CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018 Explanatory Memorandum

Commonwealth of Australia Explanatory Memoranda

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CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

2016-2017-2018 THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA HOUSE OF REPRESENTATIVES CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018 EXPLANATORY MEMORANDUM (Circulated by authority of the Assistant Minister for Home Affairs, Senator the Hon Linda Reynolds CSC)

CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018 OUTLINE The purpose of the Customs Amendment (Peru-Australia Free Trade Agreement Implementation) Bill 2018 (the Bill) is to amend the Customs Act 1901 (the Customs Act) to give effect to the Peru-Australia Free Trade Agreement (PAFTA). PAFTA is a comprehensive free trade agreement that will open new trade and investment opportunities for Australia in Peru. The amendments contained in the Bill will provide rules for determining whether goods are Peruvian originating goods which can be imported into Australia at preferential rates of customs duty. The amendments will also impose obligations on exporters of eligible goods to Peru for which a preferential rate of customs duty is claimed, and on people who produce such goods. Complementary amendments will also be made to the Customs Tariff Act 1995 by the Customs Tariff Amendment (Peru-Australia Free Trade Agreement Implementation) Bill 2018 to give effect to the preferential treatment of customs duty in accordance with PAFTA. FINANCIAL IMPACT STATEMENT The 2018-19 Budget estimated that implementing PAFTA would have a negligible cost to revenue over the forward estimates. Revenue ($m) 2017-18 2018-19 2019-20 2020-21 2021-22 Department of Home Affairs - .. .. .. .. .. Not zero, but rounded to zero. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS A Statement of Compatibility with Human Rights in respect of the amendments contained in the Bill is at Attachment A. The Statement assesses the amendments to be compatible with Australia's human rights obligations. REGULATION IMPACT STATEMENT A regulation impact statement has been completed for the Bill and a copy of it is at Attachment B. Page 2 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018 NOTES ON CLAUSES Clause 1 Short title 1. This clause provides for the 'Customs Amendment (Peru-Australia Free Trade Agreement Implementation) Bill 2018' (the Bill), when enacted, to be cited as the Customs Amendment (Peru-Australia Free Trade Agreement Implementation) Act 2018. Clause 2 Commencement 2. This clause sets out, in a table, the date on which provisions of the Bill, when enacted, will commence. 3. Table item 1 provides for clauses 1 to 3 and anything in the Act not elsewhere covered by the table, to commence on the day the Act receives the Royal Assent. 4. Table item 2 provides for Schedule 1 of the Bill to commence on the later of the day this Act receives the Royal Assent, or the day the Peru-Australia Free Trade Agreement (PAFTA), done at Canberra on 12 February 2018, enters into force for Australia. However, the provisions in Schedule 1 do not commence at all if PAFTA does not enter into force for Australia. The Minister must announce the day on which PAFTA enters into force for Australia by notifiable instrument, (in accordance with the Legislation Act 2003). Clause 3 Schedules 5. This clause is the formal enabling provision for the Schedule to the Bill, providing that each Act specified in a Schedule is amended or repealed in accordance with the applicable items in the Schedule. In the context of the Bill, the Customs Act 1901 (the Customs Act) is being amended. 6. Clause 3 also provides that any other items of the Schedule have effect according to their terms. This is a standard enabling clause for transitional, savings and application items in amending legislation. Page 3 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Schedule 1-Amendments Part 1-Peruvian originating goods Customs Act 1901 Introductory Comments 7. On 12 February 2018 in Canberra, the Honourable Steven Ciobo MP, then Minister for Trade, Tourism and Investment, and his Peruvian counterpart Mr Eduardo Ferreyros, signed the Peru-Australia Free Trade Agreement (PAFTA). 8. PAFTA, on entry into force, provides in part for new rules of origin to determine 'Peruvian originating goods' and for the preferential treatment of customs duty to apply to such goods. 'Peruvian originating goods' in accordance with PAFTA are those goods that satisfy the requirements in new Division 1EA inserted by the Bill. Item 1 Subparagraph 105B(3)(b)(ii) 9. Section 105B of the Customs Act sets out circumstances where the liability to pay import duty on excise-equivalent goods is wholly or partly extinguished. 10. 'Excise-equivalent goods' is defined in subsection 4(1) of the Customs Act to mean goods prescribed by the regulations for the purposes of this definition. 11. However, under subsection 105B(3) of the Customs Act, those circumstances do not apply to an amount of duty if the excise-equivalent goods are classified to subheading 2207.20.10 (denatured ethanol) or 3826.00.10 (biodiesel) of Schedule 3 to the Customs Tariff Act 1995 (the Customs Tariff Act), or an item in the table in Schedule 4A, 5, 6, 7, 8, 9, 10, 11 or 12 to that Act that relates to a subheading mentioned. 12. As part of the implementation of PAFTA, a separate Customs Tariff Amendment (Peru- Australia Free Trade Agreement Implementation) Bill 2018 (the Customs Tariff Amendment Bill) will insert new Schedule 6A into the Customs Tariff Act. New Schedule 6A will provide for excise-equivalent rates of duty on certain alcohol, tobacco, fuel petroleum products in accordance with PAFTA, and the related preferential rates of customs duty. 13. This item amends subparagraph 105B(3)(b)(ii) of the Customs Act to insert a reference to Schedule 6A of the Customs Tariff Act. 14. The purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under PAFTA. Page 4 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Item 2 Subsection 105B(4) (paragraph (b) of the definition of biofuel blend) 15. Subsection 105B(4) of the Customs Act defines 'biofuel blend', in part, as goods classified to certain subheadings under Schedule 3 of the Customs Tariff Act or an item in the table in the Schedules relating to originating goods under Free Trade Agreements (FTAs) that relate to the relevant subheadings. 16. This item amends the definition of 'biofuel blend' under subsection 105B(4) of the Customs Act to insert a reference to new Schedule 6A of the Customs Tariff Act. 17. As for item 1, the purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under PAFTA. Item 3 After Division 1E of Part VIII 18. This item amends Part VIII of the Customs Act to insert new Division 1EA. 19. New Division 1EA is titled 'Peruvian originating goods' and sets out the new rules for determining whether goods are Peruvian originating goods and therefore eligible for a preferential rate of customs duty under the Customs Tariff Act. These new rules give effect to Chapter 3 of PAFTA. 20. New Division 1EA contains seven Subdivisions (Subdivision A to Subdivision G) as set out below. Subdivision A-Preliminary 21. Subdivision A contains a simplified outline of new Division 1EA and the interpretation provision for this Division. New section 153ZIL Simplified outline of this Division 22. New section 153ZIL sets out a simplified outline of Subdivision B to Subdivision G of new Division 1EA. New section 153ZIM Interpretation 23. New subsection 153ZIM(1) sets out the definitions for the purposes of new Division 1EA as follows: Agreement means the Peru-Australia Free Trade Agreement, done at Canberra on 12 February 2018, as amended and in force for Australia from time to time. The note to this definition indicates that as at 2018, the text of PAFTA is accessible through Australian Treaties Library on the AustLII website. aquaculture has the meaning given by Article 3.1 of Chapter 3 of PAFTA. This term is necessary as it is referred to in the definition of 'production' also provided in Article 3.1 of Chapter 3 of PAFTA. Page 5 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Australian originating goods means goods that are Australian originating goods under a law of Peru that implements PAFTA. certificate of origin means a certificate that is in force and that complies with the requirements of Article 3.17 of Chapter 3 of PAFTA. Convention means the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983, as in force from time to time. The note to this definition indicates as at 2018, the text of the Convention is accessible through the Australian Treaties Library on the AustLII website. This term is necessary and is referred to in the definition of 'Harmonized Commodity Description and Coding System'. customs value of goods has the meaning given by section 159 of the Customs Act. In most cases, this will be the transaction value but there are other valuation methods if this value cannot be ascertained. enterprise has the meaning given by Article 1.3 of Chapter 1 of PAFTA. Harmonized Commodity Description and Coding System means the Harmonized Commodity Description and Coding System (the HCDC System) that is established by or under the Convention. The HCDC System is the worldwide classification system that has been adopted by all countries that are members of the World Customs Organization (WCO). In Australia, the HCDC System has been adopted in the Customs Tariff Act. The HCDC is a structure for classifying goods based on internationally agreed descriptors for goods and related six-digit codes administered by the WCO. This six-digit classification uniquely identifies all traded goods and commodities and is uniform across all countries that have adopted the HCDC System. The