Levies on imported products Jenny Margetts p2p business solutions Project Number: AH05019
AH05019 This report is published by Horticulture Australia Ltd to pass on information concerning horticultural research and development undertaken for Australian Horticulture. The research contained in this report was funded by Horticulture Australia Ltd. All expressions of opinion are not to be regarded as expressing the opinion of Horticulture Australia Ltd or any authority of the Australian Government. The Company and the Australian Government accept no responsibility for any of the opinions or the accuracy of the information contained in this report and readers should rely upon their own enquiries in making decisions concerning their own interests. ISBN 0 7341 1280 7 Published and distributed by: Horticulture Australia Ltd Level 1 50 Carrington Street Sydney NSW 2000 T: 02) 8295 2300 F: (02) 8295 2399 E: info@horticulture.com.au Copyright 2006
CONFIDENTIAL HAL Project AH05019 Levies on imported product Prepared by: Jenny Margetts p2p business solutions 31 Kinnaird Street Ashgrove QLD 4060 M: 0418 215276 T: 07 3366 2710 E: jmargetts@bigpond.com May 2006
Project details Project Name: Levies on Imported Product Project Number: AH05019 Date: May 2006 Project Purpose: The purpose of this project is to investigate the likelihood and, if possible, the pathway/s to having existing statutory levies on fresh and processed horticultural produce applied to imported horticultural produce. Project Leader: Jenny Margetts p2p business solutions 31 Kinnaird Street Ashgrove QLD 4060 M: 0418 215 276 T: 07 3366 2710 E: jmargetts@bigpond.com Any recommendations contained in this publication do not necessarily represent current HAL Limited policy. No person should act on the basis of the contents of this publication, whether as to matters of fact or opinion or other content, without first obtaining specific, independent professional advice in respect of the matters set out in this publication. Reliance and Disclaimer This report has been prepared for the exclusive use of Across Industry Committee of Horticulture Australia Limited for the purposes stated in the report. The report is provided in good faith and reflects the abilities and experience of the consultant/s involved in its preparation. In preparing the report, p2p business solutions has gathered data and information from various sources which it believes to be reliable and the best information available at the time the project was undertaken. p2p business solutions has used its best endeavours to ensure accuracy of the data, information and research materials, however it does not warrant the accuracy of any of the data or information provided by third parties or of research materials not created by p2p business solutions. p2p business solutions accepts no responsibility for any error contained in or any omission from the report arising from the data or information provided by third parties or from the research materials not created by p2p business solutions. p2p business solutions accepts no responsibility whatsoever to any third party in respect of the whole or part of this report. ii
Media summary The purpose of this report is to investigate the possibility of having existing statutory levies on fresh and processed horticultural produce applied to imported horticultural produce. In response to growing concern that imports of fresh and processed horticultural food products are increasing and that these imports are gaining advantage from the marketing efforts of levied Australian producers, Horticulture Australia Limited (HAL) through the HAL Industry Management Committee wished to investigate the issue. It is perceived that there may be mutual benefits for both the Australian and importing industries in creating a larger pool of industry funds to promote products. The research undertaken in this project will assist the horticultural industry in assessing its options and the related processes in regard to implementing charges on imported products. The report considers the current legislative and regulatory framework for levy collection and the application of levies and charges in other industry sectors and internationally. This report has also investigated the mechanisms by which charges (levies) could be applied to imported product and discusses areas that should be considered by industry should these options be pursued. The report finds that it is feasible for imported charges (levies) to be applied that are WTO consistent. The horticultural industry sectors that could benefit most significantly in the current trading environment are the avocado, dried vine fruit and macadamia industries, if certain conditions related to like product apply for the later two industries. Given that levels of imports are likely to rise in the coming years, more horticultural industry sectors may benefit from the application of an import charge. However, based on current import levels, the receipts from an import charge equivalent to existing domestic levies for promotional purposes would be quite low and in most cases the cost of imposing such a charge would outweigh the benefit. In summary, the horticultural industry, collectively, needs to: o o o consider the issues, benefits /disadvantages of pursuing import charges (levies) on horticultural produce if appropriate, seek policy support from Government and changes to the Primary Industries (Customs) Charges Act 1999 and associated regulation to enable the collection of such import charges (levies), and Individual horticulture sectors, wanting to pursue import charges for their commodity, would then need to apply for a change to their levy / charges adhering to the Government s Levy Principle and Guidelines. iii
