Mattel Pty Ltd and Chief Executive Officer of Customs
[2008] AATA 483
•11 June 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 483
ADMINISTRATIVE APPEALS TRIBUNAL No. 2007/2587, 2008/0219
GENERAL ADMINISTRATIVE DIVISION Re MATTEL PTY LTD Applicant
And
CHIEF EXECUTIVE OFFICER OF CUSTOMS
Respondent
DECISION
Tribunal: G.D. Friedman, Senior Member Date:11 June 2008
Place:Melbourne
Decision: The Tribunal affirms the decisions under review. (sgd) G.D. Friedman
Senior Member
CUSTOMS AND EXCISE - tariff concession orders - dolls and doll sets - use of goods - whether substitutable goods produced in Australia
Customs Act 1901 ss, 269B(1), 269B(3), 269C, 269D(1), 269D(2), 269E(1)
Re Bag & Jute Co (T’worth) Pty Ltd and Comptroller-General of Customs and Southcorp Australia Pty Ltd (1995) 38 ALD 357
Re G.E. Plastics (Australia) Pty Ltd and Chief Executive Officer of Customs and Montell Australia Pty Ltd [1999] AATA 88
Re Thirco Pty Ltd and Comptroller of Customs and Bowater Tissue Ltd (1994) 35 ALD 665
Re Vulcan Australia Pty Ltd and Comptroller-General of Customs and Dimplex Australia Pty Ltd (1994) 34 ALD 773
REASONS FOR DECISION
11 June 2008 G.D. Friedman, Senior Member
1. Mattel Pty Ltd applied for tariff concession orders (TCOs) that would allow the company to import adult-form dolls (2007/2587) and doll sets (2008/0219) at a concessional rate of tariff. The applications were refused because an Australian company claimed to manufacture dolls and doll sets in Australia that were substitutable for the imported products.
ISSUES
2. The issues before the Tribunal are:
·What is the legislative framework?
·What are the dolls and doll sets that Mattel wishes to import?
·What are the dolls and doll sets that are manufactured by the Australian company?
·Are the dolls and doll sets produced in Australia in the ordinary course of business?
·Are the Australian dolls and doll sets substitutable for the dolls and doll sets the subject of the TCOs?
WHAT IS THE LEGISLATIVE FRAMEWORK?
3. The law relating to TCOs is contained in Part XVA of the Customs Act 1901. Section 269C of the Act provides that a TCO application is taken to meet the core criteria if, on the day the application was lodged, no substitutable goods were produced in Australia in the ordinary course of business. Substitutable goods are defined in s 269B(1) of the Act:
(1) In this Part, unless the contrary intention appears:
‘substitutable goods’, in respect of goods the subject of a TCO application or of a TCO, means goods produced in Australia that are 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:
...
(3) In determining whether goods produced in Australia are put, or are capable of being put, to a use corresponding to a use to which goods the subject of a TCO, or of an application for a TCO, can be put, it is irrelevant whether or not the first-mentioned goods compete with the second-mentioned goods in any market.
Goods produced in Australia are defined in s 269D of the Act:
(1) For the purposes of this Part, goods, other than unmanufactured raw products, are taken to be produced in Australia if:
(a) the goods are wholly or partly manufactured in Australia; and
(b) not less than 1/4 of the factory or works costs of the goods is represented by the sum of:
(i)the value of Australian labour; and
(ii)the value of Australian materials; and
(iii)the factory overhead expenses incurred in Australia in respect of the goods.
(2) For the purposes of this Part, goods are to be taken to have been partly manufactured in Australia if at least one substantial process in the manufacture of the goods was carried out in Australia.
The ordinary course of business is defined in s 269E of the Act:
(1) For the purposes of this Part, ...goods ...that are substitutable goods in relation to goods the subject of a TCO application are taken to be produced in Australia in the ordinary course of business if:
(a) they have been produced in Australia in the 2 years before the application was lodged; or
(b) they have been produced, and are held in stock, in Australia; or
(c) they are produced in Australia on an intermittent basis and have been so produced in the 5 years before the application was lodged;
and a producer in Australia is prepared to accept an order to supply them.
WHAT ARE THE DOLLS AND DOLL SETS THAT MATTEL WISHES TO IMPORT?
