EXPLANATORY STATEMENT
CUSTOMS ACT 1901
SUBSECTION 153L(4)
SPECIFIED PERCENTAGE OF TOTAL FACTORY COSTS
DETERMINATION NO. 1 OF 2013
Background
The South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA) provides preferential tariff 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 are normally 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. However, SPARTECA enables the Australian Government to lower the 50% local area content requirement in special circumstances. These terms are reflected in subsections 153L(2) and (4) of the Act.
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 an extension of the reduction in the specified percentage of total factory costs, until 31 December 2016, of ten percentage points for wiring harnesses manufactured in Samoa and classified to subheading 8544.30.00 of Schedule 3 to the Customs Tariff Act 1995. The original reduction commenced on 11 October 2001 and was most recently extended on 23 October 2010, for a period of three years.
Instrument
Specified Percentage of Total Factory Costs Determination No. 1 of 2013 (the Determination) determines that the specified percentage of the total factory cost of wiring harnesses claimed to be the manufacture of Samoa is 40% where the wiring harnesses:
(a) are classified to subheading 8544.30.00 of Schedule 3 to the Customs Tariff Act 1995; and
(b) are of a kind used in, and are for use in, passenger motor vehicles, as defined in Chapter 87 of the Customs Tariff Act 1995 for the purposes of 8703.
The continuation of this lesser percentage will commence on 1 January 2014 and continue in force until 31 December 2016.
Consultation
A reduction in the specified percentage of 10% in respect of the goods included in the Determination granted to Samoa may affect the Australian automotive industry. Consultations were held with key industry stakeholders including the Australian vehicle manufacturers and the peak industry body representing the automotive supply chain (the Federation of Automotive Products Manufacturers). Most stakeholders indicated their support for the continuation of the derogation. One submission was received from an Australian company opposing the derogation on the basis that it had the potential to adversely affect its business.
Human Rights Implications
This determination does not engage, impact on, or limit in any way, the human rights and freedoms recognised or declared in the international instruments listed in the definition of human rights in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Commencement
Specified Percentage of Total Factory Costs Determination No. 1 of 2013 commences on 1 January 2014 and ceases to have effect on 31 December 2016.
Michael Pezzullo, Chief Executive Officer,
Australian Customs and Border Protection Service
Overview
The Customs Act 1901, enacted by the Australian Parliament, aims to regulate and control the import and export of goods, ensuring compliance with customs laws and facilitating trade. The Specified Percentage of Total Factory Costs Determination No. 1 of 2013, issued under the authority of the Customs Act, addresses the preferential tariff treatment under the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA) by reducing the percentage of total factory costs required for certain goods to be considered as originating from a member country. Specifically, this determination extends the reduction of the specified percentage for wiring harnesses manufactured in Samoa to 40% until 31 December 2016, impacting goods classified under subheading 8544.30.00 of Schedule 3 to the Customs Tariff Act 1995 and intended for use in passenger motor vehicles. This policy seeks to support trade relations with Samoa while balancing potential impacts on the Australian automotive industry, as evidenced by consultations with relevant stakeholders.
Scope and Application
The Specified Percentage of Total Factory Costs Determination No. 1 of 2013 applies to goods classified under subheading 8544.30.00 of Schedule 3 to the Customs Tariff Act 1995, specifically wiring harnesses, that are manufactured in Samoa and intended for use in passenger motor vehicles. This determination serves to extend a special arrangement under the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA), which provides preferential tariff treatment to goods from member countries. The Act modifies the usual 50% local area content requirement, reducing it to 40% for the specified wiring harnesses produced in Samoa. This determination is applicable to any entities or persons involved in the importation or manufacturing of these goods within the specified timeframe of 1 January 2014 to 31 December 2016. The geographic scope of this Act is national, as it pertains to Australia’s adherence to international trade agreements. There are no stated exclusions or exemptions within the Determination itself, although the application may be subject to other provisions of the Customs Act 1901 and related instruments. The Determination may be further extended or modified through subordinate instruments issued by the Chief Executive Officer of Customs.
Key Provisions
The Specified Percentage of Total Factory Costs Determination No. 1 of 2013 (the Determination) amends subsection 153L(4) of the Customs Act 1901 (the Act). Under this subsection, the Chief Executive Officer of Customs is authorised to determine a specified percentage of the total factory costs for goods of a kind. For wiring harnesses manufactured in Samoa and classified to subheading 8544.30.00 of Schedule 3 to the Customs Tariff Act 1995, the Determination sets this percentage at 40% (subsection 153L(4)). This determination applies specifically to wiring harnesses that are intended for use in passenger motor vehicles, as defined in Chapter 87 of the Customs Tariff Act 1995 for the purposes of 8703. The Determination is effective from 1 January 2014 until 31 December 2016.
The Determination imposes specific obligations on entities involved in the production and importation of the specified wiring harnesses. Manufacturers in Samoa must ensure that at least 40% of the total factory costs of these wiring harnesses are incurred within Samoa to qualify for preferential tariff treatment under SPARTECA. Importers of these wiring harnesses into Australia must verify that the goods meet the specified percentage requirement to claim the preferential tariff. Failure to meet these obligations could result in the goods not qualifying for the preferential tariff treatment, potentially leading to higher customs duties.
The Act imposes penalties for non-compliance with its provisions. If an entity intentionally provides false or misleading information to claim preferential tariff treatment, it may be subject to fines and other penalties as stipulated in the Customs Act 1901. Specifically, under section 156 of the Act, an entity may be fined up to 10,000 penalty units or imprisonment for up to five years, or both, for serious breaches involving fraudulent intent. Additionally, customs officers have the authority to seize goods that do not comply with the rules of origin or other requirements under the Act.
The Determination is designed to ensure that the preferential tariff treatment provided under SPARTECA is properly applied. By setting a specified percentage for wiring harnesses manufactured in Samoa, it aims to balance the benefits of trade preferences with the need to protect Australian industry. The reduction in the specified percentage from 50% to 40% is intended to support the development of the Samoan manufacturing sector while considering the interests of Australian stakeholders.