Korea-Australia Free Trade Agreement


Korea-Australia Free Trade Agreement

Legislation which gives effect to the Korea-Australia Free Trade Agreement (FTA) has been introduced into the Australian House of Representatives.  This legislation foreshadows a commencement date of 1 December 2014.

On commencement of the FTA, over 90% of tariff lines will be immediately reduced to 0% with almost all remaining lines reducing to zero over the next 5 years.

Key questions importers of Korean goods should consider and the steps they should be taking now

Will it definitely apply to imports from 1 December 2014?

Assuming that the Australian legislation passes, the FTA will only be applicable to imports from 1 December 2014 if both Australia and Korea complete their domestic treaty making approval process, and exchange diplomatic notes prior to 1 December 2014.

What happens to goods exported from Korea prior to 1 December 2014 that arrive in Australia post 1 December 2014?

It is possible for the FTA to apply to goods exported from Korea prior to the FTA commencing. The key issues are whether the FTA is in force, and if the goods are ‘qualifying goods’ at the time for “working out the rate of import duty on the goods” (see below).

To be a qualifying good, a certificate of origin must be held in respect of the goods. The FTA specifically provides that certificates of origin can be produced prior to the FTA coming into force.  Shipments prior to 1 December 2014 can therefore be accompanied by a complying certificate of origin.

If this certificate of origin is held at “the time for working out that rate of duty on the goods” and that time is 1 December 2014 or after, the goods will qualify for the preferential rate.

When is “the time for working out the rate of duty on the goods”?

While each case should be individually assessed, the general rule is that the time for working out the rate of duty on the goods is:

  • Where an import declaration is not lodged prior to the arrival of the vessel carrying the goods at an Australian port, the time the import declaration is lodged;
  • Where an import declaration is lodged in advance of arrival, the time of first arrival of the vessel at an Australian port (even if it is not the port of discharge).

If goods arrive before 1 December 2014 can I warehouse them until after 1 December 2014?

Importers can manage when “the time for working out the rate of duty” occurs by delaying when an import declaration is lodged.  If goods arrive in Australia in November, are not entered for home consumption, but rather are warehoused, and only entered for home consumption after 1 December 2014, then the FTA can apply.

What if the vessel will arrive in Australia before 1 December but my goods will not be unloaded until after 1 December?

Managing pre-arrival lodgement of import declarations is important. If an importer wants to take advantage of the FTA preference rates you should avoid pre-arrival lodgement of the import declaration if there is any risk the vessel will arrive in Australia prior to 1 December 2014.

In considering this, remember that it is the first port of arrival in Australia that is important, not the discharge port of your goods, and that vessels can arrive earlier than expected.

What if I do not hold a certificate of origin when the goods arrive?

The certificate of origin must be held at “the time for working out the rate of duty on the goods”. If a certificate of origin is not held at the time the goods arrive you can delay clearance and request the exporter/producer to prepare a certificate of origin and provide you with a copy.  Once the copy is received, the goods can be entered for home consumption at the preferential rate.

If clearance cannot wait, it may be possible to obtain a certificate at a later date and claim a refund of any duty paid. A refund in these circumstances is permitted under other FTAs.  However, at this stage, the refund provisions applying to the Korea-Australia FTA have not been released.

What if my Korean goods are shipped from the companies’ Singapore warehouse?

In certain circumstances, goods can be shipped via a third country and retain their status as Korean originating goods. Those circumstances are where:

  • They remain under customs control at all times – this means the goods must not be cleared into the country of transhipment but rather but be stored in a customs controlled area such as a bonded warehouse and
  • They do not undergo any subsequent production or operation in that country other than unloading, reloading, re-labelling, splitting up of loads for transport, or any operation that is necessary to preserve them in good condition or to transport them to Australia.

Managing the transition

Many exporters will not first take advantage of the FTA until many months after its introduction. The key is to be proactive now to ensure you take full advantage of the duty savings.

    • Find out now what Korean goods you import and which of those are subject to duty (this can be simply done)
    • Where duty does apply, ask the exporter/manufacturer to assess now whether the goods meet the rules of origin (they probably have reviewed the local content etc for other FTAs)
    • If the goods are Korean originating goods, ask the exporter/manufacturer to prepare certificates of origin for all Australian exports expected to qualify for preferential treatment under the FTA
    • If the commencement  date remains 1 December 2014:
      • Consider delaying shipment of goods expected to arrive in late November to avoid the cost of Australian bonded storage
      • Manage when import declarations are lodged for goods arriving before 1 December.  Where applicable, assess the costs of warehousing the goods compared to the potential duty saving
    • Three to six months after the introduction of the FTA, obtain your customs data and review whether any duty was paid on Korean imports after 1 December 2014 (or any other commencement date).