House of Representatives

Explanatory Memorandum

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

Notes on Clauses

Clause 1 Short title

1. Clause 1 provides that this Act is the Customs Amendment (Product Specific Rule Modernisation) Act 2019.

Clause 2 Commencement

2. Subclause 2(1) provides that each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.

3. Table item 1 provides that the whole of this Act commences on a single day to be fixed by Proclamation. However, if the provisions do not commence within the period of six months beginning on the day this Act receives the Royal Assent, they commence on the day after the end of that period.

4. Subclause 2(2) provides that any information in column 3 of the table is not part of this Act. Information may be inserted in this column, or information in it may be edited, in any published version of this Act.

Clause 3 Schedules

5. This clause is the formal enabling provision for the Schedules to the Bill, providing that each Act specified in a Schedule is amended or repealed as set out in the applicable items of the Schedule. This Bill amends the Customs Act 1901 (the Customs Act).

6. This clause also provides that other items of a 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

Background

Under free trade agreements (FTAs) to which Australia is a Party, goods that are made wholly or partly of non-originating materials - materials that do not originate in a Party to that FTA - may still qualify as originating goods under that FTA if the non-originating materials have been 'substantially transformed' in the other Party, Australia, or both. Product specific rules of origin (PSRs) set down the rules to be used to determine whether non-originating materials have undergone sufficient transformation for the final goods to be considered 'originating'.

PSRs are set out in an Annex to each FTA, which lists goods according to their Harmonized Commodity Description and Coding System (the Harmonized System) classification. The Harmonized System is a structure for classifying goods based on internationally agreed descriptors for goods and related six-digit codes administered by the World Customs Organization (the WCO). This six-digit classification uniquely identifies all traded goods and commodities and is uniform across all countries (approximately 200) that have adopted the Harmonized System. The WCO reviews the system every five years to reflect changes in industry practice, technological developments, customs practices, and evolving international trade patterns. Australia, as a signatory to the International Convention on the Harmonized System, implemented the changes arising from the fifth (and most recent) review of the Harmonized System on 1 January 2017. As a result, on this date, approximately 950 changes were made to Australia's domestic tariffs, implemented through the Customs Tariff Act 1995 (the Customs Tariff Act), by creating, amending, and clarifying tariff classifications, to make our legislation consistent with 'HS2017' nomenclature.

PSRs typically take one of three forms:

1. Change in tariff classification

Most PSR Annexes apply a change in tariff classification (CTC) approach. A CTC rule requires that any non-originating materials that are incorporated into the final good undergo a specified change in classification in one or more of the FTA Parties as they are incorporated into the final good.

For example, pure gold (HS 7108.13) has a different classification to gold jewellery (HS 7113.19). In the process of being manufactured into jewellery, the tariff classification of 'pure gold' changes to that of 'gold jewellery', representing a substantial transformation. Gold jewellery manufactured in one of the FTA Parties from non-originating pure gold would therefore count as originating, regardless of the non-originating status of the pure gold. Different products may be subject to different CTC rules indicating the necessary scale of change the non-originating material must undergo.

2. Regional Value Content

The Regional Value Content (RVC) PSR approach requires that a product include a certain percentage of originating content for the final goods to qualify as originating.

3. Product Specific Processes

Some PSRs allow a product that has undergone a specific process in an FTA Party to qualify as originating. For example, certain types of fish and seafood products may qualify as originating if they are smoked in the territory of a Party. Another kind of product specific process rules is the 'chemical chapter origin rules' as they apply to chemical products.

The version of the Harmonized System in which an FTA's PSR Annex is drafted is usually the version of the Harmonized System that is current during the FTA negotiations. FTAs usually stipulate the procedures (or FTA committee) for revising its PSRs, including their regular review as a result of updates to the Harmonized System. As discussions to update an FTA's PSR Annex to the prevailing Harmonized System nomenclature tend to begin after the latest version of the Harmonized System is implemented, domestic implementation of PSRs in the latest Harmonized System nomenclature can be several years behind Australia's domestic tariff updates.

The FTAs subject of this Bill are in various versions of the Harmonized System nomenclature. The PSRs for the Malaysia-Australia Free Trade Agreement (MAFTA) and Korea-Australia Free Trade Agreement (KAFTA), currently use the 2012 Harmonized System (HS2012). The Australia-Chile Free Trade Agreement (ACLFTA), Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), Australia-United States Free Trade Agreement (AUSFTA) use the 2007 Harmonized System (HS2007) while the Thailand-Australia Free Trade Agreement (TAFTA) uses the 2002 Harmonized System (HS2002).

Processes are underway to update the PSRs to the 2017 Harmonized System (HS2017).

Current legislative provisions in the Customs Act for the ACLFTA, ANZCERTA, AUSFTA, KAFTA, MAFTA and TAFTA define "Harmonized System" for these FTAs to mean "the Harmonized Commodity Description and Coding System (as in force from time to time) that is established by or under the Convention". This definition means that the version of the Harmonized System that is referred to in Australia's domestic tariffs to implement these FTAs may not necessarily be the version that is in force for the FTA if the Harmonized System is updated after the conclusion of the FTA negotiations.

To facilitate an easier adoption of the revised Harmonized System and ensure that the current version of the Harmonized System is applied domestically, it is proposed to replace definitions of 'Harmonized System' with new definitions. These new definitions would expressly recognise the version of the Harmonized System currently used by each of the above mentioned FTAs, while allowing subsequent versions of the Harmonized System to be recognised if and when the PSRs are updated to recognise a newer version of the Harmonized System in accordance with the specific provisions of each FTA and Australia's domestic treaty-making process.

The Customs Amendment (Product Specific Rule Modernisation) Act 2018 used such a formulation for the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA), the Japan-Australia Economic Partnership Agreement (JAEPA), the China-Australia Free Trade Agreement (ChAFTA) and the Amended Singapore-Australia Free Trade Agreement (Amended SAFTA) to recognise that those FTAs were negotiated using HS2012 nomenclature. When AANZFTA was updated to the newer version of the Harmonized System (HS2017), no further legislative change was required to recognise this newer version. If and when the PSRs for these FTAs are updated to recognise HS2017, no further legislative changes will be required to recognise this newer version.

For ACLFTA, ANZCERTA, AUSFTA, KAFTA, MAFTA and TAFTA it is also proposed to amend relevant provisions in the Customs Act to apply the PSRs for each FTA by direct reference to the PSR Annex. This would provide for the PSR Annexes in these FTAs to be directly referenced, without the need for a regulation under the Customs Act to prescribe the PSRs. These amendments would apply to both the table of PSRs and any product specific process rules included in the relevant Annex for these agreements by direct reference.

