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CUSTOMS (CHILEAN RULES OF ORIGIN) REGULATIONS 2008 (SLI NO 254 OF 2008)
EXPLANATORY STATEMENT
Select Legislative Instrument 2008 No. 254
Issued by the Authority of the Minister for Home Affairs
Customs Act 1901
Customs (Chilean Rules of Origin) Regulations 2008
Subsection 270(1) 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, or as may be necessary or convenient to be prescribed, for giving effect to the Act.
The Customs Amendment (Australia-Chile Free Trade Agreement Implementation) Act 2008 (the FTA Act) amends the Act to fulfil Australia's obligations under Chapter 4 of the Australia-Chile Free Trade Agreement (the Agreement), which deals with rules of origin and is expected to come into force for Australia in early 2009. The rules of origin determine whether goods imported into Australia are Chile originating goods and are thereby eligible for preferential rates of customs duty. These rules are contained in new Division 1F of Part VIII of the Act (new Division 1F).
Relevant provisions of the FTA Act which amend the Act are expressed to commence on the later of 1 January 2009 or the entry into force of the Agreement. Details of the commencement provisions are set out in Attachment A.
The purpose of the Regulations is to prescribe matters relating to the rules of origin that are required under new Division 1F (Chilean originating goods). The relevant provisions of new Division 1F are set out in Attachment B.
The Regulations:
· set out a table in Schedule 1 detailing the product-specific requirements relevant to each tariff classification for goods;
· explain the method used to determine the regional value content of the goods for the purposes of some of the product-specific requirements set out in new Schedule 1;
· specify the valuation rules for different classes of goods; and
· prescribe other matters that are required to be prescribed under new Division 1F.
Details of the Regulations are set out in Attachment C.
No consultation was undertaken specifically in relation to the Regulations as they implement Australia's international obligations under the Agreement.
The Regulations commence on the commencement of Schedule 1 to the FTA Act.
0821502A
ATTACHMENT A
ATTACHMENT B
DETAILS OF PROVISIONS IN NEW DIVISION 1F OF PART VIII OF THE CUSTOMS ACT 1901 RELEVANT TO THE CUSTOMS (Chilean Rules of Origin) REGULATIONS 2008
The Customs Amendment (Australia-Chile Free Trade Agreement Implementation) Act 2008 (the FTA Act) inserts new Division 1F of Part VIII into the Customs Act 1901 (the Act). New Division 1F of Part VIII of the Act (new Division 1F) contains the rules of origin set out in Chapter 4 of the Australia-Chile Free Trade Agreement (the Agreement). These rules determine whether goods imported into Australia are Chilean originating goods and are thereby eligible for preferential rates of customs duty.
Subdivisions C and D of new Division 1F relates to goods produced entirely in Chile or entirely in Chile and Australia and produced wholly or partly from non-originating materials (relevant goods).
Under new subsection 153ZJB(1) of the Act, 'non-originating materials' means goods that are not originating materials. 'Originating materials' is further defined to mean:
(a) Chilean originating goods that are used in the production of other goods; or
(b) Australian originating goods that are used in the production of other goods; or
(c) indirect materials, being the following:
(i) goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods; or
(ii) goods or energy used in the maintenance of buildings or the operation of equipment associated with the production of the goods.
New section 153ZJE of the Act provides that goods are Chilean originating goods if:
(a) they are classified to a heading or subheading of the Harmonized System specified in column 1 of the table in Schedule 1 to the Customs (Chilean Rules of Origin) Regulations 2008;
(b) they are produced entirely in the territory of Chile, or entirely in the territory of Chile and the territory of Australia, from non-originating materials only or from non-originating materials and originating materials;
(c) each requirement that is specified in the regulations to apply in relation to the goods is satisfied; and
(d) the importer of the goods has, at the time the goods are imported, a Certificate of Origin, or a copy of one, for the goods.
One of the requirements that may be specified in the regulations is the change in tariff
classification. Under new subsections 153ZJE(2) and (3) of the Act, the regulations may make it a requirement that each non-originating material used in the production of the good must satisfy a particular change in the tariff classification and when the material is taken to satisfy the change. The Regulations contain this requirement and also specify each particular change in tariff classification for each relevant heading or subheading of the Harmonized System.
