ILLEGAL LOGGING PROHIBITION BILL 2012 Explanatory Memorandum
ILLEGAL LOGGING PROHIBITION BILL 2012
2010-2011
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
ILLEGAL LOGGING PROHIBITION BILL 2011
EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister for Agriculture, Fisheries and Forestry,
Senator the Hon. Joe Ludwig)
ILLEGAL LOGGING PROHIBITION BILL 2011
1. Objective of the Bill
The objective of the Illegal Logging Prohibition Bill 2011 (the Bill) is to reduce the
harmful environmental, social and economic impacts of illegal logging by restricting
the importation and sale of illegally logged timber products in Australia. The Bill
represents a major step by Australia to prevent the trade of illegal timber products
both nationally and internationally.
2. Why the Bill is required?
2.1 The problem
For many years illegal logging has been recognised as a significant global problem
due to its impacts on forest degradation, climate change, habitat loss and community
livelihoods in developing timber producing countries1. Deforestation and degradation
of tropical forests in the Asia-Pacific through illegal logging also constitutes a threat
to Australia promoting legal and sustainable forest management in countries of this
region. The problem is exacerbated through lack of measures in timber consumer
countries to restrict or prohibit the importation of illegally logged timber and wood
products. In response, major timber consumer countries such as the United
States and European Union are implementing measures to prevent trade in illegally
logged timber and wood products. Timber producer countries, such as Indonesia, are
also developing timber legality verification schemes to reduce illegal logging and
demonstrate the legality of their timber products to their trading partners.
2.2 The cost
The global economic cost of illegal logging has been estimated at approximately
US$46 billion a year, whilst global social and environmental costs were estimated at
around US$60.5 billion per year2. Australia imports approximately A$4.4 billion per
annum of timber products (excluding furniture) or 0.034 per cent of global
production. Of these imports, the proportion of illegally logged timber is estimated at
9 per cent or around A$400 million3. Australia's share of the social and
environmental costs of illegal logging, therefore, can be estimated at A$23 million per
annum. In addition to global costs, lower prices of illegally logged timber imported
into Australia create unfair competition for domestic producers and suppliers who
source their products from legally and sustainably managed forests. As a
consequence, there is a negative impact on domestic market prices, which can affect
business decisions, industry investment, business profitability and jobs along the
timber supply chain.
1 Chatham House (2009).
2 Centre of International Economics (2010) A report to inform and regulation impact statement on a proposed new
policy on illegal logging.
3 Poyry (2010) Legal Forest Products Assurance - a risk assessment framework for assessing the legality of timber
and wood products imported into Australia.
2
2.3 Current policy
In Australia, domestic timber harvesting is controlled through a comprehensive
framework of laws, regulations and policies that serve to prevent the illegal harvesting
of timber4. However, the only regulation that exists in Australia to control importation
of illegally logged timber is the Convention on International Trade in Endangered
Species of Wild Fauna and Flora (CITES). This convention targets only a limited
number of timber products that have been derived from an endangered species and,
therefore, large amounts of timber continue to be imported into Australia without any
requirement for verifying its legality, other than through voluntary industry measures.
Australian industry relies on self-regulation to verify the legal origins of imported
timber and wood products. This is undertaken through a mix of voluntary
procurement policies and procedures. In some cases, importers assess the risks of
products being sourced illegally and put in place arrangements to verify that the
products come from legally-logged sources. As an alternative, Australian buyers
might specify the level of legal verification that their suppliers are expected to meet.
These arrangements are considered by industry to be ineffective because not all
businesses undertake any form of due diligence or legality verification and may obtain
an unfair cost advantage by sourcing and selling cheap illegal timber. Legitimate
operators are also uncertain as to what constitutes an adequate level of due diligence
under voluntary arrangements. This situation has led to inefficient, highly variable and
potentially inadequate legality verification practices, with industry having a limited
capacity to resolve this matter through self-regulation. A more structured approach is
therefore required.
3. Policy background
3.1 Government election commitments
To combat the problem of illegal logging and associated trade, the Australian Labor
Party made an election commitment in 2010 election that it would implement a policy
that (a) restricts the importation of illegally logged timber products into Australia,
(b) implements a code of conduct to ensure suppliers who first place timber into the
Australian market carry out the proper tests to ensure wood coming into the country is
legal, and (c) implements a trade description for legally verified timber products and
specifies the circumstances under which it can be used. Both industry and
non-industry stakeholders have supported implementation of the government's 2010
illegal logging election commitment which follows on from the 2007 election
commitment.
