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Aviation Transport Security Amendment (Cargo) Bill 2015

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2013-2014-2015

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

AVIATION TRANSPORT SECURITY AMENDMENT (CARGO) BILL 2015

 

 

 

 

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

 

 

(Circulated by authority of the Minister for Infrastructure and Regional Development,

the Hon Warren Truss MP)

 

 

 

 

 



 

AVIATION TRANSPORT SECURITY AMENDMENT (CARGO) BILL 2015

 

OUTLINE

 

The purpose of the Aviation Transport Security Amendment (Cargo) Bill 2015 (the Bill) is to amend the Aviation Transport Security Act 2004 (the Act) to introduce a new aviation industry participant - an air cargo Known Consignor, and to improve alignment with international standards.  

 

Most of the details of those new security measures will be in the Aviation Transport Security Regulations 2005 (the Regulations); however, the amendments to the Act are necessary to establish the framework for those regulatory changes.

 

The Act and the Regulations give effect to Australia’s obligations under Annex 17 to the Convention on International Civil Aviation (Chicago Convention) by establishing a regulatory framework to safeguard against unlawful interference with aviation in Australia.  The Act achieves this purpose by imposing various obligations on persons engaged in civil aviation-related activities, including activities related to the handling and transport of air cargo.

 

Australia has had arrangements in place to regulate the security of air cargo through the supply chain since 1996.  Businesses handling or making arrangements for the transport of air cargo were initially regulated under the Air Navigation Act 1920 as regulated agents.  When the Act commenced in 2005, those regulated agents became regulated air cargo agents.  In 2006, a new type of an industry participant, the accredited air cargo agent, was established.  The accredited air cargo agent scheme was designed to provide a more flexible regulatory framework for persons involved in handling or making arrangements for the transport of air cargo.

 

International standards have been established to provide for assurance of air cargo security measures directly by exporters under a Known Consignor framework .

 

The purpose of the known consignor concept is to place the emphasis for the practical implementation of security controls on the actual shipper or originator of the goods and to ensure the security of air cargo and mail as they move throughout the supply chain. This requires goods to be produced, packaged, stored, transported and handled in a manner that ensures their integrity and protects them from unauthorised interference from the point of origin and throughout the secure supply chain.

 

International standards for secure transport of air cargo continue to evolve. There is a risk that trade could be disrupted if air freight exported from Australia does not continue to meet these evolving standards.

 

The amendments to the Act will ensure that Australia’s air cargo security is aligned with international standards. The amendments will also provide an effective and efficient means for industry to achieve the required security outcome.

 

 

The amendments will:

 

(a)            introduce two new categories of aviation industry participant: a known consignor and a regulated agent;

(b)           introduce definitions for a known consignor and regulated agent;

(c)            clarify the definition of when cargo receives clearance for transportation on an aircraft;

(d)           create new heads of power to enable the Regulations to:

                                       i.             establish a scheme under which certain persons that carry on a business that includes the handling, or making arrangements for the transport of cargo, are approved as known consignors; and

                                     ii.             set out the method for approving a known consignor;

(e)            introduce an avoidance of doubt provision to make it clear that regulations or other legislative instruments dealing with examination of cargo may provide for the cargo to be opened, deconsolidated or unpacked as a part of that examination process;

(f)            increase the number of matters that may be covered by a notice issued by the Secretary;

(g)           make any necessary amendments consequential on the above; and

(h)           remove redundant provisions.

 

The amendments are consistent with the requirements of the Chicago Convention.

 

Financial impact statement

There will be no financial impact to the Commonwealth as a result of this Bill.

Regulation impact statement

A Regulation Impact Statement for streamlining the regulatory framework in relation to the way cargo, which is to be transported by an aircraft, receives clearance and is cleared, has been prepared.  It is attached to this explanatory memorandum.

 

Statement of Compatibility with Human Rights

 

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

Aviation Transport Security Amendment (Cargo) Bill 2015

 

This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

 

Overview of the Bill

 

The Aviation Transport Security Amendment (Cargo) Bill 2015 amends the Aviation Transport Security Act 2004 to introduce a new aviation industry participant - an air cargo Known Consignor, and to improve alignment with international standards.  

 

The amendments will:

 

(i)             introduce two new categories of aviation industry participant: a known consignor and a regulated agent;

(j)             introduce definitions for a known consignor and regulated agent;

(k)           clarify the definition of when cargo receives clearance for transportation on an aircraft;

(l)             create new heads of power to enable the Regulations to:

                                   iii.             establish a scheme under which certain persons that carry on a business that includes the handling, or making arrangements for the transport of cargo, are approved as known consignors; and

                                   iv.             set out the method for approving a known consignor;

(m)         introduce an avoidance of doubt provision to make it clear that regulations or other legislative instruments dealing with examination of cargo may provide for the cargo to be opened, deconsolidated or unpacked as a part of that examination process;

(n)           increase the number of matters that may be covered by a notice issued by the Secretary;

(o)           make any necessary amendments consequential on the above; and

(p)           remove redundant provisions.

 

Human rights implications

 

This Bill does not engage any of the applicable rights or freedoms.

 

Conclusion

 

This Bill is compatible with human rights as it does not raise any human rights issues.

 

Minister for Infrastructure and Regional Development, the Hon Warren Truss MP

 



 

NOTES ON CLAUSES

 

Clause 1: Short Title

 

Clause 1 provides that this Act may be cited as the Aviation Transport Security Amendment (Cargo) Act 2015 .

 

Clause 2: Commencement

 

Clause 2 provides that the whole of the Act commences on a single day to be fixed by Proclamation.  However, if the provisions are not proclaimed to commence within 6 months of the Act receiving the Royal Assent, the provisions will commence on the day after the end of that 6 month period.   Clause 2 also allows information about the date of the Royal Assent and commencement to be added to the commencement table, but this information does not form a part of the Act.

 

Clause 3: Schedules

 

Clause 3 outlines the effect of the Schedules to the Bill.  The Aviation Transport Security Act 2004 (the Act) is amended as set out in the Schedule to the Bill.  Any other item in the Schedule has effect according to its terms.

 

Schedule 1 - Amendments

 

Aviation Transport Security Act 2004

 

Item 1 - Section 9 (paragraphs (c) and (ca) of the definition of aviation industry participant )

 

Item 1 amends the definition of aviation industry participant in section 9 of the Act to remove references to regulated air cargo agents and accredited air cargo agents and to replace those references with references to the new concepts of a known consignor and a regulated agent (see Item 2).

 

The aviation industry participant is a key concept underpinning the regulatory framework established by the Act and the Regulations.  For example, under section 69 of the Act an aviation industry participant may be given a special security direction, under section 109 of the Act the Secretary may require an aviation industry participant to provide security compliance information, and under section 119 of the Act enforcement orders may be made in relation to the activities of aviation industry participants. 

 

As a result of the amendment to the definition of aviation industry participant, the obligations and responsibilities of all aviation industry participants set out in the Act and the Regulations will apply to known consignors and regulated agents.

 

Item 2 - Section 9

 

Item 2 amends section 9 of the Act to insert and define two new concepts: known consignor and regulated agent .

 

A known consignor is defined a person approved as a known consignor in accordance with regulations made under section 44C of the Act.  As a result, there is a consequential amendment to section 44C of the Act to establish the regulation making power (see Item 7).

 

A regulated agent is defined as a regulated air cargo agent and an accredited air cargo agent.  As such it is an umbrella term so that references to “accredited air cargo agent and regulated air cargo agent” in various provisions of the Act may be replaced with a reference to a single term thereby simplifying those provisions.  As a result, there are a number of consequential amendments (see, for example, Items 4 and 5) to other provision in the Act.

 

Item 3 - Subsection 20(4)

 

Subsection 20(4) of the Act allows transport security programs (TSPs) for certain aviation industry participants to be extended.  It applied to regulated air cargo agents who’s TSP would expire before 31 December 2012.  The TSP will be taken to be in force until 31 December 2012 unless the TSP is either revised under subsections 22(4) or (4) of the Act, or the TSP is cancelled under Part 2, Division 5 of the Act at an earlier date.

