It’s been a big year in the Australian Customs and Trade World. Some highlights are set out below.

Free Trade Agreements

The year started optimistically from a free trade perspective with announcement that Indonesia had finally implemented the Free Trade Agreement between Australia and New Zealand and the ASEAN countries with effect from 10 January 2012. That was followed by the announcement on 22 May 2012 that Australia had signed a separate Free Trade Agreement with Malaysia with the intention to commence on 1 January 2013. Unfortunately, Australian negotiations for Japanese and Korean Free Trade Agreements have yet to be completed in 2012 as hoped. However, along with our major trading partners, Australia has continued to be involved in negotiating the Trans-Pacific Partnership Agreement and has now announced that it will be party to negotiations for the Regional Comprehensive Economic Partnership. The public aim is to complete the Trans-Pacific Partnership during 2013 and for the Regional Comprehensive Economic Partnership to be completed during 2014.  

The rest of the world is also working on other significant deals, notably the potential US/EU FTA.  

Trade remedies – Dumping, countervailing and other trade intervention

From the trade remedies perspective, the Federal Government introduced significant additional legislation to the Australian Parliament to adjust the anti-dumping and countervailing regime, ostensibly in order to implement changes recommended by the Australian Productivity Commission some time ago. That legislation has now been passed as reported in our e-alert of 27 November 2012 and is now in effect.  

At the same time, the Brumby Report commissioned by the Government was released on 27 November 2012 recommending, among other things, a new Agency to be established to handle the investigations. Certainly the number of actions has increased significantly and Australia has risen to the ranking of number four in the world with measures largely affecting aluminium and steel in various forms from Asia.  

In a remarkably swift response to the Brumby Report, on 4 December 2012, the Prime Minister announced the establishment of the Anti-Dumping Commission. This will be located in Melbourne, will have double the number of investigators as in the Trade Remedies Division of the Australian Customs and Border Protection Service (“Customs”) and be allocated significant additional funding. There will also be additional legislative change all expressed as assisting actions by local industries.  

More details on the Anti-Dumping Commission can be found in our e-alert of 27 November 2012.

Some believe that the legislation, together with other practical changes, is protectionist and intended to assist local manufacturers to bring actions against overseas exporters to Australia.  

At the same time, Australia’s stance as a purely free trade nation has been questioned by the passage of the Illegal Logging Prohibition Bill 2012. The Federal Government has openly stated that it is the most advanced form of legislation in the world and will increase the obligations on importers and service providers to ensure that wood or related materials from wood have not come from illegal logging. As expected a number of countries which export wood and related products objected strenuously to the Bill. While the commencement of the legislation will largely be handled by DAFF, Customs issued ACBPN 2012/72 outlining some relevant issues.  

Border Security and licensing of brokers and premises

Another main change to the Australian agenda arose from Government concerns as to possible criminal involvement in the port environment and in the supply chain including Government officers and those in the private supply chain. In addition to introducing integrity checks for Customs officers and other government officials, the Government introduced new conditions on those who are licensed by Government such as licensed customs brokers and operators of depots and warehouses. Controversially, this included obligations to provide information to allow Customs to check on the details of employees associated with those businesses as well as an obligation on a licensed customs broker to advise Customs of any error, omission or breach of the law which that customs broker discovers whether it is by the customs broker, a client or a former customs broker of the client. A practical issue became how to communicate these new obligations to clients. Responding to industry requests, by ACBPN 2012/73,  

Customs issued a form of letter that could be used by brokers. However, the letter goes somewhat wider to include providing guidance to clients as to the high-level obligations on licensed brokers, which obligations may not always be consistent to the actual obligations imposed on a broker at law or by their retainer. My preference for notification would always be the form of letter we drafted for the CBFCA members and was sent out with various CBFCA updates. However if clients are still reluctant to accept that the new obligations are real, the letter from Customs could be used especially if the clients doubt that Government has, in fact, imposed such obligations. The associated announcement of new mandatory continuing professional development requirements for licensed customs brokers was more openly accepted by industry as being consistent with the professional status of such licensed customs brokers. However, it seems that the type of CPD required may exceed that of many other professional service providers.  

