Tuesday, 24 April 2012

Manufacturing Chaos: Country of Origin laws under the Australian Consumer Law


This article first appeared in the Australian Competition & Consumer Law Tracker, CCH, Issue 3, March 2012.

Introduction

In 1998 the country of origin defences were introduced into the Trade Practices Act 1974 (TPA). In 2001, these defences were re-enacted with the passage of the Competition and Consumer Act 2010 (CCA) and the Australian Consumer Law (ACL). Despite these laws being on the books for over 10 years, there has been no recognition that these laws are significantly flawed in a number of respects.  A close reading of these provisions reveals not only a significant “hole” in the legislative protections which these laws were supposed to provide for business, but also a clear drafting error which entirely undermines the original parliamentary intent in relation to exported products.  Furthermore, the ACCC’s approach to interpreting these country of origin laws has lacked common sense.

The country of origin laws have failed to provide any practical assistance to Australian manufacturers that wish to export goods as Made in Australia.  Accordingly, it is imperative that the Commonwealth Government take appropriate steps to fix these problems with the country of origin laws so that they actually do what they were intended to do – namely, reduce regulatory burdens on Australian exporters so that they can compete more effectively in overseas markets.

Background
The main provision which governs the making country of origin representations about goods is section 29(1)(k) of the ACL (formerly section 53(eb) of the TPA). This provision states:

A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services make a false or misleading representation concerning the place of origin of goods.

Therefore, it is illegal to make a misrepresentation about the place of origin of a good, including a misrepresentation that a good comes for a particular country or regional location.  For example, a representation that wine comes from the Barossa Valley will be caught by section 29(1)(k) if the wine comes from somewhere else.

Unfortunately, this relatively simple statutory provision became a source of great confusion after a series of conflicting Federal Court decisions. These decisions introduced a number of different tests for determining the country of origin of goods.

The three main tests used by the courts, prior to the 1998 amendments, to assess the country of origin of a good were:

  1. the substantial transformation test;
  2. the essential characteristics test;
  3. the value added test; or
  4. the consumer expectation test.
 The substantial transformation test involved a consideration of whether goods had been altered substantially through manufacturing or processing in a particular country. Relevant considerations would be the degree to which the good in question has changed as a result of a particular step in the manufacturing process, the degree of skill or expertise used in affecting the change and whether it can be said that a new good has been created as a result of the preceding step or steps.

The essential characteristics test focused on the degree to which a good gained its essential function, shape or appearance in a particular country.

The value added test was adjudged by reference to the proportion of total costs attributable to manufacturing or processing of the good in a particular country.

Finally, the consumer expectation test focused on how a consumer would interpret the country of origin representation in relation to a good.

Federal Court decisions
The first case after the introduction of section 53(eb) to the TPA in 1986 was the Netcomm case.[1] In this case, Gummow J. appeared to apply both the substantial transformation test and the essential characteristics test.  In effect, Gummow J. established a two step test in relation to country of origin claims:

·  First, it was necessary to consider the various stages of manufacture which are undertaken in creating the goods which would involve determining the country of origin for each stage of manufacture.

·  Second, the Court would have to undertake a qualitative assessment of the relative importance of each manufacturing stage in terms of creating the final finished good.

It was the second step which appeared to require a consideration of where the good had acquired its essential characteristics.

The Netcomm case was followed shortly after by Thorpe v CA Imports Pty Limited.[2] In this case, Sheppard J unequivocally endorsed the essential characteristics test:

It seems to me that there were three essential steps in the process of manufacture that is in question....The first essential step was cutting and sewing of the material to form the casing, the second, the filling of the casing, and the third, the further sewing and checking procedures. It is true that, of these, only the first was carried out in Korea, but in my opinion that was the step that lead to the good acquiring its essential shape and appearance of a koala bear.[3]

The next significant case was the Bush Friends case[4] in which the Court appeared to reject both the substantial transformation test and the essential characteristics test, preferring instead what could be described as the “consumer expectation test”:   As stated by Davis J. in that case:

I therefore approach the current issue by giving effect to the words used on the label the label their meaning in ordinary parlance, not the meaning which would be given by the application of the substantial transformation test, or its equivalent, the essential characteristics test which appears in the Trade Practices Amendment (Origin of Labelling)

The present issue is whether consumers in Australia would be misled or deceived or would be likely to be misled or deceived by the respondent's labelling and whether there has been a misleading representation in Australia as to the place of origin of the goods.[5]

The decision of Davis J to apply a consumer expectation test was subsequently upheld by the Full Federal Court on appeal.[6]

The main criticism which was levelled against the Bush Friends case was that it had failed to establish a clear set of rules governing country of origin claims which businesses could apply.  Businesses had no way of knowing with certainty how to comply with section 53(eb) in relation to country of origin claims.

