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CUSTOMS (ASEAN-AUSTRALIA-NEW ZEALAND RULES OF ORIGIN) REGULATIONS 2009 (SLI NO 279 OF 2009)

EXPLANATORY STATEMENT

Select Legislative Instrument 2009 No. 279

Issued by the Authority of the Minister for Home Affairs

Customs Act 1901

Customs (ASEAN-Australia-New Zealand Rules of Origin) Regulations 2009

 

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 (ASEAN-Australia-New Zealand Free Trade Agreement Implementation) Act 2009 (the FTA Act) amends the Act to fulfil Australia's obligations under Chapter 3 of the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (the Agreement), which deals with rules of origin. The rules of origin determine whether goods imported into Australia are AANZ originating goods and are thereby eligible for preferential rates of customs duty. AANZ originating goods are goods from a Party to the Agreement that satisfy the new rules of origin which are contained in new Division 1G of Part VIII of the Customs Act, inserted by the FTA Act(new Division 1G).

The Agreement is expected to enter into force for Australia on 1 January 2010.

Relevant provisions of the FTA Act which amend the Act are expressed to commence on the later of Royal Assent or the day the Agreement enters into force for Australia. 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 will be required under new Division 1G. The relevant provisions of new Division 1G are set out in Attachment B.

The Regulations:

        set out a table in Schedule 1 detailing the product-specific rules relevant to each tariff classification for goods that is listed in the table;

        set out the methods used to determine the regional value content of the goods for the purposes of some of the product-specific rules 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 1G.

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, which will be the later of the day the FTA Act receives the Royal Assent or the day the Agreement enters into force for Australia.

0923265B


 


ATTACHMENT A

DETAILS OF THE COMMENCEMENT PROVISIONS FOR THE CUSTOMS AMENDMENT (ASEAN-AUSTRALIA-NEW ZEALAND FREE TRADE AGREEMENT IMPLEMENTATION) ACT 2009

 

The Customs Amendment (ASEAN-Australia-New Zealand Free Trade Agreement Implementation) Act 2009 (the FTA Act) contains amendments to the Customs Act 1901 (the Act) to implement the rules of origin contained in Chapter 3 of the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (the Agreement). These rules determine whether goods imported into Australia originate in a Party to the Agreement (other than Australia) and are thereby eligible for preferential rates of customs duty. These rules are contained in new Division 1G of Part VIII of the Act, which will be inserted by Schedule 1 to the FTA Act.

New Division 1G will commence when Schedule 1 to the FTA Act commences, pursuant to item 2 of the table in subsection 2(1) of the FTA Act. Under item 2, Schedule 1 will commence on the later of the day the Act receives the Royal Assent or the day on which the Agreement enters into force for Australia. It is expected that the Agreement will enter into force for Australia on 1 January 2010. The item further provides that Schedule 1 will not commence at all if the Agreement does not enter into force for Australia, and that the Minister for Home Affairs must announce by notice in the Gazette the day the Agreement enters into force for Australia.


ATTACHMENT B

DETAILS OF PROVISIONS IN NEW DIVISION 1G OF PART VIII OF THE CUSTOMS ACT 1901 RELEVANT TO THE CUSTOMS (ASEAN-AUSTRALIA-NEW ZEALAND Rules of Origin) REGULATIONS 2009

The Customs Amendment (ASEAN-Australia-New Zealand Free Trade Agreement Implementation) Act 2009 (the FTA Act) will insert new Division 1G of Part VIII into the Customs Act 1901 (the Act). New Division 1G of Part VIII of the Act (new Division 1G) will contain the rules of origin set out in Chapter 3 of the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (the Agreement). These rules determine whether goods imported into Australia are AANZ originating goods and are thereby eligible for preferential rates of customs duty.

Subdivision D of new Division 1G will relate to goods produced wholly or partly from non- originating materials.

Under new subsection 153ZKB(1) of the Act, 'non-originating materials' will mean goods that are not originating materials. 'Originating materials' will be further defined to mean:

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

(b) 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 subsection 153ZKE(1) of the Act will provide that goods are AANZ originating goods if:

(a)    they are classified to a heading or subheading of the Harmonized System specified in column 1 or 2 of the table in Schedule 1 to the Customs (ASEAN-Australia-New Zealand Rules of Origin) Regulations 2009;

(b)   each requirement that is specified in the regulations to apply in relation to the goods is satisfied; and

(c)    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 a change in tariff classification. Under new subsections 153ZKE(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 will be taken to satisfy the change. The Regulations include this requirement and also specify each particular change in tariff classification for each relevant heading or subheading of the Harmonized System that is specified in Schedule 1 to the Regulations.

