Dual Use Goods and Sanctions

Australia’s export controls are contained in legislation that includes the Customs Act 1901, the Defence Trade Controls Act 2012 (DTCA), Weapons of Mass Destruction (Prevention of Proliferation) Act 1995 and Military End-Use provisions (section 112BA) and by sanctions. The Department of Foreign Affairs and Trade (DFAT) administers the implementation of sanctions, which restrict or prohibit the export of specified goods to particular countries or individuals or entities. The Department of Defence administers the supply of defence and dual use goods overseas.

This article includes a brief discussion of dual use goods, including the Defence and Strategic Goods List (DSGL) and an outline of the sanction’s regime.

Controls on the supply of Defence and Dual Use Goods

Australia is a member of four major export control regimes, the Wassenaar Arrangement, Missile Technology Control Regime, Nuclear Suppliers Group and the Australia Group, and as a member has committed to ensuring that Australian exports comply with our international obligations, our own national security and that they meet our strategic policy objectives.

Australia implements controls on the most critical items and technology that could contribute to, for example, development of weapons of mass destruction (WMD), through the Defence Trade Controls Act 2012 (“the Act”).

The legal authority for these controls is Regulation 13E of the Customs (Prohibited Exports) Regulations 1958, which provides that the export of any item listed in the DSGL must be approved prior to export.

The purpose of the Act is to control the transfer of defence and strategic goods, software and technology in accordance with Australia’s international obligations. The Act includes provisions regulating:

·        brokering the supply of goods on the Defence and Strategic Goods (DSGL) List and related technology; and now

·        the intangible supply of technology relating to DSGL goods, such as supply by electronic means

The Defence and Strategic Goods List (DSGL) administered by the Department of Defence specifies the goods, software or technology that is regulated and requires a permit when exported, supplied, brokered, published or transhipped through Australia, unless there is an exemption. For example, Defence agencies exporting military goods for an exercise are exempt, but, if the export is done by a freight forwarder, an export permit may be required.

The list is divided into two parts and applies to both new and used goods:

·        Part 1 is the Munitions (military goods) List. These are military items designed or adapted for military purposes or non-military goods those that are inherently lethal, incapacitating or destructive;

·        Part 2 lists goods that are “dual use”, that is, commercial items and technologies that may be used or adapted for use in a military program or contribute to the development and production of chemical, biological or nuclear weapons or systems. These are in the following 10 categories:

·         Category 0 — Nuclear Materials;

·         Category 1 — Materials, Chemicals, Microorganisms and Toxins;

·         Category 2 — Materials Processing;

·         Category 3 — Electronics;

·         Category 4 — Computers;

·         Category 5 — Telecommunications and Information Security;

·         Category 6 — Sensors and Lasers;

·         Category 7 — Navigation and Avionics;

·         Category 8 — Marine;

·         Category 9 — Aerospace and Propulsion.

This List is amended from time to time to reflect changes in the various multilateral non‑proliferation and export control regimes of which Australia is a member. This List is also common between member nation signatories to the relevant Agreements, however, there is the occasional slight difference in controls between certain goods in some categories between nations.

Defence has an online self-assessment DSGL search tool available. To establish whether a particular item is controlled, you need to first check the DGSL to determine if the goods themselves are listed, and then whether related materials, equipment, software or technology are also listed.

There are some exceptions, for example DSGL technology already in the public domain or what would be considered as basic scientific research is not controlled, otherwise, unless either a permit has been granted by the Minister for Defence or a legislative exemption applies to the export, supply, publication or brokering activity, such goods may not be exported. .

If the goods are listed on the DSGL, the technical specifications of the goods against the control thresholds in the DSGL must be checked. Commonly, this associated technology may also be controlled if it is 'required' for the 'development', 'production' or 'use' of the controlled good. For example, the DSGL lists computers that are designed to operate below ‐45 °C or above 85 °C. The control only applies to the technology necessary for the computer to operate at these temperatures. Technology that does not influence this ability is not controlled.

Controls on the intangible supply of technology for DGSL goods have also been in place since 2 April 2016. Goods that are in intangible form, which would require a permit to export if they were in tangible form (i.e. if they were actual goods), now also require an export permit.  Some examples of intangible means are email, fax, telephone and providing access to training or electronic presentations that contain DSGL technology. The provisions apply across all sectors of industry, including universities, training and research.

It’s important to remember too that the inclusion of controlled information in the repair and return of goods, or provision of a technical paper, specification, blueprint or even an email containing such information, sent overseas even if to a fellow employee or a client, is prohibited unless an export permit is first obtained. Importantly, it does not matter to what country the information is exported, including our allies.

The outcome is that a permit is also required to take controlled technology stored on a physical medium, such as on your laptop or a USB drive, outside of Australia. This includes scenarios where the information is sent by post or is carried by hand or in checked baggage.

Please note that goods and technology that are not controlled in the DSGL may still be prohibited for export by the Minister for Defence if they are considered to be capable of use in a WMD program. Such a prohibition would be made under the Weapons of Mass Destruction (Prevention of Proliferation) Act 1995.

