House of Representatives

Explanatory Memorandum

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

Notes On Clauses

Clause 1 Short title

1. This clause provides for the Bill, when enacted, to be cited as the Customs Legislation Amendment (New Zealand Rules of Origin) Act 2006 .

Clause 2 Commencement

2. Clause 2 provides that this Act commences on 1 January 2007.

Clause 3 Schedule(s)

3. This clause is the formal enabling provision for the Schedule to the Bill, providing that each Act specified in a Schedule is amended in accordance with the applicable items of the Schedule. In this Bill the Customs Act, the Customs Tariff Act, the Customs Tariff (Anti-Dumping) Act and the Legislative Instruments Act are being amended.

4. The clause also provides that the other items of the Schedule have effect according to their terms. This is a standard enabling clause for transitional, savings and application items in amending legislation.

SCHEDULE 1 - Amendments

Part 1 - New Zealand originating goods

Customs Act 1901

Item 1 After Division 1D of Part VIII

1. This item amends the Customs Act 1901 (the Customs Act) by inserting new Division 1E into Part VIII. New Division 1E is headed New Zealand originating goods and sets out the rules for determining whether goods are New Zealand originating goods and therefore eligible for a preferential rate of customs duty under the Customs Tariff Act 1995 (the Customs Tariff Act). These rules are being inserted to give effect to the Australia New Zealand Closer Economic Relations Trade Agreement (the Agreement), in particular Article 3 of the Agreement.

2. New Division 1E contains six subdivisions which are set out below.

Subdivision A - Preliminary

3. Subdivision A contains a simplified outline of Division 1E and contains the interpretation provision for Division 1E.

Section 153ZIA Simplified outline

4. New section 153ZIA sets out a simplified outline of each of the subdivisions B to H of new Division 1E.

New section 153ZIB Interpretation

5. New subsection 153YA(1) sets out several new definitions for the purposes of Division 1E. These definitions are:

Agreement which means the Australia New Zealand Closer Economic Relations Trade Agreement done at Canberra on 28 March 1983, as amended from time to time. The Note to this definition indicates that in 2006, the text of the Agreement was accessible through the Australian Treaties Library on the AustLII Internet site;

Australian originating goods which means goods that are Australian originating goods under a law of New Zealand that implements the Agreement;

continental shelf which has the same meaning as in the Seas and Submerged Lands Act 1973 . This definition is taken from Paragraph 1 of Article 76 of the United Nations Convention on the Law of the Sea (UNCLOS) which provides as follows:

The continental shelf of a coastal State comprises the sea-bed and subsoil of the submarine areas that extend beyond its territorial sea throughout the natural prolongation of its land territory to the outer edge of the continental margin, or to a distance of 200 nautical miles from the baselines from which the breadth of the territorial sea is measured where the outer edge of the continental margin does not extend up to that distance;

Convention which means the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983. The Note to this definition indicates that in 2006, the text of the Agreement was accessible through the Australian Treaties Library on the AustLII Internet site;

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

Harmonized System which means the Harmonized Commodity Description and Coding System (as in force from time to time) that is established by or under the Convention.

The Harmonized System is the worldwide classification system that has been adopted by all countries that are members of the World Customs Organization. In Australia, the HS has been adopted in the Customs Tariff Act. The HS organises goods according to the degree of manufacture, and assigns classification numbers to all goods. It is arranged into 96 chapters covering all goods, and each chapter is divided into headings, subheadings, and tariff classifications. Under the Harmonized System, the chapter, heading, and subheading numbers (6 digits) for any good are adopted in any country using the HS. The Australian Customs Tariff is an 8 digit classification, with the 4 and 6 digit international classification supplemented for the domestic imposition of Customs duties.

indirect materials which means;

a.

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

b.

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

including:

c.

fuel (within its ordinary meaning); and

d.

tools, dies and moulds; and

e.

spare parts; and

f.

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

g.

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

h.

catalysts and solvents.

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

a.

restoration or renovation processes such as repairing, reconditioning, overhauling or refurbishing;

b.

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

c.

quality control inspections.

New Zealand originating goods which means goods that, under this Division, are New Zealand originating goods;

non-originating materials which means goods that are not originating materials;

originating materials which means;

a.

goods that are used or consumed in the production of other goods and that are New Zealand originating goods. In some circumstances, in order to determine whether goods that are imported into Australia are New Zealand 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 Subdivisions C and D). These goods which are used to produce other goods can be originating or non-originating.