In seeking the most cost effective policy approach to implementing this election
commitment, the department undertook a regulation impact statement (RIS). The RIS
examined the costs and benefits for domestic businesses, individuals and the
Australian economy of three regulatory options; self regulation, co-regulation and full
regulation5. The analysis recommended a co-regulatory due diligence approach in
4 URS Forestry (2009).
5 Department of Agriculture, Fisheries and Forestry (2010) Regulation Impact Statement.
3
which government and industry could work together as the most effective means of
fulfilling the government's election commitment.
3.2 Public consultation
Peak industry bodies have been widely consulted, including timber importers, trade
union representatives, domestic forest industry representatives, environmental
non-government organisations, social justice groups, timber manufacturers and
retailers of wood products. Consultation across the Commonwealth and state and
territory governments took place with an emphasis on establishing the legal basis and
the operational and administrative requirements of the policy. The European Union
and the United States were consulted in relation to future international forestry policy
directions.
The Centre for International Economics (CIE) was commissioned to produce a series
of reports to inform the RIS on the costs and benefits of the different options. The CIE
also undertook independent consultation with stakeholders representing forest, wood
products, paper and construction industries, retailers, non-government organisations,
academic institutions, certifiers, consultants, and commonwealth, state and territory
government agencies.
Three rounds of consultation were conducted and included individual meetings with
stakeholders, group meetings to test the initial CIE estimates and a submission process
in response to the CIE's draft report methodology of the RIS. A total of 18 written
submissions were received from peak industry bodies, individual businesses,
environmental organisations and social justice groups, including from the European
Union. In 2009, members of the United States congress6 and Senate7 wrote directly to
the Prime Minister commenting on issues raised during this process. CIE received
12 251 postcards in response to its call for comment on the RIS, demanding that the
government fulfil its election promise of banning illegally logged timber imports.
The development of the policy was also supported by other research commissioned by
the government. This research included a risk assessment framework for assessing the
legality of timber and wood products imported into Australia, a framework for
differentiating legality verification and chain of custody schemes, a generic code of
conduct, social impact and small business impact statements. These research products
were published on the Department of Agriculture, Fisheries and Forestry website on
10 December 2010.
On 23 March 2011, the Minister for Agriculture, Fisheries and Forestry referred an
exposure draft and explanatory memorandum of the Illegal Logging Prohibition
Bill 2011 to the Senate Standing Committee on Rural Affairs and Transport for a
public inquiry. This followed a lengthy consultation process with industry and
involved stakeholders. The Senate Committee received 30 submissions and held a
public hearing where industry and non-government witnesses presented their views on
6 Mrs Linda T. Sanchez, Mr Jim McDermott, Mr Dennis Kucinich, Mr Earl Blumenauer, Mr Lloyd Doggett, and
Mr Jow Sestak, 4 December 2009.
7 Senator Ron Wyden, Senator Jess Bingaman, Senator Russ Feingold, Senator Joe Lieberman, Senator Patrick
Leahy, and Members of Congress, 10 December 2009.
4
the draft Bill. The Committee released its report, which contained seven
recommendations, on 23 June 2011.
The Department of Agriculture, Fisheries and Forestry undertook the process of
redrafting the legislation to address the recommendations of the Senate Committee
and subsequent comments and advice from stakeholders on the implementation of
those recommendations.
3.3 Government action
In the absence of direct government intervention, Australia's estimated share of the
economic, social and environmental costs of global illegal logging would continue to
be around $23 million per annum as illegal timber continues to be imported into
Australia8.
Australia's share of these costs would increase if trade in illegally logged timber was
diverted to Australia as a result of the efforts of other nations to successfully prohibit
imports of illegally logged timber products, for example, the United Stated and
European Union, which account for 70 per cent of world trade in timber products.
By implementing effective domestic measures to combat illegal logging and
associated trade along with these and other countries, Australia's share of the
economic, social and environmental costs of illegal forest practices would no longer
be incurred and would provide a benefit to society in the form of reduced costs
accrued from the benefits gained by reducing the incidence of illegal logging and
associated trade. The Australian Bureau of Agricultural and Resources Economics and
Sciences (ABARES) has estimated that increased domestic industry activity and
profitability would lead to Australia's gross net profit increasing by $172 million per
annum if global illegal logging were completely eliminated9.
By using its strategic location and influence in the Asia-Pacific region, Australia may
leverage greater regional government action on combating illegal logging and
associated trade through regional capacity building and bilateral and multilateral
efforts. Taking action on illegal logging may also complement other Australian policy
priorities such as climate change mitigation, reducing money laundering and
alleviating the social costs of corrupt practices in developing countries.
