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Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2019

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2019

 

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

 

 

 

 

 

 

CUSTOMS AMENDMENT (GROWING AUSTRALIAN EXPORT OPPORTUNITIES ACROSS THE ASIA-PACIFIC) BILL 2019

 

 

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

 

(Circulated by authority of the Assistant Minister for Customs, Community Safety and Multicultural Affairs, the Honourable Jason Wood MP)

 



 

CUSTOMS AMENDMENT ( GROWING AUSTRALIAN EXPORT OPPORTUNITIES ACROSS THE ASIA-PACIFIC ) BILL 2019

 

OUTLINE

 

The purpose of the Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2019 (the Bill) is to amend the Customs Act 1901 (the Customs Act) to give effect to:

·          the Peru-Australia Free Trade Agreement;

·          the Indonesia-Australia Comprehensive Economic Partnership Agreement; and

·          the Free Trade Agreement between Australia and Hong Kong, China.

 

Peru-Australia Free Trade Agreement

 

On 12 February 2018 in Canberra, the Hon Steven Ciobo MP, then Minister for Trade, Tourism and Investment, and his Peruvian counterpart Mr Eduardo Ferreyros, signed the Peru-Australia Free Trade Agreement (PAFTA).

 

PAFTA is a comprehensive, high quality free trade agreement that will open new access to Peru’s goods, services and investment markets for Australian businesses. It builds on the gains secured in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It provides a gateway to Latin America, strengthening our economic relationships within the region and helping facilitate value chains between the Americas and Asia.

 

PAFTA will eliminate more than 99 per cent of tariffs on Australian exports within five years of entry into force. This outcome will provide Australian exporters with new market access opportunities in beef, sheepmeat, wine, pharmaceuticals, medical devices, paper products and machinery. PAFTA will also provide greater legal certainty for Australian service suppliers in Peru and will create new opportunities for Australian education providers to attract more Peruvian students to study in Australia.

 

Schedule 1 of the Bill amends the Customs Act to provide rules for determining whether goods are Peruvian originating goods and therefore entitled to be imported into Australia at preferential rates of customs duty. The amendments will also enable regulations to prescribe record keeping obligations on exporters and producers of goods exported to Peru for which a preferential rate of customs duty is claimed.

 

The Customs Tariff Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2019 (Customs Tariff Amendment Bill) will make complementary amendments to the Customs Tariff Act 1995 to give effect to the preferential rates of customs duty in accordance with PAFTA. Schedule 6A of the Customs Tariff Act will set out the preferential customs duty rates for Peruvian originating goods.

 

Indonesia-Australia Comprehensive Economic Partnership Agreement

 

On 4 March 2019 in Jakarta, Senator the Hon Simon Birmingham, Minister for Trade, Tourism and Investment, and his counterpart the Indonesian Minister for Trade H.E Enggartiasto Lukita, signed the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA).

 

IA-CEPA creates a framework for Australia and Indonesia to unlock the potential of our bilateral economic partnership. It builds on commitments under our existing free trade agreement, the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) across goods, services and investment. In addition to reducing non-tariff barriers to trade and simplifying paperwork, IA-CEPA will allow 99% of Australia's goods exports to enter Indonesia duty free or with significantly improved preferential arrangements. Australian services suppliers and investors will have greater certainty for entry and operation in the Indonesian market, creating more opportunities for Australians to meet Indonesia’s growing needs in investment and world-class services.

Schedule 2 of the Bill amends the Customs Act to provide rules for determining whether goods are Indonesian originating goods and therefore entitled to be imported into Australia at preferential rates of customs duty. The amendments will also enable regulations to prescribe record keeping obligations on exporters of goods exported to Indonesia for which a preferential rate of customs duty is claimed.

 

The Customs Tariff Amendment Bill will make complementary amendments to the Customs Tariff Act to give effect to the preferential rates of customs duty in accordance with IA-CEPA. Schedule 9A of the Customs Tariff Act will set out the preferential customs duty rates for Indonesian originating goods.

 

Australia-Hong Kong Free Trade Agreement

 

On 26 March 2019 in Sydney, Senator the Hon Simon Birmingham, Minister for Trade, Tourism and Investment, and his counterpart the Hong Kong Secretary for Commerce and Economic Development Edward Yau, signed the Free Trade Agreement between Australia and Hong Kong, China (A-HKFTA).

 

The A-HKFTA, along with the associated Investment Agreement, will strengthen the economic relationship between Australia and Hong Kong, China. It provides business certainty by locking in zero tariff levels, improved access for services, updated international investment protection, and transparent policy settings.  It also sets up a dynamic framework for future engagement.

 

Schedule 3 of the Bill amends the Customs Act to provide rules for determining whether goods are Hong Kong originating goods and therefore entitled to be imported into Australia at preferential rates of customs duty. The amendments also enable regulations to prescribe record keeping obligations on exporters and producers of goods exported to Hong Kong, China for which a preferential rate of customs duty is claimed.

 

The Customs Tariff Amendment Bill will make complementary amendments to the Customs Tariff Act to give effect to the preferential rates of customs duty in accordance with A-HKFTA. Schedule 13 of the Customs Tariff Act will set out the preferential customs duty rates for Hong Kong originating goods.

 

FINANCIAL IMPACT STATEMENT

 

The 2018-19 Budget estimated that implementing PAFTA would have a negligible cost to revenue over the forward estimates.

 

The 2019-20 Budget estimated that implementing IA-CEPA would have no impact on revenue over the forward estimates and implementing A-HKFTA would reduce revenue by $40 million over the forward estimates.

 

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

 

A Statement of Compatibility with Human rights in respect of the amendments contained in the Bill is at Attachment A . The Statement assesses the amendments to be compatible with Australia’s human rights obligations.

 

REGULATION IMPACT STATEMENT

 

A regulation impact statement in respect of all amendments to give effect to the new rules of origin requirements in accordance with the PAFTA and related preferential treatment of customs duty is at Attachment B .

 

A regulation impact statement in respect of all amendments to give effect to the new rules of origin requirements in accordance with the IA-CEPA and related preferential treatment of customs duty is at Attachment C .

 

A regulation impact statement in respect of all amendments to give effect to the new rules of origin requirements in accordance with the A-HKFTA and related preferential treatment of customs duty is at Attachment D .

 

 



 

CUSTOMS AMENDMENT (GROWING AUSTRALIAN EXPORT OPPORTUNITIES ACROSS THE ASIA-PACIFIC ) BILL 2019

 

NOTES ON CLAUSES

 

Clause 1  Short title

 

1.         This clause provides for the ‘Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific ) Bill 2019’ (the Bill), when enacted, to be cited as the Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Act 2019 .

 

Clause 2  Commencement

 

2.         This clause sets out, in a table, the date on which provisions of the Bill, when enacted, will commence.

 

3.         Table item 1 provides for clauses 1 to 3 and anything in the Bill not elsewhere covered by the table to commence on the day the Bill receives the Royal Assent.

 

4.         Table item 2 provides for Schedule 1 of the Bill, when enacted, to commence on the later of the day the Bill receives the Royal Assent, and the day the Peru-Australia Free Trade Agreement (PAFTA), done at Canberra on 12 February 2018, enters into force for Australia. The Minister must announce the day on which PAFTA enters into force for Australia by notifiable instrument, (in accordance with the Legislation Act 2003 ) . However, the provisions do not commence at all if the PAFTA does not enter into force for Australia.

 

5.         Table item 3 provides for Schedule 2 of the Bill, when enacted, to commence on the later of the day the Bill receives the Royal Assent, and the day the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), done at Jakarta on 4 March 2019, enters into force for Australia. The Minister must announce the day on which IA-CEPA enters into force for Australia by notifiable instrument, (in accordance with the Legislation Act 2003 ) . However, the provisions do not commence at all if the IA-CEPA does not enter into force for Australia.

 

6.         Table item 4 provides for Schedule 3 of the Bill, when enacted, to commence on the later of the day the Bill receives the Royal Assent, and the day the Free Trade Agreement between Australia and Hong Kong, China (A-HKFTA), done at Canberra on 26 March 2019, enters into force for Australia. The Minister must announce the day on which A-HKFTA enters into force for Australia by notifiable instrument, (in accordance with the Legislation Act 2003 ) . However, the provisions do not commence at all if the A-HKFTA does not enter into force for Australia.

 

Clause 3  Schedules

 

7.         This clause enables the Schedules of the Bill, when enacted, to amend or repeal provisions of legislation specified in that Schedule in accordance with the applicable items. In the context of the Bill, the Customs Act 1901 (the Customs Act) is being amended.

 

Schedule 1-Peru

 

Part 1-Peruvian originating goods

 

Customs Act 1901

 

Introductory Comments

 

1.         On 12 February 2018, in Canberra, the Hon Steven Ciobo MP, then Minister for Trade, Tourism and Investment, and his Peruvian counterpart Mr Eduardo Ferreyros, signed the PAFTA.

 

2.         PAFTA, on entry into force, provides in part for new rules of origin to determine ‘Peruvian originating goods’ and for the preferential treatment of customs duty to apply to such goods. ‘Peruvian originating goods’ in accordance with PAFTA are those goods that satisfy the requirements in new Division 1EA of Part VIII of the Customs Act inserted by the Bill.

 

Item 1  Subparagraph 105B(3)(b)(ii)

 

3.         Section 105B of the Customs Act sets out circumstances where the liability to pay import duty on excise-equivalent goods is wholly or partly extinguished.

 

4.         ‘Excise-equivalent goods’ is defined in subsection 4(1) of the Customs Act to mean goods prescribed by the regulations for the purposes of this definition.

 

5.         However, under subsection 105B(3) of the Customs Act, those circumstances do not apply to an amount of duty if the excise-equivalent goods are classified to subheading 2207.20.10 (denatured ethanol) or 3826.00.10 (biodiesel) of Schedule 3 to the Customs Tariff Act 1995 (the Customs Tariff Act), or an item in the table in Schedule 4A, 5, 6, 7, 8, 9, 10, 11 or 12 of that Act that relates to a subheading mentioned.

 

6.         As part of the implementation of PAFTA, a separate Customs Tariff Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2018 (the Customs Tariff Amendment Bill) will insert new Schedule 6A into the Customs Tariff Act. New Schedule 6A will provide for excise-equivalent rates of duty on certain alcohol, tobacco, fuel petroleum products in accordance with PAFTA, and the related preferential rates of customs duty.

 

7.         This item amends subparagraph 105B(3)(b)(ii) of the Customs Act to insert a reference to Schedule 6A of the Customs Tariff Act.

 

8.         The purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under PAFTA.

 

Item 2  Subsection 105B(4) (paragraph (b) of the definition of biofuel blend )

 

9.         Subsection 105B(4) of the Customs Act defines ‘biofuel blend’, in part, as goods classified to certain subheadings under Schedule 3 of the Customs Tariff Act or an item in the table in the Schedules relating to originating goods under Free Trade Agreements (FTAs) that relate to the relevant subheadings.

 

10.     This item amends the definition of ‘biofuel blend’ under subsection 105B(4) of the Customs Act to insert a reference to new Schedule 6A of the Customs Tariff Act.

 

11.     As for item 1, the purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under PAFTA.

 

Item 3  After Division 1E of Part VIII

 

12.     This item amends Part VIII of the Customs Act to insert new Division 1EA.

 

13.     New Division 1EA is titled ‘Peruvian originating goods’ and sets out the new rules for determining whether goods are Peruvian originating goods and therefore eligible for a preferential rate of customs duty under the Customs Tariff Act. These new rules give effect to Chapter 3 of PAFTA.

 

14.     New Division 1EA contains seven Subdivisions (Subdivision A to Subdivision G) as set out below.

 

Subdivision A-Preliminary

 

15.     Subdivision A contains a simplified outline of new Division 1EA and the interpretation provision for this Division.

 

New section 153ZIL  Simplified outline of this Division

 

16.     New section 153ZIL sets out a simplified outline of Subdivision B to Subdivision G of new Division 1EA.

 

New section 153ZIM  Interpretation

 

17.     New subsection 153ZIM(1) sets out the definitions for the purposes of new Division 1EA as follows:

 

Agreement means the Peru-Australia Free Trade Agreement, done at Canberra on 12 February 2018, as amended and in force for Australia from time to time. The note to this definition indicates that as at 2019, the text of PAFTA is accessible through Australian Treaties Library on the AustLII website.

 

aquaculture has the meaning given by Article 3.1 of Chapter 3 of PAFTA. This term is necessary as it is referred to in the definition of ‘production’ also provided in Article 3.1 of Chapter 3 of PAFTA.

 

Australian originating goods means goods that are Australian originating goods under a law of Peru that implements PAFTA.

 

Certificate of Origin means a certificate that is in force and that complies with the requirements of Article 3.17 of Chapter 3 of PAFTA.

 

Convention means the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983, as in force from time to time. The note to this definition indicates as at 2019, the text of the Convention is accessible through the Australian Treaties Library on the AustLII website. This term is necessary and is referred to in the definition of ‘Harmonized Commodity Description and Coding System’.

 

customs value of goods has the meaning given by section 159 of the Customs Act. In most cases, this will be the transaction value but there are other valuation methods if this value cannot be ascertained.

 

enterprise has the meaning given by Article 1.3 of Chapter 1 of PAFTA.

 

Harmonized Commodity Description and Coding System means the Harmonized Commodity Description and Coding System (the HCDC System) that is established by or under the Convention.

 

The HCDC System is the worldwide classification system that has been adopted by all countries that are members of the World Customs Organization (WCO). In Australia, the HCDC System has been adopted in the Customs Tariff Act.

 

The HCDC is a structure for classifying goods based on internationally agreed descriptors for goods and related six-digit codes administered by the WCO. This six-digit classification uniquely identifies all traded goods and commodities and is uniform across all countries that have adopted the HCDC System. The WCO reviews the system every five years to reflect changes in industry practice, technological developments and evolving international trade patterns.

 

This term is referred to in the definition of ‘Harmonized System’ which sets out the HCDC System on which PAFTA, particularly the product-specific rules, is based.

 

Harmonized System means:

(a)     the Harmonized Commodity Description and Coding System (the HCDC System) as in force on 1 January 2017; or

(b)    if the table in Annex 3-B of PAFTA is amended or replaced to refer to Chapters, headings and subheadings of a later version of the HCDC System—the later version of the HCDC System.

 

As per the notes for the definition of HCDC System above, updates to that System are undertaken every 5 years. The last review of the HCDC System (the fifth review) was completed in June 2014 and related amendments made entered into force on 1 January 2017.

 

While each signatory to the Convention is required to implement and reflect related amendments to the HCDC System in their domestic legislation, simultaneously on the date when the amendments enter into force, the pace at which the amendments are implemented varies from country to country.

 

By way of example, while Australia has implemented, and currently uses, the latest HCDC System of 2017, many of our established FTAs still utilise other versions of the HCDC System for their product specific rules of origin. In light of this, and to avoid causing any disruption to international trade, Australia, through the Australian Border Force, publishes the changes between each HCDC System update and relevant concordance associated with those updates on its website so that anyone can readily identify the appropriate tariff classification codes for importing goods from other countries into Australia.

 

The definition of ‘Harmonized System’ will expressly recognise, in the Customs Act, the version of the HCDC System on which the PAFTA was based, and allow subsequent versions of that System to also be recognised when the relevant Annex of the PAFTA is formally amended.

 

indirect materials means:

(a)     goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods; or

(b)    goods or energy used in the maintenance of buildings or the operation of equipment associated with the production of goods;

including:

(c)     fuel (within its ordinary meaning); and

(d)    catalysts and solvents; and

(e)     gloves, glasses, footwear, clothing, safety equipment and supplies; and

(f)     tools, dies and moulds; and

(g)    spare parts and materials; and

(h)    lubricants, greases, compounding materials and other similar goods.

 

Interpretation Rules means the General Rules (as in force from time to time) for the Interpretation of the Harmonized System provided for by the Convention.

 

non-originating materials means goods that are not originating materials.

 

Non-originating materials are goods that are not originating materials because they do not satisfy the requirements of new Division 1EA in their own right. For example, where frozen crumbed fish fillets processed in a Party to PAFTA from fish caught in the territory of that Party, coated with herbs and spices that are produced in Thailand (which is not a Party to PAFTA), the fish would be originating materials and the herbs and spices would be non-originating materials.

 

non-Party has the same meaning as it has in Chapter 3 of PAFTA.

 

This term is necessary and referred to in new section 153ZIS, which deals with the consignment of Peruvian originating goods (see notes below for new section 153ZIS).

 

originating materials means:

(a)     Peruvian originating goods that are used in the production of other goods; or

(b)    Australian originating goods that are used in the production of other goods; or

(c)     indirect materials.

 

In some circumstances, in order to determine whether goods that are imported into Australia are Peruvian originating goods, and therefore eligible for a preferential rate of customs duty, it may be necessary to have regard to the goods from which the final goods are produced (see Subdivision C and Subdivision D).

 

person of Peru means a national within the meaning, so far as it relates to Peru, of Article 1.3 of Chapter 1 of PAFTA, or an enterprise of Peru.

 

Peruvian originating goods means goods that, under new Division 1EA of Part VIII of the Customs Act, are Peruvian originating goods.

 

production has the same meaning given by Article 3.1 of Chapter 3 of PAFTA.

 

In Article 3.1, production is defined as operations including, but not limited to, growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, collecting, breeding, extracting, aquaculture, gathering, manufacturing, processing or assembling a good. This list is non-exhaustive - the term ‘production’ is also capable of capturing any other process that falls within the meaning of ‘operations’, including any currently existing operations that have not been listed and any new operations which may arise in the future.

 

territory of Australia means territory within the meaning, so far as it relates to Australia, of Article 1.3 of Chapter 1 of PAFTA.

 

territory of Peru means territory within the meaning, so far as it relates to Peru, of Article 1.3 of Chapter 1 of PAFTA.

 

18.     New subsection 153ZIM(2) provides that the value of goods for the purposes of new Division 1EA is to be worked out in accordance with the regulations and that the regulations may prescribe different valuation rules for different kinds of goods. The value of goods is relevant, for example, in determining whether goods satisfy the de minimis requirement in Article 3.9 of Chapter 3 of PAFTA. The value of goods is to be distinguished from the customs value of goods, which is to be worked out under section 159 of the Customs Act.

 

19.     New subsection 153ZIM(3) provides that in specifying tariff classifications for the purposes of new Division 1EA, the regulations may refer to the Harmonized System. The product-specific rules of origin in Annex 3-B to Chapter 3 of PAFTA refer to the tariff classifications of the Harmonized System.

 

20.     New subsection 153ZIM(4) provides that subsection 4(3A) of the Customs Act does not apply for the purposes of new Division 1EA. Subsection 4(3A) provides that reference in the Customs Act to the tariff classification of goods is a reference to Schedule 3 to the Customs Tariff Act, which is not the case in new Division 1EA.

 

21.     New subsection 153ZIM(5) provides that, despite subsection 14(2) of the Legislation Act 2003 (the Legislation Act), regulations made for the purposes of Division 1EA may make provision in relation to a matter by applying, adopting or incorporating, with or without modification, any matter contained in an instrument or other writing as in force or existing from time to time. The subsection will override subsection 14(2) of the Legislation Act should it be necessary in order to implement PAFTA by applying, adopting or incorporating an instrument or other writing that is not an Act or disallowable legislative instrument. Any instrument and other writing so incorporated will be limited to those that are required for the operation of the PAFTA and will be accessible through the Department’s website, and free of charge, to ensure they are readily available and at no cost to persons concerned. For example, in implementing other FTAs, this provision has enabled the regulations to refer to the general accounting principles of a country other than Australia for the purposes of the regional value content calculations. Where such references are made in regulations, the explanatory material will explain the basis on which such references are made and indicate where the material referred to can be located by the public.

 

Subdivision B-Goods wholly obtained or produced entirely in Peru or in Peru and Australia

 

22.     Subdivision B contains new section 153ZIN, which sets out the rules in relation to goods that are wholly obtained or produced entirely in Peru or in Peru and Australia.

 

23.     New subsection 153ZIN(1) provides that goods are Peruvian originating goods if they are wholly obtained or produced entirely in Peru or in Peru and Australia, and either the importer of the goods has, at the time the goods are imported, a certificate of origin, or a copy of one, for the goods; or Australia has waived the requirement for a certificate of origin for the goods.

 

24.     New subsection 153ZIN(2) provides that goods are wholly obtained or produced entirely in Peru or in Peru and Australia if, and only if, the goods are:

(a)     plants, or goods obtained from plants, that are grown, cultivated, harvested, picked or gathered in the territory of Peru or in the territory of Peru and the territory of Australia; or

(b)    live animals born and raised in the territory of Peru or in the territory of Peru and the territory of Australia; or

(c)     goods obtained from live animals in the territory of Peru; or

(d)    animals obtained by hunting, trapping, fishing, gathering or capturing in the territory of Peru; or

(e)     goods obtained from aquaculture conducted in the territory of Peru; or

(f)     minerals, or other naturally occurring substances, extracted or taken from the territory of Peru; or

(g)    fish, shellfish, other goods of sea-fishing or other marine life taken from the sea, seabed or subsoil beneath the seabed:

(i) outside the territory of Peru and the territory of Australia; and

(ii) in accordance with international law, outside the territorial sea of non-Parties;

by vessels that are registered or recorded with Peru and are entitled to fly the flag of Peru; or

(h)    goods produced, from goods referred to in paragraph (g), on board a factory ship that is registered or recorded with Peru and is entitled to fly the flag of Peru; or

(i)      goods (except fish, shellfish, other goods of sea-fishing or other marine life) taken by Peru, or a person of Peru, from the seabed, or subsoil beneath the seabed, outside the territory of Peru and the territory of Australia, and beyond areas over which non-Parties exercise jurisdiction, but only if Peru, or the person of Peru, has the right to exploit that seabed or subsoil in accordance with international law; or

(j)      waste or scrap that:

(i) has been derived from production in the territory of Peru and that is fit only for the recovery of raw materials; or

(ii) has been derived from used goods that are collected in the territory of Peru and that are fit only for the recovery of raw materials; or

(k)    goods produced entirely in the territory of Peru, or entirely in the territory of Peru and the territory of Australia, exclusively from goods referred to in paragraphs (a) to (j) or from their derivatives.

 

25.     New section 153ZIN gives effect to Articles 3.2, 3.3, 3.17, 3.20 and 3.21 of Chapter 3 of PAFTA in respect of rules of origin for goods wholly obtained or produced in a Party to PAFTA. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with PAFTA.

 

Subdivision C-Goods produced in Peru, or in Peru and Australia, from originating materials

 

26.     Subdivision C contains new section 153ZIO, which sets out a rule for goods that are produced in Peru, or in Peru and Australia, from originating materials only.

 

27.     Such goods are Peruvian originating goods if they are produced entirely in the territory of Peru, or entirely in the territory of Peru and the territory of Australia, from originating materials only and if the importer of the goods has, at the time the goods are imported, a certificate of origin, or a copy of one, for the goods, or Australia has waived the requirement for a certificate of origin for the goods.

 

28.     New section 153ZIO gives effect to Articles 3.2, 3.3, 3.17, 3.20 and 3.21 of Chapter 3 of PAFTA in respect of rules of origin for goods produced exclusively from originating materials. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with PAFTA.

 

Subdivision D-Goods produced in Peru, or in Peru and Australia, from non-originating materials

 

29.     Subdivision D contains new section 153ZIP, which deals with goods produced in Peru, or in Peru and Australia, from non-originating materials.

 

30.     New subsection 153ZIP(1) provides that goods are Peruvian originating goods if:

(a)     they are classified to a Chapter, heading or subheading of the Harmonized System that is covered by the table in Annex 3-B of PAFTA; and

(b)    they are produced entirely in the territory of Peru, or entirely in the territory of Peru and the territory of Australia, from non-originating materials only or from non-originating materials and originating materials; and

(c)     the goods satisfy the requirements applicable to the goods in that Annex; and

(d)    either:

(i) the importer of the goods has, at the time the goods are imported, a certificate of origin, or a copy of one, for the goods; or

(ii) Australia has waived the requirement for a certificate of origin for the goods.

 

31.     This provision applies the product specific rules by direct reference to Annex 3-B of PAFTA.  This applies both the product specific rules and any product specific process rules.   The direct application of Annex 3-B does not change the operation of these rules as set out in that Annex.  Rather, as PAFTA is defined to be the Agreement as amended from time to time, this will ensure that the current Annex in PAFTA will be applied. It will also ensure that any updated version of the Annex that would be contained in PAFTA when the parties implement later versions of the Harmonized System will be applied as soon as any provisions of PAFTA and any of Australia’s domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

 

32.     For certainty, new subsection 153ZIP(2) provides that, without limiting paragraph 153ZIP(1)(c), a requirement may be specified in the table in Annex 3-B of PAFTA by using an abbreviation that is given a meaning for the purpose of that Annex. For example, the abbreviation of RVC 40 in the Annex means a regional value content of at least 40 per cent. Another example of an abbreviation in the Annex is ‘CC’, which is an abbreviation for Change of Chapter.

 

Change in tariff classification

 

33.     New subsection 153ZIP(3) refers to the first of several requirements that may be prescribed in regulations made for the purposes of Subdivision D. The subsection provides that, if a requirement that applies in relation to the goods is that all non- originating materials used in the production of the goods must have undergone a particular change in tariff classification, the regulations may prescribe when a non- originating material used in the production of the goods is taken to satisfy the change in tariff classification.

 

34.     The regulations made under this head of power include provisions to give effect to the cumulative rules of origin contained in Article 3.8 of Chapter 3 of PAFTA where the non-originating materials that are used or consumed in the production of the good do not satisfy the change in tariff classification.

