Customs tariff legislation introduced to Parliament

08 December 2020

On 3 December 2020, the Government introduced a new Bill into the Federal Parliament known as the Customs Tariff Amendment (Incorporation of Proposals and Other Measures) Bill 2020 (Bill).

According to the Explanatory Memorandum (EM) associated with the Bill, it has the following elements:

  • insert new item 57 into Schedule 4 to provide for a ‘Free’ rate of customs duty for prescribed goods that are medical products or hygiene products and capable of use in combating the novel coronavirus that causes the disease known as COVID-19, between 1 February 2020 and 31 December 2020. The amendment is contained in Part 1 of Schedule 1 to the Bill;
  • repeal table items 348 to 360 of Schedule 6A, and table items 513 to 525 of Schedule 8B, removing the $12,000 special customs duty on used and second-hand motor vehicles that are Peruvian originating goods or that are Trans-Pacific Partnership originating goods. The associated concessional rate of duty provided for these goods under item 37 of Schedule 4 to the Customs Tariff Act are also repealed. These amendments are contained in Part 2 of Schedule 1 to the Bill;
  • insert new notes and subheadings in Schedule 3 to separately identify specifically formulated caffeinated beverages, formulated supplementary sports foods and formulated supplementary foods, as defined in the Australia New Zealand Food Standards Code made under the Food Standards Australia New Zealand Act 1991. The amendments improve the monitoring of these goods as part of the Imported Food Inspection Scheme and are contained in Parts 3 and 4 of Schedule 1 to the Bill;
  • insert new notes in Schedule 3 to:
    • (a) specifically identify vitamins and food supplements;
    • (b) provide that wheelie bins do not fall within the classification of vehicles;
    • (c) provide that plates, rods, angles, shapes, sections, tubes, pipes and the like requiring further modification prior to being used cannot be classified as parts. These amendments address decisions of the Federal Courts and the Administrative Appeals Tribunal (AAT) which have caused a departure from international classification practice, as determined by the World Customs Organization (WCO). The amendments are contained in Parts 5, 6 and 7 of Schedule 1 to the Bill (my emphasis); and
  • repeal redundant provisions specifying phasing rates of customs duty under the free trade agreements with Chile, the United States of America, the Association of South-East Asian Nations and New Zealand, Malaysia, Korea, Japan and China and other associated related provisions. The amendments are contained in Part 8 of Schedule 1 to the Bill.

Many of these provisions are not controversial. The amendments contained in relation to
duty-free entry for certain items related to the treatment of COVID-19 legislates the earlier Tariff Proposals which have been in place for some time and which have been the subject of earlier commentary.

For current purposes, the provisions which will be most controversial are those contained in Parts 5, 6 and 7 of Schedule 1 of the Bill (points a, b and c above). These amendments seek to include new notes to Schedule 3 of the Customs Tariff Act 1995 to overcome recent decisions of the AAT and Federal Courts which the Government believes resulted in the interpretation of certain items in a manner contrary to the practice determined by the WCO. No detail has been provided as to the basis on which the Government has reached this conclusion, whether based on its own assessment or advice from the WCO. These amendments would overturn the effect of the High Court decision in Pharma Care and the AAT decisions in Sulo and Smoothflow. The most significant effect will probably be the new note to the Tariff regarding what are medicaments and reiterating that they really have to have some medical quality as opposed to the “gummies” in Pharma Care which the High Court found to be “medicaments”, not food or other items based on the original finding in the AAT in that case.

As stated by Assistant Minister Wood in the second reading speech in the House of Representatives regarding these provisions:

“Measure 3 introduces a series of additional notes that clarify the difference between vitamin products and other supplements which are medicaments with proven therapeutic and prophylactic benefits, and those intended to supplement a person’s diet. This division is required by the harmonized system. The distinction between these two classes of goods will be made through reference to schedules 2, 3, 4 and 8 of the Poisons Standard which refer to pharmacy medicine, pharmacist-only medicine, prescription-only medicine and controlled drug respectively. The medicines listed in the schedules of the Poisons Standard are the product of an objective and the well-established process undertaken by experts in this field. These amendments are required because domestic tribunal and court decisions have caused Australia’s classification to become misaligned with international practice.”

This will be a blow to those in the “complementary” medical industry importing those products who had been working off a “zero duty” liability since the High Court decision. Those importers and their licensed customs brokers who deal with these products will need to review these provisions carefully to determine if duty will now need to be paid on the items and then work that into their commercial planning. It may also void any previous Tariff Advices given in relation to the products and new Tariff Advices may be needed once the Bill passes through the Parliament and is given effect.

We will keep you informed on the progress of the Bill and its wider effects, for further advice, please contact our Customs & Trade team.

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