Another of the requirements that can be specified in the regulations is a regional value content (RVC) requirement. New subsection 153ZJE(5) of the Act provides that the regulations may make it a requirement that the goods must satisfy a RVC requirement. Under new subsection 153ZJB(2) of the Act, the regulations may prescribe different RVC requirements for different kinds of goods. The Regulations set out the RVC requirement and specify only one method of calculating RVC.
For the purposes of new Division 1F, new subsection 153ZJB(3) provides that the value of goods is to be worked out in accordance with the regulations, and the regulations may prescribe different valuation rules for different kinds of goods.
The Regulations prescribe how the value of non-originating materials is to be worked out for the purposes of new Division 1F and the Regulations.
Under new subsection 153ZJE(6) of the Act, the regulations must require the value of accessories, spare parts, tools or instructional or other information resources imported together with the goods to be taken into account as non-originating materials for the purposes of any RVC requirement applicable to the goods. For the purposes of new subsection 153ZJE(6) of the Act, the Regulations require that the value of such accessories, spare parts, tools or instructional or other information resources be taken into account for the purposes of any RVC requirement applicable to goods, and prescribe how such value is to be worked out and taken into account.
Under new subsection 153ZJF(2) of the Act, the regulations must require the value of certain packaging materials or containers used to package goods for retail sale to be taken into account for the purposes of any RVC requirement applicable to the relevant goods. For the purposes of new subsection 153ZJF(2) of the Act, the Regulations require the value of such packaging materials or containers to be taken into account for the purposes of any RVC requirement applicable to the relevant goods, and prescribe how such value is to be worked out and taken into account.
ATTACHMENT C
DETAILS OF THE CUSTOMS (CHILEAN RULES OF ORIGIN) REGULATIONS 2008
Regulation 1.3 - Definitions
This regulation provides that for the purpose of the Regulations the term 'Act' means the Customs Act 1901 (the Act), and that the words and expressions 'Agreement', 'Chilean originating goods', 'Harmonized System', 'Interpretation Rules', 'non-originating materials', 'originating materials' and 'produce' have the same meaning as in Division 1F of Part VIII of the Act.
Subregulation 2.1(1) - Tariff change requirement for non-originating materials
This regulation provides that for subsection 153ZJE(2) of the Act, each non-originating material used to produce goods must satisfy a particular change in tariff classification. This requirement only applies to non-originating materials. The particular change in tariff classification for each relevant heading or subheading of the Harmonized Commodity Description and Coding System (the Harmonized System) is included in the table in Schedule 1 to the Regulations.
Under new subsection 153ZJB(1) of the Act, 'non-originating materials' means goods that are not originating materials. 'Originating materials' is defined to mean:
(a) Chilean originating goods that are used in the production of other goods; or
(b) Australian originating goods that are used in the production of other goods; or
(c) indirect materials, being the following:
(i) goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods; or
(ii) goods or energy used in the maintenance of buildings or the operation of equipment associated with the production of the goods.
Subregulation 2.1(2) provides that each non-originating material used to produce goods is taken to satisfy a particular change in tariff classification if:
(a) it satisfies the change in tariff classification mentioned in column 3 of the table in Schedule 1 opposite the heading or subheading that applies to the good; or
(b) it does not satisfy the change in tariff classification mentioned in paragraph (a), but:
(i) it was produced entirely in the territory of Chile or in the territory of Chile and the territory of Australia from other non-originating materials; and
(ii) each of those materials satisfies the change in tariff classification mentioned in paragraph (a), including by one or more applications of this subregulation.
Paragraph (b) gives effect to the accumulation provisions contained in Article 4.4 of the Agreement and applies where the non-originating materials that are used to directly produce the final good do not satisfy the change in tariff classification.
In producing a final good, a producer may use goods that are produced in Chile by another producer. The components of these goods may be produced by yet another producer in Chile or imported into Chile. It is possible that the change in tariff classification rule may not be satisfied at each step in the production process from the imported component to the final goods which may mean that the final goods are non-originating.
In such circumstances, it may be possible to examine each step in the production process of each non-originating material that occurs in Chile or Australia in order to determine whether each step satisfies the change in tariff classification rule for the final goods directly from that step to the final goods. If this does occur, the material will be an originating material and the final goods may be originating goods (subject to satisfying all other requirements of new Division 1F of Part VIII of the Act). This is how paragraph 2.1(2)(b) of the Regulations is to operate.
The following example, with diagram and explanation, also clearly demonstrates the operation of paragraph 2.1(2)(b).
