CUSTOMS TARIFF AMENDMENT (ACIS) BILL 2003 Explanatory Memorandum

CUSTOMS TARIFF AMENDMENT (ACIS) BILL 2003

2002-2003

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

CUSTOMS TARIFF AMENDMENT (ACIS) BILL 2003

EXPLANATORY MEMORANDUM

(Circulated by authority of the

Minister for Justice and Customs, Senator

the Honourable Christopher Martin Ellison)

CUSTOMS TARIFF AMENDMENT (ACIS) BILL 2003

OUTLINE

The purpose of this Bill is to amend the Customs Tariff Act 1995 (the Tariff) to:



• Provide a reduction, from 1 January 2010, of customs duty rates for passenger motor vehicles (PMV) and certain components, from 10% to 5%; and



• Implement a related amendment to item 59 (used and secondhand PMV) in Schedule 4 of the Tariff.



The amendments contained in this Bill complement amendments in the ACIS Administration Amendment Bill 2003.

Automotive Competitiveness And Investment Scheme

The ACIS Administration Act 1999, the ACIS (Unearned Credit Liability) Act 1999 and the Customs Tariff Amendment (ACIS Implementation) Act 1999 established the Automotive Competitiveness and Investment Scheme (ACIS) to operate from 1 January 2001 to 31 December 2004. In brief, the purpose of ACIS is to provide transitional assistance to encourage competitive investment and innovation in the Australian automotive industry in order to achieve sustainable growth, both in the Australian market and internationally, in the context of trade liberalisation.



The ACIS Administration Amendment Bill 2003 will extend the operation of ACIS beyond 2005 to 2015 with the combination of targeted assistance and the lowering of tariffs being designed to provide incentives for growth in the automotive manufacturing industry.

Tariff Reductions

The Customs Tariff Amendment (ACIS Implementation) Act 1999 provided for a reduction of duty rates for PMV and certain components, from 15% to 10%, from 1 January 2005.



The Customs Tariff Amendment (ACIS) Bill 2003 provides for a further reduction of duty rates applicable to PMV and certain components, to 5%, from 1 January 2010. This rate currently applies to most manufactured machinery, equipment and components.



The enactment of the post 2010 duty rates at this time will provide transparency and certainty for automotive and component manufacturers, enabling sufficient time for planning prior to the scheduled reduction in 2010.



FINANCIAL IMPACT STATEMENT



The cost to the Government in revenue forgone as a result of the proposed tariff reductions is estimated to be around $290 million in 2009-2010. In 2010-2011 this is projected to be around $640 million and of a broadly similar magnitude in subsequent years.



It should be noted that it is difficult to predict the actual impact on revenue of the proposed tariff cuts on motor vehicles and related components in 2010 and after. There are a number of variables such as the rate of growth in the motor vehicle market, consumer preferences, and exchange rate fluctuations, which influence the price and amount of duty payable on imported vehicles, that can affect the estimate of tariff revenue.





REGULATION IMPACT STATEMENT (RIS)





FUTURE AUTOMOTIVE ASSISTANCE ARRANGEMENTS

Introduction

The purpose of this Regulation Impact Statement is to explore the merits of ceasing, continuing or changing the current form of assistance to the automotive sector.



The automotive sector enjoys a higher level of assistance than the bulk of Australian industries. In order to facilitate a transition from a high tariff environment, the Government developed the Automotive Competitiveness and Investment Scheme (ACIS). The objective of ACIS is set out in S3 of the ACIS Administration Act 1999 as:



...to provide transitional assistance to encourage competitive investment and innovation in the Australian automotive industry in order to achieve sustainable growth, both in the Australian market and internationally, in the context of trade liberalisation.



Briefly, ACIS provides about $2.8 billion in assistance to the industry over five years from 2001-05. This is expected to prepare the industry for the fall of automotive tariffs to 10% in 2005. Assistance is provided for production and for investment (motor vehicle producers) and for research and development and investment (supply chain).