 

As subsection 20(4) of the Act is now spent, Item 3 will repeal the provision.

 

Items 4 and 5 - Section 44A

 

Section 44A of the Act sets out the simplified overview of Division 2A of Part 4 of the Act.  Items 4 and 5 will make two amendments to section 44A of the Act consequential on the introduction of the known consignor regime and the umbrella term regulated agent .   

 

Item 6 - Subsections 44B(2) and (3)

 

Item 6 repeals subsections 44B(2) and 44B(3) from the Act and substitutes two new subsections.

 

Subsection 44B(2) of the Act sets out when cargo receives clearance for the purposes of being able to be loaded onto an aircraft.  Cargo receives clearance (for loading onto an aircraft) in two situations:

 

·          The first situation is when, after the cargo has been examined, it is handled in accordance with regulations made under section 44C of the Act.  Those regulations deal with how cargo that has been examined is to be handled in order to receive clearance.  For example, new paragraph 44C(2)(ga) of the Act will enable regulations made under subsection 44C(1) of the Act to deal with how cargo is to be handled in order to receive clearance (including methods, techniques or equipment to be used for clearing cargo) (see Item 20).  For example, there would be a requirement for cargo to be handled and transferred between parties securely.

·          The second situation is when:

o    the regulations made under section 44C provide (or the Secretary by written notice provides) that the cargo may receive clearance without being examined; and

o    the cargo has been handled in accordance with regulations that have been made under section 44C that deal with how cargo that has not been examined is to be handled in order to receive clearance.

 

For example, cargo originating from a Known Consignor may not require further examination, but would instead need to be kept in a secure supply chain until uplift on an aircraft.

 

The concept of handled is not defined in the Act but has its ordinary meaning.  For example, it includes dealing with or treating cargo in a particular manner.

 

Subsection 44B(3) of the Act sets out what is meant by cargo having the status of being cleared at a particular time for the purpose of its transportation by air.  Cargo is cleared at a particular time if the cargo has received clearance (as set out in subsection 44B(2)) and since receiving that clearance the cargo has at all times been handled in accordance with the regulations that deal with how cargo is to be handled after receiving clearance in order to maintain its cleared states. For example, new paragraph 44C(2)(gb) of the Act will enable regulations made under subsection 44C(1) of the Act to deal with how cargo is to be handled after receiving clearance in order to maintain its status as cleared.  For example, the security of cargo will need to be confirmed and accounted for as it is transferred between parties in the supply chain.

 

Item 7 - After paragraph 44C(1)(a)

 

Subsection 44C(1) of the Act sets out a number of matters that may be dealt with in the Regulations, for the purpose of safeguarding against unlawful interference with aviation.  Item 7 will amend subsection 44C(1) of the Act by inserting a new regulation making power (paragraph 44C(1)(aa)) so that the regulations may establish a scheme under which certain persons that carry on a business that includes handling, or making arrangements for transport, of cargo are approved as known consignors. This regulation making power is similar to that which exists for designating regulated air cargo agents (paragraph 44C(1)(b) of the Act) and accrediting accredited air cargo agents (paragraph 44C(1)(c) of the Act).

 

Item 8 - At the end of paragraph 44C(1)(b)

 

This item insert a note after paragraph 44C(1)(b) of the Act to refer to the fact that regulated air cargo agents are a kind of regulated agent as defined in section 9 of the Act (see Item 2).

 

Item 9 - At the end of paragraph 44C(1)(c)

 

This item insert a note after paragraph 44C(1)(c) of the Act to refer to the fact that accredited air cargo agents are a kind of regulated agent as defined in section 9 of the Act (see Item 2).

 

Item 10 - Subparagraph 44C(1)(d)(i)

 

Item 10 amends subparagraph 44C(1)(d)(i) of the Act by replacing a reference to “all regulated air cargo agents, all accredited air cargo agents” with a reference to “all known consignors, all regulated agents” consequential on the introduction of the known consignor regime and the umbrella term regulated agent .  The effect of the amendment to subparagraph 44C(1)(d)(i) of the Act is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations may prescribe conditions that must be complied with by all known consignors, all regulated agents or all aircraft operators.

 

Item 11 - Subparagraphs 44C(1)(d)(ii) and 44C(1)(d)(iii)

 

Item 11 amends subparagraphs 44C(1)(d)(ii) and 44C(1)(d)(iii) of the Act by replacing references to “regulated air cargo agents, accredited air cargo agents” with references to “known consignors, regulated agents” consequential on the introduction of the known consignor regime and the umbrella term regulated agent .   

 

The effect of the amendment to subparagraph 44C(1)(d)(ii) of the Act is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations may prescribe conditions that must be complied with by one or more specified classes of known consignors, regulated agents or aircraft operators. 

 

The effect of the amendment to subparagraph 44C(1)(d)(iii) of the Act is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations may prescribe conditions that must be complied with by one or more specified known consignors, regulated agents or aircraft operators.  

 

Item 12 - Paragraph 44C(1)(e)

 

Item 12 repeals paragraph 44C(1)(e) of the Act.  Paragraph 44C(1)(e) set out the requirement for accredited air cargo agents to report aviation security incidents.  While initially accredited air cargo agents were not aviation industry participants, this was changed in 2011 (see Item 1 of Part 1 of Schedule 1 of the Aviation Transport Security Amendment (Air Cargo) Act 2011 ).  As all aviation industry participants are required to report aviation security incidents (see subsection 102(4) of the Act which defines a person with incident reporting responsibilities) the specific provision dealing with accredited air cargo agents is no longer required.

 

Item 13 - Paragraph 44C(1)(f)

 

Item 13 amends paragraph 44C(1)(f) of the Act by replacing references to “regulated air cargo agents, and accredited air cargo agents” with references to “known consignors, and regulated agents” consequential on the introduction of the known consignor regime and the umbrella term regulated agent .   The effect of the amendment to paragraph 44C(1)(f) of the Act is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations may prohibit a person from carrying on a business to the extent that it consists of handling cargo or making arrangements for the transport of cargo, unless the person is a known consignor, a regulated agent or an aircraft operator.

 

Item 14 - Subparagraph 44C(1)(g)(i)

 

Item 14 amends subparagraph 44C(1)(g)(i) of the Act by replacing a reference to “all regulated air cargo agents or all accredited air cargo agents” with a reference to “all known consignors or all regulated agents” consequential on the introduction of the known consignor regime and the umbrella term regulated agent .   The effect of the amendment to subparagraph 44C(1)(g)(i) of the Act is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations may prescribe training requirements for employees of all known consignors or all regulated agents.

 

 

 

Item 15 - Subparagraphs 44C(1)(g)(ii) and (iii)

 

Item 15 amends subparagraphs 44C(1)(g)(ii) and 44C(1)(g)(iii) of the Act by replacing references to “regulated air cargo agents or accredited air cargo agents” with references to “known consignors or regulated agents” consequential on the introduction of the known consignor regime and the umbrella term regulated agent .  The effect of the amendment to subparagraph 44C(1)(g)(ii) of the Act is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations may prescribe training requirements for employees of one or more specified classes of known consignors or regulated agents.  The effect of the amendment to subparagraph 44C(1)(g)(iii) of the Act is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations may prescribe training requirements for employees of one or more specified known consignors or regulated agents.

 

Item 16 - Subparagraph 44C(2)(a)(i)

 

Item 16 amends subparagraph 44C(2)(a)(i) of the Act by replacing a reference “all regulated air cargo agents, all accredited air cargo agents” with a reference to “all known consignors, all regulated agents” consequential on the introduction of the known consignor regime and the umbrella term regulated agent .   