Originating materials are those goods that are used to produce other goods and that are also New Zealand originating goods, which means that in their own right, they satisfy the requirements of new Division 1E. Non-originating materials are goods that are not originating materials because they do not satisfy the requirements of Division 1E in their own right. For example, where frozen crumbed fish fillets are made in New Zealand from fish caught in New Zealand, coated with herbs and spices imported from Thailand and South America, the fish would be originating materials and the herbs and spices would be non-originating materials; or

b.

goods that are used or consumed in the production of other goods and that are Australian originating goods. If goods used in the production of other goods are Australian originating goods under a law of New Zealand that implements the Agreement, they are also originating materials for the purposes of new Division 1E; or

c.

indirect materials.

produce which means grow, farm, raise, breed, mine, harvest, fish, trap, hunt, capture, gather, collect, extract, manufacture, process, assemble or disassemble;

territorial sea which has the same meaning as in the Seas and Submerged Lands Act 1973. This definition is taken from Articles 3 and 4 of UNCLOS which provides as follows:

Every State has the right to establish the breadth of its territorial sea up to a limit not exceeding 12 nautical miles, measured from baselines determined in accordance with this Convention.

The outer limit of the territorial sea is the line every point of which is at a distance from the nearest point of the baseline equal to the breadth of the territorial sea.

6. New subsection ZIB(2) provides that the regional value content of goods for then purposes of Division 1E is to be worked out in accordance with the regulations. The regulations may prescribe different regional value content rules for different kinds of goods;

7. New subsection 153ZIB(3) provides that the value of goods for the purposes of Division 1E 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 s.153ZIE(4). 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.

8. New subsection 153ZIB(4) provides that in specifying tariff classifications for the purposes of Division 1E, the regulations may refer to the Harmonized System. The product specific rules in Annex G of the Agreement refer to tariff classifications of the Harmonized System.

9. New subsection 153ZIB(5) provides that subsection 4(3A) of the Customs Act does not apply for the purposes of Division 1E. Subsection 4(3A) provides that reference in the Customs Act to the tariff classification of goods is a reference to Schedule 3 of the Customs Tariff Act, which is not the case in new Division 1E.

10. New subsection 153ZIB(6) provides that for the purposes of Division 1E, the regulations may apply, adopt or incorporate any matter contained in any instrument or other writing as in force or existing from time to time. This provision will override section 49A of the Acts Interpretation Act 1901 in order to enable the Customs New Zealand Rules of Origin) Regulations 2006 (New Zealand Regulations) to refer to the general accounting principles of New Zealand for the purposes of the regional value content calculations.

Subdivision B - Goods wholly obtained in New Zealand or New Zealand and Australia

11. Subdivision B sets out the rules in relation to goods that are wholly obtained in New Zealand or in New Zealand and Australia.

Section 153ZIC Goods wholly obtained in New Zealand or New Zealand and Australia

12. New subsection 153ZIC(1) provides that goods are New Zealand originating goods if they are wholly obtained in New Zealand or in New Zealand and Australia.

13. New subsection 153ZIC(2) provides that goods are wholly obtained in New Zealand or in New Zealand and Australia if, and only if, the goods are:

a.

minerals extracted in New Zealand; or

b.

plants grown in New Zealand, or in New Zealand and Australia, or products obtained in New Zealand from such plants; or

c.

live animals born and raised in New Zealand, or in New Zealand and Australia; or

d.

products obtained from live animals in New Zealand; or

e.

goods obtained from hunting, trapping, fishing, capturing or aquaculture conducted in New Zealand; or

f.

fish, shellfish or other marine life taken from the sea by ships that are registered or recorded in New Zealand and are flying, or are entitled to fly, the flag of New Zealand; or

g.

goods produced or obtained exclusively from goods referred to in paragraph (f) on board factory ships that are registered or recorded in New Zealand and are flying the flag of New Zealand; or

h.

goods taken from the seabed, or the subsoil beneath the seabed, of the territorial sea of New Zealand or of the continental shelf of New Zealand:

i)

by New Zealand; or

ii)

by a New Zealand citizen; or

iii)

by a body corporate incorporated in New Zealand; but only if New Zealand has the right to exploit that part of the seabed; or

i.

waste and scrap that has been derived from production operations in New Zealand, or from used goods collected in New Zealand, and that is fit only for the recovery of raw materials; or

j.

goods produced entirely in New Zealand, or in New Zealand and Australia, exclusively from goods referred to in paragraphs (a) to (i) or from their derivatives. For example, pork sausages that are made from pigs born and raised in New Zealand and cereals and spices harvested in New Zealand will be New Zealand originating goods.

