Client Update: State of Trade – the regulatory impacts on your business in 2019
12 February 2019
In brief: If last year was anything to go by, managing trade-related risk has never been more important to your business. In 2018 we saw significant growth in regulatory actions undertaken globally in reliance on trade law, with trade barriers at the forefront of both domestic and international policy-making. Political rhetoric from both parties, too, showed persistent enthusiasm for strengthening trade regulation, and, with an election looming, we expect 2019 to be a busy year in this space. Partners Louise Jenkins (view CV) and Rachel Nicolson (view CV) and Associate Alister Lloyd provide context to recent changes to the regulatory conditions for trade and consider how best to insulate your business.
8 min read
- Trade law and your business
- Tariff classification
- Tariff Concession Orders
- Export controls and sanctions
Trade has traditionally been viewed by the corporate sector as a commercial or political issue, rather than one requiring a legal solution. This is now changing for a number of reasons:
- International agreements increasingly regulate trade rules between Australia and other countries. They affect the rights and responsibilities of businesses, most notably in the availability (and increasing use), of investor-state dispute settlement. In particular, 2019 sees the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – a complex international treaty – regulate 15 per cent of global trade.
- In Australia, the Anti-Dumping Commission (the ADC) has received an influx of claims made by Australian industries alleging they are suffering harm from imported goods. This is reflected in the approximately 30 per cent increase in the number of anti-dumping applications received by the ADC in 2018. The ADC's investigations have the potential to affect importers whose goods are under consideration and, ultimately, the price paid for those goods by Australian businesses and consumers. Goods investigated recently by the ADC have ranged from steel products to A4 copy paper.
- An increased reliance by countries on trade-restrictive measures, such as tariffs, is leading to more disputes globally about trade law, including disputes before the World Trade Organization (the WTO). Disputes also occur domestically in relation to the tariff classification of imported goods and the applicability of Tariff Concession Orders (TCOs) to those imports.
- Export sanctions on specified countries or entities are continually changing and are increasingly enforced. Businesses require risk-appropriate due diligence processes to avoid inadvertent contraventions of applicable domestic and foreign laws.
These factors mean companies should consider legal risks both before entering into supply agreements with foreign entities, and when designing their internal procurement strategies. We discuss some of these factors further below.
The specialised area of 'anti-dumping law' has become increasingly contested in recent years as Australian manufacturing businesses, in particular, seek to protect themselves against cheaper imports from foreign countries. The primary mechanism for this is an application to the ADC for duties to be levied on those imports.
International agreements allow nations to impose tariffs on foreign goods that are either being exported at less than their local value (ie 'dumped'), or being supported materially by government subsidies. In particular, steel and aluminium products exported from countries such as China, Vietnam, Taiwan and South Korea have been recent targets of ADC investigations.
Both sides of Australian politics are wary of the possible diversion of dumped or foreign subsidised goods to Australia in response to increases in tariffs in other countries such as the United States. The Federal Labor Opposition has also pledged tougher anti-dumping and safeguard measures should it win the upcoming election.
Legal advice in relation to the rights of your business under anti-dumping laws – whether as an importer, exporter, end-user or affected Australian industry – can help secure the best commercial outcome for your company, both before an anti-dumping investigation is commenced, and during any investigation. We monitor developments in this area, both domestically and internationally at the WTO level.1
Goods imported into Australia require classification under the Customs Tariff Act 1995 (Cth) and it is the responsibility of importers to self-assess their goods in accordance with the technical commodity description and coding system upon which tariffs are based. Significant penalties, and indeed criminal prosecution, can result from seeking to avoid duty, or by providing incorrect or misleading information to the Department of Home Affairs, in relation to goods entered for home consumption.
The Australian Border Force (the ABF) has extensive monitoring and audit powers under the Customs Act 1901 (Cth), which include searching business premises and seizing goods. Businesses can mitigate the risk of prosecution for goods classification errors by voluntarily disclosing such errors to the ABF before they are audited or served with an infringement notice. Best practice for managing the risk of prosecution or substantial penalties is to obtain legal advice at the earliest opportunity after such an error is detected.
Unsurprisingly, goods classification disputes can be highly technical. A recent dispute before the Full Court of the Federal Court of Australia2, for example, centred on whether certain vitamin and weight loss products ought to be classified as 'medicaments' or 'food supplements', with up to a 5 per cent tariff differential between the two classification categories. The resolution of these disputes can require the interpretation of complex extrinsic international materials.
