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Dumping duty assessments – A possible solution to unexpected dumping duties

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With rates sometimes exceeding 100%, dumping duties are one of the key focus areas of the Australian Border Force and importers.  Importers can face unexpected dumping duty bills that run into the millions of dollars and feel that they have no ability to fight the duty.  For some importers, one way of lowering the cost of a dumping duty bill is to make an application for a dumping duty assessment.  This does not involve arguing that the goods are not covered by the dumping duty notice, but rather is a claim that the rate is too high.

In some cases a dumping duty assessment could see a rate near 100% significantly reduced.

How can the rate change

Following a dumping duty investigation, the duties that are imposed on subsequent imports are referred to as interim dumping duties.  This is because those duties are based on the historical information reviewed in the investigation, but may not be the correct rate for subsequent imports.  Importers have the right to apply for a dumping duty assessment under which the actual dumping margin for those imports is determined.  Realistically, an importer can only do this with assistance from the overseas supplier.  Where this assistance is available, a dumping duty assessment can be a method of significantly reducing duty on past imports.

The actual rate may be significantly lower than the amount paid at import.  This is because the importer may have been subject to an “all other importer” rate.  This is not a rate for a specific exporter, but rather is a figure calculated by reference to data provided by other exporters and is designed to produce a very high duty rate.  If an actual exporter is assessed and the margin based on their real data, the dumping margin may be a lot lower than the made up rate.

Strict timeframes

The catch is that an application for a dumping duty assessment must be made within 6 months of the end of relevant importation period.  Each month period following the imposition of dumping duties is an importation period. For example, if dumping duties were first imposed on 1 January, the first importation period would be 1 January – 30 June.  An application for a duty assessment for imports during that importation period would have to be lodged by 31 December.

The Anti Dumping Commission (ADC) has repeatedly said that complete applications for a dumping duty assessment need to be lodged prior to the due date.  It asks for applications to be lodged well in advance of this date so that if there are deficiencies in the application, these can be cured by the due date.  The ADC’s position was that a deficient application could not be cured after the due date, ending the right for a dumping duty assessment.

Whether this position was correct was considered by the Federal Court in Downer Utilities Australia Pty Ltd v Commissioner of the Anti-Dumping Commission [2019] FCA 1190.  This case concerned an application for a duty assessment required to be lodged by 2 January 2018 and which was lodged on 29 December 2017.  The lodgement was incomplete as not all required imports were listed and some listed figures were not totalled.  The failure to total the relevant figures was due to a problem with the ADC electronic form.

The representative for Downer tried calling the ADC regarding the problems with the ADC form.  However, due to the Christmas and New Year period, the ADC did not respond to the query.

The legislation give the ADC 20 days to review an application and form a view whether or not it is deficient.  The issue in this case was, if a deficiency was identified in that 20 day period, did the ADC have an obligation to inform the applicant and allow them to correct the deficiency?

The ADC argued that the 20 day period was merely for it to screen the application, and that it did not have an obligation to inform applicants of deficiencies and even if it did, applicants could not cure those deficiencies after the due date.

The Court held that:

  1. deficiencies could be cured in the 20 day screening period; and
  2. the ADC had an obligation to inform Downer of the deficiencies (which were minor) and allow them the opportunity to correct these in that 20 day period.

The ADC’s rejection of the application in the circumstances meant that Downer was denied procedural fairness and Downer was able to have the decision set aside.

A more lenient approach?

The decision is important as previously the ADC has been very strict in its view that deficiencies could not be cured after the initial due date.  Applicants who have had applications rejected due to deficient applications may have been denied procedural fairness.

The decision hopefully makes seeking dumping duty assessments easier for importers.  Often an assessment is sought after an Australian Border Force audit results in an unexpected dumping duty liability.  In these circumstances, the importer may only find out about the dumping duty liability near the due date for the dumping duty assessment application.  This is likely to result in rushed applications that may have minor deficiencies.  This decision is a clear message to the ADC that it cannot take advantage of minor deficiencies to deny a substantially compliant claim.  Rather, the ADC must notify the applicant of the errors and allow them the opportunity to correct those errors.

Tips for the future

If significant dumping duty is payable, importers should quickly determine the due date for a dumping duty assessment.  If the timeframe has not passed, the importer should speak to the exporter about whether that exporter will cooperate with a dumping duty assessment.