Subdivision C - Goods produced in New Zealand or New Zealand and Australia from originating materials

14. Subdivision C sets out the rule in relation to goods that are produced entirely in New Zealand, or entirely in New Zealand and Australia from originating materials only under section 153ZID. Such goods are New Zealand originating goods.

Subdivision D - Goods produced in New Zealand or New Zealand and Australia from non-originating materials

15. Subdivision D sets out the rules for determining whether goods that are produced entirely in New Zealand, or entirely in New Zealand and Australia, from non- originating materials only, or from non-originating materials and originating materials are New Zealand originating goods.

16. New subsection 153ZIE(1) provides that, goods are New Zealand originating goods if:

a.

they are classified to a heading or subheading of the Harmonized System specified in column 1 or 2 of the table in Schedule 1 to the Customs (New Zealand Rules of Origin) Regulations 2006 (the New Zealand Regulations); and

b.

they are produced entirely in New Zealand, or entirely in New Zealand and Australia, from non-originating materials only or from non-originating materials and originating materials; and

c.

each requirement that is specified in the regulations to apply in relation to the goods is satisfied.

17. The table in Schedule 1 to the New Zealand Regulations will incorporate the product specific rules relating to change in tariff classification, regional value content and other rules for the purpose of determining whether goods are New Zealand originating goods. Columns 1 and 2 of this table will set out the tariff classifications, column 3 will set out the description of the goods and column 4 will set out the product specific rules.

18. New subsection 153ZIE(2) refers to the first of the requirements that may be specified in Schedule 1 to the ANZCERTA Regulations. It provides that the regulations may specify that each non-originating material used or consumed in the production of the goods is required to satisfy a specified change in tariff classification. New subsection 153ZIE(3) provides that the regulations may also specify set out when a non-originating material used or consumed in the production of the goods is taken to satisfy the change in tariff classification. Regulations made under these heads of power would include provisions to give effect to the accumulation provision contained in Article 3 (2) of the Agreement, and would 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.

19. The concept of the change in tariff classification only applies to non-originating materials. Goods that have been sourced from outside New Zealand or Australia and that are used in the production of other goods are non-originating materials. Goods sourced from within New Zealand or Australia that have not fulfilled the requirements of Division 1E and that are used in the production of other goods are also non- originating materials. All non-originating materials used to produce other goods may not have the same classification under the Harmonized System as the final good into which they are produced. This means that the goods must be classified under one tariff classification before the production process and under a different tariff classification after the production process. This approach ensures that sufficient transformation of materials has occurred within New Zealand, or New Zealand and Australia, to justify the claim that the goods originate in New Zealand.

20. For example, frozen fish (HS 0304) is derived from fish caught in New Zealand and combined with herbs and spices from Thailand and South America (HS 0907 - 0910) to make crumbed fish fillets (HS 1604). The applicable tariff change for crumbed fish is "a change to heading 1604 from any other chapter". As the herbs and spices are classified to Chapter 9, these non-originating materials meet the tariff change requirement (the frozen fish is the produce of New Zealand and is therefore an originating material and is not required to change its classification).

21. In order to determine which is the applicable change in tariff classification, the tariff classification of the final goods and each of the goods that are non originating materials used in the production of the goods needs to be known.

22. New subsection 153ZIE(4) provides that the change in tariff classification is also taken to be satisfied if the total value of all the non-originating materials used or consumed 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.

23. The provisions of subsection 153ZIE(4) incorporate the de minimis provisions that are set out in Article 3 (4) of the Agreement. Therefore, even if all the non- originating goods used to produce a final good do not satisfy a particular change in tariff classification, the final goods may still be New Zealand originating goods because the change in tariff classification will be taken to be satisfied.

24. The value of non-originating materials for the purposes of this section is to be worked out in accordance with the method that will be included in the New Zealand Regulations.

25. New subsection 153ZIE(5) provides that the regulations may specify that the goods are required to have a regional value content of at least a specified percentage

26. In respect of goods in the table in Schedule 1 to the New Zealand Regulations, approximately 15% of these goods may also be required to satisfy a regional value content requirement. The regional value content varies between 40% and 55%. The method of calculation to determine the regional value content will be included in the New Zealand Regulations.

27. New subsection 153ZIE(6) provides that if:

a.

the goods are required to have a regional value content of at least a particular percentage; and

b.

the goods are imported into Australia with standard accessories, standard spare parts or standard tools; and

c.

the accessories, spare parts or tools are not invoiced separately from the goods; and

d.

the quantities and value of the accessories, spare parts or tools are the usual quantities and value in relation to the goods;

then the regulations must require the value of the accessories, spare parts or tools 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. Without this provision, the value of accessories, spare parts and tools would not normally form part of the value of materials that are used in the production of the underlying goods.