Example: The following diagram relates to the production of particular goods that occurs entirely in the territory of Chile. The diagram and accompanying text illustrate the application of paragraph 2.1(2)(b).
The goods are produced from non-originating materials 1 and 2.
First application of paragraph (b)
Non-originating materials 1 and 2 must satisfy the change in tariff classification. Under paragraph 2.1(2)(a), non-originating material 1 does satisfy the relevant change in tariff classification. Under paragraph 2.1(2)(b), non-originating material 2 does not satisfy the relevant change in tariff classification, but it has been produced by non-originating materials 3 and 4.
Second application of paragraph (b)
Non-originating materials 3 and 4 must satisfy the change in tariff classification. Under paragraph 2.1(2)(a), non-originating material 3 does satisfy the relevant change in tariff classification. Under paragraph 2.1(2)(b), non-originating material 4 does not satisfy the relevant change in tariff classification, but it has been produced by non-originating material 5.
Third application of paragraph (b)
Non-originating material 5 must satisfy the change in tariff classification. Under paragraph 2.1(2)(a), non-originating material 5 does satisfy the relevant change in tariff classification.
Final Result
The result of the 3 applications of paragraph (b) is that non-originating material 2 does satisfy the transformation test. This means, subject to all other requirements of new Division 1F of Part VIII of the Act being satisfied, that the goods would be Chilean originating goods and thereby eligible for preferential rates of customs duty.
Regulation 3.1 - Regional value content
New subsection 153ZJE(5) of the Act provides that the regulations may specify that goods are required to have a regional value content of at least a specified percentage. The regional value content for each relevant heading or subheading of the Harmonized System is included in the table in Schedule 1 to the Regulations. New subsection 153ZJB(2) provides that the regulations may prescribe different regional value content requirements for different kinds of goods. At this stage, regulation 3.1 specifies only one method for calculating the regional value content.
Regulation 3.1 provides that for the purposes of new Division 1F of Part VIII of the Act and the Regulations, the regional value content is worked our using the build-down method. For Part 3, the abbreviated "RVC" means 'regional value content'.
The Note at the end of regulation 3.1 provides that for Part 3 value of non-originating materials is calculated using Part 4 of the Regulations.
Regulation 3.2 - Build-down method
Subregulation 3.2(1) provides that the build-down method is the formula:
where:
adjusted value means the customs value of the goods, as worked out under Division 2 of Part VIII of the Act; and
value of non-originating materials means the value of non-originating materials that are acquired and used in the production of the goods. The value of these non‑originating materials is worked out under Part 4 of the Regulations.
Subregulation 3.2(2) provides that RVC is to be expressed as a percentage.
Under the build-down method, the RVC calculation requires the determination of the percentage of non-originating materials used in the production of the goods.
For example, an electric toaster is made from non-originating toaster housing. Each toaster is sold for $5.00 and the value of the non-originating parts is $2.00. Using the build-down method, the RVC is calculated as follows:
RVC = $5.00 - $2.00 x 100
$5.00
Therefore, the RVC equals 60%.
For the purposes of Division 1F, new subsection 153ZJB(3) provides that the value of the goods is to be worked out in accordance with the regulations, and the regulations may prescribe different valuation rules for different kinds of goods.
Part 4 deals with the determination of the value of different kinds of goods for the purposes of new Division 1F and the Regulations.
Regulation 4.1 - Value
Regulation 4.1 sets out, for the purposes of new Division 1F and the Regulations, how the value of materials is to be worked out.
Subregulation 4.1(1) provides that the value of materials is to be worked out using the principles set out in the following table:
|
Item |
Non-originating Materials |
Principles |
|
1 |
Non-originating materials imported into the territory of Chile by the producer of goods that are produced using the non-originating materials |
The value is the value (the Chile adjusted value) worked out under Law No. 19.912 published on 4 November 2003 in the Official Journal of the Republic of Chile. |
|
2 |
Non-originating materials: (a) acquired in territory of Chile and used in the production of the goods in Chile; and (b) not imported into the territory of Chile by the producer of the goods |
The value is the Chile adjusted value, worked out as if the non-originating materials had been imported into Chile and as if the producer of goods were the importer |
Subregulation 4.1(2) provides that for materials that are non-originating materials mentioned in item 1 of the table, their value must exclude the costs of the following matters, to the extent that they have not been taken into account in calculating the Chile adjusted value of the goods:
(a) freight, insurance, packing, shipping and any other transportation within the territory of Chile for the non-originating materials to reach the place of production;
(b) duties, taxes and customs brokerage fees on the non-origination materials that:
(i) have been paid in Chile; and
(ii) have not been refunded; and
(iii) are not refundable or otherwise recoverable;
including any credit against duties or taxes that have been paid or are payable;
(c) if the non-originating material have been imported from the territory of Australia:
(i) waste and spoilage resulting from the use of the non-originating materials in the production of goods in the territory of Chile; and
(ii) processing in the territory of Australia that contributed to the production of the non-originating materials; and
(iii) originating materials used in the production of the non-originating materials in the territory of Australia.
