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Every import and export declaration requires the importer/exporter to nominate the country of origin of the exported good. While sometimes this information may only be for statistical purposes, it can also determine the duty rate and in some cases, whether or not an import or export is prohibited. Despite the importance of the origin of the goods, there is no easy or uniform test to guide traders, and their services providers, in making origin claims.

When to make an origin claim

When is an origin claim required

Part of the difficulty with assessing origin results from the different reasons that a claim as to origin is required. An origin claim may be required for import purposes to assess security and biosecurity risks. An origin claim may also be tied to customs or dumping duty rates. For these reasons, whenever a good is being imported or exported, an origin claim is required on the import declaration.

Origin claims may also be required to be made on the actual good or their packaging. The Commerce (Trade Descriptions) Act 1905 (Commerce Act) and associated regulations set out which goods must contain a country of origin marking.

Goods that require an origin marking include food, electrical products, textiles, toys, china or porcelain kitchenware, most goods clad in leather, fibre, vulcanite or plastic and anything that is imported in a pre-packaged form.

Voluntary claims

Goods produced in Australia and some imported goods will not require an origin claim. Of course, this does not prevent a producer or retailer from making a voluntary origin claim. Voluntary claims will sometimes go beyond the basic "made in" claim, to make claims about particular regions or the quality of the ingredients. For instance, "Made in Normandy from the finest French ingredients".

The key rule regarding voluntary claims is that they must not be misleading or deceptive (see below).

Risks of not making a claim or making a false claim

False claims

Regardless of whether an origin claim is made in an import declaration, on packaging, a website or in advertising it must be accurate. In respect of Customs documents, section 243U of the Customs Act 1901 (Customs Act) imposes penalties for the making of false statements to the Australian Border Force (ABF), regardless of whether the statement has a customs duty impact. Section 243T of the Customs Act will apply where the false statement results in an underpayment of duty.

The Commerce Act makes it an offence to import or export goods that bear a false trade description. An example would be importing Chinese made ugg boots that falsely carry the claim "Australian Made". 

The penalties are serious. In addition to fines, the ABF can seize goods that either don't have the required trade description or contain a false trade description.  The legislation does allow the ABF to permit re-labelling if it considered the non-compliance was accidental. However, even if this is permitted, re-labelling in Australia is likely to be very expensive and in some cases, not commercially viable.

Other risks of making a false origin claim

Whether it is an imported or Australian sourced good, false claims as to origin may be deemed to be false or misleading conduct under the Australian Consumer Law. The Australian Competition and Consumer Commission (ACCC) is very aggressive in imposing penalties in respect of false or misleading claims.

Other unexpected outcomes include:

·        the importation of a prohibited import. Examples are military goods from many countries including Russia and textiles and seafood from North Korea. Given both Russia and North Korea share a border with China, it is important to be aware of this risk when importing goods from China,

·        under illegal logging laws the due diligence requirements can be met in different ways for countries with a country specific guideline. However, if origin is incorrectly assessed, the risk of importing illegally log timbers or related products will greatly increase;

·        treatment may be required for biosecurity purposes that would not have been required if the claimed origin was correct. This treatment may ruin the commercial purpose of the goods or at the very least, be costly and slow the supply chain;

·        the application of prohibitive dumping duties.

How to determine origin

The origin of the goods is required for a variety of purposes. Unfortunately, the origin test for one purpose may not be a good guide as to whether an origin claim is satisfied for another purpose.

The low hanging fruit that was grown in Australia

Let's start with the easiest products, the low hanging fruit. Origin is easy to determine for goods that are grown, extracted from or produced in a particular country from 100% originating goods. For instance, fruit and vegetable will almost always originate from the country in which the product was grown.

There are always exceptions, for example, is a chicken hatched in Australia an Australian originating bird if the egg was laid in New Zealand. Leaving aside jet setting eggs, most issues only arise in respect of manufactured goods that are not made exclusively from products from a particular country. Of course, with today's modern supply chains, most manufactured goods contain imports from more than one country.

Free trade agreements

Trade is usually associated with a business, and an issue is bound to become important to a business once it has a monetary impact. The country of origin of the goods is likely to get the attention of your client if they understand that origin may be the difference between 5% customs duty or duty free entry under a free trade agreement (FTA). This duty impact may be much greater for exports from Australia.

Each free trade agreement has rules for determining which goods will be counted as originating in Australia or the other countries the subject of the FTA. Under FTAs the common rules are based on the value of the finished good attributable to the FTA countries or a change in tariff classification rule, which compares the tariff classification of the imported components to the tariff classification of the finished goods.

However, this is where the generalities end. In respect of value content rules you see variances around the minimum level of local content required, whether any particular goods are excluded from the assessment and whether the you are assessing a percentage of the cost of materials or the FOB value of the goods.

In respect of the change in tariff classification rule the variances tend to be around the level of change required and whether any particular changes are excluded. For instances, some FTAs will allow Australian originating wine to be made from imported grapes whereas the agreement with Japan specifically prevents wine qualifying where the grapes are imported.

As FTAs have a policy goal of liberating trade between two countries, they are usually not a good general guide as to making origin claims for other purposes (not even for the purpose of other FTAs).

Safe harbours for the purpose of the ACCC and the Commerce Act

The Australian Consumer Law sets out certain safe harbours that if satisfied, constitute a defence to any claim that a false or misleading claim as to origin has been made or an incorrect claim as to origin under the Commerce Act. For a "made in" claim, the safe harbour will be satisfied where a good underwent its last substantial transformation in a country. Goods are substantially transformed in a country if the goods are grown in or produced in that country, or if as a result of processing in that country, the goods are fundamentally different in identity, nature or essential character from all of their imported ingredients or components.

This might sound like a relatively easy test to satisfy, but the reality is more difficult. The test does not merely require a change, but rather a "fundamental difference". This was demonstrated recently in a Federal Court case concerning fish oil and vitamin D capsules. The manufacturer made claims that the capsules were made in Australia in circumstances where the fish oil, vitamin D and gel to make the capsules was imported. In Australia, the gel was processed to produce the capsule substance. The fish oil and vitamin D then underwent a process of being encapsulated. The fish oil and vitamin would realistically only be ingested if place in a capsule, or made palatable in some other way.

The Court held that while the imported gel underwent a substantial transformation, the fish oil and vitamin D was not different in substance from their imported form. The Court reasoned that what was imported was fish oil and vitamin D and what was sold in Australian was fish oil and vitamin D in capsules.

In applying the test, the Court noted how difficult it was to apply a test that compared imported components to an assembled or processed end product.

It can be expected that if a product is marketed by reference to a key component (such as fish oil) that actual component must be made in the country the subject of the origin claim. 

Steps to take

False origin claims on imported and exported goods represent a significant risk for both traders and customs brokers. The potential risks justify a level of due diligence. What information are you basing the origin claim on? The country of export may be a starting point, but it is not sufficient to justify an origin claim. This will particularly be the case for goods where origin has a significant duty or security impact. In these circumstances, transhipment of goods with the intention to hide the true origin should be anticipated.

For major suppliers, the Australian importer should be organising an inspection of the manufacturing facility. Where the size and risk of the order does not justify a factory visit, it is still recommended that you obtain assurance (preferably contractual warranties) from the supplier as to the country of origin of the goods.

Each product, country and supply chain will present its own challenges. The first step is to be aware of the risks and start inquiries as to origin. It is not sufficient to turn a blind eye to this issue and hope that it does not become a compliance focus for the ABF. The ABF's sudden and strict enforcement of asbestos laws demonstrated past non-enforcement of the law is no justification for importer non-compliance with the law.

Country of origin claims: News
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