Goods classification questions often interact with questions about the applicability of TCOs to imported goods. A TCO is a Federal Government revenue concession granted when there is no known Australian manufacturer that produces or, in certain circumstances, is capable of producing3 , goods that are substitutable for the imported good under consideration.
Goods imported and subject to a TCO are duty-free and there are currently around 15,000 TCOs in effect in Australia. Importers may apply for a TCO, and other parties such as Australian manufacturers can either object to the making of a TCO or request a revocation of an existing TCO.
Again, the interpretation of a TCO can be a complex undertaking. In Brand Developers Aust Pty Ltd v Chief Executive Officer of Customs4, a food processor was determined to fall outside of the applicable TCO because it was packaged with additional items (including a vegetable peeler and a 'keep fresh' lid) not covered by the TCO. As a result, the entire import was beyond the TCO description and the importer became liable for unpaid duty on the goods over a number of years. This is another area in which legal advice can assist with trade-related risk to your business.
Export controls regulate the export or supply of defence goods or dual-use goods (goods which could be used for either a defence or non-defence use). The Department of Defence maintains the Defence and Strategic Goods List (DSGL) of regulated goods in Australia, comprising munitions and certain types of electronics, computers and telecommunications and information security software. If a good is listed on the DSGL, an exporter must determine whether an exemption applies to its activity before exporting the good, or if a permit is required for its exportation.
Separately, export sanctions prohibit certain economic engagement with specified regimes or designated entities. Sanction measures imposed vary, and may include prohibitions on dealing with, or supplying certain goods or services to, a designated person or entity. Australia’s sanctions regime implements the United Nations Security Council's sanctions regime (and some further Australian autonomous sanctions), and is administered by the Department of Foreign Affairs and Trade. Currently, Australia imposes sanctions restricting economic activities in relation to more than 20 regimes (along with persons or entities connected to those regimes), including Yemen, Myanmar, Russia, Iraq and Ukraine. Companies, however, may be able to obtain a permit to authorise an activity that would otherwise contravene Australian export sanctions laws.
Sanctions regimes, including those adopted in foreign countries, change frequently and can affect Australian businesses operating domestically or overseas. In November 2018, for example, the US not only re-imposed sanctions on Iran that had previously been rolled back under the 2015 Joint Comprehensive Plan of Action, but also imposed additional sanctions, making these the toughest US sanctions ever imposed on Iran. Further, in December 2018, the US lifted autonomous sanctions placed on Russian aluminium giant Rusal, and its parent En+. Companies may be required to comply with the sanctions law of any jurisdiction in which they have a footprint, so staying across these regulatory developments and their potential relevance to transactions in which your business engages is important.
Cyber security is another contemporary focus area for sanctions, with countries including Russia and China recently being implicated in malicious cyber activity. In June 2018, for example, the US Treasury Department imposed sanctions on a number of Russian companies and individuals for contributing to the Russian Government's offensive cyber capabilities, and, in October 2018, the European Union announced negotiations to impose measures to combat such cyber activity. Australia does not currently impose any specific cyber-security sanctions. However, attitudes may harden, particularly following the Federal Government's December 2018 confirmation of Chinese Government backing for a cyber-enabled theft of information from Australian companies, the condemnation of which received bipartisan support.
It is a serious criminal offence to contravene a sanctions measure in Australia, with penalties including substantial fines and up to 10 years' imprisonment for individuals. Similarly significant penalties are imposed by other countries' sanctions regimes. We have experience advising companies on risk-appropriate due-diligence processes to ensure they do not inadvertently engage in prohibited transactions. We also monitor sanctions laws globally as they continue to change in response to geopolitical developments.5
- Eg see our Focus: Federal Court homes in on Anti-Dumping Commission's calculation of duties on Chinese steel imports.
- Comptroller-General of Customs v Pharm-A-Care Laboratories Pty Ltd  FCAFC 237 (21 December 2018).
- In the sense explained by the Full Court of the Federal Court in Comptroller-General of Customs v Vestas – Australian Wind Technology Pty Ltd  FCAFC 185; (2015) 236 FCR 499.
-  AATA 215.
- For more information, see our Focus: Sanctions: The 5 questions your board and executives should be asking in 2017.
- Rachel NicolsonPartner,
Ph: +61 3 9613 8300
- Louise JenkinsPartner,
Ph: +61 3 9613 8785
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