 

35.     The concept of the change in tariff classification requirement applies to non-originating materials. Goods that have been sourced outside Peru or Australia and that are used in the production of other goods are non-originating materials. Goods sourced from Peru or Australia that have not fulfilled the requirements of new Division 1EA and that are used in the production of other goods are also non- originating materials.

 

36.     Non-originating materials used to produce other goods may not have the same classification under the Harmonized System as the final good. For example, non- originating materials used to produce a good may be classified to one tariff classification before the production process, and the final good may be classified under a different tariff classification after the production process. To satisfy the requirement of classification change, and therefore satisfy a requirement for the purposes of claiming preferential treatment of customs duty in accordance with PAFTA, the goods concerned must be sufficiently transformed such that they can be classified to a different tariff classification to that of the non-originating materials from which they are produced.

 

37.     For example, frozen fish fillets (classified to tariff code 0304) are produced from fish caught in Peru and combined with herbs and spices produced in Thailand (which is not a Party to PAFTA) (classified to tariff code 0907 to 0910) to make crumbed fish fillets (classified to tariff code 1604 in Chapter 16 of the Harmonized System). The applicable tariff change for crumbed fish is ‘a change to Chapter 16 from any other chapter’. As the herbs and spices are classified to Chapter 9 of the Harmonized System, these non-originating materials meet the tariff change requirement, considering that the fish concerned is produced by Peru, and is therefore an originating material and is not required to change its classification.

 

38.     As per the above example, it is necessary for the tariff classification of the final good and each of the goods that are non-originating materials used in the production of the final goods to be known in order to determine the applicable change in tariff classification.

 

39.     New subsection 153ZIP(4) allows for the change in tariff classification requirement to also be satisfied if the total value of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the customs value of the goods.

 

40.     New subsection 153ZIP(4) gives effect to the de minimis requirement set out in Article 3.9 of Chapter 3 of PAFTA. Therefore, even if all the non-originating materials used to produce a final good do not satisfy a particular change in tariff classification, the final goods may still be Peruvian originating goods because the change in tariff classification will be taken to be satisfied.

 

41.     The value of non-originating materials for the purposes of subsection 153ZIP(4) is to be worked out in accordance with the method that will be included in the regulations.

 

42.     New subsection 153ZIP(5) provides that, if:

(a)      a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification; and

(b)    the goods are classified to any of Chapters 50 to 63 of the Harmonized System; and

(c)     one or more of the non-originating materials used in the production of the goods do not satisfy the change in tariff classification;

then the requirement is taken to be satisfied if the total weight of the non- originating materials covered by paragraph (c) does not exceed 10 per cent of the total weight of the goods.

 

43.     This provision allows for the change in tariff classification requirement to also be satisfied in relation to certain goods if the total weight of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the total weight of the goods.

 

Regional value content

 

44.     New subsection 153ZIP(6) provides that, if a requirement that applies in relation to the goods is that the goods must have a regional value content worked out in a particular way:

(a)     the regional value content of the goods is to be worked out in accordance with PAFTA; or

(b)    if the regulations prescribe how to work out the regional value content of the goods—the regional value content of the goods is to be worked out in accordance with the regulations.

 

45.     This provision provides the head of power to prescribe formulae for calculating regional value content and in doing so gives effect to Article 3.4 of Chapter 3 of PAFTA.

 

46.     New subsection 153ZIP(7) provides that, if:

(a)     a requirement that applies in relation to the goods is that the goods must have a regional value content worked out in a particular way; and

(b)    the goods are imported into Australia with accessories, spare parts, tools or instructional or other information materials; and

(c)     the accessories, spare parts, tools or instructional or other information materials are classified with, delivered with and not invoiced separately from the goods; and

(d)    the types, quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the goods;

the regulations must provide for the value of the accessories, spare parts, tools or instructional or other information materials to be taken into account for the purposes of working out the regional value content of the goods (whether the accessories, spare parts, tools or instructional or other information materials are originating materials or non-originating materials).

 

47.     The note to this section indicates that the value of the accessories, spare parts, tools or instructional or other information materials is to be worked out in accordance with the regulations.

 

48.     New subsection 153ZIP(7) provides a head of power to prescribe regulations to give effect to Article 3.11 of Chapter 3 of PAFTA in respect of the value of the accessories, spare parts, tools or instructional or other information materials for working out regional value content. This provision is necessary because the value of such goods would not normally form part of the value of materials that are used in the production of the underlying goods.

 

49.     New subsection 153ZIP(8) also gives effect to Article 3.11 of Chapter 3 of PAFTA and provides that section 153ZIR should be disregarded for the purposes of subsection 153ZIP(7) when working out whether the accessories, spare parts, tools or instructional or other information materials are originating or non-originating materials. This provision ensures that consideration of applicable change in tariff classification only applies to final goods produced from non-originating materials and not the accessories, spare parts, tools or instructional or other information materials for the final goods.

 

Goods put up in a set for retail sale

 

50.     New subsection 153ZIP(9) gives effect to Article 3.15 of Chapter 3 of PAFTA which applies to sets of goods.

 

51.     New subsection 153ZIP(9) provides that if:

(a)     goods are put up in a set for retail sale; and

(b)    the goods are classified in accordance with Rule 3(c) of the Interpretation Rules;

 

the goods are Peruvian originating goods under this section only if:

 

(c)     all of the goods in the set, when considered separately, are Peruvian originating goods; or

(d)    the total customs value of the goods (if any) in the set that are not Peruvian originating goods does not exceed 20% of the customs value of the set of goods.

 

52.     This provision applies to goods that are put up for retail sale and are comprised of multiple components that are classified under two or more tariff headings. Under Rule 3(c) of the Interpretation Rules, when goods cannot be classified to a single heading or subheading, they shall be classified under the heading or subheading which occurs last in the numerical order of the HCDC system.

 

53.     By way of an example, a mirror, brush and comb are put up as a ‘grooming set’ for retail sale. This set is classified under Rule 3(c) of the Interpretation Rules according to the tariff classification applicable to combs. This is because ‘combs’ is the heading which occurs last in numerical order of the HCDC system among the three items concerned.

 

54.     The effect of new paragraph 153ZIP(9)(c) is that the set will not be considered to be Peruvian originating goods unless all three of the goods in the set, when considered separately, are such originating goods. However, if one or more of the goods in the grooming set is non-originating, then the grooming set may still be Peruvian originating goods under new paragraph 153ZIP(9)(d) if the customs value of the non- originating goods does not exceed 20% of the customs value of the entire grooming set.

 

55.     New section 153ZIQ gives effect to Article 3.12 of Chapter 3 of PAFTA in relation to packaging materials and containers for retail sale.

 

56.     Subsection 153ZIQ(1) gives effect to paragraph (1) of Article 3.12 of Chapter 3 of PAFTA and provides that if:

(a)     goods are packaged for retail sale in packaging material or a container; and

(b)    the packaging material or container is classified with the goods in accordance with Rule 5 of the Interpretation Rules;

then the packaging material or container is to be disregarded for the purposes of this Subdivision.

 

57.     This provision has effect that packaging materials or containers do not need to satisfy the change in tariff classification requirement that may apply to the goods packaged within the materials or containers.

 

58.     However, in accordance with paragraph (2) of Article 3.12 of Chapter 3 of PAFTA, new subsection 153ZIQ(2) provides one exception to subsection 153ZIQ(1). This exception applies where the goods are required to have a regional value content worked out in a particular way. In this context, the regulations must provide for the value of the packaging material or container to be taken into account as originating materials or non-originating materials, as the case may be, for the purposes of working out the regional value content of the goods.

 

59.     Without this provision, the value of packaging materials and containers would normally not form part of the value of materials that are used in the production of the goods.

 

60.     The note to this subsection explains that the value of packaging materials and containers for the purposes of this subsection is to be worked out in accordance with the regulations.

 

Subdivision E-Goods that are accessories, spare parts, tools or instructional or other information materials

 

61.     Subdivision E contains new section 153ZIR, which sets out a specific rule that applies to goods that are accessories, spare parts, tools or instructional or other information materials.

 

62.     New section 153ZIR provides that goods are Peruvian originating goods if:

(a)     they are accessories, spare parts, tools or instructional or other information materials in relation to other goods; and

(b)    the other goods are imported into Australia with the accessories, spare parts, tools or instructional or other information materials; and

(c)     the other goods are Peruvian originating goods; and

(d)    the accessories, spare parts, tools or instructional or other information materials are classified with, delivered with and not invoiced separately from the other goods; and

(e)     the types, quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the other goods.

 

63.     Under this provision, accessories, spare parts, tools or instructional or other information materials will be deemed Peruvian originating goods even if, in fact, they are non-originating goods, provided all of the requirements in this new section are satisfied. However, this deeming section is to be disregarded when performing a regional value calculation on goods under new subsection 153ZIP(7). The value of the accessories, spare parts, tools or other instructional or information materials that are originating or non-originating materials must be included in that calculation (see new subsection 153ZIP(8)).

 

64.     This provision gives effect to Article 3.11 of Chapter 3 of PAFTA with respect to specific rules for goods that are accessories, spare parts, tools or instructional or other information materials.

 

Subdivision F-Consignment

 

65.     Subdivision F contains new section 153ZIS, which deals with the consignment requirements applicable to Peruvian originating goods in accordance with PAFTA.

 

66.     New subsection 153ZIS(1) provides that goods are not Peruvian originating goods under new Division 1EA if the goods are transported through the territory of one or more non-Parties and either or both of the following apply:

(a)     the goods undergo subsequent production or any other operation in the territory of a non-Party (other than unloading, reloading, storing, separation from a bulk shipment, labelling or any other operation that is necessary to preserve the goods in good condition or to transport the goods to the territory of Australia);

(b)    while the goods are in the territory of a non-Party, the goods do not remain under customs control at all times.

 

67.     New subsection 153ZIS(2) provides that section 153ZIS applies despite any other provision of new Division 1EA. This means that even if goods are Peruvian originating goods in accordance with any other provisions of Division 1EA, if they come within the terms of subsection 153ZIS(1) they will not be Peruvian originating goods.

 

68.     The new section gives effect to Article 3.16 of Chapter 3 of PAFTA which deals with transport through non-Parties.

 

Subdivision G-Regulations

 

69.     Subdivision G contains new section 153ZIT, which provides a head of power to prescribe regulations to make provisions for and in relation to determining whether goods are Peruvian originating goods under new Division 1EA.

 

Part 2-Verification Powers

 

Customs Act 1901

 

Item 4  After Division 4D of Part VI

 

70.     This item amends Part VI of the Customs Act to insert new Division 4D, which is titled ‘Exportation of goods to Peru’.

 

71.     Division 4D contains new sections 126AJE, 126AJF, 126AJG and 126AJH. These new sections impose obligations on people who export eligible goods to a Peru and who wish to obtain preferential treatment of customs duty in respect of those goods, and on people who produce such goods.

 

Section 126AJE  Definitions

 

72.     New section 126AJE defines the term ‘Agreement’, ‘Peruvian customs official’, ‘producer’ ‘production’ and ‘territory of Peru’ for the purposes of new Division 4DA. With the exception of the terms ‘Peruvian customs official’ and ‘producer’, the terms have the same meaning as defined in new Division 1EA of Part VIII of the Customs Act, inserted by item 3 of Part 1 of the Bill.

 

73.     ‘Peruvian customs official’ is defined under this section to mean a person representing the customs administration of Peru. This term is necessary as it is referred to in new sections 126AJG and 126AJH.

 

Section 126AJF  Record keeping obligations

 

74.     New section 126AJF inserts a head of power to prescribe record keeping obligations. These record keeping obligations will apply in respect of goods that are exported from Australia to Peru.

 

75.     New subsection 126AJF(1) enables regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of Peru and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Peru. The record keeping obligation envisaged by Article 3.22 of Chapter 3 of PAFTA is broader than the general record keeping obligations under the Customs Act.

 

76.     It is intended that the method of keeping the documents, such as the length of time for which they must be kept and the manner in which they must be kept, will be similar to current record keeping obligations under the Customs Act. However, the type of documents that will be required to be kept will be much broader than current requirements. The requirements will extend to all records relating to the origin of the goods for which preferential tariff treatment is claimed and may include, amongst other things, records associated with the tariff classification of the goods and the origin or value of the materials used to produce the goods.

 

77.     New subsection 126AJF(2) provides that the regulations made for the purpose of subsection 126AJF(1) may impose obligations on an exporter or producer of goods.

 

Section 126AJG  Power to require records

 

78.     New section 126AJG supports the record keeping obligations in Articles 3.22 and 3.23 of Chapter 3 of PAFTA by imposing a requirement on exporters to produce records to authorised officers, and empowering authorised officers to disclose records to Peruvian customs officials.

 

79.     Subsection 126AJG(1) provides that an authorised officer (as defined in section 4 of the Customs Act) may require a person who is subject to record keeping obligations under regulations made for the purposes of section 126AJF to produce to the officer such of those records as the officer requires.

 

80.     The note to new subsection 126AJG(1) indicates that, where an authorised officer has requested a person who is subject to record keeping obligations under regulations made for the purposes of section 126AJF, a failure to produce documents or records by that person may be an offence under section 243SB of the Customs Act. The note also indicates that, under section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

 

81.     Under Article 3.23 of Chapter 3 of PAFTA, the importing party may take action to verify the eligibility of goods for preferential treatment, including requesting the supply of information relating to the production or export of the goods. New subsection 126AJG(2) gives effect to this Article in respect of goods that are exported to the territory of Peru and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Peru.

 

82.     New subsection 126AJG(2) provides that an authorised officer (as defined in section 4 of the Customs Act) may disclose any records so produced to a Peruvian customs official for the purpose of verifying a claim for a preferential tariff in the territory of Peru. Records obtained by an authorised officer under new section 126AJG may be Immigration and Border Protection information within the meaning of Part 6 of the Australian Border Force Act 2015 (the ABF Act).

 

83.     Section 42 in Part 6 of the ABF Act prohibits the disclosure of Immigration and Border Protection information except, amongst other things, where the disclosure is authorised by or under a law of the Commonwealth.

 

84.     By including an express provision in the Customs Act to permit the disclosure of information (that may be Immigration and Border Protection information) to a Peruvian customs official, the disclosure of such information is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

 

Section 126AJH  Power to ask questions

 

85.     New subsection 126AJH(1) provides that an authorised officer (as defined in section 4 of the Customs Act) may require a person who is an exporter or producer of goods that:

(a)     are exported to the territory of Peru; and

(b)    are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Peru;

to answer questions in order to verify the origin of the goods.

 

86.     The power to ask questions in the circumstances set out in this section is a necessary adjunct to the power to require records in new section 126AJG.

 

87.     The note to new subsection 126AJH(1) indicates that, where an authorised officer has requested a person to answer questions in order to verify the origin of goods in accordance with this subsection, a failure to answer questions by that person may be an offence under section 243SA of the Customs Act. The note also indicates that, under section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

 

88.     Subsection 126AJH(2) enables an authorised officer (as defined in section 4 of the Customs Act), for the purpose of verifying a claim for a preferential tariff in a Party, to disclose any answers to questions answered in accordance with new subsection 126AJH(1) to a Peruvian customs official.

 

89.     The answers to questions obtained by an authorised officer under new section 126AJH may also be Immigration and Border Protection information within the meaning of Part 6 of the ABF Act and therefore cannot not be disclosed to a Peruvian customs official except as allowed by Part 6. By including an express provision in the Customs Act allowing for this information to be disclosed to a Peruvian customs official, the disclosure is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

 

Part 3-Application provisions

 

Item 5  Application provisions

 

90.     This item operates such that the amendments made by Part 1 of Schedule 1 to the Bill, when enacted, apply in relation to:

(a)     goods imported into Australia on or after the commencement of that Part; and

(b)    goods imported into Australia before the commencement of that Part, where the time for working out the rate of import duty on the goods had not occurred before the commencement of that Part.

 

91.     This item also provides that the amendment made by Part 2 of Schedule 1 to the Bill, when enacted, applies in relation to goods exported to the territory of Peru on or after the commencement of that Part (whether the goods were produced before, on or after that commencement).



 

Schedule 2-Indonesia

 

Part 1—Indonesian originating goods

 

Customs Act 1901

 

Introductory Comments

 

92.   On 4 March 2019, in Jakarta, Indonesia, Senator the Hon Simon Birmingham, Minister for Trade, Tourism and Investment, and his counterpart the Indonesian Minister for Trade H.E Enggartiasto Lukita, signed the IA-CEPA.

 

93.   The IA-CEPA, on entry into force, provides in part for new rules of origin to determine ‘Indonesian originating goods’ and for the preferential treatment of customs duty that applies to such goods. ‘Indonesian originating goods’ in accordance with the IA-CEPA are those goods that satisfy the requirement in new Division 1HA of Part VIII of the Customs Act inserted by the Bill; see the notes on clauses below in respect of relevant requirements.

 

Item 1  Subparagraph 105B(3)(b)(ii)

 

94.     Section 105B of the Customs Act sets out circumstances where the liability to pay customs duty on excise-equivalent goods is wholly or partly extinguished. ‘Excise-equivalent goods’ is defined in section 9 of the Customs Regulation 2015 to mean the goods prescribed under clause 1 of Schedule 1 of that Regulation.

 

95.     However, under subsection 105B(3) of the Customs Act, those circumstances do not apply to an amount of duty if the excise-equivalent goods are classified to subheading 2207.20.10 (denatured ethanol) or 3826.00.10 (biodiesel) of Schedule 3 to the Customs Tariff Act, or an item in the table in Schedule 4A, 5, 6, 7, 8, 8B, 9, 10, 11 or 12 to that Act that relates to a subheading mentioned.

 

96.     As part of the implementation of the IA-CEPA, the Customs Tariff Amendment Bill will insert new Schedule 9A into the Customs Tariff Act. New Schedule 9A will provide for excise-equivalent rates of duty on certain alcohol, tobacco, and fuel petroleum products in accordance with IA-CEPA, and the related preferential rates of customs duty.

 

97.     This item amends subparagraph 105B(3)(b)(ii) of the Customs Act to insert a reference to Schedule 9A of the Customs Tariff Act.

 

98.     The purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under IA-CEPA.

 

Item 2  Subsection 105B(4) (paragraph (b) of the definition of biofuel blend)

 

99.     Subsection 105B(4) of the Customs Act defines in part ‘biofuel blend’ as goods classified to certain subheadings under Schedule 3 to the Customs Tariff Act or an item in the table in the Schedules relating to originating goods under FTAs that relate to the relevant subheadings.

 

100. This item amends the definition of ‘biofuel blend’ under subsection 105B(4) of the Customs Act to insert a reference to new Schedule 9A to the Customs Tariff Act.

 

101. The purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under IA-CEPA.

 

Item 3  After Division 1H of Part VIII

 

102. This item amends Part VIII of the Customs Act to insert new Division 1HA.

 

103. New Division 1HA is titled ‘Indonesian originating goods’ and sets out the new rules for determining whether goods are Indonesian originating goods and therefore eligible for a preferential rate of customs duty under the Customs Tariff Act applying to such goods that are imported into Australia. These new rules are being inserted to give effect to Chapter 4 of IA-CEPA.

 

104. New Division 1HA contains six Subdivisions (Subdivision A to Subdivision F) and they are set out below.

 

Subdivision A-Preliminary

 

105. Subdivision A contains a simplified outline of Division 1HA and the interpretation provision for that Division.

 

New section 153ZLJ  Simplified outline of this Division

 

106. New section 153ZLJ sets out a simplified outline of each of the Subdivision B to Subdivision F of new Division 1HA.

 

New section 153ZLK  Interpretation

 

107. New subsection 153ZLK(1) sets out new definitions for the purposes of new Division 1HA as follows:

 

Agreement means the Indonesia-Australia Comprehensive Economic Partnership Agreement, done at Jakarta, on 4 March 2019, as amended from time to time. The note to this definition indicates that IA-CEPA could in 2019 be viewed in the Australian Treaties Library on the AustLII website.

 

aquaculture has the meaning given by Article 4.1 of Chapter 4 of IA-CEPA. This term is necessary as it is referred to in new paragraph 153ZLL(2)(d).

 

Australian originating goods means goods that are Australian originating goods under a law of Indonesia that implements IA-CEPA.

 

Certificate of Origin means a certificate that is in force and that complies with the requirements of Article 4.20 of Chapter 4 of IA-CEPA.

 

Convention means the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983, as in force from time to time. The note to this definition indicates that the Convention is in Australian Treaty Series 1988 No. 30 ([1988] ATS 30) and could in 2019 be viewed in the Australian Treaties Library on the AustLII website. This term is necessary and is referred to in the definition of ‘Harmonized Commodity Description and Coding System’.

 

customs value of goods has the meaning given by section 159 of the Customs Act. In most cases, it will be the transaction value but there are other valuation methods if this value cannot be ascertained.

 

Declaration of Origin means a declaration that is in force and that complies with the requirements of Article 4.20 of Chapter 4 of the IA-CEPA. Article 4.20 sets out the requirements for a declaration of origin, including the requirements set out in Annex 4-B of the IA-CEPA.

 

enterprise has the meaning given by Article 1.4 of Chapter 1 of the IA-CEPA.

 

Harmonized Commodity Description and Coding System means the Harmonized Commodity Description and Coding System (the HCDC System) that is established by or under the Convention.

 

The HCDC System is the worldwide classification system that has been adopted by all countries that are members of the WCO. In Australia, the HCDC System has been adopted in the Customs Tariff Act.

 

The HCDC System is a structure for classifying goods based on internationally agreed descriptors for goods and related six-digit codes administered by the WCO. This six-digit classification uniquely identifies all traded goods and commodities and is uniform across all countries that have adopted the HCDC System. The WCO reviews the system every five years to reflect changes in industry practice, technological developments and evolving international trade patterns.

 

This term is necessary and is referred to in the definition of ‘Harmonized System’ to ascertain the version of the HCDC System on which IA-CEPA, particularly the product specific rules, is based.

 

Harmonized System means:

(a)     the Harmonized Commodity Description and Coding System as in force on 1 January 2017; or

(b)    if the table in Annex 4-C of IA-CEPA is amended or replaced to refer to Chapters, headings and subheadings of a later version of the Harmonized Commodity Description and Coding System—the later version of the Harmonized Commodity Description and Coding System.

 

As per the notes for the definition of HCDC System above, updates to that System are undertaken every 5 years. The last review of the HCDC System (the fifth review) was completed in June 2014 and related amendments made entered into force on 1 January 2017.

 

While each signatory to the Convention is required to implement and reflect related amendments to the HCDC System in their domestic legislation, simultaneously on the date when the amendments enter into force, the pace at which the amendments are implemented varies from country to country.

 

By way of example, while Australia has implemented, and currently uses, the latest HCDC System of 2017, many of our established FTAs still utilise other versions of the HCDC System for their product specific rules of origin. In light of this, and to avoid causing any disruption to international trade, Australia, through the Australian Border Force, publishes the changes between each HCDC System update and relevant concordance associated with those updates on its website so that anyone can readily identify the appropriate tariff classification codes for importing goods from other countries into Australia.

 

The definition of ‘Harmonized System’ will expressly recognise, in the Customs Act, the version of the HCDC System on which IA-CEPA was based, and allow subsequent versions of that System to also be recognised when the relevant Annex of IA-CEPA is formally amended.

 

indirect materials means:

(a)     goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods; or

(b)    goods or energy used in the maintenance or operation of equipment or buildings associated with the production of goods;

including:

(c)     fuel (within its ordinary meaning); and

(d)    tools, dies and moulds; and

(e)     spare parts and materials; and

(f)     lubricants, greases, compounding materials and other similar goods; and

(g)    gloves, glasses, footwear, clothing, safety equipment and supplies; and

(h)    catalysts and solvents.

 

This term, together with the definition of ‘originating materials’, new Subdivision C and new Subdivision D implement Article 4.14 of Chapter 4 of the IA-CEPA.

 

Indonesian originating goods means goods that, under new Division 1HA, are Indonesian originating goods.

 

Interpretation Rules means the General Rules (as in force from time to time) for the Interpretation of the Harmonized System provided for by the Convention.

 

non-originating materials means goods that are not originating materials.

 

Non-originating materials are goods that are not originating materials because they do not satisfy the requirements of new Division 1HA in their own right. For example, where frozen crumbed fish fillets are processed in a Party to the IA-CEPA from fish caught in the territory of that Party, and coated with herbs and spices that are produced in Thailand (which is not a Party to the IA-CEPA), the fish would be originating materials and the herbs and spices would be non-originating materials.

 

non-party has the same meaning as it has in Chapter 4 of the IA-CEPA, which is a party that is not a Party to the IA-CEPA.

 

This term is necessary and referred to in new section 153ZLL, which deals with goods that are wholly obtained or produced in the territory of Indonesia, and new section 153ZLP, which deals with the consignment of goods (see notes below for new subsections 153ZLL and 153ZLP).

 

originating materials means:

(a)     Indonesian originating goods that are used in the production of other goods; or

(b)    Australian originating goods that are used in the production of other goods; or

(c)     indirect materials.

 

In some circumstances, in order to determine whether goods that are imported into Australia are Indonesian originating goods, and therefore eligible for a preferential rate of customs duty, it may be necessary to have regard to the goods from which the final goods are produced (see Subdivision C and Subdivision D).

 

person of Indonesia means:

(a)     a natural person of a Party within the meaning, so far as it relates to Indonesia, of Article 1.4 of Chapter 1 of IA-CEPA; or

(b)    an enterprise of Indonesia.

 

This term is necessary and referred to in new section 153ZLL, which deals with goods that are wholly obtained or produced in Indonesia (see notes below for new subsection 153ZLL(2)).

