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House of Representatives

Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2019

Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Act 2019

Explanatory Memorandum

(Circulated by authority of the Assistant Minister for Customs, Community Safety and Multicultural Affairs, the Honourable Jason Wood MP)

NOTES ON CLAUSES

Clause 1 - Short title

1. This clause provides for the 'Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2019' (the Bill), when enacted, to be cited as the Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Act 2019.

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 Peru-Australia Free Trade Agreement (PAFTA), done at Canberra on 12 February 2018, enters into force for Australia. The Minister must announce the day on which PAFTA enters into force for Australia by notifiable instrument, (in accordance with the Legislation Act 2003). However, the provisions do not commence at all if the PAFTA does not enter into force for Australia.

5. Table item 3 provides for Schedule 2 of the Bill, when enacted, to commence on the later of the day the Bill receives the Royal Assent, and the day the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), done at Jakarta on 4 March 2019, enters into force for Australia. The Minister must announce the day on which IA-CEPA enters into force for Australia by notifiable instrument, (in accordance with the Legislation Act 2003). However, the provisions do not commence at all if the IA-CEPA does not enter into force for Australia.

6. Table item 4 provides for Schedule 3 of the Bill, when enacted, to commence on the later of the day the Bill receives the Royal Assent, and the day the Free Trade Agreement between Australia and Hong Kong, China (A-HKFTA), done at Canberra on 26 March 2019, enters into force for Australia. The Minister must announce the day on which A-HKFTA enters into force for Australia by notifiable instrument, (in accordance with the Legislation Act 2003). However, the provisions do not commence at all if the A-HKFTA does not enter into force for Australia.

Clause 3 - Schedules

7. This clause enables the Schedules of 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.

Schedule 1 - Peru

Part 1 - Peruvian originating goods

Customs Act 1901

Introductory Comments

1. On 12 February 2018, in Canberra, the Hon Steven Ciobo MP, then Minister for Trade, Tourism and Investment, and his Peruvian counterpart Mr Eduardo Ferreyros, signed the PAFTA.

2. PAFTA, on entry into force, provides in part for new rules of origin to determine 'Peruvian originating goods' and for the preferential treatment of customs duty to apply to such goods. 'Peruvian originating goods' in accordance with PAFTA are those goods that satisfy the requirements in new Division 1EA of Part VIII of the Customs Act inserted by the Bill.

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

3. 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.

4. '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.

5. 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 of that Act that relates to a subheading mentioned.

6. As part of the implementation of PAFTA, a separate Customs Tariff Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2018 (the Customs Tariff Amendment Bill) will insert new Schedule 6A into the Customs Tariff Act. New Schedule 6A will provide for excise-equivalent rates of duty on certain alcohol, tobacco, fuel petroleum products in accordance with PAFTA, and the related preferential rates of customs duty.

7. This item amends subparagraph 105B(3)(b)(ii) of the Customs Act to insert a reference to Schedule 6A of the Customs Tariff Act.

8. The purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under PAFTA.

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

9. 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.

10. This item amends the definition of 'biofuel blend' under subsection 105B(4) of the Customs Act to insert a reference to new Schedule 6A of the Customs Tariff Act.

11. 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 PAFTA.

Item 3 After Division 1E of Part VIII

12. This item amends Part VIII of the Customs Act to insert new Division 1EA.

13. New Division 1EA is titled 'Peruvian originating goods' and sets out the new rules for determining whether goods are Peruvian originating goods and therefore eligible for a preferential rate of customs duty under the Customs Tariff Act. These new rules give effect to Chapter 3 of PAFTA.

14. New Division 1EA contains seven Subdivisions (Subdivision A to Subdivision G) as set out below.

Subdivision A - Preliminary

15. Subdivision A contains a simplified outline of new Division 1EA and the interpretation provision for this Division.

New section 153ZIL Simplified outline of this Division

16. New section 153ZIL sets out a simplified outline of Subdivision B to Subdivision G of new Division 1EA.

New section 153ZIM Interpretation

17. New subsection 153ZIM(1) sets out the definitions for the purposes of new Division 1EA as follows:

Agreement means the Peru-Australia Free Trade Agreement, done at Canberra on 12 February 2018, as amended and in force for Australia from time to time. The note to this definition indicates that as at 2019, the text of PAFTA is accessible through Australian Treaties Library on the AustLII website.

aquaculture has the meaning given by Article 3.1 of Chapter 3 of PAFTA. This term is necessary as it is referred to in the definition of 'production' also provided in Article 3.1 of Chapter 3 of PAFTA.

Australian originating goods means goods that are Australian originating goods under a law of Peru that implements PAFTA.

Certificate of Origin means a certificate that is in force and that complies with the requirements of Article 3.17 of Chapter 3 of PAFTA.

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 as at 2019, the text of the Convention is accessible through the Australian Treaties Library on the AustLII 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 of the Customs Act. In most cases, this will be the transaction value but there are other valuation methods if this value cannot be ascertained.

enterprise has the meaning given by Article 1.3 of Chapter 1 of PAFTA.

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 HCDC System on which PAFTA, particularly the product-specific rules, is based.

Harmonized System means:

(a): the Harmonized Commodity Description and Coding System (the HCDC System) as in force on 1 January 2017; or
(b): if the table in Annex 3-B of PAFTA is amended or replaced to refer to Chapters, headings and subheadings of a later version of the HCDC System-the later version of the HCDC System.

As per the notes for the definition of HCDC System above, 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.

While each signatory to the Convention is required to implement and reflect related amendments to the HCDC System in their domestic legislation, simultaneously on the date when the amendments enter into force, the pace at which the amendments are implemented varies from country to country.

By way of example, while Australia has implemented, and currently uses, the latest HCDC System of 2017, many of our established FTAs still utilise other versions of the HCDC System for their product specific rules of origin. In light of this, and to avoid causing any disruption to international trade, Australia, through the Australian Border Force, publishes the changes between each HCDC System update and relevant concordance associated with those updates on its website so that anyone can readily identify the appropriate tariff classification codes for importing goods from other countries into Australia.

The definition of 'Harmonized System' will expressly recognise, in the Customs Act, the version of the HCDC System on which the PAFTA was based, and allow subsequent versions of that System to also be recognised when the relevant Annex of the PAFTA is formally amended.

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): catalysts and solvents; and
(e): gloves, glasses, footwear, clothing, safety equipment and supplies; and
(f): tools, dies and moulds; and
(g): spare parts and materials; and
(h): lubricants, greases, compounding materials and other similar goods.

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 1EA in their own right. For example, where frozen crumbed fish fillets processed in a Party to PAFTA from fish caught in the territory of that Party, coated with herbs and spices that are produced in Thailand (which is not a Party to PAFTA), the fish would be originating materials and the herbs and spices would be non-originating materials.

non-Party has the same meaning as it has in Chapter 3 of PAFTA.

This term is necessary and referred to in new section 153ZIS, which deals with the consignment of Peruvian originating goods (see notes below for new section 153ZIS).

originating materials means:

(a): Peruvian originating goods that are used in the production of other goods; or
(b): Australian originating goods that are used in the production of other goods; or
(c): indirect materials.

In some circumstances, in order to determine whether goods that are imported into Australia are Peruvian originating goods, and therefore eligible for a preferential rate of customs duty, it may be necessary to have regard to the goods from which the final goods are produced (see Subdivision C and Subdivision D).

person of Peru means a national within the meaning, so far as it relates to Peru, of Article 1.3 of Chapter 1 of PAFTA, or an enterprise of Peru.

Peruvian originating goods means goods that, under new Division 1EA of Part VIII of the Customs Act, are Peruvian originating goods.

production has the same meaning given by Article 3.1 of Chapter 3 of PAFTA.

In Article 3.1, production is defined as operations including, but not limited to, growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, collecting, breeding, extracting, aquaculture, gathering, manufacturing, processing or assembling a good. This list is non-exhaustive - the term 'production' is also capable of capturing any other process that falls within the meaning of 'operations', including any currently existing operations that have not been listed and any new operations which may arise in the future.

territory of Australia means territory within the meaning, so far as it relates to Australia, of Article 1.3 of Chapter 1 of PAFTA.

territory of Peru means territory within the meaning, so far as it relates to Peru, of Article 1.3 of Chapter 1 of PAFTA.

18. New subsection 153ZIM(2) provides that the value of goods for the purposes of new Division 1EA 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 3.9 of Chapter 3 of PAFTA. 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.

19. New subsection 153ZIM(3) provides that in specifying tariff classifications for the purposes of new Division 1EA, the regulations may refer to the Harmonized System. The product-specific rules of origin in Annex 3-B to Chapter 3 of PAFTA refer to the tariff classifications of the Harmonized System.

20. New subsection 153ZIM(4) provides that subsection 4(3A) of the Customs Act does not apply for the purposes of new Division 1EA. Subsection 4(3A) provides that reference in the Customs Act to the tariff classification of goods is a reference to Schedule 3 to the Customs Tariff Act, which is not the case in new Division 1EA.

21. New subsection 153ZIM(5) provides that, despite subsection 14(2) of the Legislation Act 2003 (the Legislation Act), regulations made for the purposes of Division 1EA 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 PAFTA 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 PAFTA 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. Where such references are made in regulations, the explanatory material will explain the basis on which such references are made and indicate where the material referred to can be located by the public.

Subdivision B - Goods wholly obtained or produced entirely in Peru or in Peru and Australia

22. Subdivision B contains new section 153ZIN, which sets out the rules in relation to goods that are wholly obtained or produced entirely in Peru or in Peru and Australia.