28. The Note to this section indicates that the value of the accessories, spare parts or tools is to be worked out in accordance with the regulations.

29. New subsection 153ZIE(7) provides that for the purposes of subsection 153ZIE(6), section 153ZIG is to be disregarded in working out whether the accessories, spare parts or tools are originating materials or non-originating materials.

30. However, subsection 153ZIB(8) provides that subsection 153ZIE(6) does not apply if the accessories, spare parts or tools are imported solely for the purpose of artificially raising the regional value content of the goods. Subsections 153ZIE(8) and 153ZIG (see below) are required to ensure that accessories, spare parts or tools that are of a kind normally provided with other goods are not simply added to ensure one or both of the goods are originating by artificially raising the regional value content of the other goods.

For example, trousers are made in New Zealand, and are to be sold to a buyer in Australia for $100 each. Amongst other requirements, trousers must have a regional value content of 55% to be originating goods under the Agreement. Because these trousers include Italian fabric worth $48 per pair, the regional value content would be worked out as follows:

$100 - $48 = 52% / $100


The trousers are non-originating, and ineligible for importation into Australia at preferential rates of duty under the Agreement.

To get around this dilemma, the producer arranges for each pair of trousers to be sold with a belt and agrees to buy the belt back later to ensure the buyer ultimately pays no more than originally intended. On return of the belts to the producer, they could then be used for subsequent shipments under similar arrangements.

The belt is complete with a buckle, is classified to subheading 4203.30 and is sold to the producer for $12. It is made from a pre-made belt without a buckle imported from another country. The pre-made belt is classified to the same subheading as the complete belt, and is valued at $2. The belt is non-originating because it did not undergo an appropriate tariff change requirement.

Without subsection 153ZIE(8) and paragraph 153ZIG(c), the addition of the belt to the trousers would mean that the regional value content of the trousers would be worked out as follows:

$112 (trousers + belt) - $50 (imported fabric + belt without buckle) / $112 = 55.35%


Therefore, the artificial inclusion of the belt would raise the price of the goods (and to a lesser extent, the value of the imported content) to enable both goods to become originating. Subsection 153ZIE(8) and paragraph 153ZIG(c) are required to deter traders from resorting to artificial arrangements to meet the required regional value content.

31. The value of the accessories, spare parts and tools for the purposes of this section is to be worked out in accordance with the method that will be included in the New Zealand Regulations.

32. New subsection 153ZIE(9) provides that subsections (2) and (5) do not limit paragraph (1)(c). It is proposed that the regulations will include other requirements in addition to change in tariff classification and regional value content requirements.

33. For example, in addition to meeting a tariff change requirement and a regional value content requirement, clothing classified in the headings of Chapters 61 and 62 must be cut (or knit to shape) and sewn (or otherwise assembled) in New Zealand or Australia.

Section 153ZIF Packaging materials and containers

34. New subsection 153ZIF(1) 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 General Rules for the Interpretation of the Harmonized System provided for by the Convention;

then the packaging material or container is to be disregarded for the purposes of this Subdivision except for the purposes of the exception detailed below. For example, this means that the packaging material or container does not need to satisfy the change in tariff classification test that might apply to the goods under the New Zealand Regulations.

35. However, subsection 153ZIF(2) provides that the exception is that if the goods are required to have a regional value content of at least a particular percentage, the regulations must require 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 that requirement. 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.

36. The value of packaging materials and container for the purposes of this section is to be worked out in accordance with the method that will be included in the New Zealand Regulations.

Subdivision E - Goods that are standard accessories, spare parts or tools

37. Subdivision E sets out a specific rule that applies to goods that are standard accessories, spare parts or tools.

Section 153ZIG Standard accessories, spare parts and tools

38. New section 153ZIG provides that goods are New Zealand originating goods if:

a.

they are standard accessories, standard spare parts or standard tools in relation to other goods; and

b.

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

c.

the accessories, spare parts or tools are not imported solely for the purpose of artificially raising the regional value content of the other goods; and

d.

the other goods are New Zealand originating goods; and

e.

the accessories, spare parts or tools are not invoiced separately from the other goods; and

f.

the quantities and value of the accessories, spare parts or tools are customary for the goods.

