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Customs Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017 [and] Customs Tariff Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017



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ISSN 1328-8091

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BILLS DIGEST NO. 41, 2017-18 16 OCTOBER 2017

Customs Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017 [and] Customs Tariff Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017

Paul Davidson Economics Section

Contents

Purpose of the Bills .............................................................. 3

Structure of the Bills ............................................................ 3

Customs Amendment Bill ........................................................ 3

Tariff Amendment Bill ............................................................. 3

Background ......................................................................... 3

Committee consideration .................................................... 4

Senate Standing Committee for Selection of Bills ................... 4

Joint Standing Committee on Treaties .................................... 4

Senate Standing Committee for the Scrutiny of Bills .............. 4

Policy position of non-government parties/independents ..... 5

Position of major interest groups ......................................... 6

Financial implications .......................................................... 6

Statement of Compatibility with Human Rights .................... 6

Parliamentary Joint Committee on Human Rights .................. 7

Key issues and provisions..................................................... 7

Customs Amendment Bill ........................................................ 7

Commencement .................................................................... 7

Schedule 1—Main amendments ........................................... 7

Box 1: examples of goods that are wholly obtained or produced entirely in Singapore or in Singapore and Australia ................................................................................ 8

Date introduced: 6 September 2017

House: House of Representatives

Portfolio: Immigration and Border Protection

Commencement: Various dates as set out in the body of this Bills Digest

Links: The links to the Bills, their Explanatory Memoranda and second reading speeches can be found on the homepage for the Customs Amendment

(Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017, and the Customs Tariff Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at

October 2017.

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Box 2: examples of goods that are produced in Singapore, or in Singapore and Australia, from originating materials ............................................................. 9

Box 3: requirements of goods produced in Singapore, or in Singapore and Australia, from non-originating materials ................................................................................ 9

Box 4: the Harmonized System ........................................... 10

Box 5: what does regional value content mean? ................ 11

Schedule 2—Other amendments ........................................ 12

Tariff Amendment Bill ........................................................... 12

Commencement .................................................................. 12

Schedule 1—Main amendments ......................................... 12

Schedule 2—Other amendments ........................................ 12

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Purpose of the Bills The Customs Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017 (Customs Amendment Bill) and the Customs Tariff Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017 (Tariff Amendment Bill), amend the Customs Act 1901 and Customs Tariff Act 1995, respectively. The amendments are necessary as a result of recently agreed changes to the rules of origin in the Singapore-Australia Free Trade Agreement (SAFTA).1

Structure of the Bills Customs Amendment Bill The Customs Amendment Bill comprises two Schedules. Schedule 1 to the Customs Amendment Bill has three Parts:

• Part 1 provides for amendments relating to Singaporean originating goods.

• Part 2 provides verification powers relating to Singaporean customs officials.

• Part 3 provides application and saving provisions in relation to the amendments in Parts 1 and 2.

Schedule 2 of the Customs Amendment Bill provides for a range of other amendments to the Customs Act.

Tariff Amendment Bill The Tariff Amendment Bill comprises two Schedules. Schedule 1 makes amendments to the Customs Tariff Act relating to Singaporean originating goods. Schedule 2 makes consequential amendments to the Customs Tariff Act as a result of Schedule 1.

Background Ratified in 2003, SAFTA2 is Australia’s second oldest free trade agreement and a key part of Australia’s economic relationship with Singapore. Australian products have been able to enter Singapore tariff free since SAFTA entered into force. In June 2015, Australia and Singapore signed a Joint Declaration on the Comprehensive Strategic Partnership (CSP), intended to strengthen defence ties, and further trade and economic integration. A third review of SAFTA was part of a part of a package of initiatives to advance the CSP. 3

The agreed amendments to SAFTA, arising from this third review, were announced on 6 May 2016.4 The text of the amendments to SAFTA, national interest analysis and regulation impact statement were tabled in Parliament on 20 March 2017.5

In particular, the SAFTA amendments relate to:

• the objectives and general definitions

• trade in goods

• rules of origin

• government procurement

• cross-border trade in services

• investment

• financial services

• telecommunications services

• the movement of natural persons

1. Agreement to Amend the Singapore-Australia Free Trade Agreement, done in Canberra 13 October 2016, [2017] ATNIF 9. 2. Singapore-Australia Free Trade Agreement, done in Singapore 17 February 2003, [2003] ATS 16 (entry into force 28 July 2003). 3. Department of Foreign Affairs and Trade, Agreement to Amend Singapore Australia Free Trade Agreement: Analysis of Regulatory Impact on Australia, August 2016, p. 1.

