1. TCO applications

The power to make Tariff Concession Orders (TCOs) is contained in Part XVA of the Customs Act 1901. The “core criteria” that must be met for a TCO application to succeed are the subject of s 269C:

“For the purposes of this Part, a TCO application is taken to meet the core criteria if, on the day on which the application was lodged, no substitutable goods were produced in Australia in the ordinary course of business.”

The meaning of the expressions “substitutable goods” and of “produced in Australia” and of “in the ordinary course of business” are defined in subsequent sections.

Correspondence received by the applicant enables them to chart the progress of their application. Such correspondence includes an email acknowledgement where TCOs are lodged by email and a second email containing the application reference; a follow up letter about 28 days later confirming that the TCO is accepted and its gazettal date; and notice that the TCO has been made or rejected or that an appeal has been received.

In relation to the latter, industry would request advice regarding objections to a TCO application at the time of receipt of the objection, rather than waiting for the end of the gazettal period, which may be seven weeks later.

Late Communication

Once a TCO application is lodged, the Australian Border Force (ABF) have 28 days to either accept or reject it. If it is not accepted within that period, the legislation provides that it is deemed to be accepted.

Part of this initial process is that the proposed tariff classification of the TCO is reviewed by the National Trade Advice Centre (NTAC). This takes place before the TCO section process the application. Given that TCO acceptance is often very close to the 28 days and customs brokers and presumably officers are put under pressure in relation to proposed changes to wording as a result, is it possible for the two areas to complete their tasks at the same time so as to allow time to either discuss amended wording or seek data from overseas? According to the 2015 ANAO reports, there are only about 900 TCO applications lodged in a year and about 80% of them are successful. In addition to that 300+ TCOs are revoked

A TCO application should not be rejected because discussion is required if there is insufficient time because the customs broker is contacted so late. Note, that there is no referral to AAT if the application is rejected. Another TCO application must be lodged, which will not be possible if goods have arrived.

The application process for TCOs and the time frame is prescribed in the Act. It is understood that responses must be provided within a given time frame. In general, however questions are referred back to the applicant within the last few days of the 28 day screening period, which severely impacts upon the applicants existing workload, ability to respond and/or seek further information as required from the importer/overseas manufacturer.

Recommendation:

1. The ABF have internal KPIs to ensure that applicants are not disadvantaged by late requests for information by the ABF, with such late requests being suggested as any past 21 days after lodgement.

2. We further recommend that where amendments to wording are suggested that the change is clearly notified to the broker as a comparison to proposed wording.

3. Further, where wording is changed by the ABF and later deemed to not cover the subject goods, that the ABF revoke and reissue the TCO to correctly reflect the proposed coverage in the application.

Tariff Classification of TCO applications

A TCO must be accepted or rejected within the 28 day internal screening process. It is common to receive requests for information or clarification late in this time frame, with only a few days in which to respond. Given that manufacturers and suppliers of overseas good are in different time zones this is frequently very difficult and places an unfair burden on parties because of shortfalls in ABF staffing / processing.

The FTA also receives many complaints that requests received for further information, including pictures, drawings and flow charts, are received from NTAC when that information has already been submitted with the TCO application. Both the ABF and the customs broker have priorities to consider in the current environment. Both have a role to fulfil, however with the customs broker having sought and provided the information, it should then be the responsibility of the ABF to review it before issuing queries, especially where relevant information is highlighted or referred to in correspondence. Industry is happy to discuss and clarify information provided, but that should be the limit, especially where many questions appear to indicate that the information already provided has not been reviewed.

Recommendation

The TCO branch be provided with additional resources allowing for its own “internal” tariff officer/s to ensure adequate and timely reviews of the tariff classification applicable to TCO applications.

This would also enable the applicant sufficient time to submit further literature or product data within legislated timeframes, with a view to reducing rejections because the Tariff Officer cannot determine the classification within the prescribed time.

