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CUSTOMS (PROHIBITED EXPORTS) AMENDMENT REGULATIONS 2002 (NO. 5) 2002 NO. 330

STATUTORY RULES 2002 No. 330

Issued by the Authority of the Minister for Justice and Customs

Customs Act 1901

Customs (Prohibited Exports) Amendment Regulations 2002 (No. 5)

Section 270 of the Customs Act 1901 (the Act) provides in part that the Governor-General may make regulations not inconsistent with the Act prescribing all matters which by the Act are required or permitted to be prescribed for giving effect to the Act.

Section 112 of the Act provides in part that the Governor-General may, by regulation, prohibit the exportation of goods from Australia and that the power may be exercised by prohibiting the exportation of goods absolutely or by prohibiting the exportation of goods unless specified conditions or restrictions are complied with.

The Customs (Prohibited Exports) Regulations 1958 (the principal Regulations) control the exportation of the goods specified in the various regulations and the Schedules to the Regulations, by prohibiting exportation absolutely, or by making exportation subject to a permission or licence.

The purpose of the amending Regulations is to prohibit the exportation of rough diamonds from Australia in accordance with Australia's obligations under the Interlaken Declaration of 5 November on the Kimberley Process Certification Scheme for Rough Diamonds.

The United Nations Security Council has adopted a number of sanctions which have endeavoured to stem the flow of rough diamonds from rebel-held conflict areas (known as 'conflict' diamonds). Australia has implemented these sanctions by prohibiting the importation of rough diamonds from Sierra Leone and Liberia and unset diamonds from Angola.

In 2000, southern African countries decided to take action to stop the flow of 'conflict' diamonds to the markets, while at the same time protecting the legitimate diamond industry. This led to the development of the Kimberley Process. The Kimberley Process involves an international certification scheme for rough diamonds. On 5 November 2002, Australia adopted the Kimberley Process in accordance with the Interlaken Declaration of 5 November 2002 on the Kimberley Process Certification Scheme for Rough Diamonds. Under that Declaration, Australia has undertaken to prohibit the exportation and importation of rough diamonds from countries that are not participants in the Kimberley Process. In respect of rough diamonds exported to, or imported from, participant countries, Australia has undertaken to ensure that the diamonds are transported in tamper resistant containers and are accompanied by a certificate which meets certain minimum security requirements as set out in the Certification Scheme.

Details of the amending Regulations are set out in the Attachment A. A Regulation Impact Statement is set out in Attachment B.

The amending Regulations commence on 1 January 2003, when Australia is required to implement the Kimberley Process.

0210693B

ATTACHMENT A

Customs (Prohibited Exports) Amendment Regulations 2002 (No. 5)

Regulation 1 - Name of Regulations

Regulation 1 provides for the regulations to be named the Customs (Prohibited Exports) Amendment Regulations 2002 (No. 5)

Regulation 2 - Commencement

Regulation 2 provides for the regulations to commence on 1 January 2003.

Regulation 3 - Amendment of Customs (Prohibited Exports) Regulations 1958

Regulation 3 provides for the principal Regulations to be amended as set out in Schedule 1.

Schedule 1       Amendments

Item 1 - Part 3, Division 1, heading

Item 1 substitutes the heading of Part 3 of Division 1 as a result of the inclusion of regulation 9AA into that Division.

Item 2 - After regulation 9AA

Item 2 inserts new regulation 9AA into the principal Regulations to control the exportation of rough diamonds from Australia.

New subregulation 9AA(1) defines a number of terms for the purposes of regulation 9AA as follows:

•       authorised person means an employee of the Department of Industry, Tourism and Resources authorised in writing by the Minister for Industry, Tourism and Resources for the purposes of regulation 9AA (these persons can grant and revoke permissions to export rough diamonds);

•       country includes an international organisation of states (such as the European Union) or a dependent territory of a country;

•       Interlaken Declaration means the Interlaken Declaration of 5 November 2002 on the Kimberley Process Certification Scheme for Rough Diamonds;

•       Kimberley Process means the international certification arrangement for rough diamonds adopted under the Interlaken Declaration;

•       Kimberley Process Certificate means a certificate that meets the minimum requirements for certificates mentioned in Annex 1 of the document known as the Kimberley Process Certification Scheme which accompanied the Interlaken Declaration (for example, each certificate must include a unique number, a date of issuance, date of expiry and be tamper and forgery resistant);

•       Minister means the Minister for Industry, Tourism and Resources;

•       original certificate means the original Kimberley Process Certificate issued under subregulation 9AA(3);

•       Participant means a country that is a participant in the Kimberley Process (this includes both initial participants and any countries which later adopt the Kimberley Process);

•       rough diamonds are diamonds that are unworked or simply sawn, cleaved, or bruted that are classified under heading 7102.10, 7102.21 or 7102.31 of Schedule 3 to the Customs Tariff Act 1995.