WCO reviews the system every five years to reflect changes in industry practice, technological developments and evolving international trade patterns. This term is referred to in the definition of 'Harmonized System' which sets out the HCDC System on which PAFTA, particularly the product-specific rules, is based. Harmonized System means: (a) the Harmonized Commodity Description and Coding System (the HCDC System) as in force on 1 January 2017; or (b) if the table in Annex 3-B to Chapter 3 of PAFTA is amended or replaced to refer to Chapters, headings and subheadings of a later version of the HCDC System--the later version of the HCDC System. As per the explanation for the definition of HCDC System, updates to that System are undertaken every five years. The last review of the HCDC System (the fifth review) was completed in June 2014 and related amendments entered into force on 1 January 2017. Page 6 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Should a subsequent review of, and associated amendments to, the HCDC System affect the product specific rules set out in PAFTA, and PAFTA is amended to take account of this, this definition acknowledges the later version of the HCDC system. The Department of Home Affairs will publish the changes as a result of the HCDC System updates and relevant concordance associated with those updates on its website, at no charge, so that anyone can readily identify the appropriate tariff classification codes for goods imported from other countries into Australia. indirect materials means: (a) goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods; or (b) goods or energy used in the maintenance of buildings or the operation of equipment associated with the production of goods; including: (c) fuel (within its ordinary meaning); and (d) catalysts and solvents; and (e) gloves, glasses, footwear, clothing, safety equipment and supplies; and (f) tools, dies and moulds; and (g) spare parts and materials; and (h) lubricants, greases, compounding materials and other similar goods. Interpretation Rules means the General Rules (as in force from time to time) for the Interpretation of the Harmonized System provided for by the Convention. non-originating materials means goods that are not originating materials. Non-originating materials are goods that are not originating materials because they do not satisfy the requirements of new Division 1EA in their own right. For example, where frozen crumbed fish fillets processed in a Party to PAFTA from fish caught in the territory of that Party, coated with herbs and spices that are produced in Thailand (which is not a Party to PAFTA), the fish would be originating materials and the herbs and spices would be non- originating materials. non-Party has the same meaning as it has in Chapter 3 of PAFTA. originating materials means: (a) Peruvian originating goods that are used in the production of other goods; or (b) Australian originating goods that are used in the production of other goods; or (c) indirect materials. In some circumstances, in order to determine whether goods that are imported into Australia are Peruvian originating goods, and therefore eligible for a preferential rate of customs duty, it may be necessary to have regard to the goods from which the final goods are produced (see Subdivision C and Subdivision D). person of Peru means a national within the meaning, so far as it relates to Peru, of Article 1.3 of Chapter 1 of PAFTA, or an enterprise of Peru. Page 7 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Peruvian originating goods means goods that, under new Division 1EA of Part VIII of the Customs Act, are Peruvian originating goods. production has the same meaning given by Article 3.1 of Chapter 3 of PAFTA. In Article 3.1 production is defined as operations including, but not limited to, growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, collecting, breeding, extracting, aquaculture, gathering, manufacturing, processing or assembling a good. This list is non- exhaustive - the term 'production' is also capable of capturing any other process that falls within the meaning of 'operations', including any currently existing operations that have not been listed and any new operations which may arise in the future. territory of Australia means territory within the meaning, so far as it relates to Australia, of Article 1.3 of Chapter 1 of PAFTA. territory of Peru means territory within the meaning, so far as it relates to Peru, of Article 1.3 of Chapter 1 of PAFTA. 24. New subsection 153ZIM(2) provides that the value of goods for the purposes of new Division 1EA is to be worked out in accordance with the regulations and that the regulations may prescribe different valuation rules for different kinds of goods. The value of goods is relevant, for example, in determining whether goods satisfy the de minimis requirement in Article 3.9 of Chapter 3 of PAFTA. The value of goods is to be distinguished from the customs value of goods, which is to be worked out under section 159 of the Customs Act. 25. New subsection 153ZIM(3) provides that in specifying tariff classifications for the purposes of new Division 1EA, the regulations may refer to the Harmonized System. The product-specific rules of origin in Annex 3-B to Chapter 3 of PAFTA refer to the tariff classifications of the Harmonized System. 26. New subsection 153ZIM(4) provides that subsection 4(3A) of the Customs Act does not apply for the purposes of new Division 1EA. Subsection 4(3A) provides that reference in the Customs Act to the tariff classification of goods is a reference to Schedule 3 of the Customs Tariff Act, which is not the case in new Division 1EA. 27. New subsection 153ZIM(5) provides that, despite subsection 14(2) of the Legislation Act 2003 (the Legislation Act), regulations made for the purposes of Division 1EA may make provision in relation to a matter by applying, adopting or incorporating, with or without modification, any matter contained in an instrument or other writing as in force or existing from time to time. The subsection will override subsection 14(2) of the Legislation Act should it be necessary in order to implement PAFTA by applying, adopting or incorporating an instrument or other writing that is not an Act or disallowable legislative instrument. Any instrument and other writing so incorporated will be limited to those that are required for the operation of the TPP-11 and will be accessible through the Department's website, and free of charge, to ensure they are readily available and at no cost to persons concerned. For example, in implementing other FTAs, this provision has enabled the regulations to refer to the general accounting principles of a country other than Australia for the purposes of the regional value content calculations. Page 8 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Subdivision B-Goods wholly obtained or produced entirely in Peru or in Peru and Australia 28. Subdivision B contains new section 153ZIN, which sets out the rules in relation to goods that are wholly obtained or produced entirely in Peru or in Peru and Australia. 29. New subsection 153ZIN(1) provides that goods are Peruvian originating goods if they are wholly obtained or produced entirely in Peru or in Peru and Australia, and either the importer of the goods has, at the time the goods are imported, a certificate of origin, or a copy of one, for the goods; or Australia has waived the requirement for a certificate of origin for the goods. 30. New subsection 153ZIN(2) provides that goods are wholly obtained or produced entirely in Peru or in Peru and Australia if, and only if, the goods are: (a) plants, or goods obtained from plants, that are grown, cultivated, harvested, picked or gathered in the territory of Peru or in the territory of Peru and the territory of Australia; or (b) live animals born and raised in the territory of Peru or in the territory of Peru and the territory of Australia; or (c) goods obtained from live animals in the territory of Peru; (d) animals obtained by hunting, trapping, fishing, gathering or capturing in the territory of Peru; or (e) goods obtained from aquaculture conducted in the territory of Peru; or (f) minerals, or other naturally occurring substances, extracted or taken from the territory of Peru; or (g) fish, shellfish, other goods of sea-fishing or other marine life taken from the sea, seabed or subsoil beneath the seabed: (i) outside the territory of Peru and the territory of Australia; and (ii) in accordance with international law, outside the territorial sea of non-Parties; by vessels that are registered or recorded with Peru and are entitled to fly the flag of Peru; or (h) goods produced, from goods referred to in paragraph (g), on board a factory ship that is registered or recorded with Peru and is entitled to fly the flag of Peru; or (i) goods (except fish, shellfish, other goods of sea-fishing or other marine life) taken by Peru, or a person of Peru, from the seabed, or subsoil beneath the seabed, outside the territory of Peru and the territory of Australia, and beyond areas over which non-Parties exercise jurisdiction, but only if Peru, or the person of Peru, has the right to exploit that seabed or subsoil in accordance with international law; or (j) waste or scrap that: (i) has been derived from production in the territory of Peru and that is fit only for the recovery of raw materials; or (ii) has been derived from used goods that are collected in the territory of Peru and that are fit only for the recovery of raw materials; or (k) goods produced entirely in the territory of Peru, or entirely in the territory of Peru and the territory of Australia, exclusively from goods referred to in paragraphs (a) to (j) or from their derivatives. Page 9 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