Unfortunately, the confusion created by Bush Friends case was further compounded by Lockhart J’s decision in the Lovelock Luke case[7] where he stated:

In this area of discourse it is desirable that rigid rules are not set down; the words of the statute speak clearly enough. Whether an article of commerce is "Made in Australia' must be determined by reference to the circumstances of each case.

In examining the facts I acknowledge the importance of having regard to the nature of the product itself and the expectations and likely understanding of purchasers.[8]

By stating that every case must be “determined by reference to the circumstances of each case” and denying the desirability of rigid rules, Lockhart J. effectively made the determination of liability under section 53(eb) a matter of judicial discretion.

Legislative response
By 1998, the Australian Government had accepted the proposition that the current state of the law in relation to country of origin claims was in disarray and needed to be amended.  Accordingly, the TPA was amended to create a number of new defences for businesses seeking to make country of origin claims.

The main reasons for the amendments can be discerned from the Second Reading Speech made by Mr Warren Truss, the then Minister for Customs and Consumer Affairs:

The Trade Practices Amendment (Country of Origin Representations) Bill is designed to restore public confidence in country of origin labelling claims. Persistent public complaints that many labels are misleading or dishonest have given consumers good reason to be sceptical about origin labelling claims. At the same time, recent court decisions have created confusion about the meaning of such commonly used terms as "Made in Australia" and "Product/Produce of Australia". As a result, the market value of Australian origin claims has been eroded to the point that producers and manufacturers are wary of making claims, and many consumers are losing confidence in labelling altogether.[9]

It is also apparent from the Minister’s comments that much of the blame for the confusion concerning country of origin claims was put on the Courts for their interpretation of section 53(eb). For example, later in Mr Truss's speech he refers to the "shifting legal interpretations and general uncertainty" created by the Courts.

The criticisms of the Court's interpretation of the provision also featured in the relevant Explanatory Memorandum (EM), where it was claimed that the Court has interpreted section 53(eb) in a "restrictive manner", particularly in relation to the Australian Made logo. The EM also criticised the case-by-case approach promoted in Lovelock Luke as a "considerable impediment to compliance."

The primary purpose of the new amendments was to provide a defence to actions under section 53(eb) where two criteria were satisfied.  The defences were to apply to both section 53(eb) and section 52 because of a recognition that an action against a business for a misleading country of origin representation could also be pursued under section 52.

In 2011, the TPA was repealed and the CCA enacted with the consumer protection provisions and the country of origin defences being moved to the ACL.  The country of origin defences were contained in the new Part 5-3 of the ACL.

When the new Part 5-3 was enacted it was clear that the defences could be pleaded in response to an allegation that the business had made a misleading country of origin representation under any of the following provisions of the ACL:

·  section 18 - (s52 TPA)
·  section 29(1)(a) - (s.53(a) TPA)
·  section 29(1)(k) - (s.53(eb) TPA)
·  section 151(1)(a) - (s.75AZC(1)(a) TPA)
·  section 151(1)(k) - (s.75AZC(1)(i) TPA)

The fact that the defence in Part 5-3 was extended to 29(1)(a), in addition to section 18 and 29(1)(k), was a recognition that this provision could also be used in relation to country of origin claims.   Section 29(1)(a) prohibits false and misleading representations about a range of issues including misrepresentations about the particular history of a good, which would no doubt include the  country of origin of a good.

The defences were also extended to sections 151(1)(a) and (i) of the ACL which are the mirror criminal provisions of sections 29(1)(a) and (k) respectively.