If there is a willingness to assist, the importer and exporter should be able to work together to determine a likely outcome of a dumping duty assessment application.  The previous investigation report and associated documents will provide a good guide to the ADC’s methodology to calculating the dumping margin.  The size of a likely refund can inform whether there is any merit in proceeding with a dumping duty assessment.

If the importer plans to proceed with an assessment, the importer should obtain a list of imports during the importation period.  Not listing all imports can be a reason for the ABF to reject the application.

Of course, the best approach is to lodge the assessment application well before the due date.  Importers have 6 months in which to lodge an application.  Lodging early will allow the ADC time to notify the applicant of errors prior to the due date, enabling a compliant form to be lodged.

A dumping duty assessment is not the answer for all importers.  However, it should be one of the options that is considered.  As it is time sensitive, this option should be considered as early as possible.

Please contact Russell Wiese if you wish to discuss any demand for dumping duty or an investigation being undertaken by the Anti-Dumping Comission.

Australian Trusted Trader – Free trade agreement benefits

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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 have a dedicated Customs and Global Trade team that regularly advises 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 Russell Wiese for assistance with the Trusted Trader process.

Indonesia and Australia Finally Ink a Free Trade Agreement

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On 4 March Australian and Indonesia signed a free trade agreement that has been a long time in the making.  Australia and Indonesia are both parties to the ASEAN-Australia-New Zealand FTA limiting the additional benefit of this bilateral FTA.  The major benefits will be for Australian exporters to Indonesia and service providers.

When will it commence

The FTA only commences when each country passes and implements its relevant domestic legislation.  Australia will undertake one or more parliamentary reviews of the FTA before a vote is taken on whether it should become law.  This process could be delayed by the expected mid-year Federal election.  As a guide to timing, the TPP was signed in early March 2018 and became law in late December 2018.

What are the benefits for Australian importers – duty rates

Almost all Indonesian imports are current duty free under the ASEAN FTA.  The remaining duties will become duty free on entry into force of the Indonesian FTA.  However, the benefit of this has been reduced due to the time that it has taken to finalise the agreement.  All goods from Indonesia would have been duty free on 1 January 2020 in any event under the ASEAN FTA.

What are the benefits for Australian exporters – duty rates

Duty rates on many Australian exports were not cut to zero under the ASEAN FTA.  The new bilateral FTA does not drop all duty rates to zero, but there are significant improvements.  Here is the DFAT summary of the outcomes in respect of goods.  Key winners are exporters of live cattle, frozen beef, sheep and goat meat, certain dairy products, honey, potatoes, carrots, mandarins, oranges, lemons and bananas.

In respect of manufactured goods, Indonesia had already provided strong commitments under the ASEAN FTA.  However, there are some improvements in respect of steel, copper cathodes, plastics, machinery, textiles, electronics and textiles.

Its not just about the rate of duty – check the rule of origin

The duty rates under the ASEAN FTA and the Indonesian FTA will often be the same.  However, an importer or exporter may find it easier to qualify for one FTA than the other.  The ASEAN FTA has the benefit that it allows content from NZ and other ASEAN countries to count as qualifying content.  However, it may be that for a particular tariff line there is a different rule of origin under each FTA.  For traders of goods that have any non-Indonesian or Australian content, the rules of origin should be closely reviewed.  You may find that a good that did not qualify under the ASEAN FTA will now qualify under the Indonesian FTA.

Certificate/declarations of origin

The biggest win for importers is the possibility of using declarations of origin, rather than certificates of origin under the ASEAN FTA.  A registration scheme will be in place in respect of declarations of origin.  Exporters will need to be registered or certified by the exporting country before they can use declarations of origin.  This will be better than the situation under ChAFTA but it is not as user friendly at the TPP.

Certificates of origin under the Indonesian FTA are not particularly exciting.  It is one COO per shipment, valid for 12 months from the date of issue and there is scope for certificates to be retrospectively issued within 12 months of export.

Declarations of origin will take no set form and can be electronic.  There are key data fields which those registering to use declarations of origin will need to ensure they meet.

Other points

  • The consignment provisions are as restrictive as those in the ASEAN FTA, including the requirement that the transhipment be justified by geographical, economical or logistical reasons.
  • The FTA will apply to goods entered for home consumption after the FTA commences.
  • The FTA requires the origin hardcopy COO to be forwarded to the importer for presentation to their customs authority. We assume this will not be enforced in respect of Australian imports.
  • The FTA contains a chapter on non-tariff measures, a first for an Australian FTA. This is targeted at import/export restrictions or licensing requirements.  Its main practical effect is expected to be a mechanism for raising and resolving concerns regarding non-tariff barriers.

