CUSTOMS AMENDMENT (PRODUCT SPECIFIC RULE MODERNISATION) REGULATIONS 2021 (F2021L00418) EXPLANATORY STATEMENT

Commonwealth Numbered Regulations - Explanatory Statements

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CUSTOMS AMENDMENT (PRODUCT SPECIFIC RULE MODERNISATION) REGULATIONS 2021 (F2021L00418)

EXPLANATORY STATEMENT

Issued by Assistant Minister for Customs, Community Safety and Multicultural Affairs and Parliamentary Secretary to the Minister for Home Affairs

Customs Act 1901

Customs Amendment (Product Specific Rule Modernisation) Regulations 2021

The Customs Act 1901 (the Customs Act) concerns customs related functions and is the legislative authority that sets out the customs requirements for the importation, and exportation, of goods to and from Australia.

Subsection 270(1) of the Customs Act provides, in part, that the Governor-General may make regulations not inconsistent with the Act prescribing all matters, which by the Act are required or permitted to be prescribed or as may be necessary or convenient to be prescribed for giving effect to the Act.

The Customs Amendment (Product Specific Rule Modernisation) Act 2021 (the PSR Modernisation Act), which received Royal Assent on 16 February 2021, amends the Customs Act to facilitate and streamline the way in which the product specific rules of origin (PSRs) of six of Australia's free trade agreements (FTAs) are given effect domestically. These six FTAs are the:

(a) Australia-United States Free Trade Agreement (AUSFTA);

(b) Thailand-Australia Free Trade Agreement (TAFTA);

(d) Australia-Chile Free Trade Agreement (ACLFTA);

(e) Malaysia-Australia Free Trade Agreement (MAFTA); and

(f) Korea-Australia Free Trade Agreement (KAFTA).

Formerly, the PSRs for these FTAs were implemented domestically in regulations made under the Customs Act. The relevant provisions for these FTAs in the Customs Act as amended by the PSR Modernisation Act instead now applies the PSRs for each FTA by direct reference to the PSR Annex in the relevant FTA. This negates the need for the PSRs to be prescribed in regulations made under the Customs Act.

These amendments mirror those made to the Customs Act by the Customs Amendment (Product Specific Rule Modernisation) Act 2018 (the 2018 PSR Modernisation Act), which applied the PSRs by direct reference to the PSR Annexes for the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area, the China-Australia Free Trade Agreement and the Japan-Australia Economic Partnership Agreement.

The legislation implementing Australia's more recent FTAs with Indonesia, Peru, Singapore, Hong Kong, as a Special Administrative Region of China, as well as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Pacific Agreement on Closer Economic Relations Plus all apply the associated PSR Schedule of the FTA by direct reference.

The PSR Modernisation Act ensures consistency of approach across all FTAs. The PSRs for FTAs are presented using the Harmonized Commodity Description and Coding System (HS). The HS is the internationally agreed nomenclature for classifying traded goods under the International Convention on the Harmonized Commodity Description and Coding System 1988 that is periodically updated by members of the World Customs Organisation to reflect changes in trading patterns. Australia implements these periodic updates to the HS through amendments to the Customs Tariff Act 1995 for tariffs purposes. Australia must also agree with our FTA partners to transpose the PSR annex of a FTA from a previous version of the HS to the latest version of the HS.

Such transpositions are technical in nature and, importantly, must maintain existing obligations and commitments made under an FTA. They do not seek to expand or limit the scope of existing FTA commitments. The amendments also do not alter or change Australia's normal treaty making processes, including requiring ministerial and Executive Council approval prior to signature and scrutiny by Parliament through the Joint Standing Committee on Treaties.

The Customs Amendment (Product Specific Rule Modernisation) Regulations 2021 (the Regulations) are consequential to the amendments made to the Customs Act by the PSR Modernisation Act. The purpose of the Regulations is to repeal the relevant parts of each regulation that prescribe PSRs for AUSFTA, TAFTA, ANZCERTA, ACLFTA, MAFTA and KAFTA. The Regulations also make technical amendments to each regulation to align them more closely with the FTA they implement, to reflect modern drafting practice and for consistency across the regulations.

These amendments do not change the operation of any of the PSRs. Details of the Regulations are set in Attachment A.

As the amendments are technical in nature and do not affect the operation of any of the FTAs that are the subject of the Act, or the effect of any domestic legislation, consultation with industry was not undertaken. Industry rightly expect that Australia will implement updates to any PSR as soon as possible upon agreement between Parties and simultaneously with FTA partners.

Furthermore, industry raised no concerns with the approach taken with regards to the China-Australia Free Trade Agreement, Japan-Australia Economic Partnership Agreement or the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area under the 2018 PSR Modernisation Act.

A Statement of Compatibility with Human Rights in respect of the amendments contained in the Regulations are at Attachment B. The assessment is that the Regulations are compatible with Australia's human rights obligations.

The Regulations are a legislative instrument for the purposes of the Legislation Act 2003.

The Regulations commence at the same time as the commencement of the PSR Modernisation Act, which will be on a date to be fixed by the Customs Amendment (Product Specific Rule Modernisation) Commencement Proclamation 2021; being 9 April 2021.

OPC64136 - B

ATTACHMENT A

Details of the Customs Amendment (Product Specific Rule Modernisation) Regulations 2021

Section 1 - Name

This section provides that the title of the instrument is the Customs Amendment (Product Specific Rule Modernisation) Regulations 2021 (the Regulations).

Section 2 - Commencement

This section sets out, in a table, the date on which each of the provisions contained in the Regulations commence.

Table item 1 provides for the whole instrument to commence at the same time as the Customs Amendment (Product Specific Rule Modernisation) Act 2021 (the PSR Modernisation Act) commences.

Section 3 - Authority

This section sets out the authority under which the Regulations are to be made, which is the Customs Act 1901 (the Customs Act).

Section 4 - Schedules

This section provides for each instrument that is specified in a Schedule to this instrument is to be amended or repealed as set out in the applicable items in the Schedule concerned, and for any other item in a Schedule to this instrument to have effect according to its own terms.