By removing the PSRs from regulations, the implementation of future versions of the Harmonized System in the PSRs, such as HS2022 that will be implemented on 1 January 2022, will be administratively simpler. The implementation of revised PSRs would still need to be done in accordance with the specific provisions of each FTA and Australia's domestic treaty-making process.

Directly referring to the Annex containing the PSRs, rather than implementing them through regulations, does not change the operation of the PSRs. The amendments merely aim to simplify the way in which the PSR Annexes are implemented domestically.

Part 1 - US originating goods

Customs Act 1901

Background

7. AUSFTA entered into force for Australia on 1 January 2005. The amendments made by this Part are to Division 1C of Part VIII of the Customs Act, which sets out the legislative framework for US originating goods. Under the Customs Tariff Act preferential rates of customs duty apply to US originating goods.

8. The purpose of the amendments in Part 1 is to enable the direct application of Annex 4-A and Annex 5-A of AUSFTA. Annexes 4-A and 5-A of the Agreement contains the PSRs that are used to determine if imported goods are eligible for a preferential rate of customs duty. Annex 4-A applies to goods that are textiles and apparel goods and Annex 5-A applies to all other goods.

9. In addition, several amendments have been made reflect modern drafting practice and for consistency in drafting across the Divisions of Part VIII relating to Australia's FTAs. These amendments do not alter the operation of existing Division 1C.

Item 1 Division 4B of Part VI (heading)

10. This item amends the heading for Division 4B in Part VI of the Customs Act, which comprises section 126AE only. This amendment is consequential to the amendment of the definition of 'textile and clothing goods' described in item 4.

Item 2 Subsection 126AE(1) and item 3 Subsection 126AE(4)

11. These items amend subsections 126AE(1) and (4) as a consequence to the amendment of the definition of 'textile and clothing goods' described in item 4.

Item 4 Subsection 126AE(4) (definition of textile and clothing goods )

12. This item repeals the definition of 'textile and clothing goods' that is provided for the section 126AE and inserts a new definition of 'textile or apparel good', which has the meaning given by Article 1.2 of Chapter 1 of the Agreement.

13. This amendment is to more closely align the provision in the Customs Act with AUSFTA. Applying the definition in Chapter 1 of AUSFTA by direct reference also enables any future change to that definition to be applied automatically to the Customs Act.

Item 5 Section 153Y

14. Section 153Y sets out the simplified outline of Division 1C. This item amends the outline by removing the outlines for Subdivisions D and E and replacing them with an outline of new Subdivision D. This amendment reflects the repeal of Subdivisions D and E, and the insertion of new Subdivision D, described at item 8 below.

Item 6 At the end of section 153Y

15. This item amends the outline by adding a simplified outline for new Subdivision I. This amendment reflects the insertion of new Subdivision I, described at item 11 below.

Item 7 Subsection 153YA(1)

16. This item inserts a new definition of "Harmonized Commodity Description and Coding System". The Harmonized System is defined as the Harmonized System that is established by or under the International Convention on the Harmonized Commodity Description and Coding System (the Convention) done at Brussels on 14 June 1983. Further detail about the Harmonized System is provided above. The text of the Convention is set out in Australian Treaty Series 1988 No. 30 ([1988] ATS 30).

17. The purpose of this amendment is to give effect to the amendments made by item 8 below, which specify the version of the Harmonized System directly applied under domestic legislation for the purpose of AUSFTA.

Item 8 Subsection 153YA(1) (definition of Harmonized System )

18. The definition of "Harmonized System" under subsection 153YA(1) is repealed and substituted with a new definition. The new definition recognises that AUSFTA's PSRs are currently implemented using HS2007 nomenclature. Paragraph (b) of the definition allows subsequent versions of the Harmonized System that the Parties may adopt for the purposes of the AUSFTA to also be recognised.

Item 9 Subsection 153YA(1) (definition of Schedule 1 tariff table )

19. This item repeals the definition of "Schedule 1 tariff table" as a consequence of the insertion of new section 153YD, described below, which incorporates by reference Annex 5-A of AUSFTA. This precludes the need to prescribe the PSRs in the Customs (Australia - US Free Trade Agreement) Regulations 2004 (the US Regulations), rendering the definition redundant and therefore repealed.

Item 10 Subsection 153YA(1) (definition of Schedule 2 tariff table )

20. This item repeals the definition of "Schedule 2 tariff table" as a consequence of the insertion of new section 153YD, described below, which incorporates by reference Annex 4-A of AUSFTA. This precludes the need to prescribe the PSRs in the US Regulations, rendering the definition redundant and therefore repealed.

Item 11 Subsection 153YA(1)

21. This item inserts two new definitions into subsection 153YA(1):

22. These are, a new definition of "textile or apparel good" which has the same meaning as that given in Article 1.2 of AUSFTA, and a new definition of "wholly formed" which, in relation to elastomeric yarn, has the same meaning as it has in AUSFTA.

23. These definitions are required as a consequence of the insertion of new section 153YD which make reference to these types of goods. New section 153YD is discussed below.

Item 12 Subdivisions D and E of Division 1C of Part VIII

24. This items repeals Subdivisions D and E of Division 1C and inserts new Subdivision D.

25. Current Subdivision D comprises sections 153YD, 153YE and 153YF. Section 153YD sets out a simplified outline to Subdivision D. Section 153YE sets out the basis of the PSRs that are used for determining whether goods (except clothing and textiles) that are produced entirely in the US, or entirely in the US and Australia, from non-originating materials only or from non-originating materials and originating materials, are US originating goods. Such goods must be classified to a tariff classification specified in column 2 of the Schedule 1 tariff table, in the US Regulations.

26. Section 153YF sets out the basis of the product specific processes rules that are used for determining whether goods that are chemicals, plastics or rubber that are produced entirely in the US, or entirely in the US and Australia, from non-originating materials only or from non-originating materials and originating materials, are US originating goods. Such goods must have a tariff classification in Chapters 28 through 40 of the Harmonized System and meet one of the particular rules specified in column 3 of the Schedule 1 tariff table listed before Chapter 28 or 39, in the US Regulations.

27. Current Subdivision E comprises sections 153YG, 153YH and 153YI. Section 153YG sets out a simplified outline to Subdivision E. Section 153YH sets out the basis of the PSRs that are used for determining whether goods that are clothing or textiles that are produced entirely in the US, or entirely in the US and Australia, from non-originating materials, are US originating goods. Such goods must be classified to tariff classification specified in column 2 of the Schedule 2 tariff table, in the US Regulations, and where elastomeric yarn is the component of the goods that determines the final classification for the goods, that yarn must be produced entirely in the US, or entirely in the US and Australia.

