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CUSTOMS (PROHIBITED IMPORTS) AMENDMENT REGULATIONS 1999 (NO. 9) 1999 NO. 333
EXPLANATORY STATEMENTSTATUTORY RULES 1999 No. 333
Issued by the Authority of the Minister for Justice and Customs
Customs Act 1901
Customs (Prohibited Imports) Amendment Regulations 1999 (No. 9)
Section 50 of the Customs Act 1901 ("the Act") provides in part that:
"(1) The Governor-General may, by regulation, prohibit the importation of goods into Australia.
(2) The power conferred by the last preceding subsection may be exercised - (c) by prohibiting the importation of goods unless specified conditions or restrictions are complied with."
The Customs (Prohibited Imports) Regulations 1956 ("the Regulations") control the importation of the goods specified in the various regulations or the Schedules to the Regulations, by prohibiting importation absolutely, or making importation subject to the permission of a Minister or an authorised person.
The regulations insert a new regulation 4C to make the importation of used diesel engines designed for use in road vehicles subject to the permission of the Minister for Transport and Regional Services or an APS employee in the Department of Transport and Regional Services authorised by the Minister.
The Minister or authorised person will only be able to grant a permission for the importation of such engines if the engines comply with the cur-rent emission Australian Design Rules.
The prohibition implements the Government's agreement with the Australian Democrats on tax reform outlined in "Measures for a Better Environment" which contained an undertaking to prohibit the importation of second hand diesel engines which fall to meet Australian motor vehicle emission standards.
The regulations are explained in greater detail in the Attachment A.
Attachment B contains the Regulation Impact Statement relating to these amendments.
The regulations will commence on 1 July 2000.
ATTACHMENT A
Customs (Prohibited Imports) Amendment Regulations 1999 (No. 9)
Proposed regulation 1 - Name of Regulations
Regulation 1 provides for the regulations to be named the Customs (Prohibited Imports) Amendment Regulations 1999 (No. 9) .
Proposed regulation 2 - Commencement
Regulation 2 provides for the regulations to commence on 1 July 2000.
Proposed regulation 3 - Amendment of Customs (Prohibited Imports) Regulations 1956
Regulation 3 provides for the Regulations to be amended as set out in Schedule 1.
Schedule 1 - Amendment
Proposed item 1 - After regulation 4B
Item 1 inserts a new regulation 4C in the Regulations.
New regulation 4C prohibits the importation into Australia of used diesel engines designed for use in a road vehicle unless the Minister for Transport and Regional Services ("the Minister") or an authorised person has granted permission for their importation (new subregulation 4C(2) refers).
The Minister can authorise an APS employee in the Department of Transport and Regional Services for the purposes of new regulation 4C. That authorised person can grant, refuse to grant, revoke or modify an import permission in the same circumstances as the Minister (new subregulation s4C(1) refers).
The Minister or authorised person will be able to grant a permission to import an engine if the engine complies with certain emission design rules. There are currently two design rules that apply to used diesel engines designed for use in road vehicles, these are Australian Design Rule 30/00, Diesel Engine Exhaust Smoke Emissions, and Australian Design Rule 70/00, Exhaust Emission Control for Diesel Engined Vehicles (new subregulation 4C(3) refers).
The regulations also allow permissions granted by the Minister or authorised person to specify conditions or requirements that must be complied with and when those conditions or requirements must be satisfied (new subregulation 4C(4) refers).
The Minister or authorised person will also be able to revoke or modify permissions. In order to revoke or modify a permission there must be reasonable grounds for believing that a condition or requirement of the permission has not been complied with or a condition or requirement is unlikely to be complied with if the permission is not modified (new subregulation 4C(5) refers).