Part 5-3 provides defences in relation to five different types of country of origin representation:

·  general country of origin representations;
·  product of / produce of a country representations and
·  representations by means of the use of a prescribed logo;
·  representations that goods were grown in particular country; and
·  representation that ingredients or components of goods were grown in a particular country

The general test for country of origin representations is contained in section 255 which establishes a two step process — firstly, the goods must have been substantially transformed in a country and secondly, that 50% or more of the total cost of producing or manufacturing the goods are attributable to production or manufacturing processes in that country. Both elements need to be satisfied before the defence can be invoked in relation to a country of origin claim.

The term substantial transformation is defined in section 255(3) as follows:

Goods are substantially transformed in a country if they undergo a fundamental change in that country in form, appearance or nature such that the goods existing after the change are new and different goods from those existing before the change.

Sections 256 and 257 provide the methodology to be used to calculate the cost of production and manufacture in terms of the second limb of the general test for country of origin representations.

The categories of costs which are recognised under the ACL are materials, labour and overheads. In each case, the costs must be incurred by the producer / manufacturer, related to the production / manufacture of the goods in question and reasonably allocated to the production / manufacture of the goods.  

The regulations may prescribe that certain costs are not allowable for the purposes of the cost calculations and also the manner for working out such costs.

Section 257 provides that regulations may prescribe rules for determining the percentage of total cost or production / manufacture attributable to a particular country.

Section 255 also establishes the tests for product of / produce, grown and ingredients / components country of origin representations. There are range of different criteria which must be satisfied in order to qualify for the particular claim.

The final test is for representations made by means of the use of the prescribed logo. This provision creates a defence for goods represented by a logo which have been prescribed under the Regulations.

Although the test for being permitted to affix the prescribed logo is similar to that established for general country of origin representations, the main difference is that the regulations may prescribe a percentage of between 51% and 100% in terms of costs of manufacture. It would appear that there is scope for creating a range of prescribed logos with an escalating range of percentages. The primary purpose of this provision was to "reinvigorate the Australian made logo" which was described as having "fallen into disuse because of the legal uncertainties and confusion generated about 'Made in Australia'."

Legislative oversight
Unfortunately, there is a clear legislative oversight in relation to country of origin amendments which was first enacted in 1998 and then re-enacted in 2011.

The oversight is that the defences in Part 5-3 of the ACL only apply to sections 18, 29(1)(a) and (k) and sections 151(1)(a) and (i), but not to sections 33 and 155 of the ACL. Section 33 of the ACL provides:

A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods.

As is apparent, section 33 can quite easily be used by either the ACCC or a private litigant to take action against a business which is making a country of origin claim by arguing that the country of origin representation is a representation about the nature, manufacturing process and characteristics of a good.  If this approach were taken, the defences contained in Part 5-3 would not be available to the business because section 33 has not been included as one of the sections to which the defences apply.

If a business was subject to ACCC enforcement action or private action in relation to its country of origin claims under section 33 of the ACL,  it would have to defend itself by using the various common law tests which applied prior to the enactment of the country of origin laws in 1998. As discussed above, these laws were in a state of utter disarray prior to 1998 and provided business with no legal certainty.

Furthermore, the defences contained in Part 5-3 do not extend to section 155 of the ACL which is the mirror criminal provision to section 33. 

It is clear that the failure to extend the defences contained in Part 5-3 to an action under section 33 of the ACL is a significant legislative oversight.  This oversight threatens to undermine the entire purpose of Part 5-3, which is to give business some certainty about the circumstances in which they can make a country of origin claim about their goods.

Drafting error
However, the problems with the country of origin provisions do not end with the legislative oversight described above.  Unfortunately, there is a also a serious drafting error in section 5 of the CCA which has the effect of excluding the defences in Part 5-3 of the ACL entirely in relation to exported products.

Section 5 of the CCA reads as follows:

(1)  Each of the following provisions:

(a)  Part IV;
(b)  Part XI;
(c)  the Australian Consumer Law (other than Part 5-3);
(f)  the remaining provisions of this Act (to the extent to which they relate to any of the provisions covered by paragraph (a), (b) or (c));

extends to the engaging in conduct outside Australia by:

(g)  bodies corporate incorporated or carrying on business within Australia; or
(h)  Australian citizens; or
(i)  persons ordinarily resident within Australia.