The instruments that are being amended are:

* the Customs (Australia-US Free Trade Agreement) Regulations 2004 (the US Regulations);

* the Customs (Thailand-Australia Free Trade Agreement) Regulations 2004 (the Thai Regulations);

* the Customs (New Zealand Rules of Origin) Regulations 2006 (the NZ Regulations);

* the Customs (Chilean Rules of Origin) Regulations 2008 (the Chilean Regulations);

* the Customs (Malaysian Rules of Origin) Regulation 2012 (the Malaysian Regulation); and

* the Customs (Korean Rules of Origin) Regulation 2014 (the Korean Regulation).

Schedule 1-Amendments

Part 1-US Originating Goods

Customs (Australia-US Free Trade Agreement) Regulations 2004

Background

Annex 4-A and Annex 5-A of the Australia-US Free Trade Agreement (AUSFTA) together set out the Product Specific Rules of Origin (PSRs) used to determine if goods produced in the United States of America (US), or in the US and Australia, from non-originating materials, are originating goods (US originating goods) and, as such, eligible for preferential tariff treatment. Annex 4-A sets out the PSRs for goods that are textile or apparel, whilst Annex 5-A sets out the PSRs for all other goods.

Division 1C of Part VIII of the Customs Act sets out the legislative framework relating to US originating goods. Under the Customs Tariff Act 1995 (the Customs Tariff Act), preferential tariff treatment applies to US originating goods.

The PSRs are prescribed in the US Regulations.

The amendments to the Customs Act in Part 1 of Schedule 1 to the PSR Modernisation Act enable the direct application of Annexes 4-A and 5-A of AUSFTA to goods imported into Australia from the US and remove the need for the PSRs to be prescribed in regulations.

The purpose of the amendments in Part 1 of the Regulations is to repeal the PSRs from the US Regulations. In addition, technical amendments are made, which aim to align the US Regulations more closely with the provisions of AUSFTA, for consistency with other regulations made under Part VIII of the Customs Act, and to reflect modern drafting practices.

Item 1 - Regulation 1.3

Former regulation 1.3 of the US Regulations provided definitions for certain terms used in the US Regulations. This item repeals former regulation 1.3 and substitutes it with two new regulations.

New regulation 1.3 provides that the US Regulations are made under the Customs Act.

New regulation 1.4 provides the definitions for certain terms used in the US Regulations. The definitions for the terms 'US originating goods', 'Harmonized System' and 'Harmonized US Tariff Schedule' are repealed. The repeal of these definitions is consequential to the amendment to Parts 2, 3 and 4, and the repeal of Part 5 and Schedules 1 and 2, of the US Regulations, which are amended and repealed as a consequence of the amendments to the Customs Act by the PSR Modernisation Act, described below.

Two new definitions are inserted into the definitions provided by new regulation 1.4. These are:

* 'Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994' means the Agreement of that name set out in Annex 1A of the Marrakesh Agreement Establishing the World Trade Organization, done at Marrakesh on 15 April 1994; and

* 'US' means the United States of America.

The addition of the first of these terms is consequential to the amendments to the Customs Act by the PSR Modernisation Act. The second term is added for clarity and has the same meaning given in subsection 153YA(1) of the Customs Act.

In addition, this item makes minor changes to the way in which references to relevant provisions in the Customs Act are made for the definitions, for consistency with current drafting practice.

Item 2 - Parts 2 to 5

This item repeals former Parts 2, 3, 4 and 5 of the US Regulations, and substitutes them with new Parts 2, 3 and 4.

New Part 2

New Part 2 - Tariff change requirement replaces former Part 2 - Regional value content requirement (Build-up method and build-down method).

Former Part 2 provided the regional value content calculation for the purposes of former paragraphs 153YE(1)(c) and 153YH(1)(c) of the Customs Act. Former paragraph 153YE(1)(c) provided that each requirement specified in the regulation to apply in relation to goods (other than goods that are clothing or textiles) is satisfied. Former paragraph 153YH(1)(c) provided that each requirement specified in the regulation to apply in relation to goods that are clothing or textiles is satisfied. The PSR Modernisation Act repealed sections 153YE and 153YH and substituted them with new section 153YD which includes the requirement at paragraph 153YD(1)(c) that goods must satisfy the requirements applicable to the goods in either Annex 4-A or Annex 5-A of AUSFTA. The amendment is consequential to the application of Annexes 4-A and 5-A by direct reference in the Customs Act.

The regional value content calculation under former Part 2 is replicated in new Part 3.

Former subsection 153YE(1), section 153YF and subsection 153YH(1) provided that a good to which a tariff classification specified in column 2 of either the Schedule 1 tariff table or the Schedule 2 tariff table applied must satisfy a change of tariff classification requirement under former subsection 153YE(2) or 153YH(2), if one applies to it.

Former subsections 153YE(2) and (8), and subsections 153YH(2) and (7) provided the circumstances where a non-originating good that satisfies a change in tariff classification requirement would be a US originating good. Former paragraph 153YF(d) provided that the US Regulations may specify particular rules in column 3 of the Schedule 1 tariff table.

'Schedule 1 tariff table' and 'Schedule 2 tariff table' were defined in subsection 153YA(1) to mean the table in former Schedule 1 and Schedule 2 to the US Regulations, respectively.

The PSR Modernisation Act repealed and substituted section 153YD of the Customs Act. New subsection 153YD(3) contains a provision enabling the regulations to prescribe when a non-originating material used in the production of goods is taken to satisfy a change in tariff classification requirement, if one applies.

As a consequence, new Part 2 sets out the tariff change requirement for the purposes of new subsection 153YD(3) of the Customs Act.

New Part 2 sets out when a non-originating material used in the production of goods that does not satisfy a particular change in tariff classification will be taken to satisfy the change in tariff classification.

New Part 3

This item repeals former Part 3 - Regional value content requirement (net cost method) and substitutes it with new Part 3 - Regional value content requirement.

As noted above, former Part 2 provided the regional value content calculation for the purposes of former paragraphs 153YE(1)(c) and 153YH(1)(c) of the Customs Act. Former Part 3 provided for the alternative method of calculating the regional value content for the purposes of the same provisions. As noted above, the PSR Modernisation Act repealed sections 153YE and 153YH and substituted paragraphs 153YE(1)(c) and 153YH(1)(c) with a requirement at new paragraph 153YD(1)(c) that goods must satisfy the requirements applicable to the goods in either Annex 4-A or Annex 5-A of AUSFTA. The amendment is consequential to the application of Annexes 4-A and 5-A by direct reference in the Customs Act.

