House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Justice and Customs, Senator the Honourable Christopher Martin Ellison)

Schedule 2 - Singapore-Australia Free Trade Agreement

Item 1 - Subsection 4(1) (at the end of the definition of unmanufactured raw products)

This item amends this definition by adding a Note.

The Note to the definition provides that this term has a different meaning for the purposes of Division 1B of Part VIII of the Customs Act. A new definition of unmanufactured raw products is being inserted by new section 153UA (see item 3 below) but this new definition will be for the purposes of the new Division 1B of Part VIII of the Customs Act only.

Item 2 After Division 4 of Part VI

This item amends Part VI of the Customs Act by inserting new Division 4A.

Part VI deals with the exportation of goods from Australia. The new Division, headed Division 4A - Exportation of goods to Singapore , will impose obligations on people who export goods to Singapore and who wish to obtain preferential treatment in respect of the goods in Singapore, and on people who produce or manufacture such goods.

New section 126AA Declaration concerning exports to Singapore

New section 126AA provides that the regulations may prescribe the requirements on exporters relating to the making of declarations concerning the export of goods to Singapore for which a preferential tariff is to be claimed.

Under new section 153VE of new Division 1B of Part VIII of the Customs Act, explained below, for goods to be the produce or manufacture of Singapore, the importer must hold a declaration in accordance with Article 11.6 of Chapter 3 of SAFTA. The purpose of new section 126AA is to prescribe requirements for a declaration in respect of goods exported to Singapore and which are claimed to be the produce or manufacture of Australia. It is intended that the requirements that will be prescribed will be similar to those set out in Article 11.6 of Chapter 3 of SAFTA.

New section 126AB Record keeping obligations

New section 126AB inserts record keeping obligations that will apply only in respect of goods that are exported from Australia to Singapore and that are claimed to be the produce or manufacture of Australia for the purpose of obtaining a preferential tariff in Singapore. While there are record keeping obligations in the Customs Act at present, these are not broad enough to cover the record keeping obligations under SAFTA.

New subsection 126AB(1) provides that the regulations may prescribe record keeping obligations that apply in relation to goods that:

(a)

are exported to Singapore; and

(b)

are claimed to be the produce or manufacture of Australia for the purpose of obtaining a preferential tariff in Singapore.

It is intended that the method of keeping the documents, such as the length of time for which they must 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 Singapore and will include, amongst other things, records associated with the purchase, cost and value of, and payment for, materials.

New subsection 126AB(2) provides that the obligations under subsection (1) may be imposed on a producer, manufacturer or exporter of goods.

New section 126AC Power to require records

New subsection 126AC(1) provides that an authorised officer (which is 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 126AB to produce to the officer such of those records as the officer requires.

Under Article 14 of SAFTA, Australia or Singapore may take action to verify the eligibility of goods for preferential treatment, including requesting the supply of records relating to the production, manufacture or export of the goods. New section 126AC gives effect to this Article in respect of goods exported to Singapore and that are claimed to be the produce or manufacture of Australia for the purpose of obtaining a preferential tariff in Singapore.

New subsection 126AC(2) provides that an authorised officer may disclose any records so produced to an instrumentality or agency of Singapore for the purpose of verifying a claim for a preferential tariff in Singapore. Section 16 of the Customs Administration Act 1985 prohibits the disclosure of protected information except:

(i)

as authorised by section 16; or

(ii)

as required or authorised by any other law; or

(iii)

in the course of performing the person's duties.

Records obtained by an authorised officer under new section 126AC would be protected information within the meaning of section 16 and therefore cannot be disclosed to Singapore except as allowed by section 16. By including an express provision in the Customs Act allowing for this information to be disclosed to the relevant instrumentality or agency of Singapore, the disclosure is required or authorised by any other law for the purposes of paragraph 16(2)(d) of the Customs Administration Act 1985 .

Under existing section 243SB of the Customs Act, it shall be an offence to fail to produce a record in accordance with new section 126AC. This offence is not a strict liability offence.

New section 126AD Power to ask questions

New subsection 126AD(1) provides that an authorised officer (which is defined in section 4 of the Customs Act) may require a person who is an exporter, producer or manufacturer of goods that:

(a)

are exported to Singapore; and

(b)

are claimed to be the produce or manufacture of Australia for the purpose of obtaining a preferential tariff in Singapore;

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

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 126AC.

