FEDERAL COURT OF AUSTRALIA

CUSTOMS ACT 1901 - applicant importer of high wet strength paperboard used in packaging - whether tariff concession order should have been made - relevant principles - extent to which definition of “substitutable goods” depends on use - definition of “the market for the substitutable goods” - whether that phrase in this context meant the market in which the substitutable goods and the imported goods compete - whether definition should not be so limited.

Customs Amendment Act 1996:  s269C

Customs Act 1901 (Cth):  s 269B(1), s  269C(b), s 269F, s 269P(1), s 269S(h), s 273GA(1)(n)

            Part XVA

Customs Tariff Act 1987

Trade Practices Act 1974 (Cth)

Comptroller-General of Customs v Kawasaki Motors Pty Ltd (No 1) (1991) 32 FCR 219

Re Vulcan Australia Pty Ltd v Comptroller‑General of Customs (1994) 20 AAR 116

Zetco Pty Ltd v Collector of Customs (unreported, 21 March 1995, AAT V94/165)

Trade Practices Commission v Australian Meat Holdings Pty Ltd (1988) 83 ALR 299

Re Queensland Co‑Operative Milling Association; Re Defiance Holding Ltd (1976) 25 FLR 169

Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Ltd (1989) 167 CLR 177

Seguin Moreau, Australia v Chief Executive Officer of the Australian Customs Service (unreported, Drummond J, 14 August 1997)

RIVERWOOD CARTONS PTY LTD v CHIEF EXECUTIVE OFFICER OF CUSTOMS and AUSTRALIAN PAPER PTY LTD

VG 692 of 1996

GOLDBERG J

MELBOURNE

18 AUGUST 1997

On appeal from the general administrative division of the Administrative Appeals Tribunal constituted by Deputy President G L McDonald

MINUTES OF ORDER

THE COURT ORDERS THAT:

1.         The appeal is allowed.

2.         The matter be remitted to the Tribunal for reconsideration in accordance with law. 

3.         The respondent pay the applicant’s costs of the appeal including any reserved costs.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

On appeal from the general administrative division of the Administrative Appeals Tribunal constituted by Deputy President G L McDonald

REASONS FOR JUDGMENT

Introduction and background

On 4 July 1994 the applicant applied pursuant to s 269F of the Customs Act 1901 (Cth) (“the Act”) for a tariff concession order (“TCO”) in respect of high wet strength paperboard of a specified description.  On 21 December 1994 the delegate of the Comptroller pursuant to s 269P(1) of the Act notified the applicant that he was not satisfied that the application met the core criteria as provided in s 269C of theAct and therefore could not make a TCO in respect of the relevant goods.  On 6 February 1995 the applicant applied pursuant to s 269S(h) of the Act for a reconsideration of the decision and on 6 April 1995 the delegate confirmed the decision not to grant the TCO.  On 3 May 1995 the applicant applied to the Administrative Appeals Tribunal (“the Tribunal”) pursuant to s 273GA(1)(n) of the Act to have that decision reviewed.  On 22 October 1996 the Tribunal affirmed the decision under review.  On 19 November 1996 the applicant appealed to the Court from the decision of the Tribunal.

The issue before the Tribunal and before the Court involved the proper construction of s 269C of the Act which at the relevant time was in the following terms:

For the purposes of this Part, a TCO application is to be taken to meet the core criteria if, on the day occurring 28 days before the day on which the application was lodged:

(a)       no substitutable goods were produced in Australia in the ordinary course of business; or

(b)       substitutable goods were produced in Australia in the ordinary course of business but the granting of the TCO was not likely to have a significant adverse effect on the market for the substitutable goods.

The term “substitutable goods” in respect of goods the subject of a TCO application or of a TCO was defined at the relevant time in s 269B(1) as meaning:

“goods produced in Australia that are put to a use that corresponds with a use (including a design use) to which the goods the subject of the application or of the TCO can be put”.