New Part 3 replaces both former Part 2 and Part 3.

New subsection 153YD(7) of the Customs Act provides that, if a requirement that applies in relation to the goods is that the goods must have a regional value content (RVC) of not less than a particular percentage worked out in a particular way:

(a) the RVC of the goods is to be worked out in accordance with the Agreement; or

(b) if the regulations prescribe how to work out the RVC of the goods--the RVC of the goods is to be worked out in accordance with the regulations.

For the purpose of, and consequential on, new subsection 153YD(7) of the Customs Act, regulations 3.1, 3.2 and 3.3 under new Part 3 prescribe the 'Build-down method', the 'Build-up method' and the 'Net cost method' respectively under which the RVC of goods is calculated.

New regulations 3.1, 3.2 and 3.3 replicate the methods under former regulations 2.2, 2.3 and 3.3, but with the following technical changes:

* the formula for the build-down method and the build-up method now refer to the term 'customs value' for working out the regional value content of goods. Previously, these formulae referred to the term 'adjusted value'. The change is to the term referenced and not to the meaning of the term itself, which remains the same and means the customs value of the good;

* the term 'value of non-originating materials' for the three formulae are amended to clarify that it does not include the value of non-originating materials produced by the producer. The changes mirror the same qualifications as set out in Article 5.4 of Chapter 5 to the Agreement for the meaning of value of non-originating materials;

* the terms 'automotive component'; class of motor vehicles'; generally accepted accounting principles'; 'model line'; 'motor vehicle'; and 'non-allowable interest costs' in former regulation 3.1 are not replicated in new regulation 3.3. These terms are not replicated as a consequence of defining the term 'net cost' to be worked out by direct reference to Articles 5.4 and 5.18 of Chapter 5 of the AUSFTA, which contains the same terms not replicated.

The operation of former Parts 2 and 3 is not changed by these amendments.

New Part 4

This item repeals former Part 4 - Determination of value and substitutes it with a new Part 4 - Determination of value. Technical amendments are made to Part 4 so that it aligns with Article 5.5 of Chapter 5 of the AUSFTA more closely, and to reflect modern drafting practice. The operation of Part 4 is not changed by these amendments.

New regulation 4.1 - Value of goods that are originating materials or non-originating materials

New subsection 153YA(2) of the Customs Act provides that the value of goods for the purposes of Division 1C is to be worked out in accordance with the regulations, and the regulations may prescribe different valuation rules for different kinds of goods.

New regulation 4.1 replaces, but does not change the operation of, former regulations 4.1 and 4.2, and, for the purposes of new section 153YD of the Customs Act, sets out how the value of originating materials or non-originating materials used in the production of goods is worked out.

Subregulation 4.1(2) incorporates the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (GATT), in order that certain calculations and definitions of value may be made according to the relevant provisions in GATT, rather than under section 402 of the Tariff Act of 1930 of the US, as amended by the Trade Agreements Act of 1979, which also provides for calculation of value in accordance with GATT. This is a technical amendment which does not change the operation of former regulations 4.2.

GATT is not a disallowable legislative instrument and as such, in accordance with paragraph 14(1)(b) of the Legislation Act 2003, is applied, adopted or incorporated as in force or existing at the time when the Regulations commenced. This means that should the relevant provisions of GATT be updated, amendment to the US Regulations will be necessary to ensure that the updates are incorporated.

GATT is available to be viewed for free on the World Trade Organization website https://www.wto.org/index.htm.

New regulation 4.2 - Value of accessories, spare parts or tools

New regulation 4.2 replaces, but does not change the operation of, former regulation 4.3, and provides when the value of accessories, spare parts or tools are to be taken into account for the purposes of working out the RVC of goods for the purpose of new subsection 153YD(8) of the Customs Act.

New regulation 4.3 - Value of packaging material and container

New regulation 4.3 replaces, but does not change the operation of, former regulation 4.4, and provides when the value of packaging material and containers are to be taken into account in working out the RVC for the purpose of new subsection 153YK(2) of the Customs Act.

Former regulation 4.5

The PSR Modernisation Act repealed subsection 153YH(5) of the Customs Act and substituted it with new subsection 153YD(10) which provides how goods put up in a set for retail sale may be US originating goods under section 153YD. This renders former regulation 4.5 redundant and as such, it is not replicated.

Former Part 5

This item repeals former Part 5-Exceptions to the De Minimis requirement in Article 5.2 of Chapter 5 of the Agreement. Former Part 5 sets out non-originating materials to which the de minimis rule is not available if those non-originating materials are used in the production of US originating goods.

The PSR Modernisation Act repealed former section 153YE which provided for the US regulations to prescribe non-originating materials, and inserted new subsection 153YD(5) which applies the exception to the de minimis rule by direct reference to paragraph 2 of Article 5.2 of Chapter 5 of the Agreement. Former Part 5 is therefore redundant and as such, it is not replicated.

Item 3 - Schedules 1 and 2

This item repeals former Schedules 1 and 2 to the US Regulations. Former Schedule 1 provided the PSRs that apply to goods that are not textiles and clothing. Schedule 2 provides the PSRs that apply to goods that are textile and clothing. Amendments to Division 1C of Part VIII of the Customs Act in the PSR Modernisation Act apply Annexes 4-A and 5-A (containing the PSRs) in the Customs Act by direct reference. As a result, there is no requirement for the PSRs to be prescribed in regulations. Further, any references in Division 1C that were to requirements contained in the regulations, which in turn prescribed the requirements contained in the AUSFTA, have been amended and now refer directly to requirements in the Agreement. These amendments by the PSR Modernisation Act render former Schedules 1 and 2 obsolete and the Regulations therefore repeal them.

Part 2-Thai originating goods

Customs (Thailand-Australia Free Trade Agreement) Regulations 2004

Background

Annex 4.1 of the Thailand-Australia Free Trade Agreement (TAFTA) sets out the PSRs used to determine if goods produced in Thailand, or in Thailand and Australia, from non-originating materials, are originating goods (Thai originating goods) and as such, eligible for preferential tariff treatment.

