How will the US tariffs be applied to Queensland exports to the US?
On 5 April 2025, the US under the Trump Administration imposed a 10% baseline tariff on most Australian goods including beef, wine, pharmaceuticals and metals, and a 25% tariff on steel and aluminium products.
These tariff impositions can be seen to have contradicted the spirit of the Australia-United States Free Trade Agreement (AUSFTA), which is intended to promote free trade between the nations. While further clarification is pending following US-Australia negotiations, it appears the US has imposed tariffs to combat a perceived threat to its national security and economy in the form of a suppression of US domestic wages and consumption. This declaration falls under the safeguard provisions of the AUSFTA which allows for the protection of domestic industries.
In response, Australia has held off on retaliatory tariffs, emphasising the importance of maintaining diplomatic relations, and prompting a 90-day reprieve (from 9 April) to allow further negotiations.
Although Australian exports have received the 'best case scenario' tariffs (10%), many of our major trading partners, including China, have not (up to 245%).
While Australian exports are not directly impacted by US-China tariffs, there may be implications for Australian products that have been manufactured, produced or cultivated in China or Hong Kong (as many Australian and Queensland businesses rely on manufacturing in China).
As of 2 May 2025, low-value exports to the US from the Peoples Republic of China and Hong Kong are no longer exempt under de-minimis (duty free rate for products valued at or under $800). As a result, these goods are now subject to a duty of either 30% of their value or $25 per item (rising to $50 from June).
A report assessing the impact of this change and evaluating its potential extension to Macau (part of Greater China) is expected within 90-days (from 2 April). Currently there has been no communication from the US Government as to how duty under the previous de-minimis exemption will be collected.
Depending on applicable rule of origin under relevant trade agreements (AUSFTA), including products that may have been classified as originating from China and Hong Kong, these exports may be subject to the corresponding tariff rates applied (up to 245%), rather than benefiting from Australian-Origin preferences (10%).
Country of Origin and Rules of Origin explained
The Country of Origin, dictated by the Rules of Origin, determines the economic nationality of a product in international trade.
Under the existing AUSFTA (which may change based on negotiations) the main criteria used are, if the product is:
- Wholly obtained and/or produced in Australia - the product is entirely sourced and produced within Australia without incorporating foreign materials, or,
- Substantial transformed - the product is deemed to originate from the country where it underwent significant processing that changes the chapter (code) and characteristics that are almost identical for the intended use (e.g. you cannot import something from China, package it and claim the country of origin is Australia).
To understand if the product transformation changes the country of origin, you need to consider how the product has been changed by the third party, including:
- Change of chapter/code - has the product been altered to the point of intended end user consumption?
- Is the chapter/code used by the third party to send the product back to you the same chapter/code you will use to export the good?
- Change of subchapter/last digits of the code - has the use for this product changed?
- Although the chapter number might be the same, the subchapter may demonstrate that the product is different (e.g. Cocoa beans HS code is 1801.00 whereas, chocolate bars (final product) is HS 1806.31)
Although these can be an indication of whether the product falls under the Rules of Origin (originating from Australia), you will need to determine the Regional Value Content (RVC), which can be calculated using one of the following formulas:
- Build Up Method is used when the value of originating materials (typically raw or semi-processed goods sourced exclusively from Australia) is calculated to determine compliance with RVC. These materials may be temporarily processed, manufactured, or packaged in a third country before returning to Australia for final production and export. The focus is on adding value from within the region.
- Build Down Method applies when a product incorporates a variety of inputs from multiple countries. This method subtracts the value of non-originating materials from the final value of the product, with the remaining percentage needing to meet the required threshold of Australian-origin content. It is commonly used for complex goods that rely on a global supply chain but are finalised and exported from Australia.
RVC = (Value of Originating Materials) / Adjusted Value x 100
Example: If the value of Originating Materials for a product is $1.60 and the Adjusted Value is $3.50, 45.7% of the whole value of the product originated in Australia.
RVC = $1.60 / $3.50 x 100 = 45.7%
Value of Origination Materials (VOM):
The value of originating materials that are acquired of self-produced and used by the producer in the production of the good.
Adjusted Value of the Product:
The price of the product including transport to the port of export.
Example: If the Adjusted Value of a product is $100,000 and the value of VNM used in the product is $30,000, 70% of the value of the final product would have originated in Australia
RVC = ($100,000 – 30,000) / $100,000 x100 = 70%
Value of Non-Originating Materials (VNM):
The value of non-originating materials that are acquired and used by the producer in the production of a good. This does not include the value of a material that is self-produced.
Adjusted Value:
The price of the product including transport to the port of export.
Does the RVC rate apply to your product?
Under the AUSFTA, Rules of Origin are used to determine whether goods qualify for preferential tariff treatment, even when they include components from countries not party to the agreement.
To be eligible, a product must be classified as "originating", which can occur in a number of ways. This includes if the product is wholly obtained or produced in Australia (such as minerals, livestock, or agricultural products), made entirely from Australian mineral, or has not undergone a substantial transformation during production within another country.
Substantial transformation occurs when a product is significantly altered to become a new item, requiring an update to the products tariff classification (HS code) to accurately reflect the products new form and intended use or meets an RVC threshold, which is typically 35% or 45% of the product's final value needed to originate from Australia.
The criteria currently under the AUSFTA are detailed under Annex 5A, which outlines product-specific rules of origin, listing each product by HS code and specifies whether it must undergo a particular tariff shift, reach a required RVC level or meet both conditions. In some cases, there are additional restrictions and requirements, including limitations on certain agricultural and food products that need to be fully sourced from Australia.
Further, this agreement also includes supporting provisions such as the de minimis rule, which allows up to 10% product contribution from another country or region without needing to change the product HS code and accumulation, which enables producers to account for inputs from other countries towards the Rule of Origin requirements (goods processed in other countries may lose their originating status, therefore, open to other tariff rates). To claim benefits under AUSFTA, exporters must provide certification proving compliance with these origin rules.
Annex 4A outlines provisions for textiles and apparel, including specific origin criteria and customs cooperation measures to ensure compliance and prevent fraud. Together, these rules aim to facilitate fair trade, protect domestic industries, and ensure that only qualifying goods receive preferential access under the agreement.
For further information: Austrade recently held a webinar on the Country and Rules of Origin and a recording is available here. Austrade and TIQ will be hosting a series of upcoming sessions on related trade topics (that will be recorded), with further details to follow.
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