4. Effect of the principal provisions of the legislation
4.1 A high level legislative framework
The Bill provides a high-level legislative framework to implement the government's
policy to combat illegal logging. It provides the Commonwealth with the authority to
develop subordinate legislative instruments, including regulations, to realise the
government's policy objective of restricting the importation and sale of illegally
logged timber in Australia.
8 Centre of International Economics (2010) A report to inform and regulation impact statement on a proposed new
policy on illegal logging.
9 ABARES (2010).
5
The inclusion of the operational elements in subordinate legislation provides the
Commonwealth with a level of flexibility to amend legislative instruments that may
be subject to periodic change. For example, as international timber legality
verification and risk management processes are developed or improved, the
operational aspects of the regulations can be amended in real time to ensure the
legislation remains up to date with the current measures for combating illegal logging
globally. The main areas identified for subordinate legislation include:
· timber products to be regulated
· due diligence requirements to mitigate the risk of importing or processing
illegally logged timber
· circumstances under which a trade description relating to due diligence may
be used.
The Bill also establishes enforcement powers, including authority to appoint
inspectors, to monitor the operation of the Bill, and to investigate offences to enforce
compliance with the Bill.
No consequential amendments to existing legislation are required as the result of this
Bill.
4.2 Offences
The Bill establishes offences that impose substantial criminal penalties on importers
or domestic processors of raw logs in relation to:
· importing illegally logged timber (clause 8)
· processing illegally logged raw logs (clause 15)
· importing illegally logged timber in regulated timber products (clause 9)
· importing regulated timber products without complying with the due
diligence requirements (clause 12)
· processing raw logs without complying with the due diligence requirements
(clause 17)
· importing regulated timber products without making a Customs declaration
(clause 13).
Administrative sanctions and civil penalties for minor breaches of the Bill, for
example, notices for remedial action, corrective action requests, increased monitoring
and auditing and fines for repeat offenders may also be prescribed by regulations. The
government will develop administrative sanctions and civil penalties with the aim of
creating an incentive for importers and processors to meet the due diligence
requirements of the legislation through a process of remedial action. This approach
should enable importers to effectively address issues of non-conformance, where
identified through audits of compliance and investigations, without significant
penalty.
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4.3 Penalties
Offence and penalty provisions are required to enable the government to effectively
enforce the requirements of the Bill and achieve its policy objectives.
The Bill provides for a maximum penalty of five years imprisonment, or 500 penalty
units, or both for:
· importing illegally logged timber
· processing illegally logged raw logs
· importing illegally logged regulated timber products.
This is equivalent to a maximum fine of $55,000 for an individual and $275,000 for a
corporation or body corporate.
There is a maximum penalty of 300 penalty units for:
· importing regulated timber products without complying with the due
diligence requirements for importing these products
· processing raw logs without complying with the due diligence requirements
for processing the raw logs.
This penalty is equivalent to $33,000 for an individual and $165,000 for a corporation
or body corporate.
A maximum fine of 100 penalty points will apply for:
· importing regulated timber products without making a Customs declaration
of compliance with the due diligence requirements for importing these
products.
This penalty is equivalent to $11,000 for an individual and $55,000 for a corporation
or body corporate.
The Bill also provides for seizure of timber products reasonably suspected of being in
breach of the Bill and direct forfeiture of timber products proved to be in breach of
relevant provisions of the Bill.
4.4 Enforcement
The Bill establishes powers that allow for the appointment of officers to monitor,
investigate and enforce compliance with the Bill. All powers and responsibilities
outlined in the relevant clauses of the Bill are commensurate with similar
Commonwealth Acts administered under the Agriculture, Fisheries and Forestry
portfolio. Importers will be required to comply with the prohibition provisions for
unregulated timber products immediately upon commencement of the Bill. Importers
and processors of regulated timber products will have two years from commencement
to comply with the prohibition of regulated products and due diligence provisions of
the Bill.
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5. Financial impact statement
No significant direct or indirect financial impact on the Commonwealth will arise
from the introduction of this Bill. Compliance costs to industry are expected to be
absorbed within current operational costs and offset by increased economic benefits
resulting from the exclusion of illegally logged timber from the market.
6. Regulation impact statement
The regulation impact statement is included at pages 36 to 79.