The long lead times in the automotive sector mean that investment decisions are taken many years ahead. Recognising that uncertainty may adversely impact future investment, the Government initiated early consideration of future automotive assistance arrangements, including the rate of further tariff falls needed to attain Australia's free trade commitments.



The Government referred the matter of future automotive assistance arrangements to the Productivity Commission. By a parallel process, the Government also commissioned the Automotive Council, comprising key industry participants, to report to it on industry issues and perspectives.



The Productivity Commission Report provides a balanced consideration of the merit of several forms of assistance. It provides the bulk of the assessment of the options put forward in this Statement. Quotations set out in the Statement are from the Productivity Commission Report unless otherwise noted.

1.0 Current Automotive Assistance Arrangements

ACIS is a bundle of legislation encapsulating the assistance provided to the automotive industry. There are two major elements to ACIS:

• an uncapped element provided to motor vehicle producers for vehicles produced for sale in Australia and New Zealand; and

• a capped element of $2 billion over 2001-05 to motor vehicle producers and their supply chain.

Under the uncapped element of ACIS, motor vehicle producers (MVPs) are eligible to claim 15% of the value of vehicles produced for sale in Australia and New Zealand. This element represents a continuation of the former duty-free allowance, which was included in the ACIS legislation for convenience. At the time ACIS was passed into law in 1999, expenditure on the uncapped element was estimated to be $825 million. Current projections suggest expenditure over 2001-5 of $841 million; a figure closely aligned to that projected.

Under the capped portion of ACIS, MVPs may claim production credits of 10% of the value of production of vehicles produced for sale in Australia and New Zealand and 25% of the value of vehicles and engines produced other than for sale in Australia and New Zealand. In addition, vehicle producers may claim 10% of the value of investments in plant and equipment and 45% of the value of research and development that is not for vehicle producers own use. MVPs requested that they primarily receive production credits in lieu of increased investment and own use research and development because of the five-year duration of ACIS and because investment expenditure may not align with this period.

The supply chain, comprising component producers, machine tool producers and service providers receive assistance of 25% of investments in plant and equipment and 45% of investment in research and development. Criteria for what is and is not allowable investment are set out in the ACIS Act and Regulations. There are approximately 200 registered participants in ACIS ranging in size from large MVPs (4 in total) down to small and medium sized firms. There is a minimum threshold for firms entering the Scheme equating to a turnover of activity in the automotive sector of $500,000 per year. This figure was set to ensure that participants represented a sizeable exposure to the industry. There is an upper cap limit of 5% per participant based on the previous 12 months sales.

Underlying demand for ACIS is about one-third above the $2 billion cap. Accordingly, claims for the capped element need to be modulated to ensure expenditure remains within the cap. The current modulation rate is set at 71%.

2.0 The Productivity Commission Inquiry

On 21 December 2001, the Government announced an inquiry into future automotive assistance arrangements. The Productivity Commission was to examine the operation of current arrangements and to make findings about the appropriate form of any future tariff and assistance arrangements. The inquiry formally commenced on 21 March 2002, with the Commission being given six months to provide its findings.



The PC conducted its inquiry through discussions with parties, release of a Position Paper and holding of a workshop to develop modelling. It then invited submissions and held public hearings, before reporting to the Government on 30 August 2002.



Briefly, the Commission found that

• a settled path of future automotive assistance policy would reduce uncertainty;

• tariff reduction to 5% could be achieved by several means, but it preferred a reduction of 5% in 2010 as a means of achieving this;

• continuation of ACIS after 2005 would facilitate the reduction in the tariff rate;

• several options existed for extension and level of funding of ACIS, with its preference for continuation of the uncapped element of ACIS to 2015 and continuation of the capped element at $2 billion for a further five years.

3.0 Issue Identification

The issue to be examined is not whether or by how much automotive tariffs should be reduced. Industry specific tariffs are distortionary and there would be benefits in resource allocation and lower prices from a reduction in such tariffs. However, the issue of tariff reform is not irrelevant to consideration of the form and duration of assistance arrangements in the automotive sector, as past assistance has been tied to or closely associated with reductions in the tariff rate of vehicles and automotive components.



