A Tariff Concession Order (TCO) allows an
importer to import goods free of duty where no substitutable goods
are produced in Australia.
The objective of the TCO system is to prevent embedded costs, in
the form of customs duty, being passed on to Australian industry
and consumers where there is no relevant local industry to
In broad terms, an applicant can apply for a TCO if it imports
goods into Australia and there are no substitutable goods produced
The TCO application is published so that local industries are
given an opportunity to object to the TCO. Customs then makes a
decision to grant or refuse the TCO.
What happened in Kenso Marketing v CEO of Customs?
In Kenso Marketing, Customs refused Kenso's application for
a TCO for certain herbicides it imported.
Nufarm opposed the application on the basis that Nufarm produced
a substitutable product, Roundup, in Australia from imported
At first instance, the AAT concluded that the imported
herbicides were substitutable for Roundup. This was not disputed by
The relevant issue on appeal to the Full Federal Court was
whether Nufarm's Roundup was "produced in
The test in the Customs Act for goods to be
"produced in Australia" requires that:
the goods are wholly or partly manufactured in Australia;
not less than 25% of the factory or works costs of the goods is
represented by Australian labour, materials and factory overhead
The Customs Act states that goods will be wholly or
partly manufactured in Australia if at least one substantial
process in the manufacture is carried out in Australia.
The Full Federal Court dismissed Kenso's appeal on the basis
that Nufarm's processing in Australia changed the chemical
composition of the imported acid base product and turned it into a
commercially saleable herbicide - Roundup.
Because glyphosate acid cannot be used as a herbicide in its
basic form, the Full Federal Court found that Nufarm's
processing in Australia must necessarily be considered a
substantial process of manufacture.
With respect to the factory or work costs requirement, the Court
noted that the Customs Act does not define "factory
and work costs of the goods" and so the words have their
ordinary and common sense meaning.
The Court held that "costs of the goods" means all
costs involved in the transformation of material into a finished
product, including packing and labelling costs. The Court was
satisfied that over 25% of the costs were incurred in Australia,
according to the costings provided by Nufarm.
How does the decision affect importers and local
The decision highlights the value of TCO applications for
importers and the need for local industry to be vigilant in
reviewing relevant TCO applications.
The meaning of the phrase "substitutable goods produced in
Australia" continues to be an area of uncertainty and the
source of disputes. Similarly, the meaning of "substantial
process of manufacture" needs to be analysed on a case by case
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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