(Section 269C in the form in which it existed at the time of the application for the TCO was repealed by the Customs Amendment Act 1996 which came into operation on 15 July 1996 and substituted the following s 269C:

“For the purposes of this Part, a TCO application is taken to meet the core criteria if, on the day on which the application was lodged, no substitutable goods were produced in Australia in the ordinary course of business.”)

The Tribunal found, on the evidence before it, that at the relevant date substitutable goods were produced in Australia in the ordinary course of business.  Those substitutable goods were produced by Australian Paper Pty Ltd and may be described generally as corrugated fibre board.  (There is an issue between the parties as to what was the exact finding of fact by the Tribunal in relation to the identification of the substitutable goods and I will return to this issue.)  The Tribunal also found that a price reduction as a result of a grant of a TCO together with a combination of other factors to which it referred would have a significant adverse effect on the market for the local product and accordingly was satisfied that the TCO should not be granted.  The Tribunal identified the relevant market for the purposes of s 269(C)(b) as the market in which the applicant and Australian Paper Pty Ltd and another paperboard producer (Pratt Industries) competed.

Submissions of the parties

The applicant did not pursue an attack on the Tribunal’s finding that the paper board product of Australian Paper Pty Ltd was substitutable for the high wet strength paper board of the applicant and the appeal was confined to the issue of the proper construction of s 269C(b), namely whether “the market for the substituted goods” referred to in s 269C(b) was the whole of the market for the substituted goods wherever they could be sold, or that segment of the market in which the goods are substitutable for the goods in respect of which the TCO was sought.

Mr Cavanough QC, who appeared with Mr Fleming for the applicant, submitted that “the market for the substitutable goods” in s 269C(b) was the market for the substitutable goods wherever they could be sold.  Mr Crennan, who appeared for the respondent, submitted that it was not necessary to determine the proper construction of s 269C(b) because of what he submitted was the finding of the Tribunal in relation to the identification of the substitutable goods.  He submitted that the Tribunal had not found that the substitutable goods were “corrugated fibre board” but rather had found that the substitutable goods were more restricted, namely those types of corrugated fibre board which can be used in the secondary packaging of canned beer and aerated softdrinks and which are made up from particular types of liner board and fluting paper manufactured by Australian Paper Pty Ltd.  He submitted that there was no finding of fact that “all corrugated fibre board” was the proper description of the substitutable goods.  In those circumstances, said Mr Crennan, the Tribunal’s finding that the granting of the TCO was likely to have a significant adverse effect on the market for the substitutable goods was not a finding which was reached by an error of law as on either interpretation of “the market for the substitutable goods” the relevant significant adverse effect existed. 

In the alternative Mr Crennan submitted that “the market” for the substitutable goods referred to in s 269C(b) was the market in which the substitutable goods were substitutable for the goods, the subject matter of the TCO.  Mr Crennan relied upon a number of decisions which analysed the concept of “market” for the purposes of the Trade Practices Act 1974 (Cth).  Mr Cavanough submitted that the Customs legislation was quite different from the Trade Practices legislation and he relied upon the dictum of the Full Court in Comptroller-General of Customs v Kawasaki Motors Pty Ltd (No 1) (1991) 32 FCR 219 at 240‑241 referring to the nature of the regime of customs duties including TCOs.  He submitted that the relevant Customs legislation was concerned to enquire whether sales of local goods would be threatened by imports and that the legislation constituted a national scheme in relation to the Australian market for local goods and was not concerned about close competition in one area of the market. 

The substitutable goods

The applicant’s paper board has a high wet strength capability and is manufactured under the brand name “Aqua-Kote”.  The description of it accepted by the Tribunal was:

“Paper board, unbleached kraft, clay-coated, hard sized, containing high wet strength additives and conforming with ... [identified specifications not relevant for present purposes]".