ATTACHMENT B
REGULATION IMPACT STATEMENT
IMPORTATION OF
SECOND HAND DIESEL ENGINES
Prepared by the Department of Transport and Regional Services
19 October 1999
CONTENTS
ATTACHMENTS 2
1. INTRODUCTION 3
2. STATEMENT OF THE PROBLEM 3
3. OBJECTIVES 4
4. STATEMENT OF THE PROPOSED REGULATION AND ALTERNATIVES 5
OPTION A - SPECIAL DUTY 6
OPTION B - PROHIBITED IMPORT REGULATION - TYPE APPROVAL PROCESS 7
OPTION C - PROHIBITED IMPORT REGULATION - CERTIFICATION TESTING OF INDIVIDUAL
ENGINES 9
COMPARATIVE ASSESSMENT 10
5. IMPACT ANALYSIS/COST AND BENEFITS 12
6. CONSULTATION 14
7. CONCLUSION AND RECOMMENDED OPTION 15
8. IMPLEMENTATION/REVIEW 15
ATTACHMENTS
Attachment A - Measures for a Better Environment
1. INTRODUCTION
The Prime Minister announced details of amendments to "A New Tax System" on 28 May 1999, including a range of environmental proposals under the heading
'Measures for a Better Environment' (MBE). One of the environmental measures is to ensure that motor vehicles retrofitted with imported second hand diesel engines meet current Australian motor vehicle emission standards. The proposal stated that "the
import of second hand diesel engines which fail to meet current emission standards will be prohibited" (Prime Minister 1999). The full text of the Statement from the MBE is at
Attachment A.
2. STATEMENT OF THE PROBLEM
Motor vehicle pollution in Australia is an ongoing problem particularly in our densely urbanised cities. Vehicles. are estimated to contribute up to 70% of total urban air pollution (NSW EPA, 1999). Emissions from vehicles therefore have significant effects on the quality of life for urban residents, particularly those susceptible to air pollution. High levels of air pollutants have been shown to result in a wide range of adverse health and visual impacts on society. Increasing levels of pollution can have significant environmental and economic consequences. Health effects associated with air pollution include respiratory effects, ranging in severity from coughs, chest congestion, asthma, to chronic illness and possible premature death in susceptible people. Other effects of air pollutants include damage to vegetation, buildings and materials, and reduction in visibility.
While larger trucks and buses emit more pollutants per kilometre, cars are the dominant vehicles operating in the urban environment, with light commercial vehicles the next most significant group. Commercial diesel engined vehicles, while fewer in number and kilometres travelled. are nevertheless significant sources of oxides of nitrogen (NOx) and particulates (PM) emissions, and the major vehicle offenders in terms of visible smoke. Trucks are increasingly reliant on diesel as a transport fuel and in 1996, 71% of trucks were diesel fuelled. In 1996, diesel vehicles represented approximately 8% of the total vehicle fleet (ABS, 1996). In the same year, some 4,600 used diesel engines were imported, which represents less than 1% of the diesel fleet (ABS, 1999).
Diesel vehicles are a major source of oxides of nitrogen (NOx) and particulates (PM) emissions, which are two of the pollutants of most health concern (NSW EPA, 1996, Carnovaie et al, 1991). Data from Sydney, Melbourne and Brisbane indicate that motor vehicles are responsible for around 80% of total NOx emissions with diesel trucks and buses contributing about 40% of these vehicle emissions (NSW EPA 1996; Coffey Partners, 1996, Carnovale et al, 1991).
In relation to particulates, a New South Wales study estimates that road transport was responsible for about 30% of particulate emissions, with commercial vehicles being the most significant vehicular emitter (NSW EPA, 1996). Diesel vehicles are estimated to be responsible for 70-80% of these vehicle PM emissions (Carnovale et al, 1991: WA DEP, 1996; OLD DOE, 1998).
Current Australian Design Rules ADR 70100 (emissions) and ADR 30100 (smoke) are applied to diesel vehicles first entering the Australian market. These ADRs place limits on emissions of harmful pollutants (CO, HQ NOx and PM) from diesel vehicles. When an original engine has been replaced, the owner is required to demonstrate to State/Territory registration authorities that it is at least of equivalent performance of the original engine.
Registration authorities do not normally require the engine to be tested, however, if the engine is different from the one it replaced, some States and Territories require an engineer's certificate to say that the engine is in good condition, was installed with all the appropriate emissions control equipment intact, and is equivalent to the original engine. However, this process cannot provide assurance that individual engines meet the relevant emissions standards.
For older vehicles the standards in place at the time of manufacture can allow significantly higher emission levels than current and proposed more stringent Australian vehicle emission standards. Hence these engines make a larger contribution to pollution than new engines complying with the current emission standards.
Second hand diesel engines are currently not subject to any regulation in relation to emissions, apart from the requirements of registration authorities outlined above.
3. OBJECTIVES
There are a number of proposals under the Measures for a Better Environment (MBE) element of the Tax Package Agreement, which contribute to Government objectives to reduce the adverse effects of motor vehicle emissions on urban air quality and human health.
The Measures for a Better Environment, in relation to second hand diesel engines specifically states:
"Ensure that motor vehicles retrofitted with imported second hand diesel engines meet Australian emissions standards.
