The application, which was numbered TC 0602266, was considered by the Delegate of the Chief Executive Officer of Customs, who refused it on 23 June 2006. This was followed by an internal review under s 269SH of the Customs Act 1901 (the Act)) by another Delegate, who on 23 October 2006, affirmed the earlier decision. In doing so the decision-maker considered that the core criteria for making a TCO were not met. Briefly stated, she was not satisfied that, on the day of lodgement of the application, no substitutable goods were produced in Australia in the ordinary course of business.
These are proceedings by the applicant Kenso under Part IV of the Administrative Appeals Tribunal Act 1975 to review the decision refusing the application on 23 October 2006. The original application for a TCO was opposed by two objectors: (A) Autopak Formulas Pty Ltd; and (B) Nufarm Australia Limited. Both of them produce and market glyphosate herbicides and have done so for some years past. Nufarm, but not Autopak, has been joined as a party to this application for review, and was represented separately from the respondent Chief Executive Officer in the proceedings now before the Tribunal.
Glyphosate herbicides are described as being systemic, post-emergent and non-selective in their action on plants. Judging by the product claims of the makers, these herbicides are destructive of a wide variety of plants and weeds, and are widely used by fruit and vegetable producers and by growers of wheat and other crops across Australia. Under the trade name Roundup, Nufarm also produces a version of glyphosate herbicide for household or garden use, although it is not of particular significance in the present scheme of things.
In Australia there are basically two steps in producing glyphosate herbicides. The first is an amination process by which the glyphosate acid (also known as "glyphosate technical" or "glyphosate wet cake") is combined with mono-isopropylamine (MIPA) to form glyphosate isopropylamine salt. The acid itself used to be manufactured in Australia by Monsanto until its patent expired. Since about 2002 all glyphosate acid used in producing herbicides in this country has been imported. That is so, of both Nufarm and the applicant Kenso.
The second step in producing the herbicide is to formulate the glyphosate isopropylamine salt by diluting it with water and blending it with a surfactant to provide a glyphosate isopropylamine formulation of the desired concentration measured in grams per litre. A surfactant is a surface active agent, whose function is to facilitate movement of the salt through the target plant and into its root system. Its action has been compared to that of a detergent. Of the two steps, the first (the amination process) is the critical one for the purposes of determining this application.
The question for decision essentially is whether the production in Australia in the manner described constitutes manufacture wholly or partly in Australia of the resultant goods, ie the herbicide. The legislative trail starts with s 269P(3) of the Act, which requires the Chief Executive Officer to make a TCO if satisfied that the application meets the core criteria. Under s 269C a TCO application is taken to meet those criteria if, on the day the application is lodged, "no substitutable goods were produced in Australia in the ordinary course of business". In the context of a TCO application the expression "substitutable goods" is defined in s 269B to mean "goods produced in Australia that are put....to a use that corresponds with a use... to which the goods the subject of the application... can be put". A consideration of the "goods" (the herbicide) produced in Australia by Nufarm leaves no doubt that they can be and are put to a use to which the applicant's herbicide can be put. Both are used for killing plants; they both are herbicides and have no other use or purpose. There is no dispute about this element in the subject application to review.
The issue here, however, concerns s 269D of the Act. So far as material it is as follows:
[2]
"269D Interpretation - goods produced in Australia
(1) For the purposes of this Part, goods, other than unmanufactured raw products, are taken to be produced in Australia if:
(a) the goods are wholly or partly manufactured in Australia; and
(b) not less than ¼ of the factory or works costs of the goods is represented by the sum of:
(i) the value of Australian labour; and
(ii) the value of Australian materials; and
(iii) the factory overhead expenses incurred in Australia in respect of the goods.
(2) For the purposes of this Part, goods are to be taken to have been partly manufactured in Australia if at least one substantial process in the manufacture of the goods was carried out in Australia.
(3) Without limiting the meaning of the expression substantial process in the manufacture of the goods, any of the following operations or any combination of those operations does not constitute such a process:
(a) ....
(e) operations to mix goods where the resulting product does not have different properties from those of the goods that have been mixed."
[3]
We may for now leave aside the element of the factory or works costs of the goods covered by s 269D(1)(b). The parties have agreed that the determination of that question should be deferred until after the issue of manufacture wholly or partly in Australia has been decided on this occasion as a preliminary point. By s 269D(2), the herbicide produced by Nufarm is taken to be partly manufactured in Australia "if at least one substantial process in the manufacture of the goods was carried out in Australia". The expression substantial process of manufacture of the goods is not defined affirmatively but only negatively in s 269D(3)(e) so as to exclude operations to mix the goods "where the resulting product does not have different properties from those of the goods that have been mixed". These requirements raise two lines of inquiry. One is whether in producing the goods "at least one substantial process in the manufacture of the goods" was within the meaning of s 269D(2) carried out in Australia. The other is whether it is no more than a process of mixing goods that satisfies the description in s 269D(3)(e).