2. Concurrent TA & TCO applications

Applicants are required to propose generic TCO wording that describe the goods in terms of their physical characteristics. TCO section support that view.

Where an existing TCO is in place the costs for a client are less, however, if a TA is required, perhaps because of the value of the consignment or client instructions, then given the time taken to process a Tariff Advice by the ABF, it is not always feasible to await the outcome of the TA and a new concession application may therefore be required. This is because TCOs must be operative as at the date the goods are entered for Customs. Most importers are not proactive and consider applying for a TCO only in the time leading up to goods arrival. Given the speed of airfreight and the 5-10 days transit time from Asia by seafreight, not much more time is available in many cases. The ABF do not acknowledge this.

The identification and then use of an existing TCO is reliant upon IDM being received from the client sufficient to lodge a TA to confirm tariff classification and then compliance with the TCO. This timing is not generally within the control of the customs broker / applicant.

Recommendation

The ABF accept that as a result of processing delays and fast shipment times it is sometimes necessary to lodge TAs and TCO applications for goods at the same time and that such actions be permitted.

3. Tariff Classification of TCOs to operate as a Tariff Ruling

The ABF suggest that prior to lodging a TCO application, applicants should obtain a Tariff Advice (“TA”) to determine the tariff classification of the subject goods. A TA is, in brief, an administrative system of the regulator that provides certainty in tariff classification and protection from penalties. It can be relied upon until withdrawn, provided full and correct information is provided with the application.

The current turnaround time for TAs is about 30 days from lodgement, but this timing may be significantly extended on occasion by NTAC’s workload / staffing limitations. If an appeal is necessary, the review may take 6 months or more. The time frame between making application for a TCO and its finalisation is then a further 3-6 months. Suggesting TAs be submitted prior to lodgement of application for TCO is not therefore either commercially viable or realistic.

Recommendation

1. The Freight & Trade Alliance (FTA) suggests that the confirmation of a given tariff classification on a TCO application should have the same regulatory standing as a decision on a Tariff Advice, particularly as the same Tariff officers undertake both tasks. It is difficult for industry to accept, as claimed, that Tariff Officers give less time and effort to one type of tariff classification over another given the importance of correct classification.

2. Further, we suggest that as the Delegate has accepted the TCO wording the TCO when made should then be deemed to apply to the subject goods and operate as a Tariff Ruling. This is especially important in the refund application process when further duplication of effort is often unnecessarily required in satisfying Refunds section that the TCO applies.

This also prevents later redline or monitoring audits determining that the tariff classification and/or TCO nominated does not apply to the subject goods. In this circumstance the goods can have the shortpaid duty called up and the importer can therefore be subject to significant penalties.

Incorrect tariff classification decisions also have the following effects:

(a) Duplication of efforts and/or creation of additional TCOs

(b) Rekeying of TCOs to correct tariff classification.

(d) Additional costs to industry

(e) Incorrect tariff information reported to the Bureau of Statistics

(f) No protection to the importer as the tariff classification given or confirmed by the ABF does not operate as a TA. This is especially the problem when a change made by NTAC to the tariff classification on a TCO application is later determined to be incorrect by a monitoring team or red line lodgement.

4. TCO wording

The role and expertise of the TCO section is in the use of the TCO system, which includes the wording of the legislated instrument.

It is therefore of ongoing and serious concern to industry that the staff of the NTAC still suggest amendments to the wording of a proposed TCO and that amendment is then accepted by TCO section. NTAC’s role we are told is tariff classification, which is a separate skill to the next step of drafting or interpreting a proposed TCO wording. If NTAC are as busy as we are advised, then this additional task should cease.

Industry remains concerned at the level of training in tariff classification, experience in and understanding of commercial matters, and the use, interpretation and application of TCOs of some NTAC officers.

Recommendation

1. That NTAC be again advised that the application of proposed TCO wording is the responsibility of TARCON, not NTAC.

5. Amendment of TCO wording by TARCON

It is accepted by Industry that having lodged a TCO application the ABF Tariff Concession section (TARCON) will then attempt to change or amend that wording in some way. These amendments often appear irrelevant and/or unnecessary and are generally regarded by industry as for error recording for justification.

