TRADE PRACTICES AMENDMENT (COUNTRY OF ORIGIN REPRESENTATIONS) BILL 1998 Explanatory Memorandum

TRADE PRACTICES AMENDMENT (COUNTRY OF ORIGIN REPRESENTATIONS) BILL 1998

13976  Cat. No. 97 2928 3  ISBN 0644 519738

1998

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

TRADE PRACTICES AMENDMENT (COUNTRY OF ORIGIN REPRESENTATIONS) BILL 1998

EXPLANATORY MEMORANDUM

(Circulated by authority of the Minister for Customs and Consumer Affairs,

the Hon Warren Truss MP)

TRADE PRACTICES AMENDMENT (COUNTRY OF ORIGIN REPRESENTATIONS) BILL 1998

OUTLINE



The Trade Practices Amendment (Country of Origin Representations) Bill 1998 will amend the Trade Practices Act 1974 (TPA) to establish a defence from potential breach of s52 or s53(eb) for country of origin representations that meet certain criteria.



The amendments will provide a clear regime for country of origin representations which, hitherto, have been subject to the general misleading and deceptive conduct prohibition of the TPA. As such, the provision establishes minimum criteria for unqualified country of origin representations which, if met, will protect manufacturers and importers from litigation under either s52 or s53(eb).



In addition to the general threshold for unqualified country of origin claims, the provisions limit the use of ‘product of’ descriptions to goods that can demonstrate all or virtually all content and processing in the country from which they are claiming origin.



The provisions will also allow for the prescribing of voluntary industry logos, with criteria stricter than that for the general threshold test, which will facilitate the promotion of goods from industry sectors with very high levels of local content.



The provisions also include miscellaneous amendments unrelated to the primary purpose of the Bill which will:

• include consideration of small business experience in the appointment of Commissioners to the Australian Competition and Consumer Commission (ACCC);

• expand the ability of the ACCC to take representative actions to include matters arising under Part IV of the TPA relating to restrictive trade practices;

• make technical amendments to the TPA, without significant legal effect, to reflect other legislation enacted by the Parliament or changes in administrative arrangements.



FINANCIAL IMPACT STATEMENT



The Commonwealth will not incur additional costs directly from the implementation of the new provisions governing country of origin labelling.



An educational campaign, however, will be mounted in support of this Bill with costs estimated as follows:



Year 1 - approximately $1.2 million

Year 2 - approximately $0.15 million

REGULATION IMPACT STATEMENT

TRADE PRACTICES AMENDMENT (COUNTRY OF ORIGIN REPRESENTATIONS) BILL 1998

PROBLEM IDENTIFICATION AND SPECIFICATION OF REGULATORY OBJECTIVES

(a) Problem to be addressed/rationale for Government action

A large number of consumers make purchasing decisions based, in part, on whether a good has been made in Australia or overseas. Such decisions are driven by a desire to assist Australian industries and support local employment. Surveys and media reports have indicated, however, that there is considerable industry and consumer uncertainty about what can be legally classified as an Australian origin product and under what circumstances unqualified origin claims can be used. Consumers have expressed a desire for clearer origin information to be included on product labels and on food items in particular.

‘Australian made’ or ‘made in Australia’ are examples of unqualified origin claims. Currently, the Trade Practices Act 1974 (TPA) regulates claims of origin through the consumer protection provisions in Part V of the Act. Similar requirements, extending the regime to govern unincorporated businesses, are also contained in State and Territory Fair Trading Acts.

Prior to December 1994, an ‘essential character’ test, based on the judicial interpretation of relevant provisions of the TPA, was used to determine whether a product could be labelled as ‘made in Australia’ or ‘Australian made’. In December 1994, the Federal Court handed down a decision which effectively rejected the ‘essential character’ test (see QDSV Holdings Pty Ltd v Trade Practices Commission ATPR 41-432 (1995), the Bush Friends case). The ruling interpreted the relevant provisions of the TPA in a restrictive manner, resulting in many firms, including many current Australian Made logo licensees, being potentially excluded from labelling their products as ‘Australian made’.

These problems were compounded by a subsequent Federal Court decision, Australian Competition and Consumer Commission v Lovelock Luke [1997] 1100 FCA (the Email case), which, in deciding that certain air conditioners could be labelled ‘made in Australia’, expressly avoided setting down strict criteria for determining the validity of origin claims. The Court held that such cases should be resolved on a case-by-case basis. This represents a considerable impediment to compliance.

There has been considerable opposition to the interpretation that the Federal Court has adopted in applying the TPA to origin claims. Those who gauge their interests to be adversely affected by the decision include:

• local manufacturers and exporters, who believe the decision will cause continuing uncertainty about the labelling of their products leaving them open to prosecution;

• consumers, who believe the decision will cause continuing uncertainty about the meaning of origin claims;

• firms who may be forced to withdraw origin claims or face the disadvantages in the market associated with the use of qualified claims; and

• firms licensed to use the Australian made logo who may be forced to withdraw origin claims because they are unsure how to comply with the current test.