28. Section 153YI sets out the basis of the PSRs that are used for determining whether goods that are clothing and textiles classified to Chapter 62 of the Harmonized System that are produced entirely in the US, or entirely in the US and Australia, from non-originating materials only or from non-originating materials and originating materials, are US originating goods. Such goods must be classified to Chapter 62 and must satisfy the relevant rule specified in column 2 of the Schedule 2 tariff table, in the US Regulations.

29. New Subdivision D replaces both Subdivisions D and E and comprises new section 153YD. Section 153YD amalgamates and streamlines previous sections 153YD, 153YE, 153YF, 153YG, 153YH and 153YI. Section 153YD remains substantially the same as the repealed sections but enables direct application of Annexes 4-A and 5-A of AUSFTA, for the purpose of identifying the PSRs that apply to goods as set out in AUSFTA, instead of prescribing those same rules in the US Regulations.

30. New subsection 153YD(1) provides that goods are US 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-A or Annex 5-A of the Agreement; and

(b)

they are produced entirely in the US, or entirely in the US and 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 Annex 4-A or Annex 5-A of the Agreement.

31. New subsection 153YD(1)(c) would encompass any requirements in Annex 4-A or 5- A that will need to be satisfied in order for goods produced entirely in the US only, or the US and Australia only, from non-originating materials in accordance with Annex 4-A or 5-A of AUSFTA. This includes Chapter Rules for textiles and apparel, and chemicals, plastics and rubber previously set out in 153YE, 153YF, 153YH and 153YI. This will preclude the need for regulations to prescribe requirements in those Annexes.

32. The direct application of Annexes 4-A and 5-A of AUSFTA does not change the operation of the PSRs as set out in those Annexes. Rather, as AUSFTA is defined in subsection 153YA(1) to be the Agreement as amended from time to time, this will ensure that the current Annexes in the Agreement will be applied. It will also ensure that any updated version of both Annexes that would be contained in that Agreement when the parties to AUSFTA implement later versions of the Harmonized System, will be applied as soon as any provisions of AUSFTA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

33. Should abbreviations be used in Annex 4-A or 5-A of AUSFTA in the future, new subsection 153YD(2) provides that, without limiting paragraph 153YD(1)(c), a requirement may be specified in the table in Annex 4-A or 5-A of the Agreement by using an abbreviation that is given a meaning for the purpose of that Annex.

Change in tariff classification

34. New subsection 153YD(5) provides the basis on which the de minimis rule is not available for certain non-originating materials when determining whether all the non-originating materials used in the production of a good to which a change of tariff classification applies have undergone the required change in tariff classification. This provision implements paragraph 2 of Article 5.2 of Chapter 5 of AUSFTA. It was previously implemented by Part 5 of the US Regulations and has been inserted into the Customs Act for increased clarity.

35. The de minimis requirement under paragraph 1 of Article 5.2 of Chapter 5 of AUSFTA provides that, if the value of all non-originating materials used in the production of a good that do not undergo a required change in tariff classification does not exceed 10% of the customs value of the good, and the good meets all other applicable requirements, then the good is originating nonetheless. Paragraph 2 of Article 5.2 of Chapter 5 lists a number of non-originating materials to which the de minimis rule in paragraph 1 does not apply. The effect of this is that where non-originating materials listed in paragraph 2 of Article 5.2 are used in the production of goods specified in that paragraph, if those non-originating materials do not undergo a required change in tariff classification the de minimis rule in paragraph 1 cannot be used to exclude those non-originating materials from the determination of the originating status of the good.

36. The provisions of sections 153YE, 153YF, 153YH and 153YI relating to change in tariff classification have been amalgamated with minor amendments into new subsections 153YD(3), (4), (5) and (6) to reflect modern drafting practice, and to ensure consistency in drafting across the Divisions of Part VIII relating to Australia's FTAs. However, the operation of these subsections has not been changed from that of the repealed sections.

Regional value content

37. Similar to above, the provisions of section 153YE relating to the application of the regional value content have been redrafted with minor amendments to reflect modern drafting practice.

38. New subsection 153YD(7) amends the head of power previously provided in repealed subsection 153YE(6) such that, if it is a requirement in the Annexes 4-A and 5-A of AUSFTA that goods must have a regional value content of not less than a particular percentage worked out in a particular way:

(a)

the regional value content of the goods is to be worked out in accordance with the Agreement; 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.

39. Otherwise, as explained above, the new section 153YD does not alter the operation of existing section 153YE.

Goods put up in a set for retail sale

40. The provisions of subsection 153YH(5) relating to goods that are put up in a set for retail sale have been redrafted in new subsection 153YD(10) with minor amendment required by the amalgamation of Subdivision D and E provisions.

41. New subsection 153YD(10) does not alter the operation of existing section 153YH.

Item 13 Subdivision F of Division 1C of Part VIII

42. This item repeals and substitutes Subdivision F which comprises section 153YJ. Section 153YJ provides the basis for standard accessories, spare parts or tools of other goods to be treated as US originating goods. New section 153YJ has been drafted with minor amendments that more closely mirror Article 5.6 of Chapter 5 of AUSFTA and for consistency in drafting across the Divisions of Part VIII relating to Australia's FTAs. New section 153YJ does not alter the operation of existing section 153YJ. Where the good must satisfy a regional value content requirement, this is now provided for by new subsection 153YD(8) and 153YD(9).

Item 14 Subsection 153YK(2)

43. This item repeals subsection 153YK(2) which provides that regulations must require the value of packaging material or container in which goods are packaged for retail sale to be taken into account where that good must satisfy a regional value content requirement. New subsection 153YK(2) has been drafted with minor amendments to reflect modern drafting practice and for consistency in drafting across the Divisions of Part VIII relating to Australia's FTAs. New subsection 153YK(2) does not alter the operation of existing section 153YK(2).

Item 15 At the end of Division 1C of Part VIII

44. This item inserts new Subdivision 1G which contains new section 153YM. New Section 153YM sets out the head of power for regulations that may provide for, and relate to, determining whether goods are US originating goods under Division 1C.

45. The purpose of new section 153YM is to enable PSRs relating to change in tariff classification, regional value content and other rules for the purposes of determining whether goods are US originating goods to be prescribed should this become necessary in the future.

Part 2 - Thai originating goods

Customs Act 1901

Background

46. TAFTA entered into force for Australia on 1 January 2005. The amendments made by this Part are to Division 1D of Part VIII of the Customs Act, which sets out the legislative framework for Thai originating goods. Under the Customs Tariff Act preferential rates of customs duty applies to Thai originating goods.