4. M Turnbull (Prime Minister), Australia-Singapore Comprehensive Strategic Partnership announcement: Sydney, transcript, 6 May 2016. 5. Australia, Senate, Journals, 31, 20 March 2017, p. 1057. Available from the Joint Standing Committee on Treaties webpage.

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• electronic commerce and

• a range of final provisions.

The Bills implement the amended agreement as it relates to trade in goods and rules of origin.

Committee consideration Senate Standing Committee for Selection of Bills The Senate Standing Committee for Selection of Bills has deferred consideration of the Customs Amendment Bill and Tariff Amendment Bill until its next meeting.6

Joint Standing Committee on Treaties The Joint Standing Committee on Treaties (JSCOT) inquired into the amendments to SAFTA and reported in August 2017.7 The Committee observed that the amended agreement incorporated contemporary provisions relating to services liberalisation, as well as regulatory provisions from recent agreements such as the Trans-Pacific Partnership Agreement,8 whilst also making minor updates to existing provisions. 9 The Committee also discussed a number of provisions that attracted the attention of submitters in relation to:

• access to the market for legal services and recognition of law degrees

• alcohol labelling

• investor-state dispute settlement

• temporary entry for skilled workers

• government procurement and

• a range of other provisions such as investment, financial services, and telecommunications.10

The Committee noted the changes to the rules of origin requirements. In particular, ‘it will only be necessary to show a change in the tariff classification of the product in that country’,11 which is a simpler approach than that which prevails currently. Generally, producers needed to demonstrate that 50 per cent of the cost of manufacturing the goods was expended in the other country for it to be considered to originate from that country.12 This change should reduce compliance costs for businesses.

The Committee supported the amended agreement and recommended that binding treaty action be taken.13 Labor members provided additional comments which criticised the removal of labour market testing, investor-state dispute resolution provisions, and a general lack of independent analysis of the amended agreement.14

Senate Standing Committee for the Scrutiny of Bills The Scrutiny of Bills Committee expressed concern about proposed subsection 153XD(6) of the Customs Amendment Bill which provides that regulations made for the purposes of proposed Division 1BA:

6. Senate Selection of Bills Committee, Report, 11, 2017, The Senate, Canberra, 13 September 2017, p. 2. Previously, the bills to implement the China-Australia Free Trade Agreement and the Japan-Australia Economic Partnership Agreement have been referred to the Senate Foreign Affairs, Defence and Trade Legislation Committee for inquiry and report.

7. Joint Standing Committee on Treaties, Singapore Free Trade Agreement: amendment; defence supplies and services: Japan, Report, 172, August 2017. 8. Trans-Pacific Partnership Agreement between the Government of Australia and the Government of Australia and the Governments of: Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States of America and Vietnam and associated

side letters, done in Auckland 4 February 2016, [2016] ATNIF 2. 9. Joint Standing Committee on Treaties, Singapore Free Trade Agreement: amendment; defence supplies and services: Japan, op. cit., p. 3. 10. Ibid., pp. 8-14. 11. For an explanation of tariff classifications and the effects on the regime, see Box 4: the Harmonized System below. 12. Customs Act 1901, section 153VB. 13. Joint Standing Committee on Treaties, Singapore Free Trade Agreement: amendment; defence supplies and services: Japan, op. cit., p. 15. 14. Ibid., pp. 39-41.