The product manufactured by Australian Paper Pty Ltd found by the Tribunal to be relevant was described as:

“‘Corrugated board’ which is composed of paper board (‘fluting paper’) and paper (‘liner board’) which are combined (laminated) and which, amongst many other uses, is put to use in the manufacture of boxes used in the packaging industry ...”

The Tribunal observed in relation to Australian Paper Pty Ltd’s corrugated board that:

“The paper and paper board are made into corrugated fibre board in factories located in New South Wales, Victoria, Western Australia and Queensland.  The corrugated fibre board can be converted to many uses, one of which is into boxes used in the packaging industry.  There are a large number of applications for corrugated fibre boxes, ranging from the storage of fresh produce to the packaging of vehicle engines”.

There are two particular passages in the Tribunal’s reasons upon which Mr Crennan relied in support of his submission that the relevant substitutable goods found by the Tribunal were corrugated board when they were used in and for the secondary packaging of beer and aerated softdrinks.  The first passage is in the following terms:

“In the instant case, the Tribunal is concerned with the applicant’s product Aqua‑Kote and the party joined’s corrugated fibre board when both are converted for use as boxes for the secondary packaging of beverages (primary packaging being the bottle or can in which the beverage is contained).  ...In as far as manufacturing in the Australian packaging industry is concerned, including that of secondary beverage packaging, the area is dominated by Pratt Industries (with subsidiaries or trade names Visy Paper and Visy Board) and Amcor Ltd (which the Tribunal accepts as the parent company of the party joined)”.

The second passage is in the following terms:

“The Tribunal is satisfied on the totality of the evidence that the major use made of the locally produced goods and the imported product is in the packaging industry and, in particular, in the secondary packaging of canned beer and aerated softdrinks.  There was really no dispute about this between any of the witnesses.  The extra strength attributable to the imported product when wet does not distinguish the use to which the two products are put, the locally produced product being used in the same wet or moist conditions as the imported product. ...It follows that the Tribunal is satisfied that the goods produced in Australia are put to a use that corresponds with the use of the imported product and that, accordingly, substitutable goods are produced in Australia”.

Mr Crennan submitted that there was a substantial body of evidence which showed that there were a number of applications to which different types of corrugated board could be adapted.  He pointed to evidence before the Tribunal to the effect that Australia Paper Pty Ltd’s corrugated fibre board could be used for a number of specific uses and that the product to be packaged and distributed determined the type of corrugated box and consequently the types of liner boards and fluting papers used.  He relied upon the evidence that “corrugated fibre board” and “corrugated fibre box” were in fact generic descriptions for the many specific forms and applications of different types of corrugated packaging material which can be clearly distinguished one from each other.  There was evidence before the Tribunal that the requirements for packaging beer and aerated softdrinks were different from those for the packaging of items such as explosives, fresh produce and general groceries.  The effect of this evidence was, as one witness said, that the beverage market used only part of Australian Paper Pty Ltd’s corrugated fibre board range.

Mr Crennan submitted that this evidence supported the submission that the Tribunal found that the substitutable goods were corrugated fibre board only when, and to the extent that, they were used for the secondary packaging of beverages.  However it is important to note that the Tribunal did not make a finding that the corrugated fibre board used in the beverage and aerated softdrinks market was technically different from the corrugated board used in respect of other goods.  In the light of that fact, to accept Mr Crennan’s submission would be to distort the definition of “substitutable goods” in s 269B(1).  “Substitutable goods” are goods produced that are put to a use that corresponds with a use to which the relevant imported goods can be put.  There is no requirement that the substitutable goods have only one use.  The definition will be satisfied even if the substitutable goods (in this case, corrugated fibre board) have a number of uses, only one of which corresponds with a use to which the imported goods can be put. 

I do not consider that the Tribunal made a finding that the nature and identification of the substitutable goods depended upon the nature of their use in the sense that the same product being corrugated fibre board was not substitutable goods when it was used for the packaging of supermarket dry goods but was substitutable goods when it was used for the packaging of beer and aerated softdrinks.