New subregulation 9AA(2) provides that the exportation from Australia of rough diamonds is prohibited unless:

•       the exporter holds a permission (in the form of a Kimberley Process Certificate) in respect of the diamonds;

•       the original of that certificate is produced to a Collector of Customs at or before the time of exportation; and

•       the rough diamonds are exported in a tamper resistant container.

New subregulation 9AA(3) provides that the Minister, or an authorised person (see new subregulation 9AA(1)), may, on application, grant a permission for the exportation of rough diamonds to a country. The permission takes the form of a Kimberley Process Certificate, that is a certificate that meets the minimum requirements for certificates as set out in Part A of Annex 1 of the Kimberley Process Certification Scheme.

New subregulation 9AA(4) limits when a permission may be granted, so that it can only be granted if it is in respect of export to a country that is a participant in the Kimberley Process. That is, a permission cannot be granted in respect of a country that is not a participant, and hence rough diamonds cannot be exported to those countries.

That same subregulation provides that a permission ceases to be in force if the country it was granted in respect of, ceases to be a participant in the Kimberley Process.

New subregulations 9AA(5), (6) and (7) provide that a permission is subject to the conditions notified in writing to the applicant at the time the permission is granted and any conditions specified on the Certificate. If the holder of the permission fails to comply with a condition, the permission may be revoked even if the person is not charged with an offence of failing to comply with the permission.

New subregulation 9AA(8) provides that the holder of the permission must keep a copy of the certificate for 5 years and produce that certificate to an employee of the Department of Industry, Tourism and Resources if requested to do so. This obligation is in addition to that under section 240 which requires owners of goods imported into Australia to keep commercial documents in respect of those goods.

Item 3 - Subregulation 13CA(1), at the foot

Regulation 13CA prohibits the exportation of goods if the immediate or final destination of the goods is, or is intended to be Iraq. It also prohibits the exportation of goods that originated in Iraq. Those goods can be exported with a permit. Item 3 inserts a note into regulation 13CA to assist a reader of the principal Regulations by highlighting that if the relevant goods are rough diamonds, regulation 9AA must also be complied with.

This Regulation Impact Statement explains the issues surrounding the introduction of the Kimberley Process Certification Scheme for Rough Diamonds; the Australian Government's objectives in joining this non-legally binding international arrangement; the options considered in pursuing a regulatory approach to implementation of the Scheme in Australia; and the domestic impact of this regulation.

Problem

Background

The United Nations Security Council has adopted a number of resolutions which have endeavoured to stem the flow of rough diamonds from rebel-held conflict areas (known as 'conflict' diamonds). Australia has implemented these resolutions by prohibiting the importation of rough diamonds from Sierra Leone and Liberia and unset diamonds from Angola.

In 2000, a number of Southern African countries decided to take action to stop the flow of 'conflict' diamonds to the markets, while at the same time protecting the legitimate diamond industry. This led to the development of the Kimberley Process Certification Scheme for Rough Diamonds, a non-legally binding international arrangement.

On 5 November 2002, Australia, along with 35 other countries and the European Union, adopted the Kimberley Process Certification Scheme for Rough Diamonds in Interlaken, Switzerland. Under that Declaration, Australia has undertaken to prohibit (ie ban) the export and import of rough diamonds from countries that are not participants in the Certification Scheme. In respect of rough diamonds exported to, or imported from, participant countries, Australia has undertaken to ensure that the diamonds are transported in tamper resistant containers and are accompanied by a certificate which meets certain minimum security requirements as set out in the Certification Scheme. The Scheme will come into effect on 1 January 2003.

Participants at the meeting in Interlaken included the major rough diamond producing and trading countries: Angola, Australia, Botswana, Brazil, Burkina Faso, Canada, Côte d'Ivoire, People's Republic of China, Cyprus, Czech Republic, Democratic Republic of Congo, the European Community, Gabon, Ghana, Guinea, India, Israel, Japan, Republic of Korea, Lesotho, Malta, Mauritius, Mexico, Namibia, Norway, the Philippines, Russian Federation, Sierra Leone, South Africa, Swaziland, Switzerland, Tanzania, Thailand, Ukraine, United Arab Emirates, the United States of America and Zimbabwe.

The Australian diamond producing industry has actively supported and encouraged Australia's involvement in the Scheme. The alternative for the industry was the risk of a complete ban on Australia's rough diamond export industry and the inability to import quality rough diamonds for the production of jewellery (in 2001-02, Australia exported rough diamonds worth $634 million and imported rough diamonds worth $12 million). Non-government organizations also support Australia's participation in the Scheme.

