Commonwealth Numbered Regulations - Explanatory Statements

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TRADEX REGULATIONS 2000 NO. 126

STATUTORY RULES 2000 No. 126

Issued by the Authority of the Minister for Industry, Science and Resources

Tradex Scheme Act 1999

Tradex Regulations

Section 49 of the Tradex Scheme Act 1999 (the Act) provides that the Governor-General may make regulations prescribing all matters which are required, necessary or convenient to be prescribed for giving effect to the Act or for the conduct of any business relating to the Tradex scheme. The objective of the Tradex scheme is to provide relief to businesses that currently pay customs duty and other taxes on imported goods which are subsequently exported or used as inputs to exports

The purpose of the proposed Regulations is to specify that goods imported for the specific purpose of undergoing further industrial processing for subsequent export are not liable for repayment of tradex duty and to specify that travellers' cheques are defined as an 'exempt class of goods'.

The Tradex scheme allows most duty drawback users to gain an up-front exemption from customs duties and other taxes, that is, all importers who subsequently export their goods, whether in the same state or incorporated in other goods. However, under sub-section 2 1 (1) of the Act, goods imported for the specific purpose of undergoing further industrial processing could be liable for repayment of tradex duty since they could be considered 'used or consumed' according to the ordinary meaning of the expression 'used or consumed'.

The Act includes the facility to include 'exempt goods'. Section 4 defines 'exempt goods' as a class of goods declared by the regulations to be goods in respect of which some or all of the requirements of the Drawback Regulations (that is, regulations in force under section 168 of the Customs Act 1901) may not be able to be complied with.

Currently, blank travellers' cheques cannot be entered into Australia under the duty drawback scheme and are ineligible for Tradex because once the cheque is purchased and passed to the customer it assumes the character of a used document and is second hand, even though it has not been cashed by the customer overseas.

The Regulations will:

*       Include travellers' cheques as 'exempt goods' so that travellers' cheques are eligible for importation under the Tradex scheme. (Regulation No. 4); and

*       Enable importers to import goods for further processing prior to export (Regulation No. 5) without incurring the tradex duty.

The regulations would commence on the commencement of the Tradex Scheme Act 1999, which commences on 23 June 2000.

Details of the Regulations are set out below:

Regulation 1 cites the name of the Regulations,

Regulation 2 provides the commencement date of the Regulations.

Regulation 3 defines reference to the Tradex Scheme Act 1999.

Regulation 4 defines 'exempt class of goods'.

Regulation 5 defines goods consumed or used in complying with the Drawback Regulations.

A Regulation Impact Statement is attached with regard to travellers' cheques.

REGULATION IMPACT STATEMENT

EXEMPT CLASS OF GOODS

Introduction

The objective of the Tradex scheme is to provide relief to businesses that currently pay customs duty and other taxes on imported goods which are subsequently exported or used as inputs to exports. Tradex received Royal Assent on 23 December 1999 and is, under the legislation, required to be operational by 23 June 2000.

Eligibility for entry into the Scheme extends to persons or organisations that intend to import nominated goods, whether these are to undergo industrial processing or not, and which either:

*        comply with the requirements of Australia's Duty Drawback Regulations; or

*       are included in an exempt class of goods (goods that are exempt from compliance with the Duty Drawback Regulations).

Eligibility for Tradex is for bona fide manufacturers of goods for export that source imported inputs to the manufacturing process or importers who subsequently export the goods in the same state.

Section 49 of the Tradex Act allows the Governor-General to make regulations under the Act to prescribe matters that are necessary to give effect to the Act.

Section 4 of the Tradex Scheme Act 1999 states that 'exempt class of goods means a class of goods in respect of which some or all of the requirements of the Drawback Regulations may not be complied with'.

Section 5(1) of the Act outlines the core criteria that must be met for a person to make an application for, or an application for a variation of, a tradex order. Under section 5(1)(a), part of the core criteria is that the requirements of the Drawback Regulations under section 168 of the Customs Act 1901 are complied with or the goods are included in an exempt class of goods (ie, goods declared by the regulations to be eligible for importation under a tradex order, but may not comply with some or all of the Drawback Regulations). The duty drawback regulations preclude the use of duty drawback arrangements for goods which are 'used' in Australia, that is, become second-hand.