The Australian Border Force has made no secret that compliance with FTA requirements is a focus area.  It is crucial with the multitude of overlapping FTAs that traders pay careful attention to which FTA is being used what are the particular requirements of that FTA.

Australian Border Force Focuses on Customs Valuation

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A June 2016 Australian Border Force report highlighted a worrying 23% error rate on import declarations. What are you doing to review compliance levels?

Customs valuation principles

In most cases, the customs value of goods will be based on the FOB invoice price plus certain other additions. These include:

  • Commissions (other than buying commissions)
  • Certain royalties
  • Freight prior to the goods arriving at the place of export
  • Packing costs
  • Contributions you make to the manufacture of the goods that are not included in the price (assists).

Assists can include materials or services used in manufacturing the goods, tools or dies used in the manufacturing process and design and artwork (not undertaken in Australia).   Importers need to consider whether they have provided their customs broker with all the information the broker needs to determine the customs value of the goods. It is necessary to ask yourself, ‘What costs am I paying to have the goods produced and/or purchased and brought to Australia? If the answer is there are amounts in addition to the invoice price, it is important that you notify your customs broker. This is crucial as the customer-broker will rely heavily on the commercial invoice to determine the customs value.    

Common issues

Packing costs

Materials and labour used in getting the goods into the state in which they are exported to Australia need to be included in the customs value. An area where we often see mistakes are costs incurred at an offshore DC or warehouse. If goods are repacked at the DC or warehouse, it is likely that the ABF will consider that the costs of repacking should be included in the customs value.  This may only be a few cents per item but it will add up over years of imports.

Commissions

Buying commissions do not need to be included in the customs value of goods but there is a catch. The term ‘buying commission’ is defined narrowly in the Customs Act. The commission is unlikely to be a duty-free buying commission if any of the following occur:

  • The agent receives any additional benefit from the transaction (does the agent procure insurance or transport for a fee?)
  • The agent represents any other party in the transaction (such a related party in the supply chain)
  • The agent trades in goods similar to the imported goods (even if it does not trade in the imported goods)
  • The agent supplies any additional services in respect of the imported goods.

The reality is there would be many genuine buying commissions that are not treated as duty-free buying commissions under the Customs Act.

Royalties

There is a lot of case law concerning which royalties should, and should not, be included in the customs value. Often, a royalty which is merely for the right to use a trademark in Australia will not be subject to customs duty.  However, care should be taken in respect of any royalty that gives you the right to use a trademark in the manufacture of goods.

Ex-works

Purchasing goods on an ex-works basis can mean that you have the responsibility of transporting the goods from the place of manufacture to the port of export. Depending on when the goods are packed in the container, these costs may be foreign inland freight costs which need to be included in the customs value.

Assists

Do you provide any support to the manufacturer of the goods? For instance, are you supplying free of charge labels or price tags to be added to clothing, instruction manuals or warranty cards to be included with goods or moulds to manufacture goods? Alternatively, do you pay for someone to attend and help with the manufacture of the goods? All of these forms of assistance add value to the goods but will not be included in the invoice price. The ABF is likely to require them to be included in the customs value.

Customs invoice

Is the invoice that is issued on the shipment of goods the same as the commercial invoice which you have paid? Often with complex supply chains, the shipper will not be the commercial supplier or the shipment may be comprised of goods covered by multiple commercial invoices. The critical issue is to be able to reconcile the commercial invoice (on which the customs value is based) with the customs invoice (which may be all the customs broker receives).

Transfer pricing adjustments

The customs value is based on the price payable for the goods. If, as a result of a transfer pricing adjustment, the price payable for the goods is altered (CoGS adjustment), the customs value will also be altered.  This can result in additional duty or a duty refund depending on the direction of the alteration.

Why is customs valuation compliance important?

Customs valuation is an area that has not recently received a lot of attention from importers or the ABF. This is understandable given Australia’s low duty rates and the proliferation of free trade agreements increasing the volume of goods entered duty-free.

However, on top of ensuring that the right amount of duty is paid, there are good reasons to ensure customs compliance. One compelling reason is the desire to avoid penalties. Recently the ABF has been issuing penalties for minor breaches of the Customs Act including breaches that do not result in an underpayment of duty. These penalties are being issued regardless of whether the importer intended to breach the Customs Act.