Division 1D of Part VIII of the Customs Act sets out the legislative framework relating to Thai originating goods. Under the Customs Tariff Act, preferential tariff treatment apply to Thai originating goods.

The PSRs are prescribed in the Thai Regulations.

The amendments to the Customs Act in Part 2 of Schedule 1 to the PSR Modernisation Act enable the direct application of Annex 4.1 of TAFTA to goods imported into Australia from Thailand and remove the need for the PSRs to be prescribed in regulations.

The purpose of the amendments in Part 2 of the Regulations is to repeal the PSRs from the Thai Regulations. In addition, technical amendments are made, which aim to align the Thai Regulations more closely with the provisions of TAFTA, and to reflect modern drafting practices.

Item 4 - Regulation 1.3

Former regulation 1.3 of the Thai Regulations provided definitions for certain terms used in the Thai Regulations. This item repeals former regulation 1.3 and substitute it with two new regulations.

New regulation 1.3 provides that the Thai Regulations are made under the Customs Act.

New regulation 1.4 provides the definitions for certain terms used in the Thai Regulations. The definitions for 'Thai originating goods' and 'Interpretation Rules' are repealed. In addition, two new definitions are inserted into the definitions provided by new regulation 1.4. These are:

* 'developing country' means a country or place listed in Schedule 1 to the Customs Tariff Act 1995, as in force on 1 January 2005.

The repeal of definitions and insertion of new definitions is consequential to the amendment of Parts 2, 3 and 4 and the repeal of Schedule 1, of the Thai Regulations, which are amended and repealed as a consequence of the amendments to Division 1D of Part VIII of the Customs Act by the PSR Modernisation Act.

Item 5 - Parts 2 to 4

This item repeals former Parts 2, 3 and 4 of the Thai Regulations and substitutes them with new Parts 2, 3 and 4.

New Part 2

New Part 2 of the Thai Regulations replaces former Part 2-Tariff change requirements. Former subsection 153ZD(2) of the Customs Act provided that regulations may specify that each non-originating material used to produce goods is required to satisfy a specified change in tariff classification. Former subsection 153ZD(2) provided that the regulations may also set out when a non-originating material used to produce of goods is taken to satisfy the change in tariff classification.

The PSR Modernisation Act repealed former sections 153ZC to 153ZE of the Customs Act and substituted them with a new section 153ZC, which relevantly enabled the direct application of Annex 4.1 of TAFTA to goods imported into Australia from Thailand and removed the need for the Annex to be prescribed in regulations. New subsection 153ZC(3) provides that, if a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification, the regulations may prescribe when a non-originating material used in the production of the goods is taken to satisfy the change in tariff classification.

As a consequence, new Part 2, sets out the tariff change requirement for the purposes of new subsection 153ZC(3) of the Customs Act.

The operation of Part 2 is not changed by these amendments.

New Part 3

New Part 3 of the Thai Regulations replaces former Part 3 - Regional value content requirement.

The PSR Modernisation Act repealed and substituted section 153ZC of the Customs Act. For the purpose of, and consequential on, new subsection 153ZC(5), regulation 3.1 under new Part 3 prescribes the method by which the RVC of goods is calculated.

In effect, new regulation 3.1 consolidates former regulations 3.1 and 3.2. New subregulation 3.2(3) provides for the value of non-originating materials that are produced in a developing country to be subtracted from the calculation of the RVC for goods classified in Chapters 50 to 64 of the Harmonized System, up to an amount that is 25% of the customs value of the goods. New subregulation 3.1(4) provides, in line with the requirements under Article 403 of Chapter 4 of TAFTA, that new subregulation 3.1(3) ceases to have effect at the end of 31 December 2024.

The operation of this Part is not changed by these amendments.

Former regulation 3.3-Value of accessories, spare parts of tool, and former regulation 3.4-Value of packaging materials and containers, are replicated in new Part 4. This is for consistency across rule of origin regulations made under Part VIII of the Customs Act.

New Part 4

New Part 4 of the Thai Regulations replaces former Part 4 - Determination of value. Technical amendments are made to Part 4 so that it aligns with Chapter 4 of the TAFTA more closely, and to reflect modern drafting practice. The operation of Part 4 is not changed by these amendments.

New regulation 4.1 - Value of goods that are non-originating materials

New regulation 4.1 replaces, but does not change the operation of former regulation 4.1, and sets out how the value of non-originating materials used in the production of goods is worked out, for the purposes of new section 153ZC of the Customs Act.

New subregulation 4.1(1) provides that the value of the non-originating materials is the value of the non-originating materials worked out in accordance with GATT. As noted previously, GATT is incorporated as in force or existing when the Regulations commence.

New regulation 4.2 - Value of accessories, spare parts or tools

New regulation 4.2 replaces former regulation 3.3 but does not change its operation in determining when the value of accessories, spare parts or tools are to be taken in to account for the purposes of working out the RVC of goods for new subsection 153ZC(6) of the Customs Act.

New regulation 4.3 - Value of packaging material and container

New regulation 4.3 replaces former regulation 3.4 but does not change its operation in determining when the value of packaging material and containers are to be taken in to account for the purposes of working out the RVC of goods for new subsection 153ZG(2) of the Customs Act.

Item 6 - Schedule 1

This item repeals former Schedule 1, of the Thai Regulations, which prescribed the PSRs. Amendments to Division 1D of Part VIII of the Customs Act in the PSR Modernisation Act apply Annex 4.1 (containing the PSRs) in the Customs Act by direct reference. As a result, there is no requirement for the PSRs to be prescribed in regulations. Further, references in Division 1D that were to requirements contained in the regulations, which in turn prescribed the requirements contained in the TAFTA, have been amended and now refer directly to requirements in the Agreement. These amendments by the PSR Modernisation Act render former Schedule 1 obsolete and the Regulations repeal it.

Part 3 - New Zealand originating goods

Customs (New Zealand Rules of Origin) Regulations 2006

Background

Annex G of the Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) sets out the PSRs used to determine if goods produced in New Zealand, or New Zealand and Australia, from non-originating materials, are New Zealand originating goods and as such, eligible for preferential tariff treatment.