The Government's decisions in 1997 and 1998 provided a tariff pause for five years, ending with a 5% drop in the tariff to 10% in 2005. To facilitate the adjustment, existing assistance provided through the then Duty Free Allowance was continued and a new scheme, the Automotive Competitiveness and Investment Scheme (ACIS), was initiated. The form of ACIS was also influenced by the tariff rate, as incentives for production of motor vehicles are tied to the level of tariff on passenger motor vehicles.



ACIS is a transitional measure designed to take the industry into a lower tariff environment. There is, however, a need for the industry to make a further transition from a tariff rate of 10% to 5%. The issue is whether and how a further assistance package should be provided to facilitate this transition to a tariff level equal to that prevailing for industry generally.



While the Automotive Council recommended a continuation of tariffs at 10 percent and the extension of ACIS to at least 2010, the Productivity Commission favours a drop in the tariff to 5% in 2010, with the industry given a decade of policy certainty to 2015, at the end of which industry specific assistance would cease.



The industry has emphasised the need for the post 2005 assistance regime to establish a clear policy path for at least five years and preferably for 10 years. Given the long planning and investment horizons in the industry, the Commission considers this to be a reasonable expectation. The range of broader pressures and uncertainties facing the industry - particularly in relation to technological change and future environmental policies - are already very considerable. Providing a clear and extended path for assistance policy would serve to reduce one source of uncertainty. Without clear policy directions, desirable investment that would help to secure the industry’s future could be put at risk. (Productivity Commission Report, pXXVII)



This Statement assumes that the Government is disposed towards a further reform of tariff levels and that it is disposed towards reducing the level of assistance provided to the automotive sector. The issue then is to develop a mechanism to enable the automotive sector to transition to a low tariff environment free of ongoing industry specific subsidies.

4.0 Specification of the desired objective

The objective of the proposed regulation is to provide an apparatus for delivering a final round of transitional assistance to the automotive sector to ensure its future sustainability.



Regulation is currently provided through ACIS legislation and is administered by the AusIndustry arm of the Department of Industry, Tourism and Resources.

5.0 Identification of options

The options considered in this Statement are:

• Ending ACIS at its current expiry date of end 2005

• An unlegislated scheme more in line with the predecessors to ACIS

• A reformed ACIS with differing elements or emphases

• A broad continuation of ACIS into the future



a. End ACIS at end 2005



This option could be considered to be in line with the stated transitional nature of the original ACIS legislation. It is the extent of the Government’s current commitments made in 1997 and 1998. In support of this option, one could point to the considerable assistance industry received through tariff protection, the former Export Facilitation Scheme and the former Duty Free Allowance. Against this is the Productivity Commission’s observation that too sudden closure of ACIS accompanied by tariff reduction may have the effect of eliminating firms that might be viable if the removal of assistance was more gradual. Because exposure to ACIS can be no more than 5% of the previous year’s sales, it is considered that there would be no differential exposure by businesses under ACIS. In effect this would serve to somewhat limit the impact of the Scheme finishing in 2005.



b. An unlegislated scheme



The predecessors to ACIS were not legislative; rather they were largely administrative schemes (albeit operating within customs and tariff legislation). The advantage of administrative schemes is flexibility in changing to meet evolving circumstances. Against this is a lack of transparency, a probable lack of precision in terminology and reduced certainty to participants. The fact of the current legislated scheme is also a factor against reverting to an unlegislated arrangement.



c. Reformed legislated scheme



It would be possible to formulate a successor scheme utilising a different methodology or architecture to achieve the scheme’s stated objectives. One option raised with the Productivity Commission is to provide vehicle producers with access to incentives for research and development, in lieu of current incentives for production of motor vehicles. It would also be possible to change the mix of incentives to the supply chain. An example could be to seek that research and development assistance only go to higher level research, rather than principally to engineering development, as at present. While this may change the emphasis of incentives, the PC focuses on the primary purpose of ACIS:



...given its transitional role, extension of ACIS to a range of new activities could be counterproductive. In the Commission’s view, the role of ACIS is not to introduce new firms or activities to additional industry assistance, but rather to facilitate the transition to lower assistance for currently assisted firms. (Productivity Commission  Report, p175)