Subsection 126AD(2) provides that an authorised officer may disclose any answers to such questions to an instrumentality or agency of Singapore for the purpose of verifying a claim for a preferential tariff in Singapore. Section 16 of the Customs Administration Act 1985 prohibits the disclosure of protected information except:

(i)

as authorised by section 16; or

(ii)

as required or authorised by any other law; or

(iii)

in the course of performing the person's duties.

Answers to questions obtained by an authorised officer under new section 126AD would be protected information within the meaning of section 16 and therefore cannot not be disclosed to Singapore except as allowed by section 16. By including an express provision in the Customs Act allowing for this information to be disclosed to the relevant instrumentality or agency of Singapore, the disclosure is required or authorised by any other law for the purposes of paragraph 16(2)(d) of the Customs Administration Act 1985 .

Under existing section 243SA of the Customs Act, it shall be an offence to fail to answer a question accordance with new section 126AD. This offence is not a strict liability offence.

Item 3 - After Division 1A of Part VIII

This item amends Part VIII of the Customs Act by inserting a new Division 1B.

New Division 1B headed Division 1B - Rules of origin of goods claimed to be the produce or manufacture of Singapore contains the rules of origin for goods claimed to be the produce or manufacture of Singapore. These new rules of origin are being inserted to give effect to the Singapore-Australia Free Trade Agreement (SAFTA), in particular Chapter 3 of SAFTA.

Division 1A of Part VIII of Customs Act presently contains rules of origin for New Zealand, Canada, Papua New Guinea, Developing Countries and Forum Island Countries. However, as many of the rules of origin that were concluded under SAFTA are different from the existing rules of origin, these new rules are being enacted in a separate Division of Part VIII. These new rules will apply only in relation to goods claimed to be produce or manufacture of Singapore. Goods from Singapore may still be eligible for preferential duty treatment under Division 1A of Part VIII of the Customs Act, as Singapore is also a Developing Country for the purposes of that Division.

New Division 1B contains four subdivisions which are set out below.

Subdivision A - Preliminary

This Subdivision sets out the purpose of Division 1B and contains the interpretation provision for Division 1B.

Section 153U Purpose of Division

New section 153U sets out the purpose of Division 1B and states that the purpose of this Division is to set out rules for determining whether goods are the produce or manufacture of Singapore. This purpose provision is similar to the purpose provision for Division 1A set out in section 153A of the Customs Act.

Section 153UA - Interpretation

New section 153UA contains a number of new definitions for the purposes of new Division 1B. These definitions are:

allowable cost to manufacture which has the meaning given by new section 153W;

allowable expenditure by the principal manufacturer on labour which has the meaning given by new section 153WB;

allowable expenditure by the principal manufacturer on materials which has the meaning given by new section 153WA;

allowable expenditure by the principal manufacturer on overheads which has the meaning given by new section 153WC;

Certificate of Origin which means a certificate that complies with the requirements of Annex 2A of SAFTA. Annex 2A sets out the bodies that are authorised to certify the origin of goods and also sets out the minimum data requirements to be included in a Certificate of Origin and in an application for a Certificate of Origin;

cultivate which includes cultivate by a process of aquaculture;

input which means any matter or substance used or consumed in the manufacture or production of a material, other than a matter or substance that is treated as an overhead;

manufacture which means the creation of an article essentially different from the matters or substances that go into such manufacture and does not include the following activities, (whether performed alone or in combination with each other):

(a)

restoration or renovation processes such as repairing, re-conditioning, overhauling or refurbishing;

(b)

minimal operations (which is also defined);

(c)

quality control inspections.

material which means any matter or substance purchased by the principal manufacturer of goods and used or consumed in the processing of goods, other than any matter or substance that is treated as an overhead;

minimal operations which means pressing, labelling, ticketing, packaging, and preparation for sale, or any similar operations, whether conducted alone or in combination with each other;

partly manufactured in Singapore , in relation to goods, which has the meaning given by new section 153VB;

person which includes partnerships and unincorporated associations;

principal manufacturer , in relation to goods, which means the person in Singapore who performs, or has had performed on its behalf, the last process of manufacture of the goods. This definition, in accordance with SAFTA, recognises that parts of the manufacturing process may be outsourced by the principal manufacturer;

process which means any operation performed on goods and includes:

(a)

a process of manufacture; and

(b)

minimal operations; and

(c)

quality control inspections.