(b) Regulatory objective

The regulatory objective is to address or the uncertainty surrounding origin labelling and to provide realistic thresholds for the use of such claims. The Government is seeking to provide certainty and confidence for consumers and industry by restoring clarity to the regulatory regime governing origin labelling.

The regulatory measures employed by the Government will establish a voluntary regime that is relevant and accessible for local manufacturers who undertake substantial value-adding activities and generate employment in Australia. The regime will provide equal national treatment thereby not imposing a technical barrier to trade incompatible with Australia’s commitments under the WTO.

The measures act to confirm that ‘product of’ descriptors are only used to denote very high levels of local content. Such labels are of particular value to primary producers. Under the proposed regime, the use of ‘product/produce of’ claims will be governed by a self-standing provision. The provision will effect a prohibition along the lines that a corporation cannot make a claim that a good is ‘produced in’ or a ‘product of’ a particular country, unless that good is created in that country from ‘all or virtually all’ domestic inputs or ingredients and has ‘all or virtually all’ of the manufacturing process were undertaken there.

(c) Current regulation/policy

The Government has indicated its desire to implement an effective origin labelling regime that allows consumers to readily identify Australian made products and local producers to advertise Australian content.

There are few existing mandatory requirements for local manufacturers to use country of origin labelling, the most notable exceptions being for food products and pharmaceuticals. However, when other manufacturers want to use origin claims, the TPA requires, as a minimum, that these claims should not be misleading or deceptive. Similarly, State and Territory fair trading legislation applies the same test to manufacturers and importers beyond the Commonwealth’s Constitutional reach.

The TPA regulates claims of origin through a general provision against misleading or deceptive conduct (section 52) and a specific criminal provision relating to false and misleading origin claims (paragraph 53(eb)).

As stated above, prior to December 1994 an ‘essential character’ test amongst other factors was used to determine the legitimacy of origin claims. The Bush Friends ruling in December 1994 rejected this test in favour of a more restrictive standard.

In the subsequent Email case, the Court avoided formulating any specific criteria to determine the validity of origin claims. Instead, it was held that the legitimacy of origin claims will be determined using a case-by-case approach. This has exacerbated consumer and industry uncertainty over the permissible use of unqualified country of origin claims.

IDENTIFICATION OF ALTERNATIVES



Possible options to fulfil the regulatory objective are as follows:

no action / self regulation - the Government could rely on the existing interpretation of s52 of the TPA, education and self-regulatory initiatives to address consumer and industry concerns about origin claims. It would be left to individual businesses to assess the risk, based on existing legal precedent, before making a particular origin claim.

enact a qualitative origin test - the Government could address concerns about the law governing unqualified country of origin claims by legislating the previously used ‘essential character’ test or the more internationally consistent concept of ‘substantial transformation’. Until such time as an adequate body of precedent exists, this approach would require a court to apply standard principles of interpretation in considering whether labelling meets a broad qualitative requirement. The relative merits of the ‘essential character’ and ‘substantial transformation’ tests are discussed in the ‘Impact Analysis’ section of this Regulation Impact Statement (RIS).

enact a qualitative origin test, underpinned by quantitative requirements - the Government could utilise a qualitative test but, in the interests of providing certainty and assisting compliance, underpin it with a readily understandable quantitative measure. There is international precedent for the use of a substantial transformation test complemented by a domestic production cost (local content) test to achieve this. A realistic domestic content threshold is 50 per cent or greater. The figure is consistent with local content tests operating in other jurisdictions. There are two options for the production cost test:

• a broad production cost test that encompasses all business costs in the production of a good; or

• a narrow production costs test that includes only those costs directly linked to the production of the good.



The merits of the two underpinning methods are discussed under ‘Impact Analysis’ below.



It is important to note that all of the above approaches would be voluntary in that only those manufacturers who choose to make origin claims will need to meet the requirements of the test.





IMPACT ANALYSIS



(a) Impact group identification



The following groups are relevant to the proposal:

• consumers - who desire accurate and useful origin information;

• industry generally - who utilise origin claims as a marketing tool and who bear the cost of labelling requirements;

• primary producers - whose products typically embody high levels of domestic content and may therefore be disadvantaged in relation to imports as a result of any changes to the law governing origin claims;

• domestic manufacturers - particularly those whose products include a degree of imported content and who are particularly affected by the current uncertainty governing origin claims;

• government - which would bear the costs in administering and enforcing legislation.



(b) Impact on existing regulations and existing regulatory authorities



(i) Option 1 - no action / self regulation

This option would not impact significantly on existing regulations or regulatory authorities except that it would place greater emphasis on clarifying the existing law and subsequently educating businesses and consumers about the legal requirements. These measures (eg education and public enforcement initiatives) are likely to be more resource-intensive for Government than other options that rely on legislative clarification of private rights of action.



(ii) Option 2 - enact a qualitative origin test

This option would entail changes to the consumer protection provisions of the TPA. The changes would impact on regulatory authorities in that they would be required to provide information to consumers and industry on the new provision. This option may also require some expenditure by Government for test cases to clarify the legal meaning of the quantitative standard.