The word "manufacture" is not one that has proved readily capable of precise definition. Dictionaries commonly address its meaning by starting with a reference to its derivation from the Latin "making by hand". If one thing is clear it is that it is not the sense in which the word is now used. The need to define its meaning in Australia became more pressing when manufacture was used as a criterion for exacting sales tax under the Sales Tax Assessment Act (No 1) 1930. A series of decisions in the High Court established that, for example, reassembling motor cycles imported from England in parts did not amount to manufacture: Irving v Munro & Sons Ltd[1931] HCA 57; (1931) 46 CLR 279; nor did the production of reports of court proceedings by shorthand writers who recorded, transcribed and typed the evidence: Adams v Rau[1931] HCA 43; (1931) 46 CLR 572; nor the preparation and cooking of fish and chips: Federal Commissioner of Taxation v Rochester[1934] HCA 17; (1934) 50 CLR 225.Aliter if photographs are taken, developed and printed: Federal Commissioner of Taxation v Riley[1935] HCA 47; (1935) 53 CLR 69; or simply developed and printed: Federal Commissioner of Taxationv Butcher[1935] HCA 46; (1935) 53 CLR 82; or if new garments are created by remodelling old furs: Federal Commissioner of Taxation v Jack Zinader Pty Ltd (1949)78 CLR 336. More recently, the making of aerated water, a process involving heating and cooling of ingredients, has been treated as amounting to the production of manufactured goods: Cohns Industries Pty Ltd v Deputy Federal Commissioner of Taxation(1979) 37 FLR 508.
There is authority in England suggesting that manufacturing is the making of some new article or entity by bringing it into existence: see McNicol v Punch[1906] 2 KB 352; Gamble v Jordan [1913] 3 KB 49. Some such conception was adopted and applied in Re Searles Ltd(1932) 33 SR (NSW) 7, at 11, to the making by a florist of sheaves, wreaths, baskets, bouquets and posies of flowers. The goods produced were, according to Harvey CJ in Eq, "not sold as flowers but as manufactured articles in the making of which flowers are used". His Honour relied on Adams v Rau where, however, the High Court thought it not possible to formulate "abstract propositions in such general terms". What was determinative, their Honours said, was "the natural and ordinary meaning" of the terms, and no paraphrase of what the legislature has said can provide a substitute for the definition of the statute (46 CLR at 577, 578). So also in Federal Commissioner of Taxation v Rochester Dixon J said (50 CLR, at 226) that "in the interpretation of these very difficult provisions" in the Sales Tax Assessment Act (No 1) 1930, there is "no safe guide but the common use of English terms".
The Act of 1930 contained a plethora of words and phrases providing a surrounding context in which "manufacture" or its derivatives were used. In the Customs Act 1901, the language of s 269D(3) and, in particular, of s 269D(3)(a) must receive due weight. In producing the subject herbicide, which is "the resulting product" in s 269D(3)(e), there is a mixing of glyphosate acid with isopropylamine to produce the salt that is then blended with a surfactant. The applicant insists that the exclusion in s 269D(3)(e) applies because (it claims) the processes of amination and formulation involve no change in the properties of the ingredients that go into the mixture. The glyphosate acid is, it is said, as much a herbicide as is the resulting product. Indeed, it is this substance that contributes the toxic quality to the ultimate herbicide.
The last of these points may be accepted. Among the applicant's documentary material there is a paper by Dawn E Nordley and Aaron G Hager of the University of Illinois, who stress it is important to remember that it is "the parent acid that is the herbicidally active portion of the formulation". It is this that "binds the target to control the weeds". The only function of the amine formulation is to increase the solubility of the parent acid, which would otherwise not be absorbed into the plant because "it's not able to effectively penetrate the waxy cuticle covering the leaf". Expressed in forensic terms it might be said that the killer is the glyphosate. Amination and formulation simply provide access to the target of the crime.
Successful poisonings have, however, always depended upon having access to the prospective victim. Without it, poison is innocuous. To say that the resulting product is simply a herbicide like the initial glyphosate acid is, however, to engage in a high level of abstraction that does nothing to resolve the practical question raised in ss 269D or 269D(3)(e). On the applicant's view of the herbicidal qualities, the essential properties of the glyphosate, both before and after the amination and formulation process, are the same. That is why, says the applicant, they are commonly described as glyphosate herbicides. The difficulty is that this ignores the whole purpose of the production process, which is aimed at making the acid usable. There is no functional utility in a herbicide that, whatever its toxic potential, cannot without more kill weeds. In ordinary language, it cannot legitimately be termed a herbicide.