Subdivision F - Goods wholly manufactured in New Zealand

39. Subdivision F sets out the rules in relation to goods that are wholly manufactured in New Zealand.

Section 153ZIH Goods wholly manufactured in New Zealand

40. New subsection 153ZIH (1) provides that goods are New Zealand originating goods if they are wholly manufactured in New Zealand from one or more of the following:

a.

unmanufactured raw products;

b.

materials wholly manufactured in Australia or New Zealand or Australia and New Zealand;

c.

materials covered by subsection (2).

41. Subsection 153ZIH (2) provides that the CEO may, by legislative instrument, determine specified materials imported into New Zealand to be manufactured raw materials of New Zealand.

42. This Subdivision restates the current rules that determine whether goods are wholly manufactured in New Zealand. These rules are being moved to Subdivision F of new Division 1E of Part VIII of the Customs Act so that all of the rules that determine whether goods are New Zealand originating goods are located in the same Division.

Subdivision G-Goods last processed in New Zealand

43. Subdivision G sets out the rules in relation to goods that are last processed in New Zealand.

Section 153ZII Goods last processed in New Zealand

44. New subsection 153ZII (1) provides that goods are New Zealand originating goods if:

a.

the last process in their manufacture was performed in New Zealand; and

b.

the qualifying expenditure on the goods is at least 50% ( the standard percentage ) of the factory cost of the goods.

Lower percentage in unforeseen circumstances

45. New subsection 153ZII (2) provides that if the CEO is satisfied that:

a.

a shipment of goods would be New Zealand originating goods under this section if the standard percentage were 48%; and

b.

the qualifying expenditure on the goods would have been at least 50% of the factory cost of the goods if an unforeseen circumstance had not occurred; and

c.

the unforeseen circumstance is unlikely to continue;

the CEO may determine in writing that the standard percentage is taken to be 48%:

d.

for the purpose of that shipment of goods; and

e.

for the purpose of any later shipment of similar goods that is affected by that unforeseen circumstance during a period specified in the determination.

A similar provision exists in the Customs Act for goods that are the produce and manufacture of Papua New Guinea and the Forum Island Countries.

46. Subsection 153ZII (3) provides that a determination made under subsection (2) is not a legislative instrument. Such a determination is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act.

CEO may revoke determination

47. New subsection 153ZII (4) provides that if:

a.

the CEO makes a determination under subsection (2); and

b.

the CEO becomes satisfied that the unforeseen circumstance no longer exists;

the CEO may, by writing, revoke the determination even though the period specified in it has not ended.

Definitions

48. New subsection 153ZII (5) provides the following definitions for the purposes of this section:

factory cost of goods which has the meaning given by the regulations.

qualifying expenditure on goods which has the meaning given by the regulations.

similar goods , in relation to goods in a particular shipment (the first shipment), which means goods:

a.

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

b.

that undergo the same process or processes of manufacture as the goods in the first shipment.

49. These definitions are required to give effect to the methods set out in the New Zealand Regulations for calculating the costs of goods. The New Zealand Regulations will also incorporate the concept of a 'principal manufacturer' to ensure that all genuine local content is counted towards the rule of origin and that there is equity of treatment as between integrated manufacturers and those that outsource production.

Section ZIJ Repeal of this Subdivision

50. New section ZIJ provides that this Subdivision is to be repealed on 1 January 2012. This gives effect to Article 3 (1)(c)(iii), such that the rules set out in Subdivision G will only continue in force for 5 years after the commencement of this Amending Act.

51. This Subdivision restates the current rules that determine whether goods are the manufacture of New Zealand. These rules are being moved to Subdivision G of new Division 1E of Part VIII of the Customs Act so that all of the rules that determine whether goods are New Zealand originating goods are located in the same Division. The rules have also been amended to include the updated nomenclature as set out in the Agreement, substituting 'qualifying expenditure' and 'factory cost' for 'allowable factory cost' and 'total factory cost' respectively.

Subdivision H - Consignment

52. Subdivision H sets out the consignment requirements that must be satisfied in transporting New Zealand originating goods to Australia, including transit and production in other countries.

Section 153ZIK Consignment

53. New subsection 153ZIK(1) provides that goods are not New Zealand originating goods under Division 1E if:

a.

they are transported through a country or place other than New Zealand or Australia; and

b.

they undergo subsequent production or any other operation in that country or place (other than unloading, reloading, storing, repacking, relabelling, or any operation that is necessary to preserve them in good condition or to transport them to Australia).

54. Subsection 153ZIK(2) provides that this section applies despite any other provisions of this Division. This means that even if goods are New Zealand originating goods in accordance with any other provisions of Division 1E, if they do not comply with section 153ZIK(1), they will not be New Zealand originating goods.

