House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Law Enforcement and Cyber Security, the Honourable Angus Taylor MP)

Notes on Clauses

Clause 1 - Short title

1. This clause provides for the 'Customs Amendment (Comprehensive and Progressive Agreement for Trans-Pacific Partnership Implementation) Bill 2018' (the Bill), when enacted, to be cited as the Customs Amendment (Comprehensive and Progressive Agreement for Trans-Pacific Partnership Implementation) Act 2018.

Clause 2 - Commencement

2. This clause sets out, in a table, the date on which provisions of the Bill, when enacted, will commence.

3. Table item 1 provides for clauses 1 to 3 and anything in the Bill not elsewhere covered by the table to commence on the day the Bill receives the Royal Assent.

4. Table item 2 provides for Schedule 1 of the Bill, when enacted, to commence on the later of, the day the Bill receives the Royal Assent, and the day the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11), done at Santiago Chile on 8 March 2018, enters into force for Australia. However, the provisions do not commence at all if the TPP-11 does not enter into force for Australia.

5. The TPP-11 will enter into force 60 days after the date on which at least six or at least 50 per cent of the number of signatories to the TPP-11, whichever is smaller, have notified the Depository in writing of the completion of their applicable legal procedures (i.e. ratified the TPP-11). For any signatory that is not among the ratifying parties on the entry-into-force date, the TPP-11 shall enter into force 60 days after the date on which that signatory has notified the Depositary in writing of the completion of its applicable legal procedures.

6. The date on which the TPP-11 enters into force will be announced by the Minister for Law Enforcement and Cyber Security by notifiable instrument, which has the same meaning as in the Legislation Act 2003 (the Legislation Act).

Clause 3 - Schedules

7. This clause enables the Schedule to the Bill, when enacted, to amend or repeal provisions of legislation specified in that Schedule in accordance with the applicable items. In the context of the Bill, the Customs Act 1901 (the Customs Act) is being amended.

Notes on Clauses

Schedule 1-Amendments

Part 1-Trans-Pacific Partnership originating goods

Customs Act 1901

Introductory Comments

8. The TPP-11 was signed on 8 March 2018 in Santiago in Chile, by the Minister for Trade, Tourism and Investment, the Hon. Steve Ciobo MP for Australia and by representatives for Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam.

9. The TPP-11 is a new treaty that incorporates, by reference, the provisions of the original Trans-Pacific Partnership (the TPP) as signed by Ministers on 4 February 2016 in Auckland, New Zealand (Article 1 of the TPP-11 refers). By way of an example, this means that Chapters 1 and 3 of the TPP are Chapters 1 and 3 of the TPP-11.

10. On entry into force, the TPP-11 provides in part for new rules of origin to determine 'Trans-Pacific Partnership originating goods' and for the preferential treatment of customs duty to apply to such goods. 'Trans-Pacific Partnership originating goods' in accordance with the TPP-11 are those goods that satisfy the requirement in new Division 1GB inserted by the Bill; see the notes on clauses below in respect of relevant requirements.

Item 1 Subparagraph 105B(3)(b)(ii)

11. Section 105B of the Customs Act sets out circumstances where the liability to pay import duty on excise-equivalent goods is wholly or partly extinguished. The liability to pay import duty on excise-equivalent goods is wholly or partly extinguished in circumstances where: the goods are entered for warehousing; the goods are used to manufacture excisable goods; the goods are subject to customs control throughout the manufacturing process; and the manufacturing occurs at a place that is both a warehouse described in a warehouse notice granted under Part 5 of the Customs Act, and a premises specified in a manufacturer licence granted under the Excise Act 1901.

12. 'Excise-equivalent goods' is defined in subsection 4(1) of the Customs Act to mean goods prescribed by the regulations for the purposes of this definition. Section 9 of the Customs Regulation 2015 (the Customs Regulation) provides that for the definition of 'excise equivalent goods' in subsection 4(1) of the Customs Act, clause 1 of Schedule 1 prescribes for such goods.

13. However, under subsection 105B(3) of the Customs Act, those circumstances do not apply to an amount of duty if the excise-equivalent goods are classified to subheading 2207.20.10 (denatured ethanol) or 3826.00.10 (biodiesel) of Schedule 3 to the Customs Tariff Act 1995 (the Customs Tariff Act), or an item in the table in Schedule 4A, 5, 6, 7, 8, 9, 10, 11 or 12 to that Act that relates to a subheading mentioned.

14. As part of the implementation of the TPP-11, a separate Customs Tariff Amendment (Comprehensive and Progressive Agreement for Trans-Pacific Partnership Implementation) Bill 2018 (the Customs Tariff Amendment Bill) will insert new Schedule 8B into the Customs Tariff Act. New Schedule 8B will provide for excise-equivalent rates of duty on certain alcohol, tobacco, and fuel products in accordance with the TPP-11, and the related preferential rates of customs duty.

15. This item amends subparagraph 105B(3)(b)(ii) of the Customs Act to insert a reference to Schedule 8B of the Customs Tariff Act.