The import of second hand diesel engines which fail to meet current Australian emission standards will be prohibited"
The objective of the regulation is to ensure imported second hand diesel engines meet current Australian emissions standards. thus reducing the adverse effects of emissions from these engines on urban air quality and human health.
4. STATEMENT OF THE PROPOSED REGULATION AND ALTERNATIVES
The proposed regulation involves the introduction of a prohibited import regulation under the Customs (Prohibited Imports) Regulations. The alternatives considered, including the proposed approach, are set out below.
Prior to examining the proposed regulation and alternatives it is beneficial to consider the nature of the engine replacement industry. The majority of business are small businesses that deal in a range of reconditioned and used diesel engines, with some businesses also providing new engines. In addition, there are a large number of small businesses, garages and general mechanical workshops which undertake partial and complete reconditioning of a small number of engines each year. Compilation of industry data is difficult due to the number of businesses involved and because of the proportion of businesses that are also involved in associated automotive activities.
Used diesel engines compete in the vehicle "repowering" market. Vehicle repowering is the replacement or repair of an engine in which there has been some major mechanical failure, or the performance of which has deteriorated to an unacceptable level. The market consists of a range of the following possible options available to the consumer for vehicle repowering: a new engine, a used engine, a fully reconditioned engine, exchange engine or partial reconditioning.
The total demand for vehicle repowering will be influenced principally by the number and age distribution of the diesel vehicle fleet and the price of the various repowering options relative to the price of a replacement vehicle. All alternatives for repowering may not be considered by all vehicle owners. For example, an owner of a vehicle in dilapidated condition would be unlikely to fit a relatively expensive new engine, although a used or partially reconditioned engine may be fitted to extend the life of the vehicle. Alternatively, the owner of a vehicle in relatively good condition in which the engine had developed some major fault, may opt for a more expensive and longer lasting method of repowering as the expected life of the remainder of the vehicle may be many years. For commercial vehicles the latter considerations may influence owners to install a new engine. There is an overlap between the alternatives and a small change in relative cost could alter the decision by a vehicle owner on the method of vehicle repairing. In this regard partial or full reconditioning would be very competitive with the option of fitting a used engine.
There are no domestically manufactured new diesel engines. All new diesel engines are imported. New engines are often unavailable for makes and models of vehicles that have been superseded. Used diesel engines are salvaged from vehicles which have been scrapped, either as a result of accident damage or because they have reached the end of their economic life. Alternatively used diesel engines are imported, with the majority of light commercial engines coming from Japan and heavy duty engines from America. Both locally salvaged and imported engines are reconditioned.
Option A - Special Duty
Option A imposes a special duty on imported diesel engines (say $12,000 per engine(1)) through a new regulation under the Customs Tariff Act 1995. The regulation would explicitly provide that this duty be waived for engines which have been certified by the Department of Transport and Regional Services as complying with the current diesel emission ADRs (ADR 70100 and ADR 30100). Certification of compliance could potentially be demonstrated by the methods in Option B (type approval) or Option C (individual test).
(1) $12,000 is the current special duty applicable to non compliant used vehicles imported into Australia.
On payment of the special duty, importers would be permitted to import engines that do not meet current emission requirements. For the waiver of the duty, importers would have to provide evidence to Department of Transport and Regional Services that the second hand diesel engines complied with current vehicle emission standards.
Identification of Affected Parties
Importers of Second Hand Diesel Engines
The application of the special duty would theoretically allow importers to bring noncomplying engines into Australia. However the $12,000 special duty is likely to deter the importation of such engines due the significant increase in costs, especially for smaller engines.
Engine Manufacturers/importers of New Engines and Components Manufacturers/Importers
With the possible decrease or elimination of some types of second hand imported engines, it is expected that diesel vehicle owners may decide to install new or reconditioned/exchange engines, or have their existing engines reconditioned. This would increase the demand for component parts and new/reconditioned engines.
The Automotive Service Industry
Whilst there may be a reduction in requests to install second hand diesel engines into these vehicles, the service industry may redirect work to reconditioning existing engines, or replacing them with new engines.
Small Business
As mentioned earlier, the majority of businesses in this industry are small businesses. If engines are imported under this option business will incur a small paper work burden in terms of completing documentation to pay the special duty to the Australian Customs Service.