31. New section 153ZIN gives effect to Articles 3.2, 3.3, 3.17, 3.20 and 3.21 of Chapter 3 of PAFTA in respect of rules of origin for goods wholly obtained or produced in a Party to PAFTA. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with PAFTA. Subdivision C-Goods produced in Peru, or in Peru and Australia, from originating materials 32. Subdivision C contains new section 153ZIO, which sets out a rule for goods that are produced in Peru, or in Peru and Australia, from originating materials only. 33. Such goods are Peruvian originating goods if they are produced entirely in the territory of Peru, or entirely in the territory of Peru and the territory of Australia, from originating materials only and if the importer of the goods has, at the time the goods are imported, a certificate of origin, or a copy of one, for the goods, or Australia has waived the requirement for a certificate of origin for the goods. 34. New section 153ZIO gives effect to Articles 3.2, 3.3, 3.17, 3.20 and 3.21 of Chapter 3 of PAFTA in respect of rules of origin for goods produced exclusively from originating materials. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with PAFTA. Subdivision D-Goods produced in Peru, or in Peru and Australia, from non-originating materials 35. Subdivision D contains new section 153ZIP, which deals with goods produced in Peru, or in Peru and Australia, from non-originating materials. 36. New subsection 153ZIP(1) provides that goods are Peruvian originating goods if: (a) they are classified to a Chapter, heading or subheading of the Harmonized System that is covered by the table in Annex 3-B to Chapter 3 of PAFTA; and (b) they are produced entirely in the territory of Peru, or entirely in the territory of Peru and the territory of Australia, from non-originating materials only or from non-originating materials and originating materials; and (c) the goods satisfy the requirements applicable to the goods in that Annex; and (d) either: (i) the importer of the goods has, at the time the goods are imported, a certificate of origin, or a copy of one, for the goods; or (ii) Australia has waived the requirement for a certificate of origin for the goods. 37. For certainty, new subsection 153ZIP(2) provides that, without limiting paragraph 153ZIP(1)(c), a requirement may be specified in the table in Annex 3-B to Chapter 3 of PAFTA by using an abbreviation that is given a meaning for the purpose of that Annex. For example, the abbreviation of RVC 40 in the Annex means a regional value content of at least 40 per cent. Another example of an abbreviation in the Annex is 'CC', which is an abbreviation for classification change. Page 10 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Change in tariff classification 38. New subsection 153ZIP(3) refers to the first of several requirements that may be prescribed in regulations made for the purposes of Subdivision D. The subsection provides that, if a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification, the regulations may prescribe when a non-originating material used in the production of the goods is taken to satisfy the change in tariff classification. 39. The regulations made under this head of power include provisions to give effect to the cumulative rules of origin contained in Article 3.8 of Chapter 3 of PAFTA where the non- originating materials that are used or consumed in the production of the good do not satisfy the change in tariff classification. 40. The concept of the change in tariff classification requirement applies to non-originating materials. Goods that have been sourced outside Peru or Australia and that are used in the production of other goods are non-originating materials. Goods sourced from Peru or Australia that have not fulfilled the requirements of new Division 1EA and that are used in the production of other goods are also non-originating materials. 41. Non-originating materials used to produce other goods may not have the same classification under the Harmonized System as the final good. For example, non-originating materials used to produce a good may be classified to one tariff classification before the production process, and the final good may be classified under a different tariff classification after the production process. To satisfy the requirement of classification change, and therefore satisfy a requirement for the purposes of claiming preferential treatment of customs duty in accordance with PAFTA, the goods concerned must be sufficiently transformed such that they can be classified to a different tariff classification to that of the non-originating materials from which they are produced. 42. For example, frozen fish fillets (classified to tariff code 0304) are produced from fish caught in Peru and combined with herbs and spices produced in Thailand (which is not a Party to PAFTA) (classified to tariff code 0907 to 0910) to make crumbed fish fillets (classified to tariff code 1604 in Chapter 16 of the Harmonized System). The applicable tariff change for crumbed fish is 'a change to Chapter 16 from any other chapter'. As the herbs and spices are classified to Chapter 9 of the Harmonized System, these non-originating materials meet the tariff change requirement, considering that the fish concerned is produced by Peru, and is therefore an originating material and is not required to change its classification. 43. As per the above example, it is necessary for the tariff classification of the final good and each of the goods that are non-originating materials used in the production of the final goods to be known in order to determine the applicable change in tariff classification. 44. New subsection 153ZIP(4) allows for the change in tariff classification requirement to also be satisfied if the total value of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the customs value of the goods. Page 11 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

45. New subsection 153ZIP(4) gives effect to the de minimis requirement set out in Article 3.9 of Chapter 3 of PAFTA. Therefore, even if all the non-originating materials used to produce a final good do not satisfy a particular change in tariff classification, the final goods may still be Peruvian originating goods because the change in tariff classification will be taken to be satisfied. 46. The value of non-originating materials for the purposes of subsection 153ZIP(4) is to be worked out in accordance with the method that will be included in the regulations. 47. New subsection 153ZIP(5) provides that, if: (a) a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification; and (b) the goods are classified to any of Chapters 50 to 63 of the Harmonized System; and (c) one or more of the non-originating materials used in the production of the goods do not satisfy the change in tariff classification; then the requirement is taken to be satisfied if the total weight of the non-originating materials covered by paragraph (c) does not exceed 10 per cent of the total weight of the goods. This provision allows for the change in tariff classification requirement to also be satisfied if the total weight of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the customs value of the goods. Regional value content 48. New subsection 153ZIP(6) provides that, if a requirement that applies in relation to the goods is that the goods must have a regional value content worked out in a particular way: (a) the regional value content of the goods is to be worked out in accordance with PAFTA; or (b) if the regulations prescribe how to work out the regional value content of the goods-- the regional value content of the goods is to be worked out in accordance with the regulations. 49. This provision provides the head of power to prescribe formulas for calculating regional value content and in doing so gives effect to Article 3.4 of Chapter 3 of PAFTA. 50. New subsection 153ZIP(7) provides that, if: (a) a requirement that applies in relation to the goods is that the goods must have a regional value content worked out in a particular way; and (b) the goods are imported into Australia with accessories, spare parts, tools or instructional or other information materials; and (c) the accessories, spare parts, tools or instructional or other information materials are classified with, delivered with and not invoiced separately from the goods; and (d) the types, quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the goods; the regulations must provide for the value of the accessories, spare parts, tools or instructional or other information materials to be taken into account for the purposes of Page 12 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