Part 2 Verification powers

Customs Act 1901

Item 2 After Division 4C of Part VI

55. This item amends the Customs Act by inserting new Division 4D into Part VI. New Division 4D is headed Exportation of goods to New Zealand and will impose obligations on people who export goods to New Zealand and who wish to obtain preferential treatment in respect of the goods in New Zealand, and on people who produce and manufacture such goods.

New section 126AJA Definitions

56. New section 126AJA inserts four new definitions for the purposes of new Division 4D as follows:

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

a.

restoration or renovation processes such as repairing, reconditioning, overhauling or refurbishing;

b.

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

c.

quality control inspections.

New Zealand customs official which means a person representing the customs administration of New Zealand.

principal manufacturer , in relation to goods, which means the person in Australia who performs, or has had performed on the person's behalf, the last process of manufacture of the goods. The concept of a 'principal manufacturer' has been incorporated to ensure that all genuine local content is counted towards the rule of origin and that there is equity of treatment as between integrated manufacturers and those that outsource production.

producer which means a person who grows, farms, raises, breeds, mines, harvests, fishes, traps, hunts, captures, gathers, collects, extracts, manufactures, processes, assembles or disassembles goods.

New section 126AJB Record keeping obligations

57. New section 126AJB inserts record keeping obligations that will apply only in respect of goods that are exported from Australia to New Zealand and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in New Zealand. While there are record keeping obligations in the Customs Act at present, these are not broad enough to cover the record keeping obligations under the Agreement.

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

a.

are exported to New Zealand; and

b.

are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in New Zealand.

59. 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 New Zealand and may include, amongst other things, records associated with the classification, origin or value of the materials used to produce the goods.

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

New section 126AJC Power to require records

61. New subsection 126AJC(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 126AJB to produce to the officer such of those records as the officer requires.

62. Under Article 3(22) of the Agreement, Australia or New Zealand 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 126AJC gives effect to this Article in respect of goods exported to New Zealand and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in New Zealand.

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

a.

as authorised by section 16; or

b.

as required or authorised by any other law; or

c.

in the course of performing the person's duties.

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

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

New section 126AJD Power to ask questions

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

a.

are exported to New Zealand; and

b.

are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in New Zealand;

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

67. 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 126AJC.

68. Subsection 126AJD(2) provides that an authorised officer may disclose any answers to such questions to a New Zealand customs official for the purpose of verifying a claim for a preferential tariff in New Zealand.

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

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

Part 3 Other amendments

Customs Act 1901

Item 3 Subsection 153A(3)

71. This item amends the Customs Act by repealing subsection 153A(3) This subsection sets out the details of the Diagrams currently contained in Schedule VII to the Customs Act. These diagrams illustrate the operation of the current rules of origin in relation to New Zealand set out in sections 153J and 153K of the Customs Act. As these sections are being repealed, and the rules of origin are being extended by new Division 1E of Part VIII of the Customs Act, these diagrams are being repealed and, as a consequence, subsection 153A(3) is being repealed.

Item 4 Section 153B (paragraph (a) of the definition of qualifying area)

72. This item amends the Customs Act by repealing paragraph (a) of the definition of qualifying area in section 153B. This paragraph refers to goods that are claimed to be the manufacture of New Zealand. Goods can presently be claimed to be the manufacture of New Zealand under section 153J of the Customs Act. However, section 153J is to be repealed by item 6 of Part 3 (below) and its provisions moved to new Division 1E of Part VIII of the Customs Act. In addition, goods previously claimed to be the "manufacture of New Zealand" will now be claimed to be "New Zealand originating goods" as this wording reflects the wording in Article 3 of the Agreement. As a consequence, paragraph (a) of the definition of qualifying area in section 153B is to be repealed.

Item 5 Subsection 153D(6)

73. This item amends the Customs Act by repealing subsection 153D(6). This subsection also refers to goods that are claimed to be the manufacture of New Zealand. However, due to the repeal of section 153J and the consequence that goods will be claimed to be New Zealand originating goods under new Division 1E of Part VIII, and not the manufacture of New Zealand, subsection 153D(6) is to be repealed. This subsection sets out a special rule for determining allowable expenditure on materials for the purposes of determining whether goods were the manufacture of New Zealand. This rule is no longer consistent with the Agreement.

Item 6 Sections 153J and 153K

74. This item amends the Customs Act by repealing sections 153J and 153K.

75. These sections set out the current rules that determine whether goods are the manufacture of New Zealand. These rules are being moved to Subdivisions F and G of new Division 1E of Part VIII of the Customs Act (new sections 153ZIH and 153ZII respectively), so that all of the rules that determine whether goods are New Zealand originating goods are located in the same Division. Therefore, sections153J and 153K are being repealed.