Another of the requirements that may be specified in the regulations is a regional value content (RVC) requirement. New subsection 153ZKE(6) of the Act will provide that the regulations may specify that the goods are required to have a regional value content of at least a specified percentage. Under new subsection 153ZKB(2) of the Act, the regulations may prescribe different regional value content rules for different kinds of goods. The Regulations set out the RVC requirements and specifies two methods of calculating RVC.

For the purposes of new Division 1G, new subsection 153ZKB(3) will provide 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 originating materials and non-originating materials is to be worked out for the purposes of new Division 1G and the Regulations.

Under new subsection 153ZKE(7) 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 originating materials or non-originating materials, as the case may be, for the purposes of any RVC requirement applicable to the goods. For the purposes of new subsection 153ZKE(7) 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 153ZKH(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 as originating materials or non-originating materials, as the case may be, for the purposes of any RVC requirement applicable to the relevant goods. For the purposes of new subsection 153ZKH(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 goods, and prescribe how such value is to be worked out and taken into account.



ATTACHMENT C

DETAILS OF THE CUSTOMS (ASEAN-AUSTRALIA-NEW ZEALAND RULES OF ORIGIN) REGULATIONS 2009

Part 1 Introductory

Regulation 1.1 - Name of Regulations

This regulation provides that the title of the Regulations is the Customs (ASEAN-Australia-New Zealand Rules of Origin) Regulations 2009.

Regulation 1.2 - Commencement

This regulation provides that the Regulations commence on the commencement of Schedule 1 to the Customs Amendment (ASEAN-Australia-New Zealand Free Trade Agreement Implementation) Act 2009.

Regulation 1.3 - Definitions

This regulation provides that, for the purpose of these regulations, the term 'Act' means the Customs Act 1901 (the Act), and that the words and expressions 'Agreement', 'AANZ originating goods', 'Harmonized System', 'Interpretation Rules', 'non-originating materials', 'originating materials', 'Party' and 'produce' have the same meaning as in Division 1G of Part VIII of the Act.

Under Division 1G of Party VIII of the Act, 'Party' means a Party (within the meaning of the Agreement) for which the Agreement has entered into force. Under Article 3 of Chapter 1 to the Agreement, a Party means an ASEAN Member State or Australia or New Zealand. The ASEAN Member States are Brunei Darussalam, the Kingdom of Cambodia, the Republic of Indonesia, the Lao People's Democratic Republic, Malaysia, the Union of Myanmar, the Republic of the Philippines, the Republic of Singapore, the Kingdom of Thailand and the Socialist Republic of Viet Nam.

Under Article 7 of Chapter 18 of the Agreement, the Agreement cannot enter into force until Australia, New Zealand and at least four ASEAN Member States have notified each Party to the Agreement, in writing, that their internal requirements to implement the Agreement have been completed. However, at that point in time, the Agreement will only enter into force for those countries that have so completed their internal requirements. If there are any ASEAN Member States that have not completed their internal requirements at the time of the initial entry into force of the Agreement, the Agreement shall only enter into force for these countries after the date these countries notify each Party to the Agreement that they have also completed their internal requirements.

If the Agreement is not in force for a Party, new Division 1G will not apply in relation to that Party.

 

Part 2 Production requirement

Regulation 2.1 - Production requirement

Regulation 2.1(1) provides that for paragraph 153ZKE(1)(b) of the Act, if the only requirement mentioned in column 4 of the table in Schedule 1 next to the heading or subheading that applies to goods is that the goods are required to have a regional value content of at least a particular percentage, the final process of production of the goods must be performed in a Party.

Regulation 2.1(2) provides that for paragraph 153ZKE(1)(b) of the Act, goods listed in the table in Schedule 1 that are not goods to which subregulation (1) applies must be produced entirely in one or more Parties from non-originating materials only or from non-originating materials and originating materials. Therefore, if the requirement mentioned in column 4 of the table in Schedule 1 in relation to goods includes a regional value content requirement plus a change in tariff classification requirement, those goods would be subject to this production requirement.

However, this production requirement will not apply in relation to goods in respect of which the requirement in column 4 is that the goods are 'wholly obtained'. 'Wholly obtained' goods are subject to the production requirements that are set out in subsection 153ZKC(2) of the Act, and this is indicated in General Interpretative Note paragraph 2(f), which is set out in Part 1 of Schedule 1 to the Regulations.

