International Trade 2022

Last Updated September 21, 2021

Australia

Law and Practice

Author



Moulis Legal is a progressive modern legal business handling major commercial and international matters. The firm's particular focus areas are international trade, energy and resources, intellectual property, government procurement, China business, property acquisition and development, mergers, acquisitions and joint ventures, and major commercial projects. Moulis Legal’s international trade law team comprises nine lawyers across its Canberra, Melbourne and Brisbane offices. It is Australia’s leading international trade and WTO practice firm. The team leads the field as a premium provider of comprehensive legal service-based representation in international trade law matters, especially anti-dumping and countervailing investigations and related legal proceedings, customs-related advisory work, sanctions, and cross-border agreements. Moulis Legal has extensive experience in representing major international companies and government clients in trade remedy and border-related cases.

Australia has been a member of the World Trade Organisation (WTO) since it was established in 1995, and was a founding member of the General Agreement on Tariffs and Trade at its inception in 1947. Australia has signed on to the following plurilateral agreements:

  • the Government Procurement Agreement;
  • the Information Technology Agreement; and
  • the Trade Facilitation Agreement.

Additionally, Australia is an observer to the Committee on Trade in Civil Aircraft.

Australia is currently party to the following free trade agreements (FTAs):

  • Australia–New Zealand Closer Economic Relations Trade Agreement;
  • Singapore–Australia FTA, including the Australia–Singapore Digital Economy Agreement;
  • Australia–USA FTA;
  • Thailand–Australia FTA;
  • Australia–Chile FTA;
  • ASEAN–Australia–New Zealand FTA;
  • Malaysia–Australia FTA;
  • Korean–Australia FTA;
  • Japan–Australia Economic Partnership Agreement;
  • China–Australia FTA;
  • Comprehensive and Progressive Agreement for Trans-Pacific Partnership;
  • Australia–Hong Kong FTA;
  • Peru–Australia FTA;
  • Indonesia–Australia Comprehensive Economic Partnership Agreement;
  • Pacific Agreement on Closer Economic Relations Plus; and
  • Regional Comprehensive Economic Partnership.

Australia does not participate in any arrangements such as the Generalised System of Preferences. Australia is a party to several bilateral investment treaties and double-tax agreements.

At the time of writing, Australia is negotiating, with differing degrees of progress, the following FTAs:

  • Australia–EU Free Trade Agreement;
  • Australia–Gulf Cooperation Council Free Trade Agreement;
  • Australia–India Comprehensive Economic Cooperation Agreement;
  • Australia–UK Free Trade Agreement;
  • Pacific Alliance Free Trade Agreement; and
  • Trade in Services Agreement.

In the past 12 months, the following items of note have occurred.

  • On 13 December 2020, the Pacific Agreement on Closer Economic Relations Plus entered into force in Australia; Australian, New Zealand and six Pacific Island Countries are parties to the agreement.
  • Throughout the year, Australia has held negotiations with the UK, agreeing on core elements of the FTA.
  • In May 2021, the WTO Dispute Settlement Body established a panel to hear matter DS598 – Australia’s complaint regarding China’s anti-dumping and countervailing duty measures on barley imported from Australia. The legal bases identified in the request for establishment includes the interpretation and application of the terms “like product”, “product under consideration” and “domestic industry”, the use of facts available, the determinations of dumping, countervailing, injury and causation, the imposition of duties and the transparency of the findings and conclusions that led to the imposition of the measures under challenge.
  • On 24 June 2021, China requested consultation with Australia regarding anti-dumping and countervailing duty measures on certain products from China. China specifically identified wind towers, deep-drawn stainless steel sinks and railway wheels as targets of Australian anti-dumping measures. Among other items, the request for consultation appears to raise issues regarding Australia’s use of out-of-country costs when determining normal values for Chinese exporters.
  • In June, the Australia–European Union Free Trade Agreement held their 11th round of negotiations. However, negotiations have come under strain recently, following the announcement of the AUKUS security pact, which resulted in Australia reneging on a significant multi-billion-dollar defence contract with France.
  • On 26 October 2021, a panel was established in relation to China’s decision to impose definitive anti-dumping measures on wine from Australia (DS602). The legal bases listed in the request for establishment includes the interpretation of the “domestic industry”, the use of “facts available” and the determination of injury and causation.
  • Australia and India issued a joint statement agreeing to increase negotiation so that an early harvest agreement can be achieved by December 2021.

On 21 September 2021, the Australian Parliament passed the Customs Amendment (Regional Comprehensive Economic Partnership Agreement Implementation) Bill 2021 and the Customs Tariff Amendment (Regional Comprehensive Economic Partnership Agreement Implementation) Bill 2021, which were drafted to implement Australia’s obligations under RCEP.

The Australian Border Force (ABF) governs customs matters. It is an “operationally independent body” within the Home Affairs portfolio. The ABF Commissioner is also Comptroller-General of Customs. Key legislation governing customs matters include:

  • the Australian Border Force Act 2015;
  • the Customs Act 1901; and
  • the Customs Tariff Act 1995.

There are also several relevant regulations, including Customs Regulations 2015, Customs (International Obligations) 2015, the Customs (Prohibited Exports) Regulations 1958 (Prohibited Exports Regulations) and the Customs Prohibited Import Regulations 1956.

ABF has primary responsibility for administering and enforcing Australian customs law. More serious breaches of customs laws will be enforced by the Australian Federal Police (AFP) and the Office of the Commonwealth Director of Public Prosecutions (CDPP).

Australia has no similar law to the European Union’s Trade Barriers Regulation or Section 301 of the US Trade Act of 1974.

In February 2021, Parliament passed the Customs Tariff Amendment (Incorporation of Proposals and Other Measures) Bill 2020. Among other things, this legislation was drafted to respond to tariff schedule interpretation methodology expounded by the High Court of Australia in Comptroller-General of Customs v Pharm-A-Care Laboratories Pty Ltd [2020] HCA 2.

In that case, the High Court determined that Australia’s tariff schedules were to be interpreted to favour a meaning that gives simultaneous effect to the English and French texts of the International Convention on the Harmonized Commodity Description and Coding System.

Pharm-A-Care related to the classification of gummies (chewy gelatine sweets) with reputed health and weight-loss benefits. The practical implication of the interpretative process outlined and adopted by the High Court was that the gummies were classified as medicaments under heading 3004, rather than food preparations or sugar confectionary, and therefore they were duty free. This interpretation was applied in subsequent disputes relating to other goods, such as the classification of specific steel pipes (Comptroller-General of Customs v Smoothflow Australia Pty Ltd [2021] FCA 114).

However, the Australian government considered this led to interpretations that were inconsistent with international tariff classifications.

The Customs Tariff Amendment (Incorporation of Proposals and Other Measures) Bill 2020 addresses the interpretations developed through these disputes. This was done on a surgical basis, by adding additional notes to the relevant tariff headings. As a consequence, the interpretative methodology adopted in Pharm-A-Care, including the relevance of the French text of the Convention relevance, is still valid in other classification matters.

Harmonized Codes System Changes 2022

The Customs Tariff Amendment (2022 Harmonized System Changes) Bill 2021 and the Customs Amendment (2022 Harmonized System Changes) Bill 2021 will come into force on 1 January 2022. These are designed to implement the outcomes of the WCO’s sixth review of the Harmonized Commodity Description and Coding System. The amendments include:

  • the implementation of new subheadings and classifications for emerging technologies and new product categories, such as 3D printers, hybrid and electric vehicles, drones and smartphones;
  • additional subheadings to identify and monitor products of concern, such as chemicals that are controlled by the Montreal Protocol and Chemical Weapons Convention, and diamonds which may come from questionable sources; and
  • the removal of subheadings for products that are no longer widely traded, such as answering machines.

Customs Amendment (Controlled Trials) Bill 2021

If passed, the Bill would establish a framework through which the Comptroller could waive, vary or create new obligations under the Customs Act for a limited period. The idea is that this would facilitate trials of new practices, which could then lead to broader legislative reforms. At present, the Bill would allow for these trials to be undertaken in relation to imports, exports, tariff concessions, agents, customs brokers and electronic communication.