Examples

Examples of goods / technology for which export permits may be required:

•       some types of composite materials (Category 1);

•       machine milling tools (Category 2);

•       some carbides and coating technologies (Category 2);

•       various lasers (Category 6);

•       decryption algorithms (Category 7); and

•       technology for machining propellers to reduce underwater noise (Category 8).

Export permits

Applications to export defence and dual-use goods are made through the Defence Export Controls (DEC). They are considered on a case-by-case basis and assessed to determine whether the controlled activity would be prejudicial to the security, defence or international relations of Australia. These assessments include consideration of Australia’s international obligations, regional security, national security and foreign policy, and human rights.

US Export Goods

The United States controls the export, import and use of certain military and dual use items, both and outside USA through the International Traffic in Arms Regulations and the Export Administration Regulations (EAR) / Commerce Control List (CCL). Note that these controls are separate from and in addition to any required Australian export licences).

Essentially, if an export from Australia contains any tangible (e.g. parts) or intangible goods (e.g. software) that are of USA origin that would require an export permit from USA, then an export from Australia may require export permits from both Australia and USA. Although export permits for Australian goods are obtained through Defence Export Controls (DEC), they do not provide the export permits for controlled US origin components or software, which must be obtained from USA.

Penalties

If you get it wrong? Significant penalties including seizure and forfeiture of the goods, a 10 year prison term and/or a fine of 2,500 penalty units can apply. If the goods also include components etc of US origin, then significant penalties may also be incurred from US.

Past examples in Australia include attempts to mail small quantities of high temperature viton orings and certain drones. Similar examples have occurred in USA and Canada. For example, what was essentially a mail room mix up in Canada for fifty synthetic rubber rings, worth a few cents each, resulted in a CN$90,000 fine. In the USA in 2014 penalties for violations were issued – one for US$10 million and one for US$20 million.

Sanctions

The Department of Foreign Affairs and Trade (DFAT) administers the implementation of sanctions which restrict or prohibit the export of specified goods and/or services to particular countries AND/OR designated individuals and entities. Sanctions are implemented principally by the Charter of the United Nations Act 1945, the Autonomous Sanctions Act 2011 and the Customs Act 1901 and through regulations made under these Acts.

Sanctions implemented in Australia generally involve the prohibition of:

·        arms embargoes, bans on the import and export of certain commodities and travel sanctions;

·        financial restrictions, civil aviation restrictions; and may also include the down-grading or suspension of diplomatic ties; and

·        who you can collaborate with on certain types of research outside of Australia, who may come to Australia to study or collaborate with you or in your institution and what that collaboration will involve.

Please note that sanctions are distinct from DSGL. Permits must be obtained from DFAT prior to export for countries, places, organisations, persons or goods subject to sanctions.

The DFAT Sanction’s webpage is at https://sanctions.dfat.gov.au/

It should be noted that these controls apply to export by both individuals and corporations and whether or not the goods or services are supplied from outside Australia.

If goods to be exported to a country subject to sanctions appear also in the DSGL, a separate permission is also required from Defence.

Why do companies insist on buying DDP?

As a Customs broker I am frequently told by new or prospective clients that they prefer to buy DDP (Delivered Duty Paid – why are you reading this definition?). It’s a long standing thing and continues to amaze me, especially for major projects. Aside from what appears to be the obvious:

1.      The importer cares / should care more about controlling ancillary costs such as ocean freight, insurance and port charges than the supplier; and

2.      There is double imposition of GST as its both a taxable supply and a taxable importation; and

3.      There is also the increasing concentration of ABF on the big stick (read that as penalties) approach to errors, and the recipient is not in control of the data input. My opinion as an aside is that compliance is compliance no matter how it’s achieved. The Department is however both short staffed and lacking in ongoing skills development and technical training. It’s therefore easier to chase errors after the event rather than try to counsel the importing community into correct practices.

Section 68 of the Customs Act 1901 (CA) requires that the owner of goods enter them for home consumption or warehousing or transhipment. We will concentrate in this article on entries for home consumption. The GST Act imposes the liability on the importer (note difference in terminology) to pay tax on a taxable importation. Subsequent input tax credits are only available to that importer. Refer sections 13-5 and 33-15 of that Act.

In their past incarnations Australian Border Force (ABF) practice and procedure was to treat the supplier of dutiable goods in a DDP transaction as both the owner in terms of s.4 CA and importer for GST purposes in the import declaration. This is in accordance with the parties responsibilities under Incoterms. This also had benefits to the Australian recipient of the goods in terms of the imposition of penalties if errors were made and/or duty shortpaid. The benefits sometimes flowed across to s.165 demands for duty shortpaid or incorrectly refunded.

Changing goalposts

As we have seen with decisions such as Studio Fashion (Australia) Pty Ltd and Chief Executive Officer of Customs [2015] AATA 366 (28 May 2015) Customs current viewpoint is that given the broad definition of owner in s.4 CA, ABF is not limited to issuing a demand for payment on the owner shown on the import declaration. They now claim a discretion to demand shortpaid duty from any of the persons encompassed by the s.4 definition of that term. This is not in accordance with earlier statements ABF has made and appears to be based purely on penalising the easiest party to get at. It being easier to penalise a company in Australia, be it importer or broker, than chase the overseas company that caused the error to be made. 

