Australian Trusted Trader – Free trade agreement benefits

Australian Trusted Trader – Free trade agreement benefits

Australian importers have new reasons to become accredited Trusted Traders with the Australian Border Force (ABF) announcing that Trusted Traders can enjoy the benefits of certain free trade agreements (FTA) without requiring a certificate of origin or declaration of origin. This will ease the administrative burden of using FTAs for Trusted Traders. However, the Trusted Traders must still take steps to ensure the goods qualify for the FTA.

What is the Trusted Trader programme?

The Australian Border Force acknowledges that it cannot inspect all trade and that it needs to encourage greater levels of self-compliance. To this end, the Trusted Trader programme was established giving certain trade facilitation benefits to importers and exporters that demonstrate high levels of customs compliance and supply chain security. In addition to the newly announced waiver of origin documents for certain FTAs, other benefits include customs duty deferral, consolidated cargo clearance, priority treatment of goods at the border and mutual recognition under similar programmes offered by other countries.

To become an accredited Trusted Trader, an online application needs to be completed providing details of your business, your customs compliance and supply chain security record and systems. This application will be assessed by the ABF and will include and an on-site review. If offered accreditation, the Trusted Trader enters into a formal agreement with the ABF.

Origin documentation waiver benefit

Under the newly announced benefit, Trusted Traders that are importers will be able to claim the benefit of the Japan, Korea, Thailand, Singapore, Malaysia and Chile FTAs without needing to produce a certificate of origin or declaration of origin.

These documents are usually required for each import and obtaining them can be an administrative burden on the supplier and in some cases represent a small cost. Sometimes obtaining certificates of origin can slow supply chains or they may not be provided due to administrative oversight. Origin documentation can also be complex where multiple consignments are sent from a distribution centre to multiple Australian ports.

Limits of the origin waiver benefit

The benefit does not apply to all FTAs, notably, the China or ASEAN FTAs. These FTAs are heavily used and there is a requirement to produce certificate of origin. While the benefit also does not apply to the US FTA or NZ FTA or the Trans-Pacific Partnership, documentation requirements under these FTAs are light and do not warrant an exemption.

It is also important to note that origin documentation requirements under the Korea, Japan and Singapore FTAs can already be satisfied by way of exporter declarations of origin. This is not particularly onerous and does not involve a third party needing to issue the document.

Further, the benefit does not apply to exporters. Exporters will have to examine whether there are any equivalent benefits under any mutual recognition agreements.

Compliance with rules of origin

Most importantly, the origin documentation waiver benefit does not remove the requirement that the goods must still satisfy the rules of origin to qualify for the FTA. Trusted Traders will be required to maintain evidence that the goods comply with the relevant rules of origin. Assessing rules of origin can be very complex, particularly for manufactured goods where key components are imported.

The ABF suggests that Trusted Traders hold commercial documentation, contracts and statements in relation to the manufacture of the goods from the manufacturers. Importantly, the ABF states the information will need to be sufficient to prove the origin of the goods for the purpose of a FTA.

For some products this will be simple. For example, a manufacturer will easily be able to provide a written assurance that frozen berries imported from Chile were grown in Chile and satisfy the rules of origin under that FTA. However, what about a scooter importer from Malaysia. The frame, wheels, brake and handle bars may all come from different countries. The origin and value of these components may change over time. Will the supplier be aware of the impact of any change in origin of components on whether the goods qualify for the Malaysian Australian FTA?

As an Australian importer, how could you prove that the goods qualify for the FTA? For manufactured goods, origin could be proven by the supplier providing proof of the origin of inputs, the cost of inputs and evidencing what manufacturing process is undertaken in Malaysia. While the ABF suggests contractual documentation will be relevant to origin, all a contract will prove is that a party promised certain things. It does not prove what actually happened.

To be a Trusted Trader, the importer must demonstrate a desire to comply with customs laws. This should translate into the importer exercising due diligence regarding the manufacturer’s origin claims and putting in place systems to verify origin. What those systems are should be dictated by the complexity of assessing origin (for example, 100% originating timbered, versus a good manufactured from 100% imported components) and the level of revenue risk. A one off small import will warrant a less detailed system than imports valued in the millions.

Steps to take

If you are not currently a Trusted Trader you need to assess the merits of applying versus the costs. The application process is now much simpler and the online form is estimated to take 5-10 hours to complete. While the costs are decreasing, the benefits are increasing. In a world of increasing trade protection, most businesses will see the benefit of qualifying for a programme offering trade liberalisation benefits.

If you are a Trusted Trader and want to use the origin waiver benefit, the first question to ask is – why is it currently hard to obtain a certificate of origin? If the supplier finds it difficult to assess or satisfy the rules of origin, extreme caution should be exercised. This benefit is not a relaxation of the rules, only of the paperwork required.

If you wish to use the benefit, you need to ensure you obtain sufficient information to prove origin in the event of an audit (which could happen any time over the next four years). This involves a level of due diligence and it will be important to assess the cost of carrying out that due diligence against the benefit of not having to produce origin documentation. You should also consider whether any contractual amendments are required to give you the right to carry out the due diligence and/or compel the supplier to provide you with certain documents.

How we can help

We regularly advise importers, exporter and customs brokers on using free trade agreements and the Trusted Trader Programme. We can help your business decide whether to apply to become a Trusted Trader or, if you are a Trusted Trader, how to manage the risks of using the origin documentation waiver benefit. Please contact us for assistance with the Trusted Trader process.