An exposure draft of the Bill was released for consultation in October. A version will ultimately be introduced to Parliament in the coming months.

Australia imposes two forms of sanctions – those made by the UN Security Council (UNSC) under Chapter VII of the Charter of the United Nations, and autonomous sanctions. These are discussed below.

UNSC Sanctions

International legal instruments are not recognised as binding in the Australian legal system unless they are implemented through domestic legislation. So, although Australia is bound to comply with a UNSC decision under Article 25 of the UN Charter, there needs to be an Australian law to give the decision effect domestically. This is achieved via the Charter of the United Nations Act 1945 (Cth) (UN Charter Act) which empowers the Governor-General of the Commonwealth of Australia to create regulations that give effect to the UNSC decisions.

Generally, UNSC sanctions will be applied in a distinct instrument. For example, UNSC resolution 1493 (2003) regarding the Democratic Republic of the Congo is primarily implemented via the Charter of the United Nations (Sanctions – Democratic Republic of Congo) Regulations 2008. The complexity of the regulatory regime for a set of UNSC sanctions will vary considerably, depending on the complexity of the sanctions being implemented.

The prohibitions in each regime have been specified by the Minister for Foreign Affairs to be UN Sanctions Enforcement Laws. Legally, this is important, because the main prescription under the UN Charter Act is engaging in conduct which contravenes a UN Sanctions Law.

Australia’s Autonomous Sanctions

Autonomous sanctions are imposed in a similar fashion. The Autonomous Sanctions Act 2011 (Cth) empowers the Governor-General to create regulations which impose autonomous sanctions. This power is broadly drafted, with the Act providing little guidance as to when autonomous sanctions can be made. The Explanatory Memorandum for the Autonomous Sanctions Bill 2010 (being the bill through which the Act was created), does provide some comment, stating that the aims of such measures are:

  • to limit adverse consequences of a situation of international concern;
  • to seek to influence those responsible for giving rise to a situation of international concern to modify their behaviour to remove the concern (by motivating them to adopt different policies); and
  • to penalise those responsible.

These comments are more a statement of government policy then they are legally binding criteria. Having said that, the powers under the Autonomous Sanctions Act are not as broad as under the UN Charter Act. The autonomous sanctions regulations may prohibit the following:

  • making a “sanctioned supply” of “export-sanctioned goods”;
  • making a “sanctioned import” of “import-sanctioned goods”;
  • providing a “sanctioned service”;
  • engaging in a “sanctioned commercial activity”;
  • dealing with a “designated person or entity”;
  • using or dealing with a “controlled asset”; or
  • the entry into or transit through Australia of a “designated person” or a “declared person”.

Autonomous sanctions instruments are compiled into a single instrument, the Autonomous Sanctions Regulations 2011, which lists all the prohibitions applicable to a particular situation.

The Governor-General is legally empowered to make UNSC or autonomous sanctions regulations, but this is ceremonial rather than substantive. The Governor-General is the Queen’s representative and so is nominally the head of the Executive Government. The delegation of regulating power to the Governor-General represents the delegation by Parliament of its legislative power to the Executive Government – allowing the Executive Government to create legal instruments without going through the lengthy legislative process.

In practice, it is the Minister for Foreign Affairs and the Department of Foreign Affairs and Trade (DFAT) which are responsible for the content, implementation and facilitation of any sanctions.

The Australian Sanctions Office (ASO) in DFAT is the Australian government’s sanctions regulator. The ASO works with several agencies to enforce those sanctions including, in particular, ABF and the AFP. ABF can stop exports to or from sanctioned countries where a breach of sanctions law is suspected. The ASO may also refer breaches of Australian sanctions law to the AFP and ABF for investigation, which can lead to criminal prosecution.

Australia’s autonomous sanctions laws are subject to Section 15.1 of the Criminal Code 1995, which gives it a limited form of extraterritorial jurisdiction. This applies to forms of conduct, rather than particular “people”. Conduct constituting a contravention of the sanctions law will be an offence where that conduct occurs:

  • either wholly or partly in Australia (including on an Australian aircraft or ship); or
  • wholly outside of Australia and leads to a result that occurs wholly or partly in Australia (including on an Australian aircraft or ship); or
  • wholly outside of Australia but undertaken by an Australian citizen or a body corporate incorporated by or under a law of the Commonwealth of Australia or of an Australian state or territory.

UNSC sanctions are more bespoke in nature and will vary depending on the requirements of the UNSC Resolution. Frequently, Section 15.1 of the Criminal Code will apply to a contravention of a UNSC resolution, although this needs to be assessed on a case-by-case basis.

The ASO contains a consolidated list of sanctioned persons. These are known as “designated people” or “designated entities”. The Autonomous Sanctions Regulations include categories of people/entities who may be “designated”. For example, with regard to Iran, a class of person that may be designated is: a person or entity that the Minister is satisfied has contributed to, or is contributing to, Iran’s nuclear or missile programme.

If the Minister considers that a person/entity falls within the class, the Minister may designate the person/entity via a legislative instrument. The ASO will then update the consolidated list.

Australia currently maintains sanction measures against several countries, regions and situations of international concern, including:

  • 17 UNSC sanctions regimes; and
  • four wholly autonomous sanctions regimes –
    1. the Former Republic of Yugoslavia (specific targeted sanctions on certain declared people involved in serious crimes committed during the Balkan Wars, such as individuals indicted by the International Criminal Tribunal for the former Yugoslavia),
    2. Myanmar,
    3. Russia (imposed in relation to the Russian threat to Ukrainian sovereignty – confusingly, one set of restrictions is referred to as the “Ukrainian sanctions” regime), and
    4. Zimbabwe.

Australia has imposed additional autonomous sanctions against the Democratic People’s Republic of Korea, Iran, Libya and Syria, which supplement the UNSC regimes.

In 4.1 Export Controls, we discuss the Weapons of Mass Destruction (Prevention of Proliferation) Act 1995 (Cth) (WMD Act). The WMD Act can have the effect of preventing trade with certain entities that are not otherwise subject to Australia’s sanctions regimes.

Australia does not apply secondary sanctions. See 3.4 Persons Subject to Sanctions Laws and Regulations regarding jurisdiction.

The UN Charter Act and the Autonomous Sanctions Act include offences for contravening UN Sanctions Enforcement Laws or autonomous sanctions laws, respectively. An individual engaging in conduct that contravenes a sanctions law may be liable for imprisonment for a period not exceeding ten years and/or fines. A fine may be the greater of 2,500 penalty units or three times the value of the transaction that constitutes the contravention, per contravention. As of 1 July 2020, a penalty unit is equal to AUD222, meaning that the minimum penalty for an individual is AUD555,000.

A body corporate that contravenes a sanctions law will be liable for a fine the greater of 10,000 penalty units (AUD2.22 million) or three times the value of the transaction.

There are, of course, a range of other penalties that may arise from a breach of sanctions law, depending on the circumstances.

A party can apply to the ASO for a permit to authorise activity that would otherwise be prohibited by a sanctions law. The conditions on which a permit will be granted will depend upon the sanctions measure to which the proposed conduct relates.

For UNSC sanctions, the Minister for Foreign Affairs will need to notify and/or seek approval from the UNSC before granting a permit.

Permits tend to be granted on a conditional basis. It is an offence to contravene a condition on permit, punishable via the equivalent penalties to those outlined above in relation to the contravention of a sanctions law.

The violation of a sanctions law is a strict liability offence, meaning that no intent needs be proved for the offence to be established. However, if a body corporate can prove that reasonable precautions were undertaken, and that due diligence was exercised, to avoid contravention of a sanctions law, then an offence will not be considered to have been committed. What constitutes “reasonable precautions” or appropriate levels of “due diligence” is not detailed – however, the ASO advises the following as a minimum:

  • conduct of sanctions checks on the person or entity involved in the sanctioned activity;
  • understanding the company structure (if applicable) and any links to designated individuals and entities;
  • understanding the end-user and the end-use of the goods;
  • checking DFAT’s consolidated list to ascertain if a designated person or entity would be (directly or indirectly) dealt with; and
  • keeping records of the due diligence that is conducted.