(iii) Option 3 - enact a qualitative origin test, underpinned by quantitative requirements

As with option 2, adoption of this approach would need to be accompanied by test cases and an awareness campaign. The addition of a quantitative test would, however, reduce considerably any perceived need for Government funding for test cases and awareness measures.

There are some evidentiary hurdles for public enforcement of a quantitative test because the information needed to prove a breach is held by the respondent business and not readily discernible through outside scrutiny. A key issue is, therefore, the efficiency with which any new regulatory arrangements can be enforced. By allowing only a carefully specified range of ‘production costs’ in the valuation methodology, effective enforcement can be improved. On the other hand, a broad production costs test would require public enforcement bodies to account for a greater number of variables, creating an evidentiary impediment to proper enforcement. This issue will be discussed further under ‘Preferred option’.

(c) Cost/benefit analysis



(i) Option 1 - No action / self regulation



The costs and benefits of advising industry of the recent court decisions and relying on the development of a more extensive body of case law, education and self-regulation strategies (such as industry or consumer driven voluntary logo schemes) are as follows:



Costs:

• Continuing legal uncertainty for business about the labelling of their products for domestic sale or export. The case-by-case nature of the Email ruling suggests that a considerable body of case law would be required before any general principles could be drawn on permissible labelling.

• Continuing uncertainty for consumers about the meaning of origin claims and the possibility that less origin information will be available to consumers as the large number of manufacturers facing regulatory uncertainty on labelling requirements may withdraw origin claims altogether.

• Possibility of increased costs for many of the firms that currently use origin claims. This would arise from businesses having to choose between bearing the costs of changing their current labelling practices (in addition suffering the negative implications associated with qualified claims) or withdrawing the claim (and suffering cost consequences from the loss of a means to secure competitive advantage).

• Continued uncertainty preventing re-invigoration of the Australian Made logo system due to the possible liability issues for logo administrators arising out of regulatory uncertainty.

• Uncertain basis for further development / clarification of food labelling rules.



Benefits:

• The case-by-case approach advocated in the Email case allows courts to take into account a variety of factors that a prescriptive legislative approach may preclude.

• It is possible that the courts will maintain a high threshold for unqualified country of origin representations claims. Some consumer groups have argued that this accords more closely with consumer perceptions about labelling than would be the case under other tests of origin.

• Primary producers are likely to favour a strict test for unqualified country of origin claims (although much of their concern is about the ‘produce/product of’ descriptor which is arguably weak under the current regime).



(ii) Option 2 - enact a qualitative origin test

A qualitative test based on either the concept of ‘essential character’ or ‘substantial transformation’ would provide a means to address industry concerns about the high threshold set down in the Bush Friends case and alleviate some of the uncertainty created by the more recent Email ruling.

In practice, there is little to distinguish the two suggested qualitative standards except that ‘substantial transformation’ has received more recognition internationally than ‘essential character’. Notwithstanding this, ‘essential character’ has received judicial recognition in Australia whereas ‘substantial transformation’ is a relatively new concept for our courts. Given that ‘substantial transformation’ will form the basis for the WTO’s international rules of origin and is widely utilised overseas, there is a strong argument for favouring this approach.

The costs and benefits of enacting a qualitative origin test are as follows:



Costs:

• The marketing advantage of some manufacturers and producers currently using origin claims may be undermined by any widening of the circumstances in which unqualified ‘made in’ claims are permitted.

• Higher enforcement costs than more prescriptive options (but potentially lower than maintaining the status quo) and some additional costs to Government for informational initiatives and test cases.

• Industry and consumers would remain uncertain about the meaning and permissible use of unqualified country of origin claims until there exists a sufficient body of case law on what constitutes a ‘substantial transformation’ in particular circumstances (this would expose manufacturers and importers to continuing legal risk).

• Consumer groups may argue that the threshold set by the test does not accord with consumer perceptions about the meaning of unqualified country of origin claims.

• There may be a need to review, and possibly amend, the laws following completion of the WTO framework for Rules of Origin in Customs Law, although this could be some time away.



Benefits:

• The test would allow manufacturers that process substantially in Australia to advertise their products on that basis through simple, unqualified origin claims.

• Labelling practices would not need to change dramatically from the position prior to the Bush Friends and Email cases.

• This option would address industry concerns that the current test does not reflect the nature of modern manufacturing practices, particularly the increasing reliance on global sourcing of inputs.

• This test would align the basis for domestic origin labelling rules with evolving international standards and thereby reduce the impact of inconsistent regimes within Australia, at the border, and in overseas countries.

• Enactment of a more certain test would reduce the cost to industry and Government arising from speculative litigation in relation to origin claims.



(iii) Option 3 - enact a qualitative origin test, underpinned by quantitative requirements



The costs and benefits of enacting a qualitative test underpinned by a 50 per cent domestic production cost threshold, over and above the benefits to be gained by a purely qualitative test, are as follows:



Costs:

• Use of a quantitative target for production costs could increase the paperwork burden on firms at the margin that choose to label their goods as made in Australia.