Table of Contents Executive Summary... 1 Current situation with levies... 4 General...4 Horticulture...4 Applying new levies or changing existing levies...5 Assessment of Levy Proposals...7 Australian levies and charges on imported product... 9 The Dairy Adjustment Levy...9 The Sugar Levy and Charge... 10 The Forest and Wood Products Levy and Export Charge... 11 Other proposed import levies - Pork... 13 International checkoffs and levies... 14 USA...14 Canada... 16 New Zealand... 16 Legislative and regulatory framework... 18 Imposition... 18 The Primary Industries (Excise) Levies Act 1999... 18 The Primary Industries (Customs) Charges Act 1999... 18 Collection... 19 Disbursement... 19 Limitations of current legislation... 20 WTO issues... 21 Other considerations... 25 Financial impact of import levies /charges for promotion... 28 Conclusions... 29 Appendix 1: Horticultural product levies Appendix 2: Levy Principles and Guidelines General Principles Applying to Proposals for New and Changed Primary Industry Levies Guidelines Appendix 3: Legislation Appendix 4: Potential value of imported charges on imported product Useful websites iv
Executive Summary The purpose of this report is to investigate the possibility of having existing statutory levies on fresh and processed horticultural produce applied to imported horticultural produce. In response to growing concern that imports of fresh and processed horticultural food products are increasing and that these imports are gaining advantage from the marketing efforts of levied Australian producers, HAL through the HAL Industry Management Committee wished to investigate the issue. It is perceived that there may be mutual benefits for both the Australian and importing industries in creating a larger pool of industry funds to promote products. The research undertaken in this report will assist the horticultural industry in assessing its options and the related processes in regard to implementing charges on imported products. The report considers the current legislative and regulatory framework for levy collection and the application of levies and charges in other industry sectors and internationally. This report has also investigated the mechanisms by which charges (levies) could be applied to imported product and discusses areas that should be considered by industry should these options be pursued. Currently there are in excess of 60 different levies and charges on a range of domestically produced rural commodities and products including horticulture, dairy, grains, livestock, wine /grapes, sugar, wood and forestry products. These levies can provide support for research and development, promotion and marketing, residue testing, plant and animal health programs in their specific commodities. The effective use of primary industry levies and charges can greatly assist producers. By pooling their effort and resources, industries can work together to find solutions to market failure and address priority issues to the benefit of individuals and industry as a whole. Although the majority of levies and charges apply to domestically produced commodities, there are three exceptions where levies / charges apply to both domestic produced and imported product. These are: o The Dairy Adjustment Levy o The Sugar Levy and Charge o The Forest and Wood Products Levy and Export Charge The Dairy Adjustment Levy and the Sugar Levy and Charge have been specifically implemented to repay assistance packages for industry. The Forest and Wood Products Levy and Export Charge is imposed on logs produced and delivered to a mill for processing in Australia, logs produced in and exported from Australia as unprocessed wood, and on logs and certain classes of primary processed forest products imported into Australia. This later charge on imported product could be seen as a precedent for applying import charges (levies) on horticultural product. There are also numerous other examples of levies (or checkoffs) being applied to agricultural products in the international market that set a precedent for the application of charges (levies) on horticultural product imported into the Australian market. For example, in the USA, industry specific checkoff programs levy both domestic producers and importers for funding marketing and research programs. 1
Checkoff is an industry-funded generic marketing and research program designed to increase domestic and/or international demand for an agricultural commodity. This can be done through promotion, research and new product development, and a variety of other marketing tools. Although all checkoff programs do have a similar goal and purpose to increase commodity demand and long-term economic growth for their respective industries, they all accomplish this in different ways that are best suited for the market structure of each commodity. Similarly the Canadians also apply a beef levy to domestic and imported product. Although New Zealand does not collect levies on imported product, they do have provision within the relevant legislation to impose such a levy, under certain conditions, if requested by industry. If the Australian horticultural industry wishes to pursue the opportunity to impose levies on imported product then in the first instance there is a policy question which needs to be addressed as to whether this is in Australia s national interest. This would need to be addressed with the Department of Agriculture, Fisheries and Forestry (DAFF) and possibly Treasury. There would also be a need for the change to the Primary Industries (Customs) Charges Act 1999, and associated regulation to enable charges to be imposed. Amendment to this legislation is primarily the responsibility of DAFF in consultation with the Attorney-General s Department. The feasibility and process related to achieving this outcome would need to be pursued with Government, but it is expected that it would involved the preparation of a Regulatory Impact Statement. Any changes to legislation would need to be consistent with Australia s WTO obligations. Articles I, II, III and VIII of the General Agreement on Tariffs and Trade (1994), the Agreement on Agriculture, the Agreement on Trade Related Investment Measures and the Agreement on Importing Licensing Procedures would need to be considered in this process. The imposition of an import charge is not in contravention of WTO rules if certain conditions are met, such as ensuring the import charge is equivalent to the domestic levy applied to like, directly competitive or substitutable products. It is a requirement also that any import charges (levies) be applied to imports without discrimination and any advantage be accorded to all importers of like product. It is also a requirement that charges applied to imported product should not afford protection to imported product; that charges and any benefit resulting from the charge should not result in less favourable treatment than the domestic product. Individual industries within the horticultural sector need to consider a range of issues related to the imposition of an import charge (levy) in the context of their own industry sector needs. These include: o who should pay charges on imported product o who should collect the charges o should a charge (levy) be voluntary or compulsory o the cost of imposing the charge (levy) vs the benefit gained o impacts on price / demand for product o impact on exporters o access by non-australian producers to industry funded R&D o generic vs Australian grown promotion vs branded product o administrative issues around payment and collection of the levy 2