This definition is, therefore, broader than the definition of manufacture set out above;

produce which means, in relation to wholly obtained goods, grow, mine, harvest, fish, hunt, gather, trap, capture, farm, cultivate or otherwise obtain wholly obtained goods;

SAFTA which means the Singapore-Australia Free Trade Agreement done in Singapore on 17 February 2003, as amended from time to time. A Note to this definition provides that in 2003, the text of the Agreement was accessible on the Internet through the website of the Department of Foreign Affairs and Trade;

total cost to manufacture which has the meaning given by section 153X;

total expenditure by the principal manufacturer on materials which has the meaning given by section 153XA;

total expenditure by the principal manufacturer on overseas processing costs which has the meaning given by section 153XB;

unmanufactured raw products which means:

(a)

natural or primary products that have not been subjected to an industrial process, other than an ordinary process of primary production, and includes:

(i)

animals and products obtained from animals, including greasy wool; and

(ii)

plants and products obtained from plants; and

(iii)

minerals in their natural state and ores; and

(iv)

crude petroleum; or

(b)

raw materials recovered in Singapore or in Australia from waste and scrap.

Unlike the definition of the same term in section 4 of the Customs Act, this definition includes all products from animals, in addition to greasy wool, which are not the result of killing the animals;

waste and scrap which means only waste and scrap that:

(a)

have been derived from manufacturing operations or consumption; and

(b)

are fit only for the recovery of raw materials;

wholly manufactured in Singapore , in relation to goods, which has the meaning given by new section 153VA;

wholly obtained goods which means:

(a)

unmanufactured raw products; or

(b)

waste and scrap.

Section 153UB - Rule against double counting

New section 153UB sets out a rule against double counting in determining the allowable cost to manufacture, or the total cost to manufacture goods, claimed to be the produce or manufacture of Singapore. Any cost incurred, whether directly or indirectly, by the principal manufacturer of the goods must not be taken into account more than once.

New section 153UB is similar to the rule against double counting in section 153S of Division 1A of Part VIII of the Customs Act.

Section 153UC CEO may determine cost of certain input, material etc.

New section 153UC sets out the circumstances where the CEO may determine the normal market value of an input, a material, labour, an overhead or an overseas process.

If the CEO is satisfied that any input, material, labour or overhead or overseas process was provided:

(a)

free of charge; or

(b)

at a price that is inconsistent with the normal market value of that input, material, labour, overhead or overseas process;

the CEO may require, in writing, that the amount determined by the CEO to be normal market value of that input, material, labour or overhead or overseas process be treated, for the purposes of this Division, as the amount paid by the manufacturer for the input, material, labour, overhead or overseas process.

Subdivision B - Rules of origin of goods claimed to be the produce or manufacture of Singapore

This Subdivision contains the rules for determining whether goods are the produce or manufacture of Singapore.

Section 153V Goods claimed to be the produce or manufacture of Singapore

New section 153V sets out the circumstances in which goods are the produce or manufacture of Singapore.

Subsection 153V(1) states that goods claimed to be the produce of Singapore are the produce of that country if they are wholly obtained goods produced in Singapore. The definition of wholly obtained goods is set out in new section 153UA.

Subsection 153V(2) states that goods claimed to be the manufacture of Singapore are the manufacture of that country if:

(a)

they are wholly manufactured in Singapore (the circumstances in which this occurs are set out in new section 153VA); or

(b)

they are partly manufactured in Singapore (the circumstances in which this occurs are set out in new section 153VB).

However, the requirements in section 153V are subject to new sections 153VE and 153VF, which contain Certificate of Origin requirements and consignment requirements.

Section 153VA Goods wholly manufactured in Singapore

New section 153VA sets out the circumstances in which goods are wholly manufactured in Singapore for the purpose of new paragraph 153V(2)(a). Goods are wholly manufactured in Singapore if they are manufactured from one or more of the following:

(a)

unmanufactured raw products (as defined in new section 153UA);

(b)

waste and scrap (as defined in new section 153UA) produced in Singapore or Australia;

(c)

materials wholly manufactured within Singapore or Australia;

(d)

materials imported into Singapore that the CEO has determined by Gazette notice to be manufactured raw materials of Singapore.