The ASO can undertake “indicative assessments” where a party can request advice as to whether a proposed transaction would be affected by Australian sanctions laws. This can be a lengthy process, with the ASO advising exporters to allow three months.

Finally, we would advise seeking independent legal advice in undertaking taking “reasonable precautions” or due diligence.

Parties that apply for a sanctions permit are required to keep records and documentation relating to that application for a period of five years. The ASO can issue notices to compel a person to provide information of any kind for the purpose of determining whether a sanctions law has been complied with. Failure to comply with such a notice can result in imprisonment for 12 months.

Australia has no blocking statutes, nor any anti-boycott laws. Secondary boycotts – which, at a high level, is where one party applies pressure to a second party to prevent the second party dealing with a third party – are prohibited in some circumstances under Australia’s Competition and Consumer Act 2010, although this is not what we understand to be a traditional “anti-boycott” law.

On 23 July 2021, the judgment in R v Choi (No. 10) [2021] NSWSC 891 was released. This was the sentencing decision following the defendant pleading guilty to two offences – engaging in conduct that contravened a UN Sanctions Enforcement Law, and engaging in conduct that contravened a sanction law. The specific conduct related to brokering services in contravention of the UNSC and autonomous sanctions that applied to North Korea. On balancing the many factors relevant to sentencing, the defendant was given an aggregate sentence of three years and six months.

Beyond that, there have been numerous updates to the consolidated list relating to several Australia’s sanctions regimes.

On 7 December 2021, the Autonomous Sanctions Amendment (Magnitsky-style and Other Thematic Sanctions) Act 2021 commenced. This Act amends the Autonomous Sanctions Act to allow for the creation of regulations which impose “thematic sanctions”, including sanctions to address:

  • the proliferation of weapons of mass destruction;
  • threats to international peace and security;
  • malicious cyber-activity;
  • serious violations or serious abuses of human rights;
  • activities undermining good governance or the rule of law, including serious corruption; and
  • serious violation of international humanitarian law.

Like autonomous sanctions, the thematic sanctions will be imposed via the Autonomous Sanctions Regulations. An exposure draft of the likely amendments to those Regulations facilitating this, is presently available on the DFAT website. This envisages the designation of certain classes of individuals and entities in relation to proliferation of weapons of mass destruction, significant cyber-incidents, serious violations or serious abuses of human rights and serious corruption. Curiously, at present the draft does not include any reference to “threats to international peace and security” nor “international humanitarian law”.

As the Autonomous Sanctions Regulations already include a prohibition on dealing with designated persons or entities or their assets, this would extend to designations under the thematic sanctions, essentially freezing their assets.

At the centre of Australia’s export controls is the Defence Strategic Goods List (DSGL). The DSGL lists the goods, technology and software that is subject to export controls. The DSGL is a legislative instrument, created under the Customs Act.

Australia participates in the four multilateral export control regimes (the Wassenaar Arrangement, the Nuclear Suppliers Group, the Australia Group and the Missile Technology Control Regime) and other non-proliferation treaties, so the content of the DSGL reflects these. However, it also includes certain firearms and explosives, which are unique to Australia.

The source of the actual controls differs depending on whether the DSGL item is an actual physical product, or technology and software.

Physical exports fall under the Customs Act 1901. The Customs Act delegates the power to prohibit the exportation of goods from Australia to the Executive branch of the Australian government, which has exercised this power in the Customs (Prohibited Exports) Regulation 1958 (Cth). Regulation 13E prohibits the exportation from Australia of goods specified in the DSGL, unless a permission is granted by the Defence Minister.

Cross-border supply of DSGL listed technology and software is regulated by the Defence Trade Controls Act 2012 (Cth) (DTCA). Amongst other things, the DTCA prohibits the “supply” of DSGL technology to a person outside of Australia, subject to certain exceptions and permissions, and the provision of access to DSGL technology, as well as the publication of DSGL technology in some circumstances.

There are also “catch-all” provisions relating to items that are not listed on the DSGL:

  • Section 112BA of the Customs Act allows the Defence Minister to prohibit the exportation of particular goods where they believe the goods would be, or may be, for a military end-use that would prejudice the security, defence or international relations of Australia;
  • the WMD Act broadly prohibits the supply or export of goods and services where the Minister believes they could be used in a WMD programme without a permit.

The operation of these “catch-all” provisions depend on the Minister issuing a notice. However, because the relevant items are not controlled, generally the Minister’s concern will not be known to an exporter until export permissions are sought at the border. The process through which the potential application of the catchall provisions is assessed can be prolonged, sometimes taking months.

We should also mention that the WMD Act prohibits the supply or export of goods where the supplier believes or suspects that the goods will or may be used in a WMD programme, even if no notice has been issued.

The Defence Export Controls (DEC team in the Department of Defence (DoD) regulates the export of DSGL goods and technologies, including assessing applications for permits. The Defence Minister is ultimately empowered to grant permits allowing for exports of controlled goods or supplies of controlled technology.

Australia’s export system is based on self-assessment. The exporter needs to lodge an export declaration with ABF prior to export. This requires the provision of information regarding the goods and the export transaction itself. Without a permit, the export DSGL goods is prohibited, so the exporter also needs to communicate details of its permit to ABF. If the proposed export is consistent with the conditions of the permit, and other requirements are met, then ABF will issue an approval to export, known as an “authority to deal”.

ABF has data-matching capabilities, so it can screen whether export requirements are being met. For example, the combination of the goods and their destination may identify the good as potentially being relevant to the catch-all provisions. If that is the case, ABF will seek further information from the exporter to determine whether an export permission is required and will usually refer the transaction back to DEC to consider whether one of the catch-all notices should be issued.

At the sharper end of enforcement, the relevant agency will depend on the severity of the non-compliance. Less serious breaches will be enforced by ABF, who may respond in several ways, including via exporter education, warnings, administrative sanctions or prosecution. Criminal offences would generally fall to the AFP and the CDPP for enforcement and prosecution.

DEC is responsible for enforcement of the controls imposed on the transfer, publication and brokering of DSGL goods and technology under the DTCA. In this regard, the DEC has discretion to respond to instances of non-compliance and may choose to counsel the entity to ensure it understands its obligations or to impose stringent compliance conditions on the entity’s permit. The majority of the offences that relate to non-compliance with the DTCA are “indictable offences”, so serious cases of non-compliance can be referred to the CDPP for prosecution.

See 4.1 Export Controls and 4.8 Penalties.

Australia does not maintain a list of restricted persons.

The DSGL includes a “sensitive list of dual‑use goods and technologies” and a “very sensitive list of dual‑use goods and technologies”. Goods and technologies included on these lists are subject to more stringent permit requirements.

The Prohibited Exports Regulations also include prohibitions relating to non-DSGL goods, such as asbestos, human substances and cat and dog fur.

As noted above, control on DSGL items is achieved via different legislation, depending on whether the item is a good, or technology/software. Below we will discuss the most relevant penalties provided for under the Customs Act, the DTCA and the WMD Act.

Customs Act Penalties

There are several different penalties that can apply under the Customs Act for non-compliance with export controls. Less serious violations of export controls may be treated as either:

  • exportation of prohibited goods; or
  • unlawfully conveying or having possession of prohibited exports.

The penalty upon conviction for these offences is three times the value of the goods or 1,000 penalty units (AUD222,000).

However, ABF has the discretion to issue an “infringement notice” for such offences where there are “reasonable grounds” to do so. Where an infringement notice is issued, the penalty will be either (i) one-quarter of the maximum fine a court could impose, or (ii) 15 penalty units (for an individual) or 75 penalty units (for a corporation). Payment of an infringement notice penalty discharges any liability of the person for the alleged contravention and prevents the person from being prosecuted in a court for the alleged contravention. Significantly, the person will not be regarded as having admitted guilt or liability for the alleged contravention nor as having been convicted of the alleged offence.