Although it is theoretically possible to impose an import charge (levy) for both R&D and promotion, there is an overriding concern in industry about allowing non-australian producers access to industry funded R&D. Under the existing levy system, there is a requirement that all levy payers have a say in how levies are spent and can assess the benefits of levy funded R&D and other activities equally. Overwhelmingly, peak industry bodies approached about this subject indicated that their growers believed that the R&D undertaken with domestic levy funds provide their Australian industry with a competitive advantage in the marketplace. If appropriate policy and legislative changes were achieved each horticultural industry sectors that wished to pursue an import charge would still be required to meet the obligations in regard to the demonstration of market failure and net industry benefit; and the requirement that the majority of levy payers, expected to be growers and importers, be supportive of the proposal. The horticultural industry sectors that could benefit most significantly in the current trading environment are the avocado, dried vine fruit and macadamia industries, if certain conditions related to like product apply for the later two industries. Given that levels of imports are likely to rise in the coming years, more horticultural industry sectors may benefit from the application of an import charge. However, based on current import levels, the receipts from an import charge equivalent to existing domestic levies for promotional purposes would be quite low and in most cases the cost of imposing such a charge would outweigh the benefit. In summary, the horticultural industry, collectively, needs to: o o o consider the issues, benefits /disadvantages of pursuing import charges (levies) on horticultural produce if appropriate, seek policy support from Government and changes to the Primary Industries (Customs) Charges Act 1999 and associated regulation to enable the collection of such import charges (levies), and Individual horticulture sectors, wanting to pursue import charges for their commodity, would then need to apply for a change to their levy / charges adhering to the Government s Levy Principle and Guidelines. 3
Current situation with levies General Currently there are in excess of 60 different levies and charges on a range of domestically produced rural commodities and products including horticulture, dairy, grains, livestock, wine / grapes, sugar, wood and forestry products. These levies and charges can provide support for research and development, promotion and marketing, residue testing, plant and animal health programs in their specific commodities. The effective use of primary industry levies and charges can greatly assist producers. By pooling their effort and resources, industries can work together to find solutions to priority issues to the benefit of individuals and industry as a whole. The Australian Government recognises the importance of this co-ordination. The Department of Agriculture, Fisheries and Forestry (DAFF) Levies Revenue Service (LRS) is charged with the effective delivery of levies collection and disbursement of levies imposed by Commonwealth legislation. The Primary Industries Levies and Charges Collection Act 1991 provides the legal framework for collecting levies. Government legislation imposes levies and charges and specifies rates, liability, and collection and compliance requirements. LRS usually collects levies at the first point of sale or further along the process chain, depending on an industry's preference or circumstances. LRS pays all levies and charges into the Consolidated Revenue Fund, without deduction, before disbursing them. LRS operates on a cost-recovery basis, meaning that recipient organisations meet LRS collection and compliance costs. In some cases, such as with horticultural product, the Australian Government matches certain research and development expenditure up to the limit of levy receipts. This is also subject to a further limit in any financial year of 0.5 per cent of the gross value of production. Horticulture There are currently levies applied to 25 domestically produced horticultural products (including nursery products; honey; dried fruits and dried vine fruits). Levies may be collected on horticultural products sold domestically and exported and can be applied to the following services, if the industry has been successful in seeking industry endorsement and government approval: o Research and Development o Marketing o Residue testing through the National Residue Scheme (NRS) o Plant Health Australia membership(pha) All levied horticultural products have a research and development levy. However, only 14 industries / products (excluding honey) have a marketing (promotion) levy. These include: o apples and pears 4