Part 3 Tariff classification change requirements

Regulation 3.1 - Tariff classification change requirements for non-originating materials

Subregulation 3.1(1) provides that for subsection 153ZKE(2) of the Act, each non-originating material used to in the production of AANZ originating goods must satisfy the change in tariff classification mentioned in column 4 of the table in Schedule 1 next to the heading of subheading that applies to the goods. This requirement will apply only 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 153ZKB(1) of the Act, 'non-originating materials' will mean goods that are not originating materials. 'Originating materials' is defined as:

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

(b) 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 3.1(2) provides that for subsection 153ZKE(2) of the Act, a non-originating material used in the production of AANZ originating goods that does not satisfy the relevant change in tariff classification is taken to satisfy a particular change in tariff classification if:

(a) it was produced entirely in 1 or more Parties from other non-originating materials; and

(b) each of those materials satisfies the change in tariff classification mentioned in paragraph (a), including by one or more applications of this subregulation.

In producing a final good, a producer may use goods that are produced in a Party by another producer. The components of these goods may be produced by yet another producer in a Party or imported into a Party. 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 a Party or Parties 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 1G of Part VIII of the Act). This is how subregulation 3.1(2) of the Regulations operates.

The following example, with diagram and explanation, also clearly demonstrates the operation of subregulation 3.1(2).


Example: The following diagram relates to the production of particular goods that occurs entirely in a Party. The diagram and accompanying text illustrate the application of subregulation 3.1(2).

The goods are produced from non-originating materials 1 and 2.

First application of subregulation 3.1(2)

Non-originating materials 1 and 2 must satisfy the change in tariff classification. Under subregulation 3.1(1), non-originating material 1 does satisfy the relevant change in tariff classification. Under subregulation 3.1(2), 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 subregulation 3.1(2)

Non-originating materials 3 and 4 must satisfy the change in tariff classification. Under subregulation 3.1(1), non-originating material 3 does satisfy the relevant change in tariff classification. Under subregulation 3.1(2), 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 subregulation 3.1(2)

Non-originating material 5 must satisfy the change in tariff classification. Under subregulation 3.1(1), non-originating material 5 does satisfy the relevant change in tariff classification.

Final Result

The result of the 3 applications of subregulation 3.1(2) is that non-originating material 2 is taken to satisfy the required change in tariff classification. This means, subject to all other requirements of new Division 1G of Part VIII of the Act being satisfied, that the goods are AANZ originating goods and thereby eligible for preferential rates of customs duty.

Part 4 Regional value content requirement

Regulation 4.1 - Regional value content

New subsection 153ZKE(6) of the Act will provide 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 153ZKB(2) will provide that the regulations may prescribe different regional value content rules for different kinds of goods. Part 4 specifies two methods for calculating the regional value content.

Regulation 4.1 provides that for new subsection 153ZKE(6) of the Act, and the Regulations, the regional value content is worked out using the direct method or the indirect/build-down method. For Part 4, the abbreviated "RVC" means regional value content.

Regulation 4.2 - Direct method

The direct method of calculating regional value content uses as its basis the known value of originating materials and direct costs incurred in producing those input materials. This formula would generally be used when there is a relatively high value of originating materials used to manufacture the final goods.

Subregulation 4.2(1) provides that the direct method is the formula:

RVC = x 100

 

value of originating materials + labour costs + overhead costs + profits + other costs

 

 

 

 
where:

value of originating materials means the value of originating materials that are acquired, or self produced, and used by the produced in the production of the goods. The value of these originating materials is to be worked out under Part 5 of the Regulations, which is indicated in the Note to regulation 4.2; and

labour costs means wages, remuneration and other employee benefits associated with the production of goods; and

overhead costs includes the cost of the following (to the extent that the cost can be attributed to the production of the goods):

(a) inspection and testing of materials and goods;

(b) insurance of plant, equipment and materials used in the production of the goods;

(c) dies, moulds and tooling;

(d) depreciation, maintenance and repair of plant and equipment;

(e) interest payments for plant and equipment;

(f) research, development, design and engineering;

(g) the following items in respect of real property used for the production of goods:

(i) insurance;

(ii) rent and lease payments;

(iii) mortgage interest;

(iv) depreciation on buildings;

(v) maintenance and repair;

(vi) rates and taxes;

(h) leasing plant and equipment;

(i) energy, electricity, water and other utilities;

(j) storage of the goods within the place in which the production of the goods occurs;

(k) royalties or licences for patented machines or processes used in the production of the goods or for the right to produce the goods;

(l) disposal of non recyclable waste; and

(m) security within the place in which the production of the goods occurs; and

profit has its ordinary meaning; and

other costs means costs incurred in placing the goods in a ship or other means of transport for exportation and includes transport costs, storage and warehousing costs, port handling fees, brokerage fees and service charges; and

adjusted value means the customs value of the goods, as worked out under Division 2 of Part VIII of the Act.

Subregulation 4.2(2) provides that RVC is to be expressed as a percentage.