It is also important to note that any conduct that contravenes the conditions of a licence or permit is punishable by a fine of 100 penalty units (AUD22,200).

More serious breaches of export controls may amount to the “export, or unauthorised export, of a tier 2 good”. This is an indictable offence, which can result in imprisonment for ten years and/or 2,500 penalty units (AUD555,000).

The Customs Act also provides provision for the forfeiture of any goods whose export is prohibited.

DTCA Penalties

The key offences under the DTCA are:

  • the supply of DSGL technology to a person outside of Australia; and
  • publishing DSGL technology listed in Part 1 of the DSGL (namely, technology related to items on the munitions list).

Penalties arising from these offences can be imprisonment for ten years and/or 2,500 penalty units (AUD555,000).

Where a party has received a permit to undertake conduct that would otherwise breach the DTCA, a failure to abide with a permit condition can result in a penalty equal to 60 penalty units (AUD13,320).

The Defence Minister also has the power to issue a notice to prevent the publication or supply of DSGL technology. Non-compliance with such notices is punishable by imprisonment for ten years and/or a fine of up to 2,500 penalty units. Additionally, the DTCA contains offences relating to brokering of DSGL goods and technology (ie, arranging for the supply of controlled goods of technology outside of Australia), as well as in relation to dealings under the Australia–U.S. Defence Trade Cooperation Treaty.

WMD Penalties

The three main penalties imposed under the WMD Act are:

  • supplying goods to a WMD programme;
  • exporting goods to a WMD programme; and
  • supplying services to a WMD programme.

Additionally, as noted above, the Minister can issue a notice under the WMD Act prohibiting the supply or export of goods, or provision of services that might be used in a WMD programme. Contravening such a notice is also an offence.

Each of the above offences is punishable by imprisonment for not more than eight years. Prosecution under these Sections can only occur if the Attorney-General consents to it.

Note, insofar as these offences relate to the export of goods, it does not cover exports otherwise regulated by the Prohibited Export Regulations. So the export of goods listed on the DSGL is governed by the Customs Act rather than the WMD Act. Insofar as exports are concerned, the WMD Act operates as a catch-all.

Other Offences

We need to emphasise that the above discussion relates only to the primary penalties arising under Australia’s export controls. There is a horde of other offences that may be relevant depending on the circumstances. For example, the Criminal Code Act 1995 (Cth) includes the offence of “international firearms trafficking”, there are a number of offences relating to the provision of false or misleading information and document and so on. Addressing all possible permutations of penalties that could arise because of a breach of export controls is beyond the scope of this summary.

Licences and permits are available. To seek a licence or permit, an exporter needs to register with the DEC. Once registered, the exporter will have access to the Defence Export Controls System (DECS) and will be given a DECS client registration number (DCRN) which will allow it to apply to the DEC for permits to export, supply or broker.

A range of permits can be applied for depending on the goods that are intended to be exported and the purpose of the exportation, as detailed below.

  • Military permits relate to the export or supply of items listed in Part 1 of the DSGL. Generally, these permits are for limited transport runs or exports to specific countries. Permits can be sought for a number of activities, including permanent export, temporary export, or repair and return. These permits may also be designed to facilitate the requirements of specific defence contracts. Permits may relate to single or multiple shipments.
  • Permits relating to dual-goods and technology can be granted for permanent exports, temporary exports, export for repair and return, defence contract exports and supply of dual-use technology. Such permits can be valid for up to five years and can relate to single or multiple shipments of dual-use goods or supplies of dual-use technology.

The DEC can also grant permits for the publication of military technologies and to allow brokering of military and dual-use goods and technology.

The DEC also grants licences, known as Australian General Export Licenses (AUSGELs). These are broader permits for pre-approved activities, allowing an exporter to supply goods to specific destinations and for specific purposes over a defined period. These can provide more flexibility than DSGL permits, but they are subject to certain exceptions.

The operation of each of these licences is subject to certain caveats. For example, goods and technology listed on the “sensitive list” may or may not be covered by an AUSGEL, and goods and technology listed under the “very sensitive list” must not be covered by an AUSGEL. The complexity and fine differences underline the need for an exporter to properly word its application and to understand the scope of the permission it is granted.

DEC recommends that organisations wishing to interact with Australia’s export controls system adopt a compliance programme. The DEC website includes a range of resources that can be used by an organisation to that end.

The DEC undertakes monitoring activities to ensure export control requirements are being complied with. The DEC works with exporters to prevent and address compliance breaches. However, repeated non-compliance can result in permits being subject to stronger compliance conditions, revocation of permits, or referral for criminal prosecution.

For exporters who are unsure of their relevance of exports controls to a given transaction, DEC offers a range of tools and services to assist – everything from a self-assessment tool to pre-assessments undertaken by DEC.

The DTCA requires permit holders to keep records regarding the activities that were conducted under the permit for five years. The Customs Act includes similar requirements. Both Acts also allow for the relevant authority to require the production of those records as and when necessary.

The DSGL was updated in August 2021. This included 209 updates to the 2019 version of the DSGL, including 170 amendments, clarifications, editorial changes and 39 changes to the scope of controls.

Anecdotally, there has been an uptick in compliance requirements in relation to the export controls, as well as increased use of the catch-all provisions. This appears to be driven by the continuing geo-political tensions in East Asia.

In 2018, a review of the DTCA was undertaken, following which a working group was established to develop legislative proposals to address gaps identified in the current scheme. The review recommended several changes, including control of “emerging and sensitive military and dual-use technology”. However, at the time of writing, no draft legislation has been released.

The key authority governing the imposition of anti-dumping and countervailing measures is the Anti-Dumping Commission (ADC), headed by the Commissioner of the Anti-Dumping Commission (the Commissioner). The ADC undertakes the investigatory functions necessary for the imposition of anti-dumping and countervailing – both the dumping investigation and the injury investigation. If the investigation determines there is a basis to impose anti-dumping and/or countervailing measures then the Commissioner will recommend their imposition to the relevant Minister (currently the Minister for Industry, Science and Technology). The Minister is legally empowered to impose such measures.

Anti-dumping investigations are undertaken in accordance with the requirements of Part XVB of the Customs Act. This is supplemented by the Customs (International Obligations) Regulations 2015, which includes provisions specifying how exporters’ costs of production and selling costs are to be determined in an anti-dumping investigation. Finally, the power to impose such measures is provided to the Minister pursuant to the Customs (Anti-Dumping Tariff) Act 1975 (CTAD Act).

Safeguards investigations are undertaken by the Productivity Commission. Safeguard investigations are infrequently initiated – the last one was concluded in 2013. Since the start of the new millennium, there have only been three safeguard investigations (concerning imports of pig meat, processed fruit products and tinned tomatoes), none of which resulted in the imposition of safeguard measures.

These investigations are undertaken under the Productivity Commission Act 1998, which broadly allows the Productivity Commission to undertake “inquiries” when requested to by the government. In undertaking a request for a safeguards inquiry, the Productivity Commission follows the procedures set out in the Commonwealth of Australia Gazette No S 297. These procedures are designed to fulfil the requirements of the WTO Agreement on Safeguards.

ABF is responsible for the application of all import duties, including interim anti-dumping and countervailing duties, and the administration of any safeguard measures. ABF undertakes several compliance exercises, such as data-matching and audits, in order to ensure compliance with importers’ duty obligations.

The ADC also has a role in compliance through undertaking “anti-circumvention” inquiries. These inquiries are limited to ascertaining whether “circumvention activities” have been undertaken, namely:

  • assembly of parts in Australia;
  • assembly of parts in a third country;
  • exporting of goods through one or more third countries;
  • arrangements between exporters;
  • avoidance of the attended effect of duty; and
  • slight modification of goods.

If a circumvention activity is determined to have taken place, the Minister has broad powers to alter the existing dumping measures to ensure the circumvention is addressed.