• The use of a 50 per cent figure for the production costs test may be considered too low by some sections of the community, particularly consumer groups and primary producers. This may undermine consumer confidence in origin claims and reduce the marketing advantage associated with the use of such claims.

• Additional cost to Government in educating consumers and industry about a more complicated origin test. (Note that this would be offset, in part, by lower levels of litigation and lower enforcement costs consequent of a more certain test).

• There may be a need to review, and possibly amend, the laws following finalisation of the WTO Rules of Origin.



Benefits:

• The inclusion of a quantitative target would provide consumers with a guarantee of majority local content (regardless of substantial transformation) before a good would be permitted to carry an unqualified country of origin claim.

• A quantitative target would provide certainty for industry about the permissible use of origin claims and avoid a case-by-case approach of the type advocated by the court in the Email case.

• The test would facilitate the revival of the Australian made logo, administered by industry.

• The test would enable Australian manufacturers and producers to secure a marketing advantage and, possibly, extract a market premium for their products through the use of origin claims.



Choice of production cost test

The breadth of what could be included in calculating ‘production costs’ would influence the number of firms that are entitled to make unqualified origin claims. This is a second order issue when compared to the choice of test itself but would, nonetheless, impact upon potential users of origin claims.

A restrictive methodology would serve to maintain a degree of consumer confidence in the 50 per cent threshold and would reduce opportunities for creative accounting. In addition, the use of a narrow test would be easier to enforce whether by Government or private action. A restrictive methodology may, however, exclude costs which arguably are legitimately incurred in the production of the good. A narrow test would make the calculation of production costs relatively straightforward but would require firms to separate out various costs that might normally be consolidated with other costs. This will impose some compliance costs on firms who wish to use unqualified country of origin claims. It is not clear that these costs would exceed those consequent of a broad methodology in relation to which a firm would have to gather more information and carry out more complex calculations.

A broad methodology would allow industry to include the total contribution to the local economy in the calculation of production costs. Such a test has the potential, however, to devalue unqualified country of origin claims by allowing the vast majority of firms to use those claims. A broader methodology also increases the potential for labelling that does not meet the intent of the scheme being justified through creative accounting practices. These considerations may seriously undermine consumer and industry confidence in the scheme. The enforcement costs of a broad test are likely to be significantly greater than those consequent of a narrow test. This is because enforcement bodies would be required to gather evidence on a much broader range of costs in order to sustain an action in court.



PREFERRED OPTION



(a) Primary test

The preferred approach is to enact a qualitative origin test, underpinned by a narrow, clearly defined 50 per cent domestic production cost threshold. This is a targeted response to the uncertainty created by recent court rulings, industry concerns about the use of an unqualified country of origin claims and consumer demands for accurate origin information. Relying on existing concepts, and utilising quantitative criteria to assess production costs, the approach is designed to encourage compliance rather than foster a reliance on litigation.

Option 1 is rejected as it does not provide a means to meet the regulatory objective of a simple, clear and certain system for unqualified country of origin claims that meets consumer and industry concerns. Option 2 is also rejected as it cannot deliver fully the certainty required by consumers and industry about the permissible use and meaning of unqualified country of origin claims.

The proposed approach is based on generally understood concepts and is used in customs law and international rules of origin. It will also align the domestic origin labelling standards more closely with developing international standards.

The test seeks to establish a voluntary regime which is relevant and accessible for local manufacturers that undertake activities which add substantial value in Australia. It should be noted that, under the proposal, local manufacturers should not need to change their labelling procedures significantly from the position prior to the Bush Friends and Email decisions.

The proposed amendments will differentiate clearly between the ‘produced in’ or ‘product of’ descriptors and ‘made in Australia’ descriptors. The ‘product of’ and ‘produced in’ descriptors, used to denote very high levels of Australian content, are of particular value to primary producers. These will be governed by a self-standing provision to be included in the TPA.

The proposed changes will have no negative impact on those manufacturers that are currently labelling their goods in line with the court interpretation of s52 of the TPA. It should be noted, however, that some goods currently claiming to be ‘Australian made’, with significant levels of local content (greater than 50 per cent), are unlikely to be currently entitled to make unqualified ‘made in’ claims. The proposal allows those firms undertaking economic activity in Australia, incurring significant domestic production costs and substantially transforming inputs in this country, to legitimately claim that their good is ‘made in Australia’.

A tightly worded production costs test is favoured as it will confer more meaning to an origin label for consumers and set a realistic threshold for origin claims. It would also provide clearer direction to industry as to what is a legitimate production cost and what types of activity will not confer origin. It is recognised that a number of firms engaging in economic activity in Australia will fail to meet the 50 per cent requirement of a tightly worded production costs test. This strictness confers, however, integrity on origin claims, thus establishing a labelling regime of meaning and value to consumers and business.