Division 1E of Part VIII of the Customs Act sets out the legislative framework relating to New Zealand originating goods. Under the Customs Tariff Act, preferential tariff treatment apply to New Zealand originating goods.

The PSRs are prescribed in the NZ Regulations.

The amendments to the Customs Act in Part 3 of Schedule 1 to the PSR Modernisation Act enable the direct application of Annex G of ANZCERTA to goods imported into Australia from New Zealand and remove the need for the PSRs to be prescribed in regulations.

The purpose of the amendments in Part 3 of the Regulations is to repeal the PSRs from the NZ Regulations. In addition, technical amendments are made, which aim to align the NZ Regulations more closely with the provisions of ANZCERTA, and to reflect modern drafting practices.

Item 7 - Regulation 1.3

Former regulation 1.3 of the NZ Regulations provided definitions for certain terms used in the NZ Regulations. This item repeals former regulation 1.3 and substitute it with two new regulations.

New regulation 1.3 provides that the NZ Regulations are made under the Customs Act.

New regulation 1.4 provides the definitions for certain terms used in the NZ Regulations. The definitions for the terms 'Harmonized System', 'New Zealand originating goods' and 'self-produced' are repealed. In addition, the new term 'Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994' is inserted, to mean the Agreement of that name set out in Annex 1A of the Marrakesh Agreement Establishing the World Trade Organization, done at Marrakesh on 15 April 1994. These amendments are consequential to the repeal and substitution of Parts 2, 3, 4 and 5, and the repeal of Schedule 1, of the NZ Regulations, which are amended and repealed as a consequence of the amendments to Division 1E of Part VIII of the Customs Act by the PSR Modernisation Act.

Item 8 - Parts 2 to 5

This item repeals former Parts 2, 3, 4 and 5 of the NZ Regulations, and substitutes them with new Parts 2, 3 and 4.

New Part 2

New Part 2 of the NZ Regulations replaces former Part 2 - Tariff change requirements. Former subsection 153ZIE(2) of the Customs Act provided that regulations may specify that each non-originating material used in the production of goods is required to satisfy a specified change in tariff classification. Former subsection 153ZIE(3) of the Customs Act provided that the regulations may also specify when a non-originating material used in the production of goods is taken to satisfy the change in tariff classification.

The PSR Modernisation Act repealed and substituted section 153ZIE, and replicated both the regulation enabling provisions, mentioned, in new subsection 153ZIE(3). The operation of former subsections 153ZJE(2) and (3) is not changed.

As a consequence, new Part 2 sets out the tariff change requirement for the purposes of new subsection 153ZIE(3) of the Customs Act.

The operation of Part 2 is not changed by these amendments.

New Part 3

New Part 3 of the NZ Regulations replaces, but does not change the operation of, both former Part 3 - Regional value content requirement, and former Part 4-Factory cost.

The PSR Modernisation Act repealed and substituted section 153ZIE of the Customs Act. For the purposes of, and consequential on, new subsection 153ZIE(5) of the Customs Act, regulations 3.1 and 3.2 under new Part 3 prescribe the methods by which the RVC of goods is calculated, being the Build-down, and the Build-up, respectively. New regulation 3.3 replaces former Part 4 of the NZ Regulations and, for the purposes of new subsection 153ZIE(5), prescribes the Factory cost method.

The operation of former Parts 3 and 4 is not changed by these amendments.

New Part 4

This item replaces former Part 4 - Factory cost (which is now provided in new Part 3) and former Part 5 - Determination of value, with new Part 4 - Determination of value. Technical amendments are made to Part 4 so that it aligns with Article 3 of the ANZCERTA more closely, and to reflect modern drafting practice. The operation of Part 4 is not changed by these amendments.

New regulation 4.1 - Value of goods that are originating materials or non-originating materials

New regulation 4.1 replaces former regulations 5.1 and 5.2, and sets out how the value of originating and non-originating materials used in the production of goods is worked out for the purposes of subsection 153ZIB(3) and new section 153ZIE of the Customs Act.

New subregulation 4.1(2) provides the method for working out the value of originating and non-originating materials. Paragraph 4.1(2)(a) incorporates GATT, in order that certain calculations and definitions of value may be made according to the relevant provisions in GATT, rather than the Customs and Excise Regulations 1996 (New Zealand), which also provide for calculation of value in accordance with GATT. This is a technical amendment and does not change the operation of former regulation 5.2.

As noted previously, GATT is incorporated as in force or existing at the time when the Regulations commence.

New regulation 4.2 - Value of accessories, spare parts or tools

New regulation 4.2 replaces former regulation 5.3, but does not change its operation in prescribing when the value of accessories, spare parts or tools are to be taken into consideration for the purposes of working out the RVC of goods for new subsection 153ZIE(6) of the Customs Act.

New regulation 4.3 - Value of packaging material and container

New regulation 4.3 replaces former regulation 5.4, but does not change its operation in determining when the value of packaging material and containers are to be taken in to account for the purposes of working out the RVC of goods for new subsection 153ZIF(2) of the Customs Act.

Former Part 5

This item repeals former Part 5, which provided for the Determination of value. As a result of the repeal and substitution of former Part 3 - Regional value content requirement, and former Part 4-Factory cost, with new Part 3, Part 5 is replaced with new Part 4. This renders former Part 5 redundant and as such, is not replicated.

Item 9 - Schedule 1

This item repeals former Schedule 1, of the NZ Regulations, which provided the PSRs. Amendments to Division 1E of Part VIII of the Customs Act in the PSR Modernisation Act apply Annex G (containing the PSRs) in the Customs Act by direct reference. As a result, there is no requirement for the PSRs to be prescribed in regulations. Further, references in Division 1G that were to requirements contained in the regulations, which in turn prescribed the requirements contained in ANZCERTA, have been amended and now refer directly to requirements in the Agreement. These amendments by the PSR Modernisation Act render former Schedule 1 obsolete and the Regulations repeal it.

Part 4-Chilean originating goods

Customs (Chilean Rules of Origin) Regulations 2008

Background

Annex 4-C of the Australia-Chile Free Trade Agreement (ACLFTA) sets out the PSRs used to determine if goods produced in Chile, or in Chile and Australia, from non-originating materials, are originating goods (Chilean originating goods) and as such, eligible for preferential tariff treatment.