4. On 16 August 2006 Mattel applied for a TCO in respect of dolls. The TCO was revised and the goods were described as:
DOLLS, having the likeness of a human adult and ALL of the following:
(a) head circumference of 10 cm;
(b) length not greater than 30 cm;
(c) dolls clothing
On 26 February 2007 Mattel applied for a TCO in respect of doll sets. The TCO was revised and the goods were described as:
SETS, DOLLS, comprising ALL of the following:
(a) solid injection moulded body, arms and legs;
(b) doll’s head having a circumference NOT greater than the chest circumference;
(c) doll clothing;
AND having at least one of ANY of the following (accessories (i) to (xxxviii) including doll hats, doll shoes and doll jewellery)
5. Ms J. Kearns, Marketing Director of Mattel, said in a witness statement dated 2 June 2008 (Exhibit A4) that the toy industry in Australia places dolls in three categories:
·mini dolls (including animals): 7.5 cm to 12.5 cm
·fashion dolls (including clothing, fashion items and accessories): 30 cm to 37.5 cm
·large dolls (baby dolls: generally without clothes but sometimes with clothes and accessories such as a cot): 50 cm to 60 cm.
6. Ms Kearns told the Tribunal that the company’s largest market is the fashion doll segment (particularly the Barbie range), in which young girls utilise the dolls as fantasy toys of imagination and aspiration, frequently playing with other girls and swapping accessories for their dolls such as clothes, hairstyles, cosmetics and play sets including furniture. She said that the use of fashion dolls has a wide breadth of possibilities for an older girl who is conscious of the world around her through exposure to television, the internet and other children.
7. The Tribunal accepts the evidence that the goods the subject of the TCOs might be targeted predominantly to the fashion doll market. However the TCO applications are not limited to fashion dolls and doll sets or to dolls marketed to children. The goods the subject of the applications comprise doll sets and adult dolls which have clothing and comply with specified size limits. The goods would include fashion dolls such as Barbie, but also dolls such as action figures, mini dolls, educational dolls, souvenir dolls and collectible dolls.
WHAT ARE THE DOLLS AND DOLL SETS THAT ARE MANUFACTURED BY THE AUSTRALIAN COMPANY?
8. Mr R. Coscia, Managing Director, Netta Australia Pty Ltd, said in a witness statement dated 2 February 2008 (Exhibit R1) that the company began operation in 1976 after his family purchased the plant and machinery of a doll factory in Adelaide where his father had worked as general manager. Mr Coscia stated that Netta produces a large variety of dolls in various shapes and sizes from 15 cm to 66 cm in length, and in baby, girl and boy, adult female and adult male form. The company also repairs dolls, designs dolls to customer specifications, and produces parts for dolls.
9. He said that most of the company’s production in recent years has been baby and child dolls, with adult dolls produced on an intermittent basis, usually to order. Generally adult dolls are not kept in stock. He gave examples of adult dolls produced in the five year period before 16 August 2006 as including police officer dolls and fire fighter dolls (46 cm in length), occupational dolls (similar but without clothes), male and female mannequin dolls (30 cm in length), souvenir dolls (hand painted 30 cm in length on a fixed stand), dolls produced as mascots for a soccer club and dolls suitable for purchase by collectors. He said that the most recent batch of adult dolls was produced in July 2007.
10. In oral evidence Mr Coscia stated that his company’s products are sold either clothed or without clothes, and that clothing is made by sub-contractors in Australia. He clarified that the occupational dolls, although child-like in appearance, are caricatures of adults when clothed in uniforms.
ARE THE DOLLS AND DOLL SETS PRODUCED IN AUSTRALIA IN THE ORDINARY COURSE OF BUSINESS?
11. Mr Coscia said that nearly all the manufacturing is carried out at the factory in South Australia, and clothing used in the process is made in Australia. The only imported material is nylon synthetic hair, eyes, dolls’ shoes and resin. The company manufactures its own moulds and develops the shapes and designs of dolls. In recent years some dolls have been imported from China.
12. He estimated that the cost of Australian labour, factory overheads and materials is approximately 85 per cent of the factory and works cost of dolls produced by Netta. Mr Coscia noted that the company keeps all its moulds and has the ability to produce dolls to meet customers’ particular requirements in a range of sizes from 15 cm to 66 cm in length. He produced invoices which show that in 2005 and 2006 the company produced and sold a range of dolls and doll sets, including occupational dolls and mannequin dolls, and that the company has been prepared to accept orders and supply the goods. He said that the mannequin doll has been produced by the company once every couple of years in the previous five year period.