Good levels of compliance are important for those importers seeking to be involved in the Australian Trusted Trader Program which commences on July 1. This program, and its related trade facilitation benefits is only available to importers who can demonstrate high levels of customs compliance.

It’s not all doom and gloom

It is not all negative. Through careful review of the customs valuation rules, you may find that you have been overvaluing goods and are entitled to a refund. Common refund opportunities arise from not accounting for vendor rebates, decreasing transfer pricing adjustments, and having used a CIF value as the customs value (the customs value should be based on the lower FOB value).

What now?

Given that the ABF has given importers a warning that it will be targeting this area it is important to actively ensure compliance. Ensure your customs broker is aware of all amounts you pay in relation to the manufacture or import of goods. On top of this, we can assist with reviewing your supply chain for key products and identifying areas of risk and opportunity. In assessing the merits of taking this step, it is important to remember that penalties can apply even where goods are entered duty-free.

Budget 2015: 10 Customs Issues

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Customs will never dominate the headlines on Australian budget night, but this does not mean that there are not measures in the budget that impact the customs and global trade community. Buried away in the budget papers are increases in penalties, increases in fees paid by importers and interesting predictions about the level of duty collections over the next 4 years.

A quick review of the budget papers reveals the following 10 relevant trade-related measures:

  1. Penalties to increase – Fines for most customs offences are measured in penalty units. The amount of penalty units will increase from $170 per unit to $180 per unit from 31 July 2015. Most infringement notices for companies are set at 45 penalty units, meaning a $450 increase in penalties for most strict liability offences.
  2. Impact of FTAs – Customs duty on items other than fuel, alcohol and tobacco is estimated to fall from $2.95 billion in 2014-15 to $1.72 billion in 2018-19. Most of this fall can be attributed to duty savings under the China, Japan and Korea FTAs with the balance relating to the drop in the rate on clothing and textiles from 10% – 5% on 1 January 2015.
  3. Duty on vehicles – We may not have a local industry in 2019 but we are still expected to have customs duties. Estimates of duty in 2018/19 on passenger motor vehicles is $450 million.  This seems a high amount for consumers to pay to protect a local industry that will have left the country by 2018.
  4. Trusted trader – The Government has announced $5.6 million of funding for the development of the Trusted Trader program.  The pilot for this program is set to commence in July 2015.  It will initially comprise of only 4 sea freight exporters but will expand over 40 participants of the following 12 months.  There was no detail in the budget of the revenue measures associated with this program, such as duty deferral.
  5. Taxing of multinationals – The Government will target 30 multinationals which it is alleged are involved in profit shifting. Profits can be shifted via a variety of methods.  Where those methods relate to the cost of goods (such as overcharging) or the payment of royalties or license fees, reversing those profit shifting strategies may have customs implications. The relationship between customs duty and transfer pricing has always been difficult, and this budget promises to put the issue again in the spotlight.
  6. FTA promotion – Expect to hear a lot about the recent FTAs with the Australian Trade Commission and DFAT receiving an increase of $25 million over the next two years to promote FTAs.
  7. Managing Biosecurity Risks – The Department of Agriculture will receive increased funding to manage the risks of an increasingly complex global supply chain. Increased activities will include assessing and auditing offshore supply chains and increased surveillance of sea and air cargo terminals.
  8. Import processing charge – The Government expects that changes to the import processing charge will result in additional revenue of $107 million over 4 years. Part of the changes will cover trade-related reform (presumably the Trusted Trader program), remove different charges based on post/air/sea and increase the cost of manual declarations.
  9. Broker licence charges – License charges for brokers, depots and warehouses will be restructured with increased licence renewal charges and a new warehouse licence variation charge. These new charges will commence from 1 January 2016.
  10. Australian Border Force – The major customs development was announced last budget with the merging of Customs and Immigration. The Government is banking on the new Department of Immigration and Border Protection to be efficient. It has budgeted savings of over $40 million per year to be achieved by the merger.

The budget shows a trend – importing goods is becoming less about payment of duty. It is budgeted that non-excise equivalent duty will fall by nearly 50% over the next 4 years. At the same time, we will see other charges increase, such as import processing charges, license fees and penalties.

The decrease in duty does not mean that the role of a broker is any easier. However, when there is less duty to manage it does become harder to demonstrate the benefits to clients. One outcome of increased compliance activities and the proposed introduction of the Trusted Trader Program is that a high level of trade compliance will be rewarded, even if it does not have a duty impact.