Brokers and their clients should therefore ensure that they are fully cognisant of the risks that they take by entering into DDP /FIS contracts. In my experience the major concerns may be turnkey contracts of any size. In those circumstances Company X contracts Supplier Y to build them a facility at one total agreed cost. The goods arrive over several consignments. At the end the complete operating facility is handed over to Company X. Payments for the facility are often made in instalments, with instalment amounts not necessarily linked to the value of the current consignment.

The valuation provisions in Part VIII of the Customs Act 1901  require that each consignment be correctly entered for Customs, including the valuation of the goods in each consignment. Stop and consider this for a moment. Your client is building a huge manufacturing facility for which some boffin somewhere overseas has calculated a single price. Bits and pieces are being imported from numerous countries all over the construction period. The agreed total costs at DDP/FIS will include, inter alia, the cost of the equipment, construction materials, tools, construction labour, site preparation, earthmoving, staff training, commissioning spares, and provision of services, overseas transport and local cartage as well as projected customs duty and GST.

How many split consignments for major projects do not have the value of each consignment correctly calculated in terms of Division 2 of Part VIII (sections 154 to 161L) of the Customs Act 1901? And how many project proponents, past present and future, are therefore at risk?

 

eITA Bill means duty savings for some goods from 1 January 2016

The WTO Information Technology Agreement (ITA) was concluded at the Singapore Ministerial Conference in December 1996. Since then, the number of participants has grown to 82, representing about 97 per cent of world trade in Information technology products. The participants are committed to making the IT products covered by the Agreement duty free, although phasing rates may sometimes apply.

Additional coverage of prescribed IT goods is now to be provided in The Expanded Information Technology Agreement (eITA), which covers 201 information and communications technology products such as multi-component semiconductors (MCOs), medical equipment, GPS devices, tools for manufacturing printed circuits, video game consoles, printer ink cartridges, static converters and inductors, loudspeakers, software media (e.g., solid state drives), point-of-sale cards to download software and games, LEDs, touch-sensitive input devices, children’s electronic learning devices, and various ICT testing instruments. These are in addition to the products covered under the original ITA concluded in December 1996, which accounted for an estimated $1.6 trillion in global trade in 2013.

The Bill for the implementation of the eITA in Australia was introduced to Parliament on 20 October and is expected to commence 1 January 2017. A copy of it is available at

http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5749

The Bill will create new tariff subheadings and phase duty rates for selected subheadings in the following tariff headings: 3215; 3506; 3701; 3705; 3707; 3907; 3919; 3923; 4911; 5911; 8414; 8419; 8421; 8423; 8424; 8475; 8476; 8479; 8486; 8504; 8514; 8515; 8517; 8518; 8519; 8523; 8525; 8526; 8527; 8528; 8529; 8531; 8536; 8538; 8539; 8543; 9001; 9010; 9028; 9031; 9504 .

The amount and timing of the duty reductions will depend the staging category a particular subheading belongs to. There are seven staging categories, each one dependent on the duty rate that applies to goods prior to 1 January 2017.

Staging categories A, B, C, D and E are used for the majority of affected subheadings. All of these staging categories will reduce to Free by 1 July 2019.

Staging categories F and G are used for a small number of subheadings and will reduce to Free by 1 July 2021.

The staging categories are outline in the table below, which has been reproduced from the Explanatory Memorandum.

 

 

 

Staging category for tariff subheading

WTO bound tariff rate prior to 1 January 2017

Customs duty rates and dates of effect

Staging category A

5%, 6% or 7%

5%

From 1 January 2017: 3.75%

 

 

From 1 July 2017: 2.50%

From 1 July 2018: 1.25%

From 1 July 2019: Free

Staging category B

10%, 11% or 12%

5%

From 1 July 2018: 2.50%

From 1 July 2019: Free

Staging category C

15% or 16%

5%

From 1 July 2018: 3.75%

From 1 July 2019: Free

Staging category D

19%

5%

From 1 July 2018: 4.75%

From 1 July 2019: Free

Staging category E

23%

5%

From 1 July 2019: Free

Staging category F

15%

5%

From 1 July 2020: 2.50%

From 1 July 2021: Free

Staging category G

23%

5%

From 1 July 2020: 3.83%

From 1 July 2021: Free

 

Any current margin of tariff preference in FTAs etc has been maintained.

 

Tariff Changes 1 January 2017

The World Customs Organization has published the 2017 edition of the Harmonized System Nomenclature, which will enter into force Jan. 1, 2017. This edition comprises a total of 5,387 separate groups of goods identified by a six-digit code, up from 5,205 in the 2012 edition.  The HS is reviewed every 5 years and this is its fifth major revision since it was approved by the Council in 1983 and implemented in 1988.

The 2017 HS includes approximately 242 amendments, including 85 in the agricultural sector, 45 in the chemical sector, 22 in the wood sector, 15 in the textile sector, six in the base metal sector, 25 in the machinery sector, 18 in the transport sector, and 26 in other sectors.

Environmental and social issues are the main targets of the HS nomenclature 2017 amendments. Most amendments of this edition were recommended by the United Nations Food and Agriculture Organisation (FAO) and focus on food security and the early warning system of the FAO.