The PC was also not persuaded that giving incentives for differing activities necessarily encouraged or discouraged other desired activities:



In the Commission’s view...it does not follow that vehicle producers’ own use R&D is deterred because it is an ineligible activity. Given the fungibility of duty credits, it may not matter a great deal whether the basis for earning credits is related to production, R&D or investments in plant and equipment.” ... “...the primary rationale for ACIS is to provide transitional support. It is not a long term plan to underpin automotive R&D - although it does eventually reward successful R&D by vehicle producers.” ... “Perhaps most significantly, by compelling a redirection of resources towards new R&D, such a change could distort the capacity of some firms to use ACIS funds in a manner which best supported their transition to lower assistance. (Productivity Commission Report, p177)



There would be substantial uncertainty and cost to industry and government in a significant overhaul of ACIS. Data collection regimes have been developed for ACIS and a substantial change may impose costs without necessarily producing a major change in behaviour.



d. Broad continuation



The current ACIS legislation expires at end 2005. An option would be broadly to continue ACIS in its current form and to defer its expiry to a later date or else to replicate its provisions in new legislation. The advantage of this option is the familiarity of the form of ACIS to participants and to regulators, a position likely to be strengthened by the fact that ACIS has three more years to run. Against this is that the chance to start with a fresh approach is foregone. Such a fresh approach might come to different conclusions on form of assistance, levels of incentives, entry thresholds and payment mechanisms.



A settled path for future automotive assistance policy would serve to reduce one source of uncertainty impacting on investment and production decisions in the industry. To this end, specification of clearly defined assistance regime for the industry for the decade after 2005 is appropriate. (Productivity Commission Report, p180)



Within the concept of a broad continuation, there is still some flexibility for considering changes that might improve ACIS’s performance. For example, the PC saw merit in creating separate sub-schemes within a future ACIS to ensure types of participants received assistance roughly in line with what they currently receive. Otherwise, the MVP entitlements under ACIS would decline from 2005 in line with the tariff reduction that year, while the supply chain would suffer no such decline. The major industry associations have suggested that ACIS and its successor contain separate pools for MVPs and the supply chain in the ratio of 55:45. This broadly reflects current activity and prospective increases in MVP activity through domestic sales and particularly exports.



Further, broad continuation could encompass some adjustment to levels and types of incentives, provided such adjustments did not impact on incentives provided to other types of participant. For example, if separate pools for MVPs and supply chain were created, it would then be possible to excise some funds from the MVP pool and use these funds to produce a fund for MVPs to encourage introduction of particular technologies or research that may enhance the competitiveness of the industry.



The PC put forward three options for continuing ACIS. All options included continuation of the uncapped element of ACIS to 2015. The three options for the capped element of ACIS were:

• $2 billion over the years 2006-10, so providing a seamless continuation of ACIS;

• $2 billion in net present value terms over the years 2006-15, so providing certainty over a longer period;

• $2 billion in net present value terms over the years 2006-15, but with funding in the first five year tranche set at a level twice that of the second five year tranche.



While favouring the first option, the PC stressed that the other options would fall for consideration if there was significant concern about the ability of the industry to adapt to a 5% reduction in the tariff at 2010. The PC did not specify discount rates or start or end dates for calculating the net present value of $2 billion. The PC was clear that the duration of funding would be limited to 2006-2015 and not exceed $2 billion however calculated. This suggests there is no correct amount of assistance, rather the level is the minimum thought necessary to achieve the tariff reduction objective within a specified timeframe.

6.0 Assessment of impacts of options

a) The option of ending ACIS from 2005 would have the effect of removing subsidies of approximately $560 million per year for the automotive sector. In looking at this option, the PC considered that the adverse impact on the industry would be too severe to be sustained without causing significant damage to many individual participants. It did not recommend this course.