A key focus on compliance has been at the ABF level, with Australian industry members lobbying for specific interpretations of Australia’s tariff codes that would result in broader coverage of existing anti-dumping measures than was initially intended. An importer that falls on the wrong side of these interpretations can face significant duty liability.

Any affected party can apply for a review of measures. The term “affected party” includes a person representing the Australian industry producing like goods, a person directly concerned with the export or import of like goods, and the government of a country from which like goods are exported. The Minister may also write to the Commissioner to request a review be initiated.

The scope of a review may vary. For instance, an exporter may apply for a review of its individual measures, rather than a broad review of all measures applicable to its own country of export. Exporters and importers usually request narrow reviews, but the Minister will usually broaden them out to encompass all exporters.

There is also a truncated form of review – known as an “accelerated review” – that is open to “new exporters” who did not export to Australia during the investigation period that resulted in the imposition of measures. Exporters that do not undertake this kind of review are subject to the “others” rate of duty, which is generally prohibitively high. An accelerated review allows the new exporter to receive its own dumping margin.

Reviews are ad hoc, initiated based on either an application from an affected party or parties or at the request of the Minister. Affected parties cannot apply for a review within 12 months of the outcome of an investigation or the last review of the measures.

Provided a non-domestic company is an “interested party”, it may participate in a review through the provision of written submissions to the Commission. Interested parties encompass “any person who is or is likely to be directly concerned with the importation or exportation into Australia of the goods the subject of the application”.

In practice, an exporter subject to a review will need to complete an exporter questionnaire within 37 days of initiation. The exporter questionnaire is intended to elicit all information necessary to determine the “variable factors” (export price, normal value and non-injurious price where relevant) for the responding exporter.

Anti-dumping and countervailing investigations follow the procedure and timelines as set out in the Customs Act. The statutory timelines are as follows:

  • application for investigation;
  • 20 days after receipt of application – initiation of investigation;
  • 37 days after initiation – interested party submissions lodged;
  • 60 days after initiation – a preliminary affirmative determination can be made (such finding would result in securities being imposed on imports);
  • 110 days after initiation – publication of the Statement of Essential Facts (SEF);
  • 20 days after SEF – interested party submissions relating to the SEF;
  • 155 days after initiation – final report made to the Minister; and
  • 30 days after final report is made – the Minister’s decision announced and final report published.

The SEF and reporting dates are extended as a matter of course. In these COVID-19-affected times, and given the ADC’s case workload, investigations are presently taking around 12 to 16 months to complete.

The first round of interested party submissions include exporter questionnaire responses. An exporter that needs more time to complete the exporter questionnaire response – and these are complex documents, so that is often the case – needs to write to the ADC and ask for an extension. The Commissioner’s consideration of any extension request is guided by the Customs (Extensions of Time and Non‑cooperation) Direction 2015. Extension requests must be properly justified.

The ADC may accept other forms of submissions throughout the investigation. This reflects Australian administrative review principles and is particularly important for injury and causation-focused submissions, as neither the exporter questionnaires nor importer questionnaires expressly invite interested parties to address such allegations. The Customs Act allows the ADC to consider such submissions, provided doing so will not prevent the timely publication of the SEF or the timely preparation of the report to the Minister.

The ADC’s usual practice is to seek to verify information submitted by exporters, importers and Australian industry members. This will occur prior to the publication of the SEF. The ADC also publishes verification reports outlining their initial findings for each entity following verification, and will tend to accept a submission made in relation to such reports as well.

If the Commissioner is satisfied there is not an appropriate basis to impose measures, the investigation must be terminated. This will generally happen at the time the Commissioner would otherwise be making a report to the Minister.

The ADC publishes the following on the public record:

  • consideration report – outlining the ADC’s reasons for initiation;
  • day 60 report – outlining the reasons for or against a PAD;
  • verification reports – outlining the findings on verification;
  • SEF – outlining preliminary findings and proposed recommendations; and
  • final report or termination report – outlining the findings supporting either the termination of the investigation or the imposition of measures; the final report will not be published until the Minister’s decision is published.

The ADC maintains a public record which includes these reports, as well as the application for an investigation and submissions and correspondences from interested parties.

Section 8(1) of the CTAD Act specifically excludes New Zealand-originating goods from having anti-dumping duties imposed on them.

See 5.4 Ad Hoc and Regular Reviews.

The review process is like that outlined with regard to anti-dumping and countervailing investigations.

The Anti-Dumping Review Panel (ADRP) is an administrative review body that has jurisdiction to hear merits appeals of certain anti-dumping and countervailing decisions ("reviewable decisions"). The procedure for such an appeal depends on the specific decision, but in general the following applies:

  • 30 days after reviewable decision made – ADRP appeal filed;
  • approximately a month after application – ADRP appeal initiated;
  • 30 days after initiation – interested party submissions lodged;
  • 30 days after submissions – ADRP report made to the Minister;
  • 30 days after report – the Minister either affirms or revokes and remakes reviewable decision.

This timeline will usually be extended substantially. The key reason for this is that the ADRP has the power to ask the ADC to reinvestigate certain findings and then report back to the ADRP. If that occurs, the ADC’s practice is to publish preliminary re-investigation reports, to allow interested parties to make submissions, before reporting back to the ADRP. This is quite a laborious process, and also legally unsatisfactory, in that it reintroduces the original decision-maker into the process and allows it to continue to influence the outcome by “reviewing its own finding”.

The ADRP may also hold interested party conferences throughout the appeal, and require interested parties to make submissions regarding these conferences.

The other form of appeal is an appeal to the Federal Court of Australia under the Anti-Dumping (Judicial Review) Act 1977 and/or the Section 39B of the Judiciary Act 1901 (“judicial review”). Judicial review is focused on the legality of a decision, rather than its factual merit, although unreasonableness of epic proportions can substantiate legal relief.

Judicial review litigation is initiated via an originating application lodged with the Federal Court. This needs to occur within 28 days of the making of the challenged decision. The timeline for each matter is set pursuant to orders made by the relevant judge.

While it will depend on the circumstances, judicial review litigation is generally straightforward, not requiring a great deal of evidence nor many interlocutory hearings. As an approximation, judicial review could be completed within 12 to 18 months of initiation.

COVID-19 has had a significant impact on the ADC’s practices. Unable to travel to verify exporter’s data, the ADC has attempted to adopt remote verification via email, extending a process that in the past would take a week to, in some cases, two months.

The Commission is seeking to update its “Dumping and Subsidy Manual”. The Manual sets out the principles and practices the Commission normally adopts in anti-dumping and countervailing investigations and similar procedures. The content is not legally binding on the Commission, but it does provide a useful overview to how they may act in any procedure. We have yet to see the final version.

The Federal Court of Australia is currently considering the limitations on the Minister’s discretion around material injury determinations and the jurisdiction of the ADRP. Judgment is reserved, but once it is handed down it may have systemic implications for the AD/CVD measures in these specific areas.

Australia’s foreign investment laws are primarily contained in the Foreign Acquisitions and Takeovers Act 1975 (Foreign Investment Act) and the Foreign Acquisitions and Takeovers Fees Impositions Act 2015 (Fees Imposition Act). The Foreign Investment Act allows the Treasurer to review foreign investment proposals that meet certain criteria. In practice, this assessment is undertaken by the Foreign Investment Review Board (FIRB), a non-statutory body which then advises the Treasurer whether the proposed investment should be allowed to go ahead.

The Treasury runs the day-to-day administration of the framework in relation to business, agricultural land and sensitive commercial land proposals, whereas the Australian Taxation Office (ATO) administers foreign investment into residential real estate, non-sensitive commercial land and internal reorganisation proposals.

Foreign investment amounting to a notifiable action or a national security action requires the submission of an application to the FIRB via an e-form. Timeframes for reviewing applications can vary anywhere from 30 days to six months, with a priority placed on urgent applications.