o avocados o chestnuts o oranges o custard apples o dried vine fruits o lychee (fresh) o macadamia o mango o mushroom o papaya (fresh) o persimmon o stone fruit (not including cherries) o table grapes A listing of horticultural products (excluding honey) showing the applicable levies for each commodity, including how these rates are split between marketing, R&D, National Residue Scheme and Plant Health Australia is provided in Appendix 1. In 2004-2005, total collections for horticulture were approximately $26.5 million with the cost of collections being $983,000 (3.7% of total collections). (source: Levies Revenue Service: Report to Stakeholders 2004-05) In the Horticultural Marketing and Research Development Services Act 2000, the Act under which horticultural levies are disbursed, a company is to be declared as the industry services body for the Australian horticultural industry. This industry services body, by separate declaration, is Horticulture Australia Limited (HAL). HAL receives disbursed levies (and matching funding) from the Commonwealth. It is required to deliver marketing and R&D services for the horticultural industry in accordance with a deed of agreement which imposes obligations and outline the body s accountability to the Commonwealth. Applying new levies or changing existing levies The Government's role, through the Department of Agriculture, Fisheries and Forestry, is to liaise with industries that want a levy system or want to change an existing levy system and to implement an effective collection system at minimum cost. The Government will facilitate industry wide levy funding of research, promotion and other industry programs where: o o the nature and dispersal of the program benefits are such that a private investor would not profit from supplying them; and where levies represent a source of funds with low enforcement and collection costs, largely because industry participants recognise the benefits of cooperative behaviour. Usually an industry body identifies the need for a levy or charge in response to a problem or opportunity requiring collective industry funding. The organisation puts a levy proposal to its members for discussion and consults with the Department on the proposal. 5
Levy Principles and Guidelines The Australian Government developed Levy Principles and Levy Guidelines to help industry bodies prepare a sound case for a levy or charge (see Appendix 2: Levy Principles and Guidelines). The 12 Levy Principles must be met when an industry or group of levy payers proposes a new, or a change to an existing Statutory Levy. The Government has also developed Levy Guidelines to complement the Levy Principles and assist rural industries in the consultation processes that should be followed before the Government formally considers the levy proposal brought forward by an industry. If members support the proposal, the industry organisation submits a proposal to establish or change a levy to the relevant Research and Development organisation, and to the Parliamentary Secretary for Agriculture, Fisheries and Forestry. The Parliamentary Secretary assesses the proposal against the Levy Principles and Levy Guidelines and recommends to the Prime Minister and Treasurer whether or not to proceed with it. If the proposal is approved, the Government drafts legislation to implement the levy. New Levies The Levy Principles require industry organisations to consult all sectors of the industry and gain their support for a new levy or charge, before putting the proposal to Government. The Levy Guidelines specify consultation and voting procedures. The industry body is responsible for consulting as many potential levy payers as possible and for ensuring the proposed collection system is efficient and keeps 'red tape' to a minimum. In proposing a new levy or charge to the Government, industry organisations must: o show how it will benefit payers and the industry in general (including the market failure that necessitates a new levy); o estimate the amount that it will raise; o provide a clear plan on how the money will be spent; and o recommend how the levy or charge is to be calculated, for example, by product weight or value. The industry must also consult the organisation that will manage the levy expenditure. For the horticulture industries, this organisation is Horticulture Australia Limited (HAL). The Government can also impose, in the public interest, a new levy or charge on an industry, and review it after a specified period. Changes to Existing Levies The industry must establish the case for change. If a levy increase is involved, the industry needs to estimate the extra amount that will be raised and how it will be spent and benefit levy payers. Before any proposed change will be considered the Government must be satisfied that the levy principles and guidelines have been adhered to. The Government can also change a levy or charge in the public interest. (Source: http://www.daff.gov.au/content/levies/about_levies.cfm) 6
Assessment of Levy Proposals The Government, in assessing specific levy proposals considers three key criteria: o whether the industry benefits are likely to exceed the levy costs - including collection and other administrative costs; o whether there is market failure, and o whether the levy approach will facilitate operation of the program and provide the lowest cost means of finance in the particular case. Industry Benefits It is important that in circumstances where levies are considered that program benefits will accrue as a result of group actions. If it is apparent that an individual or a group of individuals could profitably organise and finance the program, there is no case for government provision of levy funding. Market Failure Market failure in promotion or research is where individuals free ride or gain access to benefits of research or promotion without having to contribute. This free rider effect and market failure occurs because the benefits of promotion or research are non-rival and lacking appropriability. Non-rivalry is where the benefits of promotion or research are likely to be maximised if there is no attempt to restrict access to the benefits and where use by one party does not generally alter the ability to use it. Lack of appropriability is the inability to prevent others from using the benefit. This lack of appropriability discourages individuals or business from producing a benefit, such as those derived from generic promotion, no matter how much others value it, as the benefits can not be made appropriable. These characteristics together form the basis for justification for government intervention in industry research (and promotion) that are a public good and would not otherwise be delivered by competitive market forces. An example of the free-rider effect is where voluntary contributions may be used to fund a generic promotion campaign for a particular horticultural commodity. Generic promotions campaigns have been shown to be successful in growing demand and new markets and consequentially firming or strengthening prices, across range of horticultural commodities. All producers of the commodity, not only those contributing, gain benefits from the campaign. It could also be argued that importers of products that attract a domestic marketing levy in Australia, which is used for generic promotion of the commodity, also benefit directly or indirectly, without contribution. In the case of research, where the results are non-rival, there are higher social benefits if the results are made available to all. Hence overcoming market failure factors is an important to foster the better research outcomes and industry innovation. Not all benefits from promotion or research results are public goods. For example, promotion of product brands allows a producer to appropriate much of the benefit of 7