16. The purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under the TPP-11.

Item 2 Subsection 105B(4) (paragraph (b) of the definition of biofuel blend )

17. Subsection 105B(4) of the Customs Act defines 'biofuel blend', in part, as goods classified to certain subheadings under Schedule 3 of the Customs Tariff Act or an item in the table in the Schedules relating to originating goods under Free Trade Agreements (FTAs) that relate to the relevant subheadings.

18. This item amends the definition of 'biofuel blend' under subsection 105B(4) of the Customs Act to insert a reference to new Schedule 8B of the Customs Tariff Act.

19. As for item 1, the purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under the TPP-11.

Item 3 Before Division 1H of Part VIII

20. This item amends Part VIII of the Customs Act to insert new Division 1GB.

21. New Division 1GB is titled 'Trans-Pacific Partnership originating goods' and sets out the new requirements for determining whether goods are Trans-Pacific Partnership originating goods and therefore eligible for a preferential rate of customs duty under the Customs Tariff Act, as amended by the Customs Tariff Amendment Bill. These new rules give effect to Chapter 3 of the TPP-11.

22. New Division 1GB contains seven Subdivisions (Subdivision A to Subdivision G) and they are set out below.

Subdivision A-Preliminary

23. Subdivision A contains a simplified outline of Division 1GB (new section 153ZKT) and the interpretation provision for that Division (new section 153ZKU).

24. New section 153ZKT sets out a simplified outline of each of Subdivision B to Subdivision G of Division 1GB.

25. New section 153ZKU sets out new definitions for the purposes of new Division 1GB as follows (new subsection 153ZKU(1) refers):

Agreement means the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, done at Santiago, Chile on 8 March 2018, as amended and in force for Australia from time to time. Note 1 to this definition indicates that in 2018, the text of the TPP-11 will be accessible through Australian Treaties Library on the AustLII internet website.

As per the introductory comments at paragraphs 8 and 9 above, Article 1 of the TPP-11 provides for provisions of the TPP (with the exception of a few Articles specified in the TPP-11) to be incorporated into and made part of the TPP-11. Therefore, Chapters in TPP becomes Chapters in the TPP-11. The purpose of note 2 under the definition of 'Agreement' is to reflect this and explain the relationship between the TPP-11 and the TPP.

aquaculture has the meaning given by Article 3.1 of Chapter 3 of the TPP-11.

certification of origin means a certification that is in force and that complies with the requirements of Article 3.20 of Chapter 3 of the TPP-11.

Convention means the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983, as in force from time to time. The note to this definition indicates that in 2018, the text of the Convention is accessible through the Australian Treaties Library on the AustLII internet website. This term is necessary and is referred to in the definition of 'Harmonized Commodity Description and Coding System'.

customs value of goods has the meaning given by section 159. In most cases, it will be the transaction value but there are other valuation methods if this value cannot be ascertained.

Harmonized Commodity Description and Coding System means the Harmonized Commodity Description and Coding System (the HCDC System) that is established by or under the Convention.

The HCDC System is the worldwide classification system that has been adopted by all countries that are members of the World Customs Organization (WCO). In Australia, the HCDC System has been adopted in the Customs Tariff Act.

The HCDC is a structure for classifying goods based on internationally agreed descriptors for goods and related six-digit codes administered by the WCO. This six-digit classification uniquely identifies all traded goods and commodities and is uniform across all countries that have adopted the HCDC System. The WCO reviews the system every five years to reflect changes in industry practice, technological developments and evolving international trade patterns.

This term is referred to in the definition of 'Harmonized System' which sets out the version of the HCDC System on which the TPP-11, particularly the product-specific rules, is based.

Harmonized System means:

(a)

Harmonized Commodity Description and Coding System as in force immediately before 1 January 2017; or

(b)

if the table in Annex 3-D to Chapter 3, or in Annex 4-A to Chapter 4, of the TPP-11 is amended or replaced to refer to Chapters, headings and subheadings of a later version of the Harmonized Commodity Description and Coding System-the later version of the Harmonized Commodity Description and Coding System.

As per the notes for the definition of 'HCDC System', updates to that System are undertaken every 5 years. The last review of the HCDC System (the fifth review) was completed in June 2014 and related amendments made entered into force on 1 January 2017.

Australia, simultaneously on the entry into force date, implemented, and currently uses, the latest HCDC System of 2017. Because the TPP-11 was negotiated based on the HCDC System of 2012, it is necessary to specify the Harmonized System that is required for the TPP-11. This is because the tariff classification codes set out in Annex 3-D to Chapter 3, and in Annex 4-A, of the TPP-11, and incorporated by reference into the Customs Act for the purpose of the new rules of origin, are those codes from the HCDC System of 2012.

In light of this, the definition of 'Harmonized System' will expressly recognise, in the Customs Act, the version of the HCDC System on which the TPP-11 was based, and allow subsequent versions of that System to also be recognised when the relevant Annexes to the TPP-11 are formally amended.

To avoid causing any disruption to international trade, Australia, through the Department of Home Affairs, publishes the changes between HCDC System updates and relevant concordance associated with those updates on its website, at no charge, so that anyone can readily identify the appropriate tariff classification codes for goods imported from other countries into Australia.

indirect materials means:

(a)

goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods; or

(b)

goods or energy used in the maintenance of buildings or the operation of equipment associated with the production of goods;

including:

(c)

fuel (within its ordinary meaning); and

(d)

tools, dies and moulds; and

(e)

spare parts and materials; and

(f)

lubricants, greases, compounding materials and other similar goods; and

(g)

gloves, glasses, footwear, clothing, safety equipment and supplies; and

(h)

catalysts and solvents.