23. New subsection 153ZIN(1) provides that goods are Peruvian originating goods if they are wholly obtained or produced entirely in Peru or in Peru and Australia, and either the importer of the goods has, at the time the goods are imported, a certificate of origin, or a copy of one, for the goods; or Australia has waived the requirement for a certificate of origin for the goods.

24. New subsection 153ZIN(2) provides that goods are wholly obtained or produced entirely in Peru or in Peru and Australia 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 Peru or in the territory of Peru and the territory of Australia; or

(b)

live animals born and raised in the territory of Peru or in the territory of Peru and the territory of Australia; or

(c)

goods obtained from live animals in the territory of Peru; or

(d)

animals obtained by hunting, trapping, fishing, gathering or capturing in the territory of Peru; or

(e)

goods obtained from aquaculture conducted in the territory of Peru; or

(f)

minerals, or other naturally occurring substances, extracted or taken from the territory of Peru; or

(g)

fish, shellfish, other goods of sea-fishing or other marine life taken from the sea, seabed or subsoil beneath the seabed:

(i): outside the territory of Peru and the territory of Australia; and
(ii): in accordance with international law, outside the territorial sea of non-Parties;; by vessels that are registered or recorded with Peru and are entitled to fly the flag of Peru; or

(h)

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

(i)

goods (except fish, shellfish, other goods of sea-fishing or other marine life) taken by Peru, or a person of Peru, from the seabed, or subsoil beneath the seabed, outside the territory of Peru and the territory of Australia, and beyond areas over which non-Parties exercise jurisdiction, but only if Peru, or the person of Peru, 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 Peru and that is fit only for the recovery of raw materials; or
(ii): has been derived from used goods that are collected in the territory of Peru and that are fit only for the recovery of raw materials; or

(k)

goods produced entirely in the territory of Peru, or entirely in the territory of Peru and the territory of Australia, exclusively from goods referred to in paragraphs (a) to (j) or from their derivatives.

25. New section 153ZIN gives effect to Articles 3.2, 3.3, 3.17, 3.20 and 3.21 of Chapter 3 of PAFTA in respect of rules of origin for goods wholly obtained or produced in a Party to PAFTA. 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 PAFTA.

Subdivision C - Goods produced in Peru, or in Peru and Australia, from originating materials

26. Subdivision C contains new section 153ZIO, which sets out a rule for goods that are produced in Peru, or in Peru and Australia, from originating materials only.

27. Such goods are Peruvian originating goods if they are produced entirely in the territory of Peru, or entirely in the territory of Peru and the territory of Australia, from originating materials only and if the importer of the goods has, at the time the goods are imported, a certificate of origin, or a copy of one, for the goods, or Australia has waived the requirement for a certificate of origin for the goods.

28. New section 153ZIO gives effect to Articles 3.2, 3.3, 3.17, 3.20 and 3.21 of Chapter 3 of PAFTA 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 PAFTA.

Subdivision D - Goods produced in Peru, or in Peru and Australia, from non-originating materials

29. Subdivision D contains new section 153ZIP, which deals with goods produced in Peru, or in Peru and Australia, from non-originating materials.

30. New subsection 153ZIP(1) provides that goods are Peruvian 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-B of PAFTA; and

(b)

they are produced entirely in the territory of Peru, or entirely in the territory of Peru and the territory of Australia, 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 certificate of origin, or a copy of one, for the goods; or
(ii): Australia has waived the requirement for a certificate of origin for the goods.

31. This provision applies the product specific rules by direct reference to Annex 3-B of PAFTA. This applies both the product specific rules and any product specific process rules. The direct application of Annex 3-B does not change the operation of these rules as set out in that Annex. Rather, as PAFTA is defined to be the Agreement as amended from time to time, this will ensure that the current Annex in PAFTA will be applied. It will also ensure that any updated version of the Annex that would be contained in PAFTA when the parties implement later versions of the Harmonized System will be applied as soon as any provisions of PAFTA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

32. For certainty, new subsection 153ZIP(2) provides that, without limiting paragraph 153ZIP(1)(c), a requirement may be specified in the table in Annex 3-B of PAFTA by using an abbreviation that is given a meaning for the purpose of that Annex. For example, the abbreviation of RVC 40 in the Annex means a regional value content of at least 40 per cent. Another example of an abbreviation in the Annex is 'CC', which is an abbreviation for Change of Chapter.

Change in tariff classification

33. New subsection 153ZIP(3) refers to the first of several requirements that may be prescribed in regulations made for the purposes of Subdivision D. The subsection 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.

34. The regulations made under this head of power include provisions to give effect to the cumulative rules of origin contained in Article 3.8 of Chapter 3 of PAFTA where the non-originating materials that are used or consumed in the production of the good do not satisfy the change in tariff classification.

35. The concept of the change in tariff classification requirement applies to non-originating materials. Goods that have been sourced outside Peru or Australia and that are used in the production of other goods are non-originating materials. Goods sourced from Peru or Australia that have not fulfilled the requirements of new Division 1EA and that are used in the production of other goods are also non- originating materials.

36. 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 PAFTA, 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.

37. For example, frozen fish fillets (classified to tariff code 0304) are produced from fish caught in Peru and combined with herbs and spices produced in Thailand (which is not a Party to PAFTA) (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 produced by Peru, and is therefore an originating material and is not required to change its classification.

38. 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.

39. New subsection 153ZIP(4) allows for the change in tariff classification requirement to also be satisfied if the total value of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the customs value of the goods.

40. New subsection 153ZIP(4) gives effect to the de minimis requirement set out in Article 3.9 of Chapter 3 of PAFTA. 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 Peruvian originating goods because the change in tariff classification will be taken to be satisfied.

41. The value of non-originating materials for the purposes of subsection 153ZIP(4) is to be worked out in accordance with the method that will be included in the regulations.

42. New subsection 153ZIP(5) 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 classified to any of Chapters 50 to 63 of the Harmonized System; 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 weight of the non- originating materials covered by paragraph (c) does not exceed 10 per cent of the total weight of the goods.

43. This provision allows for the change in tariff classification requirement to also be satisfied in relation to certain goods if the total weight of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the total weight of the goods.

Regional value content

44. New subsection 153ZIP(6) provides that, if a requirement that applies in relation to the goods is that the goods must have a regional value content worked out in a particular way:

(a): the regional value content of the goods is to be worked out in accordance with PAFTA; 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.

45. This provision provides the head of power to prescribe formulae for calculating regional value content and in doing so gives effect to Article 3.4 of Chapter 3 of PAFTA.

46. New subsection 153ZIP(7) provides that, if:

(a): a requirement that applies in relation to the goods is that the goods must have a regional value content 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;

the regulations must provide for 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 materials).

47. 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.

48. New subsection 153ZIP(7) provides a head of power to prescribe regulations to give effect to Article 3.11 of Chapter 3 of PAFTA in respect of the value of the accessories, spare parts, tools or instructional or other information materials for working out regional value content. This provision is necessary because the value of such goods would not normally form part of the value of materials that are used in the production of the underlying goods.

49. New subsection 153ZIP(8) also gives effect to Article 3.11 of Chapter 3 of PAFTA and provides that section 153ZIR should be disregarded for the purposes of subsection 153ZIP(7) when working out whether the accessories, spare parts, tools or instructional or other information materials are originating 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

50. New subsection 153ZIP(9) gives effect to Article 3.15 of Chapter 3 of PAFTA which applies to sets of goods.

51. New subsection 153ZIP(9) 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 Peruvian originating goods under this section only if:
(c): all of the goods in the set, when considered separately, are Peruvian originating goods; or
(d): the total customs value of the goods (if any) in the set that are not Peruvian originating goods does not exceed 20% of the customs value of the set of goods.

52. This provision applies to goods that are put up for retail sale and are comprised of multiple components that are classified under two or more tariff headings. Under Rule 3(c) of the Interpretation Rules, when goods cannot be classified to a single heading or subheading, they shall be classified under the heading or subheading which occurs last in the numerical order of the HCDC system.

53. By way of an example, a mirror, brush and comb are put up as a 'grooming 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 of the HCDC system among the three items concerned.

54. The effect of new paragraph 153ZIP(9)(c) is that the set will not be considered to be Peruvian 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 grooming set is non-originating, then the grooming set may still be Peruvian originating goods under new paragraph 153ZIP(9)(d) if the customs value of the non- originating goods does not exceed 20% of the customs value of the entire grooming set.

55. New section 153ZIQ gives effect to Article 3.12 of Chapter 3 of PAFTA in relation to packaging materials and containers for retail sale.

56. Subsection 153ZIQ(1) gives effect to paragraph (1) of Article 3.12 of Chapter 3 of PAFTA 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.

57. 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.

58. However, in accordance with paragraph (2) of Article 3.12 of Chapter 3 of PAFTA, new subsection 153ZIQ(2) provides one exception to subsection 153ZIQ(1). This exception applies where the goods are required to have a regional value content 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 as originating materials or non-originating materials, as the case may be, for the purposes of working out the regional value content of the goods.

59. Without this provision, the value of packaging materials and containers would normally not form part of the value of materials that are used in the production of the goods.

60. The note to this subsection explains that the value of packaging materials and containers for the purposes of this subsection is to be worked out in accordance with the regulations.

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

61. Subdivision E contains new section 153ZIR, which sets out a specific rule that applies to goods that are accessories, spare parts, tools or instructional or other information materials.

62. New section 153ZIR provides that goods are Peruvian 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 Peruvian 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.