Competition Issues

As to be expected, competition issues loomed large both here and overseas. The biggest issue for the industry here has been the continuation of the ACCC action against a number of airlines associated with alleged cartel behaviour with price fixing of certain air cargo charges and other naughty behaviour. During the course of the year, a number of parties agreed to plead guilty and paid significant fines. The most recent examples of this related to Singapore Airlines, Cathay Pacific and Thai Airways who agreed to plead guilty to offences and pay fines of $30.5M.  

The Singapore offences included attempts to fix prices for taking meat to feed US and Australian troops in the Middle East. Other offences included fixing surcharges for fuel, security and customs fees for freight charges for freight services from Indonesia to Australia.

The penalty against Cathay came after it admitted an attempt to fix rates with Qantas for freight services between Hong Kong and Australia.  

The penalty for Thai Airways related to reaching deals to fix prices for fuel and security surcharges, and a customs fee, for air freight between Indonesia and Australia.  

The penalties came shortly after Emirates pleaded guilty and were ordered to pay $10M in penalties for engaging in cartel activity.

Presently the total fines amount to $98.5M relating to offences by 12 airlines including QANTAS whose fine of $20M remains the highest of the group. QANTAS’ total liability globally totals $105M.  

Garuda endeavoured, unsuccessfully, to claim sovereign immunity for which protection was denied in the High Court. The remaining parties proceeded to trial in November and we await a judgement. Look out for associated action against freight forwarders in 2013 as has occurred in the US.  

Some other competition issues include the release by the ACCC of the 14th Annual Container Stevedoring Monitoring Report. The Report found that there had been high returns to operators together with past increases in performance and efficiency. The ACCC also observed that increased competition by way of new stevedore providers is likely to promote increased competition.  

The release of the Joint Study by the Productivity Commissioner of Australia and New Zealand has raised recommendations to improve trade between the countries. These include the waiving of CER Rules of Origin with tariffs at 5 percent or less and removing the exemption for international shipping and ratemaking agreements from legislation governing restrictive trade practices.  

Export Controls

In addition to the focus on controlling imports, there have been a number of developments in export controls, starting with the new Autonomous Sanction Act allowing Australia to impose its own sanctions on exports of certain goods or exports to certain countries.  

In addition, there will be additional controls over goods being exported (physically or electronically) in the defence industry. This has been effected by the Defence Trade Controls Bill and the Customs Amendment (Military End-Use) Act. The latter Act creates the ability for the Defence Minister to issue a notice prohibiting certain goods from being exported if those goods “would or may be for a military end-use that would prejudice the security, defence or international relations of Australia and the goods are not already prohibited exports under section 112 of the Customs Act 1901.  

The Tobacco crusade continues

Australia is at the forefront of international initiatives to limit the use of tobacco and cigarettes. This has included passage of “Plain Packaging” legislation which was recently upheld by the High Court. However there is still action pending against the Federal Government both pursuant to Australia/ Hong Kong Investment Treaty and at the WTO where certain countries have sought the establishment of WTO Dispute Panels against Australia’s actions.  

The import community and its service providers have also been more immediately affected by the new Customs Amendment (Smuggled Tobacco) Act 2012 creating a new offence for smuggling tobacco and associated significant additional financial penalties and possibility of jail for conviction of offences.

Low-Value Threshold

The retail industry has continued its campaign to reduce the current threshold of allowing goods valued less than $1,000 to be imported without payment of Customs duty or GST.  

During the course of the year, an Independent Review of GST was carried out by former Premiers, Nick Greiner and John Brumby, which recommended halving the threshold amount immediately. This review also recommended to consider replacing GST “at the border” with a GST liability being imposed directly on overseas suppliers of goods and services.  

At the same time the Federal Government released the Interim Report to the Low Value Parcel Processing Taskforce Report. While the Report did find that there were in-principle grounds to reduce the low value threshold, it was not currently cost-effective to do so without significant improvements in the efficiency of processing low-value parcels. Accordingly, while this sets the agenda for future changes, there appear to be no immediate prospects of a reduction, even if the State Premiers continue to press the Federal Government to pass on increased GST from a reduced threshold.  