product design, quality control and advertising. Also private investors in research can appropriate some of the benefits by means such as keeping the results secret or, as incumbent firms, taking advantage of their research in the short term. An important test of the proposition that an industry funded effort is worthwhile is that public good characteristics dominate for the case at hand. Public Benefit The government s role, discussed above, is to ensure that industry policy or research of potential benefit to rural industries as a whole is undertaken. In some cases there may be substantial benefits to others outside the industry. The two most obvious cases of benefits external to the industry concern research or policies that benefit domestic consumers of farm products and those that improve environmental amenities that are valued by individuals not associated with the industry. (Source: Background Paper on Levy Principles and Guidelines at www.daff.gov.au ) Accountability Organisations receiving levy money are accountable to levy payers and the Australian Government. They are required to table annual reports with audited financial statements in parliament and hold annual general meetings. 8
Australian levies and charges on imported product Although the majority of levies and charges apply to domestically produced commodities, there are three exceptions which apply levies / charges to both domestic produced and imported product. These are: o The Dairy Adjustment Levy o The Sugar Levy and Charge o The Forest and Wood Products Levy and Export Charge The Dairy Adjustment Levy and the Sugar Levy and Charge have been specifically implemented to repay assistance packages for industry. The Forest and Wood Products Levy and Export Charge applies to domestically produced logs and logs and certain classes of primary processed forest products being imported into Australia. This later charge could be seen as a precedent for applying import charges (levies) on horticultural product imported into Australia. The Dairy Adjustment Levy In 2000, the Australian Government funded an assistance package for the dairy industry upon deregulation of the market milk sector. To repay the assistance package, a levy is payable on all milk products marketed as a beverage and sold to a retailer. The levy is set at 11c per litre (current as at Feb 2006) and has a sunset clause and expires when the repayment has been fully made. Levy is payable on dairy products marketed or used principally as a beverage for human consumption and is imposed at the point of delivery for the purpose of retail sale or use. Some exemptions apply to milk powders and milk concentrates. The levy is payable by a person in each of the following circumstances: o the person who purchases the leviable milk product for the purposes of resale. o o the person who is the retail seller of the leviable milk product in circumstances where there has been no sale to the retailer (e.g. sales direct to the public from processors or dairy farmers). the person who purchases leviable milk product for the purpose of relevantly applying the product to the person s own use in Australia (e.g. where the purchaser does not sell the product by retail sale but uses it in their business such as motels, hospitals, airline companies and promotional give-aways). o the person who relevantly applies the leviable milk product to their own use (i.e. no sale occurs. If the product is consumed at the site on which it was produced levy is not payable). The importation of a leviable milk product is defined as a process and therefore importers are included as processors. The levy has its own set of legislation and is payable under the provisions of the following legislation: 9
o The Dairy Adjustment Levy (Excise) Act 2000 o The Dairy Adjustment Levy (Customs) Act 2000 o The Dairy Adjustment Levy (General) Act 2000 and collected under the provisions of: o The Dairy Produce Act 1986. The Sugar Levy and Charge A levy or a charge of 3 cents per kilogram is payable on sugar to fund the Sugar Industry Reform Program (SIRP). This levy was originally imposed by the Australian Government to repay the first reform package of $120 million which was funded by the Australian Government in 2000. The funds are collected by the Levies Revenue Service (LRS) and forwarded to Consolidated Revenue for repayment of SIRP. They are not re-disbursed to industry. There is a sunset clause on this levy /charge. The SIRP has been designed to address the short-term and longer-term needs of the sugar industry. It responds to the sugar industry s commitment to support and promote comprehensive reform and restructure and provides up to $444 million for a range of measures to assist the Queensland, New South Wales and Western Australian sugar industries. All industry stakeholders have the opportunity to participate in the reforms. Assistance is provided through a combination of short-term measures to help sustain the industry through its immediate difficulties and longer-term measures to help the industry undertake necessary reform. The levy is payable on: o retail-packaged sugar produced in Australia; where retail packaged sugar is defined as sugar that has been prepared and packaged so as to be able to be sold by retail sale without any further preparation or packaging, and o sugar that is used as an ingredient in goods produced in Australia for human consumption. The charge is payable on: o retail-packaged sugar imported into Australia. Sugar that is imported into Australia, other than