The Korea-Australia free trade agreement will commence on 12 December 2014. Below we set out the key issues relating to the commencement of the FTA and the steps to take to best manage the transition.
Goods exported to Australia prior to 12 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 at the time of entry of the goods and whether the goods are ‘qualifying goods’.
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 12 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 on or after 12 December 2014, the goods will qualify for the preferential rate.
When is “the time for working out the rate of duty on the goods”?
The FTA only applied to goods if the “the time for working out the rate of duty on the goods” is on or after 12 December 2014. 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 12 December 2014 can I warehouse them until after 12 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 early December, are not entered for home consumption, but rather are warehoused, and only entered for home consumption after 12 December 2014, then the FTA can apply.
What if the vessel will arrive in Australia before 12 December but my goods will not be unloaded until after 12 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 12 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.
What if my Korean goods are transhipped?
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, relabelling, 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
- 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 12 December 2014 (or any other commencement date) and
- Introduce new steps in the procurement process which require potential Korean suppliers to assess whether the goods will or will not be covered by the FTA.
Terms and conditions with suppliers
Importers will be relying on information provided by suppliers as to whether the FTA applies. However, if the concessional entry is incorrectly claimed (such as if the goods were not actually made in Korea), Australian Customs will seek the underpaid duty from the importer. To protect against this risk we recommend:
- Ensuring contracts with your suppliers include warranties that the information they provide regarding the origin of the goods is correct;
- Including contractual terms requiring suppliers to provide an indemnity for any duty or fines payable as a result of representations as to origin being incorrect; and
- Requiring suppliers to provide reasonable assistance to ensure that the FTA can be claimed (such as providing certificates of origin).
While there is only a short time to prepare, importers who are proactive in managing the above issues will gain an advantage by optimising the use of the FTA and enjoying cheaper imports ahead of their competitors.