Biosecurity

2013 will represent a significant year for Parliamentary review of the new DAFF Biosecurity Act which has just been introduced into Federal Parliament. There will be much work in 2013 by review by Parliament and the development of essential regulation.  

What to look out for in 2013

  • The start of the MAFTA. We note that in our ealert of 18 December 2012 we confirmed the commencement date for the MAFTA. You should now be preparing for implementation of the benefits under the MAFTA.
  • Increased levels of dumping and countervailing measures.
  • The effect of the recent anti-dumping amendments.
  • The establishment of the Anti-Dumping Commission.
  • I ncreased action by the Customs Compliance Team following increased funding with the mid-year “mini budget”.
  • Proposed reductions in tariffs on “environmentally sound” goods following the APEC Leaders 2012 Declaration.
  • The re-introduction of the Anti-Counterfeiting Trade Agreement to the Joint Standing Committee on Treaties after the Federal Government addresses the recommendations of the Committee to allow its passage.
  • The commencement of the new Schedule 4 to the Customs Tariff Act 1995 which allows concessional entry for goods. This significantly changes the number of items by way of consolidating and re-grouping goods subject to the concessional treatment. Licensed customs brokers need to pay careful attention with affected clients as the new provisions will commence on 1 March 2013.
  • The need for Charities to be registered by the Australian Charities and Not-for-profit Commissions to secure duty-free entry for goods intended as donated and bequeathed to those charities. The provision commenced on 3 December 2012.
  • Our continued work in conjunction with industry associations such as the Customs, Brokers and Forwarders Council of Australia (“CBFCA”), the Export Council of Australia (“ECA”), the Australian Gift & Homewares Association (“AGHA”), the Food and Beverage Importers Association (“FBIA”) and Paul Zalai’s new Freight and Trade Alliance (“FTA”) which Paul has initiated successfully after a long and distinguished career with the CBFCA.

What's wrong with an AEO for Australia?

The recent CBFCA National Conference was focused on the topic of "Coordinated Border Management – Impact on Trade".

The program for the Conference included speakers from both the public and private sectors from here and from overseas and speakers from the World Customs Organisation ("WCO") and New Zealand.  

Unsurprisingly, some of the Conference was given over to ways that Government agencies could facilitate trade while still dealing with potential border security issues, criminal activity, bio-security and revenue risk.  

One of the recurring topics was the concept of an Authorised Economic Operator ("AEO") which was introduced by the WCO SAFE Framework of Standards. The AEO has a number of different incarnations around the world. However, at its essence, it encourages trusted, tested and compliant importers, exporters and service providers to enter a program of accreditation with benefits such as reduction in compliance activity, increase in speed of trade, a decrease in penalties and deferral of payments of border duties. Those who receive accreditation also secure additional benefits from potential mutual recognition in other programs overseas in countries in which they trade.  

While the WCO continues to promote the AEO concept, other international Government agencies and traders also look to the AEO as a means to facilitate trade.  

The counterpoint is that Australia is one of the few WCO countries which has resisted the introduction of an AEO. Ironically, at the same time, it is introducing legislation to terminate the Accredited Client Program which was never implemented despite significant earlier support and expenditure on the basis that it was never able to deliver the proposed benefits.  

The Australian Customs and Border Protection Service's ("Customs") position on the AEO through its 2 surveys into the proposed adoption of an AEO is that trade is moving efficiently and that there are insufficient discernible benefits to support the costs of the introduction of and joining an AEO program. The surveys also suggested that there was insufficient support amongst the trading communities. As a result, Australia does not propose to introduce an AEO. However, at the Conference, Professor David Widdowson of the Centre for Customs and Excise Study at the University of Canberra did point to some concerns regarding the survey and its results.  

While Customs recent Time Release Study does suggest that freight is being cleared quickly in Australia it is my view that there are other benefits to importers, exporters and service providers which would support the introduction of an AEO for Australia. One of those benefits would be dealing with the risk that Australian traders could find themselves at a competitive, legal or commercial disadvantage overseas as others, already accredited in those jurisdictions, could receive more advantageous treatment. In a time of an increasingly global trading environment there does seem to be a risk if Australia is not in line with its major trading partners, all of whom adopt a form of AEO.  