 

production has the meaning given by Article 4.1 of Chapter 4 of IA-CEPA. That is, production means the methods of obtaining goods including growing, mining, harvesting, farming, raising, breeding, extracting, gathering, collecting, capturing, fishing, trapping, hunting, manufacturing, producing, processing or assembling a good.

 

 In Article 4.1, production is defined as methods of obtaining goods including, but not limited to, growing, mining, harvesting, farming, raising, breeding, extracting, gathering, collecting, capturing, fishing, trapping, hunting, manufacturing, producing, processing or assembling a good. This list is non-exhaustive - the term ‘production’ is also capable of capturing any other process that falls within the meaning of ‘methods of obtaining goods’, including any currently existing methods that have not been listed and any new methods which may arise in the future.

 

sea-fishing has the same meaning as it has in Chapter 4 of IA-CEPA .

 

territory of Australia means territory within the meaning, so far as it relates to Australia, of Article 1.4 of Chapter 1 of IA-CEPA .

 

territory of Indonesia means territory within the meaning, so far as it relates to Indonesia, of Article 1.4 of Chapter 1 of IA-CEPA .

 

108. New subsection 153ZLK(2) provides that the value of goods for the purposes of new Division 1HA is to be worked out in accordance with the regulations and that the regulations may prescribe different valuation rules for different kinds of goods. The value of goods is relevant, for example, in determining whether goods satisfy the de minimis requirement in Article 4.9 of Chapter 4 of IA-CEPA. The value of goods is to be distinguished from the customs value of goods, which is to be worked out under section 159 of the Customs Act.

 

109. New subsection 153ZLK(3) provides that in prescribing tariff classifications for the purposes of new Division 1HA, the regulations may refer to the Harmonized System. The product specific rules of origin in Annex 4-C of IA-CEPA refer to the tariff classifications of the Harmonized System.

 

110. New subsection 153ZLK(4) provides that subsection 4(3A) of the Customs Act does not apply for the purposes of new Division 1HA. Subsection 4(3A) provides that reference in the Customs Act to the tariff classification of goods is a reference to Schedule 3 to the Customs Tariff Act, which is not the case in new Division 1HA.

 

111. New subsection 153ZLK(5) provides that, despite subsection 14(2) of the Legislation Act, regulations made for the purposes of Division 1HA may make provision in relation to a matter by applying, adopting or incorporating, with or without modification, any matter contained in an instrument or other writing as in force or existing from time to time. The subsection is necessary to ensure there is an appropriate delegation of legislative power should it be necessary in order to implement IA-CEPA by applying, adopting or incorporating an instrument or other writing that is not an Act or disallowable legislative instrument. Any instrument and other writing so incorporated will be limited to those that are required for the operation of IA-CEPA and will be available on the Department’s website to ensure they are readily available. For example, in implementing other FTAs, this provision has enabled the regulations to refer to the general accounting principles of a country other than Australia for the purposes of the regional value content calculations. Where such references are made in regulations, the explanatory material will explain the basis on which such references are made and indicate where the material referred to can be located by the public.

 

Subdivision B-Goods wholly obtained or produced in Indonesia

 

112. Subdivision B contains new section 153ZLL, which sets out the rules in relation to goods that are wholly obtained or produced in the territory of Indonesia.

 

113. New subsection 153ZLL(1) will provide that goods are Indonesian originating goods if they are wholly obtained or produced in Indonesia, and either the importer of the goods has, at the time the goods are imported, a Certificate of Origin or a Declaration of Origin, or a copy of one, for the goods; or Australia has waived the requirement for a Certificate of Origin or a Declaration of Origin for the goods.

 

114. New subsection 153ZLL(2) provides that goods are wholly obtained or produced in Indonesia if, and only if, the goods are:

(a)     plants, or goods obtained from plants, that are grown, harvested, picked or gathered in the territory of Indonesia (including fruit, flowers, vegetables, trees, seaweed, fungi and live plants); or

(b)    live animals born and raised in the territory of Indonesia; or

(c)     goods obtained from live animals in the territory of Indonesia; or

(d)    goods obtained from hunting, trapping, fishing, farming, aquaculture, gathering or capturing conducted in the territory of Indonesia; or

(e)     minerals, or other naturally occurring substances, extracted or taken from the soil, waters, seabed or beneath the seabed in the territory of Indonesia; or

(f)     goods of sea-fishing, or other marine goods, taken from the high seas, in accordance with international law, by any vessel that is registered or recorded with Indonesia and is entitled to fly the flag of Indonesia; or

(g)    goods produced, from goods referred to in paragraph (f), on board a factory ship that is registered or recorded with Indonesia and is entitled to fly the flag of Indonesia; or

(h)    goods taken by Indonesia, or a person of Indonesia, from the seabed, or beneath the seabed, outside:

                                i.             the exclusive economic zone of Indonesia; and

                              ii.             the continental shelf of Indonesia; and

                            iii.             an area over which a non-party exercises jurisdiction;

and taken under exploitation rights granted in accordance with international law; or

(i)      either of the following:

                                i.             waste and scrap that has been derived from production or consumption in the territory of Indonesia and that is fit only for the recovery of raw materials;

                              ii.             used goods that are collected in the territory of Indonesia and that are fit only for the recovery of raw materials; or

(j)      goods obtained or produced in the territory of Indonesia solely from goods referred to in paragraphs (a) to (i) or from their derivatives.

 

115. New section 153ZLL gives effect to Articles 4.2(a), 4.3, 4.17(1) and (2), 4.20(1) and 4.21(b) of Chapter 4 of IA-CEPA in respect of rules of origin for goods wholly obtained or produced in a Party to IA-CEPA. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with IA-CEPA.

 

Subdivision C-Goods produced in Indonesia from originating materials

 

116. Subdivision C contains new section 153ZLM, which sets out a rule for goods that are produced entirely in the territory of Indonesia from originating materials only. Such goods are Indonesian originating goods if the importer of the goods has, at the time the goods are imported, a Certificate of Origin or a Declaration of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Certificate of Origin or a Declaration of Origin for the goods.

 

117. New section 153ZLM gives effect to Articles 4.2(c), 4.17(1) and (2), 4.20(1) and 4.21(b) of Chapter 4 of IA-CEPA in respect of rules of origin for goods produced exclusively from originating materials. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with IA-CEPA.

 

Subdivision D-Goods produced in Indonesia, or in Indonesia and Australia, from non-originating materials

 

118. Subdivision D contains new section 153ZLN, which deals with Indonesian originating goods produced from non-originating materials.

 

119. New subsection 153ZLN(1) provides that goods are Indonesian originating goods if:

(a)     they are classified to a Chapter, heading or subheading of the Harmonized System that is covered by the table in Annex 4-C of IA-CEPA; and

(b)    they are produced entirely in the territory of Indonesia, or entirely in the territory of Indonesia and the territory of Australia, from non-originating materials only or from non-originating materials and originating materials; and

(c)     the goods satisfy the requirements applicable to the goods in that Annex; and

(d)    either:

                                i.             the importer of the goods has, at the time the goods are imported, a Certificate of Origin or a Declaration of Origin, or a copy of one, for the goods; or

                              ii.             Australia has waived the requirement for a Certificate of Origin or a Declaration of Origin for the goods.

 

120. This provision applies the product specific rules by direct reference to Annex 4-C of IA-CEPA. This applies both the product specific rules and any product specific process rules. The direct application of Annex 4-C does not change the operation of these rules as set out in that Annex.  Rather, as IA-CEPA is defined to be the Agreement as amended from time to time, this will ensure that the current Annex in IA-CEPA will be applied. It will also ensure that any updated version of the Annex that would be contained in IA-CEPA when the parties implement later versions of the Harmonized System will be applied as soon as any provisions of IA-CEPA and any of Australia’s domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

 

121. For certainty of abbreviations used in Annex 4-C, new subsection 153ZLN(2) provides that, without limiting paragraph 153ZLN(1)(c), a requirement may be specified in the table in Annex 4-C of the IA-CEPA by using an abbreviation that is given a meaning for the purposes of that Annex. For example, the abbreviation of QVC(40) in the Annex means a regional value content of at least 40%. Another example of an abbreviation in the Annex is ‘CC’, which is the abbreviation that means that all of the non-originating materials used in the production of the good have undergone a change in tariff classification at the 2-digit level, that is, a change of Chapter.

 

Change in tariff classification

 

122. New subsection 153ZLN(3) refers to the first of several requirements that may be prescribed in regulations made for the purposes of Subdivision D. It provides that, if a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification, the regulations may prescribe when a non-originating material used in the production of the goods is taken to satisfy the change in tariff classification.

 

123. The regulations made under this head of power will include a provision which sets out when a non-originating material that does not satisfy a particular change in tariff classification is taken to satisfy the change in tariff classification.

 

124. The concept of the change in tariff classification requirement applies to non-originating materials. Goods that have been sourced outside a Party to IA-CEPA and that are used in the production of other goods are non-originating materials. Goods sourced from a Party to IA-CEPA that have not fulfilled the requirements of new Division 1HA and that are used in the production of other goods are also non-originating materials.

 

125. Non-originating materials used to produce other goods may not have the same classification under the Harmonized System as the final good. For example, non-originating materials used to produce a good may be classified to one tariff classification before the production process, and the final good may be classified under a different tariff classification after the production process. To satisfy the requirement of classification change, and therefore satisfy a requirement for the purposes of claiming preferential treatment of customs duty in accordance with the IA-CEPA, the goods concerned must be sufficiently transformed such that they can be classified to a different tariff classification to that of the non-originating materials from which they are produced.

 

126. For example, frozen fish fillets (classified to tariff code 0304) are produced from fish caught in a Party to IA-CEPA and combined with herbs and spices produced in Thailand (which is not a Party to IA-CEPA) (classified to tariff code 0907 to 0910) to make crumbed fish fillets (classified to tariff code 1604 in Chapter 16 of the Harmonized System). The applicable tariff change for crumbed fish is ‘a change to Chapter 16 from any other chapter’. As the herbs and spices are classified to Chapter 9 of the Harmonized System, these non-originating materials meet the tariff change requirement, considering that the fish concerned is the produce of a Party to  IA-CEPA, and is therefore an originating material and is not required to change its classification.

 

127. As per the above example, it is necessary for the tariff classification of the final good and each of the goods that are non-originating materials used in the production of the final goods to be known in order to determine the applicable change in tariff classification.

 

128. New subsection 153ZLN(4) allows for the change in tariff classification requirement to also be satisfied if the total value of all of the non-originating materials, used in the production of the goods, that do not satisfy the particular change in tariff classification of the goods, does not exceed 10% of the customs value of the goods.

 

129. New subsection 153ZLN(4) gives effect to the de minimis requirement set out in Article 4.9(1) of Chapter 4 of the IA-CEPA. As a result, even if none of the non-originating materials used to produce a final good satisfy a particular change in tariff classification, the final good may still be an Indonesian originating good if it satisfies subsection 153ZLN(4) because the change in tariff classification will be taken to be satisfied.

 

130. The value of non-originating materials for the purposes of subsection 153ZLN(4) is to be worked out in accordance with the method that will be included in the regulations.

 

131. Giving effect to the de minimis requirement set out in Article 4.9(1)(b) of Chapter 4 of IA-CEPA, new subsection 153ZLN(5) provides that, if:

(d)     a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification; and

(e)     the goods are classified to any of Chapters 50 to 63 of the Harmonized System; and

(f)     one or more of the non-originating materials used in the production of the goods do not satisfy the change in tariff classification;

then the requirement is taken to be satisfied if the total weight of the non-originating materials covered by paragraph (c) does not exceed 10% of the total weight of the goods.

 

132. This provision allows for the change in tariff classification requirement to also be satisfied in relation to certain goods if the total weight of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the total weight of the goods.

 

Qualifying value content

 

133. New subsection 153ZLN(6) provides that, if a requirement that applies in relation to the goods is that the goods must have a qualifying value content of not less than a particular percentage worked out in a particular way:

(c)     the qualifying value content of the goods is to be worked out in accordance with IA-CEPA; or

(d)    if the regulations prescribe how to work out the qualifying value content of the goods—the qualifying value content of the goods is to be worked out in accordance with the regulations.

 

134. This provision provides the head of power to prescribe formulas for calculating qualifying value content and in doing so gives effect to Article 4.5 of Chapter 4 of IA-CEPA.

 

135. New subsection 153ZLN(7) provides that, if:

(a)     a requirement that applies in relation to the goods is that the goods must have a qualifying value content of not less than a particular percentage worked out in a particular way; and

(b)    the goods are imported into Australia with accessories, spare parts, tools or instructional or other information materials; and

(c)     the accessories, spare parts, tools or instructional or other information materials are not invoiced separately from the goods; and

(d)    the accessories, spare parts, tools or instructional or other information materials are included in the price of the goods; and

(e)     the quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the goods;

the regulations must provide for the value of the accessories, spare parts, tools or instructional or other information materials to be taken into account for the purposes of working out the qualifying value content of the goods (whether the accessories, spare parts, tools or instructional or other information materials are originating materials or non-originating materials).

 

136. The note to this section indicates that the value of the accessories, spare parts, tools or instructional or other information materials is to be worked out in accordance with the regulations: see new subsection 153ZLK(2).

 

137. New subsection 153ZLN(7) provides a head of power to prescribe regulations to give effect to Article 4.10(b), (c) and (d) of Chapter 4 of IA-CEPA in respect of the value of the accessories, spare parts, tools or instructional or other information materials for working out qualifying value content. This provision is necessary because the value of such goods would not normally form part of the value of materials that are used in the production of the underlying goods.

 

138. New subsection 153ZLN(8) gives effect to Article 4.8 of Chapter 4 of IA-CEPA, and provides that if the goods are claimed to be Indonesian originating goods on the basis that the goods have a qualifying value content of not less than a particular percentage worked out in a particular way, the following are to be disregarded in determining whether the goods are Indonesian originating goods:

(a)     operations to preserve the goods in good condition for the purpose of transport or storage of the goods;

(b)    operations or processes to facilitate the shipment or transportation of the goods;

(c)     packaging or presenting the goods for transportation or sale;

(d)    simple processes for sifting, classifying, washing or other similar simple processes;

(e)     affixing of marks, labels or other distinguishing signs on the goods or on their packaging;

(f)     mere dilution with water or another substance that does not materially alter the characteristics of the goods;

(g)    any combination of things referred to in paragraphs (a) to (f).

 

139. If any of the above operations are the only operations that take place in a Party to IA-CEPA in relation to goods (either alone or as a combination), such operations are to be disregarded in determining whether the goods are Indonesian originating goods. For example, if non-originating goods such as spices from Thailand (which is not a Party to IA-CEPA) are packaged into bottles in a Party to IA-CEPA, this will not confer the status of Indonesian originating goods on the spices.

 

140. New section 153ZLN gives effect to the above-mentioned Articles in Chapter 4 of IA-CEPA (including Articles 4.2(b), 4.4, 4.17(1) and (2), 4.20(1) and 4.21(b)) for the new section and enables goods produced from non-originating materials that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with IA-CEPA.

 

141. Subdivision D also contains new section 153ZLO, which deals with packaging materials and containers in accordance with IA-CEPA.

 

142. New subsection 153ZLO(1) gives effect to Article 4.12(1) of Chapter 4 of IA-CEPA and provides that if:

(c)     goods are packaged for retail sale in packaging material or a container; and

(d)    the packaging material or container is classified with the goods in accordance with Rule 5 of the Interpretation Rules;

then the packaging material or container is to be disregarded for the purposes of this Subdivision.

 

143. The effect of this provision is that packaging materials or containers do not need to satisfy the change in tariff classification requirement that may apply to the goods packaged within the materials or containers.

 

144. However, in accordance with Article 4.12(2) of Chapter 4 of IA-CEPA, new subsection 153ZLO(2) provides one exception to subsection 153ZLO(1). This exception applies where the goods are required to have a qualifying value content of at least a particular percentage worked out in a particular way. In such circumstances, the regulations must provide for the value of the packaging material or container to be taken into account for the purposes of working out the qualifying value content of the goods (whether the packaging material or container is an originating material or a non-originating material).

 

145. Without this provision, the value of packaging materials and containers would normally not form part of the value of materials that are used in the production of the goods.

 

146. The note to this section indicates that the value of packaging material or container is to be worked out in accordance with the regulations: see new subsection 153ZLK(2).

 

Subdivision E-Consignment and exhibition

 

147. Subdivision E contains new section 153ZLP, which deals with the consignment requirements applicable to Indonesian originating goods in accordance with IA-CEPA, and new section 153ZLQ, which deals with the exhibition of goods in a non-party.

 

148. New subsection 153ZLP(1) provides that goods are not Indonesian originating goods under new Division 1HA if the goods are transported through a non-party, the goods are not exhibited in a non-party, and one or more of the following apply:

(a)     the goods undergo any operation in the non-party (other than unloading, reloading, unpacking and repacking, labelling or any other operation that is necessary to preserve the goods in good condition);

(b)    the goods enter the commerce of the non-party;

(c)     the transport through that non-party is not justified by geographical, economic or logistical reasons.

 

149. New subsection 153ZLP(2) provides that section 153ZLP applies despite any other provision of new Division 1HA. This means that even if goods are Indonesian originating goods in accordance with any other provisions of Division 1HA, if they come within the terms of subsection 153ZLP(1) they will not be Indonesian originating goods.

 

150. New section 153ZLP gives effect to Articles 4.15(1) and (2) of Chapter 4 of IA-CEPA.

 

151. New subsection 153ZLQ(1) provides that goods are not Indonesian originating goods under new Division IHA if the goods are imported into Australia after being exhibited in a non-party, and one or more of subparagraphs (a), (b), (c), (d) and (e) of paragraph 1 of Article 4.16 of Chapter 4 of IA-CEPA are not satisfied.

 

152. Subparagraphs (a), (b), (c), (d) and (e) of paragraph 1 of Article 4.16 are:

(a)     an exporter has dispatched the originating good from the territory of the exporting Party to the other Party or non-Party where the exhibition is held and has exhibited it there;

(b)    the exporter has sold the originating good or transferred it to a consignee in the importing Party;

(c)     the originating good has been consigned during the exhibition or immediately thereafter to the importing Party in the state in which it was sent for the exhibition;

(d)    the exhibition is any trade, agriculture or crafts exhibition, fair or similar show or display which is not organised for private purposes in shops or business premises with the view to the sale of foreign goods; and

(e)     the originating good has not entered the commerce of the other Party or non-Party, including where the originating good was exhibited under customs control.

 

153. New subsection 153ZLQ(2) provides that section 153ZLQ applies despite any other provision of new Division 1HA.

 

154. New section 153ZLQ gives effect to Article 4.16(1) of Chapter 4 of IA-CEPA. It ensures that Indonesian originating goods that are imported into Australia after an exhibition in a non-party shall continue to qualify as Indonesian originating goods in circumstances where the goods are Indonesian originating goods in accordance with new Division 1HA, and the requirements in Article 4.16(1) are satisfied.

 

Subdivision F-Regulations

 

155. Subdivision F contains new section 153ZLR, which provides a head of power to prescribe regulations to make provision for and in relation to determining whether goods are Indonesian originating goods under new Division 1HA.

 

Part 2—Verification powers

 

Customs Act 1901

 

Item 4  After Division 4F of Part VI

 

156. This item amends Part VI of the Customs Act to insert new Division 4FA, which is titled ‘Exportation of goods to Indonesia’.

 

157. Division 4FA contains new sections 126ALE, 126ALF, 126ALG and 126ALH. Collectively, these new sections impose obligations on people who export eligible goods to Indonesia and who wish to obtain preferential treatment of customs duty in respect of those goods.

 

Section 126ALE  Definitions

 

158. New section 126ALE defines the terms ‘Agreement’, ‘Indonesian customs official’, and ‘territory of Indonesia’ for the purposes of new Division 4FA. The terms ‘Agreement’ and ‘territory of Indonesia’ have the same meaning as defined in new Division 1HA of Part VIII of the Customs Act, inserted by item 3 of Part 1 of Schedule 2 to the Bill.

 

159. ‘Indonesian customs official’ is defined under this section to mean a person representing the customs administration of Indonesia. This term is necessary and is referred to in new sections 126ALG and 126ALH.

 

Section 126ALF  Record keeping obligations

 

160. New section 126ALF inserts a head of power to prescribe record keeping obligations. These record keeping obligations will apply in respect of goods that are exported from Australia to Indonesia.

 

161. New subsection 126ALF(1) enables regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of Indonesia and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Indonesia.  The record keeping obligation envisaged by Article 4.26(1) of Chapter 4 of IA-CEPA is broader than the general record keeping obligations under the Customs Act.

 

162. It is intended that the method of keeping the documents, such as the length of time for which they must be kept and the manner in which they must be kept, will be similar to current record keeping obligations. However, the type of documents that will be required to be kept will be much broader than current requirements. The requirements will extend to all records relating to the origin of the goods for which preferential tariff treatment is claimed in the territory of Indonesia and may include, amongst other things, records associated with the tariff classification of the goods and the origin or value of the materials used to produce the goods.

 

163. New subsection 126ALF(2) provides that regulations for the purposes of new  subsection 126ALF(1) may impose such obligations on an exporter of goods.

 

Section 126ALG  Power to require records

 

164. New subsection 126ALG(1) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may require a person who is subject to record keeping obligations under regulations made for the purposes of section 126ALF to produce to the officer such of those records as the officer requires.

 

165. New subsection 126ALG(2) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may, for the purpose of verifying a claim for a preferential tariff in the territory of Indonesia, disclose any records so produced to an Indonesian customs official. Records obtained by an authorised officer under new section 126ALG may be ‘Immigration and Border Protection information’ within the meaning of Part 6 of the ABF Act.

 

166. Section 42 in Part 6 of the ABF Act prohibits the disclosure of Immigration and Border Protection information except, amongst other things, where the disclosure is authorised by or under a law of the Commonwealth.

 

167. By including an express provision in the Customs Act to permit the disclosure of information (that may be Immigration and Border Protection information) to an Indonesian customs official, the disclosure of such information is required or authorised by or under a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

 

168. Under Article 4.22 of Chapter 4 of IA-CEPA, the customs administration of the importing Party may verify the eligibility of a good for preferential tariff treatment by, amongst other things, issuing written requests to the provider of the documentary evidence of origin for further information relating to the origin of the good. By Article 4.20 of Chapter 4 of IA-CEPA, documentary evidence of origin can be a certificate of origin made in accordance with Annex 4-A of IA-CEPA, or a declaration of origin made in accordance with Annex 4-B of IA-CEPA by an exporter registered or certified by the exporting Party in accordance with its laws and regulations. New section 126ALG gives effect to Article 4.22 in respect of goods that are exported to the territory of Indonesia and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Indonesia.

 

169. The note to new section 126ALG indicates that failing to produce a record when required to do so by an officer may be an offence under existing section 243SB of the Customs Act. The note also indicates that, under existing section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

 

Section 126ALH  Power to ask questions

 

170. New subsection 126ALH(1) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may require a person who is an exporter of goods that:

(a)     are exported to the territory of Indonesia; and

(b)    are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Indonesia;

to answer questions in order to verify the origin of the goods.

 

171. The power to ask questions in the circumstances set out in this section is a necessary adjunct to the power to require records in new section 126ALG.

 

172. Subsection 126ALH(2) enables an authorised officer (as defined in existing section 4 of the Customs Act), for the purpose of verifying a claim for a preferential tariff in the territory of Indonesia, to disclose any answers to such questions to an Indonesian customs official.

 

173. The answers to questions obtained by an authorised officer under new section 126ALH may also be Immigration and Border Protection information within the meaning of Part 6 of the ABF Act and in those circumstances cannot not be disclosed to an Indonesian customs official except as allowed by Part 6. By including an express provision in the Customs Act allowing for this information to be disclosed to an Indonesian customs official, the disclosure is required or authorised by or under a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

 

174. The note to new section 126ALH indicates that failing to answer a question when required to do so by an officer may be an offence under existing section 243SA of the Customs Act. The note also indicates that, under existing section 243SC of the Customs Act, a person does not have to answer a question if doing so would tend to incriminate the person.

 

 

Part 3-Application provisions

 

Item 5  Application provisions

 

175. This item operates such that the amendments made by Part 1 of Schedule 2 to the Bill, when enacted, apply in relation to:

(a)     goods imported into Australia on or after the commencement of that Part; and

(b)    goods imported into Australia before the commencement of that Part, where the time for working out the rate of import duty on the goods had not occurred before the commencement of that Part.

 

176. This item also provides that the amendment made by Part 2 of Schedule 2 to the Bill, when enacted, applies in relation to goods exported to the territory of Indonesia on or after the commencement of that Part (whether the goods were produced before, on or after that commencement).

 



 

Schedule 3-Hong Kong

 

Part 1—Hong Kong originating goods

 

Customs Act 1901

 

Introductory Comments

 

177. On 26 March 2019, in Sydney, Senator the Hon Simon Birmingham, Minister for Trade, Tourism and Investment, and his counterpart Hong Kong Secretary for Commerce and Economic Development, Edward Yau, signed the A-HKFTA.

 

178. A-HKFTA, on entry into force, provides in part for new rules of origin to determine ‘Hong Kong originating goods’ and for the preferential treatment of customs duty that applies to such goods. ‘Hong Kong originating goods’ in accordance with A-HKFTA are those goods that satisfy the requirements in new Division 1M inserted by the Bill.  The notes on clauses below describe those requirements.

 

Item 1  Subparagraph 105B(3)(b)(ii)

 

179. Section 105B of the Customs Act sets out circumstances where the liability to pay customs duty on excise-equivalent goods is wholly or partly extinguished. ‘Excise-equivalent goods’ is defined in section 9 of the Customs Regulation 2015 to mean the goods prescribed under clause 1 of Schedule 1 to that Regulation.

