Gang-Nail Australia Ltd and CEO of Customs; Multinail Australia P ty Ltd (Party joined) [1999] AATA 30 (22 January 1999)

Last Updated: 26 October 1999

Administrative

Appeals

Tribunal

DECISION AND REASONS FOR DECISION [1999] AATA 30

ADMINISTRATIVE APPEALS TRIBUNAL )

) N o N96/1139

GENERAL ADMINISTRATIVE DIVISION )

Re GANG-NAIL AUSTRALIA LTD

Applicant

And CHIEF EXECUTIVE OFFICER OF CUSTOMS

Respondent

And MULTINAIL AUSTRALIA PTY LIMITED

Party Joined

DECISION

Tribunal Senior Member M D Allen

RADM A R Horton AO RAN (Rtd), Member

Date 22 January 1999

Place Sydney

Decision The decision under review is set aside and this matter remitted to the Respondent with the direction that it make a Tariff Concession Order in the terms of TC9407713 published in Commonwealth of Australia Gazette No TC94/45 of 16 November 1994.

(Sgd) M D ALLEN

..............................................

Presiding Member

CATCHWORDS

CUSTOMS TARIFF - Tariff Concession Order. Whether substitutable goods manufactured by the Party Joined and whether to grant the Tariff Concession Order would have a significant adverse effect upon the market for those goods.

Customs Act 1901 S.269B, 269C, 269D(1) and 269E

Seguin Moreau Australia v Chief Executive Officer of Australian Customs 25 AAR 390

Re Bag & Jute Co (T'wth) Pty Ltd and Comptroller-General of Customs and Anor 38 ALD 357

Comptroller-General of Customs v Akai Pty Ltd and Ors 20 AAR 10

REASONS FOR DECISION

22 January 1999 Senior Member M D Allen

RADM A R Horton AO RAN (Rtd), Member

1. By application lodged 21 July 1995 the Applicant sought review of a decision by the Respondent not to grant a Tariff Concession Order (TCO) in the following terms, namely:

"SAWS, TIMBER, computer controlled operation of set-up, manufacture and record keeping, designed for the manufacture of roof truss components, having ALL of the following:

(a) minimum of four computer controlled saw arms and heads;

(b) computer controlled adjustment motors independent of the saw motors;

(c) self-feeding material conveyer with integral computer controlled material clamping mechanism which enables single conveyor processing of material;

(d) designed for working in conjunction with a computer-aided design and manufacturing (CADAM) system by receiving job specification data files by direct download"

2. The original application for a TCO was received by the Respondent on 24 October 1994, and advertised in the Commonwealth Government Gazette No TC94/45 of 16 November 1994. The said application resulted in an objection by Multinail Australia Pty Limited, the Party Joined in these proceedings, who alleged that they manufactured substitutable goods (see Document T6).

3. As at 24 October 1994, the relevant legislation read:

"269C. For the purposes of this Part, a TCO application is to be taken to meet the core criteria if, on the day occurring 28 days before the day on which the application was lodged:

(a) no substitutable goods were produced in Australia in the ordinary course of business; or

(b) substitutable goods were produced in Australia in the ordinary course of business but the granting of the TCO was not likely to have a significant adverse effect on the market for the substitutable goods."

The term "substitutable goods" is defined in s.269B of the Customs Act 1901 in the following terms:

" `substitutable goods', in respect of goods the subject of a TCO application or of a TCO, means goods produced in Australia that are put to a use that corresponds with a use (including a design use) to which the goods the subject of the application or of the TCO can be put;"

4. In Seguin Moreau Australia v Chief Executive Officer of Australian Customs 25 AAR 390 at 394, Drummond J said:

"... the expression `substitutable goods' in s 269C(b) is given a precise meaning by its definition in s269b(1): goods produced in Australia will be `substitutable goods' in respect of the goods the subject of a TCO application only if the goods produced in Australia are, at the relevant date, put to a particular use and that use corresponds with a use to which the goods the subject of the application for the TCO `can be put', that is, are in fact put or are capable of being put."

