Some readers would be aware of extensive recent litigation on the availability of tariff concession orders (“TCOs”) in relation to “reach” and “lift” trucks which litigation has had broader consequences for the law relating to the grant of TCOs.
Most recently, there have been issues associated with an application for TCOs by Toyota Material Handling Australia Pty Ltd (“Toyota”). At first instance, the Australian Customs and Border Protection Service (“Customs”) rejected the application for TCOs. Toyota appealed to the AAT which overturned the decision and directed Customs to issue TCOs for the trucks the subject of the TCO application. However, Customs appealed the AAT decision to the Federal Court of Australia.
In this case, the parties agreed that the appeal should be heard by a Full Bench of the Federal Court rather than a single judge as both parties indicated that they were likely to appeal in any event from a decision of a single judge.
Following arguments before the Full Federal Court in February 2012, the Full Federal Court finally issued its judgment on 29 May 2012.
In its reasons for judgment, the Full Federal Court ruled that the AAT had applied an incorrect test in relation to the element of “substitutability”. Applying what the Federal Court determined to be the correct test, it found that the goods manufactured by an Australian manufacturer were, in fact, substitutable to the goods subject of the TCO application by Toyota. Accordingly, it found that Customs was correct in its original determination not to the grant TCOs. As a result, the Federal Court directed Customs to revoke the TCOs with effect from the date at which they had been reinstated.
The decision has certain wider consequences:
- The Full Federal Court said that the test applied by the AAT was incorrect and that in considering the test for “substitutability” there should be recourse to the specific words of the section.
- It is irrelevant if the TCO goods have functions in excess of the goods manufactured in Australia. As long as the Australian industry produces goods which have the same or corresponding capacities to those the subject of the TCO application, then the Australian industry produces a substitutable good and a TCO should not be granted. In this case, Toyota argued that the TCO goods actually had capacities over and above those of the goods produced by the Australian industry. However, the Full Federal Court found that to be irrelevant and the real question was dictated by the actual activities contemplated for the goods the subject of the TCO application and not additional capacities or qualities.
- Notwithstanding its comments that the parties should have recourse to the specific sections of the Act, the Full Federal Court added a concept of “reasonableness” as to whether the Australian goods are substitutable to the goods the subject of the TCO application. The Full Federal Court referred to a hypothetical example of shovels and spoons. The Court said that in an application in a TCO for shovels, where the Australian industry manufactured spoons then there was an argument that spoons and shovels did both move earth and the spoons were substitutable. However, the Full Federal Court held it was not reasonable to argue that spoons were substitutable for shovels given the significant disparity in their use and capacity. Accordingly, this would suggest that a test may be as to whether the goods manufactured by the Australian industry are “reasonably substitutable” for those the subject of the TCO application.
- Although it was not required to do so, the Full Federal Court did make the observation that if it had been called upon to rule on the description of the goods in the TCO application it may have found that the description of the goods was not generic (as required by the Act) but included inappropriate reference to representative examples of the TCO goods. The Full Federal Court said it believed that the AAT had erred in considering a representative sample of the TCO goods. The Full Federal Court indicated that a TCO should not be made in other than generic terms.
- Those who had been using the TCO which arose from the earlier AAT decision should no longer be using that TCO in making Import Declarations and entering goods on a duty free basis.
- Customs will no doubt be reviewing the use of the TCOs considered in this matter and having revoked those TCOs will be making demands on those importers who had used the TCOs to have the import duty repaid.
- Customs will presumably take into account the comments of the Full Federal Court in considering the grant of future TCOs and whether past TCOs have been validly granted.