 

180. However, under subsection 105B(3) of the Customs Act, those circumstances do not apply to an amount of duty if the excise-equivalent goods are classified to subheading 2207.20.10 (denatured ethanol) or 3826.00.10 (biodiesel) of Schedule 3 to the Customs Tariff Act, or an item in the table in Schedule 4A, 5, 6, 7, 8, 9, 10, 11 or 12 to that Act that relates to a subheading mentioned.

 

181. As part of the implementation of the Agreement, the Customs Tariff Amendment Bill will insert new Schedule 13 into the Customs Tariff Act. New Schedule 13 will provide for excise-equivalent rates of duty on certain alcohol, tobacco, fuel petroleum products in accordance with A-HKFTA, and the related preferential rates of customs duty.

 

182. This item amends subparagraph 105B(3)(b)(ii) of the Customs Act to insert a reference to Schedule 13 to the Customs Tariff Act.

 

183. The purpose of this amendment is to ensure the collection of the correct import duty for biofuels and biofuel blends imported under A-HKFTA.

 

Item 2  Subsection 105B(4) (paragraph (b) of the definition of biofuel blend )

 

184. Subsection 105B(4) of the Customs Act defines in part ‘biofuel blend’ as goods classified to certain subheadings under Schedule 3 to the Customs Tariff Act or an item in the table in the Schedules relating to originating goods under Free Trade Agreements (FTAs) that relate to the relevant subheadings.

 

185. This item amends the definition of ‘biofuel blend’ under subsection 105B(4) of the Customs Act to insert a reference to new Schedule 13 to the Customs Tariff Act.

 

186. As for item 1, the purpose of this amendment is to ensure the collection of the correct import duty for biofuels and biofuel blends imported under the A-HKFTA.

 

Item 3  After Division 1L of Part VIII

 

187. This item amends Part VIII of the Customs Act to insert new Division 1M.

 

188. New Division 1M is titled ‘Hong Kong originating goods’ and sets out the new rules for determining whether goods are Hong Kong originating goods and therefore eligible for a preferential rate of customs duty under the Customs Tariff Act applying to such goods that are imported into Australia. These new rules are being inserted to give effect to Chapter 3 of A-HKFTA.

 

189. New Division 1M contains seven Subdivisions (Subdivision A to Subdivision G), as set out below.

 

Subdivision A-Preliminary

 

190. Subdivision A contains a simplified outline of Division 1M and the interpretation provision for that Division.

 

New section 153ZPA  Simplified outline of this Division

 

191. New section 153ZPA sets out a simplified outline of each of the Subdivision B to Subdivision G of new Division 1M.

 

New section 153ZPB  Interpretation

 

192. New subsection 153ZPB(1) sets out new definitions for the purposes of new Division 1M as follows:

 

Agreement means the Free Trade Agreement between Australia and Hong Kong, China, done at Sydney on 26 March 2019, as amended and in force in Australia from time to time. The note to this definition indicates that in 2019, the text of A-HKFTA will be accessible through Australian Treaties Library on the AustLII internet website.

 

aquaculture has the meaning given by Article 3.1 of Chapter 3 of A-HKFTA. This term is necessary as it is referred to in the definition of ‘production’.

 

Area of Australia has the meaning given by Article 1.3 of Chapter 1 of A-HKFTA for ‘Area , so far as it relates to Australia.

 

  Area of Hong Kong, China has the meaning given by Article 1.3 of Chapter 1 of A-HKFTA for ‘Area , so far as it relates to Hong Kong, China.

 

Australian originating goods means goods that a law of Hong Kong, China that implements A-HKFTA determined to be Australian originating goods.

 

Convention means the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983, as in force from time to time. The note to this definition indicates that in 2019, the text of the Convention is accessible through the Australian Treaties Library on the AustLII internet website. This term is necessary and is referred to in the definition of ‘Harmonized Commodity Description and Coding System’.

 

customs value of goods has the meaning given by section 159 of the Customs Act. In most cases, it will be the transaction value but there are other valuation methods if this value cannot be ascertained.

 

Declaration of Origin means a declaration that is in force and that complies with the requirements of Article 3.16 of Chapter 3 of A-HKFTA. Article 3.16 sets out the information required for a declaration of origin, including such information as set out in Annex 3-A of A-HKFTA.

 

enterprise has the meaning given to it by Article 1.3 of Chapter 1 of A-HKFTA.  This term is used in the definition of the term ‘person of Hong Kong, China’.

 

Harmonized Commodity Description and Coding System means the Harmonized Commodity Description and Coding System (the HCDC System) that is established by or under the Convention.

 

The HCDC System is the worldwide classification system that has been adopted by all countries that are members of the WCO. In Australia, the HCDC System has been adopted in the Customs Tariff Act.

 

The HCDC is a structure for classifying goods based on internationally agreed descriptors for goods and related six-digit codes administered by the WCO. This six-digit classification uniquely identifies all traded goods and commodities and is uniform across all countries that have adopted the HCDC System. The WCO reviews the system every five years to reflect changes in industry practice, technological developments and evolving international trade patterns.

 

This term is necessary and is referred to in the definition of ‘Harmonized System’ to ascertain the version of the HCDC System on which A-HKFTA, particularly the product-specific rules, is based.

 

Harmonized System means:

(a)     the Harmonized Commodity Description and Coding System as in force on 1 January 2017; or

(b)    if the table in Annex 3-B of the Agreement is amended or replaced to refer to Chapters, headings and subheadings of a later version of the Harmonized Commodity Description and Coding System—the later version of the Harmonized Commodity Description and Coding System.

 

As per the notes for the definition of HCDC System above, updates to that System are undertaken every 5 years. The last review of the HCDC System (the fifth review) was completed in June 2014 and related amendments made entered into force on 1 January 2017.

 

While each signatory to the Convention is required to implement and reflect related amendments to the HCDC System in their domestic legislation, simultaneously on the entry into force date, the pace at which the amendments are implemented varies from country to country.

 

By way of example, while Australia has implemented, and currently uses, the latest HCDC System of 2017, many of our established FTAs still utilise other versions of the HCDC System for their product specific rules of origin. In light of this, and to avoid causing any disruption to international trade, Australia, through the Australian Border Force, publishes the changes between each HCDC System updates and relevant concordance associated with those updates on its website so that anyone can readily identify the appropriate tariff classification codes for importing goods from other countries into Australia.

 

The definition of ‘Harmonized System’ will expressly recognise, in the Customs Act, the version of the HCDC System on which A-HKFTA was based, being that of 2017, and allow subsequent versions of that System to be recognised when Annex 3-B to Chapter 3 of the Agreement is formally amended.

 

Hong Kong originating goods means goods that are Hong Kong originating goods under Division 1M of the Customs Act.

 

indirect materials means:

(a)     goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods; or

(b)    goods or energy used in the maintenance or operation of equipment or buildings associated with the production of goods;

including:

(c)     fuel (within its ordinary meaning); and

(d)    catalysts and solvents; and

(e)     gloves, glasses, footwear, clothing, safety equipment and supplies; and

(f)     tools, dies and moulds; and

(g)    spare parts and materials; and

(h)    lubricants, greases, compounding materials and other similar goods.

 

This term, together with the definition of ‘originating material’, new Subdivision C and new Subdivision D implement Article 3.14 of Chapter 3 of A-HKFTA.

 

Interpretation Rules means the General Rules (as in force from time to time) for the Interpretation of the Harmonized System provided for by the Convention.

 

non-originating materials means goods that are not originating materials.

 

Non-originating materials are goods that are not originating materials because they do not satisfy the requirements of new Division 1M in their own right. For example, where frozen crumbed fish fillets processed in Hong Kong, China to A-HKFTA from fish caught in the territory of Hong Kong, China coated with herbs and spices that are produced in Thailand (which is not a Party to A-HKFTA), the fish would be originating materials and the herbs and spices would be non-originating materials.

 

non-Party has the same meaning as it has in Chapter 3 of A-HKFTA, which is a Party that is not a Party to A-HKFTA.

 

This term is necessary and referred to in new section 153ZPH, which deals with the consignment of Hong Kong originating goods (see notes below for new section 153ZPH).

 

originating materials means:

(a)     goods that are Hong Kong originating goods, in accordance with Chapter 3 of A-HKFTA, that are used in the production of other goods; or

(b)    goods that are Australian originating goods, in accordance with Chapter 3 of A-HKFTA, that are used in the production of other goods; or

(c)     indirect materials.

 

In some circumstances, in order to determine whether goods that are imported into Australia are Hong Kong originating goods, and therefore eligible for a preferential rate of customs duty, it may be necessary to have regard to the goods from which the final goods are produced (see Subdivision C and Subdivision D).

 

person of Hong Kong, China means:

(a)     a natural person of a Party within the meaning, so far as it relates to Hong Kong, China, of Article 1.3 of Chapter 1 of A-HKFTA; or

(b)    an enterprise of Hong Kong, China.

 

This term is necessary and referred to in new section 153ZPC, which deals with goods that are wholly obtained or produced entirely in Hong Kong, China or in Hong Kong, China and Australia (see notes below for new subsection 153ZPC(2)).

 

production has the same meaning given by Article 3.1 of Chapter 3 of A-HKFTA. That is, production means methods of obtaining goods including farming, growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, collecting, breeding, extracting, aquaculture, gathering, manufacturing, processing or assembling a good.

 

In Article 3.1, production is defined as methods of obtaining goods including, but not limited to, farming, growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, collecting, breeding, extracting, aquaculture, gathering, manufacturing, processing or assembling a good. This list is non-exhaustive - the term ‘production’ is also capable of capturing any other process that falls within the meaning of ‘methods of obtaining goods’, including any currently existing methods that have not been listed and any new methods which may arise in the future.

 

sea-fishing has the same meaning as it has in Chapter 3 of A-HKFTA, where it is used in the context of determining goods that are wholly obtained or produced goods.

 

193. New subsection 153ZPB(2) provides that the value of goods for the purposes of new Division 1M is to be worked out in accordance with the regulations and that the regulations may prescribe different valuation rules for different kinds of goods. The value of goods is relevant, for example, in determining whether goods satisfy the de minimis requirement in Article 3.9 of Chapter 3 of A-HKFTA. The value of goods is to be distinguished from the customs value of goods, which is to be worked out under section 159 of the Customs Act.

 

194. New subsection 153ZPB(3) provides that in specifying tariff classifications for the purposes of new Division 1M, the regulations may refer to the Harmonized System. The product specific rules of origin in Annex 3-B of A-HKFTA refer to the tariff classifications of the Harmonized System.

 

195. New subsection 153ZPB(4) provides that subsection 4(3A) of the Customs Act does not apply for the purposes of new Division 1M. Subsection 4(3A) provides that reference in the Customs Act to the tariff classification of goods is a reference to Schedule 3 to the Customs Tariff Act, which is not the case in new Division 1M.

 

196. New subsection 153ZPB(5) provides that, despite subsection 14(2) of the Legislation Act, regulations made for the purposes of Division 1M may make provision in relation to a matter by applying, adopting or incorporating, with or without modification, any matter contained in an instrument or other writing as in force or existing from time to time. The subsection is necessary to ensure there is an appropriate delegation of legislative power should it be necessary in order to implement A-HKFTA by applying, adopting or incorporating an instrument or other writing that is not an Act or disallowable legislative instrument. Any instrument and other writing so incorporated will be limited to those that are required for the operation of A-HKFTA and will be accessible through the Department’s website, and free of charge, to ensure they are readily available and at no cost to persons concerned. For example, in implementing other FTAs, this provision has enabled the regulations to refer to the general accounting principles of a country other than Australia for the purposes of the regional value content calculations. Where such references are made in regulations the explanatory material will explain the basis on which such references are made and indicate where the material referred to can be located by the public.

 

Subdivision B-Goods wholly obtained or produced entirely in Hong Kong, China or in Hong Kong, China and Australia

 

197. Subdivision B contains new section 153ZPC, which sets out the rules in relation to goods that are wholly obtained or produced in Hong Kong, China or in Hong Kong, China and Australia.

 

198. New subsection 153ZPC(1) provides that goods are Hong Kong originating goods if they are wholly obtained or produced in Hong Kong, China, and either the importer of the goods has, at the time the goods are imported, a Declaration of Origin, or a copy of one, for the goods; or Australia has waived the requirement for a Declaration of Origin for the goods.

 

199. New subsection 153ZPC(2) provides that goods are wholly obtained or produced in Hong Kong, China or in Hong Kong, China and Australia if, and only if, the goods are:

(a)     plants, or goods obtained from plants, that are grown, cultivated, harvested, picked or gathered in the Area of Hong Kong, China or in the Area of Hong Kong, China and the Area of Australia; or

(b)    live animals born and raised in the Area of Hong Kong, China or in the Area of Hong Kong, China and the Area of Australia; or

(c)     goods obtained from live animals in the Area of Hong Kong, China; or

(d)    animals obtained by hunting, trapping, fishing, gathering or capturing in the Area of Hong Kong, China; or

(e)     goods obtained from aquaculture conducted in the Area of Hong Kong, China; or

(f)     minerals, or other naturally occurring substances, extracted or taken from the Area of Hong Kong, China; or

(g)    goods of sea-fishing, or other marine goods, taken from the high seas, by any vessel that is entitled to fly the flag of Hong Kong, China; or

(h)    goods produced, from goods referred to in paragraph (g), on board a factory ship that is registered, listed or recorded with Hong Kong, China and is entitled to fly the flag of Hong Kong, China; or

(i)      goods, other than fish, shellfish or other marine like, taken by Hong Kong, China, or a person of Hong Kong, China,  from the seabed, or subsoil beneath the seabed, outside the Area of Hong Kong, China and the Area of Australia, and beyond territories over which non-Parties exercise jurisdiction, but only if Hong Kong, China, or the person of Hong Kong, China has the right to exploit that seabed or subsoil in accordance with international law; or

(j)      waste or scrap that:

                                i.             has been derived from production or consumption in the Area of Hong Kong, China and that is fit only for the recovery of raw materials; or

                              ii.             has been derived from used goods that are collected in the Area of Hong Kong, China and that are fit only for the recovery of raw materials; or

(k)    goods produced in the Area of Hong Kong, China or in the Area of Hong Kong, China and the Area of Australia, exclusively from goods referred to in paragraphs (a) to (j) or from their derivatives.

 

200. New section 153ZPC gives effect to Articles 3.2(a), 3.3, 3.16 and 3.19(b) of Chapter 3 of A-HKFTA in respect of rules of origin for goods wholly obtained or produced entirely in a Party to it. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with A-HKFTA

 

Subdivision C-Goods produced in Hong Kong, China or in Hong Kong, China and Australia, from originating materials

 

201. Subdivision C contains new section 153ZPD, which sets out a rule for goods that are produced entirely in the Area of Hong Kong, China or entirely in the Area of Hong Kong, China and the Area of Australia, from originating materials only. Such goods are Hong Kong originating goods if the importer of the goods has, at the time the goods are imported, a Declaration of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Declaration of Origin for the goods.

 

202. New section 153ZPD gives effect to Articles 3.2(b), 3.16 and 3.19(b) of Chapter 3 of A-HKFTA in respect of rules of origin for goods produced exclusively from originating materials. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with A-HKFTA.

 

Subdivision D-Goods produced in Hong Kong, China or in Hong Kong, China and Australia, from non-originating materials

 

203. Subdivision D contains new section 153ZPE, which deals with Hong Kong originating goods produced from non-originating materials.

 

204. New subsection 153ZPE(1) provides that goods are Hong Kong originating goods if:

(a)     they are classified to a Chapter, heading or subheading of the Harmonized System that is covered by the table in Annex 3-B of A-HKFTA; and

(b)    they are produced entirely in the Area of Hong Kong, China or entirely in the Area of Hong Kong, China and the Area of Australia, from non-originating materials only or from non-originating materials and originating materials; and

(c)     the goods satisfy the requirements applicable to the goods in that Annex; and

(d)    either:

                                i.             the importer of the goods has, at the time the goods are imported, a Declaration of Origin, or a copy of one, for the goods; or

                              ii.             Australia has waived the requirement for a Declaration of Origin for the goods.

 

205. This provision applies the product specific rules by direct reference to Annex 3-B of A-HKFTA. This applies both the product specific rules and any product specific process rules. The direct application of Annex 3-B does not change the operation of these rules as set out in that Annex. Rather, as A-HKFTA is defined to be the Agreement as amended from time to time, this will ensure that the current Annex in A-HKFTA will be applied. It will also ensure that any updated version of the Annex that would be contained in A-HKFTA when the parties implement later versions of the Harmonized System will be applied as soon as any provisions of A-HKFTA and any of Australia’s domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

 

206. For certainty, abbreviations used in Annex 3-B, new subsection 153ZPE(2) provides that, without limiting paragraph 153ZPE(1)(c), a requirement may be specified in the table in Annex 3-B of A-HKFTA by using an abbreviation that is given a meaning for the purpose of that Annex. For example, the abbreviation of RVC(40) in the Annex means a regional value content of at least 40%. Another example of an abbreviation in the Annex is ‘CC’, which is an abbreviation for Change of Chapter.

 

Change in tariff classification

 

207. New subsection 153ZPE(3) refers to the first of several requirements that may be prescribed in regulations made for the purposes of Subdivision D. It provides that, if a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification, the regulations may prescribe when a non-originating material used in the production of the goods is taken to satisfy the change in tariff classification.

 

208. The regulations made under this head of power include provisions to give effect to the cumulative rules of origin contained in Article 3.8 of Chapter 3 of A-HKFTA, and apply where the non-originating materials that are used or consumed in the production of the good do not satisfy the change in tariff classification.

 

209. The concept of the change in tariff classification requirement applies to non-originating materials. Goods that have been sourced outside Hong Kong, China or Australia and that are used in the production of other goods are non-originating materials. Goods sourced from Hong Kong, China or Australia that have not fulfilled the requirements of new Division 1M and that are used in the production of other goods are also non-originating materials.

 

210. Non-originating materials used to produce other goods may not have the same classification under the Harmonized System as the final good. For example, non-originating materials used to produce a good may be classified to one tariff classification before the production process, and the final good may be classified under a different tariff classification after the production process. To satisfy the requirement of classification change, and therefore satisfy a requirement for the purposes of claiming preferential treatment of customs duty in accordance with

A-HKFTA, the goods concerned must be sufficiently transformed such that they can be classified to a different tariff classification to that of the non-originating materials from which they are produced.

 

211. For example, frozen fish fillets (classified to tariff code 0304) are produced from fish caught in a Party to A-HKFTA and combined with herbs and spices produced in Thailand (which is not a Party to A-HKFTA) (classified to tariff code 0907 to 0910) to make crumbed fish fillets (classified to tariff code 1604 in Chapter 16 of the Harmonized System). The applicable tariff change for crumbed fish is ‘a change to Chapter 16 from any other chapter’. That is, non-originating materials used in the production of the final good must be classified in a different Chapter (two digits) from the classification of the final good.  As the herbs and spices are classified to Chapter 9 of the Harmonized System, these non-originating materials meet the tariff change requirement, considering that the fish concerned is the produce of a Party to A- HKFTA, and is therefore an originating material and is not required to change its classification.

 

212. As per the above example, it is necessary for the tariff classification of the final good and each of the goods that are non-originating materials used in the production of the final goods to be known in order to determine the applicable change in tariff classification.

 

213. New subsection 153ZPE(4) allows for the change in tariff classification requirement to also be satisfied if the total value of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10% of the customs value of the goods.

 

214. New subsection 153ZPE(4) gives effect to the de minimis requirement set out in Article 3.9(a) of Chapter 3 of A-HKFTA. As a result, even if none of the non-originating materials used to produce a final good satisfy a particular change in tariff classification, the final good may still be a Hong Kong originating good if it satisfies subsection 153ZPE(4) because the change in tariff classification will be taken to be satisfied.

 

215. The value of non-originating materials for the purposes of subsection 153ZPE(4) is to be worked out in accordance with the method that will be included in the regulations.

 

216. To give effect to the de minimis requirement under Article 3.9(b) of Chapter 3 of A- HKFTA, new subsection 153ZPE(5) provides that, if:

(g)    a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification; and

(h)    the goods are classified to any of Chapters 50 to 63 of the Harmonized System; and

(i)      one or more of the non-originating materials used in the production of the goods do not satisfy the change in tariff classification;

then the requirement is taken to be satisfied if the total weight of the non-originating materials covered by paragraph (c) does not exceed 10% of the total weight of the goods.

 

217. This provision allows for the change in tariff classification requirement to also be satisfied in relation to certain goods if the total weight of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the customs value of the goods.

 

Regional value content

 

218. New subsection 153ZPE(6) provides that, if a requirement that applies in relation to the goods is that the goods must have a regional value content of not less than a particular percentage worked out in a particular way:

(e)     the regional value content of the goods is to be worked out in accordance with A-HKFTA; or

(f)     if the regulations prescribe how to work out the regional value content of the goods—the regional value content of the goods is to be worked out in accordance with the regulations.

 

219. This provision provides the head of power to prescribe formulas for calculating regional value content and in doing so gives effect to Article 3.4 of A-HKFTA.

 

220. New subsection 153ZPE(7) provides that, if:

(a)     a requirement that applies in relation to the goods is that the goods must have a regional value content of not less than a particular percentage worked out in a particular way; and

(b)    the goods are imported into Australia with accessories, spare parts, tools or instructional or other information materials; and

(c)     the accessories, spare parts, tools or instructional or other information materials are classified with, delivered with and not invoiced separately from the goods; and

(d)    the types, quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the goods; and

(e)     the accessories, spare parts, tools or instructional or other information materials are non-originating materials;

the regulations must require the value of the accessories, spare parts, tools or instructional or other information materials covered by paragraph 157ZPE(7)(e) to be taken into account for the purposes of working out the regional value content of the goods.

 

221. The note to this section indicates that the value of the accessories, spare parts, tools or instructional or other information materials is to be worked out in accordance with the regulations.

 

222. New subsection 153ZPE(7) provides a head of power to prescribe regulations to give effect to Article 3.11(b) of Chapter 3 of A-HKFTA in respect of the value of the accessories, spare parts, tools or instructional or other information materials for working out regional value content. This provision is necessary because the value of such goods would not normally form part of the value of materials that are used in the production of the underlying goods.

 

223. New subsection 153ZPE(8) gives effect to paragraph 2 of Article 3.11 of Chapter 3 of A-HKFTA and provides that section 153ZPG should be disregarded for the purposes of subsection 153ZPE(7) when working out whether the accessories, spare parts, tools or instructional or other information materials are non-originating materials. This provision ensures that the relevant product specific rules for the accessories, spare parts, tools or instructional or other information materials must be applied to determine whether they are originating goods.

 

224. New section 153ZPE gives effect to the above-mentioned Articles in Chapter 3 of A-HKFTA and enables goods produced from non-originating materials that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with the Agreement.

 

225. Subdivision D also contains new section 153ZPF, which deals with packaging materials and containers in accordance with A-HKFTA.

 

226. New subsection 153ZPF(1) gives effect to Article 3.12(1) of Chapter 3 of A-HKFTA and provides that if:

(e)     goods are packaged for retail sale in packaging material or a container; and

(f)     the packaging material or container is classified with the goods in accordance with Rule 5 of the Interpretation Rules;

then the packaging material or container is to be disregarded for the purposes of this Subdivision.

 

227. This provision has the effect that packaging materials or containers do not need to satisfy the change in tariff classification requirement that may apply to the goods packaged within the materials or containers.

 

228. However, in accordance with Article 3.12(2) of Chapter 3 of A-HKFTA, new subsection 153ZPF(2) provides an exception to subsection 153ZPF(1). This exception applies where the goods are required to have a regional value content of at least a particular percentage worked out in a particular way, and where the packaging material or container is non-originating material. In this context, the regulations must provide for the value of the packaging material or container to be taken into account when working out the regional value content of the goods.

 

229. Without this provision, the value of packaging materials and containers would not normally form part of the value of materials that are used in the production of the goods.

 

230. The note to this section indicates that the value of packaging materials and containers for the purposes of this section is to be worked out in accordance with the regulations.

 

Subdivision E-Goods that are accessories, spare parts, tools or instructional or other information materials

 

231. Subdivision E contains new section 153ZPG, which sets out a specific rule that applies to goods that are accessories, spare parts, tools or instructional or other information materials.

 

232. New section 153ZPG provides that goods are Hong Kong originating goods if:

(a)     they are accessories, spare parts, tools or instructional or other information materials in relation to other goods; and

(b)    the other goods are imported into Australia with the accessories, spare parts, tools or instructional or other information materials; and

(c)     the other goods are Hong Kong originating goods; and

(d)    the accessories, spare parts, tools or instructional or other information materials are not invoiced separately from the other goods; and

(e)     the quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the other goods.

 

233. Therefore, under this provision, accessories, spare parts, tools or instructional or other information materials will be deemed Hong Kong originating goods even if, in fact, they are non-originating goods, provided all of the requirements in this new section are satisfied. However, this deeming section is to be disregarded when performing a regional value calculation on goods under new subsection 153ZPE(7). The value of the accessories, spare parts, tools or other instructional or information materials that are non-originating materials must be included in that calculation (see new subsection 153ZPE(8)).

 

234. This provision gives effect to Article 3.11 of Chapter 3 of the Agreement with respect to specific rules for goods that are accessories, spare parts, tools or instructional or other information materials.

 

Subdivision F-Consignment

 

235. Subdivision F contains new section 153ZPH, which deals with the consignment requirements applicable to Hong Kong originating goods in accordance with A-HKFTA.