When the Tribunal said:

“In the instant case, the Tribunal is concerned with the applicant’s product Aqua‑Kote and the party joined’s corrugated fibre board when both are converted for use as boxes for the secondary packaging of beverages (primary packaging being a bottle or can in which the beverage is contained)”,

it was not making a finding as to the only point of time at which the applicant’s product was properly to be described as substitutable goods; rather it was concerned to state what was the overall issue in the case with which the Tribunal was concerned, namely it was directing its attention to what were the consequences under the statutory scheme when both products were used for such secondary packaging.  This passage is not a finding of fact as to what particular type of corrugated fibre board is substitutable goods for the purposes of the definition of that expression in s 269B(1).  The Tribunal found that “the major use” of what it called the “locally produced goods” and the imported product was in the packaging industry and, in particular, in the secondary packaging of canned beer and aerated softdrinks.  In my view this was a finding that there were a number of uses of corrugated fibre board, one of which (albeit the major one) corresponded with a use to which the imported goods could be put.  This was not a finding that limited the description of the substitutable goods to the occasions on which they were used for the packaging of canned beer and aerated softdrinks; rather it was a finding that corrugated fibre board had a number of uses, one of which fell within the statutory definition of substitutable goods namely, “a use (including a design use) to which the goods the subject of the application or of the TCO can be put”.

The market

The Tribunal commenced its consideration of whether there was likely to be a significantly adverse effect on the market for the substitutable goods by noting that the Act did not define the term “market”.  It then reasoned as follows:

“The packaging market, or indeed the secondary packaging market alone, is obviously a huge market.  In the context of the evidence in this case it would, because of the size of the overall market, be meaningless to compare the effect on that market of the granting of a TCO for the applicant’s product.  There are sound practical reasons why the market should be specifically identified as that in which the product the subject of the TCO application and the locally produced goods are in competition.  In the instant case ‘the market’ should be taken to be that in which the applicant and the party joined (as well as Pratt Industries) competed as at the period 28 days prior to the lodgment of the TCO application.  It is clear that a market in this secondary packaging of canned beer and aerated softdrinks was distinguished by the parties as being a distinct market within the broader packaging arena.  The particular requirements relating to promotion, the evident intense competition to gain market control in the area, and the claim by the applicant of the added benefits arising from the HWS capability of Aqua-Kote for use in refrigerated, moist or humid conditions with respect to the secondary packaging of canned beer and aerated softdrinks, satisfies the Tribunal that there is a market for secondary packaging of canned beer and aerated softdrinks which is distinguishable from the general packaging or secondary packaging market.  This would appear to be the market in which the applicant is concentrating its efforts to gain market share.”

The Tribunal then analysed the evidence and concluded that there would be a significant adverse effect on that market for the local product.

Mr Cavanough submitted that the plain meaning of the expression “the market for the substitutable goods” referred to the total market for the goods and that the expression “the market” was not qualified in any way by reference to criteria such as relevance or the market in which the substitutable goods competed.  It was said that the market test in s 269C was built on the definition of substitutable goods in s 269B(1) which contemplated multiple uses of goods and Mr Cavanough contrasted the expression “a use” (emphasising the indefinite article) with the expression “the market”, (emphasising the definite article).  He submitted that the interpretation of the expression “the market” meaning the total market for the substitutable goods wherever they could be sold (whether or not the imported goods formed part of that market), was consistent with and implemented the statutory scheme contained in Part XVA of the Act.  Part XVA provides a mechanism whereby particular goods may obtain the benefit of a lower rate or duty otherwise payable under the Customs Tariff Act 1987 and the Act.  Unlike the Trade Practices Act 1974 (Cth) which is, in general terms, a statute designed to preserve and promote competition:

“The regime of Customs duties, including variations effected by TCOs, is at any given time the scoreboard of the enduring contest waged between the forces of free trade and protection.  As well as the direct commercial interests of the kind mentioned, there are social, political and economic considerations affecting the whole Australian community”.