While parts of the Australian automotive industry are performing strongly in global markets, there are still significant changes required if the industry as a whole is to become competitive without substantial government support. Some of these will involve changes to the composition and structure of production, some will require a rebalancing of output between domestic and export markets, and some will require changes in the industry’s operating practices. (Productivity Commission Report, pXXV)



... the assistance regime should provide the industry with sufficient time to make the further changes necessary to secure its longer-term future. Notwithstanding the already long period of support for the industry, reducing remaining assistance too quickly after 2005 could put at risk production that would have become internationally competitive in the longer term under a more gradual transition process. Given the industry’s size and linkages with the rest of the economy, the costs to the community from ‘over-shooting’ could be substantial. (Productivity Commission Report, pXXVI).



Withdrawal of ACIS support when the current scheme expires at the end of 2005 would carry downside risks. It is clear that many parts of the industry are still some way from being truly internationally competitive. Hence, an immediate withdrawal of ACIS, in combination with further tariff reductions, could be sufficient to precipitate the exit of firms from the industry that would have become internationally competitive under more accommodating transitional arrangements. Consistent with the current assistance package, the Commission sees a continuation of ACIS after 2005 as a means of facilitating a reduction in the tariff to 5 per cent. (Productivity Commission Report, pXXIX)



In the short term, the effect of this proposal would likely be some exit from the industry by some participants, with consequently higher welfare payments. In the longer term, however, the resultant effects of this option on consumers, non-automotive firms and the broader community would be minimal. However, firms exiting the industry could result in a contraction in the industry and economic growth. This option would result in a substantial cost and administration saving to Government. However, the exit of a substantial number of firms from the industry in certain states could result in calls for regional assistance.



The PC estimates that, in 2001, the consumer tax equivalent of the tariff was around $1.9 billion, with around $1 billion appropriated by the Government in the form of tariff revenue (before ACIS). Ending ACIS in 2005 would accordingly free up substantial funding which could then be made available to the broader community (including tax reductions).



b) The fact that ACIS will have been in legislation for five years by 2006 suggests that the option of continuing with an assistance scheme, but not having it legislated is not a serious option. In any event, the definitions and the rules embodied in the current ACIS legislation would have to be replicated in administrative schemes, for no net saving. Decisions made whether through legislation or administratively would remain appealable to the Administrative Appeals Tribunal. There seems little to commend this option. The costs and benefits to consumers, non-automotive businesses and community would be minimal.



c) A change in the fundamental architecture of ACIS would involve costs and benefits, but not necessarily differing impacts. The cost would be in developing and drafting new approaches to delivering assistance to the industry. A cost to participants would be in developing an understanding of new rules and procedures. There is already a healthy consultancy sector servicing the industry in claiming ACIS credits. It is likely that changes to the architecture of ACIS would continue to benefit this externality on the scheme. The benefit would be in potentially encouraging more productive investment or research and development, or in reducing assistance to less productive activities.



The PC takes the view that, on balance, it would not be desirable to introduce new uncertainties into ACIS. It said:



The Commission remains of the view that foreshadowing changes to a scheme that has been in operation for less than two years would introduce undesirable uncertainty about firms' future entitlements. There is already widespread concern about uncertainty arising from the modulation arrangements used to adjust firms' entitlements. Moreover, some of the proposed changes would add to the complexity of the scheme and could be difficult and expensive to administer.



The Commission considers that considerable weight should be placed on avoiding uncertainty associated with significant changes in scheme design-particularly, changes which could have major distribution consequences. Thus, apart from seeing merit in the creation of separate capped funding pools for vehicle and component producers - which would reduce uncertainty - it does not consider other changes to the desired ACIS would be beneficial. (Productivity Commission Report, p178)



The impacts of this option on consumers, non-automotive firms and the community would be minimal.

d) The impact of broad continuation of ACIS involves some short term cost, but longer term benefit. As ACIS and its successor are funded from revenue gained by imposing tariffs, the continuation of the tariff at 10% from 2005 imposes a cost on consumers of imported vehicles. As against this, the assistance provided by ACIS enables domestic producers to be more competitive with imports, so presumably lowering the price of domestically produced vehicles. In the longer term, if ACIS and its successor contribute to the domestic producers becoming sustainably competitive, the consumer would benefit from a reduction in the tariff to 5%.