47. The purpose of the amendments in Part 2 is to enable the direct application of Annex 4.1 of TAFTA. Annex 4.1 of the Agreement contains the PSRs that are used to determine if imported goods are eligible for a preferential rate of customs duty.

48. The amendments made in the Part for this purposes noted above are similar to those made to Division 1C of Part VIII of the Customs Act that are noted above.

Item 16 At the end of section 153Z

49. Section 153Z sets out the simplified outline of Division 1D. This item amends the outline by adding a simplified outline of new Subdivision G. This amendment reflects the insertion of new Subdivision G, described at item 23 below.

Item 17 Subsection 153ZA(1)

50. This item inserts a new definition of "Harmonized Commodity Description and Coding System". The Harmonized System is defined to mean the Harmonized System that is established by or under the International Convention on the Harmonized Commodity Description and Coding System (the Convention) done at Brussels on 14 June 1983. Further detail about the Harmonized System is provided above.

51. The purpose of this amendment is to give effect to the amendments made by item 18 below, which specify the version of the Harmonized System directly applied in domestic legislation for the purpose of TAFTA.

Item 18 Subsection 153ZA(1) definition of Harmonized System )

52. The definition of "Harmonized System" under subsection 153ZA(1) is omitted and substituted with a new definition. The new definition recognises that TAFTA's PSRs are currently implemented using HS2002 nomenclature. Paragraph (b) of the definition allows subsequent versions of the Harmonized System that the Parties may adopt for the purposes of TAFTA to also be recognised.

Item 19 Subsection 153ZA(1) (definition of tariff table )

53. This item repeals the definition of "tariff table" as a consequence of the insertion of new section 153ZC, described below, which incorporates by reference Annex 4.1 of TAFTA. This precludes the need to prescribe the PSRs in the Customs (Thailand-Australia Free Trade Agreement) Regulations 2004 (the Thai Regulations), rendering the definition redundant and therefore repealed.

Item 20 Sections 153ZC to 153ZE

54. This item repeals sections 153ZC to 153ZE and substitutes these section with a new section 153ZC. Current section 153ZC provides a simplified outline of Subdivision C. Current section 153ZD sets out the basis of the PSRs that are used for determining whether goods that are produced entirely in Thailand, or entirely in Thailand and Australia, from originating materials or from non-originating materials or from both, are Thai originating goods. Such goods must be classified to a tariff classification of the Harmonized System specified in column 1 or 2 of the tariff table in Schedule 1 to the Thai Regulations. Section 153ZE sets out the basis of the PSRs that are used for determining whether goods that are specified chemicals, plastics or rubber that are produced entirely in Thailand, or entirely in Thailand and Australia, are Thai originating goods.

55. New section 153ZC is substantially the same as repealed sections 153ZD and 153ZE , which it amalgamates, but enables direct application of Annex 4.1 of TAFTA, for the purpose of identifying the PSRs that apply to goods as set out in TAFTA, instead of prescribing those same rules in the Thai Regulations.

56. New subsection 153ZC(1) provides that goods are Thai 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 4.1 of the Agreement; and

(b)

they are produced entirely in Thailand, or entirely in Thailand and Australia, from originating materials or from non-originating materials, or both; 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.

57. New subsection 153ZC(1)(c) would encompass any requirements in that Annex that will need to be satisfied in order for goods produced entirely in Thailand only, or Thailand and Australia only, from non-originating materials in accordance with Annex 4.1 of TAFTA. This will preclude the need for regulations to prescribe requirements in that Annex.

58. The direct application of Annex 4.1 of TAFTA does not change the operation of the PSRs as set out in that Annex. Rather, as that Agreement is defined in subsection 153ZA(1) to be the Agreement as amended from time to time, this will ensure that the current Annex in the Agreement will be applied. It will also ensure that any updated version of the Annex that would be contained in that Agreement when the parties to TAFTA implement later versions of the Harmonized System will be applied as soon as any provisions of TAFTA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

59. Should abbreviations be used in Annex 4.1 of TAFTA in the future, new subsection 153ZC(2) provides that, without limiting paragraph 153ZC(1)(c), a requirement may be specified in the table in Annex 4.1 of the Agreement by using an abbreviation that is given a meaning for the purpose of that Annex.

Change in tariff classification

60. Minor amendments have been made in new subsections 153ZC(3) and (4) to reflect modern drafting practice. The operation of the previous subsections has not been changed.

Regional value content

61. New subsection 153ZC(5) amends the head of power previously provided in repealed subsection 153ZD(4) such that, if it is a requirement in the Annex 4.1 of TAFTA that goods must have a regional value content of not less than a particular percentage worked out in a particular way:

(a)

the regional value content of the goods is to be worked out in accordance with the Agreement; 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.

62. New subsection 153ZC(6) provides that the regulations must provide for the value of accessories, spare parts or tools that are non-originating to be taken into account when calculating the regional value content of goods if a requirement applies that goods must have a regional value content of not less that a particular percentage worked out in a particular way, and:

(a)

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

(b)

the accessories, spare parts or tools are no invoiced separately; and

(c)

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

(d)

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

(e)

the accessories, spare parts or tools are non-originating materials.

63. New subsection 153ZC(6) implements paragraph 4 of Article 402 of Chapter 4 of TAFTA.

64. New subsection 153ZC(7) provides that section 153ZF must be disregarded in determining whether spare parts, accessories or tools are non-originating materials. New section 153ZF sets out the basis on which standard accessories, spare parts or tools that are imported into Australia are Thai originating goods. New subsection 153ZC implements paragraph 5 of Article 402 of Chapter 4 of TAFTA.

65. New section 153ZC does not alter the effect of existing sections 153ZD and 153ZE.

Item 21 Subdivision D of Division 1D of Part VIII

66. This item repeals Subdivision D which comprises section 153ZF. New section 153ZF has been drafted with minor amendments that more closely mirror paragraphs 4 and 5 of Article 402 of Chapter 4 of TAFTA. Minor amendments have been made to reflect modern drafting practice and for consistency in drafting across the Divisions of Part VIII relating to Australia's FTAs. New section 153ZF does not alter the operation of existing section 153ZF. Where the good must satisfy a regional value content requirement, this is now provided for by new subsection 153ZC(6) and 153ZC(7).

