
The bill proposes amendments to the Customs Act 1901 (the Customs Act). The bill also proposes consequential amendments to the Australian Border Force Act 2015 (ABF Act). The amendments would facilitate time-limited trials, with approved entities, in a controlled regulatory environment.
1.11
The new legislation would enable trials to be established with respect to the following parts of the Customs Act and associated regulations:
Part IV – Imports (excluding prohibited imports);
Part VI – Exports (excluding prohibited exports);
Part VIA – Electronic Communications;
Part XI – Agents and Customs Brokers; and
Part XVA – Tariff Concession Orders.
1.12
As detailed by the Explanatory Memorandum, the proposed new regulatory framework would be inserted through new Part XB of the Customs Act, and would contain four divisions, as follows:
Division 1: would provide a simplified outline of new Part XB of the Customs Act and its scope;
Division 2: would outline the entity’s obligations and the benefits an entity may receive if the entity is approved to participate in a controlled trial;
Division 3: would outline the administration of participation in controlled trials. This includes the requirements for applications to participate in a controlled trial, elections to participate, the process for approving participation, conditions of approvals and the variation, suspension or revocation of approvals;
Division 4: would outline the Comptroller-General of Customs’ rule making powers with respect to controlled trials. The Comptroller-General of Customs may make general rules that determine the qualification criteria to participate in any trial. The Comptroller-General of Customs may also make rules outlining the establishment, purpose, period of operation, eligibility criteria, conditions and affected obligations under the Customs Act for each controlled trial. The Comptroller-General of Customs may also extend or revoke a controlled trial through these rule making powers.
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The new regulatory framework would also enable the Australian Border Force (ABF) to collaborate with industry in conducting proof of concept trials of new trade practices. Conducting trials through this framework would allow the ABF to build a robust evidence base and to inform the government’s future decisions on larger scale reform under the STS agenda.
Legislative scrutiny
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The bill was considered by the Senate Standing Committee for the Scrutiny of Bills (the Scrutiny Committee).
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In accordance with Senate Standing Order 24, the Scrutiny Committee examined the bill to determine the effect of the proposed legislation on individual rights, liberties and obligations, and on parliamentary scrutiny.
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The Scrutiny Committee noted that the bill seeks to amend the Customs Act “to insert proposed Part XB to facilitate time-limited trials of trade and customs practices with approved entities in a controlled regulatory environment”. It was also noted that proposed section 197K provides that the Comptroller-General of Customs (Comptroller-General) may, by legislative instrument, determine qualification criteria that entities must meet in order to participate in any controlled trial.
1.17
In providing its comments on the bill, the Scrutiny Committee reiterated its view that unless a sound justification is provided for the use of delegated legislation, significant matters – including the qualification criteria for participation in controlled trials – should be included in the primary legislation.
1.18
The Scrutiny Committee’s report noted that in terms of this bill, the Explanatory Memorandum states that:
Such qualification criteria could be requirements similar to what is used in Part 2 of the Customs (Australian Trusted Trader Programme Rule) 2015.
Examples of qualification criteria could be that an entity is able to pay all of its debts as they become liable, the entity satisfactorily complies with the Customs-related laws, or that corporate entities have a registered ABN. This provision has effect of ensuring a degree of consistency and transparency in the expectations common for all trials.
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Noting the information provided in the Explanatory Memorandum, the Scrutiny Committee stated that:
…it is unclear to the committee why these matters could not be included on the face of the primary legislation. The committee notes that a legislative instrument, made by the executive, is not subject to the full range of parliamentary scrutiny inherent in bringing proposed changes in the form of an amending bill.
1.20
Further, the Scrutiny Committee requested that the Minister provide more detailed advice regarding:
why it is considered necessary and appropriate to leave the qualification criteria for participation in controlled trials to delegated legislation; and
whether the bill can be amended to include at least high-level guidance regarding these matters on the face of the primary legislation.
Minister’s response
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In its first report for 2022, the Scrutiny Committee noted that it had received the Minister’s response to these questions, in a letter dated 14 December 2021.
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The Hon Jason Wood MP, Assistant Minister for Customs, advised the Scrutiny Committee that administering the controlled trials framework via delegated legislation, would enable controlled trials to be undertaken with a greater degree of certainty and administered in a timely manner, and that:
Due to the short timeframes for each of the trials, it is critical to the success of the program that there is flexibility to refine those elements in a timely manner before the next phase commences.