working out the regional value content of the goods (whether the accessories, spare parts, tools or instructional or other information materials are originating materials or non-originating materials). 51. The note to this section indicates that the value of the accessories, spare parts, tools or instructional or other information materials is to be worked out in accordance with the regulations. 52. New subsection 153ZIP(7) provides a head of power to prescribe regulations to give effect to Article 3.11 of Chapter 3 of PAFTA in respect of the value of the accessories, spare parts, tools or instructional or other information materials for working out regional value content. This provision is necessary because the value of such goods would not normally form part of the value of materials that are used in the production of the underlying goods. 53. New subsection 153ZIP(8) also gives effect to Article 3.11 of Chapter 3 of PAFTA and provides that section 153ZIR should be disregarded for the purposes of subsection 153ZIP(7) when working out whether the accessories, spare parts, tools or instructional or other information materials are originating or non-originating materials. This provision ensures that consideration of applicable change in tariff classification only applies to final goods produced from non-originating materials and not the accessories, spare parts, tools or instructional or other information materials for the final goods. Goods put up in a set for retail sale 54. New subsection 153ZIP(9) gives effect to Article 3.15 of Chapter 3 of PAFTA which applies to sets of goods. 55. New subsection 153ZIP(9) provides that if: (a) goods are put up in a set for retail sale; and (b) the goods are classified in accordance with Rule 3(c) of the Interpretation Rules; the goods are Peruvian originating goods under this section only if: (c) all of the goods in the set, when considered separately, are Peruvian originating goods; or (d) the total customs value of the goods (if any) in the set that are not Peruvian originating goods does not exceed 20% of the customs value of the set of goods. 56. This provision applies to goods that are put up for retail sale and are comprised of multiple components that are classified under two or more tariff headings. Under Rule 3(c) of the Interpretation Rules, when goods cannot be classified to a single heading or subheading, they shall be classified under the heading or subheading which occurs last in the numerical order of the HCDC system. 57. By way of an example, a mirror, brush and comb are put up as a 'grooming set' for retail sale. This set is classified under Rule 3(c) of the Interpretation Rules according to the tariff classification applicable to combs. This is because 'combs' is the heading which occurs last in numerical order of the HCDC system among the three items concerned. Page 13 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

58. The effect of new paragraph 153ZIP(9)(c) is that the set will not be considered to be Peruvian originating goods unless all three of the goods in the set, when considered separately, are such originating goods. However, if one or more of the goods in the grooming set is non- originating, then the grooming set may still be Peruvian originating goods under new paragraph 153ZIP(9)(d) if the customs value of the non-originating goods does not exceed 20% of the customs value of the entire grooming set. 59. New section 153ZIQ gives effect to Article 3.12 of Chapter 3 of PAFTA in relation to packaging materials and containers for retail sale. 60. Subsection 153ZIQ(1) gives effect to paragraph (1) of Article 3.12 of Chapter 3 of PAFTA and provides that if: (a) goods are packaged for retail sale in packaging material or a container; and (b) the packaging material or container is classified with the goods in accordance with Rule 5 of the Interpretation Rules; then the packaging material or container is to be disregarded for the purposes of this Subdivision. 61. This provision has effect that packaging materials or containers do not need to satisfy the change in tariff classification requirement that may apply to the goods packaged within the materials or containers. 62. However, in accordance with paragraph (2) of Article 3.12 of Chapter 3 of PAFTA, new subsection 153ZIQ(2) provides one exception to subsection 153ZIQ(1). This exception applies where the goods are required to have a regional value content worked out in a particular way. In this context, the regulations must provide for the value of the packaging material or container to be taken into account as originating materials or non-originating materials, as the case may be, for the purposes of working out the regional value content of the goods. 63. Without this provision, the value of packaging materials and containers would normally not form part of the value of materials that are used in the production of the goods. 64. The note to this subsection explains that the value of packaging materials and containers for the purposes of this subsection is to be worked out in accordance with the regulations. Subdivision E-Goods that are accessories, spare parts, tools or instructional or other information materials 65. Subdivision E contains new section 153ZIR, which sets out a specific rule that applies to goods that are accessories, spare parts, tools or instructional or other information materials. Page 14 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

66. New section 153ZIR provides that goods are Peruvian originating goods if: (a) they are accessories, spare parts, tools or instructional or other information materials in relation to other goods; and (b) the other goods are imported into Australia with the accessories, spare parts, tools or instructional or other information materials; and (c) the other goods are Peruvian originating goods; and (d) the accessories, spare parts, tools or instructional or other information materials are classified with, delivered with and not invoiced separately from the other goods; and (e) the types, quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the other goods. 67. Under this provision, accessories, spare parts, tools or instructional or other information materials will be deemed Peruvian originating goods even if, in fact, they are non-originating goods, provided all of the requirements in this new section are satisfied. However, this deeming section is to be disregarded when performing a regional value calculation on goods under new subsection 153ZIP(7). The value of the accessories, spare parts, tools or other instructional or information materials that are originating or non-originating materials must be included in that calculation (see new subsection 153ZIP(8)). 68. This provision gives effect to Article 3.11 of Chapter 3 of PAFTA with respect to specific rules for goods that are accessories, spare parts, tools or instructional or other information materials. Subdivision F-Consignment 69. Subdivision F contains new section 153ZIS, which deals with the consignment requirements applicable to Peruvian originating goods in accordance with PAFTA. 70. New subsection 153ZIS(1) provides that goods are not Peruvian originating goods under new Division 1EA if the goods are transported through the territory of one or more non-Parties and either or both of the following apply: (a) the goods undergo subsequent production or any other operation in the territory of a non-Party (other than unloading, reloading, storing, separation from a bulk shipment, labelling or any other operation that is necessary to preserve the goods in good condition or to transport the goods to the territory of Australia); (b) while the goods are in the territory of a non-Party, the goods do not remain under customs control at all times. 71. New subsection 153ZIS(2) provides that section 153ZIS applies despite any other provision of new Division 1EA. 72. The new section gives effect to Article 3.16 of Chapter 3 of PAFTA which deals with transport through non-Parties. The provision ensures that operations and production processes for Peruvian originating goods are restricted to those that are undergone in Peru or Australia as Parties to PAFTA. Page 15 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Subdivision G-Regulations 73. Subdivision G contains new section 153ZIT, which provides a head of power to prescribe regulations to make provisions for and in relation to determining whether goods are Peruvian originating goods under new Division 1EA. Part 2-Verification Powers Customs Act 1901 Item 4 After Division 4D of Part VI 74. This item amends Part VI of the Customs Act to insert new Division 4D, which is titled 'Exportation of goods to Peru'. 75. Division 4D contains new sections 126AJE, 126AJF, 126AJG and 126AJH. These new sections impose obligations on people who export eligible goods to a Peru and who wish to obtain preferential treatment of customs duty in respect of those goods, and on people who produce such goods. Section 126AJE Definitions 76. New section 126AJE defines the term 'Agreement', 'Peruvian customs official', 'producer' 'production' and 'territory of Peru' for the purposes of new Division 4DA. With the exception of the terms 'Peruvian customs official' and 'producer', the terms have the same meaning as defined in new Division 1EA of Part VIII of the Customs Act, inserted by item 3 of Part 1 of the Bill. 77. 'Peruvian customs official' is defined under this section to mean a person representing the customs administration of Peru. This term is necessary as it is referred to in new sections 126AJG and 126AJH. Section 126AJF Record keeping obligations 78. New section 126AJF inserts a head of power to prescribe record keeping obligations. These record keeping obligations will apply in respect of goods that are exported from Australia to Peru. 79. New subsection 126AJF(1) enables regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of Peru and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Peru. Record keeping obligation under PAFTA are broader than the general record keeping obligations under the Customs Act. 80. It is intended that the method of keeping the documents, such as the length of time for which they must be kept and the manner in which they must be kept, will be similar to current record keeping obligations under the Customs Act. However, the type of documents that will be required to be kept will be much broader than current requirements. The requirements will Page 16 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