 

The effect of the amendment to subparagraph 44C(2)(a)(i) of the Act is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations made under subsection 44C(1) may deal with the examination of cargo by all known consignors, all regulated agents or all aircraft operators.   

 

Item 17 - Subparagraphs 44C(2)(a)(ii) and (iii)

 

Item 17 amends subparagraphs 44C(2)(a)(ii) and 44C(2)(a)(iii) of the Act by replacing references to “regulated air cargo agents, accredited air cargo agents” with references to “known consignors, regulated agents” consequential on the introduction of the known consignor regime and the umbrella term regulated agent .  The effect of the amendment to subparagraph 44C(2)(a)(ii) of the Act is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations made under subsection 44C(1) may deal with the examination of cargo by one or more specified classes of known consignors, regulated agents or aircraft operators.  The effect of the amendment to subparagraph 44C(2)(a)(iii) of the Act is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations made under subsection 44C(1) may deal with the examination of cargo by one or more specified known consignors, regulated agents or aircraft operators.

 

Item 18 - Subparagraph 44C(2)(g)(i)

 

Item 18 amends subparagraph 44C(2)(g)(i) of the Act by replacing a reference “all regulated air cargo agents, all accredited air cargo agents” with a reference to “all known consignors, all regulated agents” consequential on the introduction of the known consignor regime and the umbrella term regulated agent .   The effect of the amendment to subparagraph 44C(2)(g)(i) is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations made under subsection 44C(1) may deal with the circumstances in which cargo may receive clearance by all known consignors, all regulated agents or all aircraft operators.

 

Item 19 - Subparagraphs 44C(2)(g)(ii) and 44C(2)(g)(iii)

 

Item 19 amends subparagraphs 44C(2)(g)(ii) and 44C(2)(g)(iii) of the Act by replacing references to “regulated air cargo agents, accredited air cargo agents” with references to “known consignors, regulated agents” consequential on the introduction of the known consignor regime and the umbrella term regulated agent .  The effect of the amendment to subparagraph 44C(2)(g)(ii) of the Act is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations made under subsection 44C(1) may deal with the circumstances in which cargo may receive clearance by one or more specified classes of known consignors, regulated agents or aircraft operators.  The effect of the amendment to subparagraph 44C(2)(a)(iii) of the Act is that, for the purposes of safeguarding against unlawful interference with aviation, the regulations made under subsection 44C(1) may deal with the circumstances in which cargo may receive clearance by one or more specified known consignors, regulated agents or aircraft operators.

 

Item 20 - After paragraph 44C(2)(g)

 

Item 20 inserts two new regulation making provisions into subsection 44C(2) of the Act.  Paragraph 44C(2)(ga) of the Act provides that regulations made under subsection 44C(1) of the Act may deal with how cargo is to be handled (including methods, techniques or equipment to be used) in order to receive clearance.  Paragraph 44C(2)(gb) of the Act provides that regulations made under 44C(1) of the Act may deal with how cargo is to be handled (including methods, techniques or equipment to be used) after receiving clearance in order to maintain its status as cleared.  For example, the regulations may include requirements for keeping cargo secure, and confirming and accounting for the security of cargo as it is transferred between parties in the supply chain.

 

Item 21 - After paragraph 44C(2)(h)

 

Item 21 inserts a new regulation making provision into subsection 44C(2) of the Act.  Paragraph 44C(2)(h) of the Act provides that regulations made under subsection 44C(2) may deal with the method for applying for approval as a known consignor and how such application are to be dealt with. 

 

Item 22 - Subsection 44C(3)

 

Item 22 amends subsection 44C(3) of the Act to increase the number of matters that the regulations may provide may be specified in written notices made by the Secretary. 

 

Currently subsection 44C(3) of the Act provides that regulations made under certain paragraphs of subsection 44C(2) may provide that some or all of the matters set out in those paragraphs may be specified in written notices made by the Secretary rather than in the regulations themselves.  This allows for a greater degree of flexibility to respond to things such as changes in technology.  The amendment to subsection 44C(3) of the Act will enable written notices to deal with a wider range of matters that would otherwise be in the regulations.

 

For example, the regulations may provide that the matters in the following paragraphs may also be specified in written notices made by the Secretary:

 

·          paragraph 44(2)(c): the places where examination is to be conducted;

·          paragraph 44(2)(e): the things to be detected by examination;

·          paragraph 44(2)(f): the procedures for dealing with things detected by examination;

·          paragraph 44(2)(h): the supervision and control measures for dealing with cargo that has received clearance; and

·          new paragraph 44C(2)(ga): how cargo is to be handled (including methods, techniques or equipment to be used) in order to receive clearance (see Item 20); and

·          new paragraph 44C(2)(gb): how cargo is to be handled (including methods, techniques and equipment to be used) after receiving clearance in order to maintain its cleared status (see Item 20).

 

Item 23 - After subsection 44C(3)

 

Item 23 inserts a new provision in relation to what is meant by the examination of cargo.  Subsection 44C(3A) of the Act provides that, to avoid doubt, regulations or other legislative instruments (such as a notice issued by the Secretary) dealing with the examination of cargo may provide for, or require, cargo to be opened, deconsolidated or unpacked.  The ability to examine cargo in such as way exists whether or not the owner of the cargo, or any other person, has consented.

 

The purpose of examining cargo is to detect explosives (see subregulation 44B(2) of the Regulations).  This effect of the amendments is that when cargo is examined to detect explosives (that is, for example, the cargo is inspected or scrutinized), the cargo may be:

 

·          deconsolidated (that is, boxes or other items that are commonly secured to pallets with shrink wrap and plastic strapping may be separated and regrouped);

·          opened (that is the packages such as boxes are opened); and

·          unpacked (that is, the items that are in the packages or boxes are removed from those boxes).

 

Subsection 44C(3A) of the Act expressly evidences an intention to alter any common law principles or fundamental rights that might otherwise exist in relation to the opening cargo.

 

 



 

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Regulation Impact Statement - Part 1

Enhancing US-Bound Air Cargo Security

 

 

 

 

 

 

Type of submission

Standard RIS Part 1

Date of submission

August 2015

OBPR reference ID

19276

 

 

 

 





This Regulation Impact Statement will be submitted in two parts. Part 1 (herein) supports amendments to the Aviation Transport Security Act 2004 (the Act); Part 2 will support amendments to the associated Aviation Transport Security Regulations 2005 (the Regulations).

Legislative amendments

The Department of Infrastructure and Regional Development (the Department) has developed relevant amendments to the Act, to give effect to Australia's international air cargo security obligations.

Draft legislative amendments are attached. It is intended that all enabling legislation (Act and Regulation amendments) to give effect to the proposed air cargo security arrangements will commence in July 2016.

The Act is being amended to:

(a)    insert a new definition for known consignor;

(b)   create new heads of power to enable the Regulations to:

                              i.             establish a scheme under which certain persons that carry on a business that includes the handling, or making arrangements for the transport of cargo are approved as known consignors;

                            ii.             set out the method for approving a known consignor;

(c)    insert a new definition for a regulated agent;

(d)   replace references to regulated air cargo agent and accredited air cargo agent with references to a regulated agent;

(e)    amend the definition of aviation industry participant to include a regulated agent and a known consignor;

(f)     create a new head of power to enable the Regulations to prescribe the circumstances in which cargo may be opened as a part of the examination process;

(g)    increase the number of matters that the Regulations may provide may be covered by a notice issued by the Secretary; and

(h)   make any necessary amendments consequential on the above, and remove redundant provisions.

In parallel, the Department will continue to consult with relevant industry stakeholders on the development of appropriate administrative systems, methods and guidance for relevant industry participants.

Regulatory costs and offsets

Full costings and a cost benefit analysis for all options will be included in RIS Part 2, as they will continue to evolve as Known Consignor regulations are developed and further industry consultation occurs. The costs for Option 1 will provide baseline information, and Options 2-4 will be assessed in comparison to baseline costs established for Option 1. It should be noted that the 'costs' calculated through the Regulatory Burden Measure (RBM) process do not capture the economic impact on businesses who will not be able to continue trading with the US.