The problem

Blank travellers cheques are imported in bulk from the United Kingdom. As travellers cheques are not made in Australia, they are currently imported at a concessional rate of duty under a Tariff Concession Order (TCO) (at 3 per cent duty).

Importers of travellers cheques are prevented from obtaining drawback of duty on travellers cheques because these are deemed to be 'used' in Australia. The cheques are sold in Australia to customers through authorised agents and the purchaser is required, as a security precaution, to sign the cheques in the presence of the issuing agent. Thus one interpretation, by the Australian Customs Service, is that the cheques when imported are no more than a piece of printed stationary and become 'used' once signed since they can no longer be 'used' again by anyone else. The Administrative Appeals Tribunal, in Thomas Cook Australia Pty Ltd and Collector of Customs, V93/1327, 14 February 1995, confirmed the Australian Customs decision to reject the claim for drawback for travellers cheques.

The question of the eligibility of travellers cheques for duty drawback, and thus the Tradex scheme, therefore involves the interpretation of 'used goods'. Travellers cheques, however, serve their intended purpose, in almost all cases, overseas.

Further. one of the principles underpinning the Tradex scheme is that the imposition of import duties and other taxes is based on the destination principle, that is, they are levied only on goods sold for use in the domestic market. Goods exported should be exempt from such taxes.

Objectives

The Government's overall policy objective with regard to the Tradex scheme was stated in the Regulation Impact Statement attached to the Explanatory Memorandum to the Tradex Scheme Bill 1999, and that is to put in place a more competitive customs regime to facilitate additional economic activity and help generate employment. A specific element of this is implementing programs that facilitate export activity by streamlining the administration of the customs regime applying to imported goods which are used in exported goods or exported in the same condition. Specifically, the objective of Tradex is to increase utilisation of up-front exemption of duty and other taxes, reduce compliance costs and minimise administration costs for goods which are imported and which are subsequently exported or used as inputs to exports.

The government decided in November 1998 that travellers cheques will be able to participate in the Tradex scheme.

Options

The two options with regard to travellers cheques are to (1) relax the definition of 'used goods' to facilitate drawback for travellers cheques or to (2) include travellers cheques on the list as an 'exempt class of goods' under regulations governing the operation of the Tradex scheme.

Impact

Under either of these two options the principal impact is that those businesses importing blank travellers cheques will no longer be required to pay the concessional duty of 3 per cent. There would also therefore be a minor corresponding revenue loss.

Consultation

There were two phases of consultations during the development of the Tradex scheme. The first involved submissions from interested parties including importers, exporters and customs brokers. A number of submissions supported the eligibility of travellers cheques for drawback. No concerns were raised about this proposal. The second phase involved discussions between the Department of Industry, Science and Resources and the Australian Customs Service.

Preferred Option

The first option is not favoured as it would involve a change to the duty drawback regulations, rather than to the Tradex scheme itself This approach would be complex and costly to administer and potentially open eligibility beyond the policy intent. It should also be noted that the duty drawback facility is still available to importers as an alternative to Tradex, in those circumstances where, at the time of import, it was not known that the goods would be exported or used as inputs to export . The drawback provisions should not be amended to suit the specific policy objectives of Tradex.

The preferred option is to include travellers cheques in the regulations as an 'exempt good' under the regulations. The issue revolves around the interpretation of 'used good' in relation to travellers cheques. Whilst it can be argued that travellers cheques are in the process of being 'used' when they are purchased, they are not used for their intended purpose until they are cashed by the purchaser, in almost all cases, overseas. Thus they easily fit within the policy intent of Tradex.

Any requests for additional goods to be classed as 'exempt goods' under the regulations will be considered on their merits.

Implementation and Review

The Tradex scheme will be implemented via the Tradex Scheme Act 1999 and the Tradex Scheme Regulations 2000. Periodic reviews will be undertaken to monitor the performance of the scheme and the level of utilisation.