Regulation 4.3 - Indirect/build-down method

The indirect/build-down method uses as its basis the value of non-originating materials used to manufacture a product. This formula would generally be used when a high percentage of non-originating materials are used in the manufacture of goods.

Subregulation 4.3(1) provides that the indirect/build-down method is the formula:

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, but does not include the value of non-originating materials that are self-produced. The value of these non‑originating materials is also to be worked out under Part 5 of the Regulations, which is also indicated in the Note to this subregulation.

Subregulation 4.3(2) provides that RVC is to be expressed as a percentage.

Under the indirect/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 using a non-originating toaster housing. Each toaster is sold for $5.00 and the value of the non-originating housing 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 per cent.

Part 5 Determination of value

For the purposes of Division 1G, new subsection 153ZKB(3) will provide 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 5 deals with the determination of the value of different kinds of goods for the purposes of new Division 1G and the Regulations.

Regulation 5.1 - Definition for Part 5

Regulation 5.1 provides that in Part 5 materials means originating materials and non-originating materials.

 

Regulation 5.2 - Value

Regulation 5.2, for the purposes of new Division 1G and the Regulations, sets out how the value of materials is to be worked out.

The principle for calculating the value of materials will depend on whether the materials are imported into a Party by a producer of goods, whether the goods are acquired in a Party by a producer, or whether the materials are self-produced by a producer. The value of materials feeds directly into the above formulae for calculating the regional value content of goods.

Subregulation 5.2(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

Materials imported into a Party by the producer of goods that are produced using the materials

The value is the value worked out under the law of that Party that implements the World Trade Organization Agreement on the Implementation of Article VII of the General Agreement on Tariffs and Trade, done at Marrakesh in 1994

2

Materials:

(a) acquired in territory of a Party and used in the production of the goods in a Party; and

(b) not imported into the territory of a Party by the producer of the goods

The value is the cost of acquisition and the cost of transporting the materials to the producer of the goods where that cost is not included in the acquisition

3

Materials that are self-produced

The value is the sum of all costs incurred by the producer of the materials in producing the materials, including:

(a) the producer's general expenses; and

(b) an amount for profit that is the equivalent of the amount of profit that the producer would make in respect of the materials in the ordinary course of trade.

Subregulation 5.2(2) provides that for materials that are non-originating materials, their value must include the costs of the following matters, to the extent that they have not been taken into account:

(a) the transportation of the non-originating materials to a Party from their country of export; and

(b) insurance related to the transportation of the non-originating materials to a Party from their country of export; and

(c) other services related to the transportation of the non-originating materials to a Party from their country of export.

Regulation 5.3 - Value of accessories, spare parts, tools and certain other materials

Under new subsection 153ZKI 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 will be AANZ 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 accessories, spare parts, tools or instructional or other information resources are not imported solely for the purpose of artificially raising the regional value content of the other goods; and

(d)   the other goods are AANZ originating goods; and

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

(f)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 153ZKE(7) will provide that, in working out if the goods are AANZ 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 originating materials or non-originating materials, as the case may be, for the purposes of working out the regional value content of the goods.

Regulation 5.3 sets out the requirements for the purpose of new subsection 153ZKE(7) of the Act. Regulation 5.3 also provides that the value of accessories, spare parts, tools and instructional or other information resources is to be worked out under Regulation 5.2 as if the accessories, spare parts, tools or instructional or other information resources were materials used in the production of the goods.

Regulation 5.4 - Value of packaging material and container

Under new subsection 153ZKH(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 1G, with one exception.

Under new subsection 153ZKH(2), the exception is that if the goods are required to have a RVC of at least a particular percentage, the regulations must require the value of the packaging material or container to be taken into account as originating materials or non-originating materials, as the case may be, for the purposes of working out the RVC of the goods.

Regulation 5.4 sets out the requirements for the purpose of new subsection 153ZKH(2). Regulation 5.4 also provides that the value of the packaging material or container is to be worked out under Regulation 5.2 as if the packaging material or container were materials used in the production of the goods.

Schedule 1 Product-specific rules of origin from Annex 2 to the Agreement

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 that is specified in the table. Schedule 1 also sets out interpretation provisions relevant to the product-specific requirements in the table. Schedule 1 is based on Annex 2 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.

Schedule 2 - Indicative list of textile finishing processes

Schedule 2 sets out an indicative list of textile finishing processes for the purposes of the Chapter notes to Chapters 50, 52, 53 , 54, 55 and 58 set out in the table in Schedule 1. These Chapter Notes provide as follows:

"For this Chapter, if a claim for origin is based on dyeing, printing and at least 2 subsequent finishing processes, washing or drying are not considered to be finishing processes. An indicative list of finishing processes is set out in Schedule 2."


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