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ILLEGAL LOGGING PROHIBITION BILL 2011
NOTES ON CLAUSES
Part 1 - Preliminary
Clause 1 Short Title
Clause 1 is a formal provision specifying that the Bill, when enacted, may be cited as
the Illegal Logging Prohibition Act 2011.
Clause 2 Commencement
Clause 2 provides for the commencement of the Bill. The effect of provisions under
the table is to enable different parts of the Bill to commence at different times.
Item 1 of the table provides that clauses 1 and 2 of the Bill commence on the day the
Bill receives Royal Assent. This gives effect to the Bill's title and commencement.
Item 2 of the table provides that clauses 3 to 8 commence on the day after Royal
Assent giving effect to the prohibition on the importation of illegally logged timber in
timber products, whether or not they are regulated.
Item 3 of the table provides that clause 9 commences on the day after the end of the
period of 2 years after the commencement of clauses 3 to 8, provided for in table item
2. The intention of commencement two-years after the commencement of clause 3 is
to allow government and industry to work together to develop the operational aspects
of the Bill with which importers and processors of raw logs must comply. In
particular, it will enable timber products to be prescribed by legislative instruments
and give importers sufficient time to develop their due diligence procedures.
Item 4 of the table provides that clauses 10 and 11 will commence at the same time as
the provisions covered by table item 2. This will enable the forfeiture provisions of
prohibition to be enforced upon commencement.
Item 5 of the table provides that clauses 12 to 14 commence on the day after the end
of the period of 2 years after the commencement of clause 3, provided for in table
item 2. The intention of commencement two-years after the commencement of clause
3 is to allow government and industry to work together to develop the operational
aspects of the Bill with which importers of regulated timber products must comply. In
particular, it will give timber importers time to develop their due diligence procedures
for regulated timber products which will be prescribed in legislative instruments
allowed for under clause 14 of this Bill.
Item 6 of the table provides that clauses 15 and 16 commence on the day after Royal
Assent giving effect to the prohibition on processing illegally harvested raw logs and
allows for forfeiture to contraventions of clause 15.
Item 7 of the table provides that clauses 17 and 18 commence on the day after the end
of the period of 2 years after the commencement of clause 3, provided for in table
9
item 2. The intention of commencement two-years after the commencement of clause
3 is to allow government and industry to work together to develop the operational
aspects of the Bill with which processors of raw logs must comply. In particular, it
will give processors of raw logs time to develop their due diligence procedures which
will be prescribed in legislative instruments allowed for under clause 18 of this Bill.
Item 8 of the table provides that clause 19 to 86 commence the day after the Bill
receives Royal Assent. This will allow the Government to monitor, investigate and
enforce compliance with relevant clauses of the Bill that have come into force.
Clause 3 Crown to be bound
This clause specifies that the Bill binds the Crown in each of its capacities. It also
specifies that the Crown is excluded from liability for prosecution under the Bill.
Clause 4 Act does not extend to external Territories
The Bill does not extend to Australia's external territories. This is to ensure the
definition of importing into Australia under this Bill is aligned with the Customs Act
1901 which also excludes operation in external territories.
Clause 5 Concurrent operation of State and Territory laws
The Bill is not intended to exclude or limit the operation of a law of a state or territory
that is capable of operating concurrently with this Bill. This is applicable to
processors of raw logs operating in state and territory jurisdictions.
Clause 6 Guide to this Bill
The guide is to provide a concise overview of the Bill's objectives.
The Bill prohibits the importation and processing of illegal logged timber, including
imports of all illegally logged timber products, whether products are prescribed by
regulations or not, and processing illegally harvested raw logs grown in Australia.
Criminal and civil penalties apply to offences for a failure to comply with this
requirement.
The Bill requires importers of regulated timber products and processors of raw logs to
conduct due diligence to reduce the risk that illegally logged timber is imported or
processed. The Bill sets out requirements for due diligence that may be prescribed by
regulations for importers and processors. Criminal and civil penalties apply to
offences for a failure to comply with these requirements.
Importers must complete a statement of compliance with the due diligence
requirements of the Bill prior to making a customs import declaration at the border.
Criminal and civil penalties apply to offences for a failure to comply with these
requirements.
Part 4 provides extensive powers for inspectors to monitor, investigate and enforce the
objectives of the Bill.
10
Clause 7 Definitions
This clause provides the definitions for key terms used in the Bill, including, but not
limited to the terms listed below.
Due diligence requirements for importing regulated timber products and for
processing raw logs into something other than raw logs are defined by referring to
clauses 14 and 18, respectively. They are to be prescribed by regulations in
consultation with key stakeholders to develop a cost effective, efficient and adaptable
risk management framework for undertaking due diligence.