Division 1F of Part VIII of the Customs Act sets out the legislative framework relating to Chilean originating goods. Under the Customs Tariff Act, preferential tariff treatment apply to Chilean originating goods.

The PSRs are prescribed in the Chilean Regulations.

The amendments to the Customs Act in Part 4 of Schedule 1 to the PSR Modernisation Act enable the direct application of Annex 4-C of ACLFTA to goods imported into Australia from Chile and remove the need for the PSRs to be prescribed in regulations.

The purpose of the amendments in Part 4 of the Regulations is to repeal the PSRs from the Chilean Regulations. In addition, technical amendments are made, which aim to align the Chilean Regulations more closely with the provisions of ACLFTA, and to reflect modern drafting practices.

Item 10 - Regulation 1.3

Former regulation 1.3 of the Chilean Regulations provided definitions for certain terms used in the Chilean Regulations. This item repeals former regulation 1.3 and substitute it with two new regulations.

New regulation 1.3 provides that the Chilean Regulations are made under the Customs Act.

New regulation 1.4 provides the definitions for certain terms used in the Chilean Regulations. The definitions for 'Chilean originating goods', 'Harmonized System' and 'Interpretation Rules' are repealed. In addition, three new definitions are inserted into the definitions provided by new regulation 1.4. These are:

* 'territory of Australia' has the meaning given by section 153ZJB;

* 'territory of Chile' has the meaning given by section 153ZJB.

The repeal and insertion of these definitions is consequential to the repeal and substitution of former Parts 2, 3 and 4 and the repeal of Schedule 1, of the Chilean Regulations, which are amended and repealed as a consequence of the amendments to Division 1F of Part VIII of the Customs Act by the PSR Modernisation Act.

Item 11 - Parts 2 to 4

This item repeals former Parts 2, 3 and 4 of the Chilean Regulations, and substitutes them with new Parts 2, 3 and 4.

New Part 2

New Part 2 of the Chilean Regulations replaces former Part 2-Tariff change requirement. Former subsection 153ZJE(2) of the Customs Act provided that regulations may specify that each non-originating material used in the production of goods is required to satisfy a specified change in tariff classification. In addition, former subsection 153ZJE(3) provided that the regulations may also specify when a non-originating material used in the production of goods is taken to satisfy the change in tariff classification.

The PSR Modernisation Act repealed and substituted section 153ZJE, and replicated both the regulation enabling provisions, mentioned, in new subsection 153ZJE(3). The operation of former subsections 153ZJE(2) and (3) is not changed.

As a consequence, new Part 2 sets out the tariff change requirement for the purposes of new subsection 153ZJE(3) of the Customs Act.

The operation of Part 2 is not changed by these amendments.

New Part 3

New Part 3 of the Chilean Regulations replaces former Part 3 - Regional value content requirement.

The PSR Modernisation Act repealed and substituted section 153ZJE of the Customs Act. For the purpose of, and consequential on, new subsection 153ZJE(5), regulation 3.1 under new Part 3 replaces, but does not change the operation of former regulations 3.1 and 3.2, and prescribes the method by which the RVC of goods is calculated.

The operation of Part 3 is not changed by these amendments.

New Part 4

New Part 4 of the Chilean Regulations replaces former Part 4 - Determination of value. Technical amendments are made to Part 4 so that it more closely aligns with Chapter 4 of the ACLFTA, and to reflect modern drafting practice. The operation of Part 4 is not changed by these amendments.

New regulation 4.1 - Value of goods that are non-originating materials

New regulation 4.1 replaces, but does not change the operation of, former regulation 4.1, and sets out how the value of non-originating materials used in the production of goods is worked out for the purposes of new section 153ZJE of the Customs Act.

New subregulation 4.1(1) provides the method for working out the value of originating and non-originating materials. Paragraph 4.1(1)(a) incorporates GATT, in order that certain calculations and definitions of value may be made according to the relevant provisions in GATT, rather than Law No. 19.912 published on 4 November 2003 in the Official Journal of the Republic of Chile, which also provides for calculation of value in accordance with GATT. This is a technical amendment and does not change the operation of regulation 4.1

As noted previously, GATT is incorporated as in force or existing at the time when the Regulations commence.

New regulation 4.2 - Value of accessories, spare parts, tools or instructional or other information resources

New regulation 4.2 replaces former regulation 4.2, but does not change its operation in prescribing when the value of accessories, spare parts, tools or instructions or other information resources are to be taken into consideration for the purposes of working out the RVC of goods for new subsection 153ZJE(6) of the Customs Act.

New regulation 4.3 - Value of packaging material and container

New regulation 4.3 replaces former regulation 4.3, but does not change its operation in determining when the value of packaging material and containers are to be taken in to account for the purposes of working out the RVC of goods for new subsection 153ZJF(2) of the Customs Act.

Item 12 - Schedule 1

This item repeals former Schedule 1, of the Chilean Regulations, which prescribes the PSRs. Amendments to Division 1F of Part VIII of the Customs Act in the PSR Modernisation Act apply Annex 4-C (containing the PSRs) in the Customs Act by direct reference. As a result, there is no requirement for the PSRs to be prescribed in regulations. Further, references in Division 1F that were to requirements contained in the regulations, which in turn prescribed the requirements contained in ACLFTA, have been amended and now refer directly to requirements in the Agreement. These amendments by the PSR Modernisation Act render former Schedule 1 obsolete and the Regulations therefore repeal it.

Part 5-Malaysian originating goods

Customs (Malaysian Rules of Origin) Regulation 2012

Background

Annex 2 of the Malaysia-Australia Free Trade Agreement (MAFTA) sets out the PSRs used to determine if goods produced in Malaysia, or Malaysia and Australia, from non-originating materials, are Malaysian originating goods and as such, eligible for preferential tariff treatment.

Division 1H of Part VIII of the Customs Act sets out the legislative framework relating to Malaysian originating goods. Under the Customs Tariff Act, preferential tariff treatment apply to Malaysian originating goods.

The PSRs are prescribed in the Malaysian Regulation.