 

236. New subsection 153ZPH(1) provides that goods are not Hong Kong originating goods under new Division 1M if the goods are transported through a non-party and the goods undergo any operation in the territory of a non-party other than unloading, reloading, separation from a bulk shipment, repacking, storing, labelling or marking for the purpose of satisfying the requirements of Australia or any other operation that is necessary to preserve the goods in good condition or to transport the goods to the Area of Australia.

 

237. New subsection 153ZPH(2) provides that section 153ZPH applies despite any other provision of new Division 1M. This means that even if goods are Hong Kong originating goods in accordance with any other provisions of Division 1M, if they come within the terms of section 153ZPH(1) they will not be Hong Kong originating goods.

 

238. The new section gives effect to Article 3.15 of Chapter 3 of A-HKFTA.  

 

Subdivision G-Regulations

 

239. Subdivision G contains new section 153ZPI, which provides a head of power to prescribe regulations to make provisions for and in relation to determining whether goods are Hong Kong originating goods under new Division 1M.

 

Part 2—Verification powers

 

Customs Act 1901

 

Item 4  After Division 4J of Part VI

 

240. This item amends Part VI of the Customs Act to insert new Division 4K, which is titled ‘Exportation of goods to Hong Kong, China’.

 

241. Division 4K contains new sections 126APA, 126APB, 126APC and 126APD. Collectively, these new sections impose obligations on people who export eligible goods to the Area of Hong Kong, China and who wish to obtain preferential treatment of customs duty in respect of those goods, and on people who produce such goods.

 

Section 126APA  Definitions

 

242. New section 126APA defines the term ‘Agreement’, ‘Area of Hong Kong, China’, ‘Hong Kong, China customs official’, ‘producer’ and ‘production’ for the purposes of new Division 4K. With exception to the terms ‘Hong Kong, China customs official’ and ‘producer’, the terms have the same meaning as given in new Division 1M of Part VIII of the Customs Act, inserted by item 3 of Part 1 of Schedule 3 to the Bill.

 

243. ‘Hong Kong, China customs official’ is defined under this section to mean a person representing the customs administration of Hong Kong, China. This term is necessary and referred to in new sections 126APC and 126APD.

 

244. The term ‘producer’ is defined under this section to mean a person who engages in the production of goods, where production has the same meaning as given in new Division 1M of Part VIII of the Customs Act, inserted by item 3 of Part 1 of Schedule 3 to the Bill.

 

Section 126APB  Record keeping obligations

 

245. New section 126APB inserts a head of power to prescribe record keeping obligations. These record keeping obligations will apply in respect of goods that are exported from Australia to Hong Kong, China.

 

246. New subsection 126APB(1) enables regulations to prescribe record keeping obligations that apply in relation to goods exported to the Area of Hong Kong, China and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the Area of Hong Kong, China. The record keeping obligation envisaged by Article 3.22 of Chapter 3 of A-HKFTA is broader than the general record keeping obligations under the Customs Act.

 

247. It is intended that the method of keeping the documents, such as the length of time for which they must be kept and the manner in which they must be kept, will be similar to current record keeping obligations. However, the type of documents that will be required to be kept will be much broader than current requirements. The requirements will extend to all records relating to the origin of the goods for which preferential tariff treatment is claimed in the Area of Hong Kong, China and may include, amongst other things, records associated with the tariff classification of the goods and the origin or value of the materials used to produce the goods.

 

248. New subsection 126APB(2) provides that the obligations under subsection 126APB(1) may be imposed on an exporter or producer of goods.

 

Section 126APC  Power to require records

 

249. New subsection 126APC(1) provides that an authorised officer (as defined in section 4 of the Customs Act) may require a person who is subject to record keeping obligations under regulations made for the purposes of section 126APB to produce to the officer such of those records as the officer requires.

 

250. Under Article 3.23 of Chapter 3 of A-HKFTA, the customs administration of the importing Party may take action to verify the eligibility of goods for preferential treatment, including requesting the supply of records relating to the production or export of the goods.  New section 126APC gives effect to this Article in respect of goods that are exported to the Area of Hong Kong, China and that are claimed to be originating goods for the purpose of obtaining a preferential tariff in the Area of Hong Kong, China.

 

251. New subsection 126APC(2) provides that an authorised officer (as defined in section 4 of the Customs Act) may disclose any records so produced to a Hong Kong, China customs official for the purpose of verifying a claim for a preferential tariff in the Area of Hong Kong, China. Records obtained by an authorised officer under new section 126APC may be Immigration and Border Protection information within the meaning of Part 6 of the Australian Border Force Act 2015 (the ABF Act).

 

252. Section 42 in Part 6 of ABF Act prohibits the disclosure of Immigration and Border Protection information except, amongst other things, where the disclosure is authorised by or under a law of the Commonwealth.

 

253. By including an express provision in the Customs Act to permit the disclosure of information (that may be Immigration and Border Protection information) to a Hong Kong, China customs official, the disclosure of such information is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

 

254. The note to new section 126APC indicates that, where an authorised officer has requested a person who is subject to record keeping obligations under regulations made for the purposes of section 126APB, a failure to produce documents or records by that person may be an offence under existing section 243SB of the Customs Act. This offence is not a strict liability offence. The note also indicates that, under section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

 

Section 126APD  Power to ask questions

 

255. New subsection 126APD(1) provides that an authorised officer (as defined in section 4 of the Customs Act) may require a person who is an exporter or producer of goods that:

(a)     are exported to the Area of Hong Kong, China; and

(b)    are claimed to be Australian originating goods, in accordance with Chapter 3 of A-HKFTA, for the purpose of obtaining a preferential tariff in the Area of Hong Kong, China;

to answer questions in order to verify the origin of the goods.

 

256. It is considered that the power to ask questions in the circumstances set out in this section is a necessary adjunct to the power to require records in new section 126APC.

 

257. Subsection 126APD(2) enables an authorised officer (as defined in section 4 of the Customs Act), for the purpose of verifying a claim for a preferential tariff in the Area of Hong Kong, China to disclose any answers to questions covered by new subsection 126APD(1) to a Hong Kong, China customs official.

 

258. The answers to questions obtained by an authorised officer under new section 126APD may also be Immigration and Border Protection information within the meaning of Part 6 of the ABF Act and therefore cannot not be disclosed to a Hong Kong, China customs official except as allowed by Part 6. By including an express provision in the Customs Act allowing for this information to be disclosed to a Hong Kong, China customs official, the disclosure is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

 

259. The note to new section 126APD indicates that, where an authorised officer has requested a person to answer questions in order to verify the origin of goods in accordance with this section, a failure to answer questions by that person may be an offence under section 243SA of the Customs Act. This offence is not a strict liability offence. The note also indicates that, under existing section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

 

Part 3-Application provisions

 

Item 5  Application provisions

 

260. This item operates such that the amendments made by Part 1 of Schedule 3 to the Bill, when enacted, apply in relation to:

(a)     goods imported into Australia on or after the commencement of that Part; and

(b)    goods imported into Australia before the commencement of that Part, where the time for working out the rate of import duty on the goods had not occurred before the commencement of that Part.

 

261. This item also provides that the amendment made by Part 2 of Schedule 3 to the Bill, when enacted, applies in relation to goods exported to the Area of Hong Kong, China on or after the commencement of that Part (whether the goods were produced before, on or after that commencement).



 

Attachment A

 

 

Statement of Compatibility with Human Rights

 

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

 

Customs Amendment ( Growing Australian Export Opportunities Across the Asia-Pacific ) Bill 2019

 

The Customs Amendment ( Growing Australian Export Opportunities Across the Asia-Pacific ) Bill 2019 (the 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 purpose of the Bill is to amend the Customs Act 1901 (the Customs Act) to give effect to:

·          the Peru-Australia Free Trade Agreement (PAFTA) signed on 12 February 2018;

·          the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) signed on 4 March 2019; and

·          the Australia-Hong Kong Free Trade Agreement (A-HKFTA) signed on 26 March 2019.

 

The amendments implement new rules of origin for goods imported into Australia under one of these agreements. In particular, the Bill will:

 

·          implement separate rules of origin for each agreement to determine eligible goods to be subject to preferential treatment of customs duty in accordance with each of the agreements. Goods that satisfy the rules of origin under PAFTA are referred to as Peruvian originating goods, goods that satisfy the rules of origin under IA-CEPA are referred to as Indonesian originating goods and goods that satisfy the rules of origin under A-HKFTA are referred to as Hong Kong originating goods;

·          enable regulations to prescribe record keeping obligations on exporters that export goods to a Party to one of the agreements and who make a claim that the goods exported are Australian originating goods in accordance with that agreement ;

·          enable regulations to prescribe record keeping obligation on producers that produce goods for export to Peru or Hong Kong, China and who make a claim that the goods exported are originating in accordance with PAFTA or A-HKFTA respectively; and

·          enable an authorised officer (as defined in subsection 4(1) of the Customs Act) to disclose information (including personal information within the meaning of the Privacy Act 1988 (Cth) and Immigration and Border Protection information within the meaning of the Australia Border Force Act 2015 (Cth)) to customs officials of the other Party to the applicable agreement for the purposes of verifying the claims for origin of goods exported to that Party under the relevant agreement. For each agreement customs official means a person representing a Customs Administration of that Party.

 

 

Human rights implication

 

This Bill engages the right to not be subjected to arbitrary or unlawful interference with privacy in Article 17 of the International Covenant on Civil and Political Rights to the extent that the Bill will allow for the collection and disclosure of personal information.

 

Article 17(1) sets out:

 

No one shall be subjected to arbitrary or unlawful interference with his privacy, family, home or correspondence, nor to unlawful attacks on his honour and reputation.

 

Peru-Australia Free Trade Agreement

 

Under Article 3.17 of Chapter 3 of PAFTA, a certificate of origin document completed by the exporter or producer or an authorised representative of the exporter or producer shall support a claim that goods are eligible for preferential tariff treatment in accordance with PAFTA. The key information that must be included in a ‘certificate of origin’ document is detailed in Article 3.17, and Annex 3-A of PAFTA and includes personal information, that is the exporter and/or the producer’s name, address, email address and telephone number.

 

The Bill in part inserts new sections 126AJF, 126AJG and 126AJH into the Customs Act to enable:

·          regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of Peru and are claimed to be Australian originating goods in accordance with PAFTA;

·          an authorised officer to require a person subject to record keeping obligations under the regulations to produce those records;

·          an authorised officer to disclose the records to a Peruvian customs official in order to verify a claim for a preferential tariff;

·          an authorised officer to require an exporter or producer of goods to answer questions in order to verify the origin of the goods; and

·          an authorised officer to disclose the answers to a Peruvian customs official in order to verify a claim for a preferential tariff.

 

Indonesia-Australia Comprehensive Economic Partnership Agreement

 

Under Articles 4.17 and 4.20 of Chapter 4 of IA-CEPA, valid documentary evidence of origin presented by the importer shall support a claim that the goods are eligible for preferential tariff treatment in accordance with IA-CEPA. The key information that must be included for a ‘certificate of origin’ and a ‘declaration of origin’ are set out in Annex 4-A and Annex 4-B of IA-CEPA respectively, and includes personal information, that is, the exporter’s name, address and contact details.

 



 

The Bill in part inserts new sections 126ALF, 126ALG and 126ALH into the Customs Act to enable:

·          regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of Indonesia and are claimed to be Australian originating goods in accordance with IA-CEPA;

·          an authorised officer to require a person subject to record keeping obligations under the regulations to produce those records;

·          an authorised officer to disclose the records to an Indonesian customs official in order to verify a claim for a preferential tariff;

·          an authorised officer to require an exporter or producer of goods to answer questions in order to verify the origin of the goods; and

·          an authorised officer to disclose the answers to an Indonesian customs official in order to verify a claim for a preferential tariff.

 

Australia-Hong Kong Free Trade Agreement

 

Under Article 3.16 of Chapter 3 of A-HKFTA, a declaration of origin document completed by the exporter, producer or importer, or an authorised representative of the exporter, producer or importer shall support a claim that the goods are eligible for preferential tariff treatment in accordance with A-HKFTA. Key information that must be included for a ‘declaration of origin’ are set out in Annex 3-A of A-HKFTA and includes personal information, that is, the name, address, email address and telephone number of the Importer, Exporter, Producer or their Authorised Representative.

 

The Bill in part inserts new sections 126APB, 126APC and 126APD into the Customs Act to enable:

·          regulation to prescribe record keeping obligations that apply in relation to goods that are exported to Hong Kong, China and are claimed to be Australian originating goods in accordance with A-HKFTA;

·          an authorised officer to require a person subject to record keeping obligations under the regulations to produce those records;

·          an authorised officer to disclose the records to a Hong Kong, China customs official in order to verify a claim for a preferential tariff;

·          an authorised officer to require an exporter or producer of goods to answer questions in order to verify the origin of the goods; and

·          an authorised officer to disclose the answers to a Hong Kong customs official in order to verify a claim for a preferential tariff.

 

Additionally, the record keeping obligations to be prescribed by the regulations will reflect the obligations set out in Article 3.22 of Chapter 3 of PAFTA, Article 4.26 of Chapter 4 of IA-CEPA and Article 3.22 of Chapter 3 of A-HKFTA in respect of the retention of records and the verification of origin.

 

The new sections allow the other Party to verify the origin of goods exported from Australia that are claimed to be Australian originating goods. For example, this may include the collection and disclosure of personal information set out in a ‘certificate of origin’ document, for limited purposes including to a customs official from the other Party for the purpose of verifying a claim for a preferential tariff

 



 

The verification of the eligibility for preferential treatment is required under PAFTA, IA-CEPA or A-HKFTA and the measures in the Bill are directed at the legitimate purpose of facilitating and supporting Australia’s economic and international trade objectives and implementing the international legal obligations under these agreements. The collection and disclosure of personal information is authorised under the Privacy Act 1988 (Cth) and, where applicable, the Australian Border Force Act 2015 (Cth), with the Bill clarifying that authorised officers may require exporters or producers of goods to produce records or answer questions, which records or answers may be disclosed to officials of the other Parties to the agreements for the purpose of verifying a claim for a preferential tariff. The Bill will not alter the existing Australian domestic law protections. The collection, access and disclosure is intended to  be permitted for the limited purpose of verifying a claim made by a person for preferential tariff treatment and the records captured by the new sections only to relate to goods that are exported to the relevant Party and are claimed to be Australian originating goods for those purposes.  As such, the amendments are a reasonable and proportionate response to the legitimate purpose described above. As such, the collection and disclosure of personal information in these circumstances will not constitute an unlawful or arbitrary interference with privacy.

 

Conclusion

 

The Bill is compatible with human rights because to the extent that it may engage the right to privacy, will not constitute an unlawful or arbitrary interference with privacy .

 

 

ASSISTANT MINISTER FOR CUSTOMS, COMMUNITY SAFETY AND MULTICULTURAL AFFAIRS

THE HONOURABLE JASON WOOD MP

 



 

 

Attachment B

 

PERU-AUSTRALIA FREE TRADE AGREEMENT

 

Analysis of regulatory impact on australia

 

OBPR Reference Number: 22433

Introduction

1.       This Regulation Impact Statement (RIS) relates to the Free Trade Agreement between Australia and the Republic of Peru (PAFTA). Peru and Australia launched negotiations for PAFTA on 24 May 2017. PAFTA was signed in Canberra, Australia on 12 February 2018.

Policy Problem

2.       Peru is one of the fastest growing economies in Latin America with an average growth rate of 5.9 per cent over ten years (2005-2015 World Bank). Peru’s Gross Domestic Product (GDP) of USD 189 billion is similar to that of Vietnam, and its population of 31 million is similar to Malaysia. Peru presents a low level of risk compared to some other economies in the region, with modern infrastructure networks, a favourable tax regime, and a history of solid macroeconomic reforms.

 

Table 1: Economic and Trade Relationship - Australia and Peru

Peru GDP

USD 189 billion

Australian goods exports

$82 million

GDP Growth (Trend 2005-2015)

5.9%

Australian goods imports

$255 million

Population

31.38 million

Australian services exports

$55 million

Exports

(Trend 2005-2015)

2.2%

Australian services imports

$112 million

Imports

(Trend 2005-2015)

9.1%

Australian investment

$ 5,000 million*

Two way trade

$504 million

Other investment in Australia

$163 million

             * An estimate of Australian badged investment, including in the mining sector.

               Source: World Bank; DFAT Country Fact Sheets. All currencies AUD unless specified otherwise.

3.       As shown in Table 1, Australia’s trade and economic relationship with Peru is less developed compared to our relationship with economies of a similar size. Peru has high barriers to trade that have prevented the trade relationship from reaching its full potential.





 

4.       The absence of a bilateral trade agreement with Peru:

·          limits Australian producers’ and exporters’ ability to increase trade across many of our top exports in the face of very high tariffs;

·          leaves Australian exporters at a disadvantage compared to competitors from countries with which Peru has concluded, or is negotiating, a trade agreement;

·          maintains tariffs on many imports from Peru, which can lead to higher costs for businesses and consumers; and

·          maintains barriers to investment and services exports.

 

5.       Australia’s trading relationship with Peru is governed by Peru’s obligations under the World Trade Organization (WTO) Agreement. Australia’s exports of beef, sheep meat, horticulture, wheat, barley, rice, canola, sugar and wine are effectively shut out of the Peruvian market because of high tariff barriers. Sugar, dairy, rice and corn are subject to Peru’s price band system, which can result in applied tariffs of up to 29 per cent. There are also tariffs of up to 11 per cent on beef, and up to 9 per cent on sheep meat, almonds, vegetables and wine.

 

6.       Peru’s market access commitments in relation to services are as agreed under the WTO General Agreement on Trade in Services (GATS). These commitments do not include services in sectors of commercial interest to Australia, including telecommunications, financial services, professional services, energy and mining-related services, environmental services, construction services, and transport services.

 

7.       Australian investment is the most important feature in Australia's commercial ties with Peru. Australia's commercial presence in Peru has increased significantly with nearly 90 Australian companies now represented in Peru. Australian investment in Peru is estimated to be around 5 billion, and Australia is the fourth largest investor in the mining and energy sector. Australia’s investment relationship with Peru remains governed by a 1995 bilateral investment treaty. While this older treaty provides protections for Australian investors, it does not include the more effective, modern safeguards aimed at better protecting Australia’s right to regulate in the public interest. Nor does it contain procedural safeguards regarding investor-sate dispute settlement. These safeguards provide greater legal certainty, reducing the risk of investors bringing claims against the government for regulations designed for legitimate public policy purposes.

 

8.       A number of Australia’s competitors, including the United States (US), Canada, European Union (EU), and Singapore, have FTAs with Peru. As a result Australian exporters face additional barriers including tariffs; restrictions on the sale of services; additional red tape; and barriers on temporary entry for business people. This places Australian exporters of goods and services at a significant disadvantage to our competitors. 

Need for Government Action

9.       Peru maintains trade barriers on many goods and services of interest to Australia. Without an arrangement to reduce these restrictions, Australian exporters will remain constrained in their ability to capitalise fully on the opportunities presented by Peru’s large and growing market. PAFTA provides unprecedented market access that unlocks new opportunities for Australian businesses and will make Australian exporters more competitive in the Peruvian market. Furthermore, it is in Australia’s interest to secure a preferential advantage in the Peruvian market as soon as possible to enable Australia to keep pace with competitors, many of which have already negotiated FTAs with Peru.

 

Policy options and assessment

No action

10.   Without an FTA, Australian business will continue to be at a disadvantage due to preferential treatment provided to our major competitors through FTAs. PAFTA outcomes build on and improve those in the Trans-Pacific Partnership (TPP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) for many of Australia’s top goods and services exports. Without removing these barriers, trade is unlikely to increase. 

 

Multilateral negotiations

11.   There are currently no negotiations for a comprehensive multilateral trade agreement advancing in the World Trade Organization. As a result, it is not currently feasible to seek improved market access for Australian exporters through multilateral negotiations.

 

Regional FTA negotiations

12.   Regional negotiations should not be seen as an alternative to PAFTA - the Government is pursuing regional agreements in tandem with bilateral agreements for many trading partners. PAFTA outcomes support further progress in these regional efforts while providing early gains and protection for Australia.



13.   Australia and Peru are both signatories to the TPP and the TPP-11. TPP-11 incorporates the TPP with the exception of a limited number of suspensions. These are agreements are not yet in-force. The market access outcomes obtained in PAFTA improve on those obtained through TPP-11. PAFTA has faster tariff elimination and new tariff quota access that was not possible in a regional agreement as Peru had greater sensitivities with other Parties.

 

14.   On 30 June 2017, Australia and the Pacific Alliance (Chile, Colombia, Mexico and Peru) launched negotiations for a free trade agreement. Australia does not currently have FTAs (in force) with Colombia, Mexico or Peru. The Pacific Alliance was part of the government’s multi-faceted strategy to capture the benefits of the TPP-11 and to strengthen Australia’s trade relationship with Latin America. PAFTA will complement this and act as a building block to improved access in the region. 

Bilateral FTA negotiations

15.   A high-quality bilateral agreement with Peru is only realistic option to achieve the Government’s objectives and provide the greatest opportunities to Australian exporters. On 24 May 2017, Australia and Peru commenced negotiations on for a bilateral FTA and signed on 12 February 2018. Negotiations were swift due to a shared negotiating history in the TPP. Due to the bilateral nature of the negotiations, and Australia was able to secure market access outcomes that improved on those obtained in TPP-11. 

 

16.   PAFTA is a comprehensive modern trade agreement that addresses the key barriers faced by Australian exporters and investors in Peru . Small and medium-sized enterprises will benefit from provisions emphasising user-friendliness and accessibility of information on opportunities arising from PAFTA. Australian goods and services exporters will benefit from commitments regarding state-owned enterprises and government designed monopolies, designed to create a level playing field and ensure non-discrimination. PAFTA will also support the expansion of Australia’s creative and innovative industries through a common set of intellectual property rules that incentivise research and development and creative endeavour.

 

Outcomes on Goods

17.   For goods exporters, PAFTA will eliminate tariff barriers and provide mechanisms to address non-tariff barriers. Peru will eliminate tariffs on 93.5 per cent of its tariff lines from entry into force of the agreement, and ultimately will eliminate 99.4 per cent of all its tariffs. PAFTA outcomes represent a significant improvement to TPP-11. For example, under PAFTA, Peru has given Australia historic levels of new goods market access in areas such as sugar, dairy, rice and sorghum, while for all other tariff lines Australia attained quicker phase out periods than the TPP-11. Without PAFTA, Australian exports to Peru would face very high barriers to trade, which effectively prohibit trade across many of Australia’s top export strengths.



18.   Under PAFTA, new market access outcomes include:

·          Sugar: on entry into force of the agreement, Australia will have duty free access of 30,000 tonnes of sugar into Peru, growing to 60,000 tonnes in five years and 90,000 tonnes in 18 years.

·          Dairy: on entry into force of the agreement, Australia will have duty free access of 7,000 tonnes of dairy products into Peru, growing to 10,000 tonnes in ten years.

·          Rice: on entry into force of the agreement, Australia will have duty free access of 9,000 tonnes of rice products into Peru, growing to 14,000 tonnes in five years.

·          Sorghum: on entry into force of the agreement, Australia will have duty free access of 15,000 tonnes of sorghum products into Peru, growing to 20,000 tonnes in five years.

·          Beef cuts: tariffs (up to 17 per cent) will be eliminated within five years.

·          Sheep meat: tariffs on all sheep meat (up to 9 per cent) will be eliminated on entry of the agreement into force.

·          Seafood: Peru will eliminate all tariffs (up to 9 per cent) on entry into force.

·          Almonds: immediate elimination of duties on all tariff lines (up to 9 per cent).

·          Wine: immediate elimination of duties across lines of commercial interest to Australia with the remainder being phased out over 5 years (up to 9 per cent).

 

19.   Australian exports to Peru are currently concentrated in machinery and other goods related to the mining industry, along with some food products. While some of Australia’s major global exports, such as liquefied natural gas, iron, steel and aluminium already enter Peru duty-free, PAFTA has secured additional market access, including:

·   immediate elimination of tariffs on base metals including iron ore, copper and nickel;

·   immediate elimination of tariffs on coal; and

·   immediate elimination of duties on mineral fuels and mineral oils.

 

20.   Australia’s exports of manufactured goods to Peru were worth an estimated $55.7 million. New market access outcomes include:

·   immediate elimination of duties on paper and paperboard to Peru; and

·   immediate elimination of duties on pharmaceuticals and medical devices.



Outcomes on Services

21.   PAFTA benefits Australian service suppliers by removing key barriers to services trade, providing more transparent and predictable operating conditions for Australian service suppliers in Peru, and capturing future Peruvian services sector reforms. This creates opportunities to expand our services trade with Peru, which was worth $177 million in 2016.

 

22.   A snapshot of the PAFTA services outcomes include:

·   Education: Australian universities will benefit from Peruvian recognition of Australian degrees. Australian education providers seeking to establish campuses in Peru will be treated the same as Peruvian education providers. Neither Australia nor Peru have made any services-related commitments on public education and the agreement will not require Australia to make any changes to its current laws and regulations covering education.

·   Mining Equipment, Technology and Services (METS) and oilfield service providers: Peru has granted access on non-discriminatory terms to Australian suppliers of mining-related consulting, research and development, engineering, environmental, mining and technical testing and analysis services. Australians working in the METS sectors and Australian technicians working on oil and gas wells are covered by Peru’s commitments on temporary entry, allowing them to stay for a year with the possibility of extension.

·   Professional services: Guaranteed access for Australian lawyers, engineers, architects, accountants and urban planners to provide their world-class services in Peru.