Item 7 Section 153T

76. This item amends the Customs Act by repealing section 153T.

77. The effect of section 153T provides that regulations and determinations made for the purposes of determining whether or not goods are the produce or manufacture of New Zealand may make different provision for the purposes of the Part XVB of the Customs Act that deals with the anti-dumping regime.

78. This provision is no longer consistent with the Agreement and is being repealed. In any case, the anti-dumping regime currently does not apply to goods that are the produce or manufacture of New Zealand.

Item 8 Section 269TAAA

79. This item amends the Customs Act by repealing and substituting section 269TAAA.

80. Current section 269TAAA provides that Part XVB of the Customs Act, so far as it relates to dumping or third country dumping duty that may be come payable does not apply to goods that are the produce or manufacture of New Zealand. This section gives effect to Article 15 of the Agreement.

81. As set out previously, under the wording of new Article 3 of the Agreement, goods will no longer be claimed to be the produce or manufacture of New Zealand but will be claimed to be "New Zealand originating goods". The terms of new section 269TAAA will therefore reflect this new terminology and will provide as follows:

"This Part, so far as it relates to duty that may become payable under section 8 or 9 of the Dumping Duty Act, does not apply to goods that are New Zealand originating goods under Division 1E of Part VIII of this Act. "

The Dumping Duty Act is the Customs Tariff (Anti-Dumping) Act 1975 .

Item 9 Schedule VII

82. This item amends the Customs Act by repealing Schedule 7.

83. As outlined in item 3 above, Schedule 7 to the Customs Act contains diagrams that illustrate the operation of the current rules of origin in relation to New Zealand set out in sections 153J and 153K of the Customs Act. As these sections are being repealed, and the rules of origin and being extended by new Division 1E of Part VIII of the Customs Act, these diagrams are being repealed.

Customs Tariff Act 1995

Item 10 Subsection 3(1) (paragraph (a) of the definition of Preference Country)

84. This item amends the Customs Tariff Act by repealing the reference to New Zealand in the definition of Preference Country . This amendment is a consequence of the change in terminology under the Agreement in relation to goods from New Zealand, from "goods the produce or manufacture of New Zealand" to "New Zealand originating goods". The term "Preference Country" is used in sections 16 and 18 of the Customs Tariff Act to determine the rates of duty on goods that are not the produce or manufacture of a Preference Country. However, due to the above- mentioned change in terminology, New Zealand will no longer need to be a Preference Country and its reference is being removed from the definition.

Item 11 After section 13B

85. This item amends the Customs Tariff Act by inserting new section 13C. New section provides that, for the purposes of the Customs Tariff Act, goods are New Zealand originating goods if, and only if, they are New Zealand originating goods under Division 1E of Part VIII of the Customs Act. As explained above, new Division 1E of Part VIII of the Customs Act sets out the rules for determining whether goods are New Zealand originating goods.

86. Amendments to sections 16 and 18 of the Customs Tariff Act (see below) insert new provisions to determine the rate of customs duty that applies to goods that are Zealand originating goods. The purpose of new section 13C is to ensure that those rates will only apply to goods that satisfy the new rules set out in new Division 1E of Part VIII of the Customs Act.

Items 12 and 14 After subparagraphs 16(1)(a)(iii) and 18(2)(a)(iii)

87. These items amend the Customs Tariff Act by inserting new subparagraphs 16(1)(a)(iv) and 18(2)(a)(iv). Sections 16 and 18 of the Customs Tariff Act set out how customs duty is calculated, in particular for goods the produce or manufacture of particular countries and classes of countries for preference purposes. Paragraph 16(1)(a) and 18(2)(a) provide that if the goods are not the produce or manufacture of a Preference Country, the duty must be worked out by reference to the general rate set out in the third column of the tariff classification in Schedule 3 under which the goods are classified. New subparagraphs 16(1)(a)(iv) and 18(2)(a)(iv) ensure that the general rate of duty set out in Schedule 3 also does not apply to New Zealand originating goods.

Items 13 and 15 Paragraphs 16(1)(b) and 18(2)(b)

88. These items amend the Customs Tariff Act by omitting the phrase "produce or manufacture of New Zealand" and substituting "New Zealand originating goods" in paragraphs 16(1)(b) and 18(2)(b). As referred to above, section 16 and 18 set out how customs duty is calculated, including in respect of goods that are the produce or manufacture of New Zealand under current paragraphs 16(1)(b) and 18(2)(b). However, as a consequence of the change in terminology under the Agreement in relation to goods from New Zealand, from "goods the produce or manufacture of New Zealand" to "New Zealand originating goods", these paragraphs are to be amended to refer to the new terminology. Therefore, sections 16 and 18 will now refer to calculating customs duty in respect of New Zealand originating goods.