retail-packaged sugar, does not attract the charge. However, it does become leviable if it is used in Australia to produce retailpackaged sugar or as an ingredient in goods for human consumption. The import charge is on retail packaged product only. This was to overcome issues to do with potential import substitution. The producer is liable to pay the levy. For ease of administration, the seller of refined sugar must collect the levy from the producer and forward it to LRS along with return forms. For refined sugar imported into Australia, other than retail packaged sugar, if the importer sells the sugar to a producer, the importer must collect the levy from the producer and send it and return forms to LRS. If the refined sugar is used by the importer to produce retail packaged sugar or in the production of goods in Australia for human consumption, the importer is liable to pay the levy and submit return forms. For retail packaged sugar imported into Australia, the importer or importing agent is liable to pay the charge. 10
Some exemptions apply in the areas of export sugar and sugar not-for-human consumption. The levy/import charge is imposed and collected under the following legislation: o Primary Industries (Excise) Levies Act 1999 o Primary Industries (Customs) Charges Act 1999 o Primary Industries Levies and Charges Collection Act 1991 o and associated legislation Unlike the Dairy Adjustment Levy, the Sugar Levy and Charges are collected under legislation which was pre-existing. The Forest and Wood Products Levy and Export Charge A levy is imposed on logs delivered to a mill for processing, exported logs and on certain forestry products imported into Australia. The levy and export charge provides funding for research and development carried out via the Forests and Wood Products Research and Development Corporation (FWRDC). The Levies Revenue Service (LRS) receives the funds and forwards them to the FWPRDC, in addition to distributing the Australian Government s matching research and development (R&D) contributions. The Forest and Wood Products Levy and Export Charge was introduced and is administered by the Australian Government at the request of Industry. The levy is imposed on: o logs produced in Australia and delivered to a mill for processing. An Export charge is imposed on: o logs produced in and exported from Australia as unprocessed wood. An Import charge is imposed on: o logs and certain classes of primary processed forest products imported into Australia. The producer (i.e. the miller, exporter and/or importer) is liable to pay the levy. The rate of domestic levy, export charge and import charge for forest & wood products is calculated as follows (current as at Feb 2006): Softwood sawlogs (other than cypress sawlog) Cypress sawlogs Hardwood sawlogs Plywood and veneer logs Wood panel pulp logs Low grade softwood sawlogs Softwood roundwood logs Export woodchip hardwood pulplogs Export woodchip softwood pulplogs Paper pulplogs 29 cents per cubic metre 22 cents per cubic metre 22 cents per cubic metre 15 cents per cubic metre 10 cents per cubic metre 8 cents per cubic metre 8 cents per cubic metre 3.5 cents per cubic metre Nil Levy Nil Levy 11
Some exemptions for payment of the levy apply. The levy/charge is imposed and collected under the following legislation: o Primary Industries (Excise) Levies Act 1999 o Primary Industries (Customs) Charges Act 1999 o Primary Industries Levies and Charges Collection Act 1991 o and associated legislation This levy provides a precedent for applying levies to imported agricultural product and the legislative mechanism through which a levy can be charged and collected. 12
Other proposed import levies - Pork Australian Pork Limited (APL), the national representative body for Australian pig producers, has in recent time considered proposing the application of a charge on imported product. In 2003, the then Minister for Agriculture Forestry and Fisheries, the Hon Warren Truss gave his support for a voluntary levy and also indicated to importers that consideration would be given to a compulsory arrangement. The industry was still required to meet the 12 Levy Principles and follow the Levy Guidelines outlined by Government. However in analysing the then market situation and the requirements that APL would need to meet, it was decided not to pursue the charge on imported product at that time. Reasons for this included: o o In regard to an R&D charge: the industry did not want to impose an import charge on R&D as it considered R&D undertaken in Australia gave Australian producers a competitive advantage in the market. If an R&D import charge was applied this R&D competitive advantage could be diluted due to Australia being obligated to share the results with importers. In regard to a promotions charge: Due to quarantine restrictions, pork imported into Australia can only be used for processed products. APL uses its existing domestic levy to promote fresh pork - hence Australian produced pork. Processed product is currently promoted through the commercial activity of processing and importing companies. In this situation the product may originate from Australia or an importing country such as Canada or Denmark. It was believed that if the industry collected a promotion charge, the industry would be obliged to promote pork generically to include processed product rather than focus on fresh pork and that would dilute its marketing position for home grown fresh pork. APL has not pursued an import levy for imported pork meat. (Source: pers.com. APL) 13
