Thinking | 11 July 2022

Customs tariff concession dispute for driverless trains never seems to leave the station…

By Jacqueline McGrath

The Full Federal Court recently delivered its judgment following an appeal made by the Comptroller-General of Customs about the tariff of driverless trains (Comptroller-General of Customs v Alstom Transport Australia Pty Ltd [2022] FCAFC 109). This appeal was the latest in a long-running dispute with Customs following Alstom’s application for a tariff concession order relating to its importation of driverless trains. If successful, a tariff concession order provides relief from the customs duty that may otherwise be levied on certain goods where a ‘substitute’ for such goods is unavailable in the Australian market.

In this case, Alstom had first made its application for the concession in August 2017. Customs refused the application, which set in train the events that culminated in a five-year appeal process, back and forth, between the Administrative Appeals Tribunal and the Full Federal Court.

The latest iteration saw the Full Federal Court allowing Customs’ appeal and remitting the proceedings back for another round before the Administrative Appeals Tribunal. The background to the dispute was Customs’ refusal to issue a tariff concession order because it was of the view that an Australian entity (Downer EDI) was producing ‘substitutable’ goods for the ones that were the subject of Alstom’s original tariff concession application. The claimed substitutable goods were passenger trains with a certain carrying capacity and speeds but were not ‘driverless’.

In this case, Customs had argued that the trains produced by Downer EDI in Australia were ‘substitutable goods’ because those goods are capable of being put to a use that corresponds with a use to which the trains that Alstom imported and the subject of their tariff concession application.

Customs argued that the trains produced by Downer EDI in Australia could be used to transport by rail up to 603, 1205 or 1809 passengers at any one time at speeds of up to 130km/h, and the trains described in Alstom’s application could be used to transport at least 1,540 passengers at any one time at a maximum speed of at least 100km/h. There was said to be a corresponding overlap because both goods were capable of transporting over 1,000 passengers at once at maximum speeds of over 100km/h. Customs argued that it did not matter that the ‘driverless’ capability was a feature that was absent in Downer EDI’s goods.

It is important to acknowledge that the most recent Full Court’s decision did not conclude that the goods are ‘substitutable’. The matter has been referred back to the Tribunal – for a third time – to reconsider the matter in accordance with the relevant decision-making steps (set out below). The Full Court did, however, make the following remarks that may prove prescient in terms of the outcome of the next round.

  • The manner in which the goods operate, as identified in the description in the tariff concession application, may, but will not necessarily, affect the conclusion as to the actual or potential uses of the trains. It will be for the Tribunal to determine whether and how the driverless nature of the trains in Alstom’s application affects the actual or potential use of trains of that description.
  • The transport industry categorises modern trains as mainline or intercity trains, suburban trains and metro trains, as well as light rail trains (similar to trams). The Tribunal must determine whether the type of network systems on which the trains are capable of operating is relevant in determining the actual and potential uses of trains that were described in Alstom’s tariff concession application (and the goods claimed to be substitutable).
  • The fact that the actual trains, in Alstom’s original application for a tariff concession, were intended for a particular use on a particular system does not require the Tribunal to limit the potential uses to those in fact intended. The reader may infer from this sentence in the judgment that the Full Court was suggesting that even if the intended use of Alstom’s trains were limited by a driverless system this does not mean the Tribunal needed to limit the potential uses of the trains to that intention. In other words, it would be open to the Tribunal to conclude that if the Alstom trains could be used on the type of network as Downer’s trains – then it may be found to be ‘substitutable’.

As a reminder for importers applying for tariff concessions – the Full Court emphasised the following steps that must be worked through in determining whether the goods are substitutable.

Step 1: what are the TCO goods?

Step 2: to what use or to what uses are they put, or can they be put?

Step 3: what are the goods claimed to be substitutable?

Step 4: to what use or to what uses are they put or are they capable of being put?

Step 5: are the uses in steps 2 and 4 (or any of them) corresponding uses?

This long-running dispute is a testament to the complexity of applications for tariff concession orders and the importance in the terms of the description of the goods when importers first consider making an application. There are sound policy reasons for the strictness in approach, as has been eloquently explained previously:

…the existence of that tariff, which is imposed by Australian law, is a measure designed to protect local manufacturing industries from competition abroad. On the other hand, tariffs… can serve no useful purpose if there is no local industry requiring protection. In such a case, a tariff will operate as a pointless impost on local consumers, although it will still serve as a revenue raising measure: see Comptroller-General of Customs v Vestas - Australian Wind Technology Pty Ltd [2015] FCAFC 185 at [9].

The Hall & Wilcox trade and transport team have specialist customs advisors. Please reach out to either of the contacts below.

Contact

Chris Sacré

Chris is a leading transport and trade lawyer with extensive experience in shipping, international trade and marine insurance.

Jacqueline McGrath

Tax lawyer Jacqueline has extensive litigation experience acting for multinationals, enterprises and individuals.

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