A net benefit of implementing changes to the current regulatory regime (as outlined in Options 2-4) is to buy Australia's export air cargo industry participants time to make the operational changes they will need to make in order to continue exporting to the US.

 

 



 

Executive summary

Enhancing US-bound air cargo security

This proposal outlines options for Australia to meet the security requirements of the United States Transportation Security Administration (TSA) for US-bound air cargo travelling on passenger aircraft, so that trade can continue and business impacts are minimised.

RIS preferred option

Option 3 - Introduction of enhanced piece level examination together with a Known Consignor scheme

Key points from the RIS

The Office of Transport Security (OTS), a division of the Department of Infrastructure and Regional Development, regulates Australia's air cargo security regime and ensures that exporters have access to world markets by meeting international security obligations.

The United States Transportation Security Administration (TSA) recently re-evaluated Australia's security arrangements for US-bound air cargo and advised that it will require 100 per cent of air cargo on passenger aircraft travelling to the US to be examined at a deconsolidated ('piece') level.

Currently regulated Australian air cargo industry participants (freight logistics service providers and cargo terminal operators) do not have the capacity, space or equipment to deconsolidate and examine air cargo at a piece level.

In 2014, exporters sent almost 18,000 tonnes of cargo by air to the US, with a value of $4.8 billion. [1]

If no action is taken to meet the TSA's requirement, the Australian air cargo industry will be substantially impacted, including air carriers, exporters, freight forwarders and ground transporters.

This proposal seeks to support industry by establishing a legal framework that allows air cargo supply chain industry participants flexibility in how they meet the TSA's requirements. This in turn will ensure that industry participants can continue to export air cargo to the US.

This Regulatory Impact Statement compares four options for responding to the TSA requirements:

·          Option 1 is no government intervention (i.e. maintain the status quo);

·          Option 2 is to introduce a requirement for piece level examination for all US-bound air cargo;

·          Option 3 is to introduce piece level examination together with a Known Consignor scheme for US-bound air cargo only;

·          Option 4 is to introduce piece level examination together with a Known Consignor scheme for all export air cargo.

Although all four options above will impose compliance costs on the air cargo export sector, the options vary in how costs are distributed, and the degree to which individual businesses may be exposed to market and legal risks.

Options 2-4 propose an increase in regulation, but it will be demonstrated that amending current legislation to ensure a regulatory framework that meets the US' requirements - and international standards - is a less onerous and costly approach. Each of these options provides a different method of transitioning to the new required state (all US-bound air cargo is accepted for uplift).

Option 1 (status quo) is included here as an option, as it can be considered a 'non-regulatory' approach. Maintaining the status quo would initially impact airlines, but the impact will be felt throughout the supply chain, as costs will be passed on to freight forwarders, who will then pass costs on to their exporter customers.

However, Option 1 cannot be considered a viable option: even though the TSA directly regulates airlines that fly into the US by issuing them with security programs, they will not accept any air cargo from Australia if the methods, techniques and equipment used to examine it at a piece level are not approved, prescribed and overseen by the Australian Government. This option is included primarily as a baseline for comparing costs, benefits and impacts with Options 2-4.

Option 2 would require 100 per cent of US-bound air cargo to be examined at a piece level, using specific methods and equipment. Although this option would meet the TSA's requirements, it is inflexible and could result in severe imbalances in affected industry sectors. It could cause immense bottlenecks at the airport, as most air cargo presented to on-airport cargo terminal operators tends to be highly consolidated. Trade impacts would likely hit comparatively low value consolidated air cargo and cargo for 'just in time' markets the hardest, making many perishable exports uneconomic.

Option 3 is the preferred option. It would allow industry participants choice in how they meet the TSA's requirements by stipulating that 'piece level' examination could be achieved either by having cargo submitted for enhanced piece level examination at a specified regulated freight forwarder, or by originating from another kind of regulated business - a Known  Consignor. However, for businesses that do not export to the US there would be no cost with this option. This option would also meet international standards and provide a foundation should other countries impose similar conditions to the TSA's.

Option 4 resembles Option 3 in that it would balance piece level examination with a Known Consignor scheme. However, this option would require all export air cargo, regardless of destination to be 'secure'. This option is preferred by some industry participants (particularly large freight forwarders), as they anticipate difficulty in separating out US-bound air cargo, and are concerned they will not be able to achieve economies of scale. However, current tight timelines and this option's potential impact on non-US exporters would not allow efficient implementation in the short term. The preferred option (Option 3) could be expanded to include all export air cargo in future as necessary.

Benefits of preferred option

Benefits of the preferred option (Option 3) include the following:

  • This option provides industry participants with choices: a business can become a Known Consignor, invest in examination capability or pay another business to examine export cargo.
  • This option provides a balance between US-bound air cargo being secured at source and being examined further back in the supply chain. It is more likely to result in a continuation of trade to the US, without heavily impacting industry sectors with relatively low value goods (e.g. horticulture) or those with goods not easily examined (e.g. heavy machinery, electronics).
  • An exporter who chooses to become a Known Consignor will be able to have their export air cargo loaded onto an aircraft without the need for examination, potentially saving them time and money.
  • Provides flexibility by allowing businesses to make a commercial decision about whether to screen all export air cargo or just US-bound air cargo.
  • A Known Consignor’s recognised security measures may facilitate faster resumption for their export air cargo if a security incident occurs.
  • Exporters who become Known Consignors may be able to increase business opportunities by promoting their status as security-related businesses.
  • The approaches under this option also meet international standards providing a foundation should other countries require the same standard as the US in the future.
  • Does not affect businesses that do not export to the US.

Regulatory costs and offsets

A Regulatory Burden Measure has been assessed for the options for Part 1 of the RIS (attached). Full costings and a cost benefit analysis for all options will be included in RIS Part 2. The costs for Option 1 will provide baseline information, and options 2-4 will be assessed in comparison to baseline costs established for Option 1.

Consultation

To date, information sessions and targeted consultation has been conducted with key industry stakeholders. This includes site visits, targeted workshops and surveys which took place under the previously proposed Securing the Air Cargo Supply Chain (SACSC) framework, which was to be implemented in 2014. Recently, a series of two-hour workshops were conducted in Brisbane, Sydney and Melbourne with approximately 200 freight forwarders and exporters, specifically to inform them about the TSA requirements, and to gauge their responses. In addition, the Department also maintains regular communication with the Cargo Working Group (CWG), whose members represents major industry stakeholders including airlines, general and express freight forwarders, exporters and government agencies.

Industry stakeholders consulted thus far indicate that many businesses will be able to implement the proposed changes. However, industry participants have highlighted that increased cost structures and extended lead times may have a negative impact on their ability to compete internationally. 

Additional consultation and engagement is planned which will focus on obtaining industry views on perceived impacts and costs associated with implementing the proposed Options.

The Office of Transport Security

The Office of Transport Security (OTS) is a Division in the Department of Infrastructure and Regional Development. We administer the Aviation Transport Security Act 2004 and the Maritime Transport and Offshore Facilities Security Act 2003 . The OTS is the security regulator of the Australian aviation, maritime transport and offshore oil and gas industry through its administration of these two Acts and its advice to the Australian Government on transport security policy and practice.

The entities we regulate include airlines, airports, ports, ships, off shore oil and gas facilities, issuing bodies (for ASIC and MSIC identity cards), screening authorities and participants in the air cargo sector.

  Australian air cargo security

In Australia, air cargo supply chain security is regulated under the Aviation Transport Security Act 2004 (the Act), and its accompanying Aviation Transport Security Regulations 2005 (the Regulations).  These were implemented to establish obligations to prevent acts of unlawful interference with aviation in particular unlawful interference through acts of terrorism.

In the air cargo supply chain, OTS currently regulates freight forwarders, couriers and other similar businesses through the Regulated Air Cargo Agent (RACA) and Accredited Air Cargo Agent (AACA) schemes.