Consumers of Second Hand Diesel Engines
The introduction of a special duty would increase the costs of second hand diesel engines which would be passed onto the consumer, as an increase in the retail price. Engines which did not comply with the ADRs would probably be no longer economical to import (because of the $12,000 duty). The magnitude of the costs for ADR compliant engines would depend on the compliance regime which is applied (see Options B &C). As such consumers may change buying patterns and prefer to purchase a new or reconditioned/exchange engine rather than a second hand engine, or have the existing engines reconditioned. Consumers may also decide to purchase a newer vehicle. This would result in an increase in the turnover of the vehicle fleet which, overall, is likely to have an environmental benefit.
Government
Australian Customs Service - potential costs in administering the special duty, although Customs advise that the $12,000 special duty for imported used vehicles has never been paid. Department of Transport and Regional Services - minimal cost of issuing import approvals.
Option B - Prohibited Import Regulation - Type Approval Process
This Option defines second hand diesel engines as a prohibited import under the Customs (Prohibited Imports) Regulations.
Under this option, the Department of Transport and Regional Services would accept a 'type approval' process for demonstrating compliance with the ADRs. Under this arrangement the importer could gain approvals for multiple engines of the same specified type (based on one set of evidence collected on a "representative" engine submitted to the Department of Transport and Regional Services).
The Australian vehicle certification system is a 'type approval' system. Under this system, a vehicle representing the design of a make-model (the 'type' of vehicle) is tested to demonstrate compliance with all the ADRs applicable to that vehicle category. If the vehicle tested complies, then ail others of the same design (that is, the same 'type') and manufacture are accepted as complying. The 'type approval system' is supported by conformity of production assessments and test facility inspections conducted by the Department of Transport and Regional Services officers or agents. Conformity of production assessments are intended to ensure the vehicle tested is representative of the production vehicles. Whilst test facility inspections are intended to ensure the correct test procedures were followed and proper test instruments used in the test.
The Department of Transport and Regional Services does not itself test vehicles for certification purposes. The manufacturer is responsible for ensuring compliance with the ADRs and even after certification, it always remains the manufacturer's responsibility to ensure that vehicles supplied to the market comply with all the applicable ADRs. The certification process requires the vehicle manufacturer to conduct the tests specified by the various ADRs. The tests can be done in test facilities associated with the manufacturer or in independent facilities in Australia or overseas.
The test required for the prohibitive import regulation would be the certification test outlined in the current diesel vehicle emission standards. There is no internationally recognised short emissions test for diesel vehicles or surrogate test which could be undertaken to demonstrate compliance with the relevant ADRs. There are also currently no test facilities in Australia for testing compliance with ADR 70100 (emissions), although the simpler ADR30100 (smoke) test can be conducted here.
Having conducted the appropriate tests on the representative engine, a test report and other relevant information would be submitted to DoTRS by the importer. DoTRS would then advise Customs that the engines met the applicable ADRs. Customs would then allow the engines to be imported.
Under this Option, it would be necessary for the importers to confirm compliance with current emission standards, prior to the arrival of the engines in Australia.
Identification of Affected Parties
Importers of Second Hand Diesel Engines
The use of a prohibitive import regulation would prevent the importation of second hand diesel engines unless they demonstrate compliance with the current emission standards. Using the type approval system importers could demonstrate compliance of a "representative" engine of a particular type, and then import any number of that particular type of engine. There would be an increase in the cost of importing an engine, as the importer would have to pay for a full certification emissions test. The cost of testing the engine would be amortised over the number of that type of engine. If the demand for a particular type of engine is small, the increase in cost of demonstrating a compliance may lead to commercial decision not to import that particular type of engine.
Engine Manufacturers/Importers of New Engines and Component Manufacturers/Importers
With the possible decrease or elimination of some types of second hand imported engines, it is expected that diesel vehicle owners may decide to install new or reconditioned/exchange engines, or have their existing engines reconditioned. This would increase the demand for component parts and new/reconditioned engines.
Manufacturers and Importers of Component Parts
There may be an increase in the demand for component parts for reconditioning of existing engines.
The Automotive Service Industry
Whilst there may be a reduction in requests to install second hand diesel engines into these vehicles, the service industry may be redirect work to reconditioning the existing engines, or replacing them with new engines.
Small Business
If engines are imported under this option, business will incur a small paper work burden in terms of arranging for the engines to be tested, completing documentation on the importation of the engines for submission to the Department of Transport and Regional Services, and provision of the import approval to the Australian Customs Service. It is envisaged that a processing fee would apply for the importation of used diesel engines in the order commensurate for that of importing a motor vehicle, which is currently $50.00. In addition a fee would be applied for the examination of the type approval documentation.