Recommendation

If it’s not broken, and is legal, don’t fix it. It takes industry time to review suggested amendments and refer them to importers/ overseas manufacturers for acceptance and with commentary as required.

Further, careful review of any suggested amendment to the wording is also generally required as it is not uncommon for such suggested amendments to change the meaning of the TCO and thereby exclude goods for which the coverage was sought.

6. Strict compliance

TCOs must STRICTLY describe the goods as imported but what is a “strict” description has become fogged since the decision in Toro. As in this case, the ABF interpretation of TCOs and the wording or expressions used changes over time, which means industry can be uncertain of coverage or clarity, especially given AAT decisions over the last few years. ABF staff changes and rotation also mean that the history of some matters is lost within the Department.

For example, in the past many TCOs written used the term “comprising” followed by a non-exhaustive list of components. When made, these TCOs were phrased this way at the direction of an officer of Customs and/or the then TCO guidelines, as well as Manual 13 (TCO wording). Industry remains concerned that existing TCOs expose users to post or penalty action resulting from any changes in practice by the regulator.

For example, in Becker Vale Pty Ltd v Chief Executive Officer of Customs [2015] FCA 525, Yates J cited Toro and proposed that this reasoning supported a construction of “comprising” that exhaustively states the essential components”.

In reading the decision in Becker Vale TCOs must include a full description, and this full description must include the “”essential components”.

Recommendation

1. The FTA seeks further guidance from ABF as to what are considered to be “essential components” by the regulator, given the ongoing confusion caused in industry by AAT decisions, and the regulators actions in monitoring audits and in TCO wording. We note here that the Administrative Appeals Tribunal (AAT) exists to provide a merits review of an administrative decision. Its role is to consider afresh the facts, law and policy relating to that decision. It affirms, sets aside or varies the decision under review. Its decisions are however NOT PRECEDENT and relate only to the merits of that case. Such a decision does not bind later AAT decisions. Indeed, one wonders why the regulator chooses therefore to follow only one case (Toro)) when the majority of decisions in these matters support the “more than” principle.

2. ABF monitoring officers appear to target companies using TCOs if they consider that the TCO does not fully describe the goods according to current requirements. A full description of the goods is of course a requirement of the application under s.269H but the interpretation of what is a “full description” has changed, Examples include a glass candlestick with a small decorative brass band around it not being eligible for a TCO for glass candlesticks because the candlestick was both glass and brass. Another example is brake motors. These are motors with brakes. They are still a motor, but existing TCOs do not in general also specify the “brake” and so we understand imports have been refused TCO coverage. Does it then follow that a motor with a gearbox is also not eligible for TCOs for motors? The Legal Notes to the Customs Tariff Act 1995 specify that the motor and gearbox are to be classified as a motor. The ABF have in the past advised that in this instance as the electric motor had a gearbox attached it was in fact more than the full description of the goods in the TCO and the TCO would then not apply.

Until the decision in Toro, TCOs that properly described goods that were “more than” as described were accepted as being covered provided that the essential nature of the subject goods was as described and of course did not change the tariff classification of those goods. This is no longer the case, and our opinion is that it exposes many companies, including the original applicants for concessions.

3. As long as industry has clear, concise and consistent Guidelines it can meet regulatory needs. What is of concern to industry is where Guidelines change, and no formal advice of change(s) is issued or in relation to those which are given these lack clarity and understanding.

7. Objections to TCO applications

While we are assured that the ABF visit potential Australian manufacturers it is reasonable to suppose that the officers lack both accounting training and the technical expertise to differentiate one machine’s capabilities or functions from another. No details are provided as to how often this occurs. No details are provided of the appellant until the revocation decision is gazetted, and we understand that this may not always occur.