International checkoffs and levies There are numerous example of levies (or checkoffs) being applied to agricultural products in the international market that set a precedent for the application of charges (levies) on horticultural product imported into the Australian market. USA In the USA there are a number of industry specific checkoff programs which levy both domestic producers and importers for funding marketing and research programs. A checkoff is an industry-funded generic marketing and research program designed to increase domestic and/or international demand for an agricultural commodity. This can be done through promotion, research and new product development, and a variety of other marketing tools. Although all checkoff programs do have a similar goal and purpose to increase commodity demand and long-term economic growth for their respective industries, they all accomplish this in different ways that are best suited for the market structure of each commodity. They are seen to benefit the consumer by providing product information to help make informed choices and providing research to create new and improved products that meet consumer quality, safety and nutritional expectations. In the USA, checkoff programs are established by Acts of Congress and are directed by industry-governed boards, appointed by the U.S. Secretary of Agriculture. These boards are responsible for allocating funds and approving business plans and programs, with United States Department of Agriculture (USDA) oversight. Each checkoff program is supported entirely by its respective industry, which could include U.S. producers, processors, handlers and importers. No tax payer or government funds are involved. Contribution rates vary with the different checkoffs, but they are always based on a percentage of net sales or assessed at a set rate per production unit. Checkoff program participants contribute at the same program rate, no matter where their operation is located. In the USA, checkoff programs are run by the: o American Egg Board o Cotton Board o Mushroom Council o National Dairy Research Council o National Fluid Milk Processors Promotion Board o National Honey Board o National Peanut Board o National Pork Board o United States Potato Board o National Watermelon Promotion Board o U.S. Highbush Blueberry Council 14
o Popcorn Board o United Soybean Board o American Lamb Board o Hass Avocado o Cattlemen s Beef Promotion and Research Board Not all checkoff programs collect funds on imported product, however beef, Hass avocado and watermelon are example of checkoffs that apply to imported product. Beef The Beef Checkoff Program was established as part of the 1985 Farm Bill. The checkoff assesses $1 per head on the sale of live domestic and imported cattle, in addition to a comparable assessment on imported beef and beef products. The checkoff assessment became mandatory when the program was approved by 79 percent of producers in a 1988 national referendum vote. The Cattlemen s Beef Promotion and Research Board oversee the national checkoff program, subject to USDA review. The 108 members of the Cattlemen s Beef Board represent all segments of the beef industry, including beef, veal and dairy producers and importers, and are nominated by industry organizations and importers and appointed by the U.S. Secretary of Agriculture. In the twelve months to September 2005, the beef checkoff program collected funds of US$44.6 million. Of this amount US$8.8 million was collected from importers. In the 2005 year approximately 69% was spent on domestic promotion and consumer information, 8% on foreign marketing and 15% on research. Hass Avocado Under the Orders of the Hass Avocado Promotion, Research, and Information Act of 2000, producers and importers pay an initial assessment of 2.5 cents per pound on fresh Hass avocados produced in or imported into the United States for consumption in the United States. Exports of U.S. Hass avocados are exempt from assessment. At this time only fresh domestic and imported Hass avocados are assessed. Watermelon The National Watermelon Promotion Board (NWPB) represents 3,100 growers, shippers and importers of watermelon in the United States. These members fund the organisation through crop assessments. The NWPB's 31-member Board of Directors, comprised of watermelon producers, handlers, importers and a member who represents the public, decide how to invest its US $1.6 million (approx.) budget in board programs. The budget is comprised of crop assessments paid by growers, shippers and importers. U.S. producers and the first handlers each pay two cents per hundredweight on watermelons handled for human consumption. Importers pay four cents per hundredweight. Legal Challenges There have been numerous challenges to the national checkoff programs in US courts. Producers argue that the requirement that they pay mandatory assessments in accordance with a checkoff program unlawfully forces them to pay for speech that they 15
do not support. In its first opportunity to hear the issue, the U.S. Supreme Court ruled that assessments for promotion that were part of a broader regulatory framework included in a marketing order were legal and did not violate the First Amendment. In a later decision, the Court decided that assessments for a generic mushroom promotion program violated the First Amendment because they were directed primarily at generic advertising that some producers did not support. In a third checkoff decision, the Court determined advertisements promoting beef as a generic commodity were government speech, thus not susceptible to First Amendment compelled-subsidy challenges. The Court did, however, hold open the possibility that the beef checkoff program could be unconstitutional if it is shown that the advertisements are attributable to individual producers who disagree with the message. These decisions have led to splits among circuit courts of appeal and district courts. The checkoff programs continue to be challenged, and a definitive resolution of the issue may not occur until clearly and firmly resolved by the U.S. Supreme Court. (Source: National Agricultural Law Centre, School of Law, University of Arkansas http://www.nationalaglawcenter.org) Canada In 2002, the Canadian Government announced the introduction of a levy on all beef produced and marketed in Canada, both domestic and imported at a rate of C$1 per head. The levy is used to encourage beef sales and consumption in Canada and Canada s export markets through promotional campaigns and find more efficient ways of producing beef and beef cattle through research projects. Up until the introduction of the new levy, Canadian beef producers had funded market promotion, development and research activities through their provincial associations. Although submissions opposed to the levy proposal were received from the New Zealand and Australian Government and other organisations, ultimately the Canadian National Farm Products Council concluded that the majority of producers were in favour of the levy and it was unclear whether importers supported it. However, on balance, it was demonstrated the majority of stakeholders (producers + importers) were supportive and as a result the proposal was accepted. New Zealand Although New Zealand does not collect levies on imported fruit and vegetables they do have domestic levies that are applied through the Commodity Levies Act 1990. This is supported by a subordinate legislation that is commodity specific, including: o Commodity Levies (Asparagus) Order 2000 o Commodity Levies (Avocados) Order 2001 o Commodity Levies (Nashi Asian Pears) Order 1999 o Commodity Levies (Orchard Fruit) Order 2001 o Commodity Levies (Passionfruit) Order 2002 o Commodity Levies (Pipfruit) Order 2000 o Commodity Levies (Summerfruit) Order 2002 16