The amendments to the Customs Act in Part 5 of Schedule 1 to the PSR Modernisation Act enable the direct application of Annex 2 of MAFTA to goods imported into Australia from Malaysia and remove the need for the PSRs to be prescribed in regulations.

The purpose of the amendments in Part 5 of the Regulations is to repeal the PSRs from the Malaysian Regulations. In addition, technical amendments are made, which aim to align the Malaysia Regulation more closely with the provisions of MAFTA and to reflect modern drafting practices.

Item 13 - Section 1.3

Former section 1.3 of the Malaysian Regulation provided definitions for certain terms used in the Malaysian Regulation. This item repeals former section 1.3 and substitute it with two new sections.

New section 1.3 provides that the Malaysian Regulation is made under the Customs Act.

New section 1.4 provides the definitions for certain terms used in the Malaysian Regulation. The definition for the terms 'Certificate of Origin' and 'Malaysian originating goods' is repealed. In addition, the following new terms are inserted:

* 'territory of Australia' has the meaning given by section 153ZLB of the Customs Act;

* 'territory of Malaysia' has the meaning given by section 153ZLB of the Customs Act.

The repeal of a definition and the insertion of new definitions is consequential to the amendments to Parts 2, 3 and 4, and the repeal of Schedule 1, of the Malaysian Regulation, which are amended and repealed as a consequence of the amendments to Division 1H of Part VIII of the Customs Act by the PSR Modernisation Act.

Item 14 - Parts 2 to 5

This item repeals former Parts 2, 3 and 4 of the Malaysian Regulation, and substitutes them with new Parts 2, 3 and 4.

New Part 2

New Part 2 replaces former Part 2 - Tariff change requirement. Former subsection 153ZLE(2) of the Customs Act provided that regulations may prescribe that each non-originating material used in the production of goods is required to satisfy a specified change in tariff classification. Former subsection 153ZLE(3) of the Customs Act provided that the regulations may also prescribe when a non-originating material used in the production of goods is taken to satisfy the change in tariff classification.

The PSR Modernisation Act repealed and substituted section 153ZLE, and replicated both the regulation enabling provisions, mentioned, in new subsection 153ZLE(3). The operation of former subsections 153ZLE(2) and (3) is not changed.

As a consequence, new Part 2 sets out the tariff change requirement for the purposes of new subsection 153ZLE(3) of the Customs Act.

The operation of Part 2 is not changed by these amendments.

New Part 3

New Part 3 replaces former Part 3 - Regional value content requirement.

The PSR Modernisation Act repealed and substituted section 153ZLE of the Customs Act. For the purposes of, and consequential on, new subsection 153ZLE(6) of the Customs Act, sections 3.1 and 3.2 under new Part 3 prescribe the methods by which the RVC of goods is calculated, being the Build-down and the Build-up methods, respectively.

The operation of Part 3 is not changed by these amendments.

New Part 4

This item repeals former Part 4 - Determination of value, and substitutes it with new Part 4 - Determination of value. Technical amendments are made to Part 4 so that it aligns with Article 3.12 of the MAFTA more closely, and to reflect modern drafting practice. The operation of Part 4 is not changed by these amendments.

New section 4.1 - Value of goods that are originating materials or non-originating materials

New section 4.1 replaces, but does not change the operation of, former sections 4.1 and 4.2, and sets out how the value of originating and non-originating materials used in the production of goods is worked out, for subsection 153ZLB(3) and new section 153ZLE of the Customs Act.

New paragraph 4.1(2)(a) provides that, for materials imported into the territory of Malaysia by the producer of the goods, the value of the material is worked out in accordance with GATT. As noted previously, GATT is incorporated as in force or existing at the time when the Regulations commence.

New section 4.2 - Value of accessories, spare parts or tools

New section 4.2 replaces, but does not change the operation of, former section 4.3 and provides, for new subsection 153ZLE(7), when the value of accessories, spare parts, tools or instructional or other materials must be taken in to account in working out the RVC of a good.

New section 4.3 - Value of packaging material and container

New section 4.3 replaces, but does not change the operation of, former section 4.4 and provides, for section 153ZLF, when the value of packaging material and containers must be taken into account in working out the RVC content of a good.

Item 15 - Schedule 1

This item repeals former Schedule 1 of the Malaysian Regulation, which prescribed the PSRs. Amendments to Division 1H of Part VIII of the Customs Act in the PSR Modernisation Act apply Annex 2 (containing the PSRs) in the Customs Act by direct reference. As a result, there is no requirement for the PSRs to be prescribed in regulations. Further, references in Division 1H that were to requirements contained in the regulations, which in turn prescribed the requirements contained in MAFTA, have been amended and now refer directly to requirements in the Agreement. These amendments by the PSR Modernisation Act render former Schedule 1 obsolete and the Regulations therefore repeal it.

Part 6 - Korean originating goods

Customs (Korean Rules of Origin) Regulation 2014

Background

Annex 3-A of the Korea-Australia Free Trade Agreement (KAFTA) sets out the PSRs used to determine if goods produced in Korea, or Korea and Australia, from non-originating materials, are Korean originating goods, and as such, eligible for preferential tariff treatment.

Division 1J of Part VIII of the Customs Act sets out the legislative framework for relating to Korean originating goods. Under the Customs Tariff Act, preferential tariff treatment apply to Korean originating goods.

The PSRs are prescribed in the Korean Regulation.

The amendments to the Customs Act in Part 6 of Schedule 1 to the PSR Modernisation Act enable the direct application of Annex 3-A of KAFTA to Korean originating goods imported into Australia from Korea and remove the need for the PSRs to be prescribed in regulations.

The purpose of the amendments in Part 6 of the Regulations is to repeal the PSRs from the Korean Regulations. In addition, technical amendments are made, which aim to align the Korean Regulations more closely with the provisions of the KAFTA, and to reflect modern drafting practices.

Items 16 and 17 - Section 4

Section 4 of the Korean Regulation provided definitions for certain terms used in that Regulation. The amendment by items 16 and 17 to the definitions in section 4 is consequential to the repeal and substitution of Parts 2, 3 and 4, and the repeal of Schedule 1, of the Korean Regulation, which are amended as a consequence of the amendments to Division 1K of Part VIII of the Customs Act by the PSR Modernisation Act.