13. The Tribunal accepts Mr Coscia’s evidence about the manufacture of the dolls and doll sets in Australia by Netta and finds that these are goods produced in Australia as defined in s 269D(1) and 269D(2) of the Act.
14. The Tribunal also accepts Mr Coscia’s evidence and the material contained in the invoices about the sale of dolls and doll sets to order, and finds that adult dolls have been produced in Australia in the two years before the TCO application was lodged on 16 August 2006, and the doll sets have been produced in Australia in the two years before the TCO application was lodged on 26 February 2007. The Tribunal is satisfied that Netta is a producer in Australia prepared to accept an order to supply the goods. Consequently the Tribunal finds that the goods were produced in the ordinary course of business as defined in s 269E(1) of the Act.
ARE THE AUSTRALIAN DOLLS AND DOLL SETS SUBSTITUTABLE FOR THE DOLLS AND DOLL SETS THE SUBJECT OF THE TCOs?
15. Ms Kearns explained that a baby doll, which is utilised by children from the age of two to four years in a nurturing nature, differs from the use of a fashion doll, which is used from the age of five years. She stated that because of these differences the dolls are sold in different sections of toy shops. They do not compete with each other. She said that, from a marketing point of view, baby dolls are not substitutable for fashion dolls. They serve different purposes and are purchased by different age groups for different uses.
16. In oral evidence Ms Kearns said that the mannequin doll produced by Netta is difficult to categorise and is a cheap generic doll without accessories. Under cross-examination she agreed that the doll could be dressed in other clothes.
17. Mr P. Langdon, Director, All Brands Toys and Collectibles, said in a witness statement dated 2 June 2008 (Exhibit A2) that he has been working in the toy industry since 1980. He said that a baby doll cannot be substituted for a fashion doll because they are different products purchased for different age groups for different purposes. Mr Langdon noted that a fashion doll such as Barbie has sharp points and removable small objects such as shoes, so that the dolls would be a safety hazard for small children. He said that a baby doll is purchased as a first doll for children aged two to four years and is not subject to fashion or change, as the intended market would not be able to notice any difference. When children become older (aged about five years) they are able to distinguish between different ranges of clothes and accessories as portrayed by fashion dolls, and these dolls fulfil a different function from the baby dolls.
18. Mr Langdon expressed the opinion that customers who purchase a fashion doll are purchasing a product that is markedly different from a baby doll, and that both types of doll are sold into different segments of the market, which is largely dictated by the age of the child for whom the doll is purchased. He said that he was not aware that Netta had distributed any fashion dolls in Australia in the past five years.
19. In oral evidence Mr Langdon said the mannequin doll produced by Netta is a basic generic doll without accessories. Under cross-examination he agreed that the doll could be dressed in other clothes and its hair could be brushed or combed.
20. Mr P. Guinaudeau, Business Group Director, GFK Austoys Marketing Services Pty Ltd, said in a witness statement dated 2 June 2008 (Exhibit A1) that his company provides market research and trading information to clients in the toy industry. He stated that dolls are categorised as mini dolls, fashion dolls (generally accompanied by a wide range of accessories) and large dolls (generally baby or nurturing dolls that are undressed) because the toy industry regards each category as different products for different age groups. Mr Guinaudeau explained that a girl plays with a baby doll in the role of a mother to the doll, whereas a girl playing with a fashion doll identifies with that doll. He said that the dolls are displayed in separate sections of retail stores because both retailers and customers regard them as different products for different purposes.
21. Under cross-examination Mr Guinaudeau agreed that fashion dolls of most descriptions are able to be dressed in various clothes, their hair may be brushed or combed and accessories may be added to the dolls.
22. Ms M. Pearson, Senior Buyer, Kmart Stores in Australia and New Zealand, said in a witness statement dated 2 June 2008 (Exhibit A3) that she has had considerable experience in the purchase of dolls. She stated that displays in Kmart stores are laid out according to three categories of dolls (mini dolls, baby dolls and fashion dolls) as each category is regarded as a different purchase decision. She said that baby dolls and fashion dolls are different products.