This term, together with the definition of 'originating material', new Subdivision C and new Subdivision D give effect to Article 3.16 of new Chapter 3 of the TPP-11.

Interpretation Rules means the General Rules (as in force from time to time) for the Interpretation of the Harmonized System provided for by the Convention.

non-originating materials means goods that are not originating materials.

Non-originating materials are goods that are not originating materials because they do not satisfy the requirements of new Division 1GB in their own right. For example, where a shirt is manufactured by a Party to the TPP-11 from material produced in the territory of that Party, and the buttons affixed to the shirt are produced in the Thailand which is not a Party to the TPP-11, the material used to manufacture the shirt would be originating and the buttons would be non-originating materials.

non-Party has the same meaning as it has in Chapter 3 of the TPP-11, which is a State or separate customs territory that is not a Party to the TPP-11.

This term is necessary and is referred to in new section 153ZKZA, which deals with the consignment of Trans-Pacific Partnership originating goods; specifically, the circumstances in which goods are not Trans-Pacific Partnership originating goods under Division 1GB if they are transported through the territory of one or more non-Parties. See notes below for new subsection 153ZKZA.

originating materials means:

(a)

goods that are originating under a law of a Party that implements the TPP-11 and that are used in the production of other goods; or

(b)

recovered goods derived in the territory of one or more of the Parties and used in the production of, and incorporated into, remanufactured goods; or

(c)

indirect materials.

This term, together with new Subdivision C and new Subdivision D give effect to Article 3.2 of Chapter 3 of the TPP-11.

Party has the meaning given by Article 1.3 of Chapter 1 of the TPP-11.

person of a Party has the meaning given by Article 1.3 of Chapter 1 of the TPP-11.

production has the meaning given by Article 3.1 of Chapter 3 to the TPP-11. That is, production means the methods of obtaining goods including growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, collecting, breeding, extracting, aquaculture, gathering, manufacturing, processing or assembling a good.

The term 'production' is defined in the TPP-11 and the Bill as 'methods of obtaining goods'. That definition includes an indicative list of the processes most likely to be covered by the term. This list is non-exhaustive - the term 'production' is also capable of capturing any other process that falls within the meaning of 'methods of obtaining goods', including any currently existing methods that have not been listed and any new methods which may arise in the future. The determining factor will be whether something is a 'method of obtaining goods'.

recovered goods means goods in the form of one or more individual parts that:

(a)

have resulted from the disassembly of used goods; and

(b)

have been cleaned, inspected, tested or processed as necessary for improvement to sound working condition.

remanufactured goods means goods that:

(a)

are classified to any of Chapters 84 to 90 (other than heading 84.18, 85.09, 85.10, 85.16 or 87.03 or subheading 8414.51, 8450.11, 8450.12, 8508.11 or 8517.11), or to heading 94.02, of the Harmonized System; and

(b)

are entirely or partially composed of recovered goods; and

(c)

have a similar life expectancy to, and perform the same as or similar to, new goods:

i.

that are so classified; and

ii.

that are not composed of any recovered goods; and

(d)

have a factory warranty similar to that applicable to such new goods.

territory, for a Party, has the meaning given by Article 1.3 Chapter 1 of the TPP-11.

textile or apparel good has the meaning given by Article 1.3 of Chapter 1 of the TPP-11.

Trans-Pacific Partnership originating goods means goods that, under this Division, are Trans-Pacific Partnership originating goods.

wholly formed, in relation to elastomeric yarn, has the same meaning as it has in the TPP-11.

26. New subsection 153ZKU(2) provides that the value of goods for the purpose of new Division 1GB is to be worked out in accordance with the regulations and that the regulations may prescribe different valuation rules for different kinds of goods. The value of goods is relevant, for example, in determining whether goods satisfy the de minimis requirement in Article 3.11 of Chapter 3 of the TPP-11. The value of goods is to be distinguished from the customs value of goods, which is to be worked out under section 159 of the Customs Act.

27. New subsection 153ZKU(3) provides that in specifying tariff classifications for the purposes of new Division 1GB, the regulations may refer to the Harmonized System. The product specific rules of origin in Annex 3-D to Chapter 3, and in Annex 4-A to Chapter 4, of the TPP-11 refer to the tariff classifications of the Harmonized System.

28. New subsection 153ZKU(4) provides that subsection 4(3A) of the Customs Act does not apply for the purposes of new Division 1GB. Subsection 4(3A) provides that a reference to the tariff classification under which goods are classified is a reference to the heading in Schedule 3 to the Customs Tariff Act. This is a consequence of new subsection 153ZKU(3).