The Act and Regulations establish a minimum level of security requirements, and in particular, oblige aviation industry participants to develop and comply with Transport Security Programs (TSPs) for RACAs and standard security programs for AACAs.

Air Cargo Examination (ACE) and Enhanced Air Cargo Examination (EACE) notices sit under the Act and Regulations, and are used to require specific industry participants to meet detailed requirements for the examination of cargo, beyond what is stipulated by the Act, Regulations and security programs. Currently, export air cargo undergoes examination at on-airport Cargo Terminal Operator (CTO) facilities on an 'as presented' basis. In most cases, this is Electronic Trace Detection (ETD) examination of consolidated cargo - where the cargo is already packed into an aircraft container or palletised.

Australia’s international obligations

Australia is a signatory to the Convention on International Civil Aviation 1944 (the Chicago Convention).  The Chicago Convention is administered by the International Civil Aviation Organization (ICAO), of which Australia is a member.  Australia also participates in the ICAO Working Group on Air Cargo Security, which has developed new international standards for air cargo supply chain security.

ICAO recommends that a State’s regulatory program should include at a minimum:

 

a)       an accreditation programme for regulated agents, known consignors and account consignors, with thorough and objective entry requirements;

b)      training for all staff involved in the handling and screening of cargo and mail for all entities operating in the secure supply chain;

c)       standards for security controls to be applied to consignments;

d)      a regularly updated database or list of all known consignors and regulated agents that is shared by all parties involved in the secure supply chain system; and

e)       robust oversight and quality control activities (including verifiable audit trails) to ensure that security controls are implemented effectively throughout the secure supply chain. [2]

The new standards represent an international response to the ongoing threat of terrorist attacks and the need to strengthen the air cargo security framework, particularly since the air cargo security incident originating from Yemen in October 2010. [3]

Trade context

As well as our international obligations, the Australian aviation security regime must also continue to meet the increasingly complex requirements for air cargo initiated by key overseas trading partners to ensure our continued access to those markets and maintain global competitiveness. 

Air cargo is an important component of global trade and international civil aviation. Although international airfreight represents less than 0.1 per cent of Australia's total merchandise trade by volume, it makes up over 21 per cent of total trade by value. [4]   Air cargo transport will continue to be critical to the functioning of the Australian and global economy for the foreseeable future. Australia's outbound international airfreight increased by 3.9 per cent in FY 2014, and global air cargo trade is expected to continue to grow at an annual rate of 4.1 per cent over the next five years. [5]

Australia’s international air cargo sector reflects our unique geography and market. Unlike other countries, the majority of Australia’s international air cargo is carried on passenger aircraft. This reflects the long distances between Australia and international ports and the quantity of high-value imports shipped to Australia by air. The speed and availability of air freight capacity on passenger aircraft leaving Australia is one of the main reasons it is the transport mode of choice for time-sensitive, high value and perishable items, such as gold coins, seafood, fruit and vegetables.

Exporters have adapted to Australia's unique market environment by developing a number of niche export markets. These include:

·          food products and other perishable goods;

·          just-in-time manufactured products for US supply chains (including IT and defence industries); and

·          heavy manufactured items for specialised industries such as mining.

These businesses would face significant difficulties in finding alternative export routes to the US. The perishables and just-in-time manufacturers would not be able to service their customers’ demands through sea freight. Dedicated freighter aircraft are unlikely to provide a suitable alternative due to the combination of low-cost cargo space on passenger aircraft and long flight sectors. Even if additional capacity could be found, these exporters would be unable to adapt their operations to the additional costs of freighter aircraft, as in many cases they would be paying to export with the cost of freight exceeding their very low margins.

Lead-in to current situation

In anticipation of evolving international requirements, and following a number of aviation security incidents internationally (e.g. shoe bomber/underpants bomber), the Australian Government announced in February 2010 that it would establish a Regulated Shipper Scheme (RSS) and Enhanced Air Cargo Examination (EACE).  The new measures arising from the Government announcement, coupled with a refinement of current arrangements, aimed to provide a strengthened air cargo security framework that made better use of both Government and industry resources, while achieving the security outcome expected by Government at the time.

Aviation security was considered one element of a broad, policy response to terrorism, set out in the then Australian Government’s 2010 Counter-Terrorism White Paper . [6] The White Paper formed part of the Australian Government’s national security reform agenda.

The RSS and EACE measures were due to be implemented in July 2014. However, the change of government in late 2013 meant that the proposed framework was not approved for implementation, and the Deputy Prime Minister asked the Department to provide further options for improving the security of export air cargo, in line with the new government's intention to cut red tape and reduce the regulatory burden for individuals, businesses and community organisations.

Security risk assessment

In line with this redirection, in mid-2014 the Department prepared a Security Risk Assessment (SRA) for export air cargo in consultation with Australian Government law enforcement and intelligence agencies as well as key industry stakeholders.

The assessment found that an attack on the aviation sector could target aircraft, airports and passengers, and would likely meet terrorists’ objectives of mass casualties, spectacular media imagery, economic disruption and public anxiety. In past attacks against the aviation sector overseas, terrorists have used a variety of tactics including armed assault, improvised explosive devices (IEDs) and hijacking.

The mostly likely event involving air cargo would be the exploitation of the supply chain to insert an IED into cargo to be uplifted by an aircraft (as opposed to attacking cargo transport infrastructure such as warehouses and trucks).

Existing security measures promulgated through current regulatory requirements were assessed as providing limited deterrence and detection value, and on their own were unlikely to prevent determined and capable attackers from inserting an IED into air cargo. A greater deterrence value was provided by the overall complexity of the air cargo supply chain, due to uncertainty for an attacker over:

·          whether and how cargo was examined;

·          whether cargo was consolidated; and

·          how and when cargo was transported to the aircraft and uplifted.

A number of attack scenarios were examined, and risk assessed. The majority were assessed as low risk . Risk ratings for individual events ranged between:

·          implausible and significant when applied to passenger aircraft; and

·          implausible and moderate when applied to freighter aircraft.

The risk of facilitating an attack via insertion of an IED in perishable goods (e.g. meat, fruit vegetables) or high value goods (e.g. precious metals, stones) was assessed as low or implausible, particularly where exporters are also required to comply with regulatory obligations by other government departments, or have implemented a range of security measures to prevent the theft and loss of high value cargo. These regulatory obligations and controls include those for hygiene, food safety and quality control purposes. Strict regulatory controls, along with tight theft prevention measures, were considered as potentially achieving similar outcomes to those required under the Act. 

In April 2015, the Australian Security Intelligence Organisation released an updated threat assessment for the broad aviation sector. They assessed the air cargo threat to outbound international passenger aircraft as Low. This finding underpins the Department’s 2014 comprehensive security risk assessment of the Australian air cargo supply chain.

Background to TSA security requirements

The United States 9/11 Act, passed in 2007 requires that all cargo transported on a passenger aircraft domestically be screened for explosives. This means that every shipment of cargo carried on passenger aircraft requires screening at piece level, which could include skids and pallets being taken apart, screened and reconfigured. The legislation identifies the types of screening allowed, ranging from physical inspection to various technologies. These requirements were extended to all international inbound air cargo transported on passenger aircraft in 2010.

Prior to 2010, air carriers departing Australia direct to the United States were granted individual waivers by the TSA against portions of their TSA issued Model Security Program. This allowed carriers to comply with the Australian air cargo security framework rather than the more prescriptive air cargo requirements in their TSA security programs. Australia was one of only a very small number of last point of departure locations to which this applied.

Although the TSA formally accepted Australia's air cargo security arrangements in 2012, it also made changes that year to the 9/11 Act to require 100 per cent screening of international inbound air cargo transported on passenger aircraft.