Subregulation 4.1(3) provides that for materials that are non-originating materials mentioned in item 2 of the table, their value must exclude the following matters, to the extent that they have been taken into account in the calculation of the Chile adjusted value of the goods:
(a) freight, insurance, packing and any other transportation within the territory of Chile for the non-originating materials to reach the place of production;
(b) duties, taxes and customs brokerage fees on the non-origination materials that:
(i) have been paid in Chile; and
(ii) have not been refunded; and
(iii) are not refundable or otherwise recoverable;
including any credit against duties or taxes that have been paid or are payable;
(c) waste and spoilage resulting from the use of the non-originating materials in the production of goods in the territory of Chile;
(d) processing in the territory of Chile that contributed to the production of the non-originating materials;
(e) originating materials used in the production of the non-originating materials in the territory of Australia.
Regulation 4.2 - Value of accessories, spare parts, tools and instructional or other information resources
Under new subsection 153ZJG of the Act, if goods are imported into Australia with accessories, spare parts, tools or instructional or other information resources, then the accessories, spare parts, tools and instructional or information resources are Chilean originating goods if:
(a) they are accessories, spare parts, tools or instructional or other information resources in relation to other goods; and
(b) the other goods are imported into Australia with the accessories, spare parts, tools or instructional or other information resources; and
(c) the other goods are Chilean originating goods; and
(d) the accessories, spare parts, tools or instructional or other information resources are not invoiced separately from the other goods; and
(e) the quantities and value of the accessories, spare parts, tools or instructional or other information resources are customary for the other goods.
However, new subsection 153ZJE(6) provides that, in working out if the goods are Chilean originating goods, if the goods must have a RVC of at least a particular percentage, the regulations must require the value of the accessories, spare parts, tools or instruction or other information resources to be taken into account as non-originating materials for the purposes of working out the regional value content of the goods.
Regulation 4.2 sets out the requirements for the purpose of new subsection 153ZJE(6) of the Act. The value of accessories, spare parts, tools and instructional or other information resources is to be worked out under regulation 4.1 as if the accessories, spare parts, tools or instructional or other information resources were non-originating materials used in the production of the goods.
Under new subsection 153ZJF(1) of the Act, if:
(a) goods are packaged for retail sale in packaging material or a container; and
(b) the packaging material or container is classified with the goods in accordance with Rule 5 of the Interpretation Rules of the Harmonized System;
then the packaging material or container is to be disregarded for the purposes of new Division 1F, with 1 exception.
Under new subsection 153ZJF(2), the exception is that if the goods are required to have a RVC of at least a particular percentage and the packaging material or container is a non-originating material, the regulations must require the value of the packaging material or container to be taken into account as a non-originating material for the purposes of working out the RVC of the goods.
Subregulation 4.3(1) provides that for subsection 153ZJF(2) of the Act, if goods are required to satisfy a RVC of at least a specified percentage, and the packaging material or container is a non-originating material, in working out the RVC of the goods, the value of the packaging material or container in which the goods are packaged must be taken into account as a non-originating material for the purposes of working out the RVC of the goods. Subregulation 4.3(2) provides that the value of the packaging material or container is to be worked out under regulation 4.1 as if the packaging material or container were a non-originating material used in the production of the goods.
Schedule 1 sets out the table, which specifies the different product-specific rules of origin applicable to goods for each heading and subheading in the Harmonized System. Schedule 1 also sets out interpretation provision relevant to the product-specific requirements in the table. Schedule 1 is based on Annex 4-C to the Agreement.
Part 1 of Schedule 1 sets out the Interpretation provisions relevant to the product-specific rules of origin specified in the table. Part 2 of Schedule 1 sets out the table.