Item 22 Subsection 153ZG(2)

67. This item repeals and substitutes subsection 153ZG(2) which provides that regulations must require the value of packaging material or container in which goods are packaged for retail sale to be taken into account where that good must satisfy a regional value content requirement. New subsection 153ZG(2) has been drafted with minor amendments that reflect modern drafting practice and for consistency in drafting across the Divisions of Part VIII relating to Australia's FTAs. New subsection 153ZG(2) does not alter the operation of existing section 153ZG.

Item 23 At the end of Division 1D of Part VIII

68. This item inserts new Subdivision G, which contains new section 153ZI. New Section 153ZI sets out the head of power for regulations that may provide for, and relate to, determining whether goods are Thai originating goods under Division 1D.

69. The purpose of new section 153ZI is to enable PSRs relating to change in tariff classification, regional value content and other rules for the purposes of determining whether goods are Thai originating goods to be prescribed should this become necessary in the future.

Part 3 - New Zealand originating goods

Customs Act 1901

Background

70. ANZCERTA entered into force on 1 January 1983. The amendments made by this Part are to Division 1E of Part VIII of the Customs Act, which sets out the legislative framework for New Zealand originating goods. Under the Customs Tariff Act preferential rates of customs duty applies to New Zealand originating goods.

71. The purpose of the amendments in Part 3 is to enable the direct application of Annex G of ANZCERTA. Annex G of the Agreement contains the PSRs that are used to determine if imported goods are eligible for a preferential rate of customs duty.

72. The amendments made in the Part for this purposes noted above are similar to those made to Division 1C and 1D of Part VIII of the Customs Act that are noted above.

Item 24 At the end of section 153ZIA

73. Section 153ZIA sets out the simplified outline of Division 1E. This item amends the outline by adding a simplified outline of new Subdivision I. This amendment reflects the insertion of new Subdivision I, described at item 30 below.

Item 25 Subsection 153ZIB(1)

74. This item inserts a new definition of "Harmonized Commodity Description and Coding System". The Harmonized System is defined to mean the Harmonized System that is established by or under the International Convention on the Harmonized Commodity Description and Coding System (the Convention) done at Brussels on 14 June 1983. Further detail about the Harmonized System is provided above.

75. The purpose of this amendment is to give effect to the amendments made by item 26 below, which specify the version of the Harmonized System directly applied in domestic legislation for the purpose of ANZCERTA.

Item 26 Subsection 153ZIB(1) definition of Harmonized System )

76. The definition of "Harmonized System" under subsection 153ZIB(1) is omitted and substituted with a new definition. The new definition recognises that ANZCERTA's PSRs are currently implemented using HS2007 nomenclature. Paragraph(b) of the definition allows subsequent versions of that System that the Parties may adopt for the purposes of ANZCERTA to also be recognised.

Item 27 Subsection 153ZIB(2)

77. This amendment is consequential to the amendments proposed by item 28 below, and would repeal subsection 153ZIB(2). This provision enables regulations to be prescribed to set out how the regional value content of goods is to be calculated. This head of power is proposed to be inserted into amended subsection 153ZIE(5), described below.

Item 28 Sections 153ZIE

78. This item repeals and substitutes section 153ZIE, which sets out the basis of the PSRs that are used 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. Such goods must be classified to a tariff classification 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 NZ Regulations).

79. New section 153ZIE would be substantially the same as repealed sections 153ZIE, but enables direct application of Annex G of ANZCERTA, for the purpose of identifying the PSRs that apply to goods as set out in ANZCERTA, instead of prescribing those same rules in the NZ Regulations.

80. New subsection 153ZIE(1) provides that goods are NZ 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 G of the Agreement; 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)

the goods satisfy the requirements applicable to the goods in that Annex.

81. New subsection 153ZIE(1)(c) would encompass any requirements in that Annex that will need to be satisfied in order for goods produced entirely in New Zealand only, or New Zealand and Australia only, from non-originating materials in accordance with Annex G of ANZCERTA. This will preclude the need for regulations to prescribe requirements in that Annex.

82. The direct application of Annex G of ANZCERTA does not change the operation of the PSRs as set out in that Annex. Rather, as that Agreement is defined in subsection 153ZIB(1) to be the Agreement as amended from time to time, this will ensure that the current Annex in the Agreement will be applied. It will also ensure that any updated version of the Annex that would be contained in that Agreement when the parties to ANZCERTA implement later versions of the Harmonized System will be applied as soon as any provisions of ANZCERTA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

83. Should abbreviations be used in Annex G of ANZCERTA in the future, new subsection 153ZIE(2) provides that, without limiting paragraph 153ZIE(1)(c), a requirement may be specified in the table in Annex G of the Agreement by using an abbreviation that is given a meaning for the purpose of that Annex.

Change in tariff classification

84. Minor amendments have been made in new subsections 153ZIE (3) and (4) to reflect modern drafting practice. The operation of the previous subsections has not been changed.

Regional value content

85. New subsection 153ZIE(5) inserts the head from repealed subsection 153ZIB(2) such that, if it is a requirement in the new Annex G of ANZCERTA that goods must have a regional value content of not less than a particular percentage worked out in a particular way:

(a)

the regional value content of the goods is to be worked out in accordance with the Agreement; 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.

86. The insertion of the head of power in new subsection 153ZIE(5) is necessary to recognise that, for some goods set out in the table in Annex G of the Agreement, that table sets out a requirement on how the regional value content is to be worked out. This amendment will not change the rule intended to apply, but instead allow for such a rule to be prescribed in the regulations. Moving the head of power from subsection 153ZIB(2) into subsection 153ZIE(5) is for ease of reference.

87. New subsections 153ZIE(6) and (7) includes minor amendments that reflect modern drafting practice and ensure the provisions are more closely consistent with paragraph 14 of Article 3 of ANZCERTA. New subsections 153ZIE(6) and (7) do not alter the operation of existing section 153ZIE.

Item 29 Subsection 153ZIF(2)

88. This item repeals and substitutes subsection 153ZIF(2) which provides that regulations must require the value of packaging material or container in which goods are packaged for retail sale to be taken into account where that good must satisfy a regional value content requirement. New subsection 153ZIF(2) has been drafted with minor amendments that reflect modern drafting practice and for consistency in drafting across the Divisions of Part VIII relating to Australia's FTAs. New section 153ZIF(2) does not alter the operation of existing section 153ZIF(2).

Item 30 At the end of Division 1E of Part VIII

89. This item inserts new Subdivision I which contains new section 153ZIKA. New Section 153ZIKA sets out the head of power for regulations that may provide for, and relate to, determining whether goods are New Zealand originating goods under Division 1E.

90. The purpose of new section 153ZIKA is to enable PSRs relating to change in tariff classification, regional value content and other rules for the purposes of determining whether goods are New Zealand originating goods to be prescribed should this become necessary in the future.