Item 16 amends section 4 of the Korean Regulation to repeal the following definitions:

* 'chapter';

* 'heading';

* 'Korean originating goods';

* 'subheading'.

Item 17 amends section 4 of the Korean Regulation to insert the following definitions:

* 'territory of Australia' has the meaning given by section 153ZMB of the Customs Act; and

* 'territory of Korea' has the meaning given by section 153ZMB of the Customs Act.

Item 18 - Parts 2 to 4

This item repeals former Parts 2, 3 and 4, and substitutes new Parts 2, 3 and 4.

New Part 2

New Part 2 replaces former Part 2 - Tariff change requirements. Former subsection 153ZME(2) of the Customs Act provided that regulations may prescribe that each non-originating material used in the production of goods is required to satisfy a prescribed change in tariff classification. Former subsection 153ZME(3) of the Customs Act provided that the regulations may also prescribe when a non-originating material used in the production of goods is taken to satisfy the change in tariff classification.

The PSR Modernisation Act repealed and substituted section 153ZME, and replicated both the regulation enabling provisions, mentioned, in new subsection 153ZME(3). The operation of former subsections 153ZME(2) and (3) is not changed.

As a consequence, new Part 2 sets out the tariff change requirement for the purposes of new subsection 153ZME(3) of the Customs Act.

The operation of Part 2 is not changed by these amendments.

New Part 3

New Part 3 replaces former Part 3 - Regional value content requirement.

The PSR Modernisation Act repealed and substituted section 153ZME of the Customs Act. For the purpose of new subsection 153ZME(7) of the Customs Act, sections 6 and 7 under new Part 3 prescribe the methods by which the RVC of the goods is calculated, being the Build-down and the Build-up methods, respectively.

The operation of Part 3 is not changed by these amendments.

New Part 4

This item repeals former Part 4 - Determination of value, and substitutes it with new Part 4 - Determination of value. Technical amendments are made to Part 4 so that it aligns with Article 3.4 of KAFTA more closely, and to reflect modern drafting practice. The operation of Part 4 is not changed by these amendments.

New section 8 - Value of goods that are originating materials or non-originating materials

New section 8 replaces, but does not change the operation of, former section 9, and provides, for the purposes of subsection 153ZMB(3) and new section 153ZME, how the value of originating and non-originating materials used in the production of goods is worked out.

New paragraph 8(2)(a) provides that, for materials imported into the territory of Korea by the producer of the goods, the value of the materials is worked out in accordance with GATT. As noted previously, GATT is incorporated as in force or existing at the time when the Regulations commence.

New section 9 - Value of accessories, spare parts or tools

New section 9 replaces, but does not change the operation of, former section 10. For the purpose of new subsection 153ZME(8), new section 9 provides when the value of accessories, spare parts or tools must be taken into account for the purposes of working out the RVC of a good.

New section 10 - Value of packaging material and container

New section 10 replaces but does not change the operation of, former section 11, and provides, for section 153ZMF, how the value of the packaging material or container to be taken into account for the purposes of working out the RVC of a good.

Item 19 - Schedule 1

This repeals former Schedule 1 of the Korean Regulation, which prescribed the PSRs. Amendments to Division 1J of Part VIII of the Customs Act in the PSR Modernisation Act apply Annex 3-A (containing the PSRs) in the Customs Act by direct reference. As a result, there is no requirement for the PSRs to be prescribed in regulations. Further, references in Division 1J that were to requirements contained in the regulations, which in turn prescribed the requirements contained in KAFTA, have been amended and now refer directly to requirements in the Agreement. These amendments by the PSR Modernisation Act render former Schedule 1 obsolete and the Regulations therefore repeal it.

Attachment B

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Customs Amendment (Product Specific Rule Modernisation) Regulations 2021

The Customs (Product Specific Rule Modernisation) Regulations 2021 (the Regulations) are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

The Regulations are consequential to the amendments made to the Customs Act 1901 (Customs Act) by the Customs Amendment (Product Specific Rule Modernisation) Act 2021 (PSR Modernisation Act).

The purpose of the Regulations is to repeal provisions within six regulations (the FTA Regulations) that were made under section 270(1) of the Customs Act:

* the Customs (Australia-US Free Trade Agreement) Regulations 2004;

* the Customs (Thailand-Australia Free Trade Agreement) Regulations 2004;

* the Customs (New Zealand Rules of Origin) Regulations 2006;

* the Customs (Chilean Rules of Origin) Regulations 2008;

* the Customs (Malaysian Rules of Origin) Regulation 2012; and

* the Customs (Korean Rules of Origin) Regulation 2014.

Provisions within the FTA Regulations previously gave effect domestically to the Product Specific Rules of Origin (PSRs) of six of Australia's Free Trade Agreements (FTAs):

* Australia-United States Free Trade Agreement;

* Thailand-Australia Free Trade Agreement;

* Australia-New Zealand Closer Economic Relations Trade Agreement;

* Australia-Chile Free Trade Agreement;

* Malaysia-Australia Free Trade Agreement; and

* Korea-Australia Free Trade Agreement;

However, as the PSR Modernisation Act applies the PSRs by direct reference to the PSR Annex of the relevant FTA, provisions within the FTA Regulations that prescribed the PSRs are now redundant.

PSRs are an essential component of FTAs that must be met by importers seeking preferential tariff treatment for goods that include materials not originating in the territories covered by the FTA. If the goods satisfy an FTA's PSRs, it is considered to 'originate' in an FTA Party and is entitled to receive preferential treatment in relation to the payment of customs duty on import into Australia under the Customs Tariff Act 1995.

In addition, technical amendments consequential to the repeal of those provisions are also made to align them more closely with the FTA they implement, to reflect modern drafting practice and for consistency across the regulations.

Human rights implications

The amendments made by the Regulations are technical in nature and will not affect the operation of any of the FTAs listed above, or the operation of any domestic legislation. Given the Regulations are technical in nature, the Regulations do not engage any of the applicable rights or freedoms.

Conclusion

The Regulations are compatible with human rights as they do not raise any human rights implications.

The Hon. Jason Wood, Assistant Minister for Customs, Community Safety and Multicultural Affairs and Parliamentary Secretary to the Minister for Home Affairs