The effect of section 5 of the CCA is to extend the operation of the CCA to conduct engaged in outside Australia.  Particular overseas conduct will be subject to the CCA if it is engaged in by bodies corporate incorporated or carrying on business within Australia, Australian citizens, or persons ordinarily resident within Australia.

The anomaly in the operation of section 5 occurs in subsection 5(1)(c) which specifically excludes Part 5-3 of the ACL. 

The drafting of section 5 of the CCA has had the practical effect of excluding the defences contained in Part 5-3 of the ACL to country of origin claims made in places outside Australia by bodies corporate incorporated or carrying on business within Australia, or Australian citizens, or persons ordinarily resident within Australia.  In other words, Australian exporters will be unable to take advantage of the statutory defences contained in Part 5-3 in relation to country of origin claims which they make in relation to export goods.

Parliamentary intention
A review of the relevant Explanatory Memorandum shows that the drafting error in section 5 initially occurred in 1998 with the enactment of the Trade Practices Amendment (Country of Origin Representations) Bill 1998. Item 2 of this Bill introduced the relevant amendment to section 5 of the TPA. 

The relevant Explanatory Memorandum explained the purpose of the amendment to section 5 of the TPA in the following way:

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 the 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 (at 17).[10]

Therefore, Parliament’s intention in 1998 was to exempt Australian manufacturers from having to comply with Australian country of origin laws in relation to their exports.  Parliament intended that such Australian exporters would be subject only to the country of origin laws which applied in the country where they were selling their Australian made goods.

Obviously the amendment to section 5(1)(c) of the TPA / CCA has not had the legal effect of making Australian exporters exempt from compliance with Australian country of origin labelling laws. Rather, Australian exporters now have no statutory defences to an action against them alleging that their country of origin claims constitute a breach of sections 18, 29(1)(a), 29(1)(k), 151(1)(a) or 151(1)(k) of the ACL.

ACCC’s position
Unfortunately, the ACCC has taken advantage of this clear drafting error to assert jurisdiction in relation to country of origin claims made by Australia exporters about goods which they are selling outside Australia

In 2011, the ACCC conducted an investigation into a small business which was making country of origin representations about its export goods.  This small business had previously exported manufactured goods to Europe and was currently exporting manufactured goods to a number of Asian countries, including China.

When approached by the ACCC about its country of origin claims, the small businesses pointed out to the ACCC the clear drafting error in section 5 of the CCA. The ACCC responded as follows:

The ACCC does not agree that the current provisions of the CCA exclude export goods from the prohibitions on false, misleading or deceptive conduct.  While the Explanatory Memorandum may express such an intention, the words of section 5 cannot be read as having such an effect. 

The effect of s.5(1)(c) is to exclude from the extended application of the Act to conduct outside Australia, the tests used to establish whether or not country or origin representations contravene sections 18, 29 or 151 of the ACL.  However, s.5 otherwise applies the ACL to conduct outside Australia by bodies corporate incorporated or carrying on business within Australia.  Therefore, the Commission’s view is that sections 18, 29 and 151 of the ACL remain in force in relation to export goods.[11]

The small business responded to the ACCC in the following way:[12]

It is not the case that the ACCC’s approach to section 5 will mean that all Australian exporters will now be subject to Australian country of origin labelling laws as set out in Part 5-3 of the ACL.

Rather, the ACCC’s literal reading of section 5 will mean that the defences to alleged breaches of country of origin labelling laws, contained in Part 5-3 of the ACL, will not apply to Australian exporters in any way.

This will result in the following perverse situation:

·  importers of products to Australia and domestic manufacturers who sell products within Australia are able to plead the defences contained in Part 5-3 of the ACL in response to an allegation that they have made a misrepresentation concerning the country of origin of their products;

·  while Australian exporters will be unable to plead such defences in response to an allegation that they have made a misrepresentation concerning the country of origin of their products and, as such, will be subject to the laws which existed prior to the enactment of the country of origin labelling defences in 1998. 