63. Under this provision, accessories, spare parts, tools or instructional or other information materials will be deemed Peruvian originating goods even if, in fact, they are non-originating goods, provided all of the requirements in this new section are satisfied. However, this deeming section is to be disregarded when performing a regional value calculation on goods under new subsection 153ZIP(7). The value of the accessories, spare parts, tools or other instructional or information materials that are originating or non-originating materials must be included in that calculation (see new subsection 153ZIP(8)).

64. This provision gives effect to Article 3.11 of Chapter 3 of PAFTA with respect to specific rules for goods that are accessories, spare parts, tools or instructional or other information materials.

Subdivision F - Consignment

65. Subdivision F contains new section 153ZIS, which deals with the consignment requirements applicable to Peruvian originating goods in accordance with PAFTA.

66. New subsection 153ZIS(1) provides that goods are not Peruvian originating goods under new Division 1EA 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 subsequent production or any other operation in the territory of a non-Party (other than unloading, reloading, storing, separation from a bulk shipment, labelling 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 customs control at all times.

67. New subsection 153ZIS(2) provides that section 153ZIS applies despite any other provision of new Division 1EA. This means that even if goods are Peruvian originating goods in accordance with any other provisions of Division 1EA, if they come within the terms of subsection 153ZIS(1) they will not be Peruvian originating goods.

68. The new section gives effect to Article 3.16 of Chapter 3 of PAFTA which deals with transport through non-Parties.

Subdivision G - Regulations

69. Subdivision G contains new section 153ZIT, which provides a head of power to prescribe regulations to make provisions for and in relation to determining whether goods are Peruvian originating goods under new Division 1EA.

Part 2 - Verification Powers

Customs Act 1901

Item 4 After Division 4D of Part VI

70. This item amends Part VI of the Customs Act to insert new Division 4D, which is titled 'Exportation of goods to Peru'.

71. Division 4D contains new sections 126AJE, 126AJF, 126AJG and 126AJH. These new sections impose obligations on people who export eligible goods to a Peru and who wish to obtain preferential treatment of customs duty in respect of those goods, and on people who produce such goods.

Section 126AJE Definitions

72. New section 126AJE defines the term 'Agreement', 'Peruvian customs official', 'producer' 'production' and 'territory of Peru' for the purposes of new Division 4DA. With the exception of the terms 'Peruvian customs official' and 'producer', the terms have the same meaning as defined in new Division 1EA of Part VIII of the Customs Act, inserted by item 3 of Part 1 of the Bill.

73. 'Peruvian customs official' is defined under this section to mean a person representing the customs administration of Peru. This term is necessary as it is referred to in new sections 126AJG and 126AJH.

Section 126AJF Record keeping obligations

74. New section 126AJF inserts a head of power to prescribe record keeping obligations. These record keeping obligations will apply in respect of goods that are exported from Australia to Peru.

75. New subsection 126AJF(1) enables regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of Peru and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Peru. The record keeping obligation envisaged by Article 3.22 of Chapter 3 of PAFTA is broader than the general record keeping obligations under the Customs Act.

76. 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 under the Customs Act. However, the type of documents that will be required to be kept will be much broader than current requirements. The requirements will extend to all records relating to the origin of the goods for which preferential tariff treatment is claimed 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.

77. New subsection 126AJF(2) provides that the regulations made for the purpose of subsection 126AJF(1) may impose obligations on an exporter or producer of goods.

Section 126AJG Power to require records

78. New section 126AJG supports the record keeping obligations in Articles 3.22 and 3.23 of Chapter 3 of PAFTA by imposing a requirement on exporters to produce records to authorised officers, and empowering authorised officers to disclose records to Peruvian customs officials.

79. Subsection 126AJG(1) provides that an authorised officer (as defined in 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 126AJF to produce to the officer such of those records as the officer requires.

80. The note to new subsection 126AJG(1) 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 126AJF, a failure to produce documents or records by that person may be an offence under section 243SB of the Customs Act. The note also indicates that, under section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

81. Under Article 3.23 of Chapter 3 of PAFTA, the importing party may take action to verify the eligibility of goods for preferential treatment, including requesting the supply of information relating to the production or export of the goods. New subsection 126AJG(2) gives effect to this Article in respect of goods that are exported to the territory of Peru and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Peru.

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

83. 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.

84. By including an express provision in the Customs Act to permit the disclosure of information (that may be Immigration and Border Protection information) to a Peruvian customs official, the disclosure of such information is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

Section 126AJH Power to ask questions

85. New subsection 126AJH(1) provides that an authorised officer (as defined in 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 Peru; and
(b): are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Peru;

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

86. The power to ask questions in the circumstances set out in this section is a necessary adjunct to the power to require records in new section 126AJG.

87. The note to new subsection 126AJH(1) 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 subsection, a failure to answer questions by that person may be an offence under section 243SA of the Customs Act. The note also indicates that, under section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

88. Subsection 126AJH(2) enables an authorised officer (as defined in 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 answered in accordance with new subsection 126AJH(1) to a Peruvian customs official.

89. The answers to questions obtained by an authorised officer under new section 126AJH 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 Peruvian 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 Peruvian customs official, the disclosure is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

Part 3 - Application provisions

Item 5 Application provisions

90. This item operates such that the amendments made by Part 1 of Schedule 1 to the Bill, when enacted, apply in relation to:

(a): goods imported into Australia on or after the commencement of that Part; and
(b): 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.

91. This item also provides that the amendment made by Part 2 of Schedule 1 to the Bill, when enacted, applies in relation to goods exported to the territory of Peru on or after the commencement of that Part (whether the goods were produced before, on or after that commencement).

Schedule 2 - Indonesia

Part 1 - Indonesian originating goods

Customs Act 1901

Introductory Comments

92. On 4 March 2019, in Jakarta, Indonesia, Senator the Hon Simon Birmingham, Minister for Trade, Tourism and Investment, and his counterpart the Indonesian Minister for Trade H.E Enggartiasto Lukita, signed the IA-CEPA.

93. The IA-CEPA, on entry into force, provides in part for new rules of origin to determine 'Indonesian originating goods' and for the preferential treatment of customs duty that applies to such goods. 'Indonesian originating goods' in accordance with the IA-CEPA are those goods that satisfy the requirement in new Division 1HA of Part VIII of the Customs Act inserted by the Bill; see the notes on clauses below in respect of relevant requirements.

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

94. Section 105B of the Customs Act sets out circumstances where the liability to pay customs duty on excise-equivalent goods is wholly or partly extinguished. 'Excise-equivalent goods' is defined in section 9 of the Customs Regulation 2015 to mean the goods prescribed under clause 1 of Schedule 1 of that Regulation.

95. 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, or an item in the table in Schedule 4A, 5, 6, 7, 8, 8B, 9, 10, 11 or 12 to that Act that relates to a subheading mentioned.

96. As part of the implementation of the IA-CEPA, the Customs Tariff Amendment Bill will insert new Schedule 9A into the Customs Tariff Act. New Schedule 9A will provide for excise-equivalent rates of duty on certain alcohol, tobacco, and fuel petroleum products in accordance with IA-CEPA, and the related preferential rates of customs duty.

97. This item amends subparagraph 105B(3)(b)(ii) of the Customs Act to insert a reference to Schedule 9A of the Customs Tariff Act.

98. The purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under IA-CEPA.

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

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

100. This item amends the definition of 'biofuel blend' under subsection 105B(4) of the Customs Act to insert a reference to new Schedule 9A to the Customs Tariff Act.

101. The purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under IA-CEPA.

Item 3 After Division 1H of Part VIII

102. This item amends Part VIII of the Customs Act to insert new Division 1HA.

103. New Division 1HA is titled 'Indonesian originating goods' and sets out the new rules for determining whether goods are Indonesian originating goods and therefore eligible for a preferential rate of customs duty under the Customs Tariff Act applying to such goods that are imported into Australia. These new rules are being inserted to give effect to Chapter 4 of IA-CEPA.

104. New Division 1HA contains six Subdivisions (Subdivision A to Subdivision F) and they are set out below.

Subdivision A - Preliminary

105. Subdivision A contains a simplified outline of Division 1HA and the interpretation provision for that Division.

New section 153ZLJ Simplified outline of this Division

106. New section 153ZLJ sets out a simplified outline of each of the Subdivision B to Subdivision F of new Division 1HA.

New section 153ZLK Interpretation

107. New subsection 153ZLK(1) sets out new definitions for the purposes of new Division 1HA as follows:

Agreement means the Indonesia-Australia Comprehensive Economic Partnership Agreement, done at Jakarta, on 4 March 2019, as amended from time to time. The note to this definition indicates that IA-CEPA could in 2019 be viewed in the Australian Treaties Library on the AustLII website.

aquaculture has the meaning given by Article 4.1 of Chapter 4 of IA-CEPA. This term is necessary as it is referred to in new paragraph 153ZLL(2)(d).

Australian originating goods means goods that are Australian originating goods under a law of Indonesia that implements IA-CEPA.

Certificate of Origin means a certificate that is in force and that complies with the requirements of Article 4.20 of Chapter 4 of IA-CEPA.

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 the Convention is in Australian Treaty Series 1988 No. 30 ([1988] ATS 30) and could in 2019 be viewed in the Australian Treaties Library on the AustLII 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 of the Customs Act. In most cases, it will be the transaction value but there are other valuation methods if this value cannot be ascertained.

Declaration of Origin means a declaration that is in force and that complies with the requirements of Article 4.20 of Chapter 4 of the IA-CEPA. Article 4.20 sets out the requirements for a declaration of origin, including the requirements set out in Annex 4-B of the IA-CEPA.

enterprise has the meaning given by Article 1.4 of Chapter 1 of the IA-CEPA.

