While the reach of Australia’s Free Trade Agreements is expanding, there are still some goods that attract duty. Where this is the case a tariff concession order (TCO) is a useful tool to reduce the duty from 5% to zero. The importance of TCOs is likely to rise in 2022 as the Government has announced a future reform whereby if a good is covered by a TCO the good will be automatically exempt from dumping duties.
In light of this, it is important to revisit the TCO application process (see our earlier article for more information about to what goods, if made, a TCO will apply).
If made, a TCO will apply from the date the application was received by the Department of Home Affairs (DHA). If the goods are already on the water, a customs broker will be under pressure to quickly lodge a TCO application and be sure it is received by DHA before the goods arrive. However, it is crucial that the TCO and the TCO application meet the legislative requirements as it is difficult (in some cases impossible) to cure non-compliance after lodgement.
Issues concerning the lodgement of a TCO application were recently considered by the Administrative Appeals Tribunal (AAT) in Ceramic Oxide Fabricators Pty Limited and Comptroller-General of Customs  (COF Case). The case considered 3 elements of a TCO application that must be assessed by DHA:
1. whether on the basis of all information the applicant has and inquiries the applicant has made, or can reasonably be expected to have made, are there reasonable grounds for asserting that the TCO will meet the criteria for making a TCO (Inquiries Obligation);
2. the TCO not describe goods by their intended end use (End Use); and
3. the TCO must contain a full description of the goods (Full Description).
The TCO in issue included the following wording:
“KILNS, Alumina, gas powered, with or without ventilation units having ALL of the following …”
The applicant intended to use the TCO to enable the duty fee entry of a kiln that was to be used to sinter alumina at temperatures of 1650°C, transforming the powder to a sapphire that could be used at extremely high temperatures.
The Inquiries Obligation requires a TCO applicant to do some homework prior to lodging a TCO application to ensure that there are no Australian manufacturers that can produce either the goods covered by the TCO or substitutable goods.
DHA will generally consider the legislative test met if the applicant searches 3 online databases and makes written inquiries with any potential manufacturers that are identified by those searches.
In the COF Case 3 online searches were conducted and those searches identified a number of potential manufacturers of kilns and furnaces. However, at the time of lodging the TCO application no inquiries had been made with those potential manufacturers. No inquiries were made as the importer believed that none of the identified manufacturers had the potential to produce the goods covered by the TCO.
Written inquiries were made by the importer 3 weeks after the lodgement of the TCO application.
DHA rejected the TCO application as it believed that at the time of lodgement the importer had not made all inquiries it could reasonably be expected to have made. The AAT agreed. The AAT held that the inquiries must go beyond an internet search and must include proactive inquiries to all potential local manufacturers of substitutable goods.
It was not enough that the applicant had a reasonable and honest belief that there were no Australian manufacturers. The legislation requires an applicant to make “inquiries”.
The decision is a useful confirmation that even if you are certain that there is no local manufacturing capacity, you still need to make your own inquiries of any identified potential local manufacturers. Inquiries made after the lodgement of the TCO application will not count.
A TCO cannot describe a good by its intended end use. This is to enable the objective wharf-side identification of the goods. An Australian Border Force officer should not be required to inquire with the importer as to their intended use of a good to determine whether a TCO applies to the import.
In this case the TCO used the words “KILNS, Alumina…” If the TCO goods were kilns that could be used for any purpose, but were stated in the TCO to be used for “alumina” this would be describing the kiln by its end use. However, if there existing kilns that had features which meant that they were properly identifiable as kilns primarily used for sintering alumina, the TCO would not be describing an end use, but would be objectively identifying the goods.
In this case, the kiln intended to be imported could in fact be used for any object that could fit within the kiln. It was not specific to alumina. The importer conceded that the TCO wording could have been “KILN, sintering…”. As such, the AAT held that the TCO described the goods by their intended end use.
This was not a blatant case of a TCO describing goods by end use. It could be argued that the TCO did not describe the goods by end use, but rather, only covered a kiln that could be objectively identified as an alumina kiln. If made, the TCO would not apply to a kiln that could be used for a variety of substances (including the TCO which the imported wished to import).
Future TCO applicants should focus on wording that describes the features of a good that makes that good suitable for a particular end use. However, there will be goods where the likely end use does identify the goods. For instance, a TCO that read “RACKET, tennis” would cover goods objectively identified as a tennis racket and would not cover a squash racket which the importer intended to use to play tennis.
Complete description of the goods
Lastly, the AAT considered whether the TCO contained a complete description of the goods. The AAT held that the TCO wording did not contain a complete description of the goods. This issue was not fully explained but the AAT seemed to consider that by using the word “alumina” instead of the more generic “sintering”, the TCO applicant had limited the description of the TCO goods.
The AAT seems to have focused on the actual good the importer intended to import and decided whether that good was fully described. If this was the reasoning, the AAT may have fallen into the error of considering the TCO against the intended import rather than considering the objective words of the TCO. If there existed a good that could be identified as a “alumina kiln” that good would have been fully described by the TCO.
It is important to remember that once made a TCO can be used by any importer. As such, the expected use of the TCO by the TCO applicant should be irrelevant.
Because of the issues with the application process in the COF Case, DHA never considered whether there was a manufacturer of substitutable goods in Australia. The key is to consider the potential duty at the earliest possible stage. This will mean that if duty is payable, a TCO application can be made at an early stage. This will leave time for the making of all reasonable inquiries. It will also mean that if DHA identifies an issue with the TCO application, there is time to address the issue and lodge a new application prior to the arrival of the goods.