Consumers of Second Hand Diesel Engines
The introduction of a prohibited import regulation using the type approval process would increase the costs of second hand diesel engines which would be passed onto the consumer, as an increase in the retail price. As such consumers may change buying patterns and prefer to purchase a new/reconditioned rather than second hand engine, or have the existing engine reconditioned. Consumers may also decide to purchase a newer vehicle. This would result in an increase in the turnover of the vehicle fleet which is likely to have an environmental benefit.
Government
Australian Customs Service - minimal cost in administering the Regulation. Department of Transport and Regional Services - minimal cost in issuing import approvals and examining test report evidence to confirm conformity with the type approval. Substantial costs in conducting test facility inspections.
Option C - Prohibited Import Regulation - Certification Testing of Individual Engines
This Option defines second hand diesel engines as a prohibited import under the Customs (Prohibited Imports) Regulations.
Under this option, the DoTRS process would be as for Option B, except that a test report would be required for each individual engine (ie. not a type approval system). The importer would be required to have each engine undergo a full certification test, as specified in the current emission ADRs and the test report provided to the Department of Transport and Regional Services for approval to import the engine.
Under this Option, it would be necessary for the importers to confirm compliance with current emission standards for each engine, prior to the arrival of the engines in Australia.
Identification of Affected Parties
Importers of Second Hand Diesel Engines
Requiring a certification emissions test for each individual engine would significantly increase the cost of these engines. It is expected that the cost and inconvenience of having to test each individual engine, (particularly for smaller engines) may eliminate the importation of any second hand diesel engines (except perhaps some high value larger engines).
Engine Manufacturers/Importers of New Engines and Component Manufacturers/Importers
With the possible elimination of second hand imported engines, it is expected that diesel vehicle owners may decide to recondition their existing engines or install new or reconditioned/exchange engines. This may result in an increase in the demand for component parts and/or new/reconditioned engines.
The Automotive Service Industry
Whilst there would be a reduction in requests to install second hand diesel engines into these vehicles, the service industry may redirect work to reconditioning existing engines, or replacing them with new engines.
Small Business
If engines are imported under this option business will incur a small paper work burden in terms of arranging for the engines to be tested, completing documentation on the importation of the engines for submission to the Department of Transport and Regional Services, and provision of the import approval to the Australian Customs Service. It is envisaged that a processing fee would apply for the importation of each used diesel engine in the order commensurate for that of importing a motor vehicle, which is currently $50.00. A fee would also be applied for the examination of each test report to ensure compliance with the current emission ADRs.
Consumers of Second Hand Diesel Engines
The introduction of a prohibited import regulation requiring the testing of individual engines would significantly increase the costs of second hand diesel engines. It is expected that the increase in cost would not make it commercially viable to import these engines. This would remove the choice of consumers to install an imported second hand diesel engine. Consumer choice would be limited to purchasing a new or reconditioned diesel engine, or have the existing engine reconditioned. Consumers may also decide to purchase a newer vehicle. This would result in an increase in the turnover of the vehicle fleet which is likely to have an environmental benefit.
Government
Australian Customs Service - minimal cost in administering the Regulation. Department of Transport and Regional Services - minimal cost in issuing import approvals and examining test reports to ensure compliance with the current emission ADRs. Substantial costs in conducting test facility inspections.
Comparative Assessment
The effectiveness of each of the options presented must be considered in light of the Measures for a Better Environment Agreement between the Government and the Australian Democrats. In relation to second hand diesel engines the agreement specifically states.
"Ensure that motor vehicles retrofitted with imported second hand diesel engines meet Australian emission standards.
The import of second hand diesel engines which fail to meet current Australian emission standards will be prohibited."
Of the three options presented to give effect to this requirement, the preferred option is Option C (Prohibited Import Regulation - Certification Testing of Individual Engines).
Option A (Special Duty) is not considered further as it would still allow the importation Of such engines into Australia (albeit at an increased cost) which would not comply with Measures for a Better Environment Whilst the amount of the duty could be increased to ensure that it is uneconomical to import these engines, the Australian Customs Service has advised that if the intention is to prohibit the importation of the engines unless they comply with current emission standards, then as a matter of principle it would be more appropriate to treat the engines as a prohibited import, rather than apply an artificial duty to achieve the same outcome.
