EXPLANATORY STATEMENT
CUSTOMS ACT 1901
SPECIFIED PERCENTAGE OF TOTAL FACTORY COSTS
DETERMINATION NO. 1 OF 2007
Background
The South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA) provides preferential treatment to goods manufactured in member countries that are parties to the Agreement. The rules of origin in Division 1A of Part VIII of the Customs Act 1901 (the Act) determine when goods are considered to be the produce or manufacture of a particular country. Under SPARTECA, goods can only the manufacture of a member country if not less than 50% of the total factory costs (labour, overheads and materials) are incurred in that member country and the last process of manufacture is performed in that member country. These requirements are specified in subsections 153L(2) and (4) of the Act.
Appendix 8 of SPARTECA states that, in special circumstances, the Australian Customs Service (Customs) may determine that a member country is eligible for a reduction in the percentage of factory costs stated in the Agreement. That determination is applied to goods originating from that member country.
Subsection 153L(4) of the Act allows the Chief Executive Officer of Customs to determine that, in respect of goods of a kind, a lesser percentage than 50% is the specified percentage of total factory costs.
The Government of Samoa has sought a reduction in the specified percentage of total factory costs, for a three year period, of ten percentage points for wiring harness manufactured in Samoa and classified to subheading 8544.30.00 of Schedule 3 to the Customs Tariff Act 1995.
Instrument
Specified Percentage of Total Factory Costs Determination No 1 of 2007 (the Determination) determines that the specified percentage of the total factory cost of wiring harnesses claimed to be the manufacture of Samoa, where the wiring harnesses are of a kind used in passenger motor vehicles and are classified to subheading 8544.30.00 of Schedule 3 to the Customs Tariff Act 1995, is 40%. This lesser percentage will commence on 23 October 2007 and continue in force until 22 October 2010.
Consultation
A reduction in the specified percentage of 10% in respect of the goods included in the Determination granted to Samoa may affect elements of the Australian car manufacturing industry. However, consultation with industry has established that there are currently no manufacturers of wiring harnesses in Australia and as the Determination only relates to wiring harnesses classified to 8544.30.00, no adverse effects are anticipated.
Analysis of projected importations of wiring harness from Samoa has provided an estimated revenue reduction of $2.271 million in duty collection over the three year period of effect of this Determination.
Commencement
Specified Percentage of Total Factory Costs Determination No 1 of 2007 commences on 23 October 2007 and ceases to have effect on 22 October 2010.
Overview
The Customs Act 1901 was enacted to facilitate the regulation of customs and excise, and to manage the collection of duties and taxes. In 2007, the Specified Percentage of Total Factory Costs Determination No. 1 was introduced to address a specific gap concerning the preferential treatment of goods under the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA). This determination was made by the Australian Government, specifically through the Chief Executive Officer of Customs, to allow for a reduction in the percentage of total factory costs required for goods originating from member countries under SPARTECA. The policy objective of this determination is to provide economic benefits to member countries while ensuring that the preferential treatment is applied fairly and does not adversely affect domestic industries. This determination recognises the unique economic circumstances of Samoa and the specific nature of wiring harnesses used in passenger motor vehicles.
Scope and Application
The Specified Percentage of Total Factory Costs Determination No. 1 of 2007 applies to wiring harnesses classified under subheading 8544.30.00 of Schedule 3 to the Customs Tariff Act 1995, manufactured in Samoa. This Determination is a direct application of the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA), which grants preferential treatment to goods from member countries, provided certain manufacturing criteria are met. The Determination allows for a reduction in the specified percentage of total factory costs from the standard 50% to 40% for wiring harnesses manufactured in Samoa, effective from 23 October 2007 until 22 October 2010. This applies nationally across Australia, aligning with the rules of origin stipulated in Division 1A of Part VIII of the Customs Act 1901. The Determination does not affect other goods or industries, as it is specifically tailored to the aforementioned wiring harnesses. Any changes or extensions to this Determination would be made through subordinate instruments as permitted under the Act.
Key Provisions
The Specified Percentage of Total Factory Costs Determination No 1 of 2007 (the Determination) sets out the specified percentage of total factory costs for wiring harnesses manufactured in Samoa. Under this Determination, wiring harnesses of a kind used in passenger motor vehicles and classified under subheading 8544.30.00 of Schedule 3 to the Customs Tariff Act 1995 will have a specified percentage of total factory costs reduced to 40%, effective from 23 October 2007 until 22 October 2010. This special provision under subsection 153L(4) of the Customs Act 1901 allows for a deviation from the standard 50% rule in recognition of the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA).
The obligations imposed by the Determination on relevant parties include the requirement to ensure that at least 40% of the total factory costs for the specified wiring harnesses are incurred in Samoa, and that the final manufacturing process occurs in Samoa. Manufacturers and importers must comply with these conditions to benefit from the preferential tariff rates under SPARTECA. This involves providing documentation and evidence that the specified percentage of costs is met, including detailed cost breakdowns and manufacturing process information.
Failure to comply with the conditions set out in the Determination can lead to penalties. If a manufacturer or importer fails to meet the specified percentage of total factory costs, they may be subject to penalties under the Customs Act 1901, which could include fines. The maximum penalties for contraventions of the Customs Act can be substantial, potentially including fines up to the greater of $52,500 or three times the value of the goods involved in the contravention. Additionally, persistent or severe breaches may result in criminal charges, leading to further penalties under Australian law.