Tariff Concessions System in Australia – an outline and the fine-print

Background

 

There is a general consensus that, regarding the importation of goods into Australia, the underlying intention of the Australian Government is to assist local Australian manufacturers. The theory is to encourage consumers to be more inclined to purchase locally manufactured goods, rather than the imported version. This would lead to the imported products being comparatively more expensive, hence furthering the appeal of the Australian Manufacturing Industry.

Despite this, there are legal mechanisms in place that assist import businesses, through the elimination of Customs Duty, which reduces the landed costs of goods. These mechanisms are specified within the 12 Schedules of the Customs Tariff, which forms part of the Australian Customs Tariff Act 1995.

  • Schedule 1 – contains a list of developing countries that may receive a preferential rate of duty.
  • Schedule 2 – contains the Interpretative Rules for classifying goods in Schedule 3.
  • Schedule 3 – is the list of tariff classifications and applicable rates of duty, divided into 97 chapters and legal notes.
  • Schedule 4 – is for goods with a ‘specific end’ for which a concessional rate of duty applies.
  • Schedules 5 to 12 – relates to all the Free Trade Agreements (FTAs) to which Australia is a signatory. It should be noted that not all the FTAs infer duty-free rates; in fact there are many FTAs that contain phased rates over a staggered period of time spanning three years and above.

It is Schedule 3 that the Tariff Concession System is linked.

The Tariff Concession System

The Tariff Concession System enables the duty-free entry of imported goods which are not able to be locally manufactured or produced within Australia. Within this System, there is a lodgement process to what is referred to as a Tariff Concession Order (TCO).

Before embarking upon the lodgement of TCOs, applicants need to undertake thorough research into whether local manufacturers of ‘substitutable goods’ exist. Substitutable goods are defined in the Customs Act 1901 as ‘goods produced in Australia that are put, or are capable of being put, to a use that corresponds with a use (including a design use) to which the goods the subject of the application or of the TCO can be put.’

Customs tend to support local manufacturers objecting to the making of a Tariff Concession on the basis that their manufactured product is ‘substitutable’.

Since its inception, the scope has changed considerably. Many terms have been used to describe the definition of a potential locally produced commodity that could be substituted for the imported product. It is noted that this is a very broad approach, meaning that many goods could be ‘substitutable’.

An example of this where customs supported a local manufacturer of paper hand towels, reasoning that their product was substitutable to electric hand dryers for a potential TCO that had been lodged.

Further, in the past, there was a requirement that locally manufactured ‘substitutable goods’ had to contain 25 per cent local content. Customs have very recently removed this stipulation, a measure that further demonstrates that they are siding with local manufactures in the Tariff Concession application process. The aim of the amendment to the Custom Act in this regard, was that ‘such evidence is unnecessary because manufacturers who can demonstrate a substantial process of manufacture always easily exceed the 25 per cent factory or works costs test. The requirement to produce such evidence therefore places an unnecessary burden on Australian businesses’.

Future

The Harmonized Commodity Description and Coding System (Harmonized System) is a multipurpose international product nomenclature developed by the World Customs Organization (WCO). The system is used by more than 200 countries and economies, including Australia, as a basis for their customs tariffs and for the collection of international trade statistics. Over 98 per cent of the merchandise in international trade is classified using the Harmonized System. In order to keep pace with developments in technology and changes in international trading patterns, the Harmonized System is regularly reviewed and amended, with major updates implemented every five years. The WCO is commencing work on the 6th Review Cycle, the results of which are scheduled to be operative on and from 1 January 2022. The Department of Home Affairs (colloquially known as Australian Customs) is seeking input to assist with developing the Australian agenda of submissions to the WCO. This is an opportunity for users of the Harmonized System to influence changes that will better reflect current trading patterns and technologies.

The team at Crowe Horwath have many years of experience in writing successful Tariff Concession Orders. On an annual basis, we generally create over twenty TCOs, and have a sound working relationship with the Department of Home Affairs.

Our areas of technical expertise include a wide-ranging understanding of the Tariff Concession application process, and utilising this understanding to successfully assist importers in navigating the complex customs environment. We have an intuitive comprehension of the technicalities inherent in the creation of Tariff Concessions, which include:

  • Adequate cover of the intended imported goods.
  • Making the wording flexible enough to cover future imports without allowing other importing competitors to overly ‘piggyback’ using the concession.

Please contact us if you would like further information in reducing your bottom line by making your imports cheaper.

Andrew Curdie – Associate Partner, Customs & International Trade Advisory

[email protected]

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