Attachment B

 

Details of the proposed Customs (Korean Rules of origin) Regulation 2014

 

Proposed Part 1 - Preliminary

 

Proposed section 1     Name of Sections

 

Proposed section 1 would provide that the proposed Sections are the Customs (Korean Rules of Origin) Regulation 2014.

 

Proposed section 2     Commencement

 

Proposed section 2 would provide that proposed sections 1-4 commence on the day after the instrument is registered and the remaining proposed sections would commence on the commencement of Schedule 1 to the Customs Amendment (Korea-Australia Free Trade Agreement Implementation) Act 2014 (the KAFTA Act).  Schedule 1 to the KAFTA Act will commence on the later of 1 December 2014 or the day the Korea-Australia Free Trade Agreement comes into force for Australia.

 

Proposed section 3     Authority

Proposed section 3 would provide that the authority this instrument is made is under the Customs Act 1901.

 

Proposed section 4     Definitions

 

Proposed section 4 would provide that in the proposed Sections:

(a)    'Act' means the Customs Act 1901 (the Act);  

(b)   '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;

(c)    'chapter' means the first 2 digits in the tariff classification number under the Harmonized System;

(d)   'heading' means the first 4 digits in the tariff classification number under the Harmonized System;

(e)    'subheading' means the first 6 digits in the tariff classification number under the Harmonized System; and

the following words and expressions have the meanings as in new Division 1J of Part VIII of the Act (new Division 1J):

(f)    Agreement;

(g)   Australian originating goods;

(h)   Certificate of Origin;

(i)Harmonized System;

(j)Korean originating goods;

(k)   non-originating materials;

(l)originating materials; and

(m) produce;

 

New Division 1J will be inserted into the Act by Schedule 1 to the KAFTA Act.

 

Proposed part 2 - Tariff change requirements

 

Proposed section 5     Tariff change requirement for non-originating materials

 

Proposed subsection 5(1) would provide that for subsection 153ZME(2) of the Act, each non-originating material used in the production of the goods is required to satisfy a specified change in tariff classification.  The particular change in tariff classification for each relevant heading or subheading of the Harmonized Commodity Description and Coding System (the Harmonized System) would be included in the table in Schedule 1 to the proposed Sections.

 

Under new subsection 153ZMB(1) of the Act, 'non-originating materials' will mean goods that are not originating materials.  'Originating materials' will be further defined to mean:

(a)     Korean originating goods that are used in the production of other goods; or

(b)     Australian originating goods, that are used in the production of other goods;             or

(c)     indirect materials.

 

Indirect materials is defined in subsection 153ZMB(1) as:

(a)    goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods; or

(b)   goods or energy used in the maintenance of buildings or operation of equipment or buildings associated with the production of goods;

including:

(c)    fuel (within its ordinary meaning); and

(d)   tools, dies and moulds; and

(e)    spare parts and materials; and

(f)    lubricants, greases, compounding materials and other similar goods; and

(g)   gloves, glasses, footwear, clothing, safety equipment and supplies; and

(h)   catalysts and solvents.

 

Proposed subsection 5(2) would provide that each non-originating material that does not satisfy the change in tariff classification mentioned in proposed subsection 5(1) is taken to satisfy a particular change in tariff classification if:

(a)    it was produced entirely in Korea or in Korea and Australia from other non-originating materials; and

(b)   each of those materials satisfies the change in tariff classification mentioned in subsection (1), including by one or more applications of this subsection.

 

Paragraph (b) gives effect to the cumulation provisions contained in Article 3.5 of the Agreement and applies where the non-originating materials that are used to directly produce the final good do not satisfy the change in tariff classification.

 

In producing a final good, a producer may use goods that are produced in Korea by another producer.  The components of these goods may be produced by yet another producer in Korea or imported into Korea.  It is possible that the change in tariff classification rule may not be satisfied at each step in the production process from the imported component to the final goods which may mean that the final goods are non-originating.

 

In such circumstances, it may be possible to examine each step in the production process of each non-originating material that occurs in Korea or Australia in order to determine whether each step satisfies the change in tariff classification rule for the final goods directly from that step to the final goods.  If this does occur, the material will be an originating material and the final goods may be originating goods (subject to satisfying all other requirements of new Division 1J of Part VIII of the Act).  This is how paragraph 5(2)(b) of the proposed Sections would operate.