It becomes necessary to look more closely at the incidents and effects of the process that takes place in converting glysophate acid to an effective plant killer. As mentioned, the first step is to produce glyphosate salt by diluting the acid with water and neutralising with an organic base. Monoisopropylamine is the base commonly used for this purpose. It is highly volatile and must be introduced into the acid from beneath the surface or it vaporises and pollutes the atmosphere. The process is exothermic and must be controlled to keep it below 65oC. The chemical reaction that ensues produces a new chemical compound (glyphosate-isopropylamine salt) having a different molecular structure with different physical and chemical properties. After being formulated with a surfactant and introducing a dye, the resulting herbicide is ready for use.
Changes in the characteristics of the constituents can be presented in tabular form as follows:
[4]
Mr John Gaunt of International Trade Services and Logistics Pty Ltd, who has been advising the applicant, concedes that "the physical form and/or characteristics have been changed", but not (he says) the herbicidal properties of the glyphosate acid. But s 269D(3)(e) excludes mixing operations from manufacture only where the resulting product (the herbicide) does not differ in its properties from those of the constituents that were mixed to produce it. As can be seen from the table, the glyphosate formulation in the last column differs in a number of its properties from its constituents in each of the first and second columns. The most notable difference for present purposes is in its property of solubility in water, where the comparison is between 10.5 grams per litre and either 1050 g/l or complete solubility. Differences in the molecular weight and density measured in grams per millilitre are also marked.
On behalf of Nufarm, Mr O'Donnell's second outline of evidence in attachment 1 contains a detailed explanation of the chemical and biological changes involved, which I will not attempt to duplicate here. In my view the process to which these changes are attributable is, according to ordinary usages of the English language, correctly described as taking place "in the manufacture of the goods" in terms of s 269D(2). I also note that after originally doubting the possibility of formulating "abstract propositions in general terms" in Adams v Rau in 1931, Dixon J in Federal Commissioner of Taxation v Zinander[1949] HCA 42; (1949) 78 CLR 336, 343, accepted from McNicol v Punch[1906] 2 KB 352, 361, that the essence of manufacturing is making "a different thing from that out of which it is made". The glyphosate herbicide here plainly is a "different thing" from either the glyphosate acid or the monoisopropylamine out of which it is made. The question is not, as Mr Slonim for the applicant contended, whether the glyphosate acid has retained its "essential character". As can be seen from decisions such as Times Consultants Pty Ltd v Collector of Customs(1987) 16 FCR 449 and Sharp Corporation v Collector of Customs(1995) 59 FCR 6, that expression has been resurrected from an older customs tariff or its rules of interpretation that are no longer in force. It does not form part of the relevant provisions of the Customs Act 1901 under consideration here.
I therefore conclude that the process of conversion to the new chemical compound glyphosate-isopropylamine salt and its formulation into or as herbicide is one of "manufacture" within the meaning of s 269D(2) of the Act. It is carried out in Australia. It remains to be seen whether under that section it is a "substantial" process in the manufacture of the goods, ie the herbicide. In Commissioner for Superannuation v Scott (1987)12 ALD 38, 42; 71 ALR 408, 412, the Full Court of the Federal Court referred with approval to Re Bonny[1986] 2 QdR 80, 81-82, where, in reliance on Palser v Grinling[1948] AC 291, at 315, it was said that "substantial" means "considerable", "solid" or "big". In the end, however, much depends on the statutory or other context in which the word is used.
Supported by a wealth of material, photographic and otherwise, Nufarm has shown that its manufacturing plant storage facilities and operations in Victoria are large and sophisticated, and represent a considerable investment in money. The process of transportation, storage and use of MIPA is subject to careful management, supervision and statutory control designed to avoid hazards to persons, property and the environment. On the other hand, and using as an illustration a DVD of a small scale demonstration, the applicant claimed that the amination and ensuing formulation process area simple and unsophisticated: so much so in fact that, with a few straightforward instructions, it can be and is performed by "tollers". They are independent contractors who for a fee or "toll" carry out chemical processing for others, who supply them with the materials requiring treatment.
The level of sophistication, the investment needed, and the skill required in the manufacture of this herbicide are one of the few areas of faint factual conflict that emerged in the course of the hearing. Perhaps it is more a matter of inference than of primary fact. In so far as there is any real difference between the witnesses Mr Clark for the applicant and Mr O'Donnell for Nufarm, I prefer the latter's evidence. He is better qualified to speak both about the chemistry and the biology involved and the impact of the herbicide. My conclusion, in the end, however, is that while considerations of size, scale, sophistication and cost are factors properly to be taken into account in determining whether the manufacturing process is "substantial", they cannot be regarded as decisive. Otherwise it would be open to an existing manufacturer, who was wealthy and determined, so to enlarge the scale and complexity of his operations as to ensure that no TCO would ever be made. Rather, I consider that, at any rate in a case like the present, the question whether under s 269D(2) a process in the manufacture of goods is "substantial" depends on the significance or importance of its contribution to the making of a new or different thing. What s 269D(2) calls for is at least one substantial process "in" the manufacture of the goods in Australia. In doing so, it may perhaps invite a comparison with other activities carried out in making the goods. The chemical conversion of the glyphosate acid, and its consequences for the production of the effective herbicide, are sufficient to enable it to qualify as "substantial" in the manufacture of glyphosate herbicide.