In Australia we are implementing the changes by way of the Customs Tariff Amendment (2017 Harmonized System Changes) Bill 2016, which contains amendments to the Customs Tariff Act 1995 to implement the WCO review.  According to the DIBP website, this Bill makes approximately 950 changes to the Tariff Act by creating, amending and clarifying tariff classifications. Further details are at http://www.border.gov.au/Busi/Tari/harmonized-system-2017. This page then provides further links to the Bill and Explanatory Memorandum and, importantly, a link to a concordance between the 2012 and 2017 tariffs.

Duty rates and margins of tariff preference for the majority of the amendments should not change, except for amendments to the scope of heading 8542, which may result in a change of tariff classification of certain goods from Chapters 84, 85, 90, 93 and 95. These amendments are required as a result of the coming into force of the expanded Information Technology Agreement (eITA), to which Australia is a signatory. The eITA is also expected to come into effect on 1 January 2017, and the goods above will become duty free as a consequence.

Highlights (NB highlights) of these changes in the Australian legislation include the following:

Fish and Fishery Products. Amendments for fish and fishery products are aimed to improve the coverage of species and product forms which can then be monitored for food security and resource management through trade statistics.

The many changes include a further split for more detailed product forms for crustaceans, molluscs, and other invertebrates such as cuttlefish and squid. There are changes in tariff classification, principally at the subheading level, for some products. This will require review of TLFs for importers of these goods.

Dairy Products (Chapter 4). Note 4 has changed.

Products of Animal Origin NESOI (Chapter 5). Note 4 has an expanded definition

Industrial or medicinal plants (Chapter 12) Tariff changes as a result of an expanded heading to 1211 may change classification of some goods of 14049000 and 20089900 to 1211.

Forestry Products. The amendments for forestry products include better coverage for endangered species and further separation of non-tropical timber and tropical timber. The intent is to thereby provide a better picture of trade flow, as separating data on tropical woods should both aid in focusing attention on the issue of tropical wood use and clarify data on non-tropical hardwoods.

There are new subheadings and Additional Notes defining terms. To coincide with the commencement of HS 2017, the WCO is publishing the 2017 Explanatory Notes that lists over 400 wood types considered to be “tropical wood” for the purposes of Chapter 44. These tropical woods are identified by their “pilot-names”, scientific names and local names. Additional Notes 1 and 2 list only the pilot-names for the relevant wood types as listed in the 2017 HSEN.

New subheadings have also been added for a number of bamboo and rattan products. These were requested by the International Network for Bamboo and Rattan (INBAR).

Chemicals. New subheadings have also been created for specific chemicals controlled under the Chemical Weapons Convention, hazardous chemicals controlled under the Rotterdam Convention, and certain persistent organic pollutants controlled under the Stockholm Convention.

At the request of the International Narcotics Control Board, new subheadings have also been created for the monitoring and control of pharmaceutical preparations containing ephedrine, pseudoephedrine, or norephedrine and for alpha-phenylacetoacetonitrile, which is a pre-precursor for drugs.

Pharmaceuticals (Chapter 30). New subheading notes. Some tariff changes.  One amendment aims at detailed information for several categories of products that are used as anti-malarial drugs.

New Tyres (4011). You will now need to determine the type of machine with which these tyres are used to correctly classify them.

Ceramic Products (Chapter 68). Headings 6907 (unglazed ceramic products) and 6908 (glazed ceramic products) have been merged, meaning a distinction is no longer required between glazed and unglazed ceramic products. New products with a very high trade volume are classified under subheadings 6907.90 and 6908.90 as “other”.

Paper (Chapter 48). Tariff and Note changes, including some to reflect advances in technology for newsprint.

Chapter 84. The exclusions in Note 1 have been expanded to included radiators for articles of Section XVII. Some other changes to Notes and at subheading level.  May I recommend that you review applicable TCOs also move or are duplicated?

Chapter 85 New notes. Advances in technology are reflected in the amendments for a number of goods. For example, light-emitting diode (LED) lamps, which will transfer from subheading 8543.70.00 to new subheading 8539.50.00. Similarly, multi-component integrated circuits (MCOS) will now be classified to 8542.

As a consequence of the expanded Information Technology Agreement (eITA) to which Australia is a signatory there will be a change in tariff classification of a number of goods from Chapters 84, 85, 90, 93 and 95 to heading 8542. This may include the possible transfer of certain goods from headings 8422, 8431, 8443, 8450, 8466, 8473, 8476, 8504, 8517, 8518, 8522, 8529, 8530, 8531, 8535, 8536, 8537, 8538, 8543, 8548, 9025, 9026, 9030, 9031, 9032, 9033, 9305, 9306 and 9504 and to subheadings 8542.31, 8542.32, 8542.33 or 8542.39. Note that heading 8542 is duty free on 1 January 2017.

Chapter 87. Changes descriptions and new subheadings.  Advances in technology are also reflected in the amendments for hybrid, plug-in hybrid, and all-electric vehicles.

Chapter 95. The exclusions contained in Note 1 have been amended at (e)  to clarify that sports clothing and special articles of apparel of textiles, of Chapter 61 or 62 may also include incidentally protective components such as pads or padding the elbow, knee or groin areas.