 

 Example: The following diagram relates to the production of particular goods that occurred entirely in Korea.  The diagram and the accompanying text illustrate the application of paragraph 5(2)(b).

 

 

The goods are produced from non-originating materials 1 and 2.

 

First application of paragraph (b)

 

Non-originating materials 1 and 2 must satisfy the change in tariff classification. Under paragraph 5(2)(a), non-originating material 1 does satisfy the relevant change in tariff classification.  Under paragraph 5(2)(b), non-originating material 2 does not satisfy the relevant change in tariff classification, but it has been produced by non-originating materials 3 and 4.

 

Second application of paragraph (b)

 

Non-originating materials 3 and 4 must satisfy the change in tariff classification. Under paragraph 5(2)(a), non-originating material 3 does satisfy the relevant change in tariff classification.  Under paragraph 5(2)(b), non-originating material 4 does not satisfy the relevant change in tariff classification, but it has been produced by non-originating material 5.

 

Third application of paragraph (b)

 

Non-originating material 5 must satisfy the change in tariff classification. Under paragraph 5(2)(a), non-originating material 5 does satisfy the relevant change in tariff classification.

 

Final result

 

The result of the 3 applications of paragraph (b) is that non-originating material 2 does satisfy substantial transformation.

 

 

Proposed Part 3 - Regional value content requirement

 

Proposed section 6     Regional value content

 

New subsection 153ZME(7) of the Act will provide that the sections may specify that goods are required to have a regional value content of at least a specified percentage.  The regional value content for each relevant heading, subheading or split subheading of the Harmonized System would be included in the table in Schedule 1 to the proposed Sections.  New subsection 153ZMB(2) of the Act will provide that the sections may prescribe different regional value content requirements for different kinds of goods.

 

Proposed section 6 would provide that for the purposes of the table in Schedule 1, this Part explains how 'regional value content' is worked out using the build-down method and the build-up method.  For Part 3, 'RVC' means regional value content.

 

Proposed section 7     Build-down method

 

Proposed section 7 would provide that the build-down method is the formula:

 

RVC = value - value of non-originating materials  x 100

value

where:

 

value means the customs value of the goods, as worked out under Division 2 of Part VIII of the Act; and

 

value of non-originating materials means the value of non-originating materials, including materials of undetermined origin, that are worked out under Part 4 of the proposed Sections that are acquired and used by the producer in the production of the goods.

 

Proposed subsection 7(2) would provide that RVC is to be expressed as a percentage.

Under the build-down method, the RVC calculation requires the determination of the percentage of non-originating materials used in the production of goods.

 

For example, an electric toaster is made from non-originating toaster housings. Each toaster is sold for $5.00 and the value of the non-originating parts is $2.00.  Using the build-down method, the RVC is calculated as follows:

 

RVC =    $5.00 - $2.00   x 100

$5.00

Therefore, the RVC equals 60%.

 

Proposed section 8     Build-up method

 

Proposed subsection 8(1) would provide that the build-up method is the formula:

 

 

RVC = value of originating materials  x 100

value

 

where:

 

value means the customs value of the goods, worked out under Division 2 of Part VIII of the Act; and

 

value of originating materials means the value of originating materials worked out under Part 4 that are acquired, or self-produced, and used, or consumed, by the producer in the production of the goods.

 

Proposed subsection 8(2) would provide that RVC is to be expressed as a percentage.

Under the build-up method, the RVC calculation determines the percentage of originating materials used in the production of goods.

 

For example, wooden cabinets are made from originating timbers. Each piece of furniture is sold for $100 and the value of the originating materials used to produce the furniture is $43. Using the build-up method, the RVC is calculated as follows:

 

RVC =    $43    x 100

$100

 

Therefore, the RVC equals 43%.

 

 

Proposed Part 4 - Determination of value

 

For the purposes of new Division 1J, new subsection 153ZMB(3) will provide that the value of goods is to be worked out in accordance with sections, and the sections may prescribe different valuation rules for different kinds of goods.

 

Proposed Part 4 would deal with the determination of the value of different kinds of goods that are materials used in the production of the relevant goods for the purposes of new Division 1J and the proposed Sections.

 

Proposed section 9     Value

 

Proposed section 9 would, for the purposes of new subsection 153ZMB(3) and the proposed Sections, set out how the value of materials is to be worked out.