In other words, the practical effect of the ACCC’s interpretation of section 5 of the CCA will be that all Australian exporters will be required to comply with the country of origin laws which existed prior to 1998 or over 13 years ago.

As the ACCC is no doubt aware, prior to 1998 Australian country of origin labelling were in a state of utter disarray. 

The ACCC responded as follows:

Section 5 of the CCA extends the operation of the CCA and the Australian Consumer Law (the ACL) to conduct outside Australia by bodies incorporated in Australia, but excludes the operation of Part 5-3 of ACL. In effect, this means that Australian corporations which make country of origin claims about goods they export are subject to the prohibitions on misleading conduct in the ACL, but they are not able to make use of the defences concerning country of origin representations found in Part 5-3. As such, judicial consideration of such country of origin claims would apply the common law tests. The ACCC notes that such consideration could also take into account the tests in Part 5-3.[13]

Therefore, in this particular case, the ACCC decided to apply Part 5-3 in its consideration of the country of origin claims made by the small business about its export goods. The ACCC took this approach despite:

·  the clear Parliamentary intent that the TPA/CCA should not apply to country of origin representations made in relation to Australian exports; and

·  the words of section 5 of the CCA which state that Part 5-3 is not to apply to country of origin representations concerning goods sols outside Australia.

In other words, the ACCC appears to have interpreted the legislation in a way which is inconsistent with both Parliament’s clear intent, as expressed in the relevant Explanatory Memorandum, and the actual words of section 5 of the CCA.

ACCC’s Guidelines
A brief consideration of the ACCC’s main publication concerning country of origin laws, Country of Origin Claims and the Australian Consumer Law,[14] reveals further anomalies in the way in which the relevant country of origin laws are being explained and applied.

In the ACCC’s publication, it provides a detailed discussion of the relevant legislation.  However, the guideline is quite deficient in its discussion of the key concept contained in Part 5-3 – namely the meaning of the concept of substantial transformation. Indeed, the ACCC devotes effectively only one page of its guide to discussing this particular concept and even this limited discussion focuses primarily on providing various examples of goods which, in the ACCC’s opinion, have and have not been substantially transformed.[15]

The ACCC should be providing business with a much greater degree of guidance about when a good will be considered to have been substantially transformed in a particular country.

Indeed, it is very surprising that the ACCC has not provided more guidance, given that the relevant legislation itself appears to provide a clear analytical process which can be applied to determine whether a good has been substantially transformed in a particular country.  

As stated above, the test for determining whether a good has been substantially transformed is contained in section 255(3) of the ACL which states:

Goods are substantially transformed in a country if they undergo a fundamental change in that country in form, appearance or nature such that the goods existing after the change are new and different goods from those existing before the change.

Therefore, it is apparent that a good will be substantially transformed if it undergoes a fundamental change in either its:

·  form; or
·  appearance; or
·  nature.

A person need only meet one of these three criteria to satisfy the substantial transformation test. In other words, either:

·  the form of the good or
·  the appearance of the good or
·  the nature of the good

must fundamentally change for there to be a substantial transformation.

The resultant goods which are the subject of this fundamental change have to be either new goods or simply different goods.

Therefore, the analytical steps which have to be undertaken in applying the substantial transformation test are:

(1)  identify the relevant manufacturing step which you are seeking to assess;

(2)  analyse the good which exists prior to the manufacturing step identified in (1) above;

(3)  analyse the good which results following the manufacturing step identified in (1) above; and

(4)  compare the differences between the goods at (2) and (3) in terms of their form, appearance and nature.

The form and appearance of a good are relatively easy to define. The “form” appears to be a reference to the shape or structure of the good. This could also refer to a change in the chemical composition of a good.

The “appearance” of the good is simply a reference to the visual aspect of the good or how it looks.

The more difficult criteria to define is what is the “nature” of a good.  The most appropriate way to work out what the Parliament meant by using the word “nature” is to have recourse to the initial EM in 1998 when the term was introduced into the TPA. These EM explained the concept of substantial transformation as follows:

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.[16]

This definition indicates that a good will be fundamentally transformed if a particular manufacturing step alters the way the good “operates” or its “purpose”. In other words, the analysis should focus on how the good operates or functions before the manufacturing step and how the good operates or functions after the manufacturing step.