Customs Tariff (Anti-Dumping) Act 1975

Items 16 and 17 Subsections 8(1) and 9(1)

89. These items amend the Dumping Duty Act by repealing and substituting subsections 8(1) and 9(1).

90. Sections 8 and 9 of the Dumping Duty Act impose dumping duty and third country dumping duty respectively on goods imported into Australia in certain circumstances. Similar to section 269TAAA of the Customs Act, subsections 8(1) and 9(1) of the Dumping Duty Act currently provide that these sections do not apply to goods that are the produce or manufacture of New Zealand. As set out previously, under the wording of new Article 3 of the Agreement, goods will no longer be claimed to be the produce or manufacture of New Zealand but will be claimed to be "New Zealand originating goods".

91. The terms of new subsections 8(1) and 9(1) will therefore reflect this new terminology and each subsection will provide as follows:

"This section does not apply to goods that are New Zealand originating goods under Division 1E of Part VIII of the Customs Act 1901 ."

Legislative Instruments Act 2003

Items 18 and 20 Subsection 44(2) (table item 10) and subsection 54(2) (table item 12)

92. Table item 10 and table item 12 are amended by omitting "paragraph 153J(1)(c), 153L(1)(c), 153P(2)(c) or 153Q(1)(c),", and substituting "paragraph 153L(1)(c), 153P(2)(c), 153Q(1)(c) or section 153ZIH(2)".

93. The table in subsection 44(2) of the Legislative Instruments Act 2003 (the LI Act) sets out those legislative instruments that are exempt from the disallowance procedures set out in the LI Act. The table in subsection 54(2) of the Legislative Instruments Act 2003 (the LI Act) sets out those legislative instruments that are exempt from the sunsetting procedures set out in the LI Act. These amendments will update the reference to paragraph 153J(1)(c) (which is being repealed by item 6 of Part 3 of this Bill) in these table items with new section 153ZIH (2) (which replaces paragraph 153J(1)(c)).

Item 19 and 21 Subsection 44(2) (table item 11) and subsection 54(2) (table item 13)

94. Table item 11 and table item 13 are repealed.

95. As previously mentioned, the tables in subsection 44(2) and 54(2) of the LI Act set out those legislative instruments that are exempt from disallowance and sunsetting. Table item 11 in subsection 44(2) and table item 13 in subsection 54(2) currently refer to the revocations of determinations made under section 153K and 153LA of the Customs Act.

96. However, these determinations are not legislative instruments because they only apply to particular manufactured goods in particular circumstances. Current section 153K is being remade by this Bill in new section 153ZII and new subsection 153ZII(3) will expressly state that such a determination is not a legislative instrument. Therefore, the revocation of these determinations is also not a legislative instrument so the continuing reference to their revocation in the tables in subsection 44(2) and 54(2) of the LI Act is superfluous and is being removed.

Part 4-Application and transitional provisions

Item 22 Application

97. Item 22(1) provides that the amendments made by items 1 and 3 to 17 apply in relation to goods imported into Australia on or after 1 January 2007. If goods are imported before 1 January 2007 and are still in a warehouse on that date, the new rules set out in items 1 and 3 to 17 will not apply to them.

98. Item 22(2) provides that the amendment made by item 2 applies in relation to goods exported to New Zealand on or after 1 January 2007 (whether the goods were produced or manufactured before, on or after that day).

99. Item 22(3) provides that the repeal of Subdivision G of Division 1E of Part VIII of the Customs Act 1901 on 1 January 2012 applies in relation to:

a.

goods imported into Australia on or after 1 January 2012; and

b.

goods imported into Australia before 1 January 2012, where the time for working out the rate of import duty on the goods had not occurred before 1 January 2012.

Therefore, even if goods were imported into Australia before 1 January 2012 and were still in a warehouse on that date, the rules set out in Subdivision G will not apply to those goods when they are entered into home consumption on or after 1 January 2012.

Item 23 Transitional-manufactured raw materials

100. Item 23 provides that despite the repeal of section 153J of the Customs Act 1901 made by this Schedule, a determination in force under paragraph 153J(1)(c) of that Act immediately before the commencement of this item continues in force after that commencement as if it were a determination made under subsection 153ZIH(2) of that Act.