This new section is similar to those sections in Division 1A of Part VIII of the Customs Act that deal with wholly manufactured goods of New Zealand, Papua New Guinea and Canada.

Section 153VB Goods partly manufactured in Singapore

New section 153VB sets out the two different sets of circumstances in which goods are partly manufactured in Singapore, for the purposes of new paragraph 153V(2)(b).

The first set of circumstances, which is known as "the last process of manufacture rule", applies in respect of any goods. These circumstances are similar to the circumstances in Division 1A of Part VIII of the Customs Act that deal with partly manufactured goods of preference countries.

The second set of circumstances is known as "the accumulation rule", and applies only in respect of certain goods. It does not apply in respect of goods that are listed in Annex 2C of SAFTA, which includes jewellery, passenger motor vehicles and their components and textiles, clothing and footwear. This rule will allow the value added in Singapore and in Australia before and after overseas processing to be included in the allowable cost to manufacture the goods.

Any goods

The rule that applies to any goods is set out in subsection 153VB(2). This subsection applies to goods if:

(a)

the last process of manufacture was performed in Singapore by, or on behalf of, the principal manufacturer; and

(b)

the allowable cost to manufacture the goods is not less than the percentage of the total cost to manufacture the goods specified below:

(i)

if the goods are specified in Annex 2D of SAFTA - 30% of the total cost to manufacture the goods; or

(ii)

in any other case - 50% of the total cost to manufacture the goods.

The goods that are specified in Annex 2D of SAFTA are certain electrical and electronic goods and goods subject to an Australian Tariff Concession Order, that is, goods not manufactured in Australia.

The terms allowable cost to manufacture and total cost to manufacture are defined in new sections 153W and 153X respectively.

Subsections 153VB(3) and (4) set out two qualifications to the rule that applies to any goods. First, subsection 153VB(3) provides that the allowable cost to manufacture the goods does not include:

(a)

the cost of any material purchased by the principal manufacturer and subsequently processed outside Singapore or Australia;

(b)

the cost of processing (including the cost of labour and overheads) any materials referred to in paragraph (a) that is performed, whether in Singapore or Australia or elsewhere, up until the processed material is returned to Singapore.

Secondly, subsection 153VB(4) provides that the cost of minimal operations or quality control inspections that are conducted by, or on behalf of, the principal manufacturer in Singapore as part of the process of manufacturing the goods, may be included in the calculation of:

(a)

the total expenditure on materials; and

(b)

the allowable expenditure on materials, labour or overheads

to the extent that they relate to the cost of materials, labour or overheads. "Minimal operations" is defined in new subsection 153UA.

Goods other than those specified in Annex 2C to SAFTA

The rule that applies to goods other than those specified in Annex 2C of SAFTA is set out in subsection 153VB(5). This subsection applies to goods if:

(a)

one or more processes of manufacture was or were performed in Singapore by, or on behalf of, the principal manufacturer; and

(b)

one or more processes was or were performed in Singapore by, or on behalf of, the principal manufacturer immediately prior to export of the goods to Australia; and

(c)

the principal manufacturer in Singapore incurred all the costs associated with any process performed on the goods outside Singapore or Australia; and

(d)

the allowable cost to manufacture the goods is not less than:

(A)

if the goods are specified in Annex 2D of SAFTA - 30% of the total cost to manufacture the goods; or

(B)

in any other case - 50% of the total cost to manufacture the goods.

Subsection 153VB(6) sets out a qualification to the rule in subsection 153VB(5). It provides that, for the purposes of subsection (5), the allowable cost to manufacture the goods does not include the cost of processing (including the cost of labour or overheads) any material outside Singapore or Australia.

Section 153VC Reduction of the required percentage of allowable cost to manufacture in unforseen circumstances

New section 153VC sets out the limited circumstances in which the percentages specified in subsections 153VB(2) and (5) are modified in accordance with a CEO determination.