The key question in assessing a notified investment is whether it passes a national interest test or national security test. The Treasurer has the power to block a foreign investment proposal or to apply conditions to the way the proposal is to be implemented to ensure that it is not contrary to the national interest or national security.

The Treasurer is the ultimate decision-maker for foreign investment into Australia. The FIRB is the key responsible entity, as described above.

The application of the FIRB regime depends on whether an action by a foreign investor or foreign government investor is a “notifiable action” or a “notifiable national security action”.

Whether or not a proposed action is a “notifiable action” is a matter of some complexity, depending on the identity of the investor, the nature of the proposed investment and the value of the proposed investment and the value of asset.

For example, the acquisition of a substantial interest in an Australian entity is a “notifiable action” where the value of the Australian entity exceeds a monetary threshold. A substantial interest is generally 20% of the value of the entity, although this varies in certain circumstances. What the monetary threshold is also differs, depending on where the acquirer is from (eg, a country with which Australia has certain FTAs, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and whether the acquired business is a sensitive business (including businesses in the media, telecommunications, transportation and certain defence-adjacent industries). Further, if the acquirer is a “government investor” than the threshold value is AUD0, meaning that the acquisition of a substantial interest in any entity, irrespective of the value of the entity, is notifiable.

So, complexity abounds. At a high level, the type of transactions that may be notifiable also include acquisitions of land and investments in media businesses, and investments in agribusiness.

A “notifiable national security action” includes any of the following:

  • starting a national security business;
  • acquiring a direct interest in a national security business or an entity that carries on such a business;
  • acquiring an interest in Australian land that, at the time of acquisition, is national security land; or
  • acquiring a legal or equitable interest in an exploration tenement in respect of Australian land that, at the time of acquisition, is national security land.

What constitutes a national security business or national security land requires a significant amount of explanation. Indicatively, it is broad, encompassing everything from businesses that store personal information of defence and intelligence personnel through to manufacturers of critical goods for military use. Essentially, these types of “national security” enterprises involve instances where defence, intelligence or national security risks or interests are deemed to exist. The threshold for any of these actions is AUD0.

If a proposed action is a notifiable action or a notifiable security action, then it needs to be approved by FIRB before occurring.

See 6.3 Transactions Subject to Investment Security Measures.

There are several exemptions, which are provided for under Part 3 of the Foreign Acquisitions and Takeovers Regulation 2015.

There are many penalties that can arise for non-compliance with the FIRB regime. For example, a foreign person/entity who performs a notifiable act without approval can face significant penalties:

  • criminal penalty – 15,000 penalty units (AUD3.3 million) or ten years' imprisonment for an individual, and 150,000 penalty units (AUD33.3 million for a company; and
  • civil penalty – 5,000 penalty units (AUD1.1 million) for an individual, and 55,000 penalty units (AUD12.2 million) for a company.

The same penalties apply where a foreign person fails to comply with a condition of an approval.

There are additional and significant penalties relating to residential real investment. Such transactions are best approached with caution, and with independent legal advice.

There are a variety of fees that may apply to a FIRB application, depending on the acquisition involved. The most common fees for a FIRB application are as follows:

  • for residential land, fees can range from AUD6,350 (acquisition value of AUD1 million or less) to a maximum of AUD503,000 for acquisitions of more than AUD40 million;
  • for commercial land and actions relating to entities and businesses (eg, acquiring an interest in securities in an entity or a direct interest in an Australian entity or a business that is an agribusiness), fee tiers increase every AUD50 million of consideration, starting at AUD6,3500 for acquisition of AUD50 million or less, rising to a maximum of AUD503,000 for acquisitions of more than AUD2 billion;
  • for agricultural land, fee tiers increase every AUD2 million of consideration, starting at AUD6,350 for acquisitions of AUD2 million or less, rising to a maximum of AUD503,000 for acquisitions of more than AUD80 million.

In addition, all states and territories charge additional stamp duty surcharges on foreign purchasers of property, and certain states and territories charge higher rates of land tax on foreign owners where the property is not their principal place of residence.

See 6.9 Pending Changes to Investment Security Measures.

Substantial changes to the FIRB regime took effect on 1 January 2021. The main feature of the changes was the establishment of a new national security requirements, which include:

  • the adoption of the concept of “notifiable national security actions”, which are discussed at 6.3 Transactions Subject to Investment Security Measures;
  • the addition of a new “call-in” power, which allows the Treasurer to review certain “reviewable national security actions” and “significant actions”, where the action poses a national security concern – this power may be exercised with respect to an action that is proposed, or up to ten years after the action was taken;
  • the addition of a “last resort” power which enables the Treasurer to review actions that were notified to FIRB in exceptional, national security-based, circumstances.

The key restriction on imports relates to the prohibition of parallel imports of books under Section 37 of the Copyright Act 1968 (Cth). It persists despite Australia’s Productivity Commission recommending it be abolished in 2009, which was later reiterated by the Harper Competition Policy Review in 2015.

There are a number of ways in which the Australian government offers industry assistance. These include, but are not limited to, small business capital gains tax concessions, research and development tax concessions and government financing vehicles. Arguably, such schemes facilitate and encourage domestic production.

A number of measures have been adopted to aid the post-pandemic economic recovery by developing and expanding specific industries. As part of the 2020–21 Budget, the Australian government has provided funding to support projects within the six National Manufacturing Priorities, namely:

  • resources technology and critical minerals processing;
  • food and beverage;
  • medical products;
  • recycling and clean energy;
  • defence; and
  • space.

Further, a range of measures associated with "gas-fired recovery" have been announced by the Australian government, including measures directing money towards critical gas infrastructure projects, the building of a new gas power plant in the Hunter Valley, and funding for new gas generators to be "hydrogen-ready".

The primary body is Standards Australia, a non-government entity which develops relevant Australian standards. Government policy is set by the Department of Industry, Innovation and Science.

The Department of Agriculture and DFAT oversee Australia’s sanitary and phytosanitary (SPS) obligations. In particular, the Department of Agriculture is responsible for setting and administering Australia’s SPS measures, and for maintaining and improving technical market access for Australia’s agricultural and other food exports.

There are no measures we are aware of that are specifically aimed at reducing imports or encouraging domestic production. That said, measures for the protection of Australia’s unique bio-diversity are often claimed to be disguised trade measures, and Australia is no stranger to being a respondent in WTO disputes under the WTO Agreement on the Application of Sanitary and Phytosanitary Measures.

In our experience, clients’ primary concern regarding the SPS system is its administration, particularly how it responds to new and emerging information regarding potential phytosanitary risks. The risk assessment process is often prolonged, with limited transparency, during which time imports are blocked from entry or treated in ways that destroy or degrade their food or floral quality.

There are no specific competition policies or price controls employed in Australia that are aimed are reducing imports or encouraging domestic production.

In the 1990s, Australia went through a wave of privatisation. At present, the majority of government business enterprises tend to be utilities or entities that facilitate government policies – for example, the Clean Energy Finance Corporation.

Australia’s government is multi-layered – from the Commonwealth government to the state and territory governments, and to local governments. At each level of these bureaucratic strata, there can be multiple different procurement requirements.

Australia has acceded to the WTO Government Procurement Agreement (GPA) and has reciprocal procurement access requirements under several FTAs. These are obviously caveated – for example, they may exclude defence procurement and procurement for health and education services. However, generally, at least at the Commonwealth level, the trend has been toward opening government procurement.

Commonwealth procurement is undertaken in accordance with the Governance, Performance and Accountability Act 2013 (Cth) and the Commonwealth Procurement Rules. Consistent with Australia’s GPA obligations, there are no express laws or rules that are aimed at reducing imports. That said, there are certain policies that could promote domestic economic growth in the Commonwealth Procurement Rules 2020, including:

  • commitments to source at least 10% of all procurement by value from SMEs and 35% of procurements valued up to AUD20 million (consistent with Annex 7 of Australia’s GPA instrument of accession); and
  • for procurements above AUD4 million, the requirement to consider “the economic benefit of the procurement to the Australian economy”, which arguably could be a way to justify local industry preferences by stating that sourcing locally would support local employment, investment, etc.