In late 2014, the United States Transport Security Administration (TSA) re-evaluated the security arrangements for US-bound air cargo. A key recommendation from this re-evaluation is that US-bound air cargo should undergo examination at a piece level , as opposed to the consolidated examination that currently occurs at on-airport cargo handling facilities. In accordance with US Federal Legislation, the TSA has advised that it will require 100 per cent of air cargo travelling to the US to be examined at a deconsolidated level by physical or technological means by the exporter at source, or along the supply chain by freight service providers. However, there was no indication that Australia's current export air cargo security arrangements were considered unacceptable to the TSA until the results of their re-evaluation were received in early 2015.

The TSA's recognition of current arrangements was due to expire on 30 April 2015. The TSA subsequently gave Australian air carriers a further 90 days extension until 30 July 2015. In early July 2015, the US Government agreed to extend recognition of Australia's current air cargo security arrangements for a period of two years, subject to the development of a detailed implementation plan. Under this plan, all airlines carrying cargo to the US will be required to demonstrate active and aggressive measures toward implementing 100 per cent piece level examination.

The TSA also gave airlines a further 90 day extension on their current arrangements, and have asked them to submit a proposed amendment to the TSA's Standard Security Program describing how each airline will implement air cargo security arrangements to meet the US Government's requirements, over the two-year timeframe. Once approved, the amendments will provide the TSA with an enforceable regulatory mechanism to ensure compliance.

After July 2017, the TSA will not allow airlines to carry air cargo into the US that has not been examined at piece level.

If no action is taken to address the TSA's requirements, significant industry impact will result, affecting air carriers, individual exporters, freight forwarders and transporters. In 2014, customs data show approximately 25 per cent of all businesses who sent goods by air exported air cargo to the US in 2014, or almost 10,000 exporters. This amounts to almost 18,000 tonnes of cargo, with a value of $4.8 billion. Of this, over 85 per cent was transported on passenger aircraft. Approximately 1,500 of these businesses sent goods worth more than $100,000 and 5,000 businesses sent more than $10,000 worth of goods.

In addition, the Department estimates that a further 3000 tonnes of cargo is sent to the US.  This is express freight that is typically small packages under 30 kg.  This cargo is not included in the customs data as cargo worth less than $2000 is excluded.  The total value of this cargo is unknown.

The cargo exported to the US covers a wide range of industries and commodities and comes from small, medium and large businesses with sophisticated security processes in place, but also from businesses whose security practices are less sophisticated.

Current regulatory arrangements do not fully recognise embedded security measures which effectively secure cargo from unlawful interference. Many businesses already have extensive security measures in place to protect their goods, irrespective of the commodity or industry type, for a host of reasons including: anti-theft; loss prevention; occupational health and safety; intellectual property; contractual and other regulatory obligations (i.e., Biosecurity, Customs, Defence, and Therapeutic Goods Administration). This is particularly evident in medium to large sized businesses. The failure to recognise these security measures would result in the imposition of costly or impractical security measures and potentially force viable businesses out of the US market.

There is currently little capacity for regulated freight service providers to conduct piece-level examination. Most air cargo is consolidated well before it reaches the airport - in some cases at the export facility. Deconsolidation is costly and time consuming, and in many cases, impractical due to the nature of the goods (e.g. highly perishable agricultural or pharmaceutical products). Further, many CTOs located on airports do not have the space to deconsolidate cargo.

It would not be possible to rely on 'the market' to self-correct this problem. Many businesses that export by air operate on tight profit margins in a highly competitive international market, their key advantage the capacity to access markets quickly due to cheap freight rates. Many regulated freight service providers may simply not have the time, space or capability to examine US-bound cargo at a piece level, and could therefore refuse to handle it. Where freight services providers did undertake piece level examination, they would pass their costs on to their customers. This could force many exporters with small margins out of sending goods to the US, as they would likely incur much higher security surcharges than their competitors. Without regulatory intervention, business sustainability and in effect, market competition, could be seriously impacted. Equally, the TSA expects government regulatory oversight.

The rationale for government action is to support businesses involved in exporting air cargo to the US to build piece level examination capability, either at source (by physical or technological means by the exporter) or along the supply chain by freight service providers (again by physical or technological means). It is critical that government regulatory settings are balanced so they meet security requirements and ensure that Australian businesses can continue to trade in the global market.

There is precedent for this type of intervention, as other government agencies already regulate in the export space. For example, the Department of Agriculture is responsible for regulating the export of 'prescribed goods', the purpose of which is to uphold domestic food safety standards and maintain export market access by ensuring that Australian exports are compliant with the requirements of importing countries, including for example, the United States Food and Drug Administration (FDA).

Four policy options have been considered:

Option 1

This option represents the status quo - regulated businesses would continue to apply the current regulatory requirements to export air cargo. The Australian Government would take no further action, leaving it to industry to work out how they meet the TSA's requirements.

This option is included here, as it can be considered a 'non-regulatory' approach. However, it cannot be considered a viable option, because even though the TSA directly regulates airlines that fly into the US by issuing them with security programs, they will not accept any air cargo from Australia if the methods, techniques and equipment used to examine it at a piece level are not approved, prescribed and overseen by the Australian Government.

The Department recently issued EACE notices to key industry participants that require these participants to examine cargo at piece-level by X-ray, Explosive Trace Detection (ETD) or physical examination. These EACE notices meet the TSA requirements, and cover 15 per cent [7] of all US-bound air cargo. However, the status quo means that the remaining US bound air cargo does not meet TSA standards or current international standards, as articulated by ICAO.

Under the status quo, it is questionable whether many exporters will be able to continue to export to the US at all. In order to maintain market access, exporters to the US may, at a minimum, need to change:

·          the goods and services they currently offer and how they provide them; and

·          their current business models and operational processes.

There may also be impacts on US-based consumer demand for certain products, if their variety and delivery are affected.

This option is included primarily as a baseline for comparing costs, benefits and impacts. Options 2-4 can be viewed as different approaches for transitioning to a new required state (all US-bound air cargo is accepted for uplift).

Option 2

Under this option, the Australian Government would amend its current regulatory regime to introduce a requirement for piece level examination using specific methods and equipment for all US-bound air cargo.

This option would require 100 per cent of US-bound air cargo to be examined at a piece level, using specific methods and equipment. Although it would meet the TSA's requirements, this option is inflexible and could result in severe imbalances in affected industry sectors. It could cause immense bottlenecks at the airport, as most air cargo presented to on-airport cargo terminal operators tends to be highly consolidated. Trade impacts would include goods which do not lend themselves to available examination techniques (including some heavy manufactures and fruit and vegetables) and also likely hit comparatively low value consolidated air cargo and cargo for 'just in time' markets the hardest, making many perishable exports uneconomic.

Option 3

Under this option the Australian Government would amend its current regulatory regime to introduce enhanced piece level examination together with a Known Consignor scheme for US-bound air cargo only.

This is the preferred option. It would allow industry participants choice in how they meet the TSA's requirements by stipulating that 'piece level' examination could be achieved either by having cargo submitted for enhanced piece level examination at a specified regulated freight forwarder, or by originating from another kind of regulated business - a Known  Consignor. Representatives of smaller exporters prefer this option as it will reduce the regulatory impact across the export industry - those who do not export to the US will not be subject to the increased costs.

The approaches under this option also meet international standards providing a foundation should other countries require the same standard as the US in the future.

Option 4

Under this option, enhanced piece level examination together with a Known Consignor scheme would be put in place for 100 per cent of export air cargo.

This option resembles Option 3 in that it would balance piece level examination with a Known Consignor scheme. However, it would require all export air cargo, regardless of destination to be 'secure'. This option is preferred by some industry participants (particularly large freight forwarders), as they anticipate difficulty in separating out US-bound air cargo, and are concerned they will not be able to achieve economies of scale. It would also ensure that our regulatory framework is aligned with international standards.

However, current tight timelines and this option's potential impact on non-US exporters would not allow efficient implementation in the short term. The preferred option (Option 3) could be expanded to include all export air cargo in future as necessary.