Illegally logged is a high level definition that provides scope and flexibility for
importers and processors of raw logs to undertake due diligence in relation to the
applicable laws in place where the timber is harvested, which may be prescribed by
regulations, without the limitations of a prescriptive set of legislative requirements.
The challenge of prescribing individual requirements in a definition is complicated by
the range of legislation given the number of countries--85 in total--from which
Australia imports timber products. An unintended consequence of a prescriptive
definition of illegally logged may result in some elements of applicable legislation
being overlooked or excluded through omission.
Regulated timber product will be products that the Commonwealth seeks to regulate
for the purpose of minimising the risk of containing illegally logged timber. The
selection of timber products for regulation will be undertaken in consultation with key
stakeholders based on an economic analysis of the coverage, value and volume of
timber products imported into Australia and an analysis of their risk profile using
appropriate criteria and indicators. The results of this work will be provided by the
Australian Bureau of Agricultural and Resource Economics and Sciences in the
development of regulations.
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Part 2 - Importing
Division 1 - Importing illegally logged timber
This division sets out the prohibition of importing illegally logged timber. A penalty
offence regime is intended to act as a significant deterrent to the importation of
illegally logged timber into Australia.
Clause 8 Importing illegally logged timber
This clause creates the offence of importing a thing, and that thing is, is made from, or
includes, illegally logged timber where the offence is related to knowledge, intent or
reckless fault elements associated with importing illegally logged timber. Regulated
timber products are also captured under this clause.
The maximum penalty is five years imprisonment, 500 penalty units, or both. This
penalty is comparable to penalties prescribed in similar legislation for the importation
of prohibited goods, for example the Industrial Chemicals (Notification and
Assessment) Act 1989 (s 21) and the Agricultural and Veterinary Chemicals
(Administration) Act 1992 (s 69B). The substantial maximum pecuniary penalty
applied to the importation of illegally logged timber is aimed at providing a high level
deterrent to individuals and corporations. A penalty of 500 penalty units for
individuals has been prescribed to provide a financial deterrent that is equivalent to
the profitability generally associated with importing illegally logged timber.
Clause 9 Importing illegally logged timber in regulated timber products
Subclause (1) creates the offence of negligently importing a regulated timber product
which is, is made from, or includes any illegally logged timber. Regulated timber
products are timber products prescribed by regulations. The maximum penalty for an
individual is five years imprisonment, 500 penalty units, or both. The substantial
maximum pecuniary penalty applied to the importing of illegally logged regulated
timber products is aimed at providing a high level deterrent to individuals and
corporations and is supported by the requirements on importers to undertake due
diligence as provided for in clause 13. A penalty of 500 penalty units has been
prescribed to provide a financial deterrent that is equivalent to the profitability
associated with importing illegally logged timber.
Subclause (2) states that the fault element in this offence to be negligence. The
Criminal Code Act 1995 provides that negligence requires such a great falling short of
the standard of care that a reasonable person would exercise in the circumstances
together with the likelihood that the physical elements exist, or may exist, that the
conduct merits criminal punishment. Due diligence requirements will be prescribed by
regulations to facilitate importers due care in reasonably mitigating the risk of
importing illegally logged regulated timber products into Australia. It is the intention
of the government that industry, including importers, will be extensively consulted in
the development of the regulations. As well as extensive consultation, the regulations
may provide comprehensive guidance for importers to comply with clause 9 of the
Bill.
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Subclause (3) defines the term `regulated timber product' as a timber product
prescribed by the regulations. Although work is still being undertaken, it is expected
that a timber product will be prescribed on the basis of an economic analysis of its
product type, value and volume. The economic analysis and risk assessment would be
undertaken using appropriate criteria and indicators. Industry and key stakeholders
will continue to be consulted in the prescribing of timber products to be regulated
under the Bill. An outreach program is proposed to ensure importers and processors
are familiar with the requirements of the Bill by the time the regulations enter into
force and to facilitate their compliance with clause 9(1).
This clause does not come into force until 2 years after commencement of the Bill to
enable importers to develop and test their due diligence procedures to ensure they
comply with the requirements for regulated timber products as provided for in the
Bill.
Clause 10 Forfeiture
This provision applies to imports of illegally logged timber, whether or not it is a
regulated timber product and follows the `Guide to Framing Commonwealth
Offences, Civil Penalties and Enforcement Powers' as it relates to forfeiture. The
clause is consistent with elements of the Proceeds of Crime Act 2002.