Further, the Australian Industry Participation National Framework applies to “major Commonwealth government procurements”, being generally those valued above AUD20 million, and encourages tenderers for certain Commonwealth procurements to prepare and implement an Australian Industry Participation Plan.

Defence procurement has additional requirements, set out in the Defence Procurement Policy Manual and other guidelines.

At the state level, there are more explicit rules. For example, the Victorian Industry Participation Policy sets a minimum local content requirement for government procurement of strategic projects valued at AUD50 million or more that is binding on all project tenderers. The practical effect of this mandate has been that tenderers for the strategic projects have refused to use foreign products to avoid non-compliance with tender conditions.

Additionally, South Australia Industry Participation Policy 2021 incorporates an “industry participation weighting”. Regarding the steel industry, the policy provides a minimum 20% participation weighting to form part of the overall evaluation criteria for a project. The stated purpose of this is to “give the local steel industry a competitive advantage against low quality imports”.

Also, the Western Australian government’s Buy Local Policy 2020 includes an “imported content impost”. This is not obligatory, and if used needs to be clearly stated. This allows agencies to apply a 20% price impost that applies to the portion of a bid that comprises goods, services or items that the prospective supplier is proposing to directly import into Australia from another country (excluding New Zealand) as part of the contract delivery.

Australia has two systems for geographical indication (GI) registration:

  • GIs for all goods can be registered using the certification trade mark system (CTM);
  • GIs for wines can also be registered under a separate system, administered by Wine Australia.

The CTM system is provided under the Trade Marks Act, while the wine system is provided under the Wine Australia Act.

A CTM shows that goods or services meet specified standards, which are contained in a set of rules to be provided during the application process. The rules can specify quality, content or production methods.

Throughout 2020, the Australia government undertook consultations to update its GPI framework. This ran in parallel with the AUS–EU FTA negotiations. The extent of any changes to Australia’s GPI framework have yet to be announced.

All significant matters and developments have been comprehensively covered in the foregoing.

Moulis Legal

6/2 Brindabella Circuit
Brindabella Business Park
Canberra International Airport
ACT 2609
Australia

+61 2 6163 1000

+61 2 6162 0606

info@moulislegal.com www.moulislegal.com
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Moulis Legal is a progressive modern legal business handling major commercial and international matters. The firm's particular focus areas are international trade, energy and resources, intellectual property, government procurement, China business, property acquisition and development, mergers, acquisitions and joint ventures, and major commercial projects. Moulis Legal’s international trade law team comprises nine lawyers across its Canberra, Melbourne and Brisbane offices. It is Australia’s leading international trade and WTO practice firm. The team leads the field as a premium provider of comprehensive legal service-based representation in international trade law matters, especially anti-dumping and countervailing investigations and related legal proceedings, customs-related advisory work, sanctions, and cross-border agreements. Moulis Legal has extensive experience in representing major international companies and government clients in trade remedy and border-related cases.

Fortress Australia’s Adventures in Trade

This has been something of an odd year for Australia. At the start of 2021, it felt as though we had escaped the pandemic relatively unscathed and that things would start to return to normal, at least within the confined borders of the continent. However, the Delta variant arrived with winter, triggering the extended lockdown of Australia’s two largest cities and its capital, and the return of interstate borders. Only in the waning months of the year, after a lagged vaccine roll-out and too many months of home schooling, is some slight sense of normalcy returning. However, with the undefined threat of the Omicron variant looming, things are far from business as usual in the Lucky Country.

Not that you could tell from Australia’s trade statistics. Despite the whiplash in expectations and Australia’s continued closure to the outside world, the country’s trade surplus noted four consecutive record results in the months up to, and peaking in, August 2021. While the September results were lower than those of August, they were still historically high at AUD12.2 billion. The value of exports has increased significantly in the 12 months since September 2020. Over that time, there have also been significant developments in Australian trade law, which we discuss below.

The Dragon in the Room

Diplomatic tensions between Australia and China have continued over the past 12 months. The headline development has been recourse to the WTO Dispute Settlement Body. At the time of writing, a panel has been composed in DS598 (China – Anti-Dumping and countervailing duty measures on barley from Australia), a panel has been established in DS602 (China – Anti-dumping and countervailing duty measures on wine from Australia), and China has requested consultations in DS603 (Australia – Anti-Dumping and Countervailing Duty Measures on Certain Products from China).

While the former is significant for the Australian wine and barley industries, the latter could have broader implications within the country. As of September 2021, Australia had 87 AD/CVD measures in places. Chinese products are subject to 30 of these measures: 18 anti-dumping, ten countervailing measures and two provisional measures. The request for consultation lodged by China in DS603 indicates several different legal bases for the complaint, including the failure to use production costs in the country of export in constructing normal values. This practice is commonly, although not exclusively, used by Australia in China-focused trade remedy investigations, with the effect if increasing dumping margins. If a panel is established and finds the practice to be non-compliant, it would call into question the validity of many China-facing measures currently in place.

This notwithstanding, China remains Australia’s pre-eminent trading partner, and is likely to continue in that position well into the future. The two-way trade figures between Australia and China far outstrip trade between Australia and any other single country. However, while. exports to China have reportedly increased significantly over the last 12 months, this is largely driven by increased demand for iron ore which have overbalanced decreases in exports in other goods categories. With iron ore prices decreasing significantly since July 2021, and with no sign of a thawing of the relationship, we are sure to get a clearer picture of the new status quo in the months to come.

Multiples of Bilateralism instead of Multilateralism

One interesting aspect of the ongoing China-Australia tensions has been the reaction of the Australian industries directly impacted. In addition to wine and barley, these reportedly include coal, lobsters, beef, timber and cotton. These industries appear to have pivoted to other markets to mitigate some of the impact. According to the Treasurer, exports of these goods to China have fallen in value by around AUD5.4 billion in the year to June 2021; at the same time, exports of the same goods to the rest of the world have increased by AUD4.4 billion.

This ability to re-focus on different markets must, in some part, be facilitated by Australia’s enthusiasm for bilateral free trade agreements (FTAs). The country is presently party to 16 FTAs. The rate at which Australia has joined such agreements is increasing: 11 of these have been ratified since 2010; five have entered into force since 2020. The most recent of these, the Regional-Comprehensive Economic Partnership Agreement, was ratified by Australia on 2 November 2021 and will come into force on 1 January 2022. Once it is in force for all 15 Asia-Pacific parties, it will be the world’s largest free trade agreement.

Perhaps the embrace of bilateral agreements is a side-effect of stalled multilateral efforts? Although, if that is the case, it is by no means to the detriment of Australia’s efforts in that arena. Irrespective, this trend does illustrate that the country's general preference for open and efficient trade and shows no sign of slowing.

Australia is undertaking negotiations, with varying degrees of productivity, toward a further five FTAs. Significantly, in September 2021, negotiations around the Australia–India Comprehensive Economic Cooperation Agreement were formally relaunched after six years of suspension. Both parties have committed to reach an interim agreement by December 2021 and conclude all negotiations by the end of 2022.

The other area where there appears to be a lot of momentum is in the negotiations between Australia and the UK. The core elements of the negotiations have been agreed to in-principle, and were publicly announced on 17 June 2021. The Department of Foreign Affairs and Trade touts this as having the potential to be Australia’s “most ambitious FTA” with any country other than New Zealand. One of the areas under negotiation relates to mobility between the two countries, including “youth mobility”, which no doubt will see a steady increase in the number of sunburnt British backpackers decamping to Bondi.

On the other side of the Brexit divide, Australia’s negotiations with the EU appear to have slowed, with the most recent round of negotiations being postponed. This was interestingly timed, following the announcement of the AUKUS security pact between Australia, the UK and the USA. A significant component of this pact was an agreement that Australia would source nuclear-powered submarines from the USA, which led to Australia cancelling a EUR56 billion deal to source French diesel power submarines. The French took umbrage with this, and the diplomatic fallout continues. While correlation does not equal causation, perhaps the AUS-EU FTA forms part of the collateral.

