Background

As many of you would be aware, the China – Australia Free Trade Agreement (ChAFTA) is currently under significant scrutiny both within and without the Federal Parliament.

The scrutiny has been on the terms of the ChAFTA itself including Inquiries by the Joint Standing Committee on Treaties (JSCOT) and the Senate Foreign Affairs Defence and Trade Committee (FADT).  I have been involved in the drafting of submissions to both Inquiries for the Export Council of Australia (ECA) and recently appeared before a Hearing of JSCOT.  I look forward to the Report of JSCOT and that of the FADT which should follow a month later.

However, as many would also be aware, the ChAFTA itself does not need the approval of Parliament as its creation and ratification are matters for the Executive branch of Government.  The JSCOT process is a review of the ChAFTA and the associated National Interest Analysis and the Government could, if it so chose ignore its Report and recommendations.

What is "enabling legislation"?

What does need passage through Parliament is the "enabling legislation" being amendments to existing legislation to give effect to the ChAFTA.  In our industry the main enabling legislation are amendments to the Customs Act 1901 and to the Customs Tariff Act 1995 to give effect to the tariff reductions and introduce provisions on the Rules of Origin and other related provisions.   These Bills need to pass through both Houses of Parliament and are often subject to Inquiries in the Senate which allows technical "customs" matters to be debated along with further debate on ChAFTA itself and its merits.  There can also be more than one Inquiry in the Senate with Committees on Law, Trade and Economics being involved and I have made submissions to all Inquiries for other FTA and appeared before most of them which can be interesting.  The process also leads to heavy political debate and negotiation which will occur in this case as the Government needs to secure the endorsement of other members of the Senate to pass the enabling Bills.  There will also be further regulations and amending regulations introduced to give effect to some of the provisions of the ChAFTA.

It is only when all the enabling legislation and regulations have been passed in Australia and when China has followed its own enabling process that the parties can exchange "Diplomatic Notes" to allow the ChAFTA to commence.  There is some urgency here so that ChAFTA can commence this year to allow a tariff reduction in Year 1 (2015) and a second tariff reduction in Year 2 (from 1 January 2016).

Of course this is all subject to the "cut and thrust" of politics and the theatre of public opinion and although we would hope for an early implementation there remains the risk that opposition to the enabling legislation could defeat adoption and implementation of the ChAFTA

Introduction of the ChAFTA enabling legislation

As part of the process summarised above, the Bills for the "customs" issues were introduced into Federal Parliament yesterday, 16 September 2015 in a form and manner consistent to other FTA legislation.

Amendments to the Customs Act

According to the EM, the  purpose of the Customs Amendment (China-Australia Free Trade Agreement Implementation) Bill 2015 (the Bill) is to amend the Customs Act 1901 (the Customs Act) to introduce new rules of origin for goods that are imported into Australia from China to give effect to the ChAFTA. The Customs Act amendments will enable goods that satisfy the rules of origin to enter Australia at preferential rates of customs duty.

Amendments to the Customs Tariff Act

According to the EM the purpose of the Customs Tariff Amendment (China-Australia Free Trade Agreement Implementation) Bill 2015 (the Tariff Bill) is to amend the Customs Tariff Act 1995 (the Customs Tariff) to implement the ChAFTA by:  

  • providing "free" rates of customs duty on entry into force of the ChAFTA for most goods that are Chinese originating goods in accordance with new Division 1L of Part VIII of the Customs Act. The new Division 1L is to be inserted into the Customs Act by the Bill described above;
  • amending Schedule 4 to the Customs Tariff to maintain customs duty rates for certain Chinese originating goods in line with the applicable concessional item;
  • phasing the preferential rates of customs duty for certain Chinese originating goods to "free" by the fifth year of phasing; and
  • inserting a new Schedule 12 to the Customs Tariff to accommodate the preferential and phasing rates of customs duty and to maintain excise-equivalent rates of duty on certain alcohol, tobacco and petroleum products. These rates are equivalent to the rates of excise duty payable on such goods that are manufactured in Australia.

Review of the Bills in CBFCA sessions

I have been discussing the ChAFTA in some detail at recent CBFCA Regional CPD Conferences and will be discussing these Bills and practical operational matters in the member Legal Forums scheduled for November, which will also attract CPD points.

Some uncertainties needing clarification

However some practical "customs" issues have already arisen including:  

  • the process for seeking "Advance Rulings" on whether goods secure preferential treatment on import into Australia or China.  Those Rulings do not only provide certainty and minimise risk for exporters, importers and their service providers but are also required to use "Declarations of Origin" (DoO) under ChAFTA.  In the absence of those Declarations, parties will need to resort to securing "Certificates of Origin" (CoO) from an "Authorised Party".  If the process and timing is not clear shortly then the ability to use ChAFTA as soon as it starts may be compromised
  • the process for securing CoOs including details of the Authorised Parties, their seals and signatures as well as costs
  • whether Australia will amend the INS to reflect the specific provisions for voluntary disclosure and imposition of penalties under ChAFTA which are far more liberal than under our legislation and the INS
  • whether the either county's customs authorities will adopt a strict or liberal approach to compliance with the ChAFTA
  • when the DIBP will make available all the regulations and other material required to implement the ChAFTA
  • when will industry software providers have their updates available to assist in dealing with ChAFTA goods in reporting in the ICS
  • how will service providers in the supply chain deal with the fact that transit of goods through Hong Kong may lead to loss of "originating" status given the absence of "customs control" facilities in Hong Kong
  • how will those importers who are not the first buyers of the goods from the Chinese exporter or producer will manage given that the "importer" named on the DoO or CoO they receive will not be them but be the first buyer from the Chinese party.  That will create a discrepancy between the parties named as importer in the DoO and CoO compared to the parties named on the Import Declaration which will disqualify from claiming preference
  • how will the DIBP deal with even a slight discrepancy between the classification of the goods on the DoO and CoO (secured in China) and the exact classification under our Customs Tariff

We have raised these issues in my CPD presentations and also in meetings with DIBP and DFAT.  At this stage there is no clarity and we will keep you informed of developments once we receive "official" clarification.  However it is fair to say that uncertainties are not ideal, especially in a compliance and enforcement environment where even the slightest error (even inadvertent) can be penalised.