The PC favours the broad continuation of ACIS, but besides indicating against any increase in the rate of assistance, substantially leaves open the quantum and duration of funding. Accordingly, any one of a range of funding and duration options would suffice, provided the assistance remained transitional and so provided only to achieve the desired tariff reduction.

In looking at the allocation of the funding, the PC noted industry submissions seeking the creation of separate pools splitting funding between MVPs and the supply chain. The PC found that a 50:50 allocation of capped assistance would be appropriate. This allocation was based on information provided by the Department of Industry, Tourism and Resources regarding the current demand for assistance under ACIS. However, as the PC acknowledged in its position paper, there is no science to such an allocation. More recent figures supplied by industry to the Department suggest that other allocations are possible. Industry has now agreed to a 55:45 allocation which is only a minor deviation from the PC’s preferred position.



The impacts on non-automotive firms would be minimal, given that ACIS assistance is limited to passenger motor vehicles (and utilities). However, similar to consumers, there may be some benefits derived from reduced domestic car prices, but balanced by higher imported vehicle prices.



For motor vehicle producers and firms in the automotive supply chain, ACIS assistance would provide significant leverage for the competitiveness of the industry and be a major factor in determining its long-term sustainability.



The continuation of ACIS broadly in its current form would enable the streamlining of Government regulatory processes and requirements, given that administrative arrangements for ACIS are already established and operational.



The proposed regulation would be designed to be WTO compliant with an indirect bearing on export performance.



The continuation of ACIS would not result in any clear losers. Costs to consumers, non-automotive businesses and the community would be minimal given that the overall cost of continuing ACIS broadly in its current form would be fairly neutral. For firms in the automotive industry, there would be some ongoing compliance costs in respect to the legislation. However, this would not impose an unnecessary burden, especially given that they would be receiving substantial assistance through the Scheme.



The Government would incur ongoing costs for administering the Scheme but given that administrative mechanisms are established and operational, costs would be unchanged from the existing Scheme. The exact funding profile for a ‘preferred option’ is subject to decision by Cabinet.

7.0 Consultation

There has been no formal consultation on the proposed regulation, as a decision on the regulation is Cabinet-in-confidence. However the PC process and the work by the Automotive Council cover the same ground and in considerably more depth than would be possible in a Regulation Impact Statement. Attachment A to the PC’s Report sets out the names of the parties with which it consulted and from whom it received submissions.

8.0 Conclusion and recommended option

Options included in this analysis have included:



1. Ending ACIS at its current expiry date of end 2005 - similar to the PC’s views, this option is not recommended as it may eliminate firms that might be viable if the removal of assistance was more gradual.

2. An unlegislated scheme - this option is not recommended given the lack of transparency and precision in terminology coupled with a reduced certainty to participants.

3. Reformed legislated scheme - similar to the PC’s views, this option is not recommended due to the potential to distort the capacity of some firms to use ACIS assistance in a manner which best supported their transition to lower assistance.

4. Broad continuation - similar to the PC’s views, it is recommended that ACIS should be continued in its current form (whether by extension of existing legislation or renewed legislation).



Given assistance is to continue and it is desirable to tie as much as possible to the tariff, it makes sense to continue the current scheme as per option 4.



There are not sufficiently strong grounds to warrant modifying the design of ACIS with respect to its eligibility criteria or the basis for earning duty credits (including any linking of payments to the achievement of particular outcomes, such as environmental and industrial relations objectives). (Productivity Commission Report, p.180)



It is recommended that the structure provided by ACIS be continued for a quantum and duration set by the Government, with substantially the same architecture as currently operating. The quantum and duration should be the minimum that enables the industry to achieve successfully the transition to a lower tariff environment.

9.0 Implementation and review

Implementation of the recommended option will be through legislated amendments to the existing ACIS framework or new legislation replicating the provisions of ACIS. In addition to changing the expiry dates in ACIS to achieve the duration the Government decides on, there will be decisions on transitional issues mentioned above.