Recommendation

We therefore request that the previous practice of notifying industry of the objector be included in the gazette notification as per earlier practices.

“Simple Assembly Operations” are excluded from grounds for objecting to/revoking a TCO vide s.269D (3) (d). We suggest that guidance be provided on the meaning of this term. It is some members’ experience that some companies who appear to only assemble imported components leverage this piece of the legislation for competitive and commercial advantage over other industry sections and competitors.

8. Information requirements in making a TCO objection.

It is onerous and costly for companies lodging numerous objections or revocation requests to provide costing information and examples of sales invoices for each request.

Recommendation

Once the information is provided the ABF systems should allow them to use information on pricing and manufacturing costs from earlier submissions and within a prescribed time frame, rather than requiring new data each time.

9. Revocation of TCOs

Over the last few years, the ABF has initiated the revocation of many TCOs. Many of these older revocations were because a more generic TCO was available that was deemed to cover the goods. This appears to be in conflict with the guidelines in Toro that a “full description” must be provided.

Recommendation

We seek clarification on the divergence between NTAC interpretations of TCOs as against the TCO section.

We understand that the NTAC are very narrowly applying TCO’s with a heavy reliance on the Toro case that advises “To fit the TCO description precisely means that the goods must have no more or no less of the characteristics set out in the description”.

Clarification is required, as interpretation of TCO wording is proving challenging for industry given these anomalies.

10. Impact of TCO revocation and reissue on refunds

ABF current policy is that if a TCO is revoked under s.269SD (1AA) no replacement TCO need be made and if it is, it need not be from the operative date of the revoked TCO.

The objective of the Tariff Concession System was stated in Vestas - Australian Wind Technology Pty Limited and Chief Executive Officer of Customs [2015] AATA 348 (21 May 2015) as “It is now more accurate to say ….. the object of the systems is to ensure that industry is not taxed by a tariff where it is serving no protective function. It is clear from s 269C and its place in the scheme of Part XVA, that Parliament has decided that a tariff serves no protective function where there are no goods serving similar functions, and so no substitutable goods, made by Australian industry in the normal course of business.”

Industry therefore queries why the practice of revoking and reissuing TCOs under s.269 SD (2) changed, thereby denying refunds to legitimate importers of goods in conflict with the stated intent of the TCO scheme?

s.269SD (2)

(2) If the CEO is satisfied that:

(a) because of an amendment of a Customs tariff; or

(b) having regard to a decision of a court or of the Administrative Appeals Tribunal; or

(c) having regard to written advice on the matter given by an officer of Customs;

the tariff classification that is stated in a TCO to apply to the goods the subject of the TCO has not, with effect from a particular day, applied to those goods, the CEO must:

(d) make an order revoking the TCO with effect from that day; and

(e) make a new TCO in respect of the goods with effect from the revocation.

(4) The particular day referred to in subsection (2) may be the day on which the TCO that is revoked came into force or a later day.

Recommendation

That replacement TCOs be operative from the operative date of the revoked TCO where legislative (not policy) provisions permit, such as where typographical errors have been made.

11. Tariff decisions by Refunds and Monitoring Officers

A customs broker’s involvement in monitoring audits generally occurs once their client is notified of such action or, if they do not tell the customs broker, being sent a copy of the audit report or draft report by the client. (A customs broker can however also be audited)

Monitoring audits have a purpose, but the officers often have relatively little training in tariff and in general no technical expertise in the industry reviewed. They are however under current guidelines empowered to issue what amounts to a formal classification decision on the tariff classification of goods and/or the application of a particular TCO. The only response to this is to reply with an appeal to Tariff. This is unsatisfactory and industry remains concerned about the conduct and independence of such reviews and the validity of some decisions made.

Recommendation

1. That NTAC be the only ABF section empowered to make formal tariff classification rulings.

2. That a TCO having been made for nominated goods and a refund application lodged for the same goods be sufficient evidence that the TCO applies to the goods, provided TCO IDM is provided.