At the same time, since the last Customs' survey, there has been a significant "all of Government" attack on border security. In particular, Customs has announced a new emphasis on the integrity of those providing services in the border clearance environment as well as requiring disclosure of possible offences by those holding licences issued by Customs.  

Given the international environment and the types of issues described above, perhaps it would be time for Customs to undertake an early review of the potential advantages from the adoption of an AEO which would confer upon Australian traders and their service providers an "equal" status to their overseas counterparts and competitors. Such a program would also recognise and as such, reward those who have been found to have complied with their border security obligations.

Anti-bribery legislation begins to bite here not just overseas  

In earlier updates we have brought you stories of the provisions of the US Foreign Corrupt Practices Act (“FCPA”) and the introduction of new UK legislation aimed at bribery in the UK and beyond the UK which has a UK connection. In the case the UK legislation is even more stringent than that in the US.  

At the same time, we have also addressed proposed legislative change in Australia which would make our own existing “anti – bribery” legislation more aligned with the UK legislation. Part of that would be effected by removing our current “trade facilitation” defence to an offence which allows a lower level of “facilitation payment” in certain circumstances. The effect of that amendment would require all Australian companies to review their corporate policies and stop paying even those “facilitation payments”  

Reports from the US regularly include reference to fines against US companies involved in illegal activity. For example the US Securities and Exchange Commission reported in August that a California-based enterprise systems firm had agreed to pay a $2 million penalty to settle charges that it had violated the FCPA.  

For those who are interested (and you all should be), the Criminal Division of the US Department of Justice, and the Enforcement Division of the U.S. Securities and Exchange Commission, have both released a “resource guide” to the FCPA, dated 14 November 2012. It is both a sobering and useful document as it provides examples of interpretation of the FCPA, US policy and enforcement activities.  

The Australian media is now focussing more heavily on the issue, as it questions how many major deals overseas have somehow been the subject of corrupt payments to assist trade and, in many cases, are trying to attribute knowledge or culpability as far back as to the Reserve Bank. This includes the well–known issues associated with Australia’s “Securency” and “Note Printing” companies and allegations that its practices in securing overseas contracts may have breached Australian law. As far back as July 2011, the Federal Police exercised search warrants at the business premises of the companies and the homes of its former executives, seeking information on alleged bribes paid to foreign officials to secure contracts overseas.

Those steps by the Australian Federal authorities seem to be closing in on prosecutions. In August 2012, the former Company Secretary and CFO of Securency pleaded guilty to one charge of false accounting, which Justice Elizabeth Hollingworth said involved “a false and elaborate attempt to justify” the payment of commissions to promote the company’s banknote supply business in Malaysia.  

At that time however, the Judge agreed not to impose a jail sentence on the basis that the defendant had agreed to give evidence against other officers of the companies in trials to be held against them. This is not an unusual event as those who first agree to plead guilty and give evidence often get the benefit of avoiding jail for their actions. In this case the “agreed” offence was one of “false accounting”, described as a “mid– range offence” aimed at hiding illegal payments of senior employees under pressure from those senior employees. Even in the absence of documentary evidence of those payments, the oral evidence of the former executive was seen as valuable.  

This is all taking place at the same time as competition regulators are finding continued success in actions against those airlines involved in alleged “cartel” behaviour to fix various prices for air cargo services both here and overseas. This has included “agreed” findings of fault here and fines in the US as well as US actions and fines against a Japanese freight forwarding company. Similar action has occurred in Australia.  

Companies must now be introducing proper practices and training to ensure that these types of provisions are not breached and to ensure that corporate culture actively opposes such actions. Remember that the UK legislation puts a positive obligation on companies to ensure that no bribery takes place and it is a good idea to adopt similar measures here and ensure that companies can show that all possible steps were taken to stop offending activity – and that such policies and procedures, and how they were implemented, are at hand when the regulators arrive.

So what are the messages from all of this? If companies have not already taken serious note of these bribery and competition issues now they should do so immediately. The investigating authorities are having successes and each one provides more evidence in actions against other and potentially larger defendants.