Part 4 - Chilean originating goods

Customs Act 1901

Background

91. ACLFTA entered into force on 6 March 2009. The amendments made by this Part are to Division 1F of Part VIII of the Customs Act, which sets out the legislative framework for Chilean originating goods. Under the Customs Tariff Act preferential rates of customs duty apply to Chilean originating goods.

92. The purpose of the amendments in Part 4 is to enable the direct application of Annex 4-C of ACLFTA. Annex 4-C of the Agreement contains the PSRs that are used to determine if imported goods are eligible for a preferential rate of customs duty.

93. The amendments made in Part 4 for this purpose noted above are similar to those made to Division 1C, 1D and 1E of Part VIII of the Customs Act that are noted above.

Item 31 At the end of section 153ZJA

94. Section 153ZJA sets out the simplified outline of Division 1F. This item amends the outline by adding a simplified outline of new Subdivision H. This amendment reflects the insertion of new Subdivision H, described at item 37 below.

Item 32 Subsection 153ZIB(1)

95. This item inserts a new definition of "Harmonized Commodity Description and Coding System". The Harmonized System is defined to mean the Harmonized System that is established by or under the International Convention on the Harmonized Commodity Description and Coding System (the Convention) done at Brussels on 14 June 1983. Further detail about the Harmonized System is provided above.

96. The purpose of this amendment is to give effect to the amendments made by item 33 below, which specify the version of the Harmonized System directly applied under in domestic legislation for the purpose of ACLFTA.

Item 33 Subsection 153ZJB(1) definition of Harmonized System )

97. The definition of "Harmonized System" under subsection 153ZJB(1) is omitted and substituted with a new definition. The new definition recognises that ACLFTA's PSRs are currently implemented using HS2007 nomenclature. Paragraph(b) of the definition allows subsequent versions of the Harmonized System that the Parties may adopt for the purposes of ACLFTA to also be recognised.

Item 34 Subsection 153ZJB(2)

98. This amendment is consequential to the amendments proposed by item 35 below, and would repeal subsection 153ZJB(2). This provision enables regulations to be prescribed to set out how the regional value content of goods is to be calculated. This head of power is proposed to be inserted into amended subsection 153ZJE(5), described below.

Item 35 Sections 153ZJE

99. This item repeals and substitutes section 153ZJE, which sets out the basis of the PSRs that are used for determining whether goods that are produced entirely in the territory of Chile, or entirely in the territory of Chile and the territory of Australia, from non-originating materials only or from non-originating materials and originating materials, are Chilean originating goods. Such goods must be classified to a tariff classification of the Harmonized System specified in column 1 of the table in Schedule 1 to the Customs (Chilean Rules of Origin) Regulations 2008 (the Chile Regulations).

100. New section 153ZJE would be substantially the same as repealed section 153ZJE, but would enable direct application of Annex 4-C of ACLFTA, for the purpose of identifying the PSRs that apply to goods as set out in ACLFTA, instead of prescribing those same rules in the Chile Regulations.

101. New subsection 153ZJE(1) provides that goods are Chilean 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 the Agreement; and

(b)

they are produced entirely in the territory of Chile, or entirely in the territory Chile 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.

102. New subsection 153ZJE(1)(c) would encompass any requirements in that Annex that will need to be satisfied in order for goods produced entirely in the territory of Chile only, or the territory of Chile and the territory of Australia only, from non-originating materials in accordance with Annex 4-C of ACLFTA. This will preclude the need for regulations to prescribe requirements in that Annex.

103. The direct application of Annex 4-C does not change the operation of the PSRs as set out in that Annex. Rather, as that Agreement is defined in subsection 153ZJB(1) to be the Agreement as amended from time to time, this will ensure that the current Annex in the Agreement will be applied. It will also ensure that any updated version of the Annex that would be contained in that Agreement when the parties to ACLFTA implement later versions of the Harmonized System, this will be applied as soon as any provisions of ACLFTA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

104. Should abbreviations be used in Annex 4-C of ACLFTA in the future, new subsection 153ZJE(2) provides that, without limiting paragraph 153ZJE(1)(c), a requirement may be specified in the table in Annex 4-C of the Agreement by using an abbreviation that is given a meaning for the purpose of that Annex.

Change in tariff classification

105. Minor amendments have been made in new subsections 153ZJE(3) and (4) to reflect modern drafting practice. The operation of the previous subsections has not been changed.

Regional value content

106. New subsection 153ZJE(5) inserts the head of power from repealed subsection 153ZJB(2) such that, if it is a requirement in Annex 4-C of ACLFTA that goods must have a regional value content of not less than a particular percentage worked out in a particular way:

(a)

the regional value content of the goods is to be worked out in accordance with the Agreement; 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.

107. The insertion of the head of power in new subsection 153ZJE(5) is necessary to recognise that, for some goods set out in Annex 4-C of ACLFTA the table in the Annex sets out a requirement on how the regional value content is to be worked out. This amendment will not change the rule intended to apply, but instead allow for such a rule to be prescribed in the regulations. Moving the head of power in subsection 153ZJB(2) into subsection 153ZJE(5) is for ease of reference.

108. Minor amendments have been made to subsections 153ZJE(6) to reflect modern drafting practice. The amendments do not alter the operation of section 153ZJE.

Goods put up in a set for retail sale

109. New subsection 153ZJE(8) makes minor amendments to subsection 153ZJE(8) for consistency in drafting across the Divisions of Part VIII relating to Australia's FTAs. The amendments do not alter the operation of section 153ZJE.

Composite Goods

110. New subsection 153ZJE(9) makes minor amendments to subsection 153ZJE(9) for consistency in drafting across the Divisions of Part VIII relating to Australia's FTAs. The amendments do not alter the operation of section 153ZJE.

Item 36 Subsection 153ZJF(2)

111. This item repeals and substitutes subsection 153ZJF(2) which provides that regulations must require the value of packaging material or container in which goods are packaged for retail sale to be taken into account where that good must satisfy a regional value content requirement. New subsection 153ZJF(2) has been drafted with minor amendments that reflect modern drafting practice and for consistency in drafting across the Divisions of Part VIII relating to Australia's FTAs. New section 153ZJF(2) does not alter the operation of existing section 153ZJF(2).

Item 37 At the end of Division 1F of Part VIII

112. This item inserts new Subdivision H which contains new section 153ZJJ. New Section 153ZJJ sets out the head of power for regulations that may provide for, and relate to, determining whether goods are Chilean originating goods under Division 1F.