The new scheme will reduce the legal risk and compliance costs associated with claiming Australian origin by establishing a test that is certain in its application and sets realistic thresholds for origin claims. Furthermore, the proposed scheme will go some way to aligning the domestic origin labelling requirements with international regimes and thus reduce the problems experienced by exporters and importers in meeting disparate standards.

(b) Additional legislative requirements

(i) ANZFA requirements

Origin labelling of food products is of particular concern to consumers. Reflecting these concerns, ANZFA is considering whether the general labelling requirements, outlined in the preferred option, are sufficient for food products and, if necessary, make recommendations for additional requirements.

Any additional food-specific rules will be subject to a separate RIS-type process.

(ii) Prescribed logos

The proposed amendments to the TPA will facilitate the development and prescription, under the Act, of industry-developed, funded and managed logo schemes that reflect actual levels of Australian content. Such schemes can be designed to allow consumers to differentiate between goods with very high Australian content and those with lower levels of Australian content where a market demand exists for that additional information. The use of a particular logo would be voluntary thus ensuring that firms only bear the compliance costs where a market advantage might accrue to them.

To prevent the misuse of industry-developed logos, and to instil consumer confidence in the schemes, the Minister responsible for consumer affairs will be empowered to prescribe logo schemes under the TPA.

(iii) Simple processes

An additional regulation-making power will also be enacted under the TPA to allow for the exclusion of certain simple processes from conferring origin. This power will allow the Minister responsible for consumer affairs to deem certain processes not to be ‘substantial transformations’ for the purposes of the TPA.

The regulation-making power will be used to provide consumers and industry with certainty about operations that do not represent ‘substantial transformations’. For example, the power could be used to deem the following processing operations as not conferring origin: diluting imported concentrate into orange juice, blending imported peanuts to make peanut butter or making ham from imported pork.

Prior to regulations being made to exclude processes from the definition of substantial transformation in the TPA, the Minister for Customs and Consumers Affairs will consult with interested parties. Regulations made under this aspect of the legislation will be subject to a separate RIS-type process.

OTHER REQUIREMENTS

(a) Consultation

The following organisations have been consulted in preparing this proposal: Australia New Zealand Food Authority; Treasury; Office of Regulation Review; Department of the Prime Minister and Cabinet; Department of Finance and Administrative Services; Attorney-General’s Department; Department of Foreign Affairs and Trade; Department of Primary Industries and Energy; and the Australian Competition and Consumer Commission.

The detail of the production value test, particularly in respect to regulations made under the legislation, will be subject to consultation with interested parties prior to its enactment.

(b) Administrative simplicity, economy and flexibility

The preferred option provides a coherent framework for the future regulation of origin labelling. The new regime will establish a test which is already known to industry and will, therefore, avoid excessive compliance costs. The clearer test for ‘made in’ claims will also provide an assurance to consumers of a significant level of Australian content and reduce the reliance on formal litigation procedures to determine the legitimacy of origin claims.

(c) Explanatory material

A broad-based education and awareness campaign will be undertaken to inform industry and consumers of the new origin labelling requirements. The campaign will commence with the passage of legislation and will draw on a range of media. Industry and trade journals will be utilised to provide targeted advice to specific industry sectors. In addition, the ACCC will provide explanatory material on the changes to the TPA.

(d) Implementation and Review

Implementation of the preferred option will occur through amendments to the TPA. These amendments, under Part V of the Act, will be the responsibility of the Minister for Customs and Consumer Affairs. The provisions will be enforced by the ACCC. Implementation of the test will be accompanied by an awareness campaign targeting consumers and industry.

When the new provisions are enacted, the Australia New Zealand Food Standards Council (ANZFSC) will determine the need, if any, for additional regulations for food. Given that the Food Code is essentially state-based legislation, any additional rules will be the responsibility of relevant State and Territory Ministers, in consultation with the Federal Minister for Health and Family Services. Under the existing process for proposals to the ANZFSC, a RIS-type process will be followed for any proposed additional rules in relation to food.

Following enactment of the new framework, the Commonwealth will raise with the States the desirability of aligning State and Territory Fair Trading Acts with the new TPA framework to ensure universal coverage.

A review of the legislative framework will be undertaken after five years or upon finalisation of the WTO’s international rules of origin. In addition, to ensure accountability and transparency in regulation, the Department of Industry, Science and Tourism will monitor the use of the provisions and report, if necessary.

NOTES ON CLAUSES



Clause 1 Short Title



This provides the Act’s short title.



Clause 2 Commencement



These amendments are to commence when the Bill is given Royal Assent.



Clause 3 Schedule(s)



This provides for the effect of the Schedule(s) in amending the Act to which they relate.

SCHEDULE 1 - AMENDMENTS OF THE TRADE PRACTICES ACT 1974 RELATING TO COUNTRY OF ORIGIN REPRESENTATIONS



Item 1 After Division 1 of Part V



This item proposes insertion of a new Division 1AA - Country of Origin Representations, to come after Division 1 of Part V.