Subsection 153VC(1) sets out the circumstances when 30% in subsection 153VB(2) or 153VB(5) can be read as 28%. It provides that if the CEO is satisfied:

(a)

that the allowable cost to manufacture goods that are claimed to be the manufacture of Singapore, in a shipment of such goods, is at least 28% but not 30% of the total cost to manufacture those goods; and

(b)

that the allowable cost to manufacture those goods would be at least 30% of the total cost to manufacture those goods if an unforeseen circumstance had not occurred; and

(c)

that the unforeseen circumstance is unlikely to continue;

the CEO may determine, in writing, that subsection 153VB(2) or 153VB(5) has effect:

(d)

for the purposes of the shipment of goods that is affected by that unforeseen circumstance; and

(e)

for the purposes of any subsequent shipment of similar goods that is so affected during a period specified in the determination;

as if the reference in subsection 153VB(2) or 153VB(5) to 30% were a reference to 28%.

Subsection 153VC(2) sets out the circumstances when 50% in subsection 153VB(2) or 153VB(5) can be read as 48%. It provides that if the CEO is satisfied:

(a)

that the allowable cost to manufacture goods that are claimed to be the manufacture of Singapore, in a shipment of such goods, is at least 48% but not 50% of the total cost to manufacture those goods; and

(b)

that the allowable cost to manufacture those goods would be at least 50% of the total cost to manufacture those goods if an unforeseen circumstance had not occurred; and

(c)

that the unforeseen circumstance is unlikely to continue;

the CEO may determine, in writing, that subsection 153VB(2) or 153VB(5) has effect:

(d)

for the purposes of the shipment of goods that is affected by that unforeseen circumstance; and

(e)

for the purposes of any subsequent shipment of similar goods that is so affected during a period specified in the determination;

as if the reference in subsection 153VB(2) or 153VB(5) to 50% were a reference to 48%.

Subsection 153VC(3) provides that if the CEO makes a determination then, in relation to all goods imported into Australia that are covered by that determination, section 153VB has effect in accordance with the determination.

Subsection 153VC(4) sets out the circumstances in which the CEO make revoke a determination. It provides that if:

(a)

the CEO makes a determination under this section; and

(b)

the CEO becomes satisfied that the unforeseen circumstance giving rise to the determination no longer continues;

the CEO may, by written notice, revoke the determination despite the fact that the period referred to in the determination has not ended.

Subsection 153VC(5) contains a definition of similar goods . It provides that in this section, similar goods , in relation to goods in a particular shipment, means goods:

(a)

that are contained in another shipment that is imported by the same importer; and

(b)

that are covered by the same Certificate of Origin.

Section 153VD Changing the required percentage of allowable cost to manufacture in exceptional circumstances

New section 153VD sets out further limited circumstances in which the percentages specified in section 153VB are modified in accordance with a CEO determination.

Subsection 153VD(1) provides that if the CEO is satisfied that exceptional circumstances apply, the CEO may determine, by Gazette notice, that a reference to a percentage in subsection 153VB(2) or 153VB(5) is taken to be a reference to another percentage in respect of particular goods or goods of a specific class or kind during a period specified in the determination.

Subsection 153VD(2) provides that if the CEO makes a determination then, in relation to all goods imported into Australia that are covered by that determination, section 153VB has effect in accordance with the determination.

Subsection 153VD(3) sets out the circumstances in which the CEO may revoke a determination. It provides that if:

(a)

the CEO makes a determination pursuant to subsection 153VB(1); and

(b)

the CEO becomes satisfied that the exceptional circumstances giving rise to the determination no longer continue;

the CEO may, by Gazette notice, revoke the determination despite the fact that the period referred to in the determination has not ended.

Section 153VE Certificate of Origin requirements

New section 153VE sets out the Certificate of Origin requirements.

Subsection 153VE(1) provides that goods claimed to be the produce or manufacture of Singapore are not the produce or manufacture of Singapore unless:

(a)

the importer of the goods holds a valid Certificate of Origin and a declaration relevant to the goods at the time of entry of the goods; and

(b)

if an officer requests production of a copy of the Certificate of Origin and the declaration, both copies are produced to the officer.

Subsection 153VE(2) provides that a declaration means a declaration made, by the exporter of the goods in question from Singapore, in accordance with Article 11.6 of Chapter 3 of SAFTA. Article 11.6 sets out all the details that must be included in the declaration.

