Many readers would be aware of the ongoing debate on what constitutes Hollow Structural Sections (HSS) steel or iron which is subject to dumping or countervailing duties. That has included debate on whether the alleged HSS is, in fact, another type of product (scaffolding for example) or whether the HSS is actually only part of a larger structure and should be classified on that basis.
HSS – the classification that keeps on giving
The Australian industry which applied for anti-dumping (AD) and countervailing (CV) duties to be imposed on HSS has expressed concern over time that those measures have been undermined, whether by misclassification of the goods (innocently or otherwise) or by deliberate attempts to “circumvent” the measures whether that is by behaviour supporting the initiation of an anti-circumvention inquiry or by other means such as provision of inaccurate certificates of origin from countries where the measures do not apply.
Pipe lined up for audits by Home Affairs
For some time now there have been reports that the Department of Home Affairs (Home Affairs) has been looking closely at claims that goods are line pipe of a kind used for oil and gas pipelines within headings 7304, 7305 and 7306. The importance of such a classification is that the goods would not be subject to the measures, however it appears that there is a view that the classification is not being properly applied to goods more properly classified as HSS meaning that the measures are not being properly imposed or collected.
The consequences of a finding by Home Affairs that the measures have not been collected are many – it could lead to retrospective action to recover AD and CV duties not paid at the time of import (going back some years) and the possible issue of Infringement Notices or other penalties against the importer or against the licensed customs broker (LCB). In the latter case, this could also extend to findings against the licence of the LCB which could have other adverse effects for the LCB.
Issue of a draft Tariff Classification Guide
If further notice was needed that the “line pipe” issue was a live issue, then the issue by Home Affairs of a draft “Tariff Classification Guide on Line Pipe of a Kind Used for Oil or Gas Pipelines” (Guide) appears to conclusive evidence that the issue is to the forefront of audit and recovery action.
The Guide provides details of the classifications and goes into some detail on the history of classification of the goods and the international rationale for the classifications to target trade statistics for pipe and tubing that is specific to the oil and gas industry for drilling and transportation. The Guide then moves to the definition of line pipe (associated with pipelines) and the characteristics of the line pipe. In terms of the characteristics the Guide then considers compliance with the Australian Standard (AS 2885) and the American Petroleum Institute Standard (API 5L) or ISO 3183 but states that compliance with the international standards does not guarantee compliance with the Australian standard, providing the example that steel pipes manufactured to the API 5L standard could be used for many other uses such as irrigation pipes and structural use. The Guide also suggests that identification of line pipe is not made on the basis that pipe COULD be used or MIGHT be used for oil and gas pipelines when it is not commonly used in those pipelines
The Guide then creates some potential difficulties by stating that the simplest way to prove classification to the headings is to produce documentation for the pipeline project indicating that the pipe would be used in that project. If the pipes are not imported for a particular project then the Guide suggests that proof is more difficult that pipe is of the relevant kind and that if the pipe is only, or is commonly used to transmit water (not oil or gas) then it is not of the relevant kind.
Issues raised by the draft Guide
The approach set out in the Guide raises a number of potential issues:
- It is only a Guide with comments open until 20 July 2018 although in practice there are rarely substantial changes.
- The fact that it is a Guide does not make it binding or correct.
- It is not clear whether the Guide will be treated as a “change in practice” precluding retrospective action – the usual approach though would be to say that this is only clarification of the approach as opposed to a change in practice. That would allow retrospective action.
- There are a number of TCOs keyed to Tariff Sub – Heading 7306.19 which may be affected which refer to standards being met. It does raise the issue that even if the goods meet the criteria set out in the TCOs, if the goods fail the threshold issue of the tariff classification then the terms of the TCO may not be met.
- The focus on proving that goods were imported for a specific project may undermine the fact that the classification is for goods “of a kind” used for oil or gas pipelines as opposed to the goods “to be used for an oil or gas pipeline”. While I can understand the focus on goods which are actually used in that manner, they are not the words of the classification.
- The focus on evidence that the goods were used in a specific project will now create issues if such evidence was not secured at the time of import (or does not exist in a form acceptable to the ABF). A similar problem could exist if other evidence (from an expert) at the time of import is not available.
- The Guide indicates that if the pipe is of the kind only or commonly used to transmit water (not oil or gas) it is not of the relevant kind. However the tariff heading does not make such a distinction – it makes no reference to the pipe having other uses which may preclude it from the heading. It merely refers to it being “of a Kind Used for Oil or Gas Pipelines” nor does it make reference to the various Standards.
Extent of the issue
I am not an importer of “line pipe” of any type so I am not aware of the extent to which the approach in the Guide will cause problems. However, based on the level of contact I am having on the issue it appears that the approach is more limited than before which creates an issue itself and the suggestion that proof as to end use in the past (which is unlikely to exist) will create even more issues.
Actions to take now
At the least, parties should review the draft Guide urgently. It is, of course, open to parties to respond to the draft Guide and seek a change in the approach including a change to the type of evidence now being sought to verify the nature of the goods. At the least, LCBs should review paperwork available for past imports to see what can be done to meet the requirements set out in the Guide and to alert importer clients of likely issues to arise in relation to the Goods.
Ultimately there may be a close group of LCBs and importers threatened if the draft Guide creates a change in practice or an approach to verification which is not practical. In that case, there would be merit in taking collective action, potentially with any industry association representing the importers. Collaborative action has the benefit of having more impact and concentrating resources.
Of course – if pain persists, contact your friendly neighbourhood lawyer!