29. New subsection 153ZKU(5) provides that, despite subsection 14(2) of the Legislation Act, regulations made for the purposes of new Division 1GB may make provision in relation to a matter by applying, adopting or incorporating, with or without modification, any matter contained in an instrument or other writing as in force or existing from time to time. The subsection will override subsection 14(2) of the Legislation Act should it be necessary in order to implement the TPP-11 by applying, adopting or incorporating an instrument or other writing that is not an Act or disallowable legislative instrument. Any instrument and other writing so incorporated will be limited to those that are required for the operation of the TPP-11 and will be accessible through the Department's website, and free of charge, to ensure they are readily available and at no cost to persons concerned. For example, in implementing other FTAs, this provision has enabled the regulations to refer to the general accounting principles of a country other than Australia for the purposes of the regional value content calculations.

30. New subsection 153ZKU(6) provides that the Minister (for Law Enforcement and Cyber Security) must announce, by notifiable instrument, the day on which the TPP-11 enters into force for a Party (other than Australia). This means that the Minister will be required to publish by notifiable instrument the date the TPP-11 enters into force for each Party to the TPP-11 (other than Australia). The notice for Australia will be published in accordance with the commencement provision.

Subdivision B-Goods wholly obtained or produced entirely in the territory of one or more of the Parties

31. Subdivision B contains new section 153ZKV, which sets out the rules in relation to goods that are wholly obtained or produced entirely in the territory of one of more Parties to the TPP-11.

32. New subsection 153ZKV(1) provides that goods are Trans-Pacific Partnership originating goods if they are wholly obtained or produced entirely in the territory of one or more of the Parties and either the importer of the goods has, at the time the goods are imported, a certification of origin, or a copy of one, for the goods, or Australia has waived the requirement for a certification of origin.

33. New subsection 153ZKV(2) provides that goods are wholly obtained or produced entirely in the territory of one or more of the Parties if, and only if, the goods are:

(a)

plants, or goods obtained from plants, that are grown, cultivated, harvested, picked or gathered in the territory of one or more of the Parties; or

(b)

live animals born and raised in the territory of one or more of the Parties; or

(c)

goods obtained from live animals in the territory of one or more of the Parties; or

(d)

animals obtained by hunting, trapping, fishing, gathering or capturing in the territory of one or more of the Parties; or

(e)

goods obtained from aquaculture conducted in the territory of one or more of the Parties; or

(f)

minerals, or other naturally occurring substances, extracted or taken from the territory of one or more of the Parties; or

(g)

fish, shellfish or other marine life taken from the sea, seabed or subsoil beneath the seabed:

i.

outside the territories of the Parties; and

ii.

outside the territorial sea of non-Parties in accordance with international law;

by vessels that are registered, listed or recorded with a Party and are entitled to fly the flag of that Party; or

(h)

goods produced, from goods referred to in paragraph (g), on board a factory ship that is registered, listed or recorded with a Party and are entitled to fly the flag of that Party; or

(i)

goods, other than fish, shellfish or other marine life, taken by a Party, or a person of a Party, from the seabed, or subsoil beneath the seabed, outside the territories of the Parties, and beyond areas over which non-Parties exercise jurisdiction, but only if that Party or person has the right to exploit that seabed or subsoil in accordance with international law; or

(j)

waste or scrap that:

i.

has been derived from production in the territory of one or more of the Parties; or

ii.

has been derived from used goods that are collected in the territory of one or more of the Parties and that are fit only for the recovery of raw materials; or

(k)

goods produced in the territory of one or more of the Parties, exclusively from goods referred to in paragraphs (a) to (j) or from their derivatives.

34. New section 153ZKV gives effect to Articles 3.2(a), 3.3, 3.10(1), 3.20(1) and 3.23(b) of Chapter 3 of the TPP-11 in respect of rules of origin for goods produced exclusively from originating materials. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with the TPP-11.

Subdivision C-Goods produced from originating materials

35. Subdivision C contains new section 153ZKW, which sets out the rule for goods that are produced entirely in the territory of one or more of the Parties from originating materials only. Such goods are Trans-Pacific Partnership originating goods if the importer has, at the time the goods are imported, a certification of origin, or a copy of one, for the goods; or Australia has waived the requirement for a certification of origin for the goods.

36. New section 153ZKW gives effect to Articles 3.2(b), 3.20(1) and 3.23(b) of Chapter 3 of the TPP-11 in respect of rules of origin for goods produced exclusively from originating materials. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with the TPP-11.

Subdivision D-Goods produced from non-originating materials

37. Subdivision D contains new sections 153ZKX and 153ZKY.

38. New section 153ZKX deals with goods produced from non-originating materials and provides (new subsection 153ZKX(1) refers) that goods are Trans-Pacific Partnership originating goods if:

(a)

they are classified to a Chapter, heading or subheading of the Harmonized System that is covered by the table in Annex 3-D to Chapter 3, or in Annex 4-A to Chapter 4, of the TPP-11; and

(b)

they are produced entirely in the territory of one or more of the Parties from non-originating materials only or from non-originating materials and originating materials; and

(c)

the goods satisfy the requirements applicable to the goods in that Annex; and

(d)

either:

i.

the importer of the goods has, at the time the goods are imported, a certification of origin, or a copy of one, for the goods; or

ii.

Australia has waived the requirement for a certification of origin for the goods.

39. Where goods covered by new subsection 153ZKX(1) are put in a set for retail sale, further requirements are also applicable. For this reason, the note under the new provision refers to new subsection 153ZKX(12) in respect of a limitation that applies to set of goods for retail sale.