113. The purpose of new section 153ZJJ is to enable PSRs relating to change in tariff classification, regional value content and other rules for the purposes of determining whether goods are Chilean originating goods to be prescribed should this become necessary in the future.

Part 5 - Malaysian originating goods

Customs Act 1901

Background

114. MAFTA entered into force on 1 January 2013. The amendments made by this Part are to Division 1H of Part VIII of the Customs Act, which sets out the legislative framework for the Malaysian originating goods. Under the Customs Tariff Act, preferential rates of customs duty apply to Malaysian originating goods.

115. The purpose of the amendments in Part 5 is to enable the direct application of Annex 2 of MAFTA to goods imported into Australia. Annex 2 contains the PSRs that are used to determine if imported goods are eligible for a preferential rate of customs duty.

116. The amendments made in the Part for this purposes noted above are similar to those made to Divisions 1C, 1D, 1E and 1F of Part VIII of the Customs Act that are noted above.

Item 38 At the end of section 153ZLA

117. Section 153ZLA sets out the simplified outline of Division 1H. This item amends the outline by adding a simplified outline of new Subdivision G. This amendment reflects the insertion of new Subdivision G, described at item 44 below.

Item 39 Subsection 153ZLB(1)

118. This item inserts a new definition of "Harmonized Commodity Description and Coding System". The Harmonized Commodity Description and Coding System is defined to mean the Harmonized Commodity Description and Coding System that is established by or under the Convention. The Convention refers to the International Convention on the Harmonized Commodity Description and Coding System (the Convention) done at Brussels on 14 June 1983 as in force from time to time.

119. The purpose of this amendment is to give effect to the amendments made by item 40 below, which specify the version of the Harmonized System directly applied under in domestic legislation for the purpose of MAFTA.

Item 40 Subsection 153ZLB(1) (definition of Harmonized System )

120. The definition of "Harmonized System" under subsection 153ZLB(1) is omitted and substituted with a new definition. The new definition recognises that MAFTA's PSRs are currently implemented using HS2012 nomenclature. Paragraph (b) of the definition allows subsequent versions of that System that the Parties may adopt for the purposes of MAFTA to also be recognised.

Item 41 Subsection 153ZLB(2)

121. This amendment is consequential to the amendments proposed by item 42 below, and would repeal subsection 153ZLB(2). This provision enables regulations to be prescribed to set out how the regional value content of goods is to be calculated. This head of power is proposed to be inserted into amended subsection 153ZLE(6), described below.

Item 42 Section 153ZLE

122. This item repeals and substitutes section 153ZLE. Current section 153ZLE sets out the basis of the PSRs that are used for determining whether goods that are produced entirely in the territory of Malaysia, or entirely in the territory of Malaysia and the territory of Australia, from non-originating materials only or from non-originating materials and originating materials, are Malaysian originating goods. Such goods must be classified to tariff classification of the Harmonized System specified in column 1 of the table in Schedule 1 to the Customs (Malaysian Rules of Origin) Regulations 2012 (the Malaysian Regulations).

123. New section 153ZLE would be substantially the same as repealed section 153ZLE but would directly apply the Annex 2 of MAFTA, for the purpose of identifying the PSRs that apply to goods as set out in MAFTA, instead of prescribing those same rules in the Malaysian Regulations.

124. New subsection 153ZLE(1) provides that goods are Malaysian 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 2 of the Agreement; and

(b)

they are produced entirely in the territory of Malaysia, or entirely in the territory of Malaysia 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 Declaration of Origin or a Certificate of Origin, or a copy of one, for the goods; or

ii.

Australia has waived the requirement for a Declaration of Origin or a Certificate of Origin for the goods.

125. New subsection 153ZLE(1)(c) would encompass any requirements in Annex 2 that will need to be satisfied in order for goods produced entirely in the territory of Malaysia only, or the territory of Malaysia and the territory of Australia only, from non-originating materials in accordance with Annex 2 of MAFTA. This will preclude the need for regulations to prescribe requirements in that Annex.

126. The direct application of Annex 2 of MAFTA does not change the operation of the PSRs as set out in that Annex. Rather, as that Agreement is defined in subsection 153ZLB(1) to be the Agreement as amended from time to time, this will ensure that the current Annex in the Agreement will be applied. It will also ensure that any updated version of the Annex that would be contained in that Agreement when the parties to MAFTA implement later versions of the Harmonized System will be applied as soon as any provisions of MAFTA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

127. Where abbreviations are used in Annex 2 of MAFTA, new subsection 153ZLE(2) provides that, without limiting paragraph 153ZLE(1)(c), a requirement may be specified in the table in Annex 2 of the Agreement 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 specific type of Change in Tariff Classification rule.

Change in tariff classification

128. Minor amendments have been made in subsections 153ZLE(3), (4) and (5) to reflect modern drafting practice. The operation of the previous subsections has not been changed.

Regional value content

129. In addition, as noted above, new subsection 153ZLE(6) inserts the head from repealed subsection 153ZLB(2) such that, if it is a requirement in the new Annex 2 of MAFTA that goods must have a regional value content of not less than a particular percentage worked out in a particular way:

(a)

the regional value content of the goods is to be worked out in accordance with MAFTA; 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.

130. The insertion of the head of power in new subsection 153ZLE(6) is necessary to recognise that, for some goods set out in Annex 2 of the Agreement, the table in the Annex sets out a requirement on how the regional value content is to be worked out. This amendment will not change the rule intended to apply, but instead allow for such a rule to be prescribed in the regulations. Moving the head of power from subsection 153ZLB(2) into subsection 153ZLE(6) is for ease of reference.

131. Minor amendments have been made to subsections 153ZLE(6), (7) and (8) to reflect modern drafting practice. The operation of these subsections has not been changed. New section 153ZLE does not alter the operation of existing section 153ZLE.

Item 43 Subsections 153ZLF(2) and (3)

132. This item repeals subsections 153ZLF(2) and (3). Subsection 153ZLF(2) provides that regulations must require the value of packaging material or container in which goods are packaged for retail sale to be taken into account where that good must satisfy a regional value content requirement. Subsection 153ZLF(3) provides that the value of such packaging material or container must be taken into account as non-originating material where it is not customary for that good. New subsections 153ZLF(2) and (3) have been drafted with minor amendments that reflect modern drafting practice and for consistency in drafting across the Divisions of Part VIII relating to Australia's FTAs. They do not alter the operation of existing section 153ZLF.

Item 44 At the end of Division 1H of Part VIII

133. This item inserts new Subdivision G, which comprises new section 153ZLJ. New Section 153ZLJ sets out the head of power for regulations that may provide for, and relate to, determining whether goods are Malaysian originating goods under Division 1G.