Negotiating the Future of Digital Trade

One significant focus of Australia’s trade diplomacy has related to digital markets and e-commerce. Rule-setting via international engagement is identified as a fundamental step in several government policies, including the 2021 Digital Economy Strategy, the Services Export Action Plan and Australia’s International Cyber Engagement Strategy. The overarching theme is to establish an international environment through which digital trade can flourish freely, presumably to Australia’s benefit.

What constitutes the “digital trade” is somewhat amorphous. If I buy, download, and listen to an audio-version of Moby Dick, a text that is now over 170 years old, that is digital trade. So, too, is crypto-currency, NFTS and peer-to-peer transactions, as well as the technology that facilitates all of this activity. It is dizzyingly varied, ever-changing and hard to measure. That notwithstanding, the consensus is that the digital economy is large, valuable and growing. Indicatively, and aside from the aforementioned issues in measurement, the Australia–Singapore Digital Trade Standards Report indicates that, conservatively, Australia’s digital trade could increase by 60% in terms of value, to be worth approximately EUR216 billion by 2030.

The digital sector has been an ongoing emphasis in Australian trade policy. Of Australia’s 16 FTAs, 14 include e-commerce chapters. Some of these are rudimentary – having been negotiated back when a flying toaster screensaver was cutting-edge technology – but the more contemporary agreements are robust. The best example of this is 2020’s Australia–Singapore Digital Economy Agreement (SDA). The SDA updates and replaces the e-commerce chapter of the Singapore–Australia Free Trade Agreement, which was finalised back in 2003 and eclipses the obligations of both parties under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The SDA includes technology-neutral articles dealing with:

  • data localisation requirements;
  • the free flow of data;
  • the creation of a safe online environment;
  • online consumer protection;
  • personal information protection; and
  • co-operation on competition policy.

The indication from the government is that they will seek similar obligations in other bilateral trade agreements going forward. Reportedly, Australia is pursuing the “highest quality” e-commerce obligations in its FTA negotiations with both the UK and the EU. Australia is co-convening, with Japan and Singapore, the WTO’s e-commerce negotiations. Australia also pursues these issues through its participation in APEC, the G20 and the OECD.

The alignment between domestic policy and trade policy illustrates that this is intended to be a growth area for the Australian economy, which makes sense. In a world of climate anxiety, catastrophic weather events and adaptation, putting all of your economic eggs in a basket manufactured through carbon-intensive processes is probably not a long-term strategy.

However, it is not all starry-eyed, tech-bro, utopian optimism. Australia has taken particular notice of the market power big-tech companies has amassed and is implementing policies to reduce or redress that. Australia’s approach in this regard has largely been founded in its domestic competition law. For example, a lot of e-commerce is transacted via app stores – app stores that are essentially markets created, controlled and policed by the tech companies that own them.

An interesting example of Australia’s dabbling in this area is the Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Act 2021 which became operative in March 2021.

The purpose of the Act was to encourage digital platforms – Google, Facebook, etc – to pay Australian media companies for content they produce that is shared by the platform’s users. The Code requires “designated digital platform services” and “designated digital platform corporations” to bargain with certain Australian media companies. These designated entities can be forced into arbitration if issues around remuneration cannot be resolved.

At the time of writing, no platform service or corporation has been designated under the Code. To avoid designation, and so avoid being forced to mandatory negation under the strictures of the Code, the big platforms appear to be voluntarily negotiating with Australian media companies. Even Facebook, which, for seven days after the passage of the law, blocked news from being shared on its newsfeed in Australia, appears to have reached agreements with a number of Australian media outlets.

This is an opening salvo. The Australian Competition and Consumer Commission has flagged an interest addressing the power that Apple and Google exert over their app stores, and the Treasurer intends to expand Australia’s existing payment system regulations to encompass digital wallets (such as Apple Pay) and buy-now-pay-later providers. So, we are dealing with a government that sees a problem with market power and global companies that – and this is just a stab in the dark – are unlikely to want to cede any power. No doubt the coming year will see further friction in this area, even as Australia attempts to establish new norms and rules at the international level.

A Focus on Human Rights

Human rights issues have increasingly come into focus in Australian trade policy in recent years. An initial step in that regard was the commencement of the Modern Slavery Act 2018, which requires certain entities to author public statements that outline the risks of modern slavery in their operations and supply chain, and the mitigative actions taken in relation to those risks. This focus became sharper in 2021.

Following on from a recommendation of the Joint Standing Committee on Foreign Affairs, Defence and Trade, the Australian government introduced the Autonomous Sanctions Amendment (Magnitsky-Style and Other Thematic Sanctions) Act 2021, which passed both Houses of Parliament in early December 2021. This Act amended the pre-existing Autonomous Sanctions Act 2011 to expressly provide for the creation of targeted financial sanctions regimes to address “thematic” issues, including:

  • the proliferation of weapons of mass destruction;
  • threats to international peace and security;
  • malicious cyber-activity;
  • serious violations or serious abuses of human rights;
  • activities undermining good governance or the rule of law, including serious corruption; and
  • serious violations of international humanitarian law.

In a technical sense, amending the Autonomous Sanctions Act 2011 allows for the amendment of the Autonomous Sanctions Regulations 2011 to encompass the above listed actions. When amended, the Regulations will allow the Minister for Foreign Affairs to designate entities or individuals involved in those above actions, which will in turn prohibit others from dealing with them or their assets.

Interestingly, the exposure draft of the regulations defines serious violations or abuses of human rights to relate specifically to “the right to life”, the “right not to be subjected to torture or to cruel, inhuman or degrading treatment or punishment” and the “right not to be held in slavery or servitude or right not to be required to perform forced or compulsory labour”.

In a similar same vein, the Senate Foreign Affairs, Defence and Trade Legislation Committee recommended that the government amend the Customs Act 1901 to prohibit the import of any goods made wholly or partly with forced labour. The government has yet to issue a response to this recommendation – however, there does appear to be both political and media interest in this prospect, so we would not be surprised to see it enacted in some manner during 2022.

While these developments are still in their infancy, it is a timely reminder that trade policy is rarely ever just about trade. Australia’s interests are many and varied, and its trade law follows suit. Australian businesses, and those doing business with Australia, need to be attuned to the broad and complex regulatory ecosystem in which cross-border transactions occur.

Moulis Legal

6/2 Brindabella Circuit
Brindabella Business Park
Canberra International Airport
ACT 2609
Australia

+61 2 6163 1000

+61 2 6162 0606

info@moulislegal.com www.moulislegal.com
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Law and Practice

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Moulis Legal is a progressive modern legal business handling major commercial and international matters. The firm's particular focus areas are international trade, energy and resources, intellectual property, government procurement, China business, property acquisition and development, mergers, acquisitions and joint ventures, and major commercial projects. Moulis Legal’s international trade law team comprises nine lawyers across its Canberra, Melbourne and Brisbane offices. It is Australia’s leading international trade and WTO practice firm. The team leads the field as a premium provider of comprehensive legal service-based representation in international trade law matters, especially anti-dumping and countervailing investigations and related legal proceedings, customs-related advisory work, sanctions, and cross-border agreements. Moulis Legal has extensive experience in representing major international companies and government clients in trade remedy and border-related cases.

Trends and Development

Author



Moulis Legal is a progressive modern legal business handling major commercial and international matters. The firm's particular focus areas are international trade, energy and resources, intellectual property, government procurement, China business, property acquisition and development, mergers, acquisitions and joint ventures, and major commercial projects. Moulis Legal’s international trade law team comprises nine lawyers across its Canberra, Melbourne and Brisbane offices. It is Australia’s leading international trade and WTO practice firm. The team leads the field as a premium provider of comprehensive legal service-based representation in international trade law matters, especially anti-dumping and countervailing investigations and related legal proceedings, customs-related advisory work, sanctions, and cross-border agreements. Moulis Legal has extensive experience in representing major international companies and government clients in trade remedy and border-related cases.

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