5. The request for the making of the TCO was lodged with the Respondent on 24 October 1994, consequently the date at which the potential for any significant adverse effect upon the market for the goods made by the Party Joined must be considered is at 26 September 1994 (s.269C of the Customs Act 1901).

6. In the particular circumstances of this matter, the following sections of the Customs Act 1901 as at 24 October 1994 are also relevant, namely ss.269D(1) which reads:

"For the purposes of this Part, goods, other than unmanufactured raw products, are taken to be produced in Australia if:

(a) the goods are wholly or partly manufactured in Australia; and

(b) not less than ¼ of the factory or works costs of the goods is represented by the sum of:

(i) the value of Australian labour; and

(ii) the value of Australian materials; and

(iii) the factory overhead expenses incurred in Australia in respect of the goods."

Whereas s.269E reads:

"(1) For the purposes of this Part, other than section 269Q, goods (other than made-to-order capital equipment) that are substitutable goods in relation to goods the subject of a TCO application are taken to be produced in Australia in the ordinary course of business if:

(a) they have been produced in Australia in the 2 years before the application was lodged; or

(b) they have been produced, and are held in stock, in Australia; or

(c) they are produced in Australia on an intermittent basis and have been so produced in the 5 years before the application was lodged;

and a producer in Australia is prepared to accept an order to supply them.

(2) For the purposes of this Part, goods that:

(a) are substitutable goods in relation to goods the subject of a TCO application; and

(b) are made-to-order capital equipment;

are taken to be produced in Australia in the ordinary course of business if:

(c) a producer in Australia:

(i) has made goods requiring the same labour skills, technology and design expertise as the substitutable goods in the 2 years before the application was lodged; and

(ii) could produce the substitutable goods with existing facilities; and

(d) the producer is prepared to accept an order to supply the substitutable goods.

(3) In this section:

`made-to-order capital equipment' means capital equipment that is made in Australia to meet a specific order rather than being the subject of regular or intermittent production."

7. The Party Joined's objection was formulated and forwarded by its agent, Schenker & Co (Australia) Pty Ltd. In the covering letter (dated 23 November 1994), the agent stated:

"Our client currently manufactures substitutable goods at their Wauchope workshop. We have attached for your perusal a brochure of the Multinail Master Saw manufactured by Multinail Australia." (T6)

Whereas in the formal objection the Party Joined claimed that its "Master Saw" was currently available made to order capital equipment and that they had been produced in Australia in the last two years. The Party Joined further claimed that the granting of the TCO would decrease its market share dramatically due to price.

8. The goods in dispute are saws used by the manufacturers of roof trusses. The Applicant imports saws whereas the Party Joined manufactures saws at its factory at Wauchope in New South Wales. The TCO refers to a saw whereby the instructions, such as angle of cut and length, are directly downloaded from a computer program. The Party Joined, in its Multinail Master Saw range being a Mark I, Mark II and Mark III, manufactures saws whereby the instructions as to their operation is entered by means of a keyboard, of a programmable controller. As pointed out in evidence, this can result in operator error, whereas when the instructions are directly downloaded from a computer program, this potential for error is deleted. Evidence was also given as to a Multinail Mark IV (or Command) Saw which is directly computer controlled but was manufactured for the first time in 1998.

9. We are satisfied, given the evidence of the Party Joined's witness Mr Bagnall, that, although as at 24 October 1994 the Party Joined had the technology to manufacture a saw which could be claimed to be a substitutable good in all respects, no orders had been received for such an item and none had been manufactured until 1998, although the Party Joined had been advertising such a saw since 1993.

10. We accept the evidence of Mr Aulsebrook, the Director of South Coast Timber Supplies, that in early 1995 he had a conversation with a Mr Burgess, who was then the Party Joined's Research and Development Officer, regarding a fully computer controlled downloadable saw and that Mr Burgess told him that Multinail Australia did not have such a computer controlled saw but would be very interested in jointly developing a fully computerised saw with somebody from the industry prepared to invest in its development.