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 WCO. In Australia, the HCDC System has been adopted in the Customs Tariff Act.

The HCDC System 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 necessary and is referred to in the definition of 'Harmonized System' to ascertain the version of the HCDC System on which IA-CEPA, particularly the product specific rules, is based.

Harmonized System means:

(a): the Harmonized Commodity Description and Coding System as in force on 1 January 2017; or
(b): if the table in Annex 4-C of IA-CEPA 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.

The definition of 'Harmonized System' will expressly recognise, in the Customs Act, the version of the HCDC System on which IA-CEPA was based, and allow subsequent versions of that System to also be recognised when the relevant Annex of IA-CEPA is formally amended.

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 or operation of equipment or buildings 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 materials', new Subdivision C and new Subdivision D implement Article 4.14 of Chapter 4 of the IA-CEPA.

Indonesian originating goods means goods that, under new Division 1HA, are Indonesian originating goods.

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 1HA in their own right. For example, where frozen crumbed fish fillets are processed in a Party to the IA-CEPA from fish caught in the territory of that Party, and coated with herbs and spices that are produced in Thailand (which is not a Party to the IA-CEPA), the fish would be originating materials and the herbs and spices would be non-originating materials.

non-party has the same meaning as it has in Chapter 4 of the IA-CEPA, which is a party that is not a Party to the IA-CEPA.

This term is necessary and referred to in new section 153ZLL, which deals with goods that are wholly obtained or produced in the territory of Indonesia, and new section 153ZLP, which deals with the consignment of goods (see notes below for new subsections 153ZLL and 153ZLP).

originating materials means:

(a): Indonesian originating goods that are used in the production of other goods; or
(b): Australian originating goods that are used in the production of other goods; or
(c): indirect materials.

In some circumstances, in order to determine whether goods that are imported into Australia are Indonesian originating goods, and therefore eligible for a preferential rate of customs duty, it may be necessary to have regard to the goods from which the final goods are produced (see Subdivision C and Subdivision D).

person of Indonesia means:

(a): a natural person of a Party within the meaning, so far as it relates to Indonesia, of Article 1.4 of Chapter 1 of IA-CEPA; or
(b): an enterprise of Indonesia.

This term is necessary and referred to in new section 153ZLL, which deals with goods that are wholly obtained or produced in Indonesia (see notes below for new subsection 153ZLL(2)).

production has the meaning given by Article 4.1 of Chapter 4 of IA-CEPA. That is, production means the methods of obtaining goods including growing, mining, harvesting, farming, raising, breeding, extracting, gathering, collecting, capturing, fishing, trapping, hunting, manufacturing, producing, processing or assembling a good.

In Article 4.1, production is defined as methods of obtaining goods including, but not limited to, growing, mining, harvesting, farming, raising, breeding, extracting, gathering, collecting, capturing, fishing, trapping, hunting, manufacturing, producing, processing or assembling a good. 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.

sea-fishing has the same meaning as it has in Chapter 4 of IA-CEPA .

territory of Australia means territory within the meaning, so far as it relates to Australia, of Article 1.4 of Chapter 1 of IA-CEPA .

territory of Indonesia means territory within the meaning, so far as it relates to Indonesia, of Article 1.4 of Chapter 1 of IA-CEPA .

108. New subsection 153ZLK(2) provides that the value of goods for the purposes of new Division 1HA 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 4.9 of Chapter 4 of IA-CEPA. 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.

109. New subsection 153ZLK(3) provides that in prescribing tariff classifications for the purposes of new Division 1HA, the regulations may refer to the Harmonized System. The product specific rules of origin in Annex 4-C of IA-CEPA refer to the tariff classifications of the Harmonized System.

110. New subsection 153ZLK(4) provides that subsection 4(3A) of the Customs Act does not apply for the purposes of new Division 1HA. Subsection 4(3A) provides that reference in the Customs Act to the tariff classification of goods is a reference to Schedule 3 to the Customs Tariff Act, which is not the case in new Division 1HA.

111. New subsection 153ZLK(5) provides that, despite subsection 14(2) of the Legislation Act, regulations made for the purposes of Division 1HA 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 is necessary to ensure there is an appropriate delegation of legislative power should it be necessary in order to implement IA-CEPA 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 IA-CEPA and will be available on the Department's website to ensure they are readily available. 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. Where such references are made in regulations, the explanatory material will explain the basis on which such references are made and indicate where the material referred to can be located by the public.

Subdivision B - Goods wholly obtained or produced in Indonesia

112. Subdivision B contains new section 153ZLL, which sets out the rules in relation to goods that are wholly obtained or produced in the territory of Indonesia.

113. New subsection 153ZLL(1) will provide that goods are Indonesian originating goods if they are wholly obtained or produced in Indonesia, and either the importer of the goods has, at the time the goods are imported, a Certificate of Origin or a Declaration of Origin, or a copy of one, for the goods; or Australia has waived the requirement for a Certificate of Origin or a Declaration of Origin for the goods.

114. New subsection 153ZLL(2) provides that goods are wholly obtained or produced in Indonesia if, and only if, the goods are:

(a)

plants, or goods obtained from plants, that are grown, harvested, picked or gathered in the territory of Indonesia (including fruit, flowers, vegetables, trees, seaweed, fungi and live plants); or

(b)

live animals born and raised in the territory of Indonesia; or

(c)

goods obtained from live animals in the territory of Indonesia; or

(d)

goods obtained from hunting, trapping, fishing, farming, aquaculture, gathering or capturing conducted in the territory of Indonesia; or

(e)

minerals, or other naturally occurring substances, extracted or taken from the soil, waters, seabed or beneath the seabed in the territory of Indonesia; or

(f)

goods of sea-fishing, or other marine goods, taken from the high seas, in accordance with international law, by any vessel that is registered or recorded with Indonesia and is entitled to fly the flag of Indonesia; or

(g)

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

(h)

goods taken by Indonesia, or a person of Indonesia, from the seabed, or beneath the seabed, outside:

i.: the exclusive economic zone of Indonesia; and
ii.: the continental shelf of Indonesia; and
iii.: an area over which a non-party exercises jurisdiction;

and taken under exploitation rights granted in accordance with international law; or

(i)

either of the following:

i.: waste and scrap that has been derived from production or consumption in the territory of Indonesia and that is fit only for the recovery of raw materials;
ii.: used goods that are collected in the territory of Indonesia and that are fit only for the recovery of raw materials; or

(j)

goods obtained or produced in the territory of Indonesia solely from goods referred to in paragraphs (a) to (i) or from their derivatives.

115. New section 153ZLL gives effect to Articles 4.2(a), 4.3, 4.17(1) and (2), 4.20(1) and 4.21(b) of Chapter 4 of IA-CEPA in respect of rules of origin for goods wholly obtained or produced in a Party to IA-CEPA. 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 IA-CEPA.

Subdivision C - Goods produced in Indonesia from originating materials

116. Subdivision C contains new section 153ZLM, which sets out a rule for goods that are produced entirely in the territory of Indonesia from originating materials only. Such goods are Indonesian originating goods if the importer of the goods has, at the time the goods are imported, a Certificate of Origin or a Declaration of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Certificate of Origin or a Declaration of Origin for the goods.

117. New section 153ZLM gives effect to Articles 4.2(c), 4.17(1) and (2), 4.20(1) and 4.21(b) of Chapter 4 of IA-CEPA 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 IA-CEPA.

Subdivision D - Goods produced in Indonesia, or in Indonesia and Australia, from non-originating materials

118. Subdivision D contains new section 153ZLN, which deals with Indonesian originating goods produced from non-originating materials.

119. New subsection 153ZLN(1) provides that goods are Indonesian 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 4-C of IA-CEPA; and

(b)

they are produced entirely in the territory of Indonesia, or entirely in the territory of Indonesia and the territory of Australia, 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 Certificate of Origin or a Declaration of Origin, or a copy of one, for the goods; or
ii.: Australia has waived the requirement for a Certificate of Origin or a Declaration of Origin for the goods.

120. This provision applies the product specific rules by direct reference to Annex 4-C of IA-CEPA. This applies both the product specific rules and any product specific process rules. The direct application of Annex 4-C does not change the operation of these rules as set out in that Annex. Rather, as IA-CEPA is defined to be the Agreement as amended from time to time, this will ensure that the current Annex in IA-CEPA will be applied. It will also ensure that any updated version of the Annex that would be contained in IA-CEPA when the parties implement later versions of the Harmonized System will be applied as soon as any provisions of IA-CEPA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

121. For certainty of abbreviations used in Annex 4-C, new subsection 153ZLN(2) provides that, without limiting paragraph 153ZLN(1)(c), a requirement may be specified in the table in Annex 4-C of the IA-CEPA by using an abbreviation that is given a meaning for the purposes of that Annex. For example, the abbreviation of QVC(40) in the Annex means a regional value content of at least 40%. Another example of an abbreviation in the Annex is 'CC', which is the abbreviation that means that all of the non-originating materials used in the production of the good have undergone a change in tariff classification at the 2-digit level, that is, a change of Chapter.

Change in tariff classification

122. New subsection 153ZLN(3) refers to the first of several requirements 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.

123. The regulations made under this head of power will include a provision which sets out when a non-originating material that does not satisfy a particular change in tariff classification is taken to satisfy the change in tariff classification.

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

125. 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 IA-CEPA, 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.