For Nufarm as the Joined Party, Mr La Cava SC raised an alternative argument, which he in fact placed in the forefront of his submissions, for refusing this application for review. It is that the goods (the herbicide) are not partly but wholly manufactured in Australia within the meaning of s 269D(1)(a) of the Act. That being so, there would be no occasion to travel to ss 269D(2) or 269D(3) to see if the goods are (or are taken to be) partly manufactured in Australia. It is not a matter of asking whether glyphosate acid and isopropylamine are themselves manufactured in Australia. They are, so the submission runs, the ingredients used in manufacturing the herbicide; but they are not the "goods" referred to in s 269D(1)(a). The goods are the manufactured product or the "resulting product" mentioned in s 269D(3)(e); that is, the glyphosate herbicide, being the glyphosate formulation 360 g/l shown in the final column of the above table, which, irrespective of its constituents, is itself wholly manufactured in Australia.
The submission is said to derive force from an observation in the reasons of Gummow J in the Federal Court in Re Davies Ferguson Pty Limited & Comptroller-General of Customs (10 March 1988, unreported). Speaking of an earlier now replaced customs tariff, his Honour said: "Item 19 directs attention to the goods themselves not what I might call their ingredients, whether they be raw materials or materials already processed." This, however, was said in the course of rejecting a conclusion that the goods were not "produce or manufacture of Australia" within Item 19 of Part 1 of Schedule 2 of the Customs Tariff Act 1966. That conclusion was sought to be supported because the goods contained imported constituents or elements. It was rejected by his Honour for the reasons set out above. It represented the old system of tariff concession orders which has since been superseded.
Gummow J then proceeded to deal with what he called the "new system" (as it then was) and to discuss the operation in that instance of what were then s 269B(5)(a) and s 269B(6). Speaking of these provisions, his Honour said (para 43):
[5]
_"That leaves sub-s 269B(5)(a) which requires that the goods were '_wholly or partly manufactured in Australia' meaning at least 'one substantial process in the manufacture of the goods was carried out in Australia' (s269B(6). Plainly, such a substantial process was so carried out. The result is that there is no merit in the first matter relied on by the applicant....".
[6]
Section 269B(5)(a) and s 269B(6) correspond in their terms almost exactly with s 269D(1)(a) and s 269D(2). If in Re Davies Ferguson Pty Limited, his Honour had intended his comments on Item 19 of the tariff to extend to goods "wholly manufactured in Australia", it is surprising that he did not say so. Instead, from the former s 269B(6) he quoted the statutory equivalent of current s 269D(2) applicable to goods only partly manufactured in Australia. It is quite clear that his Honour did not decide, or even consider, the point now raised by Mr La Cava SC. If valid, it would seem to, or might, arbitrarily reward a manufacturing process carried out later rather than sooner in the course of producing the goods.
In any event, I do not think it necessary on this occasion to determine this question, having already decided the issue in favour of Nufarm on another and more orthodox ground. There remains the question of the factory or works costs of the goods under s 269D(1)(b) which will need to be the subject of evidence at some future hearing. In the meantime, I think it will suffice if I record that, leaving that question aside, the subject herbicide produced by Nufarm was partly manufactured in Australia at the date of the applicant's application for a TCO. There will be a telephone directions hearing to discuss the future conduct of the matter.
[7]
I certify that the 26 preceding paragraphs are a true copy of the reasons for the decision herein of the Hon Dr B H McPherson, CBE, Deputy President.
Solicitor for the Respondent Mr R Northcoat, Australian Government Solicitor
[10]
Counsel for Joined Party Mr P La Cava SC & Ms K Beattie
[11]
Solicitor for the Joined Party Sylvia Miller & Associates
Parties
Applicant/Plaintiff:
Irving
Respondent/Defendant:
Munro & Sons Ltd
Legislation Cited (2)
Tariff Act 1966
Appeals Tribunal Act 1975
Cases Cited (17)
Kenso Marketing (M) SDN BHD and Chief Executive Officer of Customs and Nufarm Australia Limited (Party Joined) [2008] AATA 42; (2008) 99 ALD 680 (15 January 2008)