Given the guidance provided by the legislation itself and the relevant EM about how the substantial transformation test should operate, the ACCC should be able to provide business with much more guidance about this issue than it has in its guide.

ACCC’s approach to substantial transformation
Unfortunately, the ACCC’s approach to the substantial transformation test as outlined in its guide appears to be much stricter than suggested by the relevant case law.

While there has only been one case which has considered the meaning of the term “substantial transformation” since the introduction to the country of origin laws into the TPA in 1998, this case is quite instructive about how to interpret this term.

In Australian Competition and Consumer Commission v Australian Dreamtime Creations Pty Ltd,[17] the ACCC took legal action against Australian Dreamtime Creations (ADC) for engaging in breaches of section 52 and 53(eb) of the TPA

The ACCC alleged that ADC breached section 53(eb) by importing items from Indonesia, that were either:

(1) already painted and did not require further painting prior to sale; or
(2) unpainted and did not require painting prior to sale;
(3) unpainted and required painting prior to sale.

There was no dispute about items (1) and (2) above not having been substantially transformed in Australia.

The significant issue arose in relation to item (3) above – namely whether items carved in Indonesia entirely out of Indonesian wood but then painted in Australia were substantially transformed in Australia.

In relation to these items the ACCC submitted that they were all created from Indonesian material in Indonesia, and that the painting of those items in Australia does not qualify as having “substantially transformed” these items in terms of section 65AB(b) of the TPA (now section 255(3) of the ACL).

The ACCC submitted that once a carved wooden item is painted, it is not a new or different item from what it was prior to painting, and that it remains a carved wooden item which was carved in Indonesia. The ACCC said that the carving of the item is the process which provides the item with its inherent character, and that this process did not occur in Australia in respect of those imported items.[18]

In support of its proposition, the ACCC referred to several cases where the Court has considered what constitutes “substantial transformation”.

Judge Mansfield firstly rejected all of the prior case law in relation to “substantial transformation” relied on by the ACCC because he believed it was of no real assistance. This was because sections 65AB and 65AE (now Part 5-3 of the ACL) had been enacted since those cases were decided. Accordingly, the Court had to apply the statutory test which had been introduced in 1998 rather than earlier case law.[19]

The judge then dealt with the cost of manufacture test in the following way:

The evidence shows that the cost to ADC of the carved wooden bird (and like objects) was under $10. The amount paid to Mr Goodridge for painting it was in excess of $30. The precise figures varied, according to the size of the objects. Even allowing for shipment costs, I find that s 65AB(c) of the TP Act would be satisfied, if there had been a representation that those artworks were Australian in origin.[20]

Accordingly, the Mansfield J was satisfied that more than 50% of the cost of manufacture was incurred in Australia. Indeed, the Australian cost of manufacture appeared to be around 75%.

The judge then discussed the substantial transformation test as follows:[21]

90.  The remaining issue is whether those items were substantially transformed by being painted in Australia: s 65AB(b). The alleged country of origin representations did not attract ss 65AC or 65AD, so s 65AB(d) was also satisfied. That is a question of fact, informed by s 65AE. In my judgment, those artworks including the carved wooden bird were substantially transformed by being painted in Australia. There was in evidence an example of the carved wooden bird, unpainted (it is then purely a flat white in colour). The difference is significant. As an unpainted object, it is quite unappealing. The shape itself seems to lack definition. The painting makes the object quite a different one: the shape emerges as clearly defined, and the colouring gives the object a real life and attractiveness. I think the description “new and different goods” is an appropriate one, even though fundamentally the shape itself does not change. It is, in a bland sense, and remains a carved wooden item but the qualities which make it an attractive object emerge only after it is painted. Analogy is always a little dangerous, but I essay one, albeit not a perfect one: a painter’s canvas may be imported, and although it does not change size, the canvas is substantially transformed by being painted. The carved wooden bird shape is, of course, not the equivalent of a canvas. It is already shaped. However, the dramatic change in appearance, including that the painting seems to add definition to the shape, has to my mind a not dissimilar transformation.

