Customs Regulations (Amendment) 1994 No. 82
EXPLANATORY STATEMENT
STATUTORY RULES 1994 No. 82
Issued by the authority of the Minister for Small Business, Customs and Construction
Customs Act 1901
Customs Regulations (Amendment)
Section 270 of the Customs Act 1901 (the Act) provides in part that the GovernorGeneral may make regulations not inconsistent with the Act prescribing all matters which by the Act arc required or permitted to he prescribed for giving effect to the Act.
Subsection 4(1A) of the Acts Interpretation Act 1901 provides that, where an amending Act amends a principal Act in such a way as to confer additional power to make regulations, then, unless the contrary intention appears, the regulation-making powers contained in the principal Act prior to and after the commencement of the amending Act may be exercised by making a single instrument, and that instrument is deemed to be made under subsection 4(1) of the Acts Interpretation Act 1901.
Subsection 4(1) of the Acts Interpretation Act 1901 provides that, where an amending Act amends a principal Act in such a way that the principal Act will confer power to make regulations, then the power may be exercised before the amendments come into operation as if they had come into operation.
The Customs Legislation Amendment Act 1993, amongst other things, inserted a new Division 1A of Part VIII of the Act in substitution for the old section 151 as a consequence of the 1992 Closer Economic Relations review. The new Division is intended to provide greater guidance on the use of the rules of origin and to close loopholes which had enabled some claimants for preference to abuse their spirit. The amending provisions which insert the new Division 1A are intended to commence by Proclamation on 1 April 1994.
• Rules of origin determine whether goods are the produce or manufacture of countries other than Australia for the purposes of claiming a preferential rate of duty on their importation.
The regulations prescribe the costs that ran be taken into account when determining the country of origin of goods the subject of a claim for a preferential duty rate.
In order to gain the benefit of a preferential rate of duty it is first necessary to establish that the imported goods arc the produce or manufacture of a country in respect of which preferential duty rates apply. One way in which preference claim goods will be regarded as the manufacture of a particular country is if the last process in their manufacture takes place in the particular country and their allowable factory cost is not less than the specified percentage (normally 50%) of their total factory cost.
Total factory cost in relation to preference claim goods, is the sum of the allowable expenditure on labour and overheads by the factory where the last process of manufacture occurred together with the total expenditure of that factory on materials in respect of the goods (section 153B).
Section 153F of the Act provides the mechanism for calculating the allowable expenditure of the factory on labour as a component of allowable factory cost and total factory cost. The allowable expenditure is the sum of the part of each prescribed cost incurred by the manufacturer on labour, in relation to the manufacture of preference claim goods, which can reasonably be allocated to that manufacture.
Section 153G of the Act provides the mechanism for calculating the allowable expenditure of the factory on overheads as a component of allowable factory cost and total factory cost in the same way as section 153F does for labour.
Subregulation 3.1 inserts two new regulations into the Customs Regulations, which prescribe allowable costs for the purposes of sections 153F and 153G of the Act as follows:
New regulation 107A prescribes allowable costs for the purposes of calculating the allowable expenditure of a factory on labour under section 153F of the Act.
New regulation 107B prescribes allowable costs for the purposes of calculating the allowable expenditure of a factory on overheads under section 153G of the Act.
Subregulation 1.1 provides that the regulations commence on the date of commencement of section 10 of the Customs Legislation Amendment Act 1993. That section inserts the new Division 1A which contains sections 153F and 153G, into the Act. It is proposed that section 10 would be proclaimed to commence on and from 1 April 1994.
Overview
The Customs Regulations (Amendment) 1994 No. 82, issued under the authority of the Minister for Small Business, Customs and Construction, represents a significant step in refining the application of the Customs Act 1901. Enacted to address issues identified during the Closer Economic Relations review of 1992, this amendment aims to enhance the precision of rules of origin, ensuring that preferential duty rates are applied accurately and fairly. By closing loopholes that allowed some claimants to exploit the spirit of preferential arrangements, the amendment strengthens the integrity of the customs duty system. The regulations focus on prescribing allowable costs for determining the origin of goods, particularly labour and overhead costs, thereby providing clearer guidelines for manufacturers seeking to benefit from preferential rates. This legislative action underscores a policy objective to maintain a competitive and equitable trading environment within Australia's customs framework.
Scope and Application
The Customs Regulations (Amendment) 1994 No. 82 applies to the Customs Act 1901, with its amendments extending to the regulations that govern the assessment of the country of origin for goods imported into Australia to determine eligibility for preferential duty rates. These regulations specifically address the costs that can be taken into account when determining the country of origin of goods, thereby impacting the ability of importers to claim preferential duty rates. The regulations apply to entities and individuals involved in the importation of goods and the industries concerned with the production and importation of goods. The geographic reach of the Act is national, as it pertains to the importation of goods into Australia and the application of customs duties. The regulations set out in the Amendment are deemed to be made under the Acts Interpretation Act 1901, and they specifically address the allowable costs for labour and overheads, which are essential components of the total factory cost used in determining the country of origin of preference claim goods. These regulations were designed to provide greater clarity and to close loopholes that had been exploited, particularly in light of the Closer Economic Relations review in 1992.
Key Provisions
The Customs Regulations (Amendment) 1994 No. 82 introduces significant changes to the Customs Act 1901, particularly in relation to the rules of origin and the calculation of allowable costs for preference claim goods. The key sections include section 153F and section 153G, which provide the mechanisms for calculating the allowable expenditure of a factory on labour and overheads, respectively (s. 153F and s. 153G). The amendment also introduces new regulations 107A and 107B, which prescribe allowable costs for labour and overheads for the purposes of these sections (Reg. 107A and Reg. 107B). These regulations are designed to provide clearer guidelines on the costs that can be taken into account when determining the country of origin of goods subject to preferential duty rates.
The obligations imposed by the Customs Regulations (Amendment) 1994 No. 82 primarily concern importers and manufacturers seeking to claim preferential duty rates for goods. Importers must ensure that the goods they are importing meet the rules of origin, which include having undergone the last process of manufacture in a country with which Australia has a preferential trade agreement and meeting the specified percentage of total factory cost (normally 50%). Manufacturers must accurately calculate the allowable costs of labour and overheads as prescribed by the new regulations to substantiate their claims for preferential duty rates. Accurate record-keeping and documentation are crucial to demonstrate compliance with these requirements.
Breach of the provisions in the Customs Regulations (Amendment) 1994 No. 82 can lead to civil and criminal penalties. Civil consequences may include financial penalties or the recovery of duties and taxes owed. Under the Customs Act 1901, a person who knowingly makes a false statement or representation in relation to a claim for preferential duty rates may be subject to a penalty of up to $22,200 for individuals and $111,000 for corporations (s. 227). Criminal penalties may apply for more serious breaches, including fraudulent claims, which can result in fines and imprisonment. The maximum penalties for fraud under the Customs Act include up to 10 years imprisonment for individuals and up to $55,500 for corporations (s. 229). These stringent penalties underscore the importance of compliance with the regulations and the potential consequences of non-compliance.