Customs post ChAFTA

February 2016

Topics

1. ChAFTA – Where are we at

2. Fundamentals of claiming origin

3. Certificates of origin

4. Transhipment

5. TCOs – Capital order goods

6. Broker liability – T&Cs

7. Aluminium extrusions

8. Penalties for false statements

2

ChAFTA

1

Where are we at

• Commenced - 20 December 2015

• Year 2 - 1 January 2016

• Origin rulings issued since 1 December 2015

• Transition:

• Australia permitted duty free for goods entered for home

consumption from 20 December

• China – Goods warehoused at 20 December were not eligible

Fundamentals

3 Key Elements

• Origin

• Certification

• Transhipment

A COO or DOO does not prove origin – Always ask whether

the origin claim seems reasonable

5

Certificates of origin

2

Legislation

• The importer has a certificate of origin “for the goods”

• COO is defined a COO that complies with article 3.14

• Article 3.14 requirements:

1. Issued by an authorised body

2. Based on template in FTA

3. English

4. Signed and stamped

5. Applicable to one or more goods under one consignment

6. Valid for 12 months

FTA Requirements

Art 3.22 (1)(e)(iii) – Can deny preference where data on COO

does not match commercial documents

However – this requirement did not find its way into our

legislation

Our legislation has two tests:

1. Origin rule met; and

2. COO held “for the goods”

Certificates of origin

• Tariff classification

• Inconsistent classifications

• Grouping

• Legislative requirements

• Practical response

9

Certificates of origin

• Origin rule

• Third party invoicing

• Amending

• Practically

• FTA rules

Certificate of origin

• Items per certificate – max 20

• If more than 20 – multiple certificates

• Can group items where:

• Tariff class is the same

• Origin rule is the same

• Goods can still be identified

• Same rules apply to declarations of origin

Certificate of origin

Retrospective certificates of origin

• General rule – COO must be obtained at the time of, or prior

to, export

• Goods in the process of export on implementation –

intended that COO will be retrospectively issued

• Practically, seems to be a 30 day restriction

• All other exports – need a good reason

• Important with setting client expectations

Transhipment

• China to Australia

• Australia to China

• Non-manipulation certificate

• Depends on whether a “through BOL” can be provided

• Required for non-containerised cargo and unsealed containerised

cargo

• Must hold a HK business registration certificate to apply

Advanced rulings

• One issue per ruling

• One good per ruling

• No retrospective application

• Customs has provided guidance on what information it

requires

ChAFTA – After phase 1

3

What to expect next

• This is Customs being lenient

• As concession use moves from TCOs to FTAs, expect more

focus on FTAs

• It is expected that you hold a COO but is it valid and can

you show the goods meet the origin requirement

• Document retention

• Look at FTA

• Look at Australian requirements for exporters

Australian importer is on the line

16

Recent cases

4

Recent cases

• So & Others v CEO of Customs (District Court of

Queensland)

• Solu Pty Ltd and CEO of Customs (AAT)

• CGC v Vestas Australian Wind Technology Pty Ltd (Full

Federal Court)

• Mega-top Cargo Pty Ltd v Moneytech Services Pty Ltd

(NSW Court of Appeal)

So & Others

• Deliberate evasion of duty

• False statements regarding jewellery and duty free watches

• Goods seized

• Original penalty – forfeiture of goods, plus:

• Fine equal to 2 x underpaid duty x 3 people

• Fines of $2,500 for So, $1,500 for Yip and $1,500 for Johal

• Appealed seeking return of the goods

So & Others

Held:

• Forfeiture can be taken into account when determining the

penalty

• Also, penalties can be taken into account when considering

whether forfeiture is appropriate

• Jewellery forfeited, but watches returned

• Relevant that no duty was payable on watches and they

were not imported for resale

• Considered that a penalty equal to 6 times the duty on the

jewellery had been paid

So & Others

“Customs offences are notoriously difficult to police and

traditionally attract heavy penalties. Penalties for

Customs offences are to be of a very high order. A

punishment for deliberate offences against the Customs

Act should be severe”

Solu Pty Ltd and CEO of Customs

• Classification case with a lot at stake – dumping duties

• Goods were aluminium products used for kitchen and other

types of cabinetry

• Essentially, bulk product that could be cut to size. Notably,

the goods are cut to smaller lengths as required after

importation

• Tribunal held goods properly classified as aluminium

profiles

• materials used in the construction of an unidentified number of items

to be incorporated into not only furniture but an indeterminate

number and type of other goods

• critical is the state of the goods at time of import

Solu Pty Ltd and CEO of Customs

• Classification can be critical when considering application of

dumping duties.

• While there are various methods to seek to have the

dumping duty reassessed, the starting point for contesting

the imposition of dumping duty is whether the goods are

actually covered by the dumping duty notice. This involves a

critical threshold question - what is the tariff classification of

the goods?

Vestas

• Long running battle (original application made on 14/8/12)

with Australian Customs regarding whether a TCO should

be granted covering certain gearboxes for wind turbines

• Critical issue – “produced in Australia in the ordinary course

of business”

• How does the “ordinary course of business” test apply to

made to order goods?

Vestas

• Full Federal Court held that for production line goods there

must be a history of actual production, but for made to order

capital equipment, a capacity to produce is sufficient.

Capacity can encompass goods to be produced in the

future.

• This decision returns the law to the position previous

understood and applied by Customs.

• Vestas has applied for leave to appeal the decision to the

High Court

Mega-top Cargo

• A freight forwarder/customs broker who had paid $234K in

customs duty, GST and other charges was held to have no

right to recover the amount from the importer

• Usually, broker would have had a right of indemnity

• T&C’s were varied by the client expressly stating it accepted

“no liability for any freight costs… duties or taxes payable

relating to the delivery and acceptance of the freight”.

These costs were to be recovered from the third party

• Critical – must have unqualified acceptance of your terms

and conditions to be able to enforce rights

Key take away

• Risks are higher than ever

• Perfect storm of:

– Courts encouraging harsh penalties for breach of the Customs Act;

– The difficulty with enforcing T&Cs; and

– More concessions meaning errors have higher consequences

• Managing the risk

– Unequivocal written acceptance of your terms and conditions

– Obtain as much information as possible about the goods

– Explain risks to the clients

– Rulings

27

Questions

CONTACT Russell Wiese

T: 03 8602 9231

E: rwiese@hunthunt.com.au

Lynne Grant

T: 03 8602 9246

E: lgrant@hunthunt.com.au