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… 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. 15

The Committee acknowledged that the Explanatory Memorandum to the Customs Amendment Bill stated that in implementing other free trade agreements, provisions such as these have ‘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’. Nonetheless, the Committee had concerns ‘where provisions in a bill allow the incorporation of legislation provisions by reference to other documents because such an approach’:

• raises the prospect of changes being made to the law in the absence of parliamentary scrutiny

• can create uncertainty in the law and

• means that those obliged to obey the law may have inadequate access to its terms.16

The Committee requested further advice as to whether the type of documents envisaged to be applied, adopted or incorporated will be made freely available to all persons interested in the law.17

The Committee made no comment in relation to the Tariff Amendment Bill.18

Policy position of non-government parties/independents The views of the Labor members of the JSCOT inquiry into the amendments to SAFTA are reflected above. The Australian Greens have expressed concerns in relation to trade agreements more generally. For example, during the Senate inquiry into the provisions proposed legislation to implement the China-Australia Free Trade Agreement, Senator Whish-Wilson’s dissenting report recommended the legislation not be passed.19 While noting the proposed legislation related mainly to customs and tariff matters, he also highlighted a range of broader concerns. These included:

• a lack of transparent public consultation in the development of trade agreements

• a ‘broken’ treaty-making process with insufficient parliamentary scrutiny

• issues related to labour market testing

• a lack of environment standards and

• the implications of investor-state dispute settlement provisions. 20

The Australian Greens recommended that the Senate refuse to pass the enabling legislation for the Korea-Australia Free Trade Agreement until investor-state dispute settlement clauses were removed and independent cost-benefit analysis had been conducted into changes to intellectual property protections and they ‘had been appropriately assessed by the Parliament’.21

A range of other views regarding trade agreements have been expressed by Senators. Senator Jacqui Lambie has called on the Australian Government to ban investor-state dispute settlement clauses in all trade agreements.22 When the proposed Trans-Pacific Partnership Agreement was considered by the Senate Foreign Affairs, Defence and Trade References Committee, Senator Nick Xenophon raised a number of concerns with the value of

15. Subsection of 14(2) Legislation Act 2003 (Cth) provides ‘Unless the contrary intention appears, the legislative instrument or notifiable instrument may not make provision in relation to a matter by applying, adopting or incorporating any matter contained in an instrument or other writing as in force or existing from time to time’. In this case, proposed subsection 153XD(6) provides that it would apply ‘[d]espite subsection 14(2) of the Legislation Act.

16. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 11, 2017, The Senate, 13 September 2017, pp. 7-8. 17. Ibid., p. 8. 18. Ibid., p. 9. 19. Senate Standing Committee on Foreign Affairs, Defence and Trade, Customs Amendment (China-Australia Free Trade Agreement

Implementation) Bill 2015 [Provisions] Customs Tariff Amendment (China-Australia Free Trade Agreement Implementation) Bill 2015 [Provisions], The Senate, Canberra, 6 November 2015, p. 18. 20. Ibid., p. 17. 21. Senate Standing Committee on Foreign Affairs, Defence and Trade, Korea-Australia Free Trade Agreement, The Senate, Canberra, 1 October 2014, pp. 67-68. 22. J Lambie, ‘Notice of Motion: Trade: Investor-State Dispute Settlement Clauses’, Senate, Debates, 12 October 2016, p. 312.

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Australia’s recent trade agreements and parliamentary scrutiny of the treaty-making process.23 Senator David Leyonhjelm has previously strongly advocated a free trade position and has supported Australia unilaterally removing tariffs to achieve better outcomes.24

Position of major interest groups Submissions to the JSCOT inquiry expressed both optimism and concern about the amended agreement. For example, the Asian Trade Centre generally welcomed improvements to the SAFTA, particularly those which reflected the text of the Trans-Pacific Partnership (TPP) Agreement.25 A similar view was put by the Australian Chamber of Commerce Singapore:

AustCham Singapore welcomes further developments to the Singapore Australia Free Trade Agreement (SAFTA) and we believe these updates to be in the Australian national interest, in that they strongly support Australian businesses operating in Singapore. We recognise Australian products have been able to enter Singapore tariff-free since 2003 when the SAFTA first entered into force, but the update currently before the Parliament enhances the value of the Agreement to Australian business through the inclusion of improvements in areas of interest and significant benefit to our members and the broader Australian business community.

