EXPLANATORY STATEMENT

Select Legislative Instrument 2011 No. 136

Issued by the Authority of the Minister for Home Affairs

Customs Act 1901

Customs (New Zealand Rules of Origin) Amendment Regulations 2011 (No. 1)

Subsection 270(1) of the Customs Act 1901 (the Act) provides, in part, that the

Governor- General may make regulations not inconsistent with the Act prescribing all matters which by the Act are required or permitted to be prescribed or as may be necessary or convenient to be prescribed for giving effect to the Act or for the conduct of any business relating to the Customs.

The Customs (New Zealand Rules of Origin) Regulations 2006 (the Principal Regulations), along with Division 1E of Part VIII of the Act, fulfil Australia’s obligations under Article 3 and Annex G of the Australia New Zealand Closer Economic Relations Trade Agreement (the Agreement), which deal with rules of origin.  These rules determine the eligibility of goods for preferential tariff treatment under the Agreement.  Under the Principal Regulations and the Act, such eligible goods are ‘New Zealand originating goods’.  These types of rules prevent the benefits of trade agreement tariff commitments extending to goods produced or manufactured in countries other than those who are parties to the Agreement.

The amending Regulations amend the Principal Regulations to implement the amendments resulting from the recent review of the rules of origin.

The Agreement is Australia’s longest standing bilateral free trade agreement and originally came into force in 1983.  The Agreement is a comprehensive and wide‑ranging agreement that provides New Zealand and Australia with liberal access to each other’s goods, services and investments markets. 

The current Agreement rules of origin entered into force on 1 January 2007.  The 2007 rules reflected a major change from the earlier regime.  For most tariff lines, there was a shift away from product specific rules of origin based solely on the factory costs regional value content method to determine whether goods were originating goods to product specific rules based on the ‘change in tariff classification’ method.  These rules are set out in Annex G to the Agreement.

The Principal Regulations set out a table in Part 2 of Schedule 1 detailing the product specific rules requirements contained in Annex G to the Agreement.

In negotiating these rules, both countries agreed to include in the Agreement a provision requiring the review of rules of origin within three years of the new rules taking effect.  Australian and New Zealand officials commenced the review in late 2008 and completed it in March 2010.  This resulted in the Australian and New Zealand governments agreeing to make amendments to the text of Article 3 and the related product specific rules in Annex G of the Agreement.

The purpose of the amending Regulations is to implement domestically the agreed changes to Annex G of the Agreement.  The amending Regulations change the product specific rules for a relatively small number of tariff lines where factory-cost regional value content requirements continued after 2007.  The product specific rules for those tariff lines are now‘change in tariff classification’ to determine whether goods are New Zealand originating goods.  The amending Regulations also implement minor administrative changes to around 700 other tariff lines to make the rules easier for businesses to interpret.

The changes to the Agreement will reduce the administrative burden on business and will facilitate the eligibility for duty free entry of goods into both markets.  The changes will also provide greater consistency between the rules of origin in the Agreement and those in other free trade agreements entered into by Australia.

Details of the amending Regulations are set out in the Attachment.

No consultation was undertaken specifically in relation to the amending Regulations as they implement Australia’s international obligations under the Agreement.

The amending Regulations commence on the day the amendments to Annex G to the Agreement agreed to in 2010 enter into force.  This day will be notified in the Gazette.

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Attachment

Details of the Customs (New Zealand Rules of origin) Amendment Regulations 2011 (No. 1)

Regulation 1 - Name of Regulations

Regulation 1 provides that the amending Regulations are the Customs (New Zealand Rules of Origin) Amendment Regulations 2011 (No. 1).

Regulation 2 - Commencement

Regulation 2 provides that the amending Regulations commence on the day the changes to Annex G of the Australia New Zealand Closer Economic Relations Trade Agreement (the Agreement) agreed to by Australia and New Zealand in 2010 enter into force.  The Australian and New Zealand governments agreed to these changes by an exchange of letters between Ministers for Trade in June 2010.  The changes enter into force on the date when the governments of Australia and New Zealand notify each other by an exchange of notes that they have completed their respective domestic processes to bring the amendments into force.  Australia completes its domestic processes when the Governor-General makes these Regulations.

Regulation 3 – Requirement for a Gazette notice

Regulation 3 provides that the Minister must announce by notice in the Commonwealth of Australia Gazette that day on which the amendments mentioned in regulation 2 enter into force.  This notice will ensure that the public and, in particular, those industries affected by the changes to Annex G to the Agreement, have visibility of the commencement date of the amending Regulations.

Regulation 4 – Amendment of Customs (New Zealand Rules of Origin) Regulations 2006

Regulation 4 provides that Schedule 1 amends the Customs (New Zealand Rules of Origin) Regulations 2006 (the Principal Regulations).

Schedule 1 - Amendments

Item 1  Subregulation 4.5(1)

Item 1 amends subregulation 4.5(1) by repealing and substituting the definition of principal manufacturer.  The current definition provides that the term means the person in New Zealand who performs, or has performed on its behalf, the last process of manufacture. 

This item amends this term to add at the end the phrase ‘where that last process was not a restoration or renovation process such a repairing, reconditioning, overhauling or refurbishing”.  This amendment is a technical amendment only and reflects amendments to the definition of manufacture in Article 3 of the Agreement, which confirm that manufacture cannot be a restoration or renovation process, such as repairing, reconditioning, overhauling or refurbishing.  The definition of manufacture in Division 1E of Part VIII of the Customs Act 1901 (the Act) will be amended by the Customs Amendment (New Zealand Rules of Origin) Bill 2011 to give effect to the amendments to Article 3.

Item 2  Schedule 1, Part 1, after subclause 2(3)

Item 2 amends Part 1 of Schedule 1 to the Principal Regulations by inserting a new Interpretation provision relevant to the product‑specific rules of origin specified in the table.  This new provision provides that, in Schedule 1, chapter notes apply to heading and subheadings mentioned in the chapter unless a contrary intention appears. 

Item 3  Schedule 1, Part 1, clause 4

Item 3 amends Part 1 of Schedule 1 to the Principal Regulations by omitting clause 4.  Clause 4 set out the regional value content percentage for several headings and subheadings set out in Schedule 1 that was to apply from 1 January 2010.  The new Annex G to the Agreement now incorporates this percentage into each relevant heading and subheading.  Therefore, clause 4 is no longer necessary.

Item 4  Schedule 1, Part 2,

Item 4 repeals and substitutes the table set out in Part 2 of Schedule 1.  The new table specifies the different product-specific rules of origin applicable to goods for each heading, subheading and split subheading in the International Convention on the Harmonized Commodity Description and Coding System, commonly referred to as the Harmonized System, and is based on the amended Annex G to the Agreement.