Tariff Concession Update

29 Apr 2009

The Australian Customs Service states that it “manages a range of programs to support local industry”. One such program is the Tariff Concession System.

An importer of goods can obtain a Tariff Concession Order (TCO) if substitutable goods are not produced in Australia. If you obtain a TCO for goods, those goods enter Australia duty free. Goods listed on the Excluded Goods Schedule are ineligible for a TCO and include food stuffs, clothing and motor vehicles.

The real interest in this area is on how Customs decide if an imported product is, or is not, substitutable for a product produced in Australia. The statutory definition refers to goods that have a use corresponding to a use of the imported goods.

In the real market for the sale of goods in Australia, that test of substitutability appears to many importers to be quite unreal. For example, in a recent case of Mattel Pty Ltd and Chief Executive Officer of Customs decided in the Administrative Appeals Tribunal in 2008, the Tribunal held that Barbie Dolls are substitutable for a doll that bears absolutely no resemblance to Barbie Dolls. The Tribunal decided the case on the basis that the relevant use of a doll for a child is “engaging in a role play with a doll”.

It is also important to understand that the definition of substitutability in the Customs Act specifically excludes any consideration of whether the locally produced goods compete with the imported goods in any market.This exclusion means that imported goods can be held to be substitutable for Australian Goods even if they do not directly compete for sales in the market.

There is a ray of hope for importers in the decision of Toyota Australia and Chief Executive Officer of Customs and Crown Equipment Pty Ltd. This case is also a late 2008 case where 2 applications challenging Custom’s decisions on substitutability of imported goods were reviewed in the Administrative Appeals Tribunal.

In one application, the Tribunal decided that ride on, counterbalanced forklift trucks were substitutable for pedestrian battery powered walker stackers. The Tribunal relied upon the definition in the Customs Act and found that the locally produced unit had a corresponding use to the imported forklift truck. The Tribunal found that price or superior qualities are irrelevant in determining whether goods are substitutable.

In the other application, the Tribunal found that the pedestrian battery powered walker stacker was not substitutable for a reach truck. The Tribunal extensively considered the limitation of the walker stacker particularly regarding the speed of operation and lift time as factors that distinguished the uses of the respective goods.

Very significantly, the Tribunal in this case accepted that its task was to go beyond a generic end-use description such “material handling equipment” and instead focused on an analysis of the features and functionality of the equipment to determine substitutability for specific tasks.

This decision may open the door for a narrower interpretation of the definition of substitutability under the Customs Act. If this happens, importers may be able to obtain more TCO’s from Customs at first instance rather than relying upon appeals to the Administrative Appeals Tribunal and/or the Federal Court.

Author: David Boyall