Categories of Diamonds Covered by the Kimberley Process

The categories of diamonds subject to control are those that come within the Australian Harmonised Export Commodity Classification (AHECC) codes 7102.10; 7102.21; and 7102.31. (AHECC codes are defined in the Australian Bureau of Statistics catalogue no. 1233.0). Descriptions of the categories are as follows: 7102.10, unsorted, worked and unworked diamonds; 7102.21, industrial diamonds which are unworked or simply sawn, cleaved or bruted; 7102.31, non-industrial diamonds which are unworked or simply sawn, cleaved or bruted.

Imports of Rough Diamonds into Australia

Data reported to the Australian Customs Service indicates that Australia imported $12.3 million worth of rough diamonds in 2001 and $8.1 million worth of rough diamonds in the first nine months of 2002. In $A, the data also show that around half of the imports in 2001 were sourced originally from Australia (we are advised this means the rough diamonds were originally exported from Australia, and then re-imported back into the country). This suggests that imports of rough diamonds sourced from outside Australia equalled $6.6 million in 2001 and $5.1 million in the first nine months of 2002.

Rough diamonds were imported from 26 different countries in 2001 and 21 countries in the nine months to September 2002.

Of the 21 countries and territories from which Australia imported rough diamonds in the nine months to September 2002, only five are non-participants in the Kimberley Process Scheme. This includes New Zealand, Hong Kong, Vietnam, Singapore and Sri Lanka. Of these five, at least New Zealand, Singapore and Sri Lanka have indicated an intention to join the Scheme at some time during 2003.

Exports of Rough Diamonds from Australia

Rough diamonds are Australia's largest gemstone export. Argyle Diamonds Australia (wholly owned by Rio Tinto) is the world's largest diamond mine by volume. According to ABARE, the value of rough diamond exports in 2001-02 was $634 million, with over 99 per cent of these exports shipped to the European Union (principally, the United Kingdom and Belgium).

The bulk of Australian rough diamond production is industrial or low gem grade. The low gem grade diamonds are suitable for the jewellery mass market, which is the fastest growing segment of the diamond market (especially in the USA and India).

Objective of Government Action

The objective of the proposed amendments to the Customs Prohibited Imports and Exports regulations is to comply with the Kimberley Process Certification Scheme for Rough Diamonds as adopted by Australia on 5 November 2002. The amendments seek to implement the Scheme in a manner that is least restrictive on existing trade and least onerous for industry and other stakeholders.

The Government seeks to ensure that implementation of the Scheme is consistent with Australia's existing international obligations. The Government also encourages participation in the Scheme by minor (or lesser) rough diamond producing and trading countries and territories.

Consultation

The Department of Foreign Affairs and Trade, the Department of Industry, Tourism and Resources and the Australian Customs Service have conducted extensive consultations on the implementation of the Scheme with the two rough diamond producers (Argyle Diamonds Australia and Kimberley Diamond Company), the Jewellery Association of Australia, State Governments (particularly Western Australia and the Northern Territory) and Australia Council for Overseas Aid (the peak body representing non-government organisations in Australia).

Options

Australian rough diamond producers considered that it was not an option for Australia not to participate in the Kimberley Process Certification Scheme, as to do otherwise would have meant a ban on Australia's rough diamond trade in global diamond markets and the loss of export earnings (which was $634 million in 2001-02).

As the Commonwealth does not have a head of power covering onshore mining, options considered for domestic implementation of the Scheme included the use of the states' onshore mining powers or the Commonwealth's customs authority.

Following consultation with key stakeholders, it was considered that the best way to implement the scheme would be through the use of both heads of power. This reflected that State governments could only regulate rough diamond producers and not individuals (such as jewellers) who import and export rough diamonds (which could be regulated using the Commonwealth's customs power).

In practice, this combination of powers translates into the following arrangement for the export of rough diamonds.

•       Two 'classes' of export permission can be issued upon application to the Minister for Industry, Tourism and Resources or an authorised person to take into account the perceived risk posed by various entities in the export trade.

1.       In the case of well established frequent exporters (eg rough diamond producers), a license will be issued that recognises that their practices have been pre-assessed as satisfying the requirements of the Kimberley process. This will avoid the need for such exporters to apply to the Minister for permission to export with every shipment, thereby minimising compliance costs. State mining departments will provide a statement verifying the bona fides of the producers (through the existing royalties process which involves diamond valuations and auditing of physical export processes) to assist in the assessment by the Minister for Industry, Tourism and Resources as to whether to grant licensed permissions.

2.       In the case of occasional exporters, the exporter will be required to contact the Department of Industry, Tourism and Resources for a Certificate to export each time they wish to export. They will be required to provide evidence of the source of their diamonds and well as its type and value, and other relevant information.

Once a permission has been granted, and a Kimberley Process Certificate issued, the certificate must be presented to Customs so that the authenticity of the document can be verified and the export of the goods authorised.