11. Mr Aulsebrook was cross-examined as to his dealing with Mr Burgess but it was never put to him that the conversation to which he deposed did not take place. In answer to the Tribunal, Mr Bagnall stated that Mr Burgess had been employed by the Party Joined and that he was still resident in New South Wales. As no attempt was made by the Party Joined to call Mr Burgess, and the evidence of Mr Aulsebrook was not directly challenged, we accept that the conversation did take place in early 1995, and we find as a fact that at that time the Party Joined had never manufactured a full computer controlled downloadable saw but was prepared to construct a prototype if they obtained an order.

12. As pointed out by Mr Bagnall in his evidence, no demonstration model was made by the Party Joined due to restraints on its capital. As the letter which became Annexure B to Mr Bagnall's statement evidences, this in itself cost the Party Joined orders as they could not demonstrate an operating machine.

13. The Applicant submitted that s.269E(2), by using the words "has made goods", requires that actual production must have taken place. In our opinion, however, the goods produced need not be the actual substitutable goods but simply goods requiring "the same labour skills, technology and design" as the substitutable goods. In this matter we are satisfied that the Party Joined's Mark III Master Saw required the same labour skills, technology and design as its Mark IV (or Command) Saw and the Party Joined was holding itself out as being prepared to accept an order to supply a fully computerised saw.

14. The Applicant's written submissions concede, at paragraph 35, that the Master Saws Mark I, Mark II and Mark III produced by the Party Joined are substitutable goods. For the reasons outlined above we are satisfied that, although the Party Joined had never in fact attempted production of a Mark IV Saw until 1998, as at 26 September 1994 that model saw did constitute a substitutable good.

15. The dispute in this matter therefore devolves into answering the second limb of the definition of core criteria in s.269C as it stood as at 26 September 1994, namely whether the granting of the TCO was not likely to have a significant adverse effect on the market for the substitutable goods.

16. As was pointed out Re Bag & Jute Co (T'wth) Pty Ltd and Comptroller-General of Customs and Anor 38 ALD 357, this is a speculative exercise in which the onus of proof is upon the parties seeking the TCO. As Hill J pointed out in Comptroller-General of Customs v Akai Pty Ltd and Ors 20 AAR 10 at 20, the Tribunal can receive evidence of prospective developments which throw light on the situation as at the date the decision was required to be made.

17. Mr Bagnall, the witness for the Party Joined, stated that the market for saw machines for roof truss systems in Australia is highly competitive and contains three main players, namely Multinail (the Party Joined), Gang-Nail Australia Ltd (the Applicant) and Pryda Australia Ltd. The competitive nature of the business of supplying equipment to the manufacturers of roof trusses can be gleaned by perusing the reasons for judgment of Drummond J in The Builders Warehouse Group Ltd (Trading as Campbells Hardware and Timber) v Multinail Australia Pty Limited (Unreported QG66 of 1994; 25 March 1997, Brisbane). That is not to say, however, that the findings of fact by Drummond J can be adopted without more by this Tribunal as its findings.

18. A difficulty the Party Joined would have had with its prototype Mark IV Saw was that no items of that equipment were in existence. As the witness Mr Donohue, the Managing Director of Australian Timber and Trusses, pointed out, he had never purchased an item of production machinery that had not been tested in production conditions. See also Annexure B to the affidavit of Mr Bagnall (Exhibit PJ4) which reads inter alia:

"The price also became a factor, having a difference for a non Multi-Nail manufacturer and a Multi-Nail Manufacturer of $50,000.00. Even with this incentive we believe we would be better off with the Pryda system. (The Omni came in at $235,000.00). Probably the biggest single determining factor was the fact that you do not have a fully computerised eqivilent (sic) machine operating in the market place."