Division 1AA - Country of origin representations

Subdivision A - General

New Section 65AA - Overview



This section provides a brief descriptive overview of the purpose of the new Division and summarises the relation between the new provisions and the existing s52 and s53(eb).



New Section 65AB - General test for country of origin representations



This new provision establishes a defence against action under s52 or s53(eb) of the Trade Practices Act 1974 in matters relating to country of origin representations. It is a defence under this provision if the goods carrying the representation comply with a substantial transformation test (as set out in section 65AE) and 50% or more of the cost of producing or manufacturing the good (as determined according to the regime established in Subdivision B of Part 1 of this Bill) occurred in the country of which a representation of origin is being made.



The defence established in this provision is not accessible to corporations employing representations of ‘product of / process of’ (or any grammatical variation thereof) or a logo that is prescribed under section 65AD in this Bill.



A representation of origin includes, but is not limited to, oral or pictorial representations (and any combination thereof) affixed to a good or promotional material associated with a good. It does not include goods where the representation is an integral element of the good (ie. a T-Shirt with a “made in Australia” label sewn into it would be carrying a country of origin representation while a T-shirt with the word “Australia” emblazoned on it as part of the design would not be making a country of origin representation.)



The defence established by this provision applies only to country of origin representations and is not accessible to corporations seeking a defence from action under s52 in relation to a claim of a particular region of origin (ie. made in Tasmania / made in California). Such representations will continue to be governed by the general provision (section 52).



New Section 65AC - Test for representations that goods are product of / produce of a country



This new provision establishes a defence against action under section 52 or section 53(eb) of the Trade Practices Act 1974 for representations of ‘product of / produce of’. It is a defence under this provision from action under s52 or s53(eb) where a good carries a product of / produce of’ representation, if all of the significant ingredients or components of the good come from the country of the representation, and virtually all of the production / manufacturing processes associated with the good occur within the country of the representation.



The provision includes all grammatical variations of ‘product of / produce of’ to avoid the undermining of the premium claim through a technical variation of the wording.



The nature of the good is relevant to what is a ‘significant imported component’. Hence, if an ingredient or component is integral to the nature of the good, that ingredient has to be from the country of the origin representation to allow it to carry a ‘product of / produce of’ label. The question of ‘significant imported component’ does not, necessarily, go to the percentage content of ingredient or component, as, on occasion, small percentages of an ingredient can be critical in establishing the nature or function of the good.



For example, for an apple and cranberry juice to be able to carry a “produce of Australia” label, both the apple and the cranberry juice would have to be sourced from Australia. This is despite the cranberry juice being, on average, about 5 % of the total volume of the product. If, however, a local source can be found for the apple juice and the cranberry juice then it would be legitimate to employ a ‘product of Australia’ label, even if, say, a preservative was added to the juice and the preservative was imported. This is because the preservative does not go to the nature of the good.



New Section 65AD - Test for representations made by means of prescribed logo



This new provision establishes a defence against action under section 52 or section 53(eb) of the Trade Practices Act 1974 for representations of origin contained within a logo prescribed under the new subsection 65AD(2). The provision provides a mechanism for the Government to encourage voluntary industry promotional campaigns through legislative protection for premium marks. Reflecting the intended premium nature of the prescribed logo provision, requirements for prescription are stricter than the general test set out in section 65AB.



In addition to meeting a substantial transformation test, the Minister may prescribe an industry logo, being either words or pictures or a combination thereof, the use of which is a representation of country of origin with a level of cost of production occurring in that country as prescribed. Logos will only be prescribed where the percentage of the cost (as determined by the process set out in Division 2 of Part 1 of this Bill) is 51 per cent or greater.



To ensure the integrity of industry developed marketing schemes utilising a prescribed logo, the Government will place an administrative requirement on those seeking the prescription of a particular logo, that where a logo is employed the corporation must be able to demonstrate its entitlement to it. This reversal in the onus of proof will only exist for prescribed logos, and does not require a legislative provision to be given effect.



New Section 65AE - Meaning of substantial transformation of goods



This new provision provides a definition for ‘substantially transformed’, the first element of the general test for country of origin representations set out in section 65AB. The test, in broader form, is that a good must undergo a change, in the country indicated in the representation to how it looks, operates or to its purpose, for a substantial transformation to have occurred.



Examples of substantial transformation include the growing of wheat from seed, the sewing of cloth into a shirt, or the moulding of sheet metal into a car panel.



Subsection 65AE(2) provides a regulation making power that can preclude from the definition of substantial transformation certain manufacturing / production processes. Regulations made under this provision are intended to clarify the application of the ‘substantial transformation’ test. Regulations may be made in relation to particular goods or classes of goods.



The Minister for Customs and Consumer Affairs will consult with interested parties before making regulations under subsection 65AE(2).



New Section 65AF - Method of working out costs of production or manufacture



This new provision provides for the method of calculating the costs of production or manufacture, by reference to the provisions contained in Subdivision B - Cost of production or manufacture of goods.

