Under the banner of the Government's deregulation agenda, Customs has now published notice of a proposed amendment to the TCO regime by removing the current requirement that there needs to be 25% local factory costs before a party can object to a proposed TCO or seek revocation of a TCO.

Presumably this would also allow Customs to object to initiate its own revocation on the same basis.

This would mean that a party objecting to a TCO or seeking its revocation (including Customs) would only need to establish that there had been a "substantial process of manufacture" in Australia which produced a "substitutable good".

Details of the proposed amendment, including Customs rationale are to be found here.

On a first reading, I have some reservations on the expressed rationale.  

For example:

  • Despite what Customs say in its note, the local manufacturer has not always established the 25% requirement for local content.
  • Customs has had issues on the 25% local content requirement on some occasions.  It has often just accepted local claims and has then been required to secure additional evidence in the AAT which has been a painful process.
  • It is claimed that it will bring the requirement into line with dumping legislation – which it may but the criteria and rationale for both are very different.  The TCO system is supposed to assist importers by not requiring duty if there is no local manufacture while dumping is all about not allowing overseas exporters to sell here at a price lower than in its local markets and which causes material injury to the Australian market.  The TCO system has nothing to do with protecting against material injury and is supported by the WTO Anti – Dumping and Subsidies Agreements.

There may be a view that this is essentially a protectionist move by Customs and Government to make it even harder to get a TCO and make it easier to revoke a TCO.  This would cause additional costs to importers, exporters who use the imports as an input to manufacture and ultimately to consumers.  

While this may adversely affect some parties, from the other perspective the value of TCOs may be reducing as duty rates are dropping all the time with more FTAs.  Further, there is nothing in this proposal to remove other ways for duty free entry such as Policy By – Laws.  However, if this change is being brought to support deregulation, is there also likely to be a similar change to that By – Law system which is notoriously complex and heavily regulated with the outcome of making it simpler but harder to secure those By – Laws?

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