 

Proposed subsection 9(1) would provide that for the purposes of subsection 153ZMB(3) of the Act, section 9 explains how to work out the value of goods that are originating materials or non-originating materials.

 

Proposed subsection 9(2) would provide that the value of materials is to be worked out as follows:

(a)    for a material imported into Korea by the producer of the good-the value of the material worked out under a law of Korea that implements the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994;

(b)   for a material acquired in Korea, the earliest ascertainable cost of acquisition of the material;

(c)    for a material that is that is produced by the producer of the good and used in the production of that good - the sum of:

(i)     the expenses incurred in the production of the material, including general expenses; and

(ii)   an amount for profit equivalent to the profit that the producer would make for the materials in the ordinary course of trade.

 

Proposed subsection 9(3) would provide that for materials that are originating materials, their value may include the costs of the following matters, to the extent that they have not been taken into account under proposed subsection 9(2):

(a)    freight, insurance, packing and any other transportation of the materials to the producer:

(i)     in Korea; or

(ii)   between Australia and Korea;

(b)   duties, taxes and customs brokerage fees on the materials that:

(i)     have been paid in either or both of Australia and Korea; and

(ii)   have not been waived or refunded; and

(iii) are not refundable or otherwise recoverable, including any credit against duties or taxes that have been paid or that are payable;

 

(c)    originating materials that are used or consumed in the production of the non-originating materials in Australia or Korea; and

(d)   other costs incurred in Australia or the Korea in the production of the non-originating materials.

 

Proposed section 10   Value of accessories, spare parts or tools

 

New subsection 153ZME(8) provides that, when working out if goods are Korean originating goods, if the goods must have a RVC of at least a particular percentage, the sections may require the value of the accessories, spare parts or tools to be taken into account as originating or non-originating materials, as the case may be, for the purposes of working out the RVC requirement.

 

Proposed section 10 would provide that for subsection 153ZME(8) of the Act, if goods imported in the circumstances mentioned in that subsection are required to have a RVC of at least a particular percentage mentioned in Schedule 1:

(a)      in working out the RVC of the goods:

(i) the value of accessories, spare parts or that are imported with the goods and are Korea originating goods must be included in the value of originating materials used in the production of the goods; and

(ii)   the value of accessories, spare parts or tools that are imported with the goods and are not Korean originating goods must be included in the value of non-originating materials used in the production of the goods; and

(b)      the value of accessories, spare parts, tools or instructional or other information material is to be worked out under proposed section 9 as if the accessories, spare parts,  tools or instructional or other information materials were materials used in the production of the goods.

 

Proposed section 11   Value of packaging material and container

 

Under new subsection 153ZMF(1) of the Act, if:

(a)      goods are packaged for retail sale in packaging material or a container; and

(b)      the packaging material or container is classified with the goods in accordance with Rule 5   of the Interpretation Rules of the Harmonized System;

then the packaging material or container is to be disregarded for the purposes of new Subdivision D of Division 1J, with one exception.

 

Under new subsection 153ZMF(2), in working out whether the goods are Korean originating goods, if the goods are required to have a RVC of at least a particular percentage, the sections must require the value of the packaging material or container to be taken into account as originating or non-originating materials, as the case may be, for the purposes of that RVC requirement.

 

Proposed section 11 would provide that for section 153ZMF of the Act, if goods mentioned in subsection 153ZMF(1) of the Act are required to have a RVC under Subdivision D of Division 1J of Part VIII of the Act:

(a)      in working out the RVC of the goods:

(i) if the packaging material or container in which the goods are packaged are a Korean originating goods, then the value of the packaging material or container in which the goods are packaged, must be included in the value of originating   materials used in the production of the goods; and

(ii)   if the packaging material or container in which the goods are packaged are not Korean originating goods, then the value of the packaging material or container in which the goods are packaged must be included in the value of non-originating materials used in the production of the goods; and

(b)      the value of the packaging material or container in which the goods are packaged must be worked out under section 9 as if the packaging material or container were a material used in the production of the goods.