The Commonwealth's customs authority is used to impose border import controls. These controls will help ensure that Australia is not importing rough diamonds associated with illicit trade and, subsequently, protect the international reputation of Australia's rough diamond export industry and the industry as a whole.

Impact of the Import regulations

Under the proposed amendments to the Customs (Prohibited Imports) Regulations 1956, imports of rough diamonds into Australia will be banned unless:

(a) they are imported from a participating country

(b) the goods are accompanied by a Kimberley Process Certificate; and

(c) the goods are transported in a tamper-proof container.

In addition, importers will be required to keep a copy of the Kimberley Process Certificate for a minimum of five years.

Industry and other consultations have revealed that the main impact of the new import regulations will be on two groups:

•       Jewellers importing rough diamonds from countries that are non-participants in the Scheme. As the import of rough diamonds will be banned absolutely from these countries, jewellers previously importing from such countries will now be required to source rough diamonds only from Kimberley Process participants.

•       Firms engaged in the testing of rough diamond 'samples' sourced from countries that are non-participants in the Scheme. We are advised by industry that this is currently not a major issue (ie exploration activity is currently being undertaken in countries that are participants in the Scheme). Industry has been invited to join the efforts of the Australian and other governments in actively encouraging non-participating countries to join the Scheme to remove this impediment to the testing of samples.

It is expected that the aggregate cost to business in complying with the new import regulations will be minor. This assessment is based on the expectation that the only additional requirements on the importer from the new regulations will be to:

•       check whether the source country is a participant in the Kimberley Process Scheme (full details of participating countries have been published (press releases etc) and are available on a number of Australian Government and international websites (including that of the Kimberley Process Secretariat: www.kimberleyprocess.com));

•       ensure the source country issues a Kimberley Process Certificate to accompany the rough diamond shipment;

•       ensure that the rough diamond shipment arrives in Australia in a tamper proof container (industry advises that this a matter of course for most existing shipments, reflecting security considerations); and

•       keep the original Kimberley Process certificate for at least 5 years.

Impact of the Export Regulations

Under the proposed amendments to the Customs (Prohibited Exports) Regulations 1958, exports of rough diamonds from Australia will be banned unless:

(a) they are exported to a participating country;

(b) the goods are accompanied by an Australian Kimberley Process Certificate;

(c) the goods are transported in a tamper-proof container.

Further, exporters will be required to keep a copy of the Kimberley Process Certificate for a minimum of five years.

The new export regulations will most affect frequent exporters of rough diamonds (ie the Australian diamond producers). As noted in the Options section above, the aim of the regulation is to minimise compliance costs on these exporters by making use of existing procedures as much as possible (eg verifying company bona fides through existing state royalties processes and using existing Customs export procedures).

It is expected that the compliance costs of new export regulations will be relatively minor. This assessment is based on the expectation that the only additional requirements on the exporter from the new regulations will be to:

•       check whether the intended export country is a participant in the Kimberley Process Scheme (full details of participating countries have been published (press releases etc) and are available on a number of Australian Government and international websites (including that of the Kimberley Process Secretariat: www.kimberleyprocess.com));

•       obtain permission to export by obtaining an Australian Kimberley Process Certificate from the Department of Industry, Tourism and Resources to accompany the rough diamond shipment (including entering shipment details on a database managed by ITR);

•       ensure that the rough diamond shipment leaves Australian in a tamper proof container (industry advises that this is a matter of course for most existing shipments, reflecting security considerations); and

•       keep a copy of the original Australian Kimberley Process certificate for at least 5 years.

Rough diamond producers will also be required to provide statistics on production to assist in the Scheme's monitoring of the global trade in rough diamonds. This data is expected to be drawn from figures already supplied to State governments for royalty purposes.

Review

Participants in the Scheme will continue to meet at officials' level to monitor and consult on the implementation of the Scheme. The first meeting after the introduction of the Scheme is planned for early 2003, which South Africa, as chair of the Kimberley Process Certification Scheme, will facilitate.

In addition, the Kimberley Process Certification Scheme for Rough Diamonds incorporates the following three year Review Mechanism:

"Participants intend that the Certification Scheme should be subject to periodic review, to allow Participants to conduct a thorough analysis of all elements contained in the scheme. The review should also include consideration of the continuing requirement for such a scheme, in view of the perception of the Participants, and of international organisations, in particular the United Nations, of the continued threat posed at that time by conflict diamonds.

The first such review should take place no later than three years after the effective starting date of the Certification Scheme. The review meeting should normally coincide with the annual Plenary meeting, unless otherwise agreed."

The Review Mechanism provides Australia with the opportunity to suggest amendments or the cessation of the arrangement based on its experience with the operation of the Scheme after three years, and to make consequential amendments to domestic regulation as appropriate at that time.