extend to all records relating to the origin of the goods for which preferential tariff treatment is claimed and may include, amongst other things, records associated with the tariff classification of the goods and the origin or value of the materials used to produce the goods. 81. New subsection 126AJF(2) provides that the regulations made for the purpose of subsection 126AJF(1) may impose obligations on an exporter or producer of goods. Section 126AJG Power to require records 82. New section 126AJG supports the record keeping obligations in Articles 3.22 and 3.23 of Chapter 3 of PAFTA by imposing a requirement on exporters to produce records to authorised officers, and empowering authorised officers to disclose records to Peruvian customs officials. 83. Subsection 126AJG(1) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may require a person who is subject to record keeping obligations under regulations made for the purposes of section 126AJF to produce to the officer such of those records as the officer requires. 84. The note to new subsection 126AJG(1) indicates that, where an authorised officer has requested a person who is subject to record keeping obligations under regulations made for the purposes of section 126AJF, a failure to produce documents or records by that person may be an offence under existing section 243SB of the Customs Act. The note also indicates that, under existing section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person. 85. Under Article 3.23 of Chapter 3 of PAFTA, the importing party may take action to verify the eligibility of goods for preferential treatment, including requesting the supply of information relating to the production or export of the goods. New subsection 126AJG(2) gives effect to this Article in respect of goods that are exported to the territory of Peru and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Peru. 86. New subsection 126AJG(2) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may disclose any records so produced to a Peruvian customs official for the purpose of verifying a claim for a preferential tariff in the territory of Peru. Records obtained by an authorised officer under new section 126AJG may be Immigration and Border Protection information within the meaning of Part 6 of the Australian Border Force Act 2015 (the ABF Act). 87. Section 42 in Part 6 of ABF Act prohibits the disclosure of Immigration and Border Protection information except, amongst other things, where the disclosure is authorised by or under a law of the Commonwealth. 88. By including an express provision in the Customs Act to permit the disclosure of information (that may be Immigration and Border Protection information) to a Peruvian customs official, the disclosure of such information is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act. Page 17 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Section 126AJH Power to ask questions 89. New subsection 126AJH(1) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may require a person who is an exporter or producer of goods that: (a) are exported to the territory of Peru; and (b) are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Peru; to answer questions in order to verify the origin of the goods. 90. The power to ask questions in the circumstances set out in this section is a necessary adjunct to the power to require records in new section 126AJG. 91. The note to new subsection 126AJH(1) indicates that, where an authorised officer has requested a person to answer questions in order to verify the origin of goods in accordance with this subsection, a failure to answer questions by that person may be an offence under existing section 243SA of the Customs Act.. The note also indicates that, under existing section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person. 92. Subsection 126AJH(2) enables an authorised officer (as defined in existing section 4 of the Customs Act), for the purpose of verifying a claim for a preferential tariff in a Party, to disclose any answers to questions answered in accordance with new subsection 126AJH(1) to a Peruvian customs official. 93. The answers to questions obtained by an authorised officer under new section 126AJH may also be Immigration and Border Protection information within the meaning of Part 6 of the ABF Act and therefore cannot not be disclosed to a Peruvian customs official except as allowed by Part 6. By including an express provision in the Customs Act allowing for this information to be disclosed to a Peruvian customs official, the disclosure is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act. Part 3-Application provisions Item 5 Application provisions 94. This item operates such that the amendments made by Part 1 of Schedule 1 of the Bill, when enacted, apply in relation to: (a) goods imported into Australia on or after the commencement of that Part; and (b) goods imported into Australia before the commencement of that Part, where the time for working out the rate of import duty on the goods had not occurred before the commencement of that Part. 95. This item also provides that the amendment made by Part 2 of Schedule 1 of the Bill, applies in relation to goods exported to the territory of Peru on or after the commencement of that Part (whether the goods were produced before, on or after that commencement). Page 18 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Attachment A Statement of Compatibility with Human Rights Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Customs Amendment (Peru-Australia Free Trade Agreement Implementation) Bill 2018 (the Bill) The Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. Overview of the Bill On 12 February 2018, in Canberra, Australia, the Hon. Steven Ciobo MP, then Minister for Trade, Tourism and Investment, and his Peruvian counterpart Mr Eduardo Ferreyros, signed the Peru-Australia Free Trade Agreement (PAFTA). PAFTA is a comprehensive and wide-ranging agreement that provides Peru and Australia with more liberal access to each other's goods, services and investments markets. The amendments contained in the Bill will enable eligible goods that satisfy the new rules of origin to be entered into Australia at preferential rates of customs duty. The amendments will also impose obligations on exporters of eligible goods to Peru for which a preferential rate of customs duty is claimed, and on people who produce such goods. Complementary amendments will also be made to the Customs Tariff Act 1995 by the Customs Tariff Amendment (Peru-Australia Free Trade Agreement Implementation) Bill 2018 to give effect to the preferential treatment of customs duty in accordance with PAFTA. The amendments contained in the Bill will be operative the later of the day on which this Act receives the Royal Assent, or the day on which PAFTA, done at Canberra on 12 February 2018, enters into force for Australia. Human rights implication  This Bill engages the Right to not be subjected to arbitrary or unlawful interference with privacy in Article 17 of the International Covenant on Civil and Political Rights (ICCPR). To the extent that the Bill will allow for the collection and disclosure of information, the Bill limits the right to privacy under Article 17 of the ICCPR. Article 17(1) sets out: No one shall be subjected to arbitrary or unlawful interference with his privacy, family, home or correspondence, nor to unlawful attacks on his honour and reputation. Page 19 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Under Article 3.17 of Chapter 3 of PAFTA, a certificate of origin document completed by the exporter or producer or an authorised representative of the exporter or producer shall support a claim that goods are eligible for preferential tariff treatment in accordance with PAFTA. The key information that must be included in a 'certificate of origin' document is detailed in Article 3.17, and Annex 3-A to Chapter 3 of PAFTA and includes personal information. The Bill in part inserts new sections 126AJF, 126AJG and 126AJH into the Customs Act to enable regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of Peru and are claimed to be Australian originating goods in accordance with PAFTA. The record keeping obligations reflect those set out in Article 3.23 of Chapter 3 of PAFTA in respect of the retention of records and the verification of origin. The new sections allow Peru to verify the origin of goods exported to Peru from Australia that are claimed to be Australian originating goods. For example, this may include the collection and disclosure of personal information, including information set out in a 'certificate of origin' document, for limited purposes. For example, this information may be disclosed to a Peruvian customs official for the purpose of verifying a claim for a preferential tariff in the territory of Peru. The collection and disclosure of personal information is authorised under Australian law and the Bill will not alter the existing protections. Further, the collection and disclosure of personal information is authorised under Australian law and the Bill will not alter the existing protections. The verification of the eligibility for preferential treatment is required under PAFTA and the measures in the Bill are directed at the legitimate purpose of facilitating and supporting Australia's international obligations under PAFTA. This collection and disclosure of personal information will only be permitted for the limited purpose of verifying a claim made by a person for preferential tariff treatment making it a reasonable and proportionate response to a legitimate purpose. As such, the collection and disclosure of personal information in these circumstances will not constitute an unlawful or arbitrary interference with privacy. Conclusion The Bill is compatible with human rights because to the extent that it may engage the right to privacy, will not constitute an unlawful or arbitrary interference with privacy. ASSISTANT MINISTER FOR HOME AFFAIRS SENATOR THE HON LINDA REYNOLDS CSC Page 20 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Attachment B Free Trade Agreement between Australia and the Republic of Peru OBPR Reference Number: 22433 Introduction 1. This Regulation Impact Statement (RIS) relates to the Free Trade Agreement between Australia and the Republic of Peru (PAFTA). Peru and Australia launched negotiations for PAFTA on 24 May 2017. PAFTA was signed in Canberra, Australia on 12 February 2018. Policy Problem 2. Peru is one of the fastest growing economies in Latin America with an average growth rate of 5.9 per cent over ten years (2005-2015 World Bank). Peru's Gross Domestic Product (GDP) of USD 189 billion is similar to that of Vietnam, and its population of 31 million is similar to Malaysia. Peru presents a low level of risk compared to some other economies in the region, with modern infrastructure networks, a favourable tax regime, and a history of solid macroeconomic reforms. Table 1: Economic and Trade Relationship - Australia and Peru Peru GDP USD 189 billion Australian goods exports $82 million GDP Growth (Trend 5.9% Australian goods imports $255 million 2005-2015) Population 31.38 million Australian services $55 million exports Exports 2.2% Australian services $112 million (Trend 2005-2015) imports Imports 9.1% Australian investment $ 5,000 million* (Trend 2005-2015) Two way trade $504 million Other investment in $163 million Australia * An estimate of Australian badged investment, including in the mining sector. Source: World Bank; DFAT Country Fact Sheets. All currencies AUD unless specified otherwise. 3. As shown in Table 1, Australia's trade and economic relationship with Peru is less developed compared to our relationship with economies of a similar size. Peru has high barriers to trade that have prevented the trade relationship from reaching its full potential. 4. The absence of a bilateral trade agreement with Peru: Page 21 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