Option B (Prohibited Import Regulation - Type Approval Process) is not considered further due to the considerable variability in emissions performance of second hand engines.
The type approval process is appropriate for new engines, because there is reasonable assurance that the manufacturing process, subject to a quality assurance system and independent audit, produces an engine of the same specification and performance. However, once an engine has been in use there is no such assurance. A single engine may not be representative of other engines of that type, as the condition of second hand engines varies depending on a wide range of factors including:
* the atmospheric condition of where the engine has been used;
* the regularity of oil changes.,
* the type of fuel used;
* the use pattern of the engine (diesel engines wear out quicker for short stop and start usage compared to long haul usage); and
* the distance travelled.
Extensive testing undertaken on passenger cars in Australia (FORS, 1996) confirms that there is considerable variability in emissions performance from in service vehicles of identical model and vintage. It is reasonable to conclude that similar levels of variability would be found in the diesel fleet.
In addition the type approval process would require confirmation that the specification of all engines are of the same type tested.
Given the above, the only option pursued further in this analysis is Option C.
The Measures for a Better Environment Agreement and hence the objectives of the regulation cannot be met without restricting competition. Used diesel vehicles will not be permitted into Australia unless they comply with the current emission standards. While imported used engines must meet current emission standards, locally sourced or reconditioned engines are required to meet the emission standards at the time of manufacture of the engine or vehicle, whichever is the later, and usually State and Territory authorities do not require full emission testing of used/reconditioned engines.
It is anticipated that the cost of undertaking an emissions test will result in limited or no used diesel engines being imported. As both the reductions in emissions from the total vehicle fleet and the costs to the transport industry are relatively small, it is difficult to indicate whether the benefits of the restriction on competition as a whole would outweigh the costs.
5. IMPACT ANALYSIS/COST AND BENEFITS
In assessing the impact of the proposed regulation, it is apparent that the main benefits stem from improvements in emissions performance. It is widely acknowledged there have been improvements in air quality as a result of the introduction of tighter vehicle emissions standards for new vehicles. However, there are significant improvements to be made from the introduction of complementary inservice initiatives.
There are considerable uncertainties surrounding the nature and extent of benefits associated with air pollution improvements which would result from imported second hand diesel engines complying with current emission standards. The vehicle related pollutants for diesel vehicles with the most significant links to health are oxides of nitrogen (NOx) (which contributes to photochemical smog and particulates (PM). Diesel vehicles are major sources of these two pollutants.
Data from Sydney, Melbourne and Brisbane indicate that motor vehicles are responsible for around 80% of total NOx emissions, with diesel trucks and buses contributing about 40% of these vehicle emissions (NSW EPA, 1996, Carnovale et al 1991). In relation to particulates, a New South Wales study estimates that road transport was responsible for about 30% of particulates emissions, with commercial vehicles being the most significant emitter (NSW EPA 1996). Diesel vehicles are estimated to be responsible for 70-80% of these vehicles PM emissions (Carnovale et al 1991, WA DEP, 1996)
The main health effects of fine particles and NOx include: Increased frequency of asthma attacks; Increased potential for severe respiratory distress and heart attacks; Increased mortality due to heart disease and respiratory illnesses; and Increased potential for heart disease and related complications.
Whilst it is difficult to calculate the cost of emissions, it is estimated that the present health cost of ail diesel related air emissions is estimated at $400 - $600 million per annum (MVEC, 1998).
It is not possible to determine what proportion of these health costs is attributable to imported second hand diesel engines. However, it is likely to be small given the average number of second hand diesel engines(2) imported from 1996 to 1998 is approximately 4,900, which represents less than 1% of the total diesel motor vehicle fleet (based on the ABS 1995 Motor Vehicle Census). The number and customs value of these engines is represented in Table 1.
(2) Customs and ABS terminology classifies these engines as 'used' diesel engines.
Table 1. Number and value of imported second hand diesel engines
Year Number Value
1996 4,598 $4.2m
1997 5,314 $5.3m
1998 4,802 $5.2m
Source: Australian Bureau of Statistics (ABS 1999)
The majority of the imported second diesel engines are imported from Japan and the USA. As illustrated in Figure 1, the majority of light and medium duty engines are from Japan with an increasing number from USA in the heavy duty sector.