Mr Donohue also stated that price was not the major determinative in deciding what make of saw to purchase. He said at Transcript p72:

"Price was probably third in the list. ... Number 1 was in relation to the lack of operator intervention thereby the possibility of errors. Number 2 was that it could cut the volumes that we required. Number 3 we would have looked at would have been price to see what - how long it would take us to get a return on it and how much per piece it would cost us to use that type of saw to cut that particular article."

And he added, at Transcript p76:

"One phase is in relation to getting a piece of equipment that meets a specification and then the other phase is negotiation. So in relation to looking at the specification and seeing what saw you want to purchase then price is a lower part of the equation. When you're negotiating price is the highest denominator so there's two caps you've got to wear. So in relation to selecting a saw price is down lower. Once you've decided which saw you're going to purchase then price obviously becomes a part of the game that you've got to play in relation to negotiation."

Similar sentiments were expressed by Mr Aulsebrook. He said, at Transcript p50, that he had not in 1994 considered the Multinail range of saws as they did not fit the criteria which he had for a saw.

19. Mr Kearon, the Manager of Pryda Australia's Technical Division, also gave evidence that the initial stages of tendering for the supply of a saw was an assessment of the potential customer's requirements as to capacity and output. Negotiations as to price only take place after an assessment has been made of the model of saw required.

20. Mr Bagnall was cross-examined as to the Party Joined's practices and he conceded that a list price for a saw was the commencing point for negotiations.

21. Of items imported, the evidence was that the Applicant's Easy Set 4000 (the TCO goods) were offered at a price of $A225,000.00 in 1994. Auto-omni Saws, imported by Pryda Australia Limited, being equivalent items, have since 1994 been sold in Australia at prices between $A250,000.00 and $A400,000.00; whereas Multinail Master Saw Mark III were offered or sold, in the period 1994 to 1996, for prices ranging from less than $130,000.00 to $150,000.00 (see Exhibits A10 and A5).

22. Another indicator that price is not the determining factor in equipment selection is the evidence of Mr Kearon who stated that he had instigated the sale of Multinail Mark III saws to two companies, Universal Trusses and Spantruss, as he considered that the Multinail produce was the right technology within the right price range for those two manufacturers. This illustrates again the Applicant's submission that the determining factor is the capabilities of the equipment, rather than price.

23. Given all of the material placed before us, we are satisfied that any prospective purchaser of a fully computerised saw, as at 26 September 1994, would not have purchased such equipment from the Party Joined as it was then unable to demonstrate its technology in a working example. Had a prospective purchaser had a specification which was matched by any of the Party Joined's Mark I, Mark II or Mark III range then their product may have been considered but other elements would have come into play, including product loyalty, output, depth of cut, as well as price.

24. The market for saws is diverse and it is only the larger manufacturers that would be looking for the top of the range, fully computerised saws such as the TCO goods. We are satisfied on the material before us that, as at 26 September 1994, the granting of the TCO would not have been likely to have had a significant effect upon the market for the substitutable goods.

25. The decision under review will therefore be set aside and this matter remitted to the Respondent with the direction that it make a Tariff Concession Order in the terms of TC9407713 published in Commonwealth of Australia Gazette No TC94/45 of 16 November 1994.

I certify that this and the 9 preceding pages are a true copy of the decision and reasons for decision herein of

Senior Member M D Allen

RADM A R Horton AO RAN (Rtd), Member

Signed: Ian Taylor .....................................................................................

Associate

Date/s of Hearing 23 and 24 September 1998

Date of Decision 22 January 1999

Counsel for the Applicant N/A

Solicitor for the Applicant Mr I Rodda,

Rodda Castle & Co,

International Trade Consultants

Counsel for the Respondent N/A

Solicitor for the Respondent Mr G Komora, Australian Customs Service

Counsel for the Party Joined Mr J R J Lockhart

Solicitor for the Party Joined Deacons Graham & James