 limits Australian producers' and exporters' ability to increase trade across many of our top exports in the face of very high tariffs;  leaves Australian exporters at a disadvantage compared to competitors from countries with which Peru has concluded, or is negotiating, a trade agreement;  maintains tariffs on many imports from Peru, which can lead to higher costs for businesses and consumers; and  maintains barriers to investment and services exports. 5. Australia's trading relationship with Peru is governed by Peru's obligations under the World Trade Organization (WTO) Agreement. Australia's exports of beef, sheep meat, horticulture, wheat, barley, rice, canola, sugar and wine are effectively shut out of the Peruvian market because of high tariff barriers. Sugar, dairy, rice and corn are subject to Peru's price band system, which can result in applied tariffs of up to 29 per cent. There are also tariffs of up to 11 per cent on beef, and up to 9 per cent on sheep meat, almonds, vegetables and wine. 6. Peru's market access commitments in relation to services are as agreed under the WTO General Agreement on Trade in Services (GATS). These commitments do not include services in sectors of commercial interest to Australia, including telecommunications, financial services, professional services, energy and mining-related services, environmental services, construction services, and transport services. 7. Australian investment is the most important feature in Australia's commercial ties with Peru. Australia's commercial presence in Peru has increased significantly with nearly 90 Australian companies now represented in Peru. Australian investment in Peru is estimated to be around 5 billion, and Australia is the fourth largest investor in the mining and energy sector. Australia's investment relationship with Peru remains governed by a 1995 bilateral investment treaty. While this older treaty provides protections for Australian investors, it does not include the more effective, modern safeguards aimed at better protecting Australia's right to regulate in the public interest. Nor does it contain procedural safeguards regarding investor-sate dispute settlement. These safeguards provide greater legal certainty, reducing the risk of investors bringing claims against the government for regulations designed for legitimate public policy purposes. 8. A number of Australia's competitors, including the United States (US), Canada, European Union (EU), and Singapore, have FTAs with Peru. As a result Australian exporters face additional barriers including tariffs; restrictions on the sale of services; additional red tape; and barriers on temporary entry for business people. This places Australian exporters of goods and services at a significant disadvantage to our competitors. Need for Government Action 9. Peru maintains trade barriers on many goods and services of interest to Australia. Without an arrangement to reduce these restrictions, Australian exporters will remain constrained in their ability to capitalise fully on the opportunities presented by Peru's large and growing market. PAFTA provides unprecedented market access that unlocks new opportunities for Australian businesses and will make Australian exporters more competitive in the Peruvian market. Furthermore, it is in Australia's interest to secure a Page 22 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

preferential advantage in the Peruvian market as soon as possible to enable Australia to keep pace with competitors, many of which have already negotiated FTAs with Peru. Policy options and assessment No action 10. Without an FTA, Australian business will continue to be at a disadvantage due to preferential treatment provided to our major competitors through FTAs. PAFTA outcomes build on and improve those in the Trans-Pacific Partnership (TPP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) for many of Australia's top goods and services exports. Without removing these barriers, trade is unlikely to increase. Multilateral negotiations 11. There are currently no negotiations for a comprehensive multilateral trade agreement advancing in the World Trade Organization. As a result, it is not currently feasible to seek improved market access for Australian exporters through multilateral negotiations. Regional FTA negotiations 12. Regional negotiations should not be seen as an alternative to PAFTA - the Government is pursuing regional agreements in tandem with bilateral agreements for many trading partners. PAFTA outcomes support further progress in these regional efforts while providing early gains and protection for Australia. 13. Australia and Peru are both signatories to the TPP and the TPP-11. TPP-11 incorporates the TPP with the exception of a limited number of suspensions. These are agreements are not yet in-force. The market access outcomes obtained in PAFTA improve on those obtained through TPP-11. PAFTA has faster tariff elimination and new tariff quota access that was not possible in a regional agreement as Peru had greater sensitivities with other Parties. 14. On 30 June 2017, Australia and the Pacific Alliance (Chile, Colombia, Mexico and Peru) launched negotiations for a free trade agreement. Australia does not currently have FTAs (in force) with Colombia, Mexico or Peru. The Pacific Alliance was part of the government's multi-faceted strategy to capture the benefits of the TPP-11 and to strengthen Australia's trade relationship with Latin America. PAFTA will complement this and act as a building block to improved access in the region. Bilateral FTA negotiations 15. A high-quality bilateral agreement with Peru is only realistic option to achieve the Government's objectives and provide the greatest opportunities to Australian exporters. On 24 May 2017, Australia and Peru commenced negotiations on for a bilateral FTA and Page 23 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

signed on 12 February 2018. Negotiations were swift due to a shared negotiating history in the TPP. Due to the bilateral nature of the negotiations, and Australia was able to secure market access outcomes that improved on those obtained in TPP-11. 16. PAFTA is a comprehensive modern trade agreement that addresses the key barriers faced by Australian exporters and investors in Peru. Small and medium-sized enterprises will benefit from provisions emphasising user-friendliness and accessibility of information on opportunities arising from PAFTA. Australian goods and services exporters will benefit from commitments regarding state-owned enterprises and government designed monopolies, designed to create a level playing field and ensure non-discrimination. PAFTA will also support the expansion of Australia's creative and innovative industries through a common set of intellectual property rules that incentivise research and development and creative endeavour. Outcomes on Goods 17. For goods exporters, PAFTA will eliminate tariff barriers and provide mechanisms to address non-tariff barriers. Peru will eliminate tariffs on 93.5 per cent of its tariff lines from entry into force of the agreement, and ultimately will eliminate 99.4 per cent of all its tariffs. PAFTA outcomes represent a significant improvement to TPP-11. For example, under PAFTA, Peru has given Australia historic levels of new goods market access in areas such as sugar, dairy, rice and sorghum, while for all other tariff lines Australia attained quicker phase out periods than the TPP-11. Without PAFTA, Australian exports to Peru would face very high barriers to trade, which effectively prohibit trade across many of Australia's top export strengths. 18. Under PAFTA, new market access outcomes include:  Sugar: on entry into force of the agreement, Australia will have duty free access of 30,000 tonnes of sugar into Peru, growing to 60,000 tonnes in five years and 90,000 tonnes in 18 years.  Dairy: on entry into force of the agreement, Australia will have duty free access of 7,000 tonnes of dairy products into Peru, growing to 10,000 tonnes in ten years.  Rice: on entry into force of the agreement, Australia will have duty free access of 9,000 tonnes of rice products into Peru, growing to 14,000 tonnes in five years.  Sorghum: on entry into force of the agreement, Australia will have duty free access of 15,000 tonnes of sorghum products into Peru, growing to 20,000 tonnes in five years.  Beef cuts: tariffs (up to 17 per cent) will be eliminated within five years.  Sheep meat: tariffs on all sheep meat (up to 9 per cent) will be eliminated on entry of the agreement into force.  Seafood: Peru will eliminate all tariffs (up to 9 per cent) on entry into force.  Almonds: immediate elimination of duties on all tariff lines (up to 9 per cent).  Wine: immediate elimination of duties across lines of commercial interest to Australia with the remainder being phased out over 5 years (up to 9 per cent). 19. Australian exports to Peru are currently concentrated in machinery and other goods related to the mining industry, along with some food products. While some of Australia's Page 24 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