Figure 1: Percentage of Second Hand Diesel Engines by Category and
Country of Origin
(GRAPH OMITTED)
Year and Category of Engine
Source: Austrauan Bureau of Statistics (ABS. 1999)
The operation of the prohibitive import will. require that the emission tests be undertaken overseas, and a statement of compliance issued by the Department of Transport and Regional Services would enable a compliant engine to be imported. The requirement to test each individual engine will impose an inconvenience for importers having to find a suitable testing facility to undertake the test and impose a significant cost in terms of paying for the test. The cost of testing a light duty petrol engine in Australia is in the vicinity of $2,000. It is estimated that the cost of testing a heavy duty diesel engine overseas would be in the range of $10,000 to $15,000. It is considered that this additional cost would remove any cost advantage (particularly for small and medium engines) imported engines have over local second hand or reconditioned engines. Given that in 1998 the average customs value of an imported light duty diesel engine was $947, a medium duty engine $993 and heavy duty engine $1,865, the requirement to pay for a certification test would at least double the cost of the engine. The likely result would be that the second hand diesel engines would no longer be imported into Australia. This would have an impact on small businesses operating in this field.
Currently consumers have a choice of whether they replace their existing engines with an imported second hand engine, a reconditioned/exchange engine or a new engine (if one is compatible with the vehicle). It is difficult to ascertain the difference in cost of these three options as it varies depending on the vehicle make/model and age. Supply and demand is a contributing factor.
Discussions with the industry allow the following general description of the diesel engine market:
* the majority of imported second hand diesel engines are imported from Japan (78%) and the USA (12%) (ABS 1999);
* second hand diesel engines are the cheapest replacement option, however there is an element of risk involved regarding the engines reliability and performance
* importers may submit the engine to a simple test to ascertain that the engine will
operate satisfactorily , however, such a test does not include emissions
performance;
* smaller engines are often purchased in a bulk lot, of which a number may prove to be
non-functional. Of these some are reconditioned, others dismantled for parts;
* in some cases it is difficult to obtain component/ancillary parts for second hand
imported engines;
* imported second hand engines are between 10% and 50% cheaper than a
reconditioned/exchange engine; and
* for older vehicles, new engines of the same specification are often not available, and the cost installing a newer engine is often greater than the value of the vehicle.
The overall net impact of the introduction of this regulation is an increase in the cost of imported second hand diesel engines which would most likely result in the importation of these engines being no longer commercially viable. The removal of second hand diesel engines from the market would limit consumer choice and may increase the costs to the vehicle owner in terms of having to have their existing engine reconditioned or alternatively installing a new engine. The total cost of this impact has not been quantified. There would be some benefits in terms of reduced emissions, but these could not be estimated without extensive research.
6. CONSULTATION
The Tax Package Agreement was developed at the highest level of Government. NO formal consultation process was undertaken.
7. CONCLUSION AND RECOMMENDED OPTION
The Measures for a Better Environment Section of the Tax Package Agreement clearly states that the Government would ensure that motor vehicles retrofitted with imported second hand diesel engines meet current Australian emission standards. The agreement states further that the import of second hand diesel engines which fail to meet current Australian emission standards will be prohibited" (see Attachment A).
The main issue discussed in this regulation impact statement has been how to implement this decision. Three options were considered: Option A - application of a special duty; Option B -prohibitive import regulation based on a type approval process, and Option C - prohibitive import regulation requiring individual engine testing.
It is considered that Option A is not within the spirit of the MBE as it would still allow the importation of vehicles that do not meet the current emission standards. Option B is not favoured due to the considerable variability in the emissions performance of second hand engines. The only method of establishing compliance with current emission standards, in accordance with the MBE is to require that each engine be individually tested (Option C). This requirement involves undertaking a full certification test as outlined in the Australian Design Rules applicable at the date of importation.
It is noted that in meeting this requirement importers of diesel engines will incur significant cost increases which would severely impact on the cost effectiveness of importing the engines and hence the viability of businesses operating in this field. For larger engines costs may be passed onto consumers in higher prices for these engines. Consumers are likely to consider the costs too high and opt for alternative solutions such as reconditioning existing engines or installing new engines.
Option C would provide for the highest reductions in emissions compared to Option A and B. It is difficult however, to determine the benefits in terms of reduced health costs as a result of better air quality, but the net benefits are likely to be small.
8. IMPLEMENTATION/REVIEW
The Prohibited Import Regulation on second hand diesel engines will be implemented under the Customs (Prohibited Imports) Regulations.