126. For example, frozen fish fillets (classified to tariff code 0304) are produced from fish caught in a Party to IA-CEPA and combined with herbs and spices produced in Thailand (which is not a Party to IA-CEPA) (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 IA-CEPA, and is therefore an originating material and is not required to change its classification.

127. 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.

128. New subsection 153ZLN(4) allows for the change in tariff classification requirement to also be satisfied if the total value of all of the non-originating materials, used in the production of the goods, that do not satisfy the particular change in tariff classification of the goods, does not exceed 10% of the customs value of the goods.

129. New subsection 153ZLN(4) gives effect to the de minimis requirement set out in Article 4.9(1) of Chapter 4 of the IA-CEPA. As a result, even if none of the non-originating materials used to produce a final good satisfy a particular change in tariff classification, the final good may still be an Indonesian originating good if it satisfies subsection 153ZLN(4) because the change in tariff classification will be taken to be satisfied.

130. The value of non-originating materials for the purposes of subsection 153ZLN(4) is to be worked out in accordance with the method that will be included in the regulations.

131. Giving effect to the de minimis requirement set out in Article 4.9(1)(b) of Chapter 4 of IA-CEPA, new subsection 153ZLN(5) provides that, if:

(d): 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
(e): the goods are classified to any of Chapters 50 to 63 of the Harmonized System; and
(f): 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 (c) does not exceed 10% of the total weight of the goods.

132. This provision allows for the change in tariff classification requirement to also be satisfied in relation to certain goods if the total weight of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the total weight of the goods.

Qualifying value content

133. New subsection 153ZLN(6) provides that, if a requirement that applies in relation to the goods is that the goods must have a qualifying value content of not less than a particular percentage worked out in a particular way:

(c): the qualifying value content of the goods is to be worked out in accordance with IA-CEPA; or
(d): if the regulations prescribe how to work out the qualifying value content of the goods-the qualifying value content of the goods is to be worked out in accordance with the regulations.

134. This provision provides the head of power to prescribe formulas for calculating qualifying value content and in doing so gives effect to Article 4.5 of Chapter 4 of IA-CEPA.

135. New subsection 153ZLN(7) provides that, if:

(a): a requirement that applies in relation to the goods is that the goods must have a qualifying 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 not invoiced separately from the goods; and
(d): the accessories, spare parts, tools or instructional or other information materials are included in the price of the goods; and
(e): the quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the goods;; the regulations must provide for 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 qualifying value content of the goods (whether the accessories, spare parts, tools or instructional or other information materials are originating materials or non-originating materials).

136. 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 new subsection 153ZLK(2).

137. New subsection 153ZLN(7) provides a head of power to prescribe regulations to give effect to Article 4.10(b), (c) and (d) of Chapter 4 of IA-CEPA in respect of the value of the accessories, spare parts, tools or instructional or other information materials for working out qualifying value content. This provision is necessary because the value of such goods would not normally form part of the value of materials that are used in the production of the underlying goods.

138. New subsection 153ZLN(8) gives effect to Article 4.8 of Chapter 4 of IA-CEPA, and provides that if the goods are claimed to be Indonesian originating goods on the basis that the goods have a qualifying value content of not less than a particular percentage worked out in a particular way, the following are to be disregarded in determining whether the goods are Indonesian originating goods:

(a): operations to preserve the goods in good condition for the purpose of transport or storage of the goods;
(b): operations or processes to facilitate the shipment or transportation of the goods;
(c): packaging or presenting the goods for transportation or sale;
(d): simple processes for sifting, classifying, washing or other similar simple processes;
(e): affixing of marks, labels or other distinguishing signs on the goods or on their packaging;
(f): mere dilution with water or another substance that does not materially alter the characteristics of the goods;
(g): any combination of things referred to in paragraphs (a) to (f).

139. If any of the above operations are the only operations that take place in a Party to IA-CEPA in relation to goods (either alone or as a combination), such operations are to be disregarded in determining whether the goods are Indonesian originating goods. For example, if non-originating goods such as spices from Thailand (which is not a Party to IA-CEPA) are packaged into bottles in a Party to IA-CEPA, this will not confer the status of Indonesian originating goods on the spices.

140. New section 153ZLN gives effect to the above-mentioned Articles in Chapter 4 of IA-CEPA (including Articles 4.2(b), 4.4, 4.17(1) and (2), 4.20(1) and 4.21(b)) for the new section and enables goods produced from non-originating materials that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with IA-CEPA.

141. Subdivision D also contains new section 153ZLO, which deals with packaging materials and containers in accordance with IA-CEPA.

142. New subsection 153ZLO(1) gives effect to Article 4.12(1) of Chapter 4 of IA-CEPA and provides that if:

(c): goods are packaged for retail sale in packaging material or a container; and
(d): 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.

143. The effect of this provision is 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.

144. However, in accordance with Article 4.12(2) of Chapter 4 of IA-CEPA, new subsection 153ZLO(2) provides one exception to subsection 153ZLO(1). This exception applies where the goods are required to have a qualifying value content of at least a particular percentage worked out in a particular way. In such circumstances, 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 qualifying value content of the goods (whether the packaging material or container is an originating material or a non-originating material).

145. Without this provision, the value of packaging materials and containers would normally not form part of the value of materials that are used in the production of the goods.

146. 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 new subsection 153ZLK(2).

Subdivision E - Consignment and exhibition

147. Subdivision E contains new section 153ZLP, which deals with the consignment requirements applicable to Indonesian originating goods in accordance with IA-CEPA, and new section 153ZLQ, which deals with the exhibition of goods in a non-party.

148. New subsection 153ZLP(1) provides that goods are not Indonesian originating goods under new Division 1HA if the goods are transported through a non-party, the goods are not exhibited in a non-party, and one or more of the following apply:

(a): the goods undergo any operation in the non-party (other than unloading, reloading, unpacking and repacking, labelling or any other operation that is necessary to preserve the goods in good condition);
(b): the goods enter the commerce of the non-party;
(c): the transport through that non-party is not justified by geographical, economic or logistical reasons.

149. New subsection 153ZLP(2) provides that section 153ZLP applies despite any other provision of new Division 1HA. This means that even if goods are Indonesian originating goods in accordance with any other provisions of Division 1HA, if they come within the terms of subsection 153ZLP(1) they will not be Indonesian originating goods.

150. New section 153ZLP gives effect to Articles 4.15(1) and (2) of Chapter 4 of IA-CEPA.

151. New subsection 153ZLQ(1) provides that goods are not Indonesian originating goods under new Division IHA if the goods are imported into Australia after being exhibited in a non-party, and one or more of subparagraphs (a), (b), (c), (d) and (e) of paragraph 1 of Article 4.16 of Chapter 4 of IA-CEPA are not satisfied.

152. Subparagraphs (a), (b), (c), (d) and (e) of paragraph 1 of Article 4.16 are:

(a): an exporter has dispatched the originating good from the territory of the exporting Party to the other Party or non-Party where the exhibition is held and has exhibited it there;
(b): the exporter has sold the originating good or transferred it to a consignee in the importing Party;
(c): the originating good has been consigned during the exhibition or immediately thereafter to the importing Party in the state in which it was sent for the exhibition;
(d): the exhibition is any trade, agriculture or crafts exhibition, fair or similar show or display which is not organised for private purposes in shops or business premises with the view to the sale of foreign goods; and
(e): the originating good has not entered the commerce of the other Party or non-Party, including where the originating good was exhibited under customs control.

153. New subsection 153ZLQ(2) provides that section 153ZLQ applies despite any other provision of new Division 1HA.

154. New section 153ZLQ gives effect to Article 4.16(1) of Chapter 4 of IA-CEPA. It ensures that Indonesian originating goods that are imported into Australia after an exhibition in a non-party shall continue to qualify as Indonesian originating goods in circumstances where the goods are Indonesian originating goods in accordance with new Division 1HA, and the requirements in Article 4.16(1) are satisfied.

Subdivision F - Regulations

155. Subdivision F contains new section 153ZLR, which provides a head of power to prescribe regulations to make provision for and in relation to determining whether goods are Indonesian originating goods under new Division 1HA.

Part 2 - Verification powers

Customs Act 1901

Item 4 After Division 4F of Part VI

156. This item amends Part VI of the Customs Act to insert new Division 4FA, which is titled 'Exportation of goods to Indonesia'.

157. Division 4FA contains new sections 126ALE, 126ALF, 126ALG and 126ALH. Collectively, these new sections impose obligations on people who export eligible goods to Indonesia and who wish to obtain preferential treatment of customs duty in respect of those goods.

Section 126ALE Definitions

158. New section 126ALE defines the terms 'Agreement', 'Indonesian customs official', and 'territory of Indonesia' for the purposes of new Division 4FA. The terms 'Agreement' and 'territory of Indonesia' have the same meaning as defined in new Division 1HA of Part VIII of the Customs Act, inserted by item 3 of Part 1 of Schedule 2 to the Bill.

159. 'Indonesian customs official' is defined under this section to mean a person representing the customs administration of Indonesia. This term is necessary and is referred to in new sections 126ALG and 126ALH.

Section 126ALF Record keeping obligations

160. New section 126ALF inserts a head of power to prescribe record keeping obligations. These record keeping obligations will apply in respect of goods that are exported from Australia to Indonesia.

161. New subsection 126ALF(1) enables regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of Indonesia and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Indonesia. The record keeping obligation envisaged by Article 4.26(1) of Chapter 4 of IA-CEPA is broader than the general record keeping obligations under the Customs Act.