Section 153VF Consignment requirements

New section 153VF sets out the requirements that must be satisfied as far as transporting goods to Australia is concerned. Section 153VF provides that goods claimed to be the produce or manufacture of Singapore are not the produce or manufacture of Singapore unless:

(a)

they have been transported directly to Australia from Singapore; or

(b)

they have been transported through a country or place other than Singapore or Australia and did not undergo operations in that country or place other than packing, packaging, unloading, reloading or operations to preserve them in good condition and were not traded or used in that country or place; or

(c)

they have been transported from a country or place other than Singapore where minimal operations were performed immediately after importation from Singapore and immediately before their exportation to Australia.

Therefore, in order to claim preferential duty treatment, it will not be sufficient that the goods satisfy the rules of origin set out in sections 153V, 153VA or 153VB. The importer will also have the satisfy the requirements in section 153VE and this section.

Subdivision C - Allowable cost to manufacture

This Subdivision sets out the rules for calculating the allowable cost to manufacture goods for the purposes of section 153VB (goods partly manufactured in Singapore). These rules are based on the costs incurred by the principal manufacturer whereas the rules in Division 1A of Part VIII of the Customs Act are based on the costs of the factory where the last process of manufacture is performed.

These rules are subject to the qualifications set out in subsections 153VB(3), (4) and (6).

Section 153W Allowable cost to manufacture

New section 153W sets out the components of the allowable cost to manufacture. The allowable cost to manufacture goods is the sum of:

(a)

the allowable expenditure by the principal manufacturer on materials in respect of the goods (as defined in new section 153WA); and

(b)

the allowable expenditure by the principal manufacturer on labour in respect of the goods (as defined in new section 153WB); and

(c)

the allowable expenditure by the principal manufacturer on overheads in respect of the goods (as defined in new section 153WC).

Section 153WA Allowable expenditure by principal manufacturer on materials

New section 153WA sets out the rules governing the calculation of the allowable expenditure by the principal manufacturer on materials in respect of the goods.

Subsection 153WA(1) sets out the general rule in calculating the allowable expenditure by the principal manufacturer on materials in respect of the goods. It provides that the allowable expenditure by the principal manufacturer on materials in respect of the goods is the amount incurred, directly or indirectly, by the principal manufacturer for all materials, in the form purchased by the principal manufacturer, that were manufactured or produced in Singapore or Australia.

Subsection 153WA(2) sets out specific elements that are to be included in the allowable expenditure on materials referred to in subsection (1). These elements are:

(a)

freight, insurance, shipping and packing costs and all other costs, incurred directly or indirectly by the principal manufacturer, in transporting the materials to the first place in Singapore or Australia at which a process is performed on those materials by or on behalf of the principal manufacturer; and

(b)

customs brokerage fees, incurred directly or indirectly by the principal manufacturer, on the materials paid in Singapore or Australia or both.

Subsection 153WA(3) sets out specific elements that are not included in the allowable expenditure on materials referred to in subsection (1). These elements are:

(a)

a customs or excise duty imposed on the materials by or under a law of Singapore or Australia;

(b)

a tax in the nature of a sales tax, a goods and services tax, an anti-dumping duty or a countervailing duty, imposed on the materials by or under a law of Singapore or Australia;

(c)

the cost of any input that, in the form it was received by the manufacturer or producer of the materials, was not manufactured or produced in Singapore or Australia.

Subsection 153WA(4), however, sets out an exception to the exclusion of the cost of any input set out in paragraph 153WA(3)(c). It states that, despite paragraph (3)(c), the total cost of those inputs that would, because of the paragraph, not have been included in the allowable expenditure on a material by the principal manufacturer may be included in that allowable expenditure if the total cost of those inputs does not exceed 50% of the total expenditure by the principal manufacturer on that material (emphasis added).

However, subsection 153WA(5) provides that this exception does not apply in relation to materials that are provided for processing in a country other than Singapore or Australia. If this is the case, the exclusion set out in paragraph 153WA(3)(c) will apply in respect of such materials.

Section 153WB Allowable expenditure by principal manufacturer on labour

New section 153WB sets out the rules governing the calculation of the allowable expenditure by the principal manufacturer on labour in respect of the goods.