23. In oral evidence Ms Pearson described the mannequin doll made by Netta as a basic generic doll rather than a fashion doll because it did not have accessories to give it a theme or aspiration, and was similar to cheap imported dolls of lesser quality than those sought to be imported by Mattel. Under cross-examination she agreed that a child could play with that particular doll, comb its hair and change its clothes if suitable clothing was available.
24. In determining whether goods produced by Netta are substitutable for the goods the subject of the TCOs, the Tribunal is required to make findings on whether those goods have a use which corresponds to the use to which the TCO goods may be put, and may not take into account whether the Australian goods compete with the TCO goods. As noted by the Tribunal in Re G.E. Plastics (Australia) Pty Ltd and Chief Executive officer of Customs and Montell Australia Pty Ltd [1999] AATA 88 previous Tribunal decisions are limited in their assistance because essentially the issue is a question of fact in the particular circumstances of the case.
25. In Re Vulcan Australia Pty Ltd and Comptroller-General of Customs and Dimplex Australia Pty Ltd (1994) 34 ALD 773 the Tribunal found that Australian-produced heaters, whether gas, electric or otherwise, were substitutable for the TCO goods (portable kerosene heaters) because the locally-made products had a corresponding use, which was to heat a room. The focus was on the ultimate use, and the means by which that use was achieved was not considered to be of any relevance. In Re Thirco Pty Ltd and Comptroller of Customs and Bowater Tissue Ltd (1994) 35 ALD 665 the Tribunal held that Australian-produced paper towels and hot air hand dryers had a corresponding use to the TCO goods (rolls of fabric used in hand-drying dispensers) being the drying of hands. In Re Bag & Jute Co (T’worth) Pty Ltd andComptroller-General of Customs and Southcorp Australia Pty Ltd (1995) 38 ALD 357 the Tribunal gave a wide interpretation of corresponding use and held that Australian-produced bags were substitutable for woven bags, the corresponding use being the packaging of fertiliser and other bulk products.
26. The Tribunal accepts the evidence from Ms Kearns, Mr Langdon, Mr Guinaudeau and Ms Pearson that marketing strategies for fashion and baby dolls differ because the target audience for each category represents distinct age ranges. However the Tribunal is mindful that s 269B(3) of the Act does not permit consideration of whether the dolls or doll sets compete in any particular market.
27. The Tribunal is satisfied that adult dolls the subject of the doll TCO may be used by children in play, where the nature of the play is limited only by a child’s imagination, and involves activities such as dressing the doll in various items of clothing; grooming the doll by brushing or combing its hair; adorning it with accessories; and moving its parts such as arms, legs, torso and head in play. Dolls produced by Netta, particularly the occupational dolls which may be purchased with uniforms and accessories such as shoes, are put, and are capable of being put, to a use that corresponds with the use of the adult dolls because they also may be dressed, groomed and adorned with accessories. The relevant use is engaging in a role play with a doll.
28. Similarly, Ms Kearns, Mr Langdon, Mr Guinaudeau and Ms Pearson agreed under cross-examination, that although they believed that the quality of the mannequin doll and its accessories, such as clothing, produced by Netta might be inferior to goods sought to be imported under the TCOs, this doll and the doll sets are capable of being used in dressing, grooming and accessorising, which correspond with the use of the adult dolls and doll sets.
29. For these reasons the Tribunal finds that the dolls and doll sets produced by Netta are substitutable for the goods the subject of the TCOs as defined in s 269B(1) of the Act.
CONCLUSION
30. The Tribunal is not satisfied that, as at 16 August 2006 in respect of the doll TCO, and as at 26 February 2007 in respect of the doll set TCO, Netta did not produce, in the ordinary course of business, any dolls or doll sets which are put, or are capable of being put, to a use that corresponds to a use that any doll or doll sets within the terms of the proposed TCOs can be put. Therefore the TCO applications do not meet the core criteria as specified in s 269C of the Act.
DECISION
31. The Tribunal affirms the decisions under review.
I certify that the thirty-one [31] preceding paragraphs are a true copy of the reasons for the decision of:
G.D. Friedman, Senior Member
(sgd) Mara Putnis
Associate
Dates of hearing: 2 and 3 June 2008
Date of decision: 11 June 2008
Advocate for applicant: Mr L. Gross
Solicitor for applicant: Gross & Becroft LawyersAdvocate for respondent: Mr R. Northcote
Solicitor for respondent: Australian Government Solicitor
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