·   Financial services: Guaranteed access for Australian financial service suppliers to export their services to Peru, including investment advice and portfolio management services to a collective investment scheme and insurance of risks relating to maritime shipping and international commercial aviation and freight, and related brokerage.

·   Temporary entry of business people: Guaranteed minimum length of stay for Australian professionals of up to one year and an undertaking from Peru not to impose any labour market testing requirements on Australians covered by PAFTA. Australia retains the right to impose labour market testing on Peruvian contractual service suppliers. Spouses of Australian intra-corporate transferees and investors will be allowed to stay in Peru for the same length of time as the primary visa holder.

·   Telecommunications services: Guaranteed non-discriminatory treatment, including no foreign equity limits, for Australian investors in telecommunications and e-commerce services.

·   Health services: Australian providers of private health and allied services will be treated the same as Peruvian suppliers. Neither Australia nor Peru have made any services-related commitments on public health and the agreement will not require Australia to make any changes to its current laws and regulations covering suppliers of health services.

·   Hospitality and tourism services: Australian hotel, restaurant, travel agency, tour operator and tour guide operators will benefit from guaranteed access to Peru’s significant and expanding tourism market.

·   Government procurement: Opportunities arising from Australian businesses now having the guaranteed right to bid for government procurement services contracts, such as:

-         Management consulting services;

-         Computer and related services, along with maintenance of office machinery;

-         Architectural engineering and other technical services;

-         Land and water transport services;

-         Telecommunication and related services; and

-         Environmental protection services;

 

Outcomes for Investors

23.   Australia has around 5 billion of energy and resources investments in Peru, and is the fourth largest foreign investor in Peru’s mining sector. PAFTA will create new investment opportunities and provide a more predictable and transparent regulatory environment for investment. It will facilitate foreign investment into Australia, and provide important protections to Australian businesses investing in Peru.

 

24.   PAFTA will promote further growth and diversification of Australian outward investment by liberalising investment regimes in key sectors such as mining and resources, telecommunications and financial services. PAFTA will also promote foreign investment in Australia by liberalising the screening threshold at which private foreign investments in non-sensitive sectors are considered by the Foreign Investment Review Board (FIRB), increasing it from $261 million to $1,134 million.

 

25.   Under PAFTA, Australia has retained the ability to screen investments in sensitive sectors to ensure they do not raise issues contrary to the national interest. All investments by a foreign government will continue to be examined and lower screening thresholds will apply to investment in agricultural land and agribusiness.

 

26.   PAFTA’s investment obligations can be enforced directly by Australian and Peruvian investors through an Investor-State Dispute Settlement (ISDS) mechanism. The ISDS mechanism includes safeguards to protect the government’s ability to regulate in the public interest and pursue legitimate public welfare objectives, such as public health. Public health measures cannot be challenged.



 

Outcomes for Australian consumers and businesses

27.   PAFTA also includes a number of provisions and many others help to reduce red tape, improve transparency of international trade environment and support the competitiveness of Australian exports. Highlights include:

·   more transparent and efficient customs procedures making it easier for Australian companies to export and do business with Peru. For example, under PAFTA, Peru is required to provide an advance ruling on the tariff classification of a good, how it should be valued, whether a good is originating and how to claim preference;

·   modern trade rules to reflect commercial shipping routes. Most products don’t travel directly from one country to another. PAFTA recognises that products are often shipped via logistics and supply hubs and has trade rules to ensure that Australian products that transit through, or are stored in, third countries still qualify for tariff preferences. For example mining equipment from Australia will be able transit through the US or Chile and still qualify for preferential tariff rates, as will advanced Australian mining manufactures, which may be stored in global distribution hubs in customs control of countries outside of Peru or Australia;

·   duty-free temporary admission of pallets and containers. This commitment will provide cost and administrative savings for Australian businesses engaged in providing transport logistics services to Peru;

·   mechanisms to address non-tariff barriers impeding Australia’s exports. PAFTA will enhance transparency, cooperation and promote good practice with regard to establishment and maintenance of technical regulations;

·   simplified rules and technical requirements for several products, including wine and spirits. For example, PAFTA includes a wine annex that enables Australian exporters to use the same label to Peru as all other World Wine Trade Agreement countries, saving money on marketing and distribution costs; and

·   trade facilitative rules of origin that enable exporters, producers or their authorised representatives to self-certify whether the goods originate in Australia. Traders will also be able to make post-importation claims for preferential tariff treatment, provided certain conditions are met.



Commitments made by Australia

28.   In order to obtain high quality outcomes in the FTA with Peru, Australia also commitments on trade and investment. By international standards, Australia’s trade and investment regime is already open, with low tariffs and significant opportunities for international services suppliers and investors. In addition, Australia’s has an open and non-discriminatory government procurement system, and a flexible approach business travel and work within Australia. The commitments in PAFTA did not extend beyond those already offered in other Australian FTAs, including TPP-11. As such, minimal changes are need to Australia’s regulatory system to implement PAFTA. Australia’s commitments in PAFTA cover:

·   elimination of tariffs;

·   ability to provide services in Australia;

·   increased thresholds for FIRB screening;

·   access to Australia’s government procurement market; and

·   commitments on the temporary entry of business persons.



29.   Australia will eliminate 96 per cent of its tariffs from entry into force of the agreement, and within four years will eliminate 99.8 per cent of all tariffs. This is consistent with other Australian FTAs and our trade policy settings. This includes tariffs of no higher than five per cent on plastics and rubber, textiles, clothing and footwear, iron and steel, motor vehicle components and some machinery and furniture tariffs. Peru is a significant textile exporter and prioritised textile market access in negotiations. As a result of PAFTA, there may be an increase in imports of textile products, or other products from Peru, where Australia has eliminated its tariffs. This is not expected to have a significant impact on the Australian textile sector or others sectors, as the Australian economy is already open to import competition from our major trading partners, including China, the US, Japan, Korea, Singapore and New Zealand.



30.   Under PAFTA, Australia will provide greater certainty to Peruvian business people and skilled professionals seeking temporary entry to Australia. These commitments are consistent with Australia’s existing immigration and workplace relations frameworks. This includes the sponsorship requirements under the new Temporary Skill Shortage visa. Sponsors must meet market salary rates and offer employment conditions as required under Australian workplace law, and equivalent to those accorded to Australian workers performing similar duties in the workplace. Peruvian skilled professionals must also meet all relevant Australian skills, qualification and licensing requirements. Australia’s PAFTA commitments go beyond Australia’s WTO commitments on the category of Installers and Servicers and Contractual Service Suppliers. These commitments, including in relation to length of stay and labour market testing, are consistent with Australia’s current immigration policy and require no regulatory changes to implement. 

Regional Impact

31.   PAFTA is expected to have a positive impact on regional Australia. PAFTA provide new open opportunities for regions that export goods or services, particular in sectors related to agriculture and mining. Australia has not only captured the gains of the TPP, but attained improved market access opportunities for Australian exporters.



32.   In addition to reducing tariff barriers and improving market access, PAFTA will provide certainty for businesses and reduce costs and red tape for Australian exporters, service suppliers and investors in Peru by setting common rules and promoting transparency of laws and regulations. These include more transparent and efficient customs procedures, streamlined rules of origin procedures, mechanisms to address non-tariff barriers, and simplified rules and technical requirements for several products.

 

33.   Consistent with Australia’s other free trade agreements, remaining Australian tariffs on imports from Peru will be eliminated within five years, with consumers and businesses across Australia set to benefit from lower prices. PAFTA is unlikely to impose major adjustment costs on any region or sector.



 

Regulatory costs/savings

34.   In order to implement PAFTA the following regulatory and legislative changes will be required:

·   changes to the Customs Act 1901 and the Customs Tariff Act 1995 to implement new preferential tariff rates and associated rules of origin; and

·   changes to the Foreign Acquisitions and Takeover Regulations 2015 to implement the commitment to a higher threshold for screening by FIRB.

 

35.   PAFTA will benefit Australian businesses trading with Peru by removing the regulatory burdens of any tariffs on applied to 99.8 per cent imported goods from Peru, and eliminating tariffs on 99.5 per cent of Australian exports to Peru. To enable Australian importers or exporters to claim preferential access under PAFTA, like any other FTA, traders may need to fulfill some documentary requirements. Under PAFTA, with the objective of minimising regulatory requirements, exporters will be able to self-certify the origin of their goods when claiming the preferential rate. Exporters and importers are not required to trade under preferential rates of PAFTA, and thereby not required to change their documentary requirements when trading with Peru.

 

36.   This Regulation Impact Statement does not assess the change in the regulatory burden faced by Australian businesses and individuals which will arise from regulatory and legislative changes made by Peru. Changes by Peru as a result of the FTA are expected to reduce the regulatory burden for Australian businesses trading with Peru.

Conclusion

37.   It is in Australia’s national interest to enter into a bilateral trade agreement with Peru given PAFTA will:

·          deliver commercially meaningful market access gains that will benefit Australian agricultural producers, as well as energy and mineral resources exporters, service providers, consumers and investors;

·          secure a competitive advantage for Australian exporters in the Peruvian market against other trading partners, and level the playing field for Australian exporters with countries that already have an FTA;

·          deliver faster and deeper market access gains than those possible through multilateral WTO or regional negotiations;

·          be consistent with WTO requirements for free trade agreements; and

·          complement Australia’s efforts to seek additional trade liberalisation from the region, through the WTO and other regional agreements.

Consultation

38.   The Department of Foreign Affairs and Trade (DFAT) leads Australia’s negotiations on FTAs in consultation with other government agencies. Australia’s negotiating positions were informed by the views and information provided by stakeholders through both formal and informal mechanisms.

 

39.   The public consultation and stakeholder engagement process on the PAFTA negotiations commenced with the government’s announcement on 24 May 2017 that Australia and Peru would be launching PAFTA negotiations. DFAT, in conjunction with other government agencies, has consulted widely with industry and other stakeholders in formulating our positions. A list of businesses and organisations that have been consulted - through consultation events, stakeholder meetings, and phone calls - is set out below.

 

40.   Stakeholders in the public consultation process broadly appreciated the benefits of the Peru-Australia Free Trade Agreement. Most stakeholders supported the government’s efforts in the pursuit of a comprehensive trade agreement. Particular interest has been shown in reducing barriers in the agriculture sector, and in enhancing opportunities for Australian providers of, and investors in, mining services, professional services, and telecommunications. Many were especially keen that market access gains achieved under the TPP could be expanded, with agricultural stakeholders particularly forceful advocates for improved market access outcomes.



41.   Representatives from a range of peak farming bodies, including Meat & Livestock Australia, Dairy Australia, and the National Farmers’ Federation, have been consulted throughout PAFTA negotiating rounds, where they have pressed for better access for Australian agricultural products. Representatives from the mining industry have been closely consulted throughout negotiations, since Australia and Peru’s mining sectors are already closely integrated across the areas of mining investment, mining equipment and inputs used in mining.

 

42.   Interest in PAFTA by civil society groups was limited. The Australian Fair Trade and Investment Network provided a submission outlining its concerns, which included: lack of transparency of the negotiating process; the use of the TPP text as a model; the possible inclusion of ISDS provisions; the possible extension of monopoly intellectual property rights on patents or copyright; the existence of provisions on the movement of natural persons and government procurement.

 

43.   Engagement with stakeholders will continue following entry into force of PAFTA to raise awareness of the FTA and ensure businesses and consumers can access the benefits of the agreement. Stakeholders will have an additional opportunity to provide their views on PAFTA through the inquiry process by the Joint Standing Committee on Treaties (JSCOT).

 



 

Stakeholders consulted

·          Australian Industry Group

·          Almond Board of Australia

·          Apple and Pear Australia

·          Australian Chamber of Commerce and Industry

·          Australian Fair Trade and Investment Network

·          Australia-Latin America Business Council (ALABC)

·          Atlas Pearls

·          AusQuest

·          Austal

·          Austin Engineering

·          Australia Indonesia Business Council (WA)

·          Australian International Commerce Centre

·          Australian Wool Industries Secretariat

·          BHP

·          Chamber of Commerce and Industry of Western Australia

·          Canegrowers

·          City of Perth

·          Costa Group

·          Council on Australia Latin America Relations (COALAR) and Managing Director, Latin Resources

·          Dairy Australia

·          DTI Group Ltd

·          EFIC

·          Fortescue Metals Group (FMG)

·          Fremantle Chamber of Commerce

·          FTI Consulting

·          Grain Growers Limited

·          Joondalup Council

·          Meat & Livestock Australia

·          Minerals Council of Australia

·          Navitas

·          National Farmers’ Federation

·          PWC

·          Ricegrowers

·          Rio Tinto

·          Spinnaker Run

·          Squire Patton Boggs

·          Sunrice

·          Sweetlips

·          WA European Business Association

·          Western Australia Government

·          Wellard Rural Exports Limited

·          West Australian European Business Association

·          Winemakers Federation of Australia

·          Woodside

Implementation and evaluation

44.   In line with Australia’s treaty-making processes, the text of the FTA will be tabled in Parliament. JSCOT will conduct an inquiry into the FTA and report back to Parliament. Implementation of PAFTA will require changes to: the Customs Act 1901 ; the Customs Tariff Act 1995 and associated regulations; the Foreign Acquisitions and Takeovers Regulations 1989 .

 

45.   Once domestic processes are completed, including amendments to legislation and regulatory, Australia and Peru will exchange diplomatic notes to advise that the ratification process has been completed by both Parties. Both Parties are aiming for entry into force before the end of 2018. 

 

46.   DFAT and other Government agencies will use existing resources to implement PAFTA. The operation and effectiveness of the FTA will be addressed through working groups, Senior Officials Meetings, Ministerial Meetings and through future reviews of the FTA. In advance of these meetings and any formal review, DFAT will invite submissions from the public, and consult with stakeholders to identify concerns regarding the implementation of the FTA.

 

 

 



Attachment C

 

INDONESIA-AUSTRALIA COMPREHENSIVE ECONOMIC PARTNERSHIP AGREEMENT

 

Analysis of regulatory impact on australia

                                                                                                                                    

Indonesia-Australia Comprehensive Economic Partnership Agreement

 

Analysis of regulatory impact on australia

 

5 December 2018

 

PART 1: INTRODUCTION

1.        This Analysis of Regulatory Impact on Australia (ARIA) relates to the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA). Australian Prime Minister Julia Gillard and Indonesian President Susilo Bambang Yudhoyono launched negotiations on IA-CEPA in November 2010.

2.        A Regulatory Impact Statement was prepared by the Department of Foreign Affairs and Trade (DFAT) in consultation with the Office of Best Practice Regulation (OBPR) in 2009 to inform the decision to commence negotiations (See Attachment 1 - 2009 Regulatory Impact Statement ).

3.        After a pause in negotiations, these were relaunched by Indonesian Minister of Trade Republic of Indonesia, H.E Thomas Trikasih Lembong and Australian Minister of Trade and Investment, the Hon Steven Ciobo MP when they met in Canberra on 16 March 2016. 

4.        An interim Regulatory Impact Statement was completed by DFAT in consultation with OBPR in 2016 in order to inform cabinet’s decision on a negotiating mandate after negotiations were restarted.

5.        The substantial conclusion of negotiations was jointly announced by the Australian Prime Minister Scott Morrison and Indonesian President Joko  Widowdo on 31 August 2018.

6.        On the basis of these RIS, among other supporting documentation, Cabinet decided that, of the available policy options, pursuing a high quality bilateral agreement with Indonesia was the likely to produce the most benefit to Australia. Cabinet set the acceptable parameters of a beneficial agreement in the form of a negotiating mandate. An agreement within these parameters has now been achieved and is ready to be tabled in parliament. This ARIA will support the deliberations of Parliament’s Joint Standing Committee on Treaties.

PART 2: PROBLEM IDENTIFICATION

7.        The Joint Standing Committee on Trade and Investment Growth enquiry Leveraging our advantages - The trade relationship between Australia and Indonesia noted ‘The trade relationship between Australia and Indonesia is clearly underdeveloped. In 2015-16 Indonesia was Australia’s 13th largest trading partner, trailing behind smaller markets such as New Zealand’. Indonesia is a natural market for Australia, with high potential for growth into the future (geographical proximity, large and growing population, economic growth).

8.        Indonesia is also an important strategic partner for Australia, with a significant and growing leadership role in the Indo-Pacific via its role in ASEAN and its position as one of the world’s largest democracies and most populous Muslim country.

9.        It is in Australia national interest to deepen and broaden economic cooperation with Indonesia, as well as other facets of the relationship, and encouraging ongoing reforms that will help Indonesia grow and develop. This was recognised by the government’s recent announcement of a Comprehensive Strategic Partnership with Indonesia, of which economic partnership was one of the key pillars.

10.    Australia’s trading and strategic relationship with Indonesia has been emphasised with the recent global trade environment ⊨ and rules-based international order more generally⊨ facing challenges, including through growing protectionist sentiment.

11.    Australia is a nation dependent on trading for our success. Australian businesses rely on export markets to sell their products and to access low cost inputs from overseas. The 2017 report  Australian Trade Liberalisation: Analysis of the Economic Impacts by the Centre for International Economics found that Australian households have benefited from a higher standard of living thanks to cheaper consumer goods and one in five jobs in the Australian economy is dependent on trade.

12.    With the World Trade Organization (WTO) Doha Development Agenda Round stalled, major trading economies are increasingly working to decrease barriers to trade via bilateral and plurilateral agreements, within which countries agree to lower existing trade barriers on a reciprocal basis.

13.    With Australia’s trading partners being proactive in negotiating reciprocal reductions in trading barriers, Australia’s businesses will increasingly be at a disadvantage compared to their competitors in other countries unless the government ensures that Australian businesses enjoy the same levels of access. Expanding and deepening Australia’s trade and investment relationships is critical to Australia’s future economic growth and prosperity. 

Barriers impeding Australia-Indonesia Trade and Investment

14.    Indonesia will move from being the 16th largest economy into the top 10 by 2030, and be the fourth largest by 2050. By 2030, around 70 per cent of Indonesians will be of working age, supporting a consuming class of around 135 million people and business opportunities will be worth approximately $US1.8 trillion.

15.    In Indonesia, high tariffs and non-tariff measures, including variable customs procedures, red tape and import-licensing arrangements are significant obstacles for Australian business. Indonesian policies are often geared towards ‘self-sufficiency’, notably in the food and agriculture sectors, with measures that aim to encourage domestic production and discourage imports.

16.    In a promising development, Indonesian President Widodo has announced the aim of improving Indonesia’s position on the World Bank Ease of Doing Business report, targeting a rank of 40. From a ranking of 109 in 2015, Indonesia achieved a ranking of 91 by 2016, a jump of 15 places. By 2017, Indonesia’s ranking remains at 72, due to improvements in similar countries while Indonesia made no progress.

17.    Despite much progress, Indonesia’s regulatory environment remains uneven.

Tariff Barriers

18.    Like most countries, Indonesia has progressively lowered its import tariffs. The ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) continues to reduce these in certain sectors for Australian exporters to Indonesia. However, a range of key agricultural exports such as sugar, frozen beef, some horticulture and sheep meat, and some manufactured exports, such as copper cathodes, some iron and steel products and some machinery parts continue to face high tariffs.

Non-Tariff Measures

19.    Indonesia maintains non-tariff measures including quotas, bans, import licensing requirements and pre-shipment inspection for a range of products. Between 2009 and 2015, the number of product-level non-tariff measures on Indonesian imports doubled, expanding the number of products covered by non-tariff measures by over 38 per cent [1] . This dilutes some of the benefits created by reductions in both the MFN tariff and tariff reductions under AANZFTA.

20.    Indonesia’s import licensing restrictions apply to many goods, including alcoholic beverages [2] . Indonesia frequently revises import arrangements for a range of other products, such as sugar, live cattle and horticulture.

21.    A number of Australian companies have expressed concern about anti-dumping actions affecting their trade with Indonesia. Concern about the transparency of regulations and administration in Indonesia also has an impact on trade and investment prospects.

22.    Indonesia’s regulations vary for different Australian imports with, for example, seasonal permits applied to Australia citrus [3] , unpredictable permits for grapes, and no permits issued for apples, mangoes, melons, bananas or pineapples.

Barriers to Services Trade

23.    Australia’s exports in education, health, mining, telecommunications, business and professional, financial, tourism and other services into Indonesia are significant but impeded by Indonesia’s regulatory regime. Lengthy and costly business licensing, permitting and operating procedures, visa restrictions around expatriate employment and difficulties with governance hamper further growth.

24.    Indonesia maintains barriers to services trade in many sectors. Relatively restrictive rules governing legal, accountancy and architecture services, as well as education, telecommunications and construction exist. Australian professionals face challenges in obtaining recognition of qualifications. Indonesia maintains restrictions on services, including limits on foreign equity and nationality requirements. Australian and other foreign educational institutions cannot, for example, establish branches or local campuses in Indonesia.



 

Investment

25.    The Indonesian Government is keen to secure large-scale international investment, yet despite some reforms, investment attractiveness remains low due to factors including:

a.        Limitations on foreign investment, including foreign investment in a number of sectors being either closed or restricted. Many sectors have investment caps that limit foreign investment to a non-controlling shareholding. Investment caps are also subject to change and changes may apply retrospectively.

b.       Limitations on expatriate work visas for service, trading and consulting companies.

c.        Additional permits and costs associated with visiting directors, consultants, auditors and lecturers.

d.       Shortages of skilled local staff and low levels of labour productivity. While Indonesia has one of the lowest wage costs for manufacturing in US dollar terms in Asia (lower than China, Philippines, Thailand, Malaysia and Vietnam) the advantage is lost when adjusted for labour productivity. Firms also incur large indirect costs due to poor logistics, infrastructure gaps, labour skills shortages and complex business licensing requirements.

Logistics Costs

26.    Logistics costs in Indonesia are estimated at 25 per cent of the cost of manufacturing sales, higher than that of neighbouring countries including Thailand (15 per cent) and Malaysia (13 per cent) [4] . A large proportion of this cost is associated with the need to carry higher inventory levels to accommodate an unreliable logistics chain. Moving freight from Java to Indonesia’s outer provinces is hampered by long supply chains, uncertainties in delivery times, and high costs that cover the cost of mostly empty return voyages.

Impact of Other Preferential Trade Agreements

27.    Australian businesses are currently at a disadvantage to some key competitors given Indonesia’s existing trade agreements. Under the ASEAN Trade in Goods Agreement (ATIGA), Indonesia provides preferential access to ASEAN nations. China also has preferential access to Indonesia compared to Australia on a range of goods under the ASEAN-China FTA.

28.    Indonesia has been negotiating an FTA with the EU since July 2016. If finalised, this has the potential to further impact the competitiveness of Australian businesses.

29.    The ASEAN Framework Agreement of Services (AFAS) allows Indonesia to offer greater market access to service suppliers from ASEAN countries - including through recognition of qualifications in a range of professions, such as accounting. In practice, Indonesian regulations give advantages to ASEAN service suppliers in 20 sectors, including transport, healthcare and tourism.

30.    Some of Australia’s existing trade agreements also currently provide preferential access to Indonesia’s competitors in the Australian market. For example, tariffs on all China’s textiles, clothing and footwear exports to Australia are being eliminated under the China Australia Free Trade Agreement. For Indonesia, these tariffs are not eliminated under AANZFTA until 2020.



 

Global Mid-Term Outlook

31.    The future trajectory of the Australia-Indonesia trade and economic relationship will be affected in part by prevailing global and regional conditions. Global economic growth has been held at around 3 per cent per year since 2010, around 0.5 of a percentage point weaker than the average for the two decades before the global financial crisis (GFC). Weak trade and investment growth, low productivity growth and low inflation remain major vulnerabilities for the global economy.

32.    The United Nations Conference on Trade and Development (UNCTAD) estimates global foreign direct investment (FDI) flows fell 23 per cent in 2017, reaching an estimated US$1.43 trillion, as global economic growth remained weak and world trade volumes posted anaemic gains. FDI flows to developing economies remained stable in 2017 after falling 20 per cent in 2016 (to an estimated US$671 billion), largely on the back of slowing economic growth and falling commodity prices.

33.    However, despite heightened uncertainty, there are also some encouraging signs. Australia’s 2018-19 Budget Economic and Fiscal Outlook forecasts global growth at 3.8 per cent in 2017 moving to 3.75 per cent in 2018 and 2019. This is in part due to higher forecast growth in the United States and East-Asian economies in 2017 and 2018.

34.    The July 2018 IMF World Economic Outlook forecasts US economic growth of 2.9 per cent for 2018 and 2.7 per cent for 2019 (Budget 2018-19 - 2.3 per cent). Economic activity in the ASEAN 5 (Philippines, Indonesia, Malaysia, Thailand and Vietnam) has remained relatively resilient despite subdued global demand, with economic growth of 5.3 per cent in 2018 and 5.4 per cent in 2019.

35.    The Indonesian economy has continued to expand, driven by private consumption and public investment, and economic growth in the Philippines and Vietnam has remained strong

36.    Key uncertainties for the global outlook include the pace of growth in China, the impact of Brexit, and tighter global financial conditions. On the upside, the support to economic activity from policy stimulus in the United States and/or China could turn out to be larger than expected, which could translate to a stronger pickup of activity in their trading partners (including Australia and Indonesia). Upside risks also include higher investment if confidence in the recovery of global demand strengthens.

Indonesia’s Economic Outlook

37.    Despite the challenges outlined above, there are significant opportunities for greater trade, commercial and cultural links between Australia and Indonesia. Indonesia’s economy has expanded strongly over recent decades. The poverty rate more than halved from 23 per cent during the Asian Financial Crisis to 10 per cent in 2018. Indonesia’s Central Statistics Agency (BPS) reported growth of 5.06 per cent for the year to Q3 2017, with growth of 5.2 per cent in Q3 2017. Indonesia remains the third fastest growing economy in the G20 (behind India and China).