26

The Law Council of Australia (LCA) noted that ‘Singapore is a very important legal services market for Australian lawyers’ and was therefore pleased to see that the amended agreement would lock-in existing levels of legal services market access into Singapore.27 It also noted that the amended agreement will increase the number of Australian law degrees recognised by Singapore, helping to foster people-to-people links. The LCA were concerned however that under SAFTA, Singapore reserves the right make or retain measures affecting the supply of legal services in Singapore. This reservation has the effect of restricting applications for Qualifying Foreign Law Practice licences (QFLP). The LCA stated that currently the QFLP is not open for application and there is no indication from the Singaporean Ministry of Law as to when this might change.28

The Australian Fair Trade and Investment Network expressed concern that the TPP Agreement was not an appropriate basis upon which to amend the SAFTA.29 This was because ‘much of the content of the TPP was extremely controversial’, and also because the TPP has not been passed by the Australian Parliament and as such had not been adequately scrutinised.30 The submission raised issues with: the investor-state dispute settlement provisions; the temporary movement of workers and the abolition of labour market testing; and government procurement. The submission considered that the amendment process represented a missed opportunity to provide for legally enforceable commitments in relation to labour rights and the environment.31

Financial implications The Government considers that implementing each Bill will have a negligible cost to revenue over the forward estimates.32

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed both Bills’ compatibility with the human rights and freedoms recognised or declared in the

23. Senate Standing Committee on Foreign Affairs, Defence and Trade, Proposed Trans-Pacific Partnership Agreement, The Senate, Canberra, 7 February 2017, pp. 46-47. 24. D Leyonhjelm, ‘The tariff wall that hurts us all’, The Australian Financial Review, 9 January 2015, p. 38. 25. Asian Trade Centre, Submission to the Joint Standing Committee on Treaties, Singapore Free Trade Agreement: Amendment; Defence Supplies

and Services: Japan, p. 1. 26. Australian Chamber of Commerce Singapore, Submission to the Joint Standing Committee on Treaties, Singapore Free Trade Agreement: Amendment; Defence Supplies and Services: Japan, pp. 1-2. 27. Law Council of Australia, Submission to the Joint Standing Committee on Treaties, Singapore Free Trade Agreement: Amendment; Defence

Supplies and Service: Japan, p. 1. 28. Ibid., pp. 1-2. 29. Australian Fair Trade and Investment Network, Submission to the Joint Standing Committee on Treaties, Singapore Free Trade Agreement:

Amendment; Defence Supplies and Services: Japan, p. 4. 30. Ibid.

31. Ibid., pp. 4-5. 32. Explanatory Memorandum, Customs Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017, p. 2; Explanatory Memorandum, Customs Tariff Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017, p. 2.

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international instruments listed in section 3 of that Act. The Government considers that the Bills are compatible.33

Parliamentary Joint Committee on Human Rights The Joint Committee on Human Rights considered that the Customs Amendment Bill did not raise human rights concerns.34 The Committee deferred its consideration of the Tariff Amendment Bill to a later reporting period.35

Key issues and provisions Customs Amendment Bill

Commencement The amendments in Schedule 1 to the Customs Amendment Bill commence on the later of:

• the day this Act receives Royal Assent and

• the day the Agreement (the Amending Agreement) to amend the Singapore-Australia Free Trade Agreement and done at Canberra on 13 October 2016 enters into force for Australia.

However, the provisions do not commence at all if the Amending Agreement does not enter into force for Australia.

The amendments in Schedule 2 to the Customs Amendment Bill commence on the third anniversary of the commencement of the amendments in Schedule 1.

Schedule 1—Main amendments The main amendments proposed by Schedule 1 relate to the insertion of proposed Division 1BA of Part VIII to the Customs Act. Proposed Division 1BA inserts new provisions relating to Singaporean originating goods. Where goods meet the definition of Singaporean originating goods they will be afforded preferential duty treatment, which generally means these goods will be duty-free.

In order to be classified as Singaporean originating goods, the importer needs to have a certificate of origin if Australia has not waived the requirement for such a certificate (the requirement will be waived where the customs value of the good does not exceed $1,000).36 A certificate of origin is one that complies with the requirements of Article 18 of Chapter 3 of the SAFTA.

Proposed Subdivision A provides for a range of definitions that apply to proposed Division 1BA. Additional Subdivisions provide for a range of ways that goods can be classified as Singaporean originating goods. The range of ways that goods can be classified is referred to as the rules of origin.

Proposed Subdivision B provides for the rules relating to goods wholly obtained or produced entirely in Singapore or in Singapore and Australia—proposed subsection 153XE(2) provides that goods are wholly obtained or produced entirely in Singapore or in Singapore and Australia if, and only if, they meet any of the 11 definitions provided (Box 1).