 

Regulatory impacts of options 2-4

Options 2-4 propose regulatory changes likely to impact businesses in the export air cargo supply chain. These include:

·          The potential for price increases because of regulatory requirements (e.g. freight forwarders may increase their handling and security charges; exporters may increase their prices for goods, both exported and domestic) if their business costs increase.

·          There may be impacts on a business’ ability to compete in the market because of:

o    new regulations requiring exporters to comply with security obligations;

o    associated administrative processes exporters will need to undergo to become accredited Known Consignors;

o    new obligations for regulated industry participants associated with examining US-bound air cargo at a piece level; and

o    associated administrative processes freight forwarders will need to undergo to become accredited piece level examiners.

Option 1―Status quo

Under this approach, the securing (or 'clearance') of cargo is provided by a Regulated Air Cargo Agent (RACA) on the basis of either:

·          Regular Customer arrangements; or

·          'examination' of cargo in accordance with a Transport Security Program (TSP).

RACAs are able to clear cargo that has been consigned by a 'Regular Customer' without inspection or examination requirements, as it is considered 'known' cargo. Regular Customers are unregulated entities (usually exporters) that have a business relationship with RACAs. A RACA’s obligations in relation to their Regular Customers are articulated in their TSPs. A RACA’s TSP must include (for international cargo):

a)       procedures for maintaining and keeping secure a list of Regular Customers;

b)      the form of an undertaking required from such a customer that they will take appropriate security measures to prevent the unauthorised carriage of an explosive or an explosive device; and

c)       the procedures for receiving cargo from such a customer, including procedures to identify people who represent such a customer.

To become a Regular Customer a business must have previously been a Regular Customer of another RACA, or have an established credit rating and have shipped three consignments without incident. They must provide a security undertaking to the RACA once every two years.

Although Regular Customers have some security-related obligations as required by the RACA(s) they engage with, they are not identified as Aviation Industry Participants for legislative purposes, and have no security obligations to Government.

This option can be considered a 'non-regulatory' option, as it would maintain the current regulatory regime, without extending regulatory reach to exporters, or adjusting current examination obligations to accommodate piece-level examination. It would be up to individual air cargo supply chain businesses to decide whether they wish to meet the TSA's requirements, and if so, how they would do so.

The TSA imposes requirements directly on airlines by means of a security program, which stipulates that airlines cannot bring cargo into the US that has not been examined at a piece level. Requirements would be passed down the supply chain, from airlines to their on-airport handling agents (CTOs), to off-airport freight service providers, and ultimately, to exporters themselves. Because deconsolidation and piece level examination will be too expensive and impractical for many businesses to implement, only a small percentage of US-bound air cargo will be able to be appropriately examined. This means that the large 'tail' of businesses (largely the smaller and medium size businesses) would no longer be able to export to the US.

Many businesses, such as those exporting high value cargo or a large quantity of cargo, or major international freight companies, employ sophisticated security systems. For instance, regulated entities moving high value air cargo, such as precious metals and pharmaceuticals, have advanced security systems to prevent the theft or loss of their cargo by staff or visitors. Therefore, maintaining the status quo would not provide an efficient mechanism for recognising cargo which is already secured from unlawful interference. This could lead to the imposition of costly examination or require businesses to forego potential market opportunities.

This is not considered a viable option, as the TSA will not accept any air cargo from Australia if the methods, techniques and equipment used to examine at a piece level are not approved, prescribed and overseen by the Australian Government. Because current regulatory requirements do not prescribe piece level examination, many of the 10,000 businesses that export to the US by air, as well as all freight service providers, CTOs and airlines that handle or carry US-bound air cargo would be impacted.

Option 2― 100 per cent piece level examination

Under this option, the Australian Government would amend the current regulatory regime to introduce a requirement for enhanced piece level examination using specific methods and equipment for all US-bound air cargo.

This option is highly regulatory. It would require 100 per cent of US-bound air cargo to be examined at a piece level, using specific methods and equipment. Although the scheme would be nominally voluntary for off-airport freight forwarders, CTOs, operating as agents for airlines, would have a commercial imperative to examine US-bound cargo at a piece level. Off-airport freight forwarders would be encouraged to become piece level examiners, and would need to make the decision based on their commercial context and those of their customers.

The inflexibility of this 'one size fits all' approach does not recognise the dynamic nature of the export air cargo industry. A flexible approach is necessary to ensure all goods and sectors have a viable mechanism for securing goods which are costly or impractical to examine.

It is estimated that Option 2 would lead to a significant proportion of goods being withdrawn from the US market simply because the composition of the goods make piece level examination by technology or by physical examination difficult, would damage the goods or the delay would lead to deterioration. For example, heavy manufactured items and some fruit and vegetable product s may not be able to be examined effectively under the prescribed examination arrangements.

The inflexible approach would also mean that highly regulated industries such as the pharmaceutical industry would be disadvantaged. This is because they would have to undertake unnecessary and impractical measures to examine goods which are already protected from unlawful interference. This could mean a significant proportion of US-bound cargo would not be recognised for uplift despite already meeting strict regulatory standards. 

In addition, the Department undertook research which demonstrates that the impact of infrastructure costs, deconsolidation costs, time delays and penalty costs are significant. [8] The research noted that it was not possible to quantify all of the costs associated with this option.   

Overall, this is not a preferred option. Although it would meet the stated objective of screening all US-bound air cargo at a piece level, it is inflexible and could result in severe imbalances in affected industry sectors. For example, CTOs would have no choice but to examine US-bound air cargo at a piece level. As approximately 90 per cent of export air cargo received at a CTO is already consolidated, and CTOs have little or no space to unpack, examine, then reconsolidate cargo, substantial bottlenecks and delays would occur. Trade impacts would hit comparatively low value consolidated air cargo and cargo for just in time markets the hardest, making many perishable exports uneconomic.

Option 3― introduction of piece level examination together with a Known Consignor scheme

Under this option, the Australian Government would amend the current regulatory regime to introduce enhanced piece level examination together with a Known Consignor scheme for US-bound air cargo only. This is the preferred option.

Under this option, the Department proposes to create a new regulated industry participant called a Known Consignor. This participant will have mandated air cargo security obligations, and will be subject to audit and compliance activity under the ATSA. This means that current regulation would be extended to:

·          require that all US-bound air cargo be examined at a piece level, either by securing the cargo at source (Known Consignor) or subjecting it to piece level examination with equipment and processes approved by the Department; and

·          allow exporters of US-bound air cargo to become regulated entities under the Aviation Transport Security Act 2004 (ATSA).

This option would meet the TSA's requirements by:

·          Implementing a Known Consignor scheme - overseen by the Department and with validation of exporters before entry to the scheme. This would ensure cargo is secured from its source to the aircraft (accepted by the TSA as piece level examination at source); and

·          Require piece level examination for US-bound air cargo dispatched by exporters who are not Known Consigners. This would mean industry would need to establish screening facilities off-airport to examine cargo that was not from a Known Consignor.

The proposed Known Consignor scheme will be optional. Exporters of US-bound air cargo may choose not to become regulated industry participants under this scheme, however in that case, their US-bound air cargo will be required to undergo piece level examination by a regulated freight forwarder, or their cargo will not be able to be loaded on a US-bound aircraft.

This option would meet the stated objectives. It would provide industry participants with choices; either become a Known Consignor, invest in examination capability or pay another business to examine export cargo. For example, to be approved to secure US-bound air cargo as a Known Consignor, an exporter would need to have appropriate security measures in place at their facilities to ensure cargo cannot be tampered with before export and that that export cargo is securely transported to the aircraft. High level security requirements would be set out in a standard security program with which for Known Consignors must comply. Guidance would provide suggestions for meeting these requirements, allowing for a wide variety of operating environments. Businesses could also choose to invest in examination capability off airport, examining cargo and securing its transport to the aircraft or paying another business to examine air cargo and transport it securely to the airport.