major global exports, such as liquefied natural gas, iron, steel and aluminium already enter Peru duty-free, PAFTA has secured additional market access, including:  immediate elimination of tariffs on base metals including iron ore, copper and nickel;  immediate elimination of tariffs on coal; and  immediate elimination of duties on mineral fuels and mineral oils. 20. Australia's exports of manufactured goods to Peru were worth an estimated $55.7 million. New market access outcomes include:  immediate elimination of duties on paper and paperboard to Peru; and  immediate elimination of duties on pharmaceuticals and medical devices. Outcomes on Services 21. PAFTA benefits Australian service suppliers by removing key barriers to services trade, providing more transparent and predictable operating conditions for Australian service suppliers in Peru, and capturing future Peruvian services sector reforms. This creates opportunities to expand our services trade with Peru, which was worth $177 million in 2016. 22. A snapshot of the PAFTA services outcomes include:  Education: Australian universities will benefit from Peruvian recognition of Australian degrees. Australian education providers seeking to establish campuses in Peru will be treated the same as Peruvian education providers. Neither Australia nor Peru have made any services-related commitments on public education and the agreement will not require Australia to make any changes to its current laws and regulations covering education.  Mining Equipment, Technology and Services (METS) and oilfield service providers: Peru has granted access on non-discriminatory terms to Australian suppliers of mining-related consulting, research and development, engineering, environmental, mining and technical testing and analysis services. Australians working in the METS sectors and Australian technicians working on oil and gas wells are covered by Peru's commitments on temporary entry, allowing them to stay for a year with the possibility of extension.  Professional services: Guaranteed access for Australian lawyers, engineers, architects, accountants and urban planners to provide their world-class services in Peru.  Financial services: Guaranteed access for Australian financial service suppliers to export their services to Peru, including investment advice and portfolio management services to a collective investment scheme and insurance of risks relating to maritime shipping and international commercial aviation and freight, and related brokerage.  Temporary entry of business people: Guaranteed minimum length of stay for Australian professionals of up to one year and an undertaking from Peru not to impose any labour market testing requirements on Australians covered by PAFTA. Australia retains the right to impose labour market testing on Peruvian contractual service suppliers. Spouses of Australian intra-corporate transferees and investors will be allowed to stay in Peru for the same length of time as the primary visa holder. Page 25 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

 Telecommunications services: Guaranteed non-discriminatory treatment, including no foreign equity limits, for Australian investors in telecommunications and e- commerce services.  Health services: Australian providers of private health and allied services will be treated the same as Peruvian suppliers. Neither Australia nor Peru have made any services-related commitments on public health and the agreement will not require Australia to make any changes to its current laws and regulations covering suppliers of health services.  Hospitality and tourism services: Australian hotel, restaurant, travel agency, tour operator and tour guide operators will benefit from guaranteed access to Peru's significant and expanding tourism market.  Government procurement: Opportunities arising from Australian businesses now having the guaranteed right to bid for government procurement services contracts, such as: �- Management consulting services; �- Computer and related services, along with maintenance of office machinery; �- Architectural engineering and other technical services; �- Land and water transport services; �- Telecommunication and related services; and �- Environmental protection services; Outcomes for Investors 23. Australia has around 5 billion of energy and resources investments in Peru, and is the fourth largest foreign investor in Peru's mining sector. PAFTA will create new investment opportunities and provide a more predictable and transparent regulatory environment for investment. It will facilitate foreign investment into Australia, and provide important protections to Australian businesses investing in Peru. 24. PAFTA will promote further growth and diversification of Australian outward investment by liberalising investment regimes in key sectors such as mining and resources, telecommunications and financial services. PAFTA will also promote foreign investment in Australia by liberalising the screening threshold at which private foreign investments in non-sensitive sectors are considered by the Foreign Investment Review Board (FIRB), increasing it from $261 million to $1,134 million. 25. Under PAFTA, Australia has retained the ability to screen investments in sensitive sectors to ensure they do not raise issues contrary to the national interest. All investments by a foreign government will continue to be examined and lower screening thresholds will apply to investment in agricultural land and agribusiness. 26. PAFTA's investment obligations can be enforced directly by Australian and Peruvian investors through an Investor-State Dispute Settlement (ISDS) mechanism. The ISDS mechanism includes safeguards to protect the government's ability to regulate in the public interest and pursue legitimate public welfare objectives, such as public health. Public health measures cannot be challenged. Page 26 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

Outcomes for Australian consumers and businesses 27. PAFTA also includes a number of provisions and many others help to reduce red tape, improve transparency of international trade environment and support the competitiveness of Australian exports. Highlights include:  more transparent and efficient customs procedures making it easier for Australian companies to export and do business with Peru. For example, under PAFTA, Peru is required to provide an advance ruling on the tariff classification of a good, how it should be valued, whether a good is originating and how to claim preference;  modern trade rules to reflect commercial shipping routes. Most products don't travel directly from one country to another. PAFTA recognises that products are often shipped via logistics and supply hubs and has trade rules to ensure that Australian products that transit through, or are stored in, third countries still qualify for tariff preferences. For example mining equipment from Australia will be able transit through the US or Chile and still qualify for preferential tariff rates, as will advanced Australian mining manufactures, which may be stored in global distribution hubs in customs control of countries outside of Peru or Australia;  duty-free temporary admission of pallets and containers. This commitment will provide cost and administrative savings for Australian businesses engaged in providing transport logistics services to Peru;  mechanisms to address non-tariff barriers impeding Australia's exports. PAFTA will enhance transparency, cooperation and promote good practice with regard to establishment and maintenance of technical regulations;  simplified rules and technical requirements for several products, including wine and spirits. For example, PAFTA includes a wine annex that enables Australian exporters to use the same label to Peru as all other World Wine Trade Agreement countries, saving money on marketing and distribution costs; and  trade facilitative rules of origin that enable exporters, producers or their authorised representatives to self-certify whether the goods originate in Australia. Traders will also be able to make post-importation claims for preferential tariff treatment, provided certain conditions are met. Commitments made by Australia 28. In order to obtain high quality outcomes in the FTA with Peru, Australia also commitments on trade and investment. By international standards, Australia's trade and investment regime is already open, with low tariffs and significant opportunities for international services suppliers and investors. In addition, Australia's has an open and non-discriminatory government procurement system, and a flexible approach business travel and work within Australia. The commitments in PAFTA did not extend beyond those already offered in other Australian FTAs, including TPP-11. As such, minimal changes are need to Australia's regulatory system to implement PAFTA. Australia's commitments in PAFTA cover:  elimination of tariffs;  ability to provide services in Australia;  increased thresholds for FIRB screening;  access to Australia's government procurement market; and  commitments on the temporary entry of business persons. Page 27 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

