In the last week, there have been a number of significant events in the process towards implementation of the KAFTA with the apparent aim to do all things possible to have implementation commence in 2014.

New KAFTA legislation introduced

The first event was the introduction into Parliament of the 2 Customs Bills required to be passed to implement the "customs aspects" of the KAFTA.  In accordance with previous practice there are 2 Bills, the first Bill being the amendment to the Customs Act 1901 to gives effect to the Rules of Origin in the KAFTA by way of a new Division 1J to Part VIII of the Customs Act..  The second Bill comprises the amendments to the Customs Tariff Act 1995 to implement the KAFTA.  This includes:  

  • Providing free rates of duty for "Korean originating goods" in accordance with the new Division 1J of Part VIII of the Customs Act.
  • Amending Schedule 4 to the Customs Tariff to maintain customs duty rates for certain Korean originating goods in accordance with the applicable concessional item.
  • Phasing the preferential rates of customs duty for certain goods to Free by 2021.
  • Inserting a new Schedule 10 in the Customs Tariff to accommodate preferential and phasing rates of duty to maintain excise – equivalent rates of duty on certain alcohol, tobacco and petroleum products (to keep parity with rates payable when locally manufactured).

In addition, there will be new Regulations introduced to help effect KAFTA as well as legislation in other areas to make amendments required to implement the KAFTA.

The Bills have been referred to the Senate Legal and Constitutional Affairs Legislation Committee for inquiry and report by 2 October 2014.  I will be involved in making submissions for various parties so feel free to refer any comments to me.

Report by JSCOT tabled

As many of you would be aware all Treaties such as KAFTA are referred to the Joint Standing Committee on Treaties ("JSCOT") for review.  The review included 78 written submissions and evidence from a number of witnesses.  There were a number of adverse submissions most of which focussed on area where more could reportedly have been achieved, labour market concerns and concerns on IP protection and the ISDS provision.

Ultimately (and unsurprisingly) the finding by JSCOT was that it was satisfied that "KAFTA will provide substantial economic benefit, not only to Australian business and industry, but also to the broader community".  The subsequent recommendation was to support KAFTA and recommending that binding Treaty action be taken.  However there were strong dissents from ALP members of JSCOT and from the Greens member of JSCOT. The dissents addressed the areas of concern raised by many of the submissions.

Senate Standing Committee on Foreign Affairs, Defence and Trade

In addition to the JSCOT review, the KAFTA is also subject to review by the Senate Standing Committee on Foreign Affairs, Defence and Trade.  This is slightly unusual as it will traverse many of the same areas as the JSCOT review and many of those who submitted to JSCOT also submitted to the Standing Committee.  I am appearing before the Standing Committee on 9 September on behalf of the ECA.

Process for implementation – December 2014 start?

As I have mentioned previously the KAFTA is subject to domestic implementation by both countries (by domestic legislation) and then will start 30 days after an exchange of Diplomatic Notes by the countries.  Interestingly the Bills provide for the KAFTA provisions to start here on 1 December 2014 or such later date as needed to ensure that the KAFTA implementation provisions are observed.  Although that means that the starting date is not certain it would be important for it to start before the end of 2014.  For those industries relying on a phased tariff reduction, the initial tariff reduction comes on KAFTA coming into force.  Should that occur before the end of 2014, a second tariff reduction would take place on 1 January 2015 providing a double reduction in a short timeframe.  The importance of the double reduction was emphasised throughout the JSCOT hearings and comments were made that failure to secure the double reduction would place Australian exporters at a further disadvantage to EU and US exporters under their FTA.

Conclusion – need to be ready!

We will keep you informed of developments but I would recommend that parties take all appropriate steps now including:

  • Review of the KAFTA, the Bills and Regulations (once issued).
  • Review of the form of COO required.
  • Review of the way in which goods can be shipped without losing preferential status.
  • Advising those seeking to benefit whether importers or exporters.
  • Ensuring that reporting software is up to date.  

As always I would be happy to assist