(Comptroller-General of Customs v Kawasaki Motors Pty Ltd (No 1) (1991) 32 FCR 219 at 241 per Hill and Heerey JJ).

In my opinion the expression “the market for the substitutable goods” in s 269C(b) should be given its plain meaning, namely the whole of the market for the goods, that is to say wherever and in whatever context the goods may be sold.  There is no warrant for introducing into the expression words to the effect of “the market in which the substitutable goods and the imported goods compete”.  In my view this interpretation is consistent with the principles underlying Part XVA.  If the granting of a TCO would have a significant adverse effect on the ability of the substituted goods to compete for business in the area of the secondary packaging of beer and aerated softdrinks, but the substituted goods are not affected to the extent to which they can compete for business in the packaging of other products such as supermarket dry goods or white goods, then one would not expect that there would be the same need to protect the substitutable goods. 

In my view the Tribunal mis‑interpreted the expression “the market for the substitutable goods” when it said that “the market” should be taken to be the market in which the applicant, Australian Paper Pty Ltd and Pratt Industries competed.  The fact that there may be a market for the secondary packaging of canned beer and aerated softdrinks which is distinguishable from the general packaging or secondary packaging market does not resolve the interpretation of the expression “the market for the substitutable goods” if there is a market for the substitutable goods in some other packaging area.  The fact that the applicant was concentrating its efforts in the market for secondary packaging of canned beer and aerated softdrinks in order to gain market share does not disentitle it to the benefit of a TCO if the market for the substitutable products includes not only that market but other markets of the type to which I have referred.

The Tribunal relied upon two Tribunal decisions in support of its approach, Re Vulcan Australia Pty Ltd v Comptroller‑General of Customs (1994) 20 AAR 116 and Zetco Pty Ltd v Collector of Customs (unreported, 21 March 1995, No 10,082).  In Re Vulcan Australia the Tribunal did not define the expression “the market for the substitutable goods” in s 269C(b) as being that market in which the substitutable goods and the imported goods competed.  Rather, the Tribunal rejected such a construction.  The Tribunal considered a number of possible limitations which might be placed on the definition of “the market for the substitutable goods”.  At page 129 the Tribunal said

“The third possible limitation relates to what may be described as sub‑markets.  While not using this term, Mr Gross seemed to touch upon it in his reply.  He gave as an example a hand lawn mower which could not in anyone’s imagination, he said, be described as substitutable for an expensive electric steam roller lawn mower used to cut a bowling green.  There must be a direct relationship, he argued, and so we perhaps should look to a market consisting only of those goods which actually compete with the TCO goods.  We do not accept this argument and do not accept that we can look to sub‑markets.  Section 269C(b) has limited the market to which we may have regard and that is the market for substitutable goods.  These goods are identifiable by means of their uses and not by reference to factors such as the manner in which they achieve that use or their cost.  If we were to take such factors into account and so identify a sub‑market we consider that we would be stepping beyond the limits permitted by the Act.”

In Zetco (supra) the Tribunal adopted the approach of considering the area in which there was substitution between one product and another for the purpose of determining the definition of the relevant market and the Tribunal relied upon dicta of French J in Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158.  On the facts before it the Tribunal held that there was a separate market for luxury or upmarket toilets as distinct from the market for standard toilets.  The Tribunal in that case did not have to consider a substitutable product which was acquired in a market which was wider and more extensive than the market in which the imported goods was involved.