38.    Indonesia accounts for more than a third of total ASEAN GDP. Positive growth during the global financial crisis (GFC), compared to the turbulence caused by the Asian financial crisis, illustrates a new resilience to external shocks. While there are important caveats, Indonesia’s future economic outlook remains relatively upbeat out to 2030. Based on current trends, Indonesia will move from the 16th largest economy in the world to the ninth largest by 2030, and fourth largest in 2050. A PWC report (February 2017) expects average annual growth of over 6 cent per annum out to 2050, Global Insights estimate annual growth ranging from 5.1 to 6.1 per cent per annum and the US Department of Agriculture expect annual growth between 4.4 and 5 per cent. [5]

39.    To fully realise its potential, Indonesia will need to continue structural reform and improve its governance and business climate. The tendency to look inward for growth, change laws unexpectedly and restrict trade to protect local industry are all areas where continued reform would bring significant long-term gains.

Growing Opportunities with a Growing Economic Power

40.    Asia is predicted to be home to around two thirds of the world’s middle-class by 2030, fuelling demand for resources and commodity exports from both Indonesia and Australia.  Under conservative assumptions, Indonesia itself will have a consumer class of 135 million people by 2030 [6] . This would support domestic consumption and represent the largest growth in consumers aside from China and India.

41.    Indonesia’s urban population could reach 63 per cent in 2030, up from 51 per cent in 2012, with much of the movement anticipated to occur outside of Jakarta. Cities with populations between 150,000 and 10 million people (such as Surabaya, Medan, Makassar and Yogyakarta) will grow faster than Jakarta and contribute more to the economy.

42.    These cities are predicted to contribute around 63 per cent of GDP in 2030, compared to Jakarta’s 19 per cent. Indonesia has one of the youngest demographic profiles in the world, with 53 per cent of its 257.6 million people below the age of 30. With continued population growth, around 70 per cent of the population are expected to be of working age by 2030.

43.    As Indonesia’s economic weight grows, and more of its people enter the consumer class, business opportunities in Indonesia will continue to grow. McKinsey (2012) estimates that Indonesia could offer private-sector business opportunities worth approximately $1.8 trillion by 2030. As wealth grows, Indonesian investors are likely to look to countries offering stable economic returns, particularly in industries with links to their domestic economy, including, for example, food and agriculture.

Opportunities in Goods

Agriculture

44.    Indonesia is an important market for Australian agriculture. This importance should increase as Indonesia’s economy and middle class grow. In an analysis of Indonesia’s food demand to 2050, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES 2015) anticipates that economic, population and urbanisation growth will result in a quadrupling of the value of agricultural food consumption from 2009 levels. (Figure 1)

Figure 1 Agrifood consumption in Indonesia 2009 versus 2050 forecasts

Title: Figure 1. Agrifood consumption in Indonesia 2009 versus 2050 forecasts - Description: Consumption is projected to increase by the following amounts: Fruit - 269% Poultry - 1311% Beef - 1319% Starchy staples - 256% Vegetables - 232% Rice - 66% Oil crops - 246% Sugar - 562% Dairy - 935% Sheep and goat meat - 1340% Wheat - 113%

45.    While there is potential for Indonesia to increase its food production and productivity, Indonesia’s domestic agricultural sector will face challenges to satisfy the country’s growing food demands (Figure 2). There are opportunities for Australian agricultural goods to supplement Indonesia’s demands for quality agricultural products, and to be used as inputs for Indonesian manufactured food products.

Figure 2 Agrifood exports and imports for Indonesia: 2009 versus 2050 forecasts

Title: Figure 2 Agrifood exports and imports for Indonesia: 2009 versus 2050 forecasts - Description: The value of Indonesia's imports of the following categories of food is projected to increase by between approximately two billion USD (for wheat; sheep and goat meat) and twenty-five billion USD (for beef; fruit): Fruit, Vegetables, Starchy Staples, Beef, Sugar, Dairy, Sheep and goat meat, Wheat.



 

46.    There are distinct opportunities for collaboration between Australian and Indonesian agrifood business to access third markets. Australian wheat is already used as a crucial input for Indonesia’s noodle production, which is then exported to the region. As the region continues to grow, these types of opportunities should expand.

Consumer goods

47.    Indonesia’s rapidly expanding middle class represents opportunities for Australian exporters of consumer goods. For example, the rising demand for premium goods has boosted the growth of imported cosmetics and skin care products. Sales of imported cosmetics in 2015 reached US$441 million and accounted for more than 60 per cent of cosmetics market share in Indonesia.

Manufacturing and specialised equipment

48.    There is scope for Australian manufactured and industrial goods to be used as inputs or intermediate products in Indonesian manufacturing, which is increasingly targeting Asian markets.

49.    The medical devices technology market in Indonesia is forecast to pass US$1 billion in 2018. Around 85 per cent of the medical equipment and services market is comprised of imports. Business opportunities primarily exist in surgical equipment, high-intensity focused ultrasound, radio immunotherapy and clinical laboratory equipment used for diagnostic tests, particularly for molecular diagnostics, microbiology, and immunochemistry and genetics testing.

50.    There is also scope for Australian innovations, including in the resources sector where Australian companies already supply specialised underground mining equipment.

Opportunities in Services

51.    Increased services trade represents the biggest potential for growth partnerships between Indonesian and Australian businesses. There are significant synergies between the services sectors that Indonesia is prioritising for future growth and the sectors in which Australia has expertise.

52.    Australia’s strengths match Indonesia’s priorities in agriculture, education, healthcare, mining, professional, financial and tourism services. In many of these areas Australian exports are showing signs of growth, but there is huge potential for further growth that would help lift productivity across sectors in Indonesia.

ICT, E-Commerce and Fintech

53.    Indonesia’s digital innovation sector is rapidly evolving, with increasing technical literacy especially among younger age groups. The rate of internet access is rapidly growing. Smartphones are the key platform, with more than 280 million SIM cards in use across the archipelago.

54.    E-commerce is growing rapidly in Indonesia. Current government forecasts estimate a surge in e-commerce spending from US$6.9 billion this in 2017 to US$14 billion by 2020. Ecommerce is growing between 40-50 per cent annually, making Indonesia one of Asia’s more attractive destinations for digital investment. There are opportunities for firms ready to bring in capital, technology and security solutions to partner with local companies to launch their own e-commerce arm.

55.    Financial technology services (FinTech) continues to develop rapidly in Indonesia. Total FinTech transactions in Indonesia are estimated to reach US$37.15 billion by 2021. The Indonesian Government has identified close to 100 local FinTech companies with the potential to help Indonesia's banks, small medium enterprises and non-banking financial institutions. The Financial Services Authority of Indonesia (OJK) has developed new guidelines to encourage greater FinTech investment in Indonesia, based on Australian templates.

Energy and Resources

56.    Indonesian energy demand is predicted to grow strongly over the medium term. Population growth will put extreme pressure on Indonesia’s energy infrastructure and make identifying new and unconventional energy sources increasingly important for sustaining growth.

57.    The Indonesian government has already signalled it wants to see a substantial expansion of renewables and oil and gas exploration. Australian companies providing renewable and exploration services will need to continue monitoring developments in Indonesia.

58.    As a major producer of thermal coal, tin, nickel and copper, Indonesia offers opportunities for Australian engineering, technology and mining services companies. Despite 2013-2015 marking a low point in the commodities cycle, Indonesia continued to attract investment and the resources and the energy sector remains a strong contributor to overall GDP.

59.    Opportunities exist for providers of mining technology services who can clearly demonstrate productivity gains to Indonesian miners. Demand remains strong for mining (and to a lesser degree exploration) software, specialised and innovative equipment, education and training services and specialised mining consulting.

60.    The Indonesian mining industry has suffered from considerable skills shortages, creating opportunities for training providers. Mine safety - an area of outstanding Australian capability - also looms large as a growth opportunity for Australian service providers.

Education

61.    Australia remains the number one destination for Indonesian university students studying abroad and is forecast to grow at 7 per cent through to 2024. Austrade estimates that there are over 500,000 Indonesian alumni of Australian education institutions, many of whom are now in senior positions in the private and public sectors. Australia is the number one destination for Indonesians studying abroad, with an approximate 25 per cent share of internationally mobile Indonesian higher education students (UNESCO, 2014; Illuminate, 2015).

62.    There are also significant opportunities for Australian institutions to partner with Indonesian industry and the education sector to build capacity, develop programs and deliver training in Indonesia. This is especially the case in the VET sector, which Indonesia has identified as a major driver of economic growth and for which it is establishing new policies and partnerships to align skills with industry needs.

63.    Australia can become a key partner by supporting greater links between skills development systems, industry and employers (including Australian employers); engaging with industry to help tailor training to business needs; and developing new industry-led skills development delivery models to meet increased demand.

64.    Australian institutions can also tap into opportunities in maritime (port management and safety), engineering-related training (electrical, manufacturing, automotive and mechanical), hospitality (food safety, kitchen operations), tourism (hotel management), health services (allied health and patient care) and training needs in a range of other sectors by providing training in Indonesia and Australia.

Tourism

65.    Increased tourism is central to Indonesia’s economic growth strategy, which is targeting 20 million visitors by 2020. In response to limited tourism development outside of Bali, the Indonesian government has nominated ten new destinations for development to increase visitation, capitalising on key strengths of price competitiveness, rich natural resources and heritage sites.

66.    As a world leader in providing consulting services to grow tourism destinations and innovative attractions and experiences, there are significant opportunities for Australian companies to help develop Indonesia’s new tourist areas. Australia’s research, marketing, training systems and tourism planning are highly regarded internationally and can readily contribute to growth in Indonesia. There are also opportunities for Australian hotel management businesses, which have a large global footprint and access to well-developed value chains of businesses that provide high-quality products, services and skills to deliver premium visitor experiences.

67.    There are significant prospects for growth in visitor numbers and spend by inbound Indonesian tourists to Australia. When choosing a holiday destination, Indonesians value safety and security, value for money, sport and cuisine, world-class nature and welcoming people. Australia performs strongly in all these categories.

Healthcare services

68.    Rising affluence is increasing the demand for high-quality health care. However, as an emerging market with infrastructure constraints and a challenging geography, an increasing number of Indonesians are travelling overseas for medical treatment, spending up to US1.2 billion a year. There are opportunities for Australia’s world-class healthcare providers and businesses to build capacity across the Indonesian healthcare sector- from the vocational training of doctors, nurses and hospital workers to hospital administration, patient management, after-care and aged care.

69.    Over the medium to long term the healthcare IT market is likely to be a major contributor to the sector’s growth. Examples of key growth areas are telehealth, telemedicine, electronic medical records, and the use of healthcare mobile applications for point-of-care diagnostics, particularly in remote and rural areas.

Aviation

70.    Indonesian domestic air travel is growing at over 5 per cent annually and in 15 years will be the fifth largest domestic air travel market globally. In preparation, the Indonesian government has allocated $5.4b over the next 5 years to upgrade or build 15 airports annually. In mid-2016, Indonesian airlines had 800 new planes on order and a deficit of 2,500 pilots.

71.    Indonesia’s demand for international maintenance, repair and overhaul (MRO) services and training, aviation flight training and aviation engineering presents a significant opportunity for Australian business to engage in the aviation industry. Australian companies are in discussions around air traffic control management systems and airport scheduling technology.

Maritime

72.    As an archipelagic nation there are significant infrastructure needs in the port sector. Planning from large port developers and operators takes in tourism needs as well as interisland and international connectivity. There are also opportunities for Australian port management capabilities and technology to be overlaid on the port infrastructure.

Global Value Chains

73.    The foreign content share of Indonesia’s exports is one of the lowest among major economies, partly reflecting relatively high export dependencies on agricultural, food and mining products (OECD-TiVA, December 2016). Australia’s supply of products and services (particularly in manufacturing and ICT inputs) that underpin the latter suggests potential for further complementarity to access third markets.



 

PART 3: OBJECTIVES OF GOVERNMENT ACTION

74.    The current trade and investment relationship between Australia and Indonesia could be much stronger given the growing complementarities between our economies, Indonesia’s growth trajectory and the opportunities a closer partnership and economic integration would provide in accessing the dynamic Asian markets to our north. Deeper economic integration would strongly complement already close strategic, security and political engagement, and help build stronger people-to-people links.

75.    Recognising the gains to be made from closer economic ties, Australia and Indonesia have been working to progressively address barriers and capitalise on opportunities through liberalising trade agreements.

76.    The most significant barriers to trade with Indonesia are at the level of government regulation. Australia companies are not able to influence these barriers, so Australian Government action is required. This has been requested by a broad range of Australian businesses (see consultation section).

77.    If the Australian government does not act to ensure a level playing field for Australian exporters, those businesses risk being out-competed by others whose home governments have reciprocally negotiated the lowering of trade barriers for their companies.

78.    Previous government actions in this space have been successful. The Productivity Commission’s 2017 report Rising Protectionism: Challenges, threats and opportunities for Australia notes that reductions in Australian government regulation on trade have overwhelmingly improved the quality of life enjoyed by Australians. Australia’s deregulated trading environment was an important cause of our resilience in the global financial crisis. Other FTAs have been successful at convincing our trading partners to reciprocally reduce their own barriers, increasing trade and investment.

79.    The objectives of government action are to secure tariff reductions on commercially significant Australian exports to Indonesia, secure increased market access in Indonesia for Australian services providers, and to build a strong foundation/framework for economic and other cooperation between Australia and Indonesia.

80.    This reduction of barriers to trade will level the playing field for Australian businesses, enabling Australian exporters to compete on an equal level with exporters from other countries.

81.    Constraints on government action include domestic sensitivities within Australia and Indonesia. Vested interests in Australia and Indonesia and non-competitive industries currently shielded by government regulation will resist the removal of regulations that prevent competition from imports.

82.    In Australia, negative media reporting about trade has tended to focus on community fears that trade could increase migration, decrease available employment in manufacturing and prevent the government from regulating in the public interest. Concerns frequently raised in the media in Australia are addressed in the consultation section.



 

PART 4: ALTERNATIVE MEANS BY WHICH TO ACHIEVE THESE OBJECTIVES

No Government Action

83.    No government action would mean leaving all regulations in place that currently restrict imports and inbound investment to Australia from Indonesia. This would not improve Australian companies’ access to Indonesian markets, however it would not prevent them from attempting to export goods and services to Indonesia under existing WTO and AANZFTA conditions.

Unilateral Deregulation

84.    The productivity commission [7] notes that there is no reason why Australia could not proceed unilaterally to lower these barriers. Lowering barriers to all countries on a most favoured nation (MFN) basis would confer larger benefits than lowering them preferentially to a relative few. This is because preferential agreements can result in trade diversion, where it is the preferential treatment that makes the agreement partner country the cheaper supplier, giving them an advantage over the lower cost suppliers.

85.    Past work of the Commission has highlighted how bilateral agreements have not always delivered the expected benefits or earned the broad support of the community (PC 2010). In part, this is due to long phase-in periods for tariff reductions in the most sensitive areas and the costs of navigating multiple agreements with complex rules of origin and regulations, which limit their use by businesses. Recent analysis concluded that rules of origin ‘have become a pernicious barrier to trade for Australian businesses’ (Crook and Gordon 2017, p. 3).’

86.    While from a purely economic perspective, unilateral reductions are the easiest to achieve and require the least amount of effort, analysis by the Productivity Commission understates the benefits of FTAs and overstates the complexities in making use of them.

87.    This arises due in part to Australia’s trade policy not operating in a vacuum, or under conditions found in the ideal economic model, and due to Trade Agreements being written to address every product that is being exported/imported along with Services, Investment and an increasing range of contemporary issues.

88.    Should Australia act unilaterally, other countries would continue to pursue bilateral or plurilateral agreements to the exclusion of Australia and Australian industries. That is, inaction itself can lead to a worsening of Australia’s position over time, and short of multilateral agreement to not negotiate further trade agreements, Australia would experience a short term gain, for longer term pain.

89.    The international trading environment is already distorted by existing regulations, which include:

a.        Sanitary and phytosanitary measures;

b.       Standards, technical regulations and conformity assessment procedures;

c.        Tariff and non-tariff measures;

d.       Customs procedures; and

e.       Existing FTAs.



 

90.    As Australia has already reduced or eliminated tariffs from its major trading partners under existing FTAs, as well as providing duty-free and quota free access to Least Developed Countries under the Generalised System of Preferences (GSP), it is likely that an additional FTA would have a negative effect on trade diversion for Australian importers. This is due to IA-CEPA allowing imports from Indonesia to compete on equal grounds to imports from many of Australia’s major trading partners and Least Developed Countries.

91.    An example of the benefit of is Australian sugar exporters to Indonesia who received no preferential outcome under the AANZFTA Agreement. In 2015, it was brought to the Australian Government’s attention that Thai exporters would be facing an effective tariff of five per cent under the ASEAN Trade in Good Agreement while Australian exporters to Indonesia would continue to face the MFN tariff, effectively 8 per cent.

92.    The Australian Sugar Industry Alliance noted that ‘We[Australia] went from supplying around a third of Indonesia’s sugar imports to almost nothing.’

93.    As an early deliverable of the IA-CEPA negotiations and a demonstration of goodwill, Australia and Indonesia were able to make use of provisions of the AANZFTA to bring the tariffs faced by Australian exporters of sugar in to line with that of Thai exporters, with Australia eliminating the tariff on certain pesticides and herbicides. [8]

94.    Had Australia not had an existing trade agreement in place, Australian sugar producers would continue to be locked out of the Indonesian market. While transactional, the specific impact on Australian sugar producers could have had major consequences for both producers and the regions they are located in.

95.    When it comes to the complexities of using FTAs, IA-CEPA will build off the existing rules for AANZFTA including the Rules of Origin and document certification procedures, including improving on aspects where AANZFTA resulted in a negotiated outcome that Australia sought to improve.

96.    Where a business already makes use of AANZFTA, they will already understand many of the rules of IA-CEPA.

97.    Businesses are free to decide which Agreement to export their goods under, or not to make use of a FTA at all, and as such, rather than creating a noodle bowl of overlapping FTAs, an additional agreement will strengthen Australian industries ability to trade with Indonesia while minimising the tariffs and barriers they face.

98.    It is important to understand that the ‘noodle bowl’ concept is an issue raised, not typically by individual businesses but, by those who are involved in looking at an FTA holistically such as industry associations, policy makers and academics.

99.    Most small or medium enterprises export a fixed and limited number of products across a small selection of tariff lines, meaning that even in the case where they may have a choice between four or five FTAs, they will only need to learn the rules for the FTA which they wish to make use of the available tariff preferences.

100.           Where larger businesses need to make use many agreements across a larger range of products these businesses tend to access the services of specialist logistics firms or in-house logistics experts that are experienced in managing the complexities involved in the international movement of goods, which involves matters beyond the trade agreements such as shipping, quarantine and standards.

Multilateral Agreement

101.           There are currently no negotiations for a comprehensive multilateral trade agreement advancing in the World Trade Organization. As a result, it is not currently feasible to seek improved market access for Australian exporters through multilateral negotiations.

Plurilateral Agreement

102.           The ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) has been in force between Australia and Indonesia since 2012, following Indonesian ratification.

103.           Australia committed under AANZFTA to eliminate all tariffs on Indonesians goods by 2020.

104.           Under AANZFTA, Indonesia has bound 92 per cent of tariff lines at tariff-free treatment in 2017, which will rise to 94 per cent by 2025, with another four per cent having the tariff bound at 5 per cent or less. However, some products will still face high tariffs.

105.           AANZFTA also provides outcomes on services and a regime of investment protections.

106.           In addition, AANZFTA provides a platform for economic integration with ASEAN, including through the AANZFTA Economic Cooperation Support Program, an aid-for-trade program funded by Australia and New Zealand. Parties to AANZFTA are currently conducting a General Review to ensure AANZFTA remains relevant to business. However, this review focuses on issues beyond the Australian-Indonesian bilateral relationship, and it is not certain that it would address all the issues identified.

107.           In addition to negotiating the bilateral IA-CEPA, Australia and Indonesia are building on the outcomes of AANZFTA through negotiations of the plurilateral Regional Comprehensive Economic Partnership (RCEP).

108.           However, plurilateral negotiations have the disadvantage that they bring the economic sensitivities of a larger range of countries, and in the case of RCEP, the Australian government cannot expedite the timing of such agreements’ conclusions due to being dependent on a larger number of Parties needing to agree.

109.           In addition, plurilateral agreements can sometimes end up being less ambitious than bilateral negotiations because of the need to address sensitivities between the parties, for example, in the case of RCEP, the inclusion of China, India, Japan and Korea means that for some of those countries, this will be the first trade agreement they have negotiated with each other. This also means that sometimes areas of particular interest to Australia may not be covered unless all negotiating parties are willing to discuss them.

110.           While RCEP does offer prospects for reducing barriers to trade with Indonesia, the timing of this is uncertain and the number of barriers reduced will be limited by the nature of plurilateral negotiations and may not be able to target some areas of specific commercial interest for Australian companies.

Bilateral Agreement

111.           A bilateral FTA with Indonesia would allow Australia to address a broad range of trade barriers that Australian businesses face when dealing with Indonesia.

112.           The Australian Prime Minister and the Indonesian President have publically agreed that this option will be beneficial for both Australia and Indonesia and will support the bilateral relationship going forward.

113.           Part of the negotiation process involved the establishment of the Indonesia Australia Business Partnership Group (IA-BPG) which now comprises the:

a.        Australian Chamber of Commerce and Industry;

b.       Kadin Indonesia (Indonesian Chamber of Commerce);

c.        APINDO (Asosiasi Pengusaha Indonesia, the Employers Association of Indonesia);

d.       AiGroup;

e.       Indonesia Australia Business Council; and the

f.         Australia Indonesia Business Council.

114.           These business organisations are strongly in support of the IA-CEPA as is outlined in a comprehensive position paper presented in 2012 [9] and updated in a submission to the IA-CEPA in 2016. [10] The papers outline a vision for a strategic partnership model that recognises the complementary nature of resources and capacity between the two countries.

115.           As well as securing reduced barriers to trade for Australian exporters, IA-CEPA sets up a comprehensive plan of economic cooperation between Australia and Indonesia that will lead to an improved business environment in the future.

116.           IA-CEPA also provides a foundation for working together on future regulatory alignment that will lower the cost of doing business further.

Best option

117.           The best option to achieve these goals is for the IA-CEPA to enter into force between Australia and Indonesia. The FTA offers the prospect of delivering outcomes across goods, services and investment that respond to contemporary challenges facing Australian business.

118.           An agreement with Indonesia, which delivers commercially meaningful outcomes and uses the AANZFTA as its foundation would deliver benefits for Australian exporters and investors, and demonstrate the importance of the bilateral relationship to the broader Indo-Pacific region.

119.           Consistent with Australia’s other free trade agreements, remaining Australian tariffs on imports from Indonesia will be eliminated, with consumers and businesses across Australia set to benefit from lower prices.

120.           The agreement is unlikely to impose major adjustment costs on any region or sector.

121.           Savings related to improvements to administrative processes using the Agreement’s Rules of Origin, including Certificate of Origin Procedures, are set out in Attachment 2 - Regulatory Burden Estimat e.

122.           The Obligations under IA-CEPA are set out in Attachment 3 - Obligations in Detail

 

PART 5: IMPACT ANALYSIS

Goods

123.           Under AANZFTA, 98 per cent of Indonesian exports to Australia are duty free and only two per cent face tariffs; however around 30 per cent of Australian exports to Indonesia are still affected by tariffs. These tariffs are a burden on our businesses and discourage trade.

124.           Under IA-CEPA, 99.9 per cent of Australian goods exports to Indonesia will enter Indonesia duty free or under significantly improved and preferential arrangements.

125.           Indonesia will offer improved and more certain access for Australia on live cattle, feed grains and horticultural products such as citrus fruits and vegetables (carrots and potatoes). As the centre of Australia’s live cattle trade with Indonesia, northern Australia will be a particular beneficiary.

126.           IA-CEPA will also offer better access for rolled steel coil, produced in Australia by Bluescope as a feedstock for its Indonesian manufacturing facilities.

127.           Through IA-CEPA, Indonesia will lock in the lower sugar tariff that has already been implemented as a result of the 2017 agreement between then Prime Minister Turnbull and President Widodo. Indonesia will also progressively eliminate tariffs on most other products, including frozen beef and sheep meat, dairy, and a range of manufactured steel, copper, plastic, automotive parts and machinery products.

Services

128.           Indonesia made limited services commitments under AANZFTA. IA-CEPA is an important opportunity to secure and improve the basis for trade in services between Indonesia and Australia.

129.           IA-CEPA will improve certainty for Australian service providers in Indonesia in a range of sectors of commercial interest. Indonesia’s commitments represent a significant improvement on its services commitments in AANZFTA. For example, for the first time in any FTA, Indonesia has offered commitments on a wide range of technical and vocational education, ensuring Australian providers can establish certain majority Australian-owned joint ventures in Indonesia and limiting the onerous conditions that have previously applied to the education sector. This is a significant win for Australian VET providers.

130.           Indonesia has offered its best ever commitments overall on services in any FTA. These commitments would guarantee that Australian suppliers can establish majority-owned businesses with no geographic limitations, in sectors including private hospitals, tourism, telecommunications, architecture, engineering, construction, infrastructure and a range of mining and energy-related services.

131.           Indonesia has offered to lock in future liberalisation for higher education, legal, postal, courier and international maritime services, guaranteeing that Australian providers would benefit from future reforms.

Investment

132.           Market access outcomes for Australian investors exceed those in Indonesia’s most ambitious agreements to date, with Indonesia for the first time binding meaningful levels of access for investment in key sectors, such as energy.