Subclause (1) specifies that a court may order all or any part of a thing containing
illegally logged timber to be forfeited to the Commonwealth if a person is
(a) convicted of an offence for importing illegally logged timber (clause 8) or
importing illegally logged regulated timber products (clause 9) and that (b) the timber
or timber products in question are the property of the person. Subclause 1(b) will
allow for innocent third parties to be protected against forfeiture.
Subclause (2) allows for a person to be heard in relation to the thing subject to
forfeiture.
Subclause (3) specifies that a thing containing illegally logged timber subject to
forfeiture under subclause (1) may be dealt with or disposed of in any manner that the
Secretary thinks appropriate after a conviction and (a) time has lapsed for an appeal or
(b) all appeals against that conviction have been exhausted.
Clause 11 Application of the Customs Act 1901
This clause provides for the application of section 229 of the Customs Act 1901. The
Secretary can apply in writing to the Australian Customs and Border Protection
Service if they wish for section 229 of the Customs Act 1901 to apply to an
importation. Goods under the Customs Act 1901 provisions are described as forfeited
to the Crown because they are prohibited imports within the meaning of that Act. This
provision enables enforcement agencies to take immediate action on all timber
imports which are in contravention of subclause 8 and 9 of the Bill.
Division 2 --Importers' due diligence
This Division requires importers to undertake due diligence, prescribed by
regulations, to mitigate the risk of importing regulated timber products which contain
illegally logged timber (clause 12).
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Persons importing regulated timber products into Australia are required to undertake a
two-step process to comply with the due diligence requirements of the Bill at the
Australian border. Under step 1, importers are required to undertake due diligence in
compliance with clause 14 of the Bill before regulated timber products are imported
into Australia. On completion of their due diligence, importers are required to sign a
statement of compliance with the Bill, which would include the outcomes of their due
diligence process prescribed by regulations. This statement is a legally binding pre-
requisite for the importation of regulated timber products into Australia. Under step 2,
importers--or their agents--will then be required to answer a community protection
question on a customs import declaration in relation to their compliance with due
diligence requirements of the Bill, as provided for in clause 13.
The two-step approach enables cost effective enforcement of compliance with this
Division of the Bill. A pre-importation statement of compliance, together with a
customs import declaration stating compliance with the due diligence requirements of
the Bill, will enable the status of all imports of regulated timber products to be
monitored at the border by the Australian Customs and Border Protection Service and
enforced under the monitoring, investigation and enforcement powers of Part 4 of the
Bill.
The due diligence requirements apply to importers of regulated timber products who
represent the first point of entry of timber onto the Australian market. This enables the
risk of mitigating the processing of illegally harvested timber to be addressed before
timber enters the supply chain for further processing, manufacture or sale, thereby
removing business compliance and government monitoring, investigation and
enforcement costs at each point of sale further along the timber supply chain.
Under the monitoring, investigation and enforcement powers provided by Part 4 of the
Bill, authorised inspectors may investigate any business along the timber supply chain
in the process of obtaining evidentiary material to prove an offence has been
committed under the Bill. This would be part of the government's post-border
monitoring, investigation and enforcement of the prohibition provisions of the Bill for
the importation of illegally logged timber.
The following clauses set out the fundamental principles associated with the due
diligence requirements and allows for the requirements to be further prescribed by
regulations. The clauses also prescribe the key elements of the due diligence process
to allow for a transparent and accountable system that can be verified by the
government and scrutinised by the public.
Clause 12 Importing regulated timber products
This clause specifies that a person commits an offence if they do not comply with the
due diligence requirements for importing a regulated timber product. A regulated
timber product may be prescribed by regulations under clause 9(3) of the Bill.
The maximum penalty for an individual for this offence is 300 penalty points, which
is comparable to penalties prescribed in similar legislation for the importation of
prohibited goods, for example the Industrial Chemicals (Notification and Assessment)
Act 1989 (s 21) and the Agricultural and Veterinary Chemicals (Administration) Act
1992 (s 69B).
14
This clause does not commence until two years after Royal Assent to allow for
regulations to be developed and for industry to develop and test their processes to
minimise the risk of illegally logged timber from entering the Australian market.