New Heading 9620 Monopods, Bipods and Tripods. New tariff heading. The subheadings under heading 9620 have been created to maintain the existing customs duty rates for these goods. Notes of exclusion have been added to other Chapters. Note this now if your clients import these as it’s easy to miss the change in an existing TLF.

Given the Infringement Notice Scheme can impose penalties whether or not duty has been shortpaid it is imperative that brokers review the tariff changes on or before 1 January (but maybe not 1 January if you’re partying the night before). In reviewing the changes may I suggest you cross check that applicable TCOs are also carried across? It is to be hoped that DIBP will provide some time for these changes to be implemented and that the changes have been designed where possible to cause old classifications to bounce but mistakes do happen.  As always, I’m happy to offer my services should anyone require assistance in this matter.

 

A Tale of a Penalty

I had a discussion with a colleague last week as to a penalty notice his firm had received. In brief, the company’s clients include a freight forwarder. That company and/or the freight forwarder believed there to be a “conflict of interest” in the broker contacting the importer directly, and accordingly all queries as to imports had to go through the forwarder. Oh, dangerous move you say – and I wholeheartedly agree – but we must also acknowledge that it happens.

In this scenario the broker requested confirmation of the application of a particular TCO from the importer via the forwarder. That confirmation was provided together with a written assurance from that importer, as requested by the broker, that if the TCO did not apply to these goods in any future consignment the broker would be notified.

All was happy and content in this little scenario for some time. The broker did the work and got paid. The forwarder moved the goods and got paid and the importer saved the customs duty otherwise payable. Then, one unhappy day, the importer wrote to the forwarder and advised that for various reasons the next consignment of the subject goods would not be eligible for the TCO. I understand that this wasn’t identifiable from the consignment documents. There was just something that made the TCO in this circumstance not appropriate.

This is when the nice story above turns into a nightmare for the broker. This is because the staff member in the forwarder’s office that was responsible for this importers happiness and well-being was on holidays. And no-one checked his email. But they did forward the documents for customs clearance.

The customs broker prepared and lodged an import declaration for the goods in accordance with the existing written instructions from the importer that the TCO applied. You’ve all guessed what happened next - The consignment went red line on lodgement. The broker requested additional IDM to lodge with the red line…. And then the forwarder checked his emails.

To be fair to the forwarder he wrote to the broker and accepted responsibility for the error.

A penalty notice was later issued. Not to the forwarder, but the broker. This seemed a bit unfair given the broker had requested and received written notice that the TCO applied and had never been provided correspondence that excluded this one consignment. He therefore appealed.  This appeal was rejected on the basis that it was the broker that was authorised to act on behalf of the owner and it was therefore their responsibility to provide accurate information to the ABF. Cross reference was made to s.243T and the Infringement Scheme Guidelines of 2014.

An infringement (or penalty) notice is a notice that may be served in lieu of prosecuting the offence in court, where the CEO (or his delegate) has reasonable grounds to believe that the person has committed an offence. It is an administrative way of addressing a regulatory breach. The decision whether to serve an infringement notice is made by the CEO or his delegate after having regard to the Guidelines, but the 2014 version of this document is very vague.

The matters to be considered before serving an infringement notice were specified in the 2010 INS Guidelines as seriousness of the breach, compliance history, reliance on Customs advice, efforts/attempt to comply, administrative moratorium and a reason beyond the person’s control. The current Guidelines contain no such requirements.

In the circumstances I consider not to remit the whole or even part of the penalty imposed on the broker to be particularly harsh, especially as the company is well respected and not prone to errors. The lesson, however, to be learned for any brokerage clearing for freight forwarders without direct access to the importer is that they place themselves at risk of penalty. The same may also be said of the few companies that do not allow their brokers to talk to clients but instead insist on funnelling all queries through “customer service” or similar staff. It is a dangerous game when the person passing the message doesn’t understand or places his own interpretation or words in a message.

The scenarios above are a commercial decision, but not one I would make or support. Nevertheless, the imposition of a penalty on the broker when the forwarder clearly identified it was their error seems a harsh reaction in an organisation that claims they prefer a softly softly approach to those attempting to comply.

 

SAFTA Changes

The Singapore-Australia Free Trade Agreement (SAFTA) entered into force in 2003 and is subject to regular reviews. As a result of the amendments to SAFTA announced on 13 October, it should now be easier for Australian and Singaporean traders to claim preferential treatment under the Agreement.

The changes announced include that the Rules of Origin will now have a full schedule of product specific rules. This is simpler than the existing general 50 per cent content rule that requires businesses to record all production costs. The press release advised that SAFTA’s updated rules of origin will be in line with those of AANZFTA and the proposed Trans-Pacific Partnership (TPP) Agreement.

Importantly, SAFTA will switch to a self-certification process, meaning an importer, exporter or producer can self-certify that the good meets the applicable rule of origin for the good. If the certificate is not issued by the producer of the goods, the certification (they’re not calling it a COO) is completed on the basis that the exporter has information to show the goods are originating. Exporters may however continue to have COO issued by a third party as is the current process. The date of effect of this change has not yet been announced.

Article 19 provides that the importer can also issue certify the origin on the basis of having documentation that the good is originating; or reasonable reliance on supporting documentation provided by the exporter or producer that the good is originating.

