The Administrative Appeals Tribunal (AAT) recently handed down a decision as to whether a local manufacturer satisfied the 25% local content test in respect of an application to revoke a tariff concession order (TCO). A case of this nature is unlikely to be heard again as on 27 March 2017 legislation was passed removing the 25% local content requirement. The removal of this requirement has implications for local importers and exporters.
The 25% local content requirement
Before a TCO can be made the applicant needs to show that substitutable goods were not produced in Australia in the ordinary course of business. Previously it has been a requirement that before a good will be taken to have been produced in Australia at least 25% of the factory or works costs in respect of the goods could be attributed to the value of Australian labour, materials or factory overhead expenses. The other requirement was there must be at least one substantial process in the manufacture of the goods carried out in Australia.
It was always difficult to challenge whether a local manufacturer met the 25% local content test as the information provided to Customs to satisfy the test would be kept confidential. The position of Customs is that the 25% local content test is unnecessary as any time a substantial process in the manufacture of the goods is carried out in Australia, the 25% local content test will be easily met.
The parliament has agreed and has now passed legislation removing the 25% local content test. The approach seems unusual for a number of reasons, including:
- We have been involved in cases where the 25% local content test was an issue
- There is at least one published decision where the AAT held that the 25% local content test had not been met
- Australia’s Free Trade Agreements often require 35% or more local content before a good will be taken to qualify as an Australian originating good
- The guidelines relating to making claims of “Australian made” require greater than 25% local content.
The 25% test was said to be an unnecessary burden on local manufacturers. It is fair to question why protection in the form of tariffs should be afforded to any local manufacturer that has difficulty proving that 25% of their production costs relate to Australian sources.
The recent AAT decision concerned an existing TCO that was subject to an application for its revocation by an Australian manufacturer. Customs had considered the application and revoked the TCO. The importer sought review of the decision claiming that the 25% local content test had not been satisfied. The AAT held that the information provided by the local manufacturer showed that the 25% local content test was easily met. The importer argued that the information was too vague and that some of it was unreliable, incomplete and inconsistent.
The AAT noted that the two witnesses for the local manufacturer had produced different percentages of local content. However, it considered that the differences could be explained and that the information presented was satisfactory. There was no requirement that the information be subject to any accounting standards. Customs’ decision to revoke the TCO was upheld.
Given the 25% local content test is not held to any accounting standards and the information is not provided to the importer for review, it is not surprising that importers rarely successfully challenge whether the test was met.
Implications for traders
The removal of the 25% local content test will make it easier for local manufacturers to oppose TCO applications and seek the revocation of existing TCOs. It may be the case that the administrative burden of the 25% local content test prevented some manufacturers from opposing TCOs. With this burden removed, local manufacturers should revisit any TCOs applying to products they manufacture.
For importers, the removal of the 25% local content test is another example of creeping protectionist measures such as strict interpretation of the requirement of free trade agreements and TCOs, new country of origin food labelling laws and the administration of Australia’s anti-dumping legislation.
It is a more difficult regulatory environment now than it was five years ago.