Clause 13 Customs declaration
This clause specifies that a person commits an offence if they import a regulated
timber product without answering the community protection question on a customs
import declaration. The question will relate to their compliance with the due diligence
requirements of the Bill, in a manner and form prescribed by regulations. A penalty of
100 penalty units will apply to deter importers from avoiding compliance with this
clause. The community protection question will be framed to allow importers to
declare they have met the due diligence requirements associated with the importation
of the timber product in accordance with the relevant provisions of the Bill. The
community protection question may be answered directly by the importer of regulated
timber products, or through the provision of appropriate authority to a customs broker
who may act as an agent for importers. Imports are not cleared by the Australian
Customs and Border Protection Service until all fields on the import declaration are
completed, including a response to the community protection question.
The Australian Customs and Border Protection Service will provide reports to the
Department of Agriculture, Fisheries and Forestry on a regular basis with details of all
imports of regulated timber products for compliance and enforcement purposes.
Non-compliant importers will be identified for post-border investigation to determine
the circumstances pertaining to the act of non-compliance and whether an offence has
been committed under clause 12 of the Bill. Non-compliant regulated timber products
may be seized and detained at an appropriate location (e.g. at premises of importers or
bonded warehouse) for investigation of compliance to prevent disruption to the flow
of goods across the border.
Import declaration records and related documentation for regulated timber imports are
to be retained by importers for a period of 5 years for government auditing,
monitoring and investigation purposes.
Clause 14 Due diligence requirements for importing regulated timber
products
This clause sets out the due diligence requirements to be undertaken by importers that
may be prescribed by regulations to mitigate the risk of importing illegally logged
regulated timber products.
The due diligence requirements centre on a three step risk management process of:
· information gathering for assessing the risk of sourcing illegally logged
regulated timber products
· assessing and identifying that risk
· mitigating the risk of importing illegally logged regulated timber products
based on the level of risk identified.
Administrative sanctions and civil penalties for minor breaches of clause 12 of the
Bill, for example, notices for remedial action, corrective action requests, increased
monitoring and auditing and penalties for repeat offenders may also be prescribed by
regulations. The government will develop administrative sanctions and civil penalties
15
with the aim of creating an incentive for importers to meet the due diligence
requirements of the Bill through a process of remedial action. This approach should
enable importers to effectively address issues of non-conformance, where identified
through audits of compliance and investigations, without the impost of significant
penalties.
Due diligence requirements will be developed in consultation with industry and key
stakeholders in relation to information gathering, risk assessment and identification
and risk mitigation to assist importers to meet the due diligence requirements in a cost
effective, efficient and adaptable manner. This may include addressing due diligence
requirements for different timber product categories (e.g. solid, composite,
manufactured, processed), supply chains of differing complexity (e.g. single, multiple,
short, long) and applicable laws of different countries of harvest, to be prescribed by
regulations.
14(1)
This subclause specifies that due diligence requirements for importing regulated
timber products must be prescribed by regulations. This provides the Commonwealth
with flexibility to develop regulations in alignment with the objectives of the
government's illegal logging policy and to amend requirements in response to
improvements in risk management approaches and legality verification processes
without amending the primary legislation. The development of the regulations will be
undertaken in close consultation with industry and key stakeholders and subject to
further scrutiny through the disallowance process.
14(2)
This subclause specifies that due diligence requirements must be prescribed by
regulations only for the purposes of reducing the risk of persons, or persons acting on
their behalf, importing illegally logged regulated timber products into Australia.
14(3)
This subclause sets out the likely requirements for due diligence which may include
one or more of the following:
14 (3)(a)
Gathering of information about the supply of regulated timber products in a manner
and form prescribed in regulations to enable an assessment of the risk of importing
illegally logged timber. This is the first step in the due diligence process for mitigating
the risk of importing illegally logged timber products into Australia.
14(3)(a)(i)
Provide the name of the kind of timber, details of origin and harvest, including any
certification. This information may be used by the Commonwealth to develop a trade
description to demonstrate to consumers that regulated timber products imported into
Australia are compliant with the Bill. The circumstances under which a trade
description may be used may be prescribed by regulations.
16
14(3)(a)(ii)
Provide the name and business addresses of, and other details about, suppliers of
regulated timber or timber products, to enable traceability of regulated timber imports
to overseas timber suppliers.
14(3)(a)(iii)
Provide evidence of compliance with the applicable laws of the country in which
timber was harvested in a manner and form prescribed in regulations. Such evidence
would be based on applicable laws of the country of harvest. This would allow the
government to align the legal requirements for the harvesting of timber in countries of
harvest with the objectives of its policy on illegal logging.
14(3)(a)(iv)
Assess the completeness, accuracy or reliability of information gathered to determine
deficiencies in information, in a manner and form prescribed in regulations, that is
necessary to undertake the next step in the due diligence process of assessing and
identifying the risk of importing illegally logged timber regulated products.