162. 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. However, the type of documents that will be required to be kept will be much broader than current requirements. The requirements will extend to all records relating to the origin of the goods for which preferential tariff treatment is claimed in the territory of Indonesia 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.

163. New subsection 126ALF(2) provides that regulations for the purposes of new subsection 126ALF(1) may impose such obligations on an exporter of goods.

Section 126ALG Power to require records

164. New subsection 126ALG(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 126ALF to produce to the officer such of those records as the officer requires.

165. New subsection 126ALG(2) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may, for the purpose of verifying a claim for a preferential tariff in the territory of Indonesia, disclose any records so produced to an Indonesian customs official. Records obtained by an authorised officer under new section 126ALG may be 'Immigration and Border Protection information' within the meaning of Part 6 of the ABF Act.

166. 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.

167. By including an express provision in the Customs Act to permit the disclosure of information (that may be Immigration and Border Protection information) to an Indonesian customs official, the disclosure of such information is required or authorised by or under a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

168. Under Article 4.22 of Chapter 4 of IA-CEPA, the customs administration of the importing Party may verify the eligibility of a good for preferential tariff treatment by, amongst other things, issuing written requests to the provider of the documentary evidence of origin for further information relating to the origin of the good. By Article 4.20 of Chapter 4 of IA-CEPA, documentary evidence of origin can be a certificate of origin made in accordance with Annex 4-A of IA-CEPA, or a declaration of origin made in accordance with Annex 4-B of IA-CEPA by an exporter registered or certified by the exporting Party in accordance with its laws and regulations. New section 126ALG gives effect to Article 4.22 in respect of goods that are exported to the territory of Indonesia and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Indonesia.

169. The note to new section 126ALG indicates that failing to produce a record when required to do so by an officer 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 126ALH Power to ask questions

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

(a): are exported to the territory of Indonesia; and
(b): are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Indonesia;

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

171. The power to ask questions in the circumstances set out in this section is a necessary adjunct to the power to require records in new section 126ALG.

172. Subsection 126ALH(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 the territory of Indonesia, to disclose any answers to such questions to an Indonesian customs official.

173. The answers to questions obtained by an authorised officer under new section 126ALH may also be Immigration and Border Protection information within the meaning of Part 6 of the ABF Act and in those circumstances cannot not be disclosed to an Indonesian 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 an Indonesian customs official, the disclosure is required or authorised by or under a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

174. The note to new section 126ALH indicates that failing to answer a question when required to do so by an officer 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 answer a question if doing so would tend to incriminate the person.

Part 3 - Application provisions

Item 5 Application provisions

175. This item operates such that the amendments made by Part 1 of Schedule 2 to the Bill, when enacted, apply in relation to:

(a): goods imported into Australia on or after the commencement of that Part; and
(b): 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.

176. This item also provides that the amendment made by Part 2 of Schedule 2 to the Bill, when enacted, applies in relation to goods exported to the territory of Indonesia on or after the commencement of that Part (whether the goods were produced before, on or after that commencement).

Schedule 3 - Hong Kong

Part 1 - Hong Kong originating goods

Customs Act 1901

Introductory Comments

177. On 26 March 2019, in Sydney, Senator the Hon Simon Birmingham, Minister for Trade, Tourism and Investment, and his counterpart Hong Kong Secretary for Commerce and Economic Development, Edward Yau, signed the A-HKFTA.

178. A-HKFTA, on entry into force, provides in part for new rules of origin to determine 'Hong Kong originating goods' and for the preferential treatment of customs duty that applies to such goods. 'Hong Kong originating goods' in accordance with A-HKFTA are those goods that satisfy the requirements in new Division 1M inserted by the Bill. The notes on clauses below describe those requirements.

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

179. Section 105B of the Customs Act sets out circumstances where the liability to pay customs duty on excise-equivalent goods is wholly or partly extinguished. 'Excise-equivalent goods' is defined in section 9 of the Customs Regulation 2015 to mean the goods prescribed under clause 1 of Schedule 1 to that Regulation.

180. 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, 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.

181. As part of the implementation of the Agreement, the Customs Tariff Amendment Bill will insert new Schedule 13 into the Customs Tariff Act. New Schedule 13 will provide for excise-equivalent rates of duty on certain alcohol, tobacco, fuel petroleum products in accordance with A-HKFTA, and the related preferential rates of customs duty.

182. This item amends subparagraph 105B(3)(b)(ii) of the Customs Act to insert a reference to Schedule 13 to the Customs Tariff Act.

183. The purpose of this amendment is to ensure the collection of the correct import duty for biofuels and biofuel blends imported under A-HKFTA.

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

184. Subsection 105B(4) of the Customs Act defines in part 'biofuel blend' as goods classified to certain subheadings under Schedule 3 to 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.

185. This item amends the definition of 'biofuel blend' under subsection 105B(4) of the Customs Act to insert a reference to new Schedule 13 to the Customs Tariff Act.

186. As for item 1, the purpose of this amendment is to ensure the collection of the correct import duty for biofuels and biofuel blends imported under the A-HKFTA.

Item 3 After Division 1L of Part VIII

187. This item amends Part VIII of the Customs Act to insert new Division 1M.

188. New Division 1M is titled 'Hong Kong originating goods' and sets out the new rules for determining whether goods are Hong Kong originating goods and therefore eligible for a preferential rate of customs duty under the Customs Tariff Act applying to such goods that are imported into Australia. These new rules are being inserted to give effect to Chapter 3 of A-HKFTA.

189. New Division 1M contains seven Subdivisions (Subdivision A to Subdivision G), as set out below.

Subdivision A - Preliminary

190. Subdivision A contains a simplified outline of Division 1M and the interpretation provision for that Division.

New section 153ZPA Simplified outline of this Division

191. New section 153ZPA sets out a simplified outline of each of the Subdivision B to Subdivision G of new Division 1M.

New section 153ZPB Interpretation

192. New subsection 153ZPB(1) sets out new definitions for the purposes of new Division 1M as follows:

Agreement means the Free Trade Agreement between Australia and Hong Kong, China, done at Sydney on 26 March 2019, as amended and in force in Australia from time to time. The note to this definition indicates that in 2019, the text of A-HKFTA will be accessible through Australian Treaties Library on the AustLII internet website.

aquaculture has the meaning given by Article 3.1 of Chapter 3 of A-HKFTA. This term is necessary as it is referred to in the definition of 'production'.

Area of Australia has the meaning given by Article 1.3 of Chapter 1 of A-HKFTA for 'Are a', so far as it relates to Australia.

Area of Hong Kong, China has the meaning given by Article 1.3 of Chapter 1 of A-HKFTA for 'Are a', so far as it relates to Hong Kong, China.

Australian originating goods means goods that a law of Hong Kong, China that implements A-HKFTA determined to be Australian originating goods.

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 2019, 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'.

Declaration of Origin means a declaration that is in force and that complies with the requirements of Article 3.16 of Chapter 3 of A-HKFTA. Article 3.16 sets out the information required for a declaration of origin, including such information as set out in Annex 3-A of A-HKFTA.

enterprise has the meaning given to it by Article 1.3 of Chapter 1 of A-HKFTA. This term is used in the definition of the term 'person of Hong Kong, China'.

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 WCO. In Australia, the HCDC System has been adopted in the Customs Tariff Act.

This term is necessary and is referred to in the definition of 'Harmonized System' to ascertain the version of the HCDC System on which A-HKFTA, particularly the product-specific rules, is based.

Harmonized System means:

(a): the Harmonized Commodity Description and Coding System as in force on 1 January 2017; or
(b): if the table in Annex 3-B of the Agreement 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.

While each signatory to the Convention is required to implement and reflect related amendments to the HCDC System in their domestic legislation, simultaneously on the entry into force date, the pace at which the amendments are implemented varies from country to country.

By way of example, while Australia has implemented, and currently uses, the latest HCDC System of 2017, many of our established FTAs still utilise other versions of the HCDC System for their product specific rules of origin. In light of this, and to avoid causing any disruption to international trade, Australia, through the Australian Border Force, publishes the changes between each HCDC System updates and relevant concordance associated with those updates on its website so that anyone can readily identify the appropriate tariff classification codes for importing goods from other countries into Australia.

The definition of 'Harmonized System' will expressly recognise, in the Customs Act, the version of the HCDC System on which A-HKFTA was based, being that of 2017, and allow subsequent versions of that System to be recognised when Annex 3-B to Chapter 3 of the Agreement is formally amended.

Hong Kong originating goods means goods that are Hong Kong originating goods under Division 1M of the Customs Act.

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 or operation of equipment or buildings associated with the production of goods;; including:
(c): fuel (within its ordinary meaning); and
(d): catalysts and solvents; and
(e): gloves, glasses, footwear, clothing, safety equipment and supplies; and
(f): tools, dies and moulds; and
(g): spare parts and materials; and
(h): lubricants, greases, compounding materials and other similar goods.

This term, together with the definition of 'originating material', new Subdivision C and new Subdivision D implement Article 3.14 of Chapter 3 of A-HKFTA.

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 1M in their own right. For example, where frozen crumbed fish fillets processed in Hong Kong, China to A-HKFTA from fish caught in the territory of Hong Kong, China coated with herbs and spices that are produced in Thailand (which is not a Party to A-HKFTA), the fish would be originating materials and the herbs and spices would be non-originating materials.

non-Party has the same meaning as it has in Chapter 3 of A-HKFTA, which is a Party that is not a Party to A-HKFTA.