Article 18 provides that the certification of origin:

  1. need not follow a prescribed format;

  2. must be in writing, including electronic format;

  3. must specify that the good is both originating and meets the requirements of the ROO; and

  4. must contain a set of minimum data requirements as set out in Annex 3-A to the Agreement. These are:

  1. Whether certification of origin is by the importer, exporter or producer;

  2. The certifier’s name, address (inc country), phone and email.

  3. The exporters details as above if different from the certifier. (not required if the producer is completing the COO and is not aware of identity of exporter);

  4. The producer’s details as above if different from the certifier or exporter. If there are various producers then “various” is an acceptable input. If the information is confidential then a statement that it is “Available upon request by the importing authorities” may be input. 

  5. The importer’s details as above.

  6. Description and HS tariff classification of the good to 6 digit level.

  7. If the certification relates to only one consignment, then the invoice number relating to the exportation.

  8. The ROO.

  9. The period if the certification covers multiple consignments. Maximum period is 12 months.

  10. Authorised signature and date with the following statement: “I certify that the goods described in this document qualify as originating and the information contained in this document is true and accurate. I assume responsibility for proving such representations and agree to maintain and present upon request or to make available during a verification visit, documentation necessary to support this certification.”

     

The certification of origin may apply to:

  1. a single shipment of a good into the territory of a Party; or

  2. multiple shipments of identical goods within any period specified in the certificate of origin, but not exceeding 12 months.

The certification of origin is valid for one year after the date that it was issued or for such longer period specified by the legislation of the importing country.

Article 20 provides that each Party shall not reject a certification of origin due to minor errors or discrepancies in the certification of origin. Back to the ChAFTA issue - what’s a “minor” error or discrepancy?

Please note that Article 20 provides that if the importer has reason to believe that the certification is based on incorrect information that could affect the accuracy or validity of the certification of origin, the importer must correct the importation document and pay any customs duty and, if applicable, penalties owed.

This Article also provides that no importing Party shall subject an importer to a penalty for making an invalid claim for preferential tariff treatment if the importer, on becoming aware that such a claim is not valid and prior to discovery of the error by that Party, voluntarily corrects the claim and pays any applicable customs duty under the circumstances provided for in the Party’s law.

Article 25 addresses verification of origin by DIBP and provides that written request from the regulator to the importer, exporter or producer must allow a period of 30 days from the date of the written request to respond. During this period the importer, exporter, or producer may request, in writing, an extension not exceeding 30 days. Upon completion of the verification action, the customs administration shall provide written advice to the importer, exporter or producer of its decision as well as the legal basis and findings of fact on which the decision was made within 90 days.

Failure to comply with the above can lead to a denial of the claim for preference.

In regard to repair and returned goods, the Agreement provides at Article 5 that:

“Neither Party shall apply a customs duty to a good, regardless of its origin, that re-enters the Party’s territory after that good has been temporarily exported from the Party’s territory to the territory of the other Party for repair or alteration, regardless of whether that repair or alteration could have been performed in the territory of the Party from which the good was exported for repair or alteration or increased the value of the good. “

Note that “repair or alteration” does not include an operation or process that destroys a good’s essential characteristics or creates a new or commercially different good

Declaring Overseas Freight & Insurance - the impact of DIBP Notice 2016/33

New DIBP notice 2016/33 addresses the declaration of overseas freight and insurance for the purposes of calculating Customs Value. While the calculation of Customs Value requires the use of the actual amounts paid, this Notice recognises that in some instances the actual amount paid or payable will be unknown.

Overseas freight and insurance are not elements from which Customs Value is calculated. While it’s important to have the correct amounts if the contract price includes provision for them such as in CFR, CIF or DDP, in contracts using FOB or similar incoterms their only impact is on the GST payable. As we know, a company that is registered for GST claims back any GST payable on business related transactions on the Business Activity Statement. Effectively, it’s just a debit and credit on a bit of paper with no impact on the national accounts. Nevertheless, DIBP focuses on the importance of the correct calculation of GST, whether or not it is also claimable as an input tax credit, and record it is an error if incorrectly calculated.

This Notice attempts to address how overseas freight and insurance should be calculated if the actual amounts paid or payable are unknown. In circumstances in which the sale is at FOB or similar we are given two options:

Option 1

An estimate may be provided on the proviso that it is “soundly based “and closely approximates the actual amounts paid or payable.

Query: if you do not know the actual amount how can you know the estimate closely approximates the actual amount?  Particularly if you are preparing the import declaration early. How do you know what a close approximation is?

Brokers must be able to demonstrate reasonable efforts were made to obtain the actual amounts if required by the Department. If the actual amounts are received and they are incorrect to a ‘material extent‘, then a PWA must be lodged.

Query: what is a material extent? A percentage? What will be accepted as reasonable efforts? Industry knowledge? Your own companies freight rates? Third-party advice?

Industry practice where the broker is not also the forwarder has been to ring the forwarder or shipping company and request the amounts payable for ocean freight or, when advised this is not available, to then request an indicative amount. Will this be a reasonable effort? Can I suggest the broker needs to be very sure they maintain file notes to support the amounts input given that such estimates provided by other parties are not always either reliable or accurate.