Section 153WB provides that the allowable expenditure by the principal manufacturer on labour, in respect of goods, is the sum of those parts of the costs relating to the goods that are costs referred to in section (i) of Annex 2B of SAFTA that:

(a)

are incurred, directly or indirectly, by the principal manufacturer; and

(b)

relate, directly or indirectly and wholly or partly, to the processing of the goods in Singapore; and

(c)

can reasonably be allocated to the processing of the goods in Singapore.

The costs in section (i) of Annex 2B of SAFTA include the cost of wages and employee benefits, and the cost of supervision and training.

Section 153WC Allowable expenditure by principal manufacturer on overheads

New section 153WC sets out the rules governing the calculation of the allowable expenditure by the principal manufacturer on overheads in respect of the goods.

Section 153WC provides that the allowable expenditure by the principal manufacturer on overheads, in respect of goods, is the sum of those parts of the costs relating to the goods that are costs allowed in section (ii) of Annex 2B of SAFTA that:

(a)

are incurred, directly or indirectly, by the principal manufacturer; and

(b)

relate, directly or indirectly and wholly or partly, to the processing of the goods in Singapore; and

(c)

can reasonably be allocated to the processing of the goods in Singapore.

The costs allowed in section (ii) of Annex 2B of SAFTA include various costs similar to those set out in the Customs Regulations 1926 for the purposes of Division 1A of Part VIII of the Customs Act.

Subdivision D - Total cost to manufacture

This Subdivision sets out the rules for calculating the total cost to manufacture goods for the purposes of section 153VB (goods partly manufactured in Singapore). These rules are based on the costs incurred by the principal manufacturer whereas the rules in Division 1A of Part VIII of the Customs Act are based on the costs at the factory where the last process of manufacture is performed. These rules also include the cost of any processing of the goods outside Singapore or Australia.

Section 153X Total cost to manufacture

New section 153X sets out the components of the total cost to manufacture. The total cost to manufacture goods is the sum of:

(a)

the total expenditure by the principal manufacturer on materials in respect of the goods (as defined in new section 153XA); and

(b)

the allowable expenditure by the principal manufacturer on labour in respect of the goods (as defined in new section 153WB); and

(c)

the allowable expenditure by the principal manufacturer on overheads in respect of the goods (as defined in new section 153WC); and

(d)

the total expenditure, if any, by the principal manufacturer on overseas processing costs in respect of the goods (as defined in new section 153XB),

Section 153XA Total expenditure by principal manufacturer on materials

New section 153XA sets out the rules governing the calculation of the total expenditure by the principal manufacturer on materials in respect of the goods.

Subsection 153XA(1) sets out the general rule in calculating the total expenditure by the principal manufacturer on materials in respect of the goods. It provides that the total expenditure by the principal manufacturer on materials in respect of goods is the amount incurred, directly or indirectly, by the principal manufacturer for all materials.

Subsection 153XA(2) sets out specific elements that are to be included in the total expenditure on materials referred to in subsection (1). These elements are:

(a)

freight, insurance, shipping and packing costs and all other costs, incurred directly or indirectly by the principal manufacturer, in transporting the material to the first place in Singapore or Australia at which a process is performed on those materials by, or on behalf of, the principal manufacturer; and

(b)

customs brokerage fees, incurred directly or indirectly by the principal manufacturer, on the materials paid in Singapore or Australia or both.

Subsection 153XA(3) sets out specific elements that are not included in the total expenditure on materials referred to in subsection (1). These elements are:

(a)

a customs or excise duty; or

(b)

a tax in the nature of a sales tax, a goods and services tax, an anti-dumping duty or a countervailing duty;

imposed on the materials by or under a law of Singapore or Australia.

Section 153XB Total expenditure by principal manufacturer on overseas processing costs

New section 153XB sets out the rules governing the calculation of the total expenditure by the principal manufacturer on overseas processing costs in respect of the goods, if there are any such costs.

Section 153XB provides that the total expenditure by the principal manufacturer on overseas processing costs, in respect of goods, is the sum of the those parts, of the costs relating to the goods, that:

(a)

are incurred, directly or indirectly, by the principal manufacturer; and

(b)

relate, directly or indirectly, and wholly or partly, to the processing of the goods outside Singapore or Australia, including any associated transport costs; and

(c)

can reasonably be allocated to the processing of the goods.