This option would provide a balance between US-bound air cargo being secured at source and being examined further along the supply chain. It is more likely to result in a continuation of trade to the US, without heavily impacting industry sectors with relatively low value goods (e.g. horticulture) or those with goods not easily examined (e.g. heavy machinery, electronics, pharmaceuticals).

This option is preferred over option 4 as it allows businesses to make commercial decisions about applying increased security measures for air cargo going to jurisdictions with a lower regulatory burden. 

Further, many businesses that export are already required to comply with regulatory obligations by other government departments, or have implemented a range of security measures to prevent the theft and loss of high value cargo. The SRA concluded that these measures in many cases achieve an appropriate security outcome. The flexibility inherent in the proposed Known Consignor scheme will mean that many exporting businesses may already meet its requirements without (or with minor) changes.

Option 4― introduction of piece level examination together with a Known Consignor scheme for all export air cargo

This option is similar to the preferred option (Option 3 above), in that it would allow industry participants to choose to become Known Consignors, or to have their export air cargo examined at a piece level. However, this option would require 100 per cent of export air cargo, regardless of destination, to be ‘secure’, that is, all cargo would either originate from a Known Consignor or be examined at piece level prior to uplift on an aircraft.

This option may disadvantage exporters to trade locations which do not currently require higher levels of examination. This is particularly the case for Asia-bound exports which constitute a significant proportion of Australia’s export air cargo.

However, while we must focus on US-bound air cargo due to the TSA's requirements, there is a risk that if the US removes its recognition of Australia's air cargo security arrangements, or if these arrangements are otherwise called into doubt, other nations may also remove their recognition of Australia's air cargo security arrangements. Of particular concern is that the European Union (EU) could respond by reviewing Australia's current 'green' status, which allows Australian-based airlines to carry air cargo into the EU without undergoing a validation process. Should this occur, a further 20,700 tonnes of air cargo worth $6.3 billion would be at risk.

Other key international partners are adopting the approach outlined in this option, and it is supported by (ICAO). Industry stakeholders have argued that introducing piece level examination and a Known Consignor scheme only for US-bound air cargo could result in higher costs for industry, by not realising the economy of scale that would be derived by putting the requirements in place for all export air cargo. This may be the case for some businesses. However we consider, on balance, that requiring all exports to meet the TSA requirements is likely to have a more significant, and detrimental, impact.

This option is not preferred, as current tight timelines and its impact on non-US exporters would not allow efficient implementation. However, the preferred option (Option 3) would be acceptable to Australia's international trading partners and could be expanded if and when necessary.

Communications and engagement plan

The Department is developing a Communications and Engagement Plan to provide for efficient and effective communications and engagement with industry. The aim of the plan is to:

·          assist the Department with the development of policy and regulatory arrangements for US-bound air cargo;

·          meet Best Practice Regulation guidance, facilitating the approval of the Regulatory Impact Statement;

·          facilitate the collection of quantitative and qualitative data for policy analysis. This includes attitudes and preferences, compliance attitudes, current industry practice, and pricing behaviour;

·          ensure industry are adequately informed about the proposed change; and

·          ensure industry attitudes are understood (by sector as far as possible), and that industry has sufficient information to develop an informed opinion.

The consultation plan involves targeting a broad range of industry stakeholders, in terms of size, segment of the supply chain, level of sophistication and location. Key industry associations, including the Export Council of Australia and Australian Industry Group, have agreed to assist with identifying potential impacts and costs to businesses, particularly SMEs.

The Department also maintains regular communication with the Cargo Working Group (CWG), whose members represents major industry stakeholders including airlines, general and express freight forwarders, exporters and government agencies.

It should also be noted that the major businesses that will be affected by the TSA's requirements (e.g. Qantas Airlines, Virgin Australia and the Conference of Asia Pacific Express Carriers) support the Department implementing regulatory changes to meet the TSA's requirements.

Consultation activities to date

The Department has been working closely with industry in the development of enhanced air cargo security arrangements since 2012. It previously conducted extensive industry stakeholder consultations to support the introduction of a Regulated Shipper Scheme (RSS) and Enhanced Air Cargo Examination (EACE) in 2014. These consultations included the following:

·          Site visits to approximately 75 exporters across Australia, representing a range of commodity types, locations, sizes and levels of sophistication. Although these site visits were specifically for developing and implementing a Regulated Shipper Scheme under the Securing the Air Cargo Security Supply Chain (SACSC) framework, much of the information gathered is relevant for Known Consignor.

·          Previous targeted workshops and consultations, including:

o    17 two-hour workshops held in eight cities (Sydney, Melbourne, Brisbane, Perth, Darwin, Hobart, Adelaide and Cairns). A total of 124 people attended the workshops, representing a range of exporters. Participant responses were included in a comprehensive final report.

o    Follow-up workshops held six months later to provide stakeholders with more detail about security requirements for RSS. Participant responses were included in a summary report.

·          Telephone and online surveys were also conducted to supplement the targeted workshops. 1,000 responses were collected from industry stakeholders, and a final report was written.

To augment this earlier consultation work, the Department conducted a series of two-hour workshops in June-July this year with freight forwarders and exporters, specifically to inform them about the TSA requirements, and to elicit their responses. A total of seven workshops were held in Brisbane, Sydney and Melbourne, and approximately 200 people attended.

Other recent consultation activity has included:

·          dissemination of a discussion paper outlining the proposed approach, including a questionnaire allowing stakeholders to give feedback;

·          engaging Ernst and Young to conduct a US-bound air cargo supply chain study based on industry engagement; and

·          working with industry forums such as the:

o    Cargo Working Group; and

o    Aviation Security Advisory Forum.

Consultations with industry stakeholders have identified that many businesses will be well placed to implement the proposed changes. However, industry participants have highlighted that increased cost structures and extended lead times may have a negative impact on their ability to complete internationally.  With this in mind, the Department is committed to designing a scheme which is flexible enough to reflect the operating environment of individual businesses. In addition, the Department is working closely with other government agencies to minimise regulatory duplication where possible. To this end, the department is working with the Department of Immigration and Border Protection (Previously Australian Customs and Border Protection Service) and the Department of Agriculture.

The Department has worked closely with the TSA and other international trading partners to ensure that the changes meet the TSA's requirements and international standards while remaining appropriate for the Australian context.

Further planned consultation

A further phase of consultation will focus on eliciting information to support the development of a cost/benefit analysis, an implementation plan and costings for the RIS Part 2. The Department will conduct this consultation through:

·          Targeted workshops, face-to-face interviews, telephone interviews and online surveys with identified industry stakeholders; and

·          Information sessions, participation in industry events and engagement with industry associations to inform a broad range of stakeholders about the proposed options (changes).

We expect that the results of detailed costings and a cost benefit analysis will support the Department’s position that the preferred option (Option 3) provides the most effective, efficient and economical solution to the stated problem. Although there will be some cost to industry, this option will allow businesses more choice and flexibility in how they meet the obligations.

Implementation and evaluation will be included in RIS Part 2.

 

 

 




[1] It is estimated that an additional 3000 tonnes is exported through express freight. As the goods are valued under $2000 a total value is not recorded.

[2] International Civil Aviation Organization (2014) Aviation Security Manual (Doc. 8973/9), section 13.5.

[3] In October 2010 terrorists based in Yemen attempted to destroy aircraft by placing advanced explosive devices in air cargo.  This attack was foiled through intelligence activities but demonstrated that terrorist groups had identified new vulnerabilities in the aviation security network.

[4] Bureau of Transport and Regional Economics (2014) Freightline 1 - Australian freight transport overview, p.6.

[5] International Air Transport Association (2014) Airline Industry forecast 2014-2018 .

[6] Commonwealth of Australia (2010) Counter-Terrorism White Paper Securing Australia/Protecting Our Community , Department of Prime Minister and Cabinet.

[7] Draft internal report

[8] Sapere (2012) Enhanced Air Cargo Examination Economic Impact Analysis