The respondent submitted that the identification of the relevant market is a question of fact (Trade Practices Commission v Australian Meat Holdings Pty Ltd (1988) 83 ALR 299) and that to submit that the Tribunal erred in identifying the relevant market did not raise a question of law.  However, those propositions are not relevant on the present appeal where the dispute between the parties is as to the proper interpretation of “the market for the substitutable goods” in s 269C(b).  The respondent submitted that the cases which have considered the proper meaning, and method of definition, of “market” in the Trade Practices Act 1974 (Cth) were relevant and of assistance in defining the expression “the market” in s 269C(b).  Mr Crennan relied in particular on Re Queensland Co-operative Milling Association Ltd; Re Defiance Holding Ltd (1976) 25 FLR 169 and Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Ltd (1989) 167 CLR 177.  He also directed my attention to numerous other cases dealing with the concept of “market” but it is not necessary to consider those cases in any detail other than to note that when I refer to “a market” or “the market” I am using the term “market” in the sense in which it is defined and understood in Queensland Co‑Operative Milling at 190 and Queensland Wire at 188 and 194‑5.  The respondent’s submission does not address the particular words in s 269C(b) namely “the market for the substitutable goods”.  The respondent’s submission was that the expression “market” in s 269C(b) must be confined to that market where the substitutable goods actually compete with the imported goods.  However, the use of the definite article “the” in juxtaposition with “market” in the section is significant as it assists in identifying what the relevant market is, namely the market in which the substitutable goods compete generally and not simply, or only, the market in which the substitutable goods compete with the imported goods. 

In effect, the respondent was seeking to introduce into s 269C(b) the concept of a sub‑market as a limitation on the extent and scope of “the market for the substitutable goods”.  It may well be that the evidence before the Tribunal was such as to enable it to identify a sub‑market within the general or overall packaging market, that is to say a particular market for the packaging for beer and aerated softdrinks.  However, there was also evidence before the Tribunal that there was a wider market for the use of Australian Paper Pty Ltd’s corrugated fibre board, found by the Tribunal to be the substitutable goods.  Accordingly it was incumbent upon the Tribunal to consider whether there was likely to be a significant adverse effect on that market for the substitutable goods and not simply on the more limited market in which the imported goods competed.  This was the prescription laid down by s 269C(b).  Reaching this conclusion is not to deny or reject the dicta and principles found in Re Queensland Co‑operative Milling Association Ltd; Re Defiance Holding Ltd (supra), Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Ltd (supra), Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (supra) and the numerous other decisions which have considered the subject of market definition for the purposes of the Trade Practices Act 1974 (Cth).  Rather this conclusion accepts the relevance and application of those dicta and principles and applies them to “the market for the substitutable goods”.

In Seguin Moreau, Australia v Chief Executive Officer of the Australian Customs Service (unreported, 14 August 1997) Drummond J reached the same conclusion as I have reached as to the construction of s 269C(b) where he said that (p4):

“the Tribunal was correct in construing s 269C(b) as requiring it to have regard to the impact of the grant of a TCO on the whole of the market for all the goods identifiable in the material before the decision‑maker as ‘substitutable goods’”.

His Honour rejected the construction of s 269C(b) for which the respondent contended in this appeal.

The Tribunal concluded its consideration by being satisfied that:

“the market between the applicant’s Aqua‑Kote and the party joined’s (and Pratt Industries’) corrugated board is very competitive”.

On the basis of this market definition it concluded that a price reduction as the result of a grant of a TCO together with the combination of other factors giving the applicant’s imported product market advantage would have the effect of increasing the pressure on the substitutable goods such that there would be a significant adverse effect on the market for the local product.  In that context the Tribunal’s reference to “the market for the local product” was obviously a reference to the market earlier stated, namely the market in which the applicant, Australian Paper Pty Ltd and Pratt Industries competed in respect of the secondary packaging of canned beer and aerated softdrinks.  However, for the reasons to which I have referred this conclusion was based upon an incorrect construction of the expression “the market for the substitutable goods” in s 269C(b).

The appeal will therefore be allowed and it will be necessary for the matter to be remitted to the Tribunal for reconsideration in accordance with law and I so order.  The respondent should pay the applicant’s costs of the appeal.

Associate:

Dated:              18 August 1997