It is proposed that review of the operation of the ACIS successor would occur in 2008 and again about two years before its expiry. The Government would specify that from the time of expiry, there would be no further assistance to this industry beyond that made available to industries in general.



Compliance costs for business would be fairly minimal given that the Scheme would be continuing in broadly the same form. Firms would already have sufficient knowledge of the Scheme in order to meet their regulatory obligations.



CUSTOMS TARIFF (ACIS) AMENDMENT BILL (NO. 2) 2002

NOTES ON CLAUSES

Clause 1 - Short Title



This clause provides for the Act, when enacted, to be cited as the “Customs Tariff Amendment (ACIS) Act 2003”.



Clause 2 - Commencement



This clause specifies that this Act will commence on the day on which it receives the Royal Assent.



Clause 3 - Schedule(s)



This clause is the formal enabling provision for the Schedule to the Bill, providing that each Act specified in the Schedule is amended in accordance with the applicable items of that Schedule. The clause also provides that other items of the Schedules have effect according to their own terms.





SUMMARY OF AMENDMENTS

Schedule 1 Amendment of the Customs Tariff Act 1995

Schedule 1 of this Bill inserts post 2010 duty rates for PMV and certain components.

Part 1 – Schedule 3 headings and subheadings that have no preference rate for Canada

Items 1 to 84

The tariff headings and subheadings specified in Part 1 of Schedule 1 to this Bill do not include those headings and subheadings that have a preferential rate for goods of Canadian origin. These subheadings are amended in Part 2 of Schedule 1.



Items 1 to 84 in Part 1 of Schedule 1 to this Bill reduce the rate of duty on PMV components, classified to one of the tariff headings or subheadings specified in those items, from 10% to 5%, from 1 January 2010.



These changes do not interfere with margins of tariff preference and duty-free entry for countries that receive preferential rates of duty.

Part 2 – Schedule 3 subheadings that have a preference rate for Canada

Items 85 to 155

The tariff subheadings specified in Part 2 of Schedule 1 to this Bill include those subheadings that also have a preferential rate for goods of Canadian origin.



Items 85 to 155 in Part 2 of Schedule 1 to this Bill, except items 124 to 131, reduce the rate of duty on PMV components, classified to one of the tariff subheadings specified in those items, from 10% to 5%, from 1 January 2010. Items 124 to 131 inclusive apply to new and complete PMV, classified to one of the tariff subheadings specified in those items, and provide the same duty reduction for these goods.



These changes do not interfere with margins of tariff preference and duty-free entry for countries that receive preferential rates of duty, except for Canada. All Canadian goods classified to the above tariff subheadings will enter duty free from 1 January 2010, although for some goods the margin of tariff preference will be reduced.

Part 3 – Other amendments

Items 156 to 163

The tariff subheadings specified in items 156 to 163 of Part 3 of Schedule 1 to this Bill apply to used or secondhand PMV. These tariff subheadings, in addition to the ad valorem duty rate of 10% applicable to new PMV, also include an additional duty of $12,000 per vehicle.



Items 156 to 163 in Part 3 of Schedule 1 to this Bill reduce the ad valorem rate of duty on used or secondhand PMV classified to one of the tariff subheadings specified in those items, from 10% to 5% from 1 January 2010. In each case, the additional duty of $12,000 per vehicle is maintained.



These changes do not interfere with margins of tariff preference and duty-free entry for countries that receive preferential rates of duty, except for Canada. All Canadian goods classified to the above tariff subheadings will not be subject to any ad valorem rate of duty from 1 January 2010, although for some goods the margin of tariff preference will be reduced. The additional duty of $12,000 per vehicle will continue to apply.

Item 164

Item 164 inserts post-2010 ad valorem duty rates for item 59 in Schedule 4 to the Tariff.



Item 59 provides for the importation of used or secondhand PMV, as prescribed by

by-law, without the payment of the additional rate of $12,000 per vehicle. (Refer to comments in relation to items 156 to 163 above).



This amendment reduces the ad valorem rate of duty on used or secondhand PMV, as prescribed by by-law, from 10% to 5%, from 1 January 2010.