91. In my view, a similar conclusion should be reached in respect of the other imported carved wooden items that were painted in Australia. The ACCC did not suggest that there should be a different conclusion in respect of the carved wooden bird compared to the other carved wooden items imported from Indonesia.

92. Accordingly, even if the website representations as to country of origin were made, I would not find that s 53(eb) of the TP Act had been contravened in the circumstances.

The Court held that the mere act of painting the carved birds was sufficient to constitute a fundamental change in the good and thus satisfied the substantial transformation test in terms of s 65AB(b). In particular, Mansfield J stated that “the qualities which make it an attractive object emerge only after it is painted.” This appears to be a much lower threshold to satisfy the substantial transformation test than suggested by the ACCC in its guide.

The other significant findings in the case were that a good can be substantially transformed more than once and that it can be substantially transformed in more than one country. Justice Mansfield found that even though the products in question had been substantially transformed into carved birds in Indonesia, they had again been substantially transformed into painted carved birds in Australia.

Unfortunately, the ACCC appears to have completely ignored Mansfield J’s comments in relation to the substantial transformation test in the Dreamtime case when it drafted its guide on the country of origin laws.  Indeed, the Dreamtime case is not mentioned even once in the ACCC’s guide, despite the case having been decided two years before the guide was published.

Accordingly, it would appear the ACCC has chosen to maintain its narrow and restrictive interpretation of the substantial transformation test in the face of a Federal Court decision which interpreted the substantial transformation test in a much broader and more liberal manner.

Conclusion
Unfortunately, Australia’s country of origin laws are again in a state of disarray.  First, the failure to extend the defences contained in Part 5-3 to section 33 of the ACL creates a significant hole in the legislative protections for business in relation to their country of origin claims.  Second, poor legislative drafting has seen a proposed exemption for Australian exporters, namely that they only have to comply with the country of origin laws in the country where they will be selling their goods, turned into a significant disadvantage for Australian exporters who now have to comply with two different sets of country of origin laws.  Finally, the ACCC has failed to interpret aspects of the country of origin laws in a way which is consistent with the only decided case in the area.  

If the government is serious about trying to assist Australian manufacturing, it should be proactively seeking to identify and correct such legislative oversights and mistakes which are adversely impacting on the manufacturing sector.  There is little doubt that many more Australian manufacturers would be looking to export Australian made goods to world markets if the law was clear about the fact that they do not have to comply with Australian country of origin laws, but only the country of origin laws which apply in the country where they are selling their goods. This is a significant exemption given that Australian country of origin laws are not only among the strictest country of origin laws anywhere in the world, but also the most zealously enforced.


[1] Netcomm (Australia) Pty Ltd v Dataplex Ply Ltd (1988) ATPR 40-883, 49,564.
[2] (1990) ATPR 40-996; 50,962.
[3] Ibid., p. 50,966.
[4] Trade Practices Commission v QDSV Holdings Pry Limited (trading as Bush Friends Australia) (1995) ATPR 41-371; 40,107
[5] Ibid., p. 40,114.
[6] QDSV Holdings Pty Ltd v Trade Practices Commission (1995) 59 FCR 301.
[7] Australian Competition and Consumer Commission v Lovelock Luke Ply Ltd (1997) 79 FCR 63.
[8] Ibid., p. 69.
[9] The Minister for Customs and Consumer Affairs, the Honourable Warren Truss MP, Second Reading Speech to the Trade Practices Amendment (Country, of Origin Representations) Bill 1998, House of Representatives, Hansard, 8 April 1998.
[10] Explanatory Memorandum, Trade Practices Amendment (Country of Origin Representations) Bill 1998 - http://www.austlii.edu.au/au/legis/cth/bill_em/tpaoorb1998616/memo1.html
[11] Email from ACCC, dated 27 September 2011.
[12] Email to ACCC, dated 4 October 2011.
[13] Letter from ACCC, dated 27 November 2011.
[14] Country of Origin Claims and the Australian Consumer Law, ACCC, 15 April 2011 - http://www.accc.gov.au/content/index.phtml/itemId/303666
[15] Ibid., pp. 9-10.
[18] Ibid., at para. 87.
[19] Ibid., at para. 88.
[20] Ibid., at para. 89.
[21] Ibid., at para’s 90-92.

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