40. Where goods covered by new subsection 153ZKX(1) are a textile or apparel goods, and without limiting the operation of new paragraph 153ZKX(1)(c), new subsection 153ZKX(2) provides for paragraphs 7 and 9 of Article 4.2 of, and Appendix 1 to Annex 4-A to Chapter 4 of the TPP-11 to have effect for the purposes of determining whether paragraph 153ZKX(1)(c) is met.

41. Paragraph 7 of Article 4.2 deals with the treatment of short supply list materials, and provides for a material listed in Appendix 1 that meets any requirement, including the end use requirement, specified in that Appendix to be an originating good under Article 3.2(c) of Chapter 3 to the TPP-11. Where the material concerned is marked as temporary in Appendix 1, paragraph 9 of Article 4.2 provides that such materials may be considered as originating under paragraph 7 of Article 4.2 for five years from the date of entry into force of the TPP-11.

42. The purpose of new subsection 153ZKX(2) is to give effect to the applicable requirements set out in paragraphs 7 and 9 of Article 4.2 of, and Appendix 1 to Annex 4-A to, Chapter 4 of the TPP-11.

Change in tariff classification

43. New subsection 153ZKX(3) refers to the first of several provisions that may be prescribed in regulations made for the purposes of Subdivision D. It provides that, if a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification, the regulations may prescribe when a non-originating material used in the production of the goods is taken to satisfy the change in tariff classification.

44. The regulations made under this head of power include provisions to give effect to the cumulative rules of origin contained in Article 3.10 of Chapter 3 of the TPP-11, which apply where non-originating materials that are used or consumed in the production of the good do not satisfy the change in tariff classification.

45. The concept of the change in tariff classification requirement applies to non-originating materials. Goods that have been sourced outside a Party to the TPP-11 and that are used in the production of other goods are non-originating materials. Goods sourced from a Party to the TPP-11 that have not fulfilled the requirements of new Division 1GB and that are used in the production of other goods are also non-originating materials.

46. Non-originating materials used to produce other goods may not have the same classification under the Harmonized System as the final good. For example, non-originating materials used to produce a good may be classified to one tariff classification before the production process, and the final good may be classified under a different tariff classification after the production process. To satisfy the requirement of classification change, and therefore satisfy a requirement for the purposes of claiming preferential treatment of customs duty in accordance with the TPP-11, the goods concerned must be sufficiently transformed such that they can be classified to a different tariff classification to that of the non-originating materials from which they are produced.

47. For example, frozen fish fillets (classified to tariff code 0304) are produced from fish caught in a party to the TPP-11 and combined with herbs and spices produced in Thailand (which is not a Party to the TPP-11) (classified to tariff code 0907 to 0910) to make crumbed fish fillets (classified to tariff code 1604 in Chapter 16 of the Harmonized System). The applicable tariff change for crumbed fish is 'a change to Chapter 16 from any other chapter'. As the herbs and spices are classified to Chapter 9 of the Harmonized System, these non-originating materials meet the tariff change requirement, considering that the fish concerned is the produce of a Party to the TPP-11, and is therefore an originating material and is not required to change its classification.

48. As per the above example, it is necessary for the tariff classification of the final good and each of the goods that are non-originating materials used in the production of the final goods to be known in order to determine the applicable change in tariff classification.

Rules for goods that are not a textile or apparel good

49. New subsection 153ZKX(4) provides that, if:

(a)

a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification; and

(b)

the goods are not a textile or apparel good; and

(c)

one or more of the non-originating materials used in the production of the goods do not satisfy the change in tariff classification; then the requirement is taken to be satisfied if the total value of the non-originating materials covered by paragraph (c) does not exceed 10% of the customs value of the goods.

50. The provisions of subsection 153ZKX(4) incorporate the de minimis provisions that are set out in Article 3.11 of Chapter 3 of the TPP 11. Therefore, even if all the non-originating materials used to produce a final good do not satisfy a particular change in tariff classification, the final goods may still be Trans-Pacific Partnership originating goods because the change in tariff classification will be taken to be satisfied.

51. As new subsection 153ZKX(4) only deals with goods covered by new subsection 153ZKX(1) that are not textile or apparel goods, the purpose of the note under new subsection 153ZKX(4) is to indicate the other provisions that apply in relation to goods that are textile or apparel goods.

52. New subsection 153ZKX(5) provides that in applying new subsection 153ZKZ(4) non-originating materials covered by paragraphs (a), (b), (c), (d) or (e) of Annex 3-C to Chapter 3 of the TPP-11 are to be disregarded in relation to non-originating materials used in the production of goods.

53. Article 3.11.1 of Chapter 3 to the TPP-11 provides for goods contained in Annex 3-C to Chapter 3 of the TPP-11 to be excluded from the de minimis requirement. For example, non-originating dairy preparations containing over 10% by dry weight of milk solids of subheading 1901.90 or 2106.90, used in the production of a good of heading 04.01 through 04.06 other than a good of subheading 0402.10 through 0402.29 or 0406.30.