Subdivision B - Cost of production or manufacture of goods

New Section 65AG - Definitions



This new provision provides definitions for ‘inner container’ and ‘materials’, necessary for the operation of Subdivision B.



An inner container is limited to the retail packaging for sale, and does not include packaging solely related to the transportation of the good from the manufacturer / wholesaler to the retail outlet. Hence, the can in tinned tomatoes is included within the definition of ‘inner container’ but the cardboard box holding the tins is not.



‘Materials’ are defined to include unmanufactured raw products, manufactured inputs and the inner containers in which they come. Hence, raw wheat is a material for the purposes of the Subdivision, as is the sack in which it is transported. To a sandwich producer, the bread is a material.



New Section 65AH - Cost of producing or manufacturing goods



This new provision defines the total cost of producing or manufacturing a good as the sum of the expenditure of material (determined under section 65AJ), the sum of expenditure on labour (determined under section 65AK), and the sum of expenditure on overheads (section 65AL).



For example, a good that contains material costs of $45, labour costs of $25 and attributable overheads of $15 would have a production cost, under this section, of $80.



New Section 65AJ - Expenditure on materials



This new section identifies those materials that can be counted as legitimate production costs under section 65AH. Expenditure on materials can be counted when a cost is incurred in the purchase of materials used in the production or manufacture of the good bearing the country of origin representation.



All material costs directly associated with the production or manufacturer of the good bearing the country of origin representation are included, except where explicitly disallowed by virtue of a regulation made under section 65AJ(2)(a).



The provision also includes a provision which will allow the Minister for Customs and Consumer Affairs to prescribe in regulations a manner for determining the cost of a material. Such a regulation making power can address uncertainty as to how costs are attributed throughout the production chain.



New Section 65AK - Expenditure on labour



This new provision is a duplicate provision to section 65AJ in relation to labour costs that can be counted as legitimate production costs under section 65AH. As for section 65AJ, section 65AK includes a provision which will allow the Minister for Customs and Consumer Affairs to prescribe in regulations a manner for determining the cost of labour. Such a regulation making power can address uncertainty as to how costs are attributed throughout the production chain.



Section 65AK differs from section 65AJ by virtue of paragraph 65AK(1)(c), which limits labour costs only to those that can be reasonably allocated to the production or manufacture of the goods. It is more difficult to allocate labour costs than material costs in a good, and this additional provision is intended to prevent the padding out of the labour component by the inclusion of costs peripheral to the manufacturing or production process.



New Section 65AL - Expenditure on overheads



This new provision is a duplicate provision to 65AK in relation to those overhead costs that can be counted as legitimate production costs under section 65AH. The structure and operation of the provision is the same as that for section 65AK.



New Section 65AM - Regulations may prescribe rules for determining the local percentage costs of production or manufacture



This new provision allows for the prescribing of general rules for attributing costs of production to the country indicated by the country of origin representation. Such regulations would be used to clarify the working of the production cost test and can address uncertainty as to how costs are attributed throughout the production chain.



For example, the regulation making power could be used to set out rules for allocating costs attributable to the country of the origin representation and elsewhere. Such a regulation would assist the identification of domestic production costs of complex inputs.



Use of this provision will be on an equal national treatment basis, namely that the same rules will be used to allocate cost of production to Australia business as are used to allocate costs of production to overseas businesses. Regulations made under this provision will not, by virtue of subsection 65AN(2), be able to discriminate between countries or classes of countries.

Subdivision C - Evidentiary matters

New Section 65AN - Proceedings arising under section 52 and paragraph 53(eb)



This new provision is an evidential provision which applies when the litigant seeks to rely on the defences provided by this Division against allegations of breaches of s52 and s53(eb). The regulation confirms that there is no reversal of the usual onus of proof consequent of the new Division.



Item 2 Subsection 5(1)



The existing Section 5 extends the application of Parts IV, IVA and V to conduct engaged in outside Australia provided that the conduct is engaged in by an Australian citizen, a person ordinarily resident in Australia, an Australian incorporated entity or a body corporate carrying on business in Australia. This extension only applies to conduct engaged in outside of Australia which may reduce competition or mislead or deceive consumers in Australia.



Item 2 ensures that this extra-territorial element of the Act is not applied to the new Division, as to do so may subject Australian manufacturers to both Trade Practices Act 1974 requirements and the labelling requirements of the country in which they are selling their goods. By explicitly excluding any extra-territorial reach, the new provision is limited to goods sold or made available for retail sale in Australia.



Item 3 Subsection 6(3)



While the Trade Practices Act 1974 is primarily based on the corporations power of the Constitution (s51(xx)), subsection 6(3) extends the Act, where possible, by reference to the postal, telegraphic and telephonic power (s51(v)). Item 3 inserts a reference to the new Division 1AA within Subsection 6(3).