134. The purpose of new section 153ZLJ is to enable PSRs relating to change in tariff classification, regional value content and other rules for the purposes of determining whether goods are Malaysian originating goods to be prescribed should this become necessary in the future.

Part 6 - Korean originating goods

Customs Act 1901

Background

135. KAFTA entered into force on 12 December 2014. The amendments made by this Part are to Division 1J of Part VIII of the Customs Act, which sets out the legislative framework for Korean originating goods. Under the Customs Tariff Act preferential rates of customs duty apply to Korean originating goods.

136. The purpose of the amendments in Part 6 is to enable the direct application of Annex 3-A of KAFTA. Annex 3-A of the Agreement contains the PSRs that are used to determine if imported goods are eligible for a preferential rate of customs duty.

137. The amendments made in the Part for this purposes noted above are similar to those made to Divisions 1C, 1D, 1E, 1F and 1H of Part VIII of the Customs Act that are noted above.

Item 45 Subsection 153ZMB(1)

138. This item inserts a new definition of "Harmonized Commodity Description and Coding System". The Harmonized System is defined to mean the Harmonized System that is established by or under the International Convention on the Harmonized Commodity Description and Coding System (the Convention) done at Brussels on 14 June 1983. Further detail about the Harmonized System is provided above.

139. The purpose of this amendment is to give effect to the amendments made by item 46 below, which specify the version of the Harmonized System directly applied under domestic legislation for the purpose of KAFTA.

Item 46 Subsection 153ZMB(1) (definition of Harmonized System )

140. The definition of "Harmonized System" under subsection 153ZMB(1) is omitted and substituted with a new definition. The new definition recognises that KAFTA's PSRs are currently drafted using HS2012 nomenclature. Paragraph (b) of the definition allows subsequent versions of that System that the parties may adopt for the purposes of KAFTA to also be recognised.

Item 47 Subsection 153ZMB(2)

141. This amendment repeals subsection 153ZMB(2). This provision enables regulations to be prescribed to set out how the regional value content of goods is to be calculated. This head of power is proposed to be inserted into amended subsection 153ZME(5), explained below.

Item 48 Section 153ZME

142. This item repeals and substitutes section 153ZME and inserts new. Current section 153ZME sets out the basis of the PSRs that are used for determining whether goods that are produced entirely in the territory of Korea, or entirely in the territory of Korea and the territory of Australia, from non-originating materials only or from non-originating materials and originating materials, are Korean originating goods. Such goods must be classified to a heading or subheading of the Harmonized System specified in column 1or 2 of the table in Schedule 1 to the Customs (Korean Rules of Origin Regulation 2014 (the Korean Regulations).

143. New section 153ZME would be substantially the same as repealed section 153ZME but would directly apply Annex 3-A of KAFTA, for the purpose of identifying the PSRs that apply to goods as set out in KAFTA, instead of prescribing those same rules in Korean Regulations.

144. New subsection 153ZME(1) provides that goods are Korean 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-A of the Agreement; and

(b)

they are produced entirely in the territory of Korea, or entirely in territory of Korea 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.

145. New subsection 153ZME(1)(c) would encompass any requirements in that Annex that will need to be satisfied in order for goods produced entirely in the territory of Korea only, or the territory of Korea and the territory of Australia only, from non-originating materials in accordance with Annex 3-A of KAFTA. This will preclude the need for regulations to prescribe requirements in that Annex.

146. The direct application of Annex 3-A of KAFTA does not change the operation of the PSRs as set out in that Annex. Rather, as that Agreement is defined in subsection 153KMB(1) to be the Agreement as amended from time to time, this will ensure that the current Annex in Agreement will be applied. It will also ensure that any updated version of the Annex that would be contained in that Agreement when the parties to KAFTA implement later versions of the Harmonized System will be applied as soon as any provisions of KAFTA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

147. Where abbreviations are used in Annex 3-A of KAFTA, new subsection 153ZME(2) provides that, without limiting paragraph 153ZME(1)(c), a requirement may be specified in the table in Annex 3-A of the Agreement 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 specific type of Change in Tariff Classification.

Change in tariff classification

148. Minor amendments have been made in subsections 153ZME(3),(4) and (6) to reflect modern drafting practice. A minor amendment has been made subsection 153ZME(5) to ensure consistency with paragraph 2 of Article 3.6 of Chapter 3 of KAFTA, by making direct reference to it. The operation of the previous subsections has not been changed.

Regional value content

149. New subsection 153ZME(7) inserts the head of power from repealed subsection 153ZMB(2) such that, if it is a requirement in the Annex 3-A of KAFTA that goods must have a regional value content of not less than a particular percentage worked out in a particular way:

(a)

the regional value content of the goods is to be worked out in accordance with the Agreement; 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.

150. The insertion of the head of power in new subsection 153ZME(7) is necessary to recognise that, for some goods set out in the table in Annex 3-A of the Agreement, the table sets out a requirement on how the regional value content is to be worked out. This amendment will not change the application of the rule, but instead allow for such a rule to be prescribed in the regulations. Moving the head of power from subsection 153ZMB(2) into subsection 153ZME(7) is for ease of reference.

151. Minor amendments have been made to subsections 153ZKME(7) and (8) to reflect modern drafting practice. Otherwise, as explained above, the new section 153ZME does not change or alter the operation of the existing section 153ZME.

Item 49 Subsection 153ZMF(2)

152. Amendments to subsection 153ZMF(2) have been made to reflect modern drafting practice. Otherwise, the amendments to subsection 153ZMF(2) do not alter its operation.

Item 50 At the end of Subdivision F of Division 1J of Part VIII

153. This item inserts new section 153ZMJ. New Section 153ZMJ sets out the head of power for regulations that may provide for, and relate to, determining whether goods are Korean originating goods under Division 1J.

154. The purpose of new section 153ZMJ is to enable PSRs relating to change in tariff classification, regional value content and other rules for the purposes of determining whether goods are Korean originating goods to be prescribed should this become necessary in the future.

Part 7 - Application provision

Item 51 Application provision

155. This item sets out application provisions such that the amendments made to Divisions 1C, 1D, 1E, 1F, 1H and 1J of Part VIII apply in relation to:

(a)

goods imported into Australia on or after the commencement of this Schedule; and

(b)

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

156. An example of the application of paragraph (b) would be if the Schedule commences on 1 March 2020, the amendments to the Customs Act will apply to goods that were imported before 1 March 2020 but not entered for home consumption (at which point import duty would be calculated) until or after 1 March 2020.