54. The purpose of new subsection 153ZKX(5) is to ensure only eligible goods are subject to the de minimis requirement.

Rules for goods that are a textile or apparel good

55. New subsection 153ZKX(6) provides that, if:

(a)

a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification; and

(b)

the goods are a textile or apparel good; and

(c)

the goods are classified other than to Chapter 61, 62 or 63 of the Harmonized System; and

(d)

if the goods contain elastomeric yarn-the yarn is wholly formed in the territory of one or more of the Parties; and

(e)

one or more of the non-originating materials used in the production of the goods do not satisfy the change in tariff classification;

then the requirement is taken to be satisfied if the total weight of the non-originating materials covered by paragraph (e) does not exceed 10% of the total weight of the goods.

56. This new provision gives effect to the de minimis requirement under Article 4.2.2 of Chapter 4 of the TPP-11. Under the TPP-11, for goods that are textile of apparel goods, Article 4.2.2 provides for the relevant threshold to be a maximum of 10% of the total weight of the final goods.

57. Similar to the operation of new subsection 153ZKX(6), new subsection 153ZKX(7) sets out a separate requirement that, if met, would provide for non-originating materials that are textile or apparel goods and that are classified to Chapter 61, 62 or 63 (i.e. textile or apparel goods containing fibres or yarn) to be taken to satisfy the change in tariff classification requirement.

Regional value content

58. New subsection 153ZKX(8) provides that, if a requirement that applies in relation to the goods is that the goods must have a regional value content of not less than a particular percentage worked out in a particular way:

(a)

the regional value content of the goods is to be worked out in accordance with the TPP-11; or

(b)

if the regulations prescribe how to work out the regional value content of the goods-the regional value content of the goods is to be worked out in accordance with the regulations.

59. This new provision provides the head of power to prescribe formulas for calculating regional value content and in doing so gives effect to Article 3.5 of Chapter 3 of the TPP-11.

60. New subsection 153ZKX(9) provides that, without limiting paragraph 8(b), Appendix 1 to Annex 3-D to Chapter 3 of the TPP-11 has effect in working out if materials used in the production of goods are originating materials or non-originating materials.

61. Appendix 1 to Annex 3-D to Chapter 3 of the TPP-11sets out additional requirements that are applicable to certain vehicles or parts of a vehicle. The purpose of new subsection 153ZKX(9) is to give effect to the requirements in the relevant Appendix.

62. New subsection 153ZKX(10) provides that, if

(a)

a requirement that applies in relation to the goods is that the goods must have a regional value content of not less than a particular percentage worked out in a particular way; and

(b)

the goods are imported into Australia with accessories, spare parts, tools or instructional or other information materials; and

(c)

the accessories, spare parts, tools or instructional or other information materials are classified with, delivered with and not invoiced separately from the goods; and

(d)

the types, quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the goods;

then the regulations must provide the value of the accessories, spare parts, tools or instructional or other information materials to be taken into account for the purposes of working out the regional value content of the goods (whether the accessories, spare parts, tools or instructional or other information materials are originating materials or non-originating).

63. The note to this section indicates that the value of the accessories, spare parts, tools or instructional or other information materials is to be worked out in accordance with the regulations: see subsection 153ZKU(2).

64. New subsection 153ZKX(10) provides for a head of power to prescribe regulations to give effect to Article 3.13.1(b) of Chapter 3 of the TPP-11 in respect of the value of the accessories, spare parts, tools or instructional or other information materials for working out regional value content. This new provision is necessary because such goods would not normally form part of the value of materials that are used in the production of the underlying goods.

65. New subsection 153ZKX(11) gives effect to Article 3.13.1(a) of Chapter 3 to the TPP-11 and provides that, for the purposes of subsection 153ZKX(10), disregard section 153ZKZ in working out whether the accessories, spare parts, tools or instructional or other materials are originating materials or non-originating materials. This provision ensures that consideration of applicable change in tariff classification only applies to final goods produced from non-originating materials and not the accessories, spare parts, tools or instructional or other information materials for the final goods.

Goods put up in a set for retail sale

66. New subsection 153ZKX(12) gives effect to Article 3.17 of the TPP-11 and provides that if:

(a)

goods are put up in a set for retail sale; and

(b)

the goods are classified in accordance with Rule 3(c) of the Interpretation Rules;

the goods are Trans-Pacific Partnership originating goods under this section only if:

(c)

all of the goods in the set, when considered separately, are Trans-Pacific Partnership originating goods; or

(d)

the total customs value of the goods (if any) in the set that are not Trans-Pacific Partnership originating goods does not exceed 10% of the customs value of the set of goods.

67. This provision enables goods that are put up for retail sale and that comprised of multiple components to be classified under two or more tariff headings under Rule 3(c) of the General Rules for the Interpretation of the Harmonized System (the Interpretation Rules). That is, when goods cannot be classified to a single heading or subheading, they shall be classified under the heading or subheading which occurs last in numerical order among those which equally merit consideration.

68. By way of an example, a mirror, brush and comb are put up in a set for retail sale. This set is classified under Rule 3(c) of the Interpretation Rules according to the tariff classification applicable to combs. This is because combs is the heading which occurs last in numerical order among the three items concerned.

69. The effect of new paragraph 153ZKX(12)(c) is that the set will not be considered to be Trans-Pacific Partnership originating goods unless all three of the goods in the set, when considered separately, are such originating goods. However, if one or more of the goods in the set is non-originating, then the set of goods may still be Trans-Pacific Partnership originating goods under new paragraph 153ZKX(12)(d) if the value of the non-originating goods does not exceed 10% of the customs value of the set of goods concerned.