33. The Statement of Compatibility with Human Rights can be found at page 3 of the Explanatory Memorandum to the Customs Amendment Bill, and at page 3 of the Explanatory Memorandum to the Tariff Amendment Bill. 34. Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 10, 2017, 12 September 2017, p. 33. 35. Ibid., p. 83. 36. The Agreement to Amend the Singapore-Australia Free Trade Agreement, op. cit., Chapter 3, Article 21 provides that a certificate of origin

shall not be required if the customs value of the importation does not exceed $1,000.

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Box 1: examples of goods that are wholly obtained or produced entirely in Singapore or in Singapore and Australia The types of goods that are wholly obtained or produced entirely in Singapore or in Singapore and Australia include:

• plants, or goods obtained from plants, that are grown, cultivated, harvested, picked or gathered there

• live animals, or goods obtained from live animals

• animals obtained by hunting, trapping, fishing, gathering or capturing in the territory of Singapore

• goods obtained from aquaculture in the territory of Singapore

• fish, shellfish or other marine life taken from the high seas by Singaporean flagged vessels, as well as goods produced from fish, shellfish or other marine life on board Singaporean flagged factory ships

• goods produced exclusively from goods referred to above or from their derivatives.

Sources: Customs Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017, proposed section 153XE; Agreement to Amend the Singapore-Australia Free Trade Agreement, done in Canberra 13 October 2016, [2017] ATNIF 9, Articles 18 and 21 of Chapter 3.

Proposed Subdivision C provides for the rules relating to goods produced in Singapore, or in Singapore and Australia, from originating materials—proposed subsection 153XD(1) provides a definition of originating materials which means:

• Singaporean originating goods that are used in the production of other goods37 or

• Australian originating goods that are used in the production of other goods38 or

• recovered goods from either Australia or Singapore that are used in the production of, and incorporated into, remanufactured goods39 or

• indirect materials.40

Box 2 provides some examples of goods that are produced in Singapore, or in Singapore and Australia, from originating materials.

Proposed Subdivision D provides for the rules relating to goods produced in Singapore, or in Singapore and Australia, from non-originating materials.41 Non-originating materials would include any goods which ‘have been sourced from outside Singapore or Australia and that are used in the production of other goods’.42 It would also include goods from either Singapore or Australia which do not satisfy the rules of origin requirements above. The requirements relating to goods produced in Singapore, or in Singapore and Australia, from non-originating materials are explained further in Box 3. Since the Customs Amendment Bill has not become an Act, there is currently no legislative authority for the creation of the regulations, and hence the regulations do not yet exist. However, the regulations will mirror the obligations in Annex 2 of Chapter 3 of the SAFTA in relation to a change in tariff classification and regional value content (see below).

37. Production means any one of 17 measures of production as defined: proposed subsection 153XD(1). 38. Australian originating goods means goods that are Australian originating goods under a law of Singapore that implements the SAFTA: proposed subsection 153XD(1). 39. Recovered goods are the individual parts that have resulted from disassembly of used goods and have been cleaned, inspected, tested or

processed as necessary for improvement to sound working condition: proposed subsection 153XD(1). Remanufactured goods are defined in proposed subsection 153XD(1) and relate to machinery and mechanical appliances; electrical equipment and parts; sound recorders and reproducers and parts; vehicles, aircraft, vessels, and associated transport equipment; optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus and parts; and medical, surgical, dental or veterinary furniture, and barbers’ chairs and parts. In addition, the remanufactured goods must be entirely or partially composed of recovered goods; and have a similar life expectancy to, and perform the same as or similar to, new goods as defined above; and have a factory warranty similar to such new goods: proposed subsection 153XD(1). 40. Indirect materials means goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods;

or goods or energy used in the maintenance or operation of equipment or buildings associated with the production of goods. The specific goods or energy are further specified: proposed subsection 153XD(1). 41. Non-originating materials means goods that are not originating materials: proposed subsection 153XD(1). 42. Explanatory Memorandum, Customs Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017, p. 12.