This term is necessary and referred to in new section 153ZPH, which deals with the consignment of Hong Kong originating goods (see notes below for new section 153ZPH).

originating materials means:

(a): goods that are Hong Kong originating goods, in accordance with Chapter 3 of A-HKFTA, that are used in the production of other goods; or
(b): goods that are Australian originating goods, in accordance with Chapter 3 of A-HKFTA, that are used in the production of other goods; or
(c): indirect materials.

In some circumstances, in order to determine whether goods that are imported into Australia are Hong Kong originating goods, and therefore eligible for a preferential rate of customs duty, it may be necessary to have regard to the goods from which the final goods are produced (see Subdivision C and Subdivision D).

person of Hong Kong, China means:

(a): a natural person of a Party within the meaning, so far as it relates to Hong Kong, China, of Article 1.3 of Chapter 1 of A-HKFTA; or
(b): an enterprise of Hong Kong, China.

This term is necessary and referred to in new section 153ZPC, which deals with goods that are wholly obtained or produced entirely in Hong Kong, China or in Hong Kong, China and Australia (see notes below for new subsection 153ZPC(2)).

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

In Article 3.1, production is defined as methods of obtaining goods including, but not limited to, farming, growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, collecting, breeding, extracting, aquaculture, gathering, manufacturing, processing or assembling a good. 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.

sea-fishing has the same meaning as it has in Chapter 3 of A-HKFTA, where it is used in the context of determining goods that are wholly obtained or produced goods.

193. New subsection 153ZPB(2) provides that the value of goods for the purposes of new Division 1M 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 3.9 of Chapter 3 of A-HKFTA. 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.

194. New subsection 153ZPB(3) provides that in specifying tariff classifications for the purposes of new Division 1M, the regulations may refer to the Harmonized System. The product specific rules of origin in Annex 3-B of A-HKFTA refer to the tariff classifications of the Harmonized System.

195. New subsection 153ZPB(4) provides that subsection 4(3A) of the Customs Act does not apply for the purposes of new Division 1M. Subsection 4(3A) provides that reference in the Customs Act to the tariff classification of goods is a reference to Schedule 3 to the Customs Tariff Act, which is not the case in new Division 1M.

196. New subsection 153ZPB(5) provides that, despite subsection 14(2) of the Legislation Act, regulations made for the purposes of Division 1M 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 is necessary to ensure there is an appropriate delegation of legislative power should it be necessary in order to implement A-HKFTA 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 A-HKFTA 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. Where such references are made in regulations the explanatory material will explain the basis on which such references are made and indicate where the material referred to can be located by the public.

Subdivision B - Goods wholly obtained or produced entirely in Hong Kong, China or in Hong Kong, China and Australia

197. Subdivision B contains new section 153ZPC, which sets out the rules in relation to goods that are wholly obtained or produced in Hong Kong, China or in Hong Kong, China and Australia.

198. New subsection 153ZPC(1) provides that goods are Hong Kong originating goods if they are wholly obtained or produced in Hong Kong, China, and either the importer of the goods has, at the time the goods are imported, a Declaration of Origin, or a copy of one, for the goods; or Australia has waived the requirement for a Declaration of Origin for the goods.

199. New subsection 153ZPC(2) provides that goods are wholly obtained or produced in Hong Kong, China or in Hong Kong, China and Australia if, and only if, the goods are:

(a)

plants, or goods obtained from plants, that are grown, cultivated, harvested, picked or gathered in the Area of Hong Kong, China or in the Area of Hong Kong, China and the Area of Australia; or

(b)

live animals born and raised in the Area of Hong Kong, China or in the Area of Hong Kong, China and the Area of Australia; or

(c)

goods obtained from live animals in the Area of Hong Kong, China; or

(d)

animals obtained by hunting, trapping, fishing, gathering or capturing in the Area of Hong Kong, China; or

(e)

goods obtained from aquaculture conducted in the Area of Hong Kong, China; or

(f)

minerals, or other naturally occurring substances, extracted or taken from the Area of Hong Kong, China; or

(g)

goods of sea-fishing, or other marine goods, taken from the high seas, by any vessel that is entitled to fly the flag of Hong Kong, China; or

(h)

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

(i)

goods, other than fish, shellfish or other marine like, taken by Hong Kong, China, or a person of Hong Kong, China, from the seabed, or subsoil beneath the seabed, outside the Area of Hong Kong, China and the Area of Australia, and beyond territories over which non-Parties exercise jurisdiction, but only if Hong Kong, China, or the person of Hong Kong, China 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 or consumption in the Area of Hong Kong, China and that is fit only for the recovery of raw materials; or
ii.: has been derived from used goods that are collected in the Area of Hong Kong, China and that are fit only for the recovery of raw materials; or

(k)

goods produced in the Area of Hong Kong, China or in the Area of Hong Kong, China and the Area of Australia, exclusively from goods referred to in paragraphs (a) to (j) or from their derivatives.

200. New section 153ZPC gives effect to Articles 3.2(a), 3.3, 3.16 and 3.19(b) of Chapter 3 of A-HKFTA in respect of rules of origin for goods wholly obtained or produced entirely in a Party to it. 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 A-HKFTA

Subdivision C - Goods produced in Hong Kong, China or in Hong Kong, China and Australia, from originating materials

201. Subdivision C contains new section 153ZPD, which sets out a rule for goods that are produced entirely in the Area of Hong Kong, China or entirely in the Area of Hong Kong, China and the Area of Australia, from originating materials only. Such goods are Hong Kong originating goods if the importer of the goods has, at the time the goods are imported, a Declaration of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Declaration of Origin for the goods.

202. New section 153ZPD gives effect to Articles 3.2(b), 3.16 and 3.19(b) of Chapter 3 of A-HKFTA 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 A-HKFTA.

Subdivision D - Goods produced in Hong Kong, China or in Hong Kong, China and Australia, from non-originating materials

203. Subdivision D contains new section 153ZPE, which deals with Hong Kong originating goods produced from non-originating materials.

204. New subsection 153ZPE(1) provides that goods are Hong Kong 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-B of A-HKFTA; and

(b)

they are produced entirely in the Area of Hong Kong, China or entirely in the Area of Hong Kong, China and the Area of Australia, 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 Declaration of Origin, or a copy of one, for the goods; or
ii.: Australia has waived the requirement for a Declaration of Origin for the goods.

205. This provision applies the product specific rules by direct reference to Annex 3-B of A-HKFTA. This applies both the product specific rules and any product specific process rules. The direct application of Annex 3-B does not change the operation of these rules as set out in that Annex. Rather, as A-HKFTA is defined to be the Agreement as amended from time to time, this will ensure that the current Annex in A-HKFTA will be applied. It will also ensure that any updated version of the Annex that would be contained in A-HKFTA when the parties implement later versions of the Harmonized System will be applied as soon as any provisions of A-HKFTA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

206. For certainty, abbreviations used in Annex 3-B, new subsection 153ZPE(2) provides that, without limiting paragraph 153ZPE(1)(c), a requirement may be specified in the table in Annex 3-B of A-HKFTA by using an abbreviation that is given a meaning for the purpose of that Annex. For example, the abbreviation of RVC(40) in the Annex means a regional value content of at least 40%. Another example of an abbreviation in the Annex is 'CC', which is an abbreviation for Change of Chapter.

Change in tariff classification

207. New subsection 153ZPE(3) refers to the first of several requirements 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.

208. The regulations made under this head of power include provisions to give effect to the cumulative rules of origin contained in Article 3.8 of Chapter 3 of A-HKFTA, and apply where the non-originating materials that are used or consumed in the production of the good do not satisfy the change in tariff classification.

209. The concept of the change in tariff classification requirement applies to non-originating materials. Goods that have been sourced outside Hong Kong, China or Australia and that are used in the production of other goods are non-originating materials. Goods sourced from Hong Kong, China or Australia that have not fulfilled the requirements of new Division 1M and that are used in the production of other goods are also non-originating materials.

210. 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 A-HKFTA, 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.

211. For example, frozen fish fillets (classified to tariff code 0304) are produced from fish caught in a Party to A-HKFTA and combined with herbs and spices produced in Thailand (which is not a Party to A-HKFTA) (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'. That is, non-originating materials used in the production of the final good must be classified in a different Chapter (two digits) from the classification of the final good. 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 A- HKFTA, and is therefore an originating material and is not required to change its classification.

212. 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.

213. New subsection 153ZPE(4) allows for the change in tariff classification requirement to also be satisfied if the total value of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10% of the customs value of the goods.

214. New subsection 153ZPE(4) gives effect to the de minimis requirement set out in Article 3.9(a) of Chapter 3 of A-HKFTA. As a result, even if none of the non-originating materials used to produce a final good satisfy a particular change in tariff classification, the final good may still be a Hong Kong originating good if it satisfies subsection 153ZPE(4) because the change in tariff classification will be taken to be satisfied.

215. The value of non-originating materials for the purposes of subsection 153ZPE(4) is to be worked out in accordance with the method that will be included in the regulations.

216. To give effect to the de minimis requirement under Article 3.9(b) of Chapter 3 of A- HKFTA, new subsection 153ZPE(5) provides that, if:

(g): 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
(h): the goods are classified to any of Chapters 50 to 63 of the Harmonized System; and
(i): 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 (c) does not exceed 10% of the total weight of the goods.

217. This provision allows for the change in tariff classification requirement to also be satisfied in relation to certain goods if the total weight of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the customs value of the goods.

Regional value content

218. New subsection 153ZPE(6) 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:

(e): the regional value content of the goods is to be worked out in accordance with A-HKFTA; or
(f): 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.

219. This provision provides the head of power to prescribe formulas for calculating regional value content and in doing so gives effect to Article 3.4 of A-HKFTA.