70. New section 153ZKY deals with packaging, materials and containers in accordance with the TPP-11.

71. New subsection 153ZKY(1) gives effect to Articles 3.14 and 3.15 of Chapter 3 of the TPP-11 and provides that if:

(a)

goods are packaged for retail sale in packaging material or a container; and

(b)

the packaging material or container is classified with the goods in accordance with Rule 5 of the Interpretation Rules;

then the packaging material or container is to be disregarded for the purposes of this Subdivision.

72. This provision has effect that packaging materials or containers do not need to satisfy the change in tariff classification requirement that may apply to the goods packaged within the materials or containers.

73. However, in accordance with Article 3.14.2 Chapter 3 of the TPP-11, new subsection 153ZKY(2) provides one exception to subsection 153ZKY(1). This exception applies where the goods are required to have a regional value content of not less than a particular percentage worked out in a particular way. In this context, the regulations must provide for the value of the packaging material or container to be taken into account for the purposes of working out the regional value content of the goods (whether the packaging materials or container is an originating or non-originating material).

74. Without this provision, the value of packaging materials or containers would not normally form part of the value of the materials that are used in the production of the goods. The value of packaging materials and containers for the purposes of this section is to be worked out in accordance with the method that will be included in the regulations.

75. The note to this section indicates that the value of packaging material or container is to be worked out in accordance with the regulations: see subsection 153ZKU(2).

Subdivision E-goods that are accessories, spare parts, tools or instructional or other information materials

76. Subdivision E contains new section 153ZKZ, which gives effect to Article 3.13 of Chapter 3 to the TPP-11 and sets out a specific rule that applies to goods that are accessories, spare parts, tools or instructional or other information materials.

77. New section 153ZKZ provides that goods are Trans-Pacific Partnership originating goods if:

(a)

they are accessories, spare parts, tools or instructional or other information materials in relation to other goods; and

(b)

the other goods are imported into Australia with the accessories, spare parts, tools or instructional or other information materials; and

(c)

the other goods are Trans-Pacific Partnership originating goods; and

(d)

the accessories, spare parts, tools or instructional or other information materials are classified with, delivered with and not invoiced separately from the other goods; and

(e)

the types, quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the other goods.

78. Under this new provision, accessories, spare parts, tools or instructional or other information materials in relation to other goods will be deemed Trans-Pacific Partnership originating goods even if, in fact, they are non-originating goods, provided all of the requirements in this new section are satisfied.

79. However, subsection 153ZKX(11) provides that for the purposes of subsection 153ZX(10), section 153ZKZ is to be disregarded in working out whether the accessories, spare parts, tools or instructional or other information materials are originating materials or non-originating materials.

Subdivision F-Consignment

80. Subdivision F contains new section 153ZKZA, which deals with the consignment requirements applicable to Trans-Pacific Partnership originating goods in accordance with the TPP-11.

81. New subsection 153ZKZA(1) provides goods are not Trans-Pacific Partnership originating goods under this Division if the goods are transported through the territory of one or more non-Parties and either or both of the following apply:

(a)

the goods undergo any operation in the territory of a non-Party (other than unloading, reloading, separation from a bulk shipment, storing, labelling or marking for the purpose of satisfying the requirements of Australia or any other operation that is necessary to preserve the goods in good condition or to transport the goods to the territory of Australia);

(b)

while the goods are in the territory of a non-Party, the goods do not remain under the control of the customs administration of the non-Party at all times.

82. New subsection 153ZKZA(2) provides that section 153ZKZA applies despite any other provision of new Division 1GB.

83. This new provision gives effect to Article 3.18 of Chapter 3 of the TPP-11 which sets out the consignment rules.

Subdivision G-Regulations

84. Subdivision G contains new section 153ZKZB, which provides a head of power to prescribe regulations to make provisions for and in relation to determining whether goods are Trans-Pacific Partnership originating goods under new Division 1GB.

Part 2-Verification Powers

Customs Act 1901

Item 4 Before Division 4F of Part VI

85. This item amends Part VI of the Customs Act to insert new Division 4EB, which is titled 'Exportation of goods to Parties to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership'.

86. Division 4EB contains four new sections, these being sections 126AKI, 126AKJ, 126AKK and 126AKL. These new sections impose obligations on people who export eligible goods to a Party to the TPP-11 and who wish to obtain preferential treatment of customs duty in respect of those goods, and on people who produce such goods.

Section 126AKI Definitions

87. New section 126AKI defines the terms 'Agreement', 'customs administration', 'Party', 'producer', 'production', 'territory' and 'Trans-Pacific Partnership customs official' for the purposes of new Division 4EB. With the exception to the terms 'customs administration' 'producer' and 'Trans-Pacific Partnership customs official', the other terms have the same meaning as defined in new Division 1GB of Part VIII of the Customs Act, inserted by item 3 of Part 1 of the Bill.

88. 'Customs administration' is defined under this section, as having the same meaning given by Annex 1-A to Chapter 1 of the TPP-11. This term is referred to in the definition of 'Trans-Pacific Partnership customs official' for the purposes of new sections 126AKK and 126AKL.

