Bennett & Bennett Lawyers Copyright 2015 - Not to be reprinted without the express written permission of Bennett & Bennett Lawyers.
Australian Trusted Trader Program Affects Importers/Exporters
One of the provisions of the Australian Customs Act ("the Act") (i.e. section 179) permits the Comptroller General of Customs to set out certain rules in the form of a "legislative instrument" concerning a program called the "Australian Trusted Trader Programme" ("the Program").
Objectives of Program
The objectives of this Program are to:
Enhance economic competitiveness;
Reduce regulatory burden;
Increase supply chain security;
Enhance risk management of goods at the Australian border; and
Accelerate trade resumption following an international security incident.
The Program is a customs initiative of the Australian Government which introduces a differentiated trust-based framework at the Australian border for companies that meet or exceed international supply chain security and trade compliance standards.
Importers who qualify for the Program are advantaged through reduced regulatory burdens and streamlined customs procedures.
The Program is purely voluntary but is quite broad in its application in that it extends to allow organisations such as importers, exporters, customs brokers, freight forwarders and transport companies to make application to participate in the Program as a "Trusted Trader".
The mechanism whereby a "Trusted Trader" may participate in the Program is through a Trusted Trader Agreement between the importer and the government Regulator. These agreements particularise the benefits that an organisation enjoys by its participation.
A 12 month pilot Program commenced in July 2015 to test and refine the practices and procedures associated with the Program before it is accessible to the wider trading community in 2016.
Importers and exporters are encouraged to consider carefully the benefits of making application for inclusion in the Program for a number of reasons including:
1 WTO members (187 countries) including China, the EU and the US have in 2014 adopted a Protocol of Amendment to insert a new Agreement into the WTO Agreement called the Trade Facilitation Agreement. This new WTO Agreement (the first in 21 years) contains at Article 7:7 obligations on the international trading community to adopt what it calls Trade Facilitators Measures for "authorised operators". Australian importers and exporters will find that in the immediate future international trade will be expedited by these measures internationally. The Australian Program described in this article is consistent with this International obligation.
2 The importation process is invariably competitive. Where 1 importer obtains a competitive edge by enjoying the benefits of the Program then, commercial nous requires competing importers to similarly obtain and maximise that commercial benefit to ensure competitive neutrality.
Criteria for eligibility
The criteria for eligibility for admission to the Program generally include:
The applicant must be an "entity" within the meaning of the A New Tax System (Goods and Services Tax) Act 1999;
The entity must have an ABN;
The entity must have been undertaking an activity that forms part of an "international supply chain" as that term is defined below for at least 2 years;
The entity must be able to pay all its debts as and when they become payable;
The operating systems used by the entity must be able to accurately record and generate information to enable the Border Protection (Customs) regulator to:
assess the correctness of the entity's international supply chain data;
assess whether the entity is complying with all of the associated Customs/import laws, regulations and administrative requirements;
identify the source of any of the entity's international supply chain data information provided to the regulator;
obtain an audit trail of transactions and of the entity's international supply chain that can be readily trace from the record or information.
The operating systems used by the entity must also be able to satisfy the regulator concerning the entity's financial transactions, other parties involved in the supply chain, security, accuracy et cetera.
Definition of International Supply Chain
The definition of International Supply Chain at Section 5 of the Rule seems unnecessarily complex. It is set out below in some detail but may very generally be summarised by reference to the following European Commission definition:
"…. The process from manufacturing goods destined for export until delivery of the goods to the party to whom they are consigned to in another customs territory. For example ,iron ore is mined in Russia and processed into iron bars. An order is received from Japan and the iron bars are shipped to Japan where they then undergo further processing to form the final product. That final product is then imported from Japan into the European Union. Under the European Commission definition, the international supply chain would commence from the processing to form the final product, until the goods are delivered to the party to whom they were consigned in the European Commission. That is, if the goods were consigned to a distribution site, and then subsequently on to retail sites, the supply chain ends when the goods are received, checked and entered into the records at the distribution site…."
The above explanation sets the context for reading/understanding the Australian definition.
For the purposes of the Australian Program the beginning of an international supply chain is dependent on when activities start to be undertaken and where those activities start to be undertaken. The activities referred to in subsection 5(1) may be undertaken by, or for the purposes of, the entity. The kinds of activities may include the manufacture, production, handling, movement, storage, reporting and transport of goods that are imported into Australia or exported from Australia. As the concept of an international supply chain is dependent on the goods that are being imported or exported, an entity may have more than one international supply chain.
For unmanufactured raw products that are imported into Australia or exported from Australia (whether by the entity or another person), an international supply chain begins when activities start to be undertaken where the product first comes into existence in a form in which it is to be supplied. For example, if the goods imported into Australia are fresh tomatoes, the international supply chain begins where the tomatoes are grown.
If the goods are subject to manufacturing or production (that is, are not unmanufactured raw products), an international supply chain begins where the first significant process in the manufacture or production of the goods is performed. For a manufacture or production process to be considered ‘significant’ it must add an essential or vital quality or character to the imported or exported goods. Processes such as dividing, sorting, labelling, packing or colouring would not be considered ‘significant’.
Example: An entity in Australia, imports cars that are produced in Thailand, with the engine block of each car originally produced in Korea and the engine of each car originally produced in Japan. Once the car is produced, it is shipped to Indonesia for spray painting before it is shipped to Australia.
The first significant manufacturing or production process would occur at the factory in Thailand as this is where all components of the car are transformed into the imported goods. Therefore, the entity’s international supply chain would begin at the factory in Thailand.
The international supply chain would not begin at the factory that produces the engine blocks in Korea even though those engine blocks are an input into the production of the imported cars from Thailand. This is because the engine block, is not the goods that are imported into Australia. Similarly, the international supply chain would not commence at the factory in Japan.
The international supply chain would also not begin at the factory in Indonesia as the spray painting occurs after the cars are assembled in Thailand. The shipment to Indonesia, spray painting in Indonesia and the activities to then ship the car to Australia would be part of the entity’s international supply chain in relation to those goods.
The scope of an entity’s international supply chain is dependent on the activities that are undertaken by the entity, or for the purposes of the entity between the beginning and end points provided in paragraphs 5(1)(a) and 5(1)(b) of the Rule.
Example: An entity who has made a nomination to participate in the Program is a transport company. The activities undertaken by the transport company between the beginning and end points of an international supply chain (as provided in paragraphs 5(1)(a) and 5(1)(b)) are limited to transporting goods. No other activities are undertaken for the purposes of the transport company between the start and end point. Therefore, the transport company’s international supply chain is limited to those activities that they undertake relating to the transportation of goods.
Example: An entity who has made a nomination to participate in the Program is an importer of goods. The importer purchases goods from a manufacturer in Thailand. The activities undertaken by, or for the purposes of the importer, between the beginning and end point (as provided in paragraphs 5(1)(a) and 5(1)(b)) extends to the manufacture of the goods, handling, movement, storage, reporting and transport of goods. Therefore, the importer’s international supply chain includes all of those activities.
Bennett & Bennett Services
It is evident from the above overview of this Program that all importers/exporters should have regard to the very real necessity of considering when an application should be lodged for inclusion in the above program and the competitive disadvantage of not so doing.
Bennett & Bennett has the specialist import/export expertise within its practice to assist clients in making successful applications for admission to this Program.