A new Regulation (4C) will be inserted into the Customs (Prohibited Imports) Regulations which authorizes the Minister for Transport and Regional Services or his delegate to grant permission for the importation of second hand diesel engines.
Several sections of this Regulation (4C) of the Customs (Prohibited Imports) Regulations determine that the Minister (or his delegate) may grant or refuse the permission. The permission may specify conditions or requirements to be complied with by the holder of the permission and specify a time in which these conditions or requirements are to be met.
The Minister may revoke or modify a permission if they believe the conditions and requirements have not been met or not likely to be met.
The Australian Customs Service continually reviews the Prohibited Import Regulations in order to ensure that they accurately reflect community protection and safety issues.
In twelve to eighteen months the Department of Transport and Regional Services will review the implementation of the regulation in order to ensure that the objective of ensuring imported used diesel engines that are imported comply with the current diesel emission standards, is met. There are no mechanisms in place which would enable the Department to review the impact of the regulation on consumer behaviour, in terms of what repowering option they are utilising (fitting a new engine, fitting a reconditioned engine, reconditioning their own engine, fitting a second engine supplied by a domestic source or purchasing a new vehicle).
The Measures for a Better Environment (MBE) statement included a broad range of environmental initiatives. Two other aspects of the agreement aimed at addressing vehicle emission include:
* introducing a program for stringent new vehicle new emission standards for petrol and diesel vehicle to take effect from 2002; and
* Introducing a program to progressively lower sulfur levels in diesel fuel from next year - down to a level of just 50 parts per million by 2006.
Due to these MBE initiatives and anticipated changes to other fuel parameters, it would be extremely difficult to isolate the contribution of the prohibited import to improvements to vehicle emissions.
REFERENCES
ASS 1996, Motor Vehicle Census, Catalogue No 9309.0, Australian Bureau of Statistics, 31 October 1999
ASS 1999, Import Statistics on Used Diesel Engines provided to the Department of Transport and Regional Services by the Australian Bureau of Statistics, August 1999
Carnovale, F., Alviano, P., Carviaho, C., Deitch, G,, Jiang, S., Macaulay, D. & Summers, M. (1991) Air Emissions Inventory of the Port Phillip Control Region: Planning for the Future, Environment Protection Authority of Victoria, Melbourne. Victoria.
Coffey Partners (1996) Parameter projections for the reviews of ADR 37101 and ADR 70/00 by ACVEN, report prepared for Department of Transport, Federal Office of Road Safety, Hawthorn, Victoria.
FORS (1996), Motor Vehicle Pollution in Australia, Report on the National In-Service Vehicle Emissions Study, Federal Office of Road Safety, May 1996, Canberra
MVEC (1998), Review of Australia's Vehicle Emissions Standards, Public Comment Document, Motor Vehicle Environment Committee, October 1998, Canberra,
NSW EPA (1996) Metropolitan Air Quality Study.. Outcomes and Implications for Managing Air Quality, NSW.
NSW EPA (1999) Preliminary Economic Analysis of Adopting New Vehicle Emissions Standards, New South Wales Environment Protection Authority, April 1999.
Prime Minister, 1999, Changes to the Goods and Services Tax (GST), Media Statement, The Hon John Howard MP, 31 May 1999.
QLD DOE (1998) Draft Strategy for Managing Air Quality in South-East Queensland, Queensland Department of the Environmental, February 1998
WA DEP (1996) The Perth Haze Study 1994-96 - Summary and Major Findings, Department of Environmental Protection, Perth, November 1996
ATTACHMENT A (Regulation Impact Statement)
MEASURES FOR A BETTER ENVIRONMENT
Ensure that motor vehicles retrofitted with imported second hand diesel engines meet Australian emission standards
The import of second hand diesel engines which fail to meet current Australian emission standards will be prohibited.
Around 5,000 second hand, replacement diesel engines enter Australia each year. Many of these engines generate emissions which exceed current Australian standards.
Australian Design Rules ADR 70 (emissions) and ADR 30 (smoke) are applied to vehicles first entering Australia. When an engine has been replaced, the owner is required to demonstrate compliance with the vehicle's design standard, or the design standard of the engine, if that is newer. However, the States do not afford a high priority to policing this requirement and for older vehicles the standards can allow significantly higher pollution than contemporary and proposed Australian standards.
The scheme will be implemented either under Customs legislation or by an amendment of the Motor Vehicle Standards Act to provide for regulation of imported diesel engines installed in inservice vehicles.