89. 'Trans-Pacific Partnership customs official' is defined under this section, for a Party to the TPP-11, to mean a person representing the customs administration of that Party. This term is referred to in new section 126AKK and 126AKL.

Section 126AKJ Record keeping obligations

90. New section 126AKJ inserts a head of power to prescribe record keeping obligations that will apply in respect of goods that are exported from Australia to a Party to the TPP-11.

91. New subsection 126AKJ(1) enables regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of a Party and that are claimed to be originating under a law of that Party that implements the TPP-11 for the purpose of obtaining a preferential tariff in that Party. Record keeping obligation under the TPP-11 are broader than the general record keeping obligations under the Customs Act.

92. It is intended that the method of keeping the documents, such as the length of time for which they must be kept and the manner in which they must be kept, will be similar to current record keeping obligations set out in Division 2 of Part XIII of the Customs Act. However, the type of documents that will be required to be kept will be much broader than current requirements.

93. The requirements will extend to all records relating to the origin of the goods for which preferential tariff treatment is claimed in a Party to the TPP-11 and may include, amongst other things, records associated with the tariff classification of the goods and the origin or value of the materials used to produce the goods.

94. New subsection 126AKJ(2) provides that regulations for the purposes of subsection 126AKJ(1) may impose such obligations on an exporter or producer of goods.

Section 126AKK Power to require records

95. New subsection 126AKK(1) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may require a person who is subject to record keeping obligations under regulations made for the purposes of section 126AKJ to produce to the officer such of those records as the officer requires.

96. Under Article 3.27 of Chapter 3 of the TPP-11, the Customs Administration of a Party to the TPP-11 may take action to verify the eligibility of goods for preferential tariff treatment, including a written request for information from the exporter of producer of the good (paragraph 3.27.1(b) of Chapter 3 to the TPP-11). New section 126AKK gives effect to this Article in respect of goods that are exported to a Party of the TPP-11 and that are claimed to be originating goods for the purpose of obtaining a preferential tariff in that Party.

97. New subsection 126AKK(2) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may disclose any records so produced to a Trans-Pacific Partnership customs official for the purpose of verifying a claim for a preferential tariff in that Party. Records obtained by an authorised officer under new section 126AKK may be Immigration and Border Protection information within the meaning of Part 6 of the Australian Border Force Act 2015 (the ABF Act).

98. Section 42 in Part 6 of the ABF Act prohibits the disclosure of Immigration and Border Protection information except, amongst other things, where the disclosure is authorised by or under a law of the Commonwealth.

99. New Section 126AKK permits the disclosure of information that may be classified as Immigration and Border Protection Information under section 44 and 45 of the ABF Act to a Trans-Pacific Partnership customs official. The inclusion of new section 126AKL expressly authorises the disclosure of such information as required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

100. The note to new section 126AKK indicates that, where an authorised officer has requested a person who is subject to record keeping obligations under regulations made for the purposes of section 126AKK, a failure to produce documents or records by that person may be an offence under existing section 243SB of the Customs Act. The note also indicates that, under existing section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

Section 126AKL Power to ask questions

101. New subsection 126AKL(1) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may require a person who is an exporter or producer of goods that:

(a)

are exported to the territory of a Party; and

(b)

are claimed to be originating, under a law of a Party that implements the TPP-11, for the purpose of obtaining a preferential tariff in the Party;

to answer questions in order to verify the origin of the goods.

102. It is considered that the power to ask questions in the circumstances set out in this new provision is a necessary adjunct to the power to require records in new section 126AKK, and enables an authorised officer to obtain information for the purposes of verifying a claim for preferential tariff treatment.

New subsection 126AKL(2) enables an authorised officer (as defined in existing section 4 of the Customs Act), for the purpose of verifying a claim for a preferential tariff in a Party, to disclose any answers to questions covered by new subsection 126AKL(2) to a Trans-Pacific Partnership customs official for that Party.

103. The answers to an authorised officer's questions obtained under new section 126AKL may also be Immigration and Border Protection information within the meaning of Part 6 of the ABF Act and therefore cannot not be disclosed to a Trans-Pacific Partnership customs official except as allowed by Part 6. By including an express provision in the Customs Act allowing for this information to be disclosed to a Trans-Pacific Partnership customs official, the disclosure is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

104. The note to new section 126AKL indicates that, where an authorised officer has requested a person to answer questions in order to verify the origin of goods in accordance with this section, a failure to answer questions by that person may be an offence under existing section 243SA of the Customs Act. The note also indicates that, under existing section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

Part 3-Application Provisions

Item 5 Application provisions

105. This item gives effect to Article 3.28 of Chapter 3 of the TPP-11 and operates such that:

(a)

the amendments made by Part 1 of Schedule 1 to the Bill, apply in relation to:

i.

goods imported into Australia on or after the commencement of that Part; and

ii.

goods imported into Australia before the commencement of that Part, where the time for working out the rate of import duty on the goods had not occurred before the commencement of that Part.

(b)

the amendment made by Part 2 applies in relation to goods exported to the territory of a Party on or after the commencement of that Part (whether the goods were produced before, on or after that commencement).