What about the insurance? Long-standing industry practice has been to use 0.0025% of the FOB amount as the insurance payable. That practice has been stopped by this Notice, but no realistic alternative appears to have been put in its place. Is this another example of a lack of consultation prior to the issue of ACN’s? The only alternative appears to be option 2.

 

Option 2

Following years of negotiation by industry the Australian Tax Office (ATO) has approved a safe harbour that provides that when calculating the VoTI and the actual freight and insurance amounts paid or payable under an FOB contract (or any other contract which does not include the overseas freight and insurance) are unknown, an amount of 10% of the Customs Value may be declared as the freight and insurance amount on an import declaration. This 10% must be apportioned between the overseas freight and insurance. If the actual amount payable become known after the import declaration has been prepared, the FID will not require adjustment.

It should be noted that the 10% safe harbour is not available in contracts in which the goods are imported under CIF, CFR or any other incoterm in which overseas freight and insurance are included in the price.

There are valid reasons that industry associations fought for a long time to have this safe harbour put in place. To suddenly be forced to use it, however, because we do not know the actual amount of insurance payable (if any) and can no longer calculate insurance as 0.0025% of the FOB amount, doesn’t appear to have had a lot of consultation. It will be particularly painful for individuals or companies not registered for GST which will suddenly have a far larger GST bill that would otherwise have been the case. Further, the percentage method was based on a reasonable approximation of how insurance is calculated. This 10% safe harbour has a place, but so does the existing methodology to calculate overseas insurance. It could exist in harmony with the new safe harbour option provided by the AT0 decision. I would urge the regulator to rethink the rationale behind stopping its use.

DAWR Lodgement Questions

An article from Lloyds List, September 2016

Are you an accredited person not working for a brokerage that has an Approved Arrangement with DAWR? Then read on as you’re probably at risk.

In lodging an import declaration in the ICS there has in the past been two questions for the broker to answer. The first was whether the brokerage had an approved arrangement with DAWR. The second was whether the broker was accredited under the NCCC / AEPCOM Scheme(s).  In house programmes such as EDI CargoWise and Expedient just required lodgement and answers may have been pre-set.

I imagine that about the time of the replacement of Compliance Agreements by Approved Arrangements the first question was dropped in the ICS and the second question only was asked, viz is the broker an accredited person.

According to the online version of the Approved Arrangements Glossary an accredited person is “A person who has successfully completed specified training approved by the Department of Agriculture and Water Resources”.  No updates have been provided to industry that the publication is incorrect or has changed.

In FTA’s well attended CPD session in Sydney last week DAWR advised in passing that an accredited person was someone who was BOTH accredited under the relevant Scheme AND worked for a brokerage that held an Approved Arrangement with DAWR. This apparently unannounced change should be of huge concern to any broker working for a company that has not renewed their compliance agreement. I understand about 25% of brokerages that formerly held a Compliance Agreement with DAWR have not as yet taken up an Approved Arrangement. Given that the cost of $2,900 is the same for a small one person company as it is for a large multinational it can be expected that many of this 25% has chosen not to do so.

I wrote the broker update training for CBFCA and in the extensive research I undertook prior to writing it and in the list of changes provided by DAWR, no mention was made of this critical change in definition.

It’s not unreasonable for a broker answering this question to expect that a brokerage for which he works that has an Approved Arrangement with DAWR would be recognised in the ICS, but this appears not to be the case. What is the impact upon brokers who have correctly answered that they are accredited (not having been advised otherwise)) but no longer work for a company with an Approved Arrangement, which as we have been advised is about 25% of the total of companies that formerly held Compliance Agreements? Section 243T must be a concern, although the apparent failure of DAWR to notify of the change may provide a defence.  

DAWR’s compliance monitoring strategy is risk based. This means that the department focus its attention on areas where there is an identified biosecurity risk or high probability of a biosecurity risk. A broker answering a question for a metro delivery that doesn’t require an AIMS entry probably wouldn’t be surprised. I have heard brokers discussing that their intent in other circumstances was to continue to lodge at the counter. It wasn’t a surprise therefore when DAWR recently announced they were closing this facility.

In the development of the update course the primary concern was always that DAWR would neglect to advise industry of changes. Their initial suggestion that industry could check the Scheme’s documents on line each time a lodgement was made was rapidly discounted. An agreement was made that DAWR would advise the RTOs of changes so that they could be built into their CPD / CBC updates. It appears that here we are in the very beginning of the new Scheme and already a major lack of communication has occurred.

I’ve no idea whether the software providers have allowed for this in their updates but recommend it be checked if the brokerage has chosen not to take up an Approved Arrangement. Most if not all such decisions to not take up an Approved Arrangement, despite having held a Compliance Agreement, appear to have been because of the cost.

And let’s not get me started on the lack of industry consultation there actually was in the imposition of these fees. Announcing something and upholding it despite objections from industry is not consultation. A fee based upon number of Compliance Agreements divided by DAWR costs, for a Scheme whose inception was to save DAWR costs, is unfair to any but holders of multiple such agreements such as the multinational freight forwarders. Neither is it properly reflective of cost recovery principles required by government. In many brokers’ opinion a fee on the FID that could be passed through to clients remains the fairest solution. 