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Box 2: examples of goods that are produced in Singapore, or in Singapore and Australia, from originating materials The types of goods that are produced in Singapore, or in Singapore and Australia, from originating materials include:

• goods which are classified as Singaporean originating goods (see Box 1 above) and are used in the production of other goods—for example, if plants were grown in Singapore they would be Singaporean originating goods and if those plants were then processed and manufactured into a basket, such a basket would be produced from originating materials

• goods which are classified as Australian originating goods (which are those determined in accordance with the laws of Singapore which implement the Agreement), and are used in the production of other goods. Since both countries have agreed to the same list of ‘wholly obtained or produced goods’, the same example above would apply. That is, Australian grown plants which were then used in the production of a basket would be a basket that was produced from originating materials

• goods which are recovered goods, which are goods that have resulted from the disassembly of used goods, and that have been cleaned, inspected, tested or processed as necessary for improvement to sound working condition. An example could include individual car parts which have undergone the necessary treatment to ensure that they are in sound working condition. The recovered goods must then be used in the production of, and incorporated into, remanufactured goods. The individual car parts must then be used in the manufacture of, for example, another vehicle, in order to be classified as being comprised of originating materials

• goods which are indirect materials include goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods. An example would be the electricity used in the production of a motor vehicle. It also includes goods or energy used in the maintenance or operation of equipment or buildings associated with the production of goods. An example would be the upkeep of a production facility. Further examples are listed in proposed subsection 153XD(1).

Sources: Customs Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017, proposed subsection 153XD(1), proposed section 153XF; Agreement to Amend the Singapore-Australia Free Trade Agreement, done in Canberra 13 October 2016, [2017] ATNIF 9, Articles 3, 18, and 21 of Chapter 3.

Box 3: requirements of goods produced in Singapore, or in Singapore and Australia, from non-originating materials

In order to be classified as a Singaporean originating good where the goods were produced in Singapore, or in Singapore and Australia, from non-originating materials, the goods need to:

• be classified in column 1 of the table in Part 2 of Schedule 1 to the regulations made for the purposes of this Subdivision and

• be produced entirely in Singapore or in Singapore and Australia, from non-originating materials only or from non-originating materials and originating materials and

• satisfy each requirement under the regulations and

• have a certificate of origin (see above).

Sources: Customs Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017, proposed subsection 153XG(1); Agreement to Amend the Singapore-Australia Free Trade Agreement, done in Canberra 13 October 2016, [2017] ATNIF 9, Articles 18, 21, and Annex 2 of Chapter 3.

One requirement that the regulations may prescribe is that each non-originating good used in the production of other goods is required to satisfy a prescribed change in tariff classification.43 This requirement is to ensure that sufficient transformation has occurred such that the production of the other goods can now be classified as Singaporean originating goods, and therefore receive concessional duty treatment (generally, duty-free). It also ensures that goods are correctly classified. The use of a particular non-originating good—for example, live cattle

43. Proposed subsections 153XG(2)-(5).

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exports from Brazil—would be classified differently under the Harmonized System (Box 4)44 compared with the production of beef in Singapore which used those Brazilian cattle.45 The product-specific rules of origin in this example require that all meat products have undergone a change in tariff classification at the Chapter level.46 Since the live cattle would be classified under Chapter 1 and the beef would be classified under Chapter 2, a sufficient change in tariff classification would have occurred in this instance. Assuming that the other requirements in Box 3 were satisfied, that would mean that such beef would be classified as a Singaporean originating good and therefore subject to concessional duty treatment.

Box 4: the Harmonized System

The Explanatory Memorandum to the Bills provides the following description of the Harmonized System:

The Harmonized System (HS) is the worldwide classification system that has been adopted by all countries that are members of the World Customs Organization. In Australia, the HS has been adopted in the Customs Tariff Act. The HS organises goods according to the degree of manufacture, and assigns classification numbers to all goods. It is arranged into 96 chapters with each chapter being divided into headings, subheadings, and tariff classifications. Under the HS, the chapter, heading (4 digits), and subheading numbers (6 digits) for all goods are adopted by countries using the HS. The Australian Customs Tariff uses an additional two digits for national classification to create 8 digit tariff items.

Source: Explanatory Memorandum, Customs Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017, p. 7.