While qualification criteria apply generically, the Australian Border Force (ABF) will also require the flexibility to update the qualification criteria as the types of trials conducted and customs practices evolve. While initial trials may be small and the qualification criteria would be basic, as the types of trials conducted evolve and become more complex, so would the base requirements for participants to ensure as much consistency as possible across the suitability of participants. Placing qualification criteria in delegated legislation provides a degree of consistency across all participants in any trial, while allowing for the fact that appropriate qualification criteria at one point would not necessarily be sufficient in later trials.
If the Customs Act 1901 (Customs Act) needed to be amended each time the qualification criteria for trials needed to change, this could delay new trials relying on the amended criteria to potentially lengthy legislative change processes. This would frustrate the ABF’s ability to conduct future controlled trials, which may require revised base level requirements for participation to meet emerging risks in international supply chain security.
This approach to the use of delegated legislation is not unprecedented in this space. The Australian Trusted Trader (ATT) Programme also utilises qualification criteria in delegated legislation, which is similarly required to allow for expedient updates to meet emerging risks in international supply chain security.
The regulatory framework for controlled trials has been designed to balance stability and transparency of the program, allowing reasonable flexibility to take account of the dynamic international trade environment and ensure the continued relevance of the program to traders.
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Further, the Minister’s correspondence indicated that:
… as the qualification criteria are determined in a legislative instrument, they will be subject to parliamentary scrutiny and disallowance. The Comptroller-General of Customs’ powers to make rules with respect to controlled trials, including qualification criteria, cannot be delegated.
The ABF is separately developing the Regulatory Sandbox Guidelines which will contain specific details of how to propose and manage trials, and will consult with industry on these in coming months.
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The Scrutiny Committee noted the Minister’s advice that:
administering the controlled trials framework in delegated legislation enables controlled trials to be undertaken with a greater degree of certainty and administered in a timely manner;
while initial trials may be small and the qualification criteria would be basic, as the types of trials conducted evolve and become more complex, so would the base requirements for participants to ensure as much consistency as possible across the suitability of participants;
the ABF is separately developing the Regulatory Sandbox Guidelines which will contain specific details of how to propose and manage trials; and
the ABF will consult with industry on these guidelines in the coming months.
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Whilst acknowledging the Minister’s advice, the Scrutiny Committee did, however, reiterate its consistent scrutiny view that significant matters – including the qualification criteria for participation in controlled trials – should be included in primary legislation, unless a sound justification is provided for the use of delegated legislation.
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The Scrutiny Committee also indicated that it has generally not accepted a desire for administrative flexibility (or a reliance on non-legislative policy guidance) to be sufficient justifications for leaving significant matters to delegated legislation. It was stated that:
As such, it remains unclear to the committee why at least high-level guidance in relation to these matters could not be included on the fact of the primary legislation.
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The Scrutiny Committee concluded its comments by:
drawing the matter to the attention of Senators and leaving it to the Senate as a whole to determine the appropriateness of leaving the qualification criteria for participation in controlled trials to delegated legislation; and
drawing the matter to the attention of the Senate Standing Committee for the Scrutiny of Delegated Legislation.
Financial Impact Statement
1.28
The Explanatory Memorandum notes that the bill was included as part of a broader regulatory and data reform program under the STS agenda in the 2020-21 Budget. It also noted that there are no specific financial implications resulting from the bill. However, it acknowledged that individual controlled trials may have financial and other implications, which would be dependent on the specific trial and assessed at the time the trial is proposed.
Statement of compatibility with human rights
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The Explanatory Memorandum notes that the bill may engage the following human rights:
the right to privacy in Article 17 of the International Covenant on Civil and Political Rights (ICCPR); and
the right to equality and non-discrimination in Article 26 of the ICCPR.
1.30
It is noted that in electing to participate in a controlled trial, it will be mandatory for entities to disclose private information. It is also noted that information collected (by an officer of Customs) for a controlled trial would be treated the same as information currently collected under the Customs Act. It would be considered as Immigration and Border Protection Information and covered by Part 6 of the Australian Border Force Act 2015. The collection, use and disclosure of this information would also be done in accordance with the Privacy Act 1988 and associated Australian Privacy Principles.
1.31
The conclusion reached in the Explanatory Memorandum indicates that the bill is compatible with human rights, and:
…to the extent that it limits the right of an individual to privacy or equality and non-discrimination, those limitations are reasonable, necessary and proportionate to legitimate objective of enabling small-scale trials of trade and customs practices in a controlled, time-limited regulatory environment.
Structure of the report
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This report consists of three chapters. Chapter 1 provides an overview of the inquiry and background to the bill and its regulatory context.
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Chapter 2 outlines the key provisions of the bill, and Chapter 3 considers the key issues raised by stakeholders in relation to the bill and sets out the committee’s conclusions and recommendation.