21 July 2017

Carefully describing the imported goods is critical to a tariff concession order (TCO) application. The description needs to distinguish the imported goods from ‘substitutable goods’ currently produced in Australia and capable of being produced in Australia.

In a recent AAT decision, Vestas-Australian Wind Technology Pty Limited finally succeeded in overturning the decision of the Comptroller-General of Customs to not grant a TCO. A new TCO, granted in accordance with the AAT’s decision, will enable Vestas to import the goods without customs duty.

What happened in this case?

Vestas sells, installs and services wind turbines in Australia. In 2012, it applied to Customs for a TCO in respect of gearboxes for wind turbines. The application was refused on the basis that it did not satisfy the ‘core criteria’ in the legislation. An engineering company, Hofmann Engineering, had objected to Customs granting the TCO.

Under the law, if Customs is satisfied that the TCO application meets the core criteria, it must grant a TCO. The core criteria will be satisfied if, on the day the TCO application is lodged, no substitutable goods are produced in Australia in the ordinary course of business.

The TCO regime is designed to protect the Australian manufacturing industry from overseas competition. A corollary of this is that industry should not be burdened by tariffs where there is no local industry requiring protection.

The Full Court of the Federal Court found that the TCO regime extends to the protection of goods capable of production in Australia in the future. This was important because Customs had conceded that substitutable goods had not actually been produced in Australia before the TCO application. The Full Court remitted the matter to the AAT for further consideration in light of its reasons. Despite this, the AAT decided that the application satisfied the core criteria – no substitutable goods were produced or were capable of being produced in the future. The AAT remitted the matter to Customs to grant a TCO in respect of the goods.

Could Hofmann have produced substitutable goods with its existing facilities?

‘Substitutable goods’ are produced in Australia if Australian manufacturers make goods that are put, or capable of being put, to the same use as those being imported. Substitutable goods are taken to be produced in Australian in the ordinary course of business if they have been produced or could be produced with existing facilities.

The question before the AAT was whether Hofmann, an Australian producer, could have used its existing facilities to produce goods capable of being used as particular gearboxes. The gearboxes would have to convert high torque from low turbine blade rotations to higher rotation low torque revolutions for use by a wind turbine generator to produce a power output of 3MW. This very limited use was found to be the only use to which the goods the subject of the TCO application could be put, having regard to the description of the goods in the application.

The AAT was not convinced that Hofmann was capable of producing substitutable goods with its existing facilities. It found that, although gearboxes destined for use in different industries will have many features in common, a gearbox for a wind turbine was unique to the wind turbine industry. Since Hofmann had never designed a gearbox for a wind turbine, the AAT was not satisfied that its design skills in relation to producing gearboxes for other industries would transfer to the wind turbine industry.

The AAT also considered Hofmann’s existing facilities. It found that, since Hofmann did not have the testing equipment necessary to ensure that gearboxes it produced complied with the relevant industry standards, there was no basis for concluding that the gearboxes were capable of being put to use in a wind turbine. All that could be said was that they might be capable, not that they were capable. This was not enough to conclude that Hofmann could produce substitutable goods with its existing facilities.

What does this mean for importers?

Although the importer was ultimately successful, this case demonstrates that, when applying for a new TCO, it may not be enough to satisfy Customs that there are no substitutable goods currently produced in Australia. The difficulty lies in showing that Australian producers are not capable of producing substitutable goods with their existing facilities. Unfortunately, importers may only become aware of this possibility when Australian manufacturers come out of the woodwork to object to a TCO application.

This case also reveals the advantages of describing the goods with a high level of specificity in the TCO application. The description should be broad enough to include the kinds of goods that will be imported but narrow enough to limit the purpose to which the goods may be put. If there are differences in the imported goods, multiple TCO applications may be an alternative strategy.

Please contact a member of our team if you would like to discuss.

 

This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.