29. Australia will eliminate 96 per cent of its tariffs from entry into force of the agreement, and within four years will eliminate 99.8 per cent of all tariffs. This is consistent with other Australian FTAs and our trade policy settings. This includes tariffs of no higher than five per cent on plastics and rubber, textiles, clothing and footwear, iron and steel, motor vehicle components and some machinery and furniture tariffs. Peru is a significant textile exporter and prioritised textile market access in negotiations. As a result of PAFTA, there may be an increase in imports of textile products, or other products from Peru, where Australia has eliminated its tariffs. This is not expected to have a significant impact on the Australian textile sector or others sectors, as the Australian economy is already open to import competition from our major trading partners, including China, the US, Japan, Korea, Singapore and New Zealand. 30. Under PAFTA, Australia will provide greater certainty to Peruvian business people and skilled professionals seeking temporary entry to Australia. These commitments are consistent with Australia's existing immigration and workplace relations frameworks. This includes the sponsorship requirements under the new Temporary Skill Shortage visa. Sponsors must meet market salary rates and offer employment conditions as required under Australian workplace law, and equivalent to those accorded to Australian workers performing similar duties in the workplace. Peruvian skilled professionals must also meet all relevant Australian skills, qualification and licensing requirements. Australia's PAFTA commitments go beyond Australia's WTO commitments on the category of Installers and Servicers and Contractual Service Suppliers. These commitments, including in relation to length of stay and labour market testing, are consistent with Australia's current immigration policy and require no regulatory changes to implement. Regional Impact 31. PAFTA is expected to have a positive impact on regional Australia. PAFTA provide new open opportunities for regions that export goods or services, particular in sectors related to agriculture and mining. Australia has not only captured the gains of the TPP, but attained improved market access opportunities for Australian exporters. 32. In addition to reducing tariff barriers and improving market access, PAFTA will provide certainty for businesses and reduce costs and red tape for Australian exporters, service suppliers and investors in Peru by setting common rules and promoting transparency of laws and regulations. These include more transparent and efficient customs procedures, streamlined rules of origin procedures, mechanisms to address non-tariff barriers, and simplified rules and technical requirements for several products. 33. Consistent with Australia's other free trade agreements, remaining Australian tariffs on imports from Peru will be eliminated within five years, with consumers and businesses across Australia set to benefit from lower prices. PAFTA is unlikely to impose major adjustment costs on any region or sector. Regulatory costs/savings 34. In order to implement PAFTA the following regulatory and legislative changes will be required: Page 28 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

 changes to the Customs Act 1901 and the Customs Tariff Act 1995 to implement new preferential tariff rates and associated rules of origin; and  changes to the Foreign Acquisitions and Takeover Regulations 2015 to implement the commitment to a higher threshold for screening by FIRB. 35. PAFTA will benefit Australian businesses trading with Peru by removing the regulatory burdens of any tariffs on applied to 99.8 per cent imported goods from Peru, and eliminating tariffs on 99.5 per cent of Australian exports to Peru. To enable Australian importers or exporters to claim preferential access under PAFTA, like any other FTA, traders may need to fulfill some documentary requirements. Under PAFTA, with the objective of minimising regulatory requirements, exporters will be able to self-certify the origin of their goods when claiming the preferential rate. Exporters and importers are not required to trade under preferential rates of PAFTA, and thereby not required to change their documentary requirements when trading with Peru. 36. This Regulation Impact Statement does not assess the change in the regulatory burden faced by Australian businesses and individuals which will arise from regulatory and legislative changes made by Peru. Changes by Peru as a result of the FTA are expected to reduce the regulatory burden for Australian businesses trading with Peru. Conclusion 37. It is in Australia's national interest to enter into a bilateral trade agreement with Peru given PAFTA will:  deliver commercially meaningful market access gains that will benefit Australian agricultural producers, as well as energy and mineral resources exporters, service providers, consumers and investors;  secure a competitive advantage for Australian exporters in the Peruvian market against other trading partners, and level the playing field for Australian exporters with countries that already have an FTA;  deliver faster and deeper market access gains than those possible through multilateral WTO or regional negotiations;  be consistent with WTO requirements for free trade agreements; and  complement Australia's efforts to seek additional trade liberalisation from the region, through the WTO and other regional agreements. Consultation 38. The Department of Foreign Affairs and Trade (DFAT) leads Australia's negotiations on FTAs in consultation with other government agencies. Australia's negotiating positions were informed by the views and information provided by stakeholders through both formal and informal mechanisms. 39. The public consultation and stakeholder engagement process on the PAFTA negotiations commenced with the government's announcement on 24 May 2017 that Australia and Peru would be launching PAFTA negotiations. DFAT, in conjunction with other government agencies, has consulted widely with industry and other stakeholders in formulating our positions. A list of businesses and organisations that have been consulted - through consultation events, stakeholder meetings, and phone calls - is set out below. Page 29 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

40. Stakeholders in the public consultation process broadly appreciated the benefits of the Peru-Australia Free Trade Agreement. Most stakeholders supported the government's efforts in the pursuit of a comprehensive trade agreement. Particular interest has been shown in reducing barriers in the agriculture sector, and in enhancing opportunities for Australian providers of, and investors in, mining services, professional services, and telecommunications. Many were especially keen that market access gains achieved under the TPP could be expanded, with agricultural stakeholders particularly forceful advocates for improved market access outcomes. 41. Representatives from a range of peak farming bodies, including Meat & Livestock Australia, Dairy Australia, and the National Farmers' Federation, have been consulted throughout PAFTA negotiating rounds, where they have pressed for better access for Australian agricultural products. Representatives from the mining industry have been closely consulted throughout negotiations, since Australia and Peru's mining sectors are already closely integrated across the areas of mining investment, mining equipment and inputs used in mining. 42. Interest in PAFTA by civil society groups was limited. The Australian Fair Trade and Investment Network provided a submission outlining its concerns, which included: lack of transparency of the negotiating process; the use of the TPP text as a model; the possible inclusion of ISDS provisions; the possible extension of monopoly intellectual property rights on patents or copyright; the existence of provisions on the movement of natural persons and government procurement. 43. Engagement with stakeholders will continue following entry into force of PAFTA to raise awareness of the FTA and ensure businesses and consumers can access the benefits of the agreement. Stakeholders will have an additional opportunity to provide their views on PAFTA through the inquiry process by the Joint Standing Committee on Treaties (JSCOT). Stakeholders consulted  Australian Industry Group  Almond Board of Australia  Apple and Pear Australia  Australian Chamber of Commerce and Industry  Australian Fair Trade and Investment Network  Australia-Latin America Business Council (ALABC)  Atlas Pearls  AusQuest  Austal  Austin Engineering  Australia Indonesia Business Council (WA)  Australian International Commerce Centre  Australian Wool Industries Secretariat  BHP  Chamber of Commerce and Industry of Western Australia Page 30 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

 Canegrowers  City of Perth  Costa Group  Council on Australia Latin America Relations (COALAR) and Managing Director, Latin Resources  Dairy Australia  DTI Group Ltd  EFIC  Fortescue Metals Group (FMG)  Fremantle Chamber of Commerce  FTI Consulting  Grain Growers Limited  Joondalup Council  Meat & Livestock Australia  Minerals Council of Australia  Navitas  National Farmers' Federation  PWC  Ricegrowers  Rio Tinto  Spinnaker Run  Squire Patton Boggs  Sunrice  Sweetlips  WA European Business Association  Western Australia Government  Wellard Rural Exports Limited  West Australian European Business Association  Winemakers Federation of Australia  Woodside Implementation and evaluation 44. In line with Australia's treaty-making processes, the text of the FTA will be tabled in Parliament. JSCOT will conduct an inquiry into the FTA and report back to Parliament. Implementation of PAFTA will require changes to: the Customs Act 1901; the Customs Tariff Act 1995 and associated regulations; the Foreign Acquisitions and Takeovers Regulations 1989. 45. Once domestic processes are completed, including amendments to legislation and regulatory, Australia and Peru will exchange diplomatic notes to advise that the ratification process has been completed by both Parties. Both Parties are aiming for entry into force before the end of 2018. 46. DFAT and other Government agencies will use existing resources to implement PAFTA. The operation and effectiveness of the FTA will be addressed through working groups, Senior Officials Meetings, Ministerial Meetings and through future reviews of the FTA. Page 31 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

In advance of these meetings and any formal review, DFAT will invite submissions from the public, and consult with stakeholders to identify concerns regarding the implementation of the FTA. Page 32 CUSTOMS AMENDMENT (PERU-AUSTRALIA FREE TRADE AGREEMENT IMPLEMENTATION) BILL 2018

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