133.           IA-CEPA will deliver important protections for Australian investors, both general protections and investor-state dispute settlement (ISDS), equivalent to and, in some instances, beyond Indonesia’s most liberal agreements.

134.           Investor protections, including ISDS, are necessary in the challenging Indonesian investment environment. Indonesia presents risks for foreign investors, with an uncertain regulatory climate and increasing economic nationalism. Strong disciplines in the IA-CEPA Investment Chapter, including ISDS, are important to promote and protect Australian investors and investments in Indonesia. The Indonesia-Australia Business Partnership Group called for the inclusion of ISDS in IA-CEPA in its submissions to government.

135.           ISDS between Australia and Indonesia is already available under the ASEAN Australia New Zealand Free Trade Agreement (AANZFTA), but that agreement lacks the important safeguards contained in Australia’s more recent FTAs.

136.           The ISDS chapter in IA-CEPA includes safeguards equivalent to the best Australia has agreed to date (equivalent to our most recent concluded agreement, the Peru-Australia Free Trade Agreement), providing a better balance between the protection of investors and maintaining the government’s right to regulate in the public interest.

137.           In IA-CEPA, an investor’s basis for challenging legitimate Australian regulatory measures is limited by carve-outs, exceptions and other protections for government policy setting. Modern procedural safeguards, such as provision for expedited preliminary objections and costs orders, are included to contain costs and deter frivolous claims. Moreover, the agreement precludes ISDS disputes from being pursued in relation to any public health measure.

Improving the Business Environment

138.           In addition to traditional barriers, non-tariff issues, variable customs procedures, red tape and WTO-inconsistent import licensing arrangements are major obstacles for many Australian businesses in the Indonesian market.

139.           IA-CEPA will include an innovative new program of economic cooperation. We will use the IA-CEPA economic cooperation program in key areas of mutual interest for Australia and Indonesia, such as strengthening links between Australian exporters and Indonesian processors.  It will also help maximise the benefits of IA-CEPA’s outcomes in key services sectors such as education, health and tourism.

140.           Cooperation under IA-CEPA will strengthen prospects for IA-CEPA’s implementation and support reform efforts in Indonesia, which will benefit both Indonesia and Australia. IA-CEPA includes a built-in agenda to include appropriate economic cooperation to facilitate trade and investment and secure support in the Indonesian system.

141.           IA-CEPA will improve conditions for Australian exporters in a number of ways. It will guarantee import licences for a number of key products.In addition, for the first time in an Australian FTA, IA-CEPA includes a chapter on non-tariff measures. This will set up a cooperative mechanism to help deal with non-tariff barriers in the Indonesian market. IA-CEPA will also support improvements to customs procedures and provide assistance linked to Indonesia’s implementation of the WTO Trade Facilitation Agreement.

142.           Australia and Indonesia have agreed to a comprehensive set of domestic regulation disciplines for trade in services to help address behind-the-border barriers such as delays in processing licences and permits. These build on the rules contained in AANZFTA. Australia and Indonesia have agreed to establish a mechanism to promote professional mutual recognition arrangements between relevant bodies and to improve licencing and certification processes for professionals.

143.           The Electronic Commerce Chapter reflects the increasing importance of the internet for business, including commitments to ensure service suppliers and investors can transfer information into and out of Indonesia. It will lock in Indonesia’s planned liberalisation of its current data localisation requirements - an important outcome for Australian businesses in Indonesia. The Chapter builds on AANZFTA in several other ways. It also prohibits governments from requiring companies to release their software source code as a condition of importation, sale or distribution, and it contains enhanced commitments on paperless trading and electronic signatures.

144.           The Competition Policy Chapter seeks to ensure that the trade and investment liberalisation achieved across IA-CEPA is not undermined by anti-competitive practices. The Chapter includes an obligation on Parties to adopt or maintain consumer protection laws to proscribe the use in trade of misleading practices, or false or misleading descriptions.

145.           The Transparency Chapter promotes greater transparency in the making and implementation of laws, regulations and government decisions to facilitate predictability and ease of doing business. It requires Parties to establish or maintain impartial and independent tribunals or procedures for the review of final administrative actions. Australia already complies with the Chapter’s requirements.

146.           The agreement includes a skills exchange component. The Indonesia-Australia Business Partnership Group (IA-BPG) - a grouping of Australian and Indonesian business interests developed to support the negotiation of IA-CEPA - sought a reciprocal skills exchange as an early outcome of the negotiations. Over five years, the exchange will provide a total of 1500 eligible Australians and 1500 eligible Indonesians the opportunity to work in the other country for a maximum period of six months. The maximum number of participants from each country would start at 100 per year in the first year and step up by 100 per year to a maximum of 500 in the fifth year. Each rise in annual intake would be subject to the Participants’ mutual approval following a review each year. The sectors available for the exchange would be limited to: financial and insurance services; mining, engineering and related technical services; and information, media and telecommunications services.

147.           The skills exchange will operate under existing visa criteria and processing arrangements. It has been designed to adapt to changes in Migration Law and will be subject to regular review. It is limited to a modest number of eligible participants whose visits will be short in duration.

148.           The exchanges will help build the capacity of Indonesian workers for skilled work in Indonesia. This is a key area of need in the Indonesian economy and an important component of improving the prospects of increased Australian investment in Indonesia, where a shortage of skilled labour is a significant impediment. The skills package will also help build people-to-people links and increase the Indonesia literacy of Australian businesses - leading to more export opportunities. Significantly, the inclusion of the skill exchange had been instrumental in securing major benefits for Australia under IA-CEPA. These includes significant improvements in market access for Australian exporters - particularly on agriculture and steel - as well as greater access and certainty for Australian service providers and investors, including in areas such as vocational education and training, health, tourism, telecommunications, and mining and energy services.

Supporting the Strategic Partnership

149.           Indonesia is one of Australia’s most important bilateral relationships. Cooperation spans political, economic, security, development, education and people to people ties. Australia and Indonesia share joint interests in supporting economic growth, safeguarding our open sea-lanes, cooperating to fight terrorism and deter transnational crime, working together to bolster a rules-based international order and celebrating both countries’ diversity by building deeper community understanding of each other’s societies, languages and cultures. Australia’s relationship with Indonesia is central to achieving the goals set out in the 2017 Foreign Policy White Paper. The White Paper notes that Indonesia is likely to be one of the five biggest economies in the world in purchasing power parity terms by 2030, and it is already a leader in our region, including in ASEAN.

150.           In recognition of this, on 31 August 2018, Australia and Indonesia signed the Comprehensive Strategic Partnership. The Comprehensive Strategic Partnership has five pillars: Enhancing Economic and Development Partnership; Connecting People; Securing Our and the Region’s Shared Interests; Maritime Cooperation; and Contributing to Indo-Pacific Stability and Prosperity. IA-CEPA will play a direct role in supporting Pillar One: Enhancing Economic and Development Partnership, but will also make important contributions to the other four pillars of the Comprehensive Strategic Partnership.

151.           For example, economic cooperation under IA-CEPA will support important reforms and developments in Indonesia to drive growth and prosperity. This work will facilitate trade and provide markets for Australian goods and services, but it will also support sustainable and inclusive economic growth in Indonesia that benefits Australia and contributes to regional growth and stability. IA-CEPA has been designed to contribute to the three objectives of Australia’s Aid Investment Plan: Effective Economic Institutions and Infrastructure; Human Development for a Productive Society; An Inclusive Society through Effective Governance.

152.           Further, several important telecommunications cables connecting Australia to the rest of the world pass through Indonesian waters. The IA-CEPA Telecommunications Chapter includes specific obligations designed to improve the transparency and predictability of Indonesia’s regulation of the installation, maintenance and repair of submarine telecommunications cables in its waters.

PART 6: TRADE IMPACT ASSESSMENT

153.           The IA-CEPA will open up market opportunities for Australian exporters and investors in the region.

154.           Indonesia has one of the fast growing populations in the region, already ten times the size of Australia’s, and Gross Domestic Product (GDP) two-thirds the size of Australia.

Key Economic Statistics

 

Australia

Indonesia

GDP - 1998 (USD million)

380.466

115.323

GDP - 2018 (USD million) a

1,427.77

1,005.27

GDP - 2023 (USD million) a

1,794.43

1,446.43

Population - 1998

(million people)

18.706

201.581

Population - 2018 (million people) a

25.182

265.316

Population - 2023 (million people) a

27.343

282.591

Gross domestic product per capita, current prices - 1998 (USD)

20,339.65

572.09

Gross domestic product per capita, current prices - 2018 a (USD)

56,698.10

3,788.95

Gross domestic product per capita, current prices - 2023 a (USD)

65,627.34

5,118.45

Table 1 - Australia's and Indonesia GDP and Population

Source: IMF WEO October 2018, CIA World Fact book

a IMF WEO October 2018 Estimate

Australia’s exports, import and two-way trade with Indonesia

155.           Indonesia is Australia’s 13 th largest two-way trading partner, with Australia’s goods exports to Indonesia being a significant component of the relationship.

156.           Indonesia is Australia’s 14 th largest merchandise trading partner, with Indonesia being Australia’s 9 th largest goods export destination.

157.           Indonesia is Australia’s 9 th largest Services trading partner, with Australia importing twice as much as it exports, driven predominately by personal travel.

 

 

2017

2010

Exports

Goods

7.030

4.491

 

Services

1.601

1.231

 

Total

8.631

5.722

Imports

Goods

4.212

5,313

 

Services

3.696

2.773

 

Total

7.908

9.099

Two Way

Goods

11.242

11.173

 

Services

5.297

4.053

 

Total

16.539

15.226

Table 2 - Australia's trade with Indonesia (A$ billion)

Source: ABS catalogues 5368.0 and 5368.0.55.004 (July 2018 data)



 

Impact on Goods Exports

158.           Australia’s merchandise exports to Indonesia were worth A$7.03 billion in 2017, with agricultural and resources being key products.

 

 

2012

2017

1

Wheat

1,323.99

1,364.94

2

Crude petroleum

316.29

1,318.66

3

Live animals (excluding seafood)

190.23

602.48

4

Coal

0.04

444.12

5

Sugars, molasses & honey

168.34

331.13

6

Beef, fresh chilled or frozen

119.24

283.54

7

Iron ores & concentrates

0.00

280.83

8

Cotton

240.48

219.85

9

Aluminium

295.60

180.95

10

Confidential items of trade

271.51

168.32

11

Milk, cream, whey & yoghurt

106.82

130.27

12

Zinc

59.26

114.12

13

Ferrous waste & scrap

77.61

95.52

14

Meat (excluding beef), fresh chilled or frozen

42.66

87.41

15

Fruit & nuts

30.83

76.54

16

Animal feed

34.06

71.41

17

Specialised machinery & parts

57.93

69.70

18

Pulp & waste paper

43.98

69.54

19

Pumps for liquids & parts

68.82

55.95

20

Pigments, paints & varnishes

33.70

54.86

Other Exports

1,009.60

1,009.40

 Total Exports

4,490.97

7,029.53

Table 3 - Australia's Top 20 Exports to Indonesia

159.           The elimination of barriers to trade is expected to increase the volume and value of trade with Indonesia. Attachment 4 - specific market access outcomes in detail lists the benefits for some of the goods outcomes for goods that Indonesia already imports from Australia.

160.           It is estimated that, for goods where tariffs are reduced or eliminated beyond existing Indonesia’s AANZFTA commitments, some A$923.4 million of 2015-17 average imports into Indonesia from Australia would face an average $A23.7 million less tariffs per annum than if IA-CEPA were not to enter into force.

161.           This is on top of A$1.67 billion worth of 2015-17  imports not facing tariffs due to the existing tariff elimination under the AANZFTA agreement in 2018, which otherwise would be A$220.0 million in duty per annum.



 

HS Code 2017

Description of Goods

Indonesian Imports from Australia

AUD

2015-2017 Average

Average duty saved

per annum

2018-2036

0102.29.90

- - - Other

$60,698,258.33

$1,972,693.40

0201.30.00

- Boneless

$34,634,462.33

$173,172.31

0202.20.00

- Other cuts with bone in

$26,496,059.33

$1,092,962.45

0204.41.00

- - Carcasses and half-carcasses

$4,270,709.33

$112,106.12

0204.42.00

- - Other cuts with bone in

$5,615,979.67

$231,659.16

0204.43.00

- - Boneless

$4,002,120.67

$165,087.48

0402.10.41

- - - In containers of a net weight of 20 kg or more

$117,124,127.67

$468,496.51

1701.14.00

- - Other cane sugar

$468,773,997.67

$13,360,058.93

7312.10.99

- - - Other

$5,902,463.67

$125,427.35

7312.90.00

- Other

$2,492,605.33

$112,167.24

7314.20.00

- Grill, netting and fencing, welded at the intersection, of wire with a maximum cross-sectional dimension of 3 mm or more and having a mesh size of 100 cm2 or more

$13,148,150.67

$558,796.40

7314.31.00

- - Plated or coated with zinc

$3,062,375.67

$145,462.84

7403.11.00

- - Cathodes and sections of cathodes

$91,613,378.00

$3,252,274.92

8537.20.90

- - Other

$2,737,273.33

$104,016.39

Table 4 - Products where more than A$100,000 of duty is saved per annum due to IA-CEPA when compared to AANZFTA

Tariff rate quotas

162.           For several tariff rate quotas (TRQs), the benefit provided by IA-CEPA is that exporters will have a known quantity allowed to be imported into Indonesia for the first time. For example, under current arrangements, Australia grains exporters are not able to export animal-feed quality wheat, sorghum and barley. IA-CEPA provides that up 500,000 tonnes of these animal-feed grains maybe imported in year one.

163.           By year ten after entry into force, this will have increased to 775,664 tonnes. This is a new market opportunity that does not currently exist and provides benefits to Australian grains exporters, as well as Indonesian feed-lotters that require the certainty provided by having access to these grains in order to affordably feed the animals on their lots.

164.           With a more affluent and growing population, demand for high-quality protein from poultry and beef is expected to continue to increase (see Figure 1 Agrifood consumption in Indonesia 2009 versus 2050 forecasts), making this a potentially lucrative market for Australian grain producers looking to diversify their export market opportunities.

165.           Australia exported on average A$1.2 billion or 4.3 million tonnes of these grains to Indonesia over the 2015-2017 period, taking 16.6 per cent of Australia’s exports of these goods over the period. However, these grains were predominantly for human consumption.

166.           From day one of the Agreement, new quota arrangements will provide certainty to exporters of the most sensitive products to Indonesia. In total, IA-CEPA contains eight TRQs. These are for:

a.        Live Cattle

b.       Potatoes

c.        Carrots

d.       Oranges

e.       Mandarins, Clementines, Wilkings and similar citrus hybrids

f.         Lemons and Limes

g.        Feed Grains

h.       Hot/cold rolled steel coil

167.           For example, based on recent market prices, should the TRQs be fully utilised:

a.        Live Cattle - Over the first six years, tariff savings in the order of A$200 million on Australian exports to Indonesia worth A$4.0 billion.

b.       Potatoes - Over the first six years, tariff savings of A$5.2 million dollars would be avoided on A$48.2 million of exports.

c.        Carrots - Over fifteen years, tariffs of A$15.0 million dollars would be avoided in comparison to AANZFTA, and A$21.2 million in comparison to the MFN rate, on A$131.7 million of exports.

d.       Mandarins - Over the first six years, tariff savings of A$5.2 million dollars would be avoided on A$48.2 million of exports.

168.           Under the IA-CEPA, an exporter or importer who already trades under AANZFTA will understand much of the Agreement’s rules of origin, and the inclusion of arrangements for authorised exporters to self-certify documentation when exporting will assist Australian exporters.  This will reduce the administrative arrangements an Australian trader needs to be aware of and comply with to access IA-CEPA preferences. Attachment 2 - Regulatory burden and cost offset estimate sets these out in detail.



 

Elimination schedule for Indonesia’s tariffs on imports from Australia under IA-CEPA

169.           Imports from Australia into Indonesia typically face higher MFN tariffs than imports from Indonesia into Australia. The following table sets out historic data of the trade weighted tariffs faced by imports from Australia into Indonesia.

 

Indonesian Imports from Australia

USD - 2015

Trade Weighted Tariff - 2013

(Australia)

All Products

4,815,794,517

4.14%

Capital Goods

327,391,593

5.70%

Consumer Goods

413,088,683

5.93%

Intermediate Goods

1,305,058,912

6.15%

Raw Materials

2,770,233,338

2.49%

Maximum Duty (2017)

 

150.00%

% of tariff  lines Duty free (2017)

 

12.01%

Source: World Integrated Trade System

170.           Under IA-CEPA, Indonesia will eliminate tariffs on 94.5 per cent of tariff lines, covering some 78.87 per cent of recent imports from Australia.

171.           Importantly, tariffs on sugar will be bound at 5 per cent, comparable with sugar tariffs faced by Indonesia’s closest trading partners under the ASEAN Trade in Goods Agreement. This is particularly notable given the two sugar tariff lines are responsible for 6.66 per cent of imports.

172.           Likewise, many of the gains from IA-CEPA for Australian merchandise exporters are under TRQs, with live cattle subject to a TRQ accounting for 9.27 per cent imports from Australia.

Staging category

 Tariff lines

Imports from Australia 2015-17

No.

% of total

Cumulative (%)

A$ million

% of total

Cumulative

MFN 0%

1,297

11.99%

11.99%

3,511

49.87%

49.87%

0% tariff in 2018

8,922

82.51%

94.50%

2,041

29.00%

78.87%

0% in 2020

10

0.09%

94.60%

283

4.02%

82.89%

0% in 2023

7

0.06%

94.66%

44

0.62%

83.52%

0% in 2025

1

0.01%

94.67%

0

0.00%

83.52%

0% in 2026

8

0.07%

94.75%

0

0.00%

83.52%

0% in 2033

3

0.03%

94.77%

0

0.01%

83.53%

TRQ

16

0.15%

94.92%

684

9.72%

93.24%

Reduced to 5% or less

96

0.89%

95.81%

471

6.69%

99.93%

Reduced from MFN rate

351

3.25%

99.06%

1

0.02%

99.95%

Exempt from commitments

95

0.88%

99.94%

3

0.05%

100.00%

Bound at MFN

7

0.06%

100.00%

0

0.00%

100.00%

Total

10,813

100.00%

 

7,040

100.00%

 

Source: Analysis based on DFAT STARS database



 

Impact on Goods Imports

173.           Australia’s merchandise imports from Indonesia were worth A$4.212 billion in 2017, with resources and manufactures being key products.

Table 5 - Australia's Top 20 Imports from Indonesia

 

 

2012

2017

1

Crude petroleum

2,570.65

870.94

2

Refined petroleum

203.34

351.09

3

Wood, simply worked

175.95

200.93

4

Confidential items of trade

126.84

155.84

5

Footwear

72.23

138.26

6

Specialised machinery & parts

46.37

135.53

7

Monitors, projectors & TVs

96.45

104.59

8

Paper & paperboard

64.30

96.68

9

Other textile clothing

26.85

86.90

10

Rubber tyres, treads & tubes

125.04

83.44

11

Furniture, mattresses & cushions

69.50

82.79

12

Medicaments (incl veterinary)

19.23

74.74

13

Paper & paperboard, cut to size

39.05

69.93

14

Men's clothing (excl knitted)

26.46

61.63

15

Women's clothing (excl knitted)

23.06

60.40

16

Veneers, plywood & particle board

35.47

57.87

17

Cocoa

24.91

53.46

18

Pigments, paints & varnishes

6.29

51.33

19

Women's clothing, knitted

7.63

49.08

20

Manufactures of base metal, nes

29.37

47.25

 

Other Imports

2,536.64

1,379.60

 

 Total Imports

6,325.64

4,212.29

174.           Under IA-CEPA, Australia has committed to eliminating tariffs on all IA-CEPA originating products from entry into force of the Agreement.

175.           This is consistent with Australia’s other Free Trade Agreements, and should IA-CEPA enter into force in 2019, would also be faster than under AANZFTA.

176.           IA-CEPA will benefit consumers by increasing the choice of goods available at lower prices. This includes tariffs of mostly 5 per cent on plastics and rubber, textiles, clothing and footwear, iron and steel, motor vehicle components and some machinery and furniture tariffs. 

177.           Though Australia had already eliminated tariffs for a majority of tariff lines under the AANZFTA, some increased imports and price reductions can be expected as a result of the removal of remaining tariffs, allowing Indonesian produced goods to compete with those goods that already have preferential access, either under Australia’s existing FTAs or under the GSP.

178.           While Australia will eliminate tariffs on a higher proportion of tariff lines, the trade weighted average as highlighted by the low trade weighted tariffs below shows that for imports from Indonesia into Australia, tariffs are not a major barrier to trade.

2015

Australian Imports from Indonesia

 USD - 2015

Trade Weighted Tariff - 2016

(Indonesia)

All Products

3,668,914,225

0.14%

Capital Goods

802,714,356

0.02%

Consumer Goods

1,278,701,078

0.26%

Intermediate Goods

738,977,107

0.16%

Raw Materials

758,638,343

0.00%

Maximum Duty

 

5.00%

% of tariff  lines Duty free

 

47.77%

Source: World Integrated Trade System

Impact on Services

179.           The IA-CEPA will contribute to the growth and diversification of Australian exports of services by liberalising barriers and providing more transparent and predictable operating conditions in Indonesia.  Australian services exports to Indonesia have grown from A$1.2 billion in 2012 to A$1.6 billion in 2017. Australians involved in education, finance, ICT, health, transport and logistics, tourism, mining and professional services sectors all stand to benefit from this deal.

180.           Australia and Indonesia have a growing relationship in services trade, with Australia exporting and importing twice the amount of services as Indonesia to the world in 2016.

181.           Australian service suppliers are well positioned to take advantage of knowledge and expertise in order to expand into the growing Indonesian market.



 

 

Australia

Indonesia

 

2006

2016

% change

2006

2016

% change

Services Imports - World (USD million)

33,268.60

56,907.28

71.1%

21,560.95

30,637.17

42.1%

Service Exports - World (USD million)

33,108.04

53,210.49

60.7%

9,149.09

24,150.87

164.0%

Source: World Integrated Trade System

182.           Australia imports more services from Indonesia than it exports, driven by personal travel services, i.e. the tourism sector. In 2017-18, tourism to Indonesia was worth A$3.392 billion, or almost 86.2 per cent of Australia’s service imports.

183.           Australia’s main services export to Indonesia is education related personal travel services, worth A$861 million out of A$1.292 billion in travel services. Total services exports to Indonesia in 2017-18 were worth A$1.609 billion.



 

AUSTRALIA'S SERVICES TRADE WITH INDONESIA (a)

(A$ million)

 

 

 

 

2013-14

2014-15

2015-16

2016-17

2017-18

Total services exports

 

1,479

1,425

1,495

1,721

1,609

Total services imports

 

3,188

3,205

3,449

3,683

3,935

Balance on services trade

 

-1,709

-1,780

-1,954

-1,962

-2,326

Services exports

 

 

 

 

 

 

 

 

Manufacturing services on physical inputs owned by others

0

0

0

0

0

 

Maintenance & repair services nie

27

16

18

8

8

 

Transport services

 

135

123

141

184

138

 

Travel services

 

1,071

1,050

1,124

1,336

1,292

 

 

Business

 

42

44

40

48

37

 

 

Personal

 

1,029

1,006

1,083

1,288

1,255

 

 

 

Education-related

651

698

748

804

861

 

 

 

Other

378

308

336

484

394

 

Construction services

 

3

5

23

2

2

 

Insurance & pension services

4

4

5

4

4

 

Financial services

 

11

13

12

12

11

 

Intellectual property charges nie

3

1

5

5

5

 

Telecom. computer & information services

6

7

12

29

31

 

Other business services

 

181

158

136

122

97

 

Personal, cultural & recreational services

23

35

4

3

3

 

Government services

 

15

14

15

16

18

Services imports

 

 

 

 

 

 

 

 

Manufacturing services on physical inputs owned by others

0

0

0

0

0

 

Maintenance & repair services nie

0

1

1

0

0

 

Transport services

 

222

206

200

224

227

 

Travel services

 

2,729

2,737

3,018

3,244

3,510

 

 

Business

 

127

100

101

131

118

 

 

Personal

 

2,602

2,638

2,916

3,113

3,392

 

 

 

Education-related

14

13

14

18

21

 

 

 

Other

2,588

2,625

2,902

3,095

3,371

 

Construction services

 

0

0

0

0

0

 

Insurance & pension services

3

3

3

2

2

 

Financial services

 

0

0

0

0

0

 

Intellectual property charges nie

0

0

0

0

0

 

Telecom. computer & information services

10

9

7

7

8

 

Other business services

 

101

106

84

81

54

 

Personal, cultural & recreational services

21

31

16

1

2

 

Government services

 

101

111

121

123

133

 

 

 

 

 

 

 

 

 

(a) Cells in this table may have been perturbed to protect confidentiality. 

Based on ABS catalogue 5368.0.55.003.



 

184.           Australia’s current education services exports to Indonesia will assist with the future development of the nation and build long term relationships. In terms of tourism, Australia is an important destination for Indonesians with non-education personal travel growing 5.5 per cent per annum since 2012-13. Indonesia provides Australia with a young, growing market, with growing consumer demand allowing for a diversification in offerings.

185.           The recognition of Australia as an important destination for study is reflected in the growing use of Student Visas, with Student Visas up from 8,224 in 2007-08 financial year to 9,104 in 2017-18.

186.           While not comparable to Department of Home Affairs visa data, data from the Department of Education highlights that students coming from Indonesia have moved away from higher education towards VET based courses, making up nearly half of the commencements in 2017-18.