Exceptions to the change in tariff classification rule are contained in proposed subsections 153XG(4)-(5), which implement the de minimis rule in Article 10 of Chapter 3 of the Amended Agreement:47

1. Where non-originating materials do not satisfy the change in tariff classification rule, that rule does not apply in the event that the total value of those non-originating goods does not exceed 10 per cent of the customs value48 of the goods.

2. Where non-originating materials do not satisfy the change in tariff classification rule, and the goods produced are classified to any of Chapters 50 to 63 of the Harmonized System—then the requirement to satisfy the change in tariff classification is taken to be satisfied if the total weight of those non-originating materials does not exceed 10 per cent of the total weight of the goods.49

Another requirement that the regulations may prescribe in relation to non-originating goods used in the production of other goods, is that the other goods are required to have a prescribed percentage of regional value content (RVC), and prescribe a particular method by which the RVC is calculated.50 The RVC requirement is to ensure that sufficient value has been added in the production of other goods such that they can now be classified as Singaporean originating goods, and therefore receive concessional duty treatment (generally, duty-free). RVC is explained in more detail in Box 5.

44. International Convention on the Harmonized Commodity Description and Coding System, done in Brussels 14 June 1983, [1988] ATS 30, (entered into force for Australia and generally 1 January 1988). 45. Live cattle would be classified under Chapter 1 of the Harmonized System, whereas beef would be classified under Chapter 2. 46. Agreement to Amend the Singapore-Australia Free Trade Agreement, done in Canberra 13 October 2016, [2017] ATNIF 9, Annex 2 of

Chapter 3.

47. De minimis means ‘of the least, something that is trivial or minimal’: BA Gardner, ed., Black’s law dictionary, 9th edn, Thomson Reuters, St. Paul, Minnesota, 2009, p. 496. 48. Customs value is defined in section 159. 49. Agreement to Amend the Singapore-Australia Free Trade Agreement, done in Canberra 13 October 2016, [2017] ATNIF 9, Article 10 of

Chapter 3.

50. Proposed subsections 153XG(6)-(8).

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Box 5: what does regional value content mean? Regional value content (RVC) means the amount of the total value of the good, expressed as a percentage. There are two methods for calculating the RVC: the build-down method and the build-up method.

The build-down method is based on the value of non-originating materials:

The build-up method is based on the value of originating materials:

where:

• ‘RVC’ is the regional value content of a good, expressed as a percentage

• ‘VNM’ is the value of non-originating materials, including materials of undetermined origin, used in the production of the good

• ‘VOM’ is the value of originating materials used in the production of the good in the territory of one or both of the Parties.

Sources: Customs Amendment (Singapore-Australia Free Trade Agreement Amendment Implementation) Bill 2017, proposed subsections 153XG(6)-(9); Agreement to Amend the Singapore-Australia Free Trade Agreement, done in Canberra 13 October 2016, [2017] ATNIF 9, Article 5 of Chapter 3.

For the purposes of calculating the RVC, goods which are imported with accessories, spare parts, tools or instructional or other information materials are to be included, in accordance with the regulations. 51 Packaging materials and containers are generally disregarded for the purposes of ascertaining whether the goods in question are from non-originating materials and amount to being Singaporean originating goods.52 Goods are not Singaporean originating goods if they are transported through the territory of a non-Party and the goods undergo any operation in the territory of a non-Party (other than to satisfy Australian requirements or in order to preserve the goods in good condition for transport to Australia).53

The amendments proposed by Part 2 relate to Australian exporters seeking concessional duty treatment for Australian exported goods to Singapore. Item 4 inserts proposed section 126AAA to the Customs Act which provides for a definition of Singaporean customs official and items 7, 8, 10 and 11 make consequential amendments as a result of the introduction of this definition. Items 5, 6, and 9 make consequential amendments as a result of the introduction of the definition of Australian originating goods in proposed subsection 153XD(1). These amendments are necessary to change the permissible scope of the regulations which may be made under sections 126AA and 126AB.

Part 3 contains the applications and savings provisions. Item 12 provides that the amendments proposed in Part 1 relating to Singaporean originating goods apply in relation to:

51. Proposed subsection 153XG(7). 52. Proposed section 153XH. 53. Proposed section 153XJ.

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• goods imported into Australia on or after the commencement of Part 1 and

• goods imported into Australia before the commencement of Part 1, where the time for working out the rate of import duty on the goods had not yet occurred.