 

 

Proposed Part 5 - Record keeping obligations

 

Proposed section 12 Exportation of goods to Korea-record keeping by exporter who is not the producer of the goods

 

Proposed section 12 would provide that for new section 126AMB of the Act, an exporter of goods mentioned in that subsection, who is not also the producer of the goods, must keep the following records:

(a)     records of the purchase of the goods by the exporter;

(b)     records of the purchase of the goods by the person to whom the goods are exported;

(c)     evidence that payment has been made for the goods;

(d)     evidence of the classification of the goods under the Harmonized System;

(e)     if the goods include any spare parts, accessories or tools that were purchased by the exporter records of the purchase of the spare parts, accessories or tools and evidence of their value;

(f)     if the goods include any spare parts, accessories or tools that were produced by the exporter-records of the purchase of all materials that were purchased for use or consumption in the production of such goods, evidence of the value of these materials and records of the production of the spare parts, accessories or tools;

(g)     if the goods are packaged for retail sale in packaging material or a container that was purchased by the exporter-records of the purchase of the packaging material or container and evidence of their value;

(h)     if the goods are packaged for retail sale in packaging material or a container that was produced by the exporter-records of the purchase of all materials that were purchased for use or consumption in the production of such goods, evidence of the value of these materials and records of the production of the packaging material or container; and

(i)      a copy of the Certificate of Origin for the goods.

 

The goods mentioned in subsection 126AMB(1) are goods that are exported to Korea and are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in Korea.

 

Proposed subsection 12(2) would provide that the records must be kept for a period of at least 5 years starting on the date the Certificate of Origin for the goods is signed.

 

Proposed subsection 12(3) sets out the manner in which a record is to be kept.  A record may be kept in any place, whether or not in Australia, and the exporter must ensure that:

(a)     the record is kept in a form that would enable a determination of whether the goods are Australian originating goods in accordance with the Agreement; and

(b)     if the record is not in English - the record is kept in a place and form that would enable an English translation to be readily made; and

(c)     if the record is kept by mechanical or electronic means - the record is readily convertible into a hard copy in English.

 

Proposed section 13 Exportation of goods to Korea - record keeping by the producer of the goods

 

Proposed section 13 would provide that for section 126AMB of the Act, the producer of goods mentioned in that subsection, whether or not the producer is the exporter of the goods, must keep the following records:

(a)     records of the purchase of the goods;

(b)     if the producer is the exporter of the goods-evidence of the classification of the goods under the Harmonized System;

(c)     evidence that payment has been made for the goods;

(d)    evidence of the value of the goods;

(e)     records of the purchase of all materials that were purchased for use or consumption in the production of the goods and evidence of the classification of the materials under the Harmonized System;

(f)     evidence of the value of those materials;

(g)     records of the production of the goods;

(h)     if the goods include any spare parts, accessories or tools - records of the purchase of these materials and evidence of their value;

(i)      if the goods include any spare parts, accessories or tools - records of the purchase of all materials that were purchased for use or consumption in the production of such goods, evidence of the value of these materials and records of the production of the spare parts, accessories or tools;

(j)      if the goods are packaged for retail sale in packaging material or a container that was purchased by the producer - records of the purchase of the packaging material or container and evidence of their value;

(k)     if the goods are packaged for retail sale in packaging material or a container that was produced by the producer - records of the purchase of all materials that were purchased for use or consumption in the production of such goods, evidence of the value of these materials and records of the production of the packaging material or container; and

(l)      a copy of the Certificate of Origin for the goods.

 

Proposed subsection 13(2) would provide that the records must be kept for a period of at least 5 years starting on the date the Certificate of Origin for the goods is signed.

 

Proposed subsection 13(3) sets out the manner in which a record is to be kept. A record may be kept in any place, whether or not in Australia, and the exporter must ensure that:

(a)     the record is kept in a form that would enable a determination of whether the goods are Australian originating goods in accordance with the Agreement; and

(b)     if the record is not in English - the record is kept in a place and form that would enable an English translation to be readily made; and

(c)     if the record is kept by mechanical or electronic means - the record is readily convertible into a hard copy in English.

 

Proposed Schedule 1 - Product       specific rules of origin

 

Proposed Schedule 1 would set out the table, which would specify the different product-specific rules of origin applicable to goods for each heading, subheading and split subheading in the Harmonized System.  Proposed Schedule 1 would also set out interpretation provisions relevant to the product-specific requirements in the table.  Proposed Schedule 1 is based on Annex 3-A to the Agreement.

 

Proposed Part 1 of Schedule 1 would set out the Interpretation provisions relevant to the product-specific rules of origin specified in the table.  Proposed Part 2 of Schedule 1 would set out the table.