Item 4 Subsection 6(4)



Just as subsection 6(4) extends the application of the Trade Practices Act 1974 utilising the postal, telegraphic and telephonic power in the Constitution, subsection 6(4) extends the application (to the extent this is possible) of the consumer protection provisions (Division 1 of Part V - with the exception of sections 53A, 55 and 61) to individuals through the territories power of the Constitution (s122). Subsection 6(4) also extends, to the extent the Constitution allows, the consumer protection provisions (with the exceptions noted above) to professional persons by virtue of the trade and commerce power of the Constitution (s51(i)). Item 4 inserts a reference to the new Division 1AA within Subsection 6(4).



Item 5 At the end of section 52



Item 5 inserts a note at the end of s52 notifying the reader that with respect to the general prohibition on misleading and deceptive conduct, rules as to its application as to country of origin representations are set out in Division 1AA. This drafting note improves the readability of the Act by signposting the location of related provisions which do not immediately follow each other.



Item 6 At the end of section 53



As for Item 5, Item 6 inserts a note at the end of s53 notifying the reader that with respect to the specific prohibitions on conduct contained in the provision, rules as to the application of s53(eb) as to country of origin representations are set out in Division 1AA.



Item 7 Paragraph 75AS(b)



Item 7 inserts a reference to the new Division 1AA within paragraph 75AS(b) to ensure that in relation to actions under Part VA (liability for defective goods), any reference to them in the new Division 1AA includes reference to Part VA. This amendment ensures consistency with the other Divisions of Part V on this matter.



Item 8 Subsection 86(2)



Section 86 confers jurisdiction on State and Territory courts, with respect to civil matters under Part IVA and Divisions 1 and 1A instituted under the Act by parties other than the Minister and the Australian Competition and Consumer Commission. The Jurisdiction of the Courts (Cross Vesting) Act 1987, however, confers a broader jurisdiction, limiting matters to the Federal Court only in respect to those identified in section 4(4) of the Cross Vesting Act. Therefore, with the exception of matters brought under sections 46, 155A and 155B (identified in section 4(4)), State and Territory Supreme Courts have jurisdiction in all matters brought under the Act (Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) ATPR 41-496). Item 8 inserts a reference to the new Division 1AA in Subsection 86(2).



Item 9 Paragraph 86A(1)(b)



Section 86A permits the transfer of matters under Divisions 1 and 1A of Part to an appropriate State or Territory court. It is a companion provision to section 86 (as discussed above). Item 9 inserts a reference to the new Division 1AA in paragraph 86(2).



Item 10 Paragraph 86A(4)(b)



Subsection 86A(4) enables the Federal Court to direct a State or Territory court hearing a matter in relation to Part IVA or Division 1 or 1A of Part V to transfer that matter to the Federal Court. Item 10 inserts a reference to the new Division 1AA in paragraph 86A(A)(b).



Item 11 Paragraph 86A(5)(b)



Subsection 86A(5) allows matters in relation to Part IVA or Divisions 1 or 1A of Part V brought before a State or Territory court, other than the Supreme Court, to be transferred to a court of another State or Territory (other than the Supreme Court). Item 11 inserts a reference to the new Division 1AA in paragraph 86A(5)(b).



Item 12 Paragraph 86B(1)(b)



Subsection 86B(1) allows matters brought in the Federal Court relating to Part IVA or Divisions 1 or 1A of Part V to be transferred to the Family Court. Item 12 inserts a reference to the new Division 1AA in paragraph 86B(1)(b).

SCHEDULE 1 - MISCELLANEOUS AMENDMENTS OF THE TRADE PRACTICES ACT 1974



Item 1 Subsection 7(3)



This item substitutes the existing subsection 7(3) with a new subsection that differs from its predecessor in two ways. The first, and most substantive, difference is to include consideration of small business experience in the appointment of Commissioners to the Australian Competition and Consumer Commission. The second difference is that before the Governor-General appoints a Commissioner, the Minister must be satisfied that factors outlined in the subsection (including the new factor of consideration of small business experience) have been met. The previous construction of this subsection required the Governor-General to be satisfied the conditions had been met.



Item 2 Subsection 34(1)



Item 2 substitutes “Minister” for “Attorney-General” in respect to who may appoint a Deputy President or Acting Deputy President to the position of Acting President of the Australian Competition Tribunal in the event that a vacancy arises.



Item 3 Subsection 87(1B)



This new item would insert in subsection 87(1B) of the Trade Practices Act 1974, a reference to Part IV (Restrictive trade practices), thereby allowing the Australian Competition and Consumer Commission to take representative actions on matters of alleged contravention of the Part.



Item 4 Subsection 163(3)



Item 4 repeals subsection 163(3) of Part X of the Trade Practices Act 1974. The subsection deals with offences against Part X - International Liner Cargo Shipping. Part X was repealed by the Trade Practices (International Liner cargo Shipping) Amendment Act 1989 and replaced with a new Part X that contained no offences. Therefore, subsection 163(3) has been rendered nugatory.



Item 5 Application



Item 5 extends the right of representative actions by the Australian Competition and Consumer Commission, granted under Item 3, to include conduct that is in contravention of Part IV committed prior to the enactment of that item.