o Commodity Levies (Vegetables) Order 2001 The Commodity and Levies Act 1990 does, however, have provisions for application of levies to imported product, although at present these are not exercised. Certain restrictions apply to making Orders in relation to the imposition of a levy on imported product Part 1: Section 5 of the Act states: k) If the levy is imposed on quantities of the commodity imported into New Zealand that (i) The importers will benefit from the spending of the levy; and (ii) The organisation will have regard to the importers' views on the spending of the levy; and (iii) The imposition of the levy on imported commodity will not be contrary to New Zealand's international legal obligations; and (l) That the organisation, by virtue of its membership and structure, represents adequately the views and interests of the persons who will be primarily responsible for paying the levy; (Source: www.legislation.govt.nz) The Commodity Levy Order for each specific commodity outlines who is responsible for payment of the levy. Currently the Australian legislation related to horticultural produce does not provide for the imposition of a levy on imported material as is the case with the New Zealand legislation. 17
Legislative and regulatory framework There are three purposes of the legislation which forms the basis of the levy system, namely: o Imposition of the levy / charge o Collection of the levy / charge o Disbursement of the levy / charge. Imposition Primary Industry Levy and Charges are imposed under the: o Primary Industries (Excise) Levies Act 1999; and the o Primary Industries (Customs) Charges Act 1999, respectively. In each case the Act has accompanying regulation. The Primary Industries (Excise) Levies Act 1999 The Primary Industries (Excise) Levies Act 1999 authorises the imposition of primary industries levies that are duties of excise. The Act has a number of schedules which impose a particular levy and make provisions for the operative rate of the levy, the maximum rate of the levy; the person who is responsible to pay the levy and any exemptions from the levy. Schedule 27 also allows regulations to impose the levy. Schedule 15 of the Primary Industries (Excise) Levies Act 1999 relates to horticultural products (see Appendix 3). It is of note that Schedule 15 stipulates in regard to the imposition of a levy, that it should apply to leviable horticultural products that are produced in Australia. The Primary Industries (Customs) Charges Act 1999 The Primary Industries (Customs) Charges Act 1999 authorises the imposition of primary industries charges that are duties of custom. The Act has a number of schedules which impose a particular charge and make provisions for the operative rate of the charge, the maximum rate of the charge, the person who is responsible to pay the charge and any exemptions from the charge. Schedule 14 also allows regulations to impose charges. Schedule 10 of the Primary Industries (Customs) Charges Act 1999 relates to horticultural products (see Appendix 3). It is of note that Schedule 10 stipulates in regard to the imposition of a charge that it should apply to horticultural products that are produced in Australia and exported. 18
Schedule 10, Clause 2 (1) Horticultural product, states: 2 Imposition of charge (1) Charge is imposed on chargeable horticultural products produced in Australia (whether before or after the commencement of this Schedule) that are exported from Australia after the commencement of this Schedule. In the Schedule there is no reference to the application of Charge to products imported into Australia. In comparison the Schedule 8 Forest Industry (import) of the Primary Industries (Customs) Charges Act 1999, states: 2 Imposition of charge (1) Charge is imposed on forest products imported into Australia after the commencement of this Schedule. (2) The regulations may exempt a specified class of forest products from charge imposed by this Schedule. Collection Primary Industry Levy and Charges are collected under the: o Primary Industries Levies and Charges Collection Act 1991; and associated regulations The objects of this Act are to rationalise levy and charge collection and to make provisions for the efficient and effective collection of primary industry levy and charges. The Act provides the legal framework for collecting levies and articulates the rules for collection, different models for collection and the liabilities and penalties related to collection. The Department of Agriculture, Fisheries and Forestry (DAFF) Levies Revenue Service (LRS) is charged with the effective delivery of levies and charges collection. The LRS usually collects levies at the first point of sale or further along the process chain, depending on an industry's preference or circumstances. LRS pays all levies and charges into the Consolidated Revenue Fund, without deduction, before disbursing them. It should be noted that the Charge applied to imported forest products under Schedule 8 Forest Industry (import) of the Primary Industries (Customs) Charges Act 1999 is collected under this Act. Disbursement Collected horticultural levies and charges are disbursed under the: o Horticultural Marketing and Research Development Services Act 2000 The Act provides for a company to be declared as the industry services body for the Australian horticultural industry and a company to be declared as the industry export control body. (Under a separate declaration, Horticulture Australia Limited is declared as the industry services body for the Australian horticultural industry.) 19