 

 

Asbestos is absolutely prohibited as an import into Australia

An article from Lloyds List in September 2016

Importation into Australia of asbestos-containing materials (ACMs) is prohibited except under very limited circumstances, however, despite this prohibition, there have been a number of incidents where ACMs have been imported into Australia. This may sometimes have been the result of unreliable certification provided by overseas manufacturers that goods are asbestos-free. This is because some countries regard products to be ‘asbestos free’ if they contain asbestos below a certain level. In Australia, however, we require zero asbestos content and do not allow tolerances in manufactured goods.

The Customs (Prohibited Import) Regulation’s 2015 are clear as to this prohibition and brokers are of course aware of them.

The current issues being caused by asbestos profiling do not reflect upon the compliance level of brokers. We all understand and support the need for such compliance. The current problems would appear to be caused by too broad a profile being placed by the ABF upon too broad a range of tariff classifications.

For example, heading 7318 – screws, nots, bolts etc. My understanding is that the asbestos was detected in metal screws imported with their asbestos washers. There has been no suggestion that the metal articles themselves are made with or incorporate asbestos. My understanding is that although asbestos has been found in foundries it was used for heat protection and insulation to the machinery and was not added as part of the smeltering process. So how is this blanket ban justified?

The current ICS question reads: “Do these goods contain asbestos?” Wouldn’t therefore the appropriate question in 7318 be to ask if these goods are imported with their washers and only target those consignments? My understanding is that some brokers have experienced delays of 9 days in red line holds on such hardware. (Let’s hope they weren’t also Hanjin consignments)

 There appears to be no point to holding metal nuts, bolts, screws etc if they are not accompanied by washers.  This is NOT, as has been suggested, an attempt by me to make it easier to import asbestos. It’s a plea to think about targeted rather than generic questions. Just because I disagree with the method of implementation does not mean I do not support the need for the prohibition. There is nothing wrong in asking questions or seeking for justification of decisions that impact industry.

DIBP should perhaps advise what type of goods they are seeking to profile and then, with the assistance of industry, draft profiles that are specific in identifying target consignments.

I have been advised too that float glass sheets of 7005.10.00, 7005.21.00, 7005.29.00 are also being targeted. In modern times and in simple terms, glass is made from a mixture of sand, lime and soda. Presumably the coloured glass of 7005.2 has the potential to be coloured by asbestos fibres? And how does that fit with 7005.10? Perhaps if ABF shared their thought patterns there might be more understanding from industry? Better informed is better compliant.

The Asbestos Safety and Eradication Agency (ASEA) is the responsible body in Australia. In industry briefings in 2015 that Authority provided examples of risk products such as high density board, gaskets, pre-assembled switch rooms, cement sheeting, brake pads, effluent treatment equipment, roof sheeting, clutch linings, nut plugs, insulation products, friction materials and some novelty items. Children’s crayons and some children’s remote control cars were also deemed a risk.

At Outcome 3.6 of the identification strategy under the National Strategic Plan for Asbestos Management and Awareness, this Agency is required to ensure effective coordination of response when ACMs in imported materials are identified. Are we to assume that asbestos has been found as a component in products across the broad range of tariff classifications nominated given the extent of the profiling? Or is this just where they may occur?

The Asbestos Importation Review Report prepared by KGH Border Services in March 2016 suggests that the testing standard (AS 4964) applied by National Association of Testing Authorities (NATA) cannot absolutely certify the absence of asbestos, and further confirming testing techniques that exist outside of the Australian Standard may be required. While some of these techniques are available in Australia, no Australian laboratory is currently accredited by NATA to undertake them.

The report elsewhere states: “The International Laboratory Accreditation Cooperation (ILAC) facilitates the process of mutual recognition agreements between NATA and equivalent authorities overseas. This allows for the accreditation of overseas laboratories to the Australian Standard, but very few laboratories that The International Laboratory Accreditation Cooperation (ILAC) facilitates the process of mutual recognition agreements between NATA and equivalent authorities overseas. This allows for the accreditation of overseas laboratories to the Australian Standard, but very few laboratories seek this accreditation”.

So, delays at redline and in drawing samples and then in getting the testing done?

The onus to satisfy the query is on the importer and NATA testing is recommended. If the broker is not satisfied testing is also recommended. What happens if the broker is satisfied (a brave man in these times) and found to be wrong?

Where asbestos occurs in goods it is not uniformly distributed. Testing results depend on the reliability of sampling. This means that different samples of the same goods can provide different results when samples are taken from different parts of those goods. For example, the reason that asbestos was found in the crayon case was that all the colours in the set were tested. I understand not all showed the presence of asbestos.

Reliable sampling is critical to ensure sound testing and evidence methodologies are followed if non-compliance can lead to penalties or prosecution. A competent person takes samples in accordance with relevant WHS laws. The KGH report advises that the ABF does not have a standard guidance on sampling for customs purposes to provide that competent person.

This article is not to under emphasise the seriousness of the danger that asbestos represents to our community. It is a suggestion to properly target areas of concern and rethink the extent of this profiling. Perhaps then some of the ABF’s limited resources can be better targeted to other areas.