220. New subsection 153ZPE(7) 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; and
(e): the accessories, spare parts, tools or instructional or other information materials are non-originating materials;; the regulations must require the value of the accessories, spare parts, tools or instructional or other information materials covered by paragraph 157ZPE(7)(e) to be taken into account for the purposes of working out the regional value content of the goods.

221. 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.

222. New subsection 153ZPE(7) provides a head of power to prescribe regulations to give effect to Article 3.11(b) of Chapter 3 of A-HKFTA in respect of the value of the accessories, spare parts, tools or instructional or other information materials for working out regional value content. This provision is necessary because the value of such goods would not normally form part of the value of materials that are used in the production of the underlying goods.

223. New subsection 153ZPE(8) gives effect to paragraph 2 of Article 3.11 of Chapter 3 of A-HKFTA and provides that section 153ZPG should be disregarded for the purposes of subsection 153ZPE(7) when working out whether the accessories, spare parts, tools or instructional or other information materials are non-originating materials. This provision ensures that the relevant product specific rules for the accessories, spare parts, tools or instructional or other information materials must be applied to determine whether they are originating goods.

224. New section 153ZPE gives effect to the above-mentioned Articles in Chapter 3 of A-HKFTA and enables goods produced from non-originating materials that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with the Agreement.

225. Subdivision D also contains new section 153ZPF, which deals with packaging materials and containers in accordance with A-HKFTA.

226. New subsection 153ZPF(1) gives effect to Article 3.12(1) of Chapter 3 of A-HKFTA and provides that if:

(e): goods are packaged for retail sale in packaging material or a container; and
(f): 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.

227. This provision has the 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.

228. However, in accordance with Article 3.12(2) of Chapter 3 of A-HKFTA, new subsection 153ZPF(2) provides an exception to subsection 153ZPF(1). This exception applies where the goods are required to have a regional value content of at least a particular percentage worked out in a particular way, and where the packaging material or container is non-originating material. In this context, the regulations must provide for the value of the packaging material or container to be taken into account when working out the regional value content of the goods.

229. Without this provision, the value of packaging materials and containers would not normally form part of the value of materials that are used in the production of the goods.

230. The note to this section indicates that the value of packaging materials and containers for the purposes of this section is to be worked out in accordance with the regulations.

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

231. Subdivision E contains new section 153ZPG, which sets out a specific rule that applies to goods that are accessories, spare parts, tools or instructional or other information materials.

232. New section 153ZPG provides that goods are Hong Kong 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 Hong Kong originating goods; and
(d): the accessories, spare parts, tools or instructional or other information materials are not invoiced separately from the other goods; and
(e): the quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the other goods.

233. Therefore, under this provision, accessories, spare parts, tools or instructional or other information materials will be deemed Hong Kong originating goods even if, in fact, they are non-originating goods, provided all of the requirements in this new section are satisfied. However, this deeming section is to be disregarded when performing a regional value calculation on goods under new subsection 153ZPE(7). The value of the accessories, spare parts, tools or other instructional or information materials that are non-originating materials must be included in that calculation (see new subsection 153ZPE(8)).

234. This provision gives effect to Article 3.11 of Chapter 3 of the Agreement with respect to specific rules for goods that are accessories, spare parts, tools or instructional or other information materials.

Subdivision F - Consignment

235. Subdivision F contains new section 153ZPH, which deals with the consignment requirements applicable to Hong Kong originating goods in accordance with A-HKFTA.

236. New subsection 153ZPH(1) provides that goods are not Hong Kong originating goods under new Division 1M if the goods are transported through a non-party and the goods undergo any operation in the territory of a non-party other than unloading, reloading, separation from a bulk shipment, repacking, 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 Area of Australia.

237. New subsection 153ZPH(2) provides that section 153ZPH applies despite any other provision of new Division 1M. This means that even if goods are Hong Kong originating goods in accordance with any other provisions of Division 1M, if they come within the terms of section 153ZPH(1) they will not be Hong Kong originating goods.

238. The new section gives effect to Article 3.15 of Chapter 3 of A-HKFTA.

Subdivision G - Regulations

239. Subdivision G contains new section 153ZPI, which provides a head of power to prescribe regulations to make provisions for and in relation to determining whether goods are Hong Kong originating goods under new Division 1M.

Part 2 - Verification powers

Customs Act 1901

Item 4 After Division 4J of Part VI

240. This item amends Part VI of the Customs Act to insert new Division 4K, which is titled 'Exportation of goods to Hong Kong, China'.

241. Division 4K contains new sections 126APA, 126APB, 126APC and 126APD. Collectively, these new sections impose obligations on people who export eligible goods to the Area of Hong Kong, China and who wish to obtain preferential treatment of customs duty in respect of those goods, and on people who produce such goods.

Section 126APA Definitions

242. New section 126APA defines the term 'Agreement', 'Area of Hong Kong, China', 'Hong Kong, China customs official', 'producer' and 'production' for the purposes of new Division 4K. With exception to the terms 'Hong Kong, China customs official' and 'producer', the terms have the same meaning as given in new Division 1M of Part VIII of the Customs Act, inserted by item 3 of Part 1 of Schedule 3 to the Bill.

243. 'Hong Kong, China customs official' is defined under this section to mean a person representing the customs administration of Hong Kong, China. This term is necessary and referred to in new sections 126APC and 126APD.

244. The term 'producer' is defined under this section to mean a person who engages in the production of goods, where production has the same meaning as given in new Division 1M of Part VIII of the Customs Act, inserted by item 3 of Part 1 of Schedule 3 to the Bill.

Section 126APB Record keeping obligations

245. New section 126APB inserts a head of power to prescribe record keeping obligations. These record keeping obligations will apply in respect of goods that are exported from Australia to Hong Kong, China.

246. New subsection 126APB(1) enables regulations to prescribe record keeping obligations that apply in relation to goods exported to the Area of Hong Kong, China and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the Area of Hong Kong, China. The record keeping obligation envisaged by Article 3.22 of Chapter 3 of A-HKFTA is broader than the general record keeping obligations under the Customs Act.

247. 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. However, the type of documents that will be required to be kept will be much broader than current requirements. The requirements will extend to all records relating to the origin of the goods for which preferential tariff treatment is claimed in the Area of Hong Kong, China 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.

248. New subsection 126APB(2) provides that the obligations under subsection 126APB(1) may be imposed on an exporter or producer of goods.

Section 126APC Power to require records

249. New subsection 126APC(1) provides that an authorised officer (as defined in 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 126APB to produce to the officer such of those records as the officer requires.

250. Under Article 3.23 of Chapter 3 of A-HKFTA, the customs administration of the importing Party may take action to verify the eligibility of goods for preferential treatment, including requesting the supply of records relating to the production or export of the goods. New section 126APC gives effect to this Article in respect of goods that are exported to the Area of Hong Kong, China and that are claimed to be originating goods for the purpose of obtaining a preferential tariff in the Area of Hong Kong, China.

251. New subsection 126APC(2) provides that an authorised officer (as defined in section 4 of the Customs Act) may disclose any records so produced to a Hong Kong, China customs official for the purpose of verifying a claim for a preferential tariff in the Area of Hong Kong, China. Records obtained by an authorised officer under new section 126APC may be Immigration and Border Protection information within the meaning of Part 6 of the Australian Border Force Act 2015 (the ABF Act).

252. Section 42 in Part 6 of 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.

253. By including an express provision in the Customs Act to permit the disclosure of information (that may be Immigration and Border Protection information) to a Hong Kong, China customs official, the disclosure of such information is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

254. The note to new section 126APC 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 126APB, a failure to produce documents or records by that person may be an offence under existing section 243SB of the Customs Act. This offence is not a strict liability offence. The note also indicates that, under 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 126APD Power to ask questions

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

(a): are exported to the Area of Hong Kong, China; and
(b): are claimed to be Australian originating goods, in accordance with Chapter 3 of A-HKFTA, for the purpose of obtaining a preferential tariff in the Area of Hong Kong, China;; to answer questions in order to verify the origin of the goods.

256. It is considered that the power to ask questions in the circumstances set out in this section is a necessary adjunct to the power to require records in new section 126APC.

257. Subsection 126APD(2) enables an authorised officer (as defined in section 4 of the Customs Act), for the purpose of verifying a claim for a preferential tariff in the Area of Hong Kong, China to disclose any answers to questions covered by new subsection 126APD(1) to a Hong Kong, China customs official.

258. The answers to questions obtained by an authorised officer under new section 126APD 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 Hong Kong, China 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 Hong Kong, China customs official, the disclosure is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

259. The note to new section 126APD 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 section 243SA of the Customs Act. This offence is not a strict liability offence. 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

260. This item operates such that the amendments made by Part 1 of Schedule 3 to the Bill, when enacted, apply in relation to:

(a): goods imported into Australia on or after the commencement of that Part; and
(b): 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.

261. This item also provides that the amendment made by Part 2 of Schedule 3 to the Bill, when enacted, applies in relation to goods exported to the Area of Hong Kong, China on or after the commencement of that Part (whether the goods were produced before, on or after that commencement).

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NOTES ON CLAUSES

Schedule 1 - Peru

Part 1 - Peruvian originating goods

Part 2 - Verification Powers

Part 3 - Application provisions

Schedule 2 - Indonesia

Part 1 - Indonesian originating goods

Part 2 - Verification powers

Part 3 - Application provisions

Schedule 3 - Hong Kong

Part 1 - Hong Kong originating goods

Part 2 - Verification powers

Part 3 - Application provisions

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