Item 12 also provides that amendments made in Part 2 relating to Australian exports to Singapore apply in relation to goods exported to Singapore on or after the commencement of Part 2, irrespective of when the goods in question were produced.

Item 12 further provides that SAFTA, as in force immediately prior to the commencement of item 12, continues to apply on and after that commencement for the purposes of determining if goods are the produce and manufacture of Singapore under the provisions that currently exist in Division 1B of Part VIII of the Customs Act.

Schedule 2—Other amendments As noted above, Schedule 2 is due to commence on the third anniversary of the commencement of Schedule 1. The amendments are necessary as a result of the agreed three-year transition, which will remove Division 1B of Part VIII of the Customs Act. That Division currently provides the rules for assessing whether Singaporean goods are eligible to receive concessional duty treatment (which generally is duty-free). Item 9 repeals Division 1B of Part VIII and the remaining items make minor consequential amendments to Division 4A of Part VI,54 which relates to Australian exports of goods to Singapore, for which concessional duty treatment is sought.

Tariff Amendment Bill

Commencement The amendments in Schedule 1 to the Tariff Amendment Bill commence at the same time as the amendments in Schedule 1 to the Customs Amendment Bill.

The amendments in Schedule 2 to the Tariff Amendment Bill commence on the third anniversary of the commencement of the amendments in Schedule 1.

Schedule 1—Main amendments The principal amendment to the Customs Tariff Act is the insertion of proposed Schedule 4A as proposed by item 17. Schedule 4A provides for specific rates of duty which apply to Singaporean originating goods (as defined in the Customs Amendment Bill above). The specific rates of duty apply to specific goods, which are classified in Column 2 according to the Harmonized System. For example, table item 1 refers to subheading 2203.00.61, which under Schedule 3 of the Customs Tariff Act relates to ‘beer made from malt: having an alcoholic strength by volume exceeding 1.15% vol but not exceeding 3.0% vol’. The rate in Column 3 provides for the specific rate of duty which applies, which for item 1 is $41.95/L of alcohol, where the first 1.15 per cent of alcohol is ignored. All of the goods listed in Schedule 4A provide for excise-equivalent duties. This is to ensure that those goods are subject to the same taxation treatment as domestically produced identical goods (which are subject to specified rates of excise).55 Items 1-5, 9, and 12-15 make minor consequential amendments which refer to proposed Schedule 4A. Items 18-21 make minor consequential amendments to the User’s guide as a result of proposed Schedule 4A.56

Items 6-8, and 10-11 make consequential amendments to the Customs Tariff Act as a result of the proposed definition of Singaporean originating goods in the Customs Amendment Bill.

Schedule 2—Other amendments As noted above, Schedule 2 is due to commence on the third anniversary of the commencement of Schedule 1. The amendments are necessary as a result of the amendments proposed in Schedule 2 of Part 1 to the Customs

54. Apart from item 1 which makes a minor consequential change to repeal a note to the definition of unmanufactured raw products in subsection 4(1) of the Customs Act. 55. Duties of excise are levied on domestically produced goods, whereas internationally produced goods which are imported to Australia are subject to excise-equivalent customs duties. Excise-equivalent goods are imported alcohol, tobacco and fuel that, if produced or

manufactured in Australia, would be subject to excise duty. Thus when these types of goods are imported, a rate of duty is levied on them that is equivalent to the excise liability that would apply if the goods had been manufactured in Australia. 56. The User’s guide is located at the end of the contents of the Customs Tariff Act and aims to give a general overview of the operation and organisation of the Act.

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Amendment Bill, specifically the repeal of Division 1B of Part VIII of the Customs Act. To that end, item 1 removes reference to Division 1B of Part VIII of the Customs Act in the Customs Tariff Act.

Items 2-141 make minor consequential amendments to the Customs Tariff Act as a result of the insertion of proposed Schedule 4A and the associated amendments as outlined in Schedule 1 above. Specifically, items 2-4 repeal what would become redundant provisions, and items 5-141 remove reference to specific rates of duty that apply to goods from Singapore, which are classified as ‘SG’ for the purposes of the Customs Tariff Act. The specific references are removed as a result of the table inserted as proposed Schedule 4A.

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