14(3)(b)
Assess and identify the level of risk of importing illegally logged regulated timber
products based on the information collected in a manner and form prescribed in
regulations. This is the second step in the due diligence process, which involves
identifying additional information that would need to be collected to mitigate the risk
of importing illegally logged regulated timber products into Australia.
14(3)(c)
Undertake measures, in a manner and form prescribed in regulations, to mitigate the
risk of importing illegally logged timber products depending on the level of risk
identified, unless the risk is assessed as negligible. This is the third step in the due
diligence process. It requires importers to offset risks by asking questions or seeking
additional information to treat an identified risk which provides the importer with a
reasonable level of assurance that the timber has not been harvested in contravention
the applicable laws of the country of harvest.
14(3)(d)
Answer a community protection question in a Customs import declaration, in a
manner and form prescribed in regulations, that importers have undertaken due
diligence in compliance with the Bill (clause 13). This is required to enable the due
diligence requirements of the Bill to be enforced by Customs at the border through its
import clearance procedures.
14(3)(e)
Make a statement of compliance, in a manner and form prescribed in regulations, that
due diligence has been carried out for all imports of regulated timber products in
compliance with due diligence requirements of the Bill. This is a legally binding pre-
requisite to answering the community protection question on a customs import
declaration (clause 13).
17
14 (3)(f)
This clause allows for independent audits of compliance with the due diligence
requirements of the Bill to occur in a manner and form prescribed by regulations. This
information may be used by the Commonwealth for the purposes of monitoring,
investigation and enforcement of compliance with the Bill.
14(3)(g)
Carry out remedial action, in a manner and form prescribed in regulations, to improve
due diligence risk management procedures where deficiencies are identified by
independent audits and investigations of compliance. The requirement for remedial
action is intended to contribute to continuous improvement in the due diligence
process of importers to assist them meet the requirements of the Bill and to reduce the
incidence of non-compliance with the Bill.
14(3)(h)
Provide reports and other information, in a manner and form prescribed by
regulations, to the Minister. These may include independent audit reports, records and
information on due diligence, statements of compliance and records of customs
import declarations for all imports of regulated timber products. This information may
be used by the Commonwealth for the purposes of enforcement of compliance with
the Bill. All records and documents would be required to be retained by importers for
a period of five years.
14(3)(i)
Publish information, in a manner and form prescribed by regulations, for example, in
relation to compliance with the due diligence requirements of the Bill. This would
provide transparency and enable public scrutiny and demonstrate importers
compliance with the due diligence requirements of the Bill. This will also provide one
measure for assessing the effectiveness of the Bill in meeting the Government's
policy objectives. The provision of information for the purposes of publication must
have consideration to commercial-in-confidence information and privacy legislation.
14(4)
This clause enables the regulations to be amended to keep up-to-date with the
developments in approaches to due diligence, risk management and procedures for
verifying the legality of timber products.
14(5)
This clause recognises the importance of enabling importers to reduce business
compliance costs by utilising or adapting appropriate systems and processes currently
used by importers to meet the due diligence requirements of the Bill. This clause
provides for regulations to be prescribed for due diligence requirements for importing
regulated timber products to be satisfied, wholly or partly, by compliance with
specified laws, rules or processes, including the following:
14(5)(a)
This subclause specifies that laws, rules or processes, including the laws, or processes
under laws, in force in a state, a territory or another country may be utilised, in a
manner and form prescribed in regulations. Individual country initiatives and national
schemes, including national timber legality verification and forest certification
18
schemes that can demonstrate that timber products have been harvested in compliance
with the applicable laws of the country of harvest may be used, where applicable, as
part of an importer's due diligence process.
14(5)(b)
This subclause specifies that rules or processes established or accredited by a
recognised industry body or certification body may be used in a manner and form
prescribed in regulations to contribute to importers due diligence process. This
provision relates to independently accredited third party audited legality verification
and forest certification schemes that include a requirement for demonstrating the
legality of timber sources for compliance with the particular scheme. Application of
relevant rules or processes from these schemes may assist importers in meeting their
due diligence requirements.
14(5)(c)
This subclause specifies that established operational processes utilised by importers
may be used in a manner and form prescribed in regulations to support due diligence.
For example, existing company management systems, company policies and practices
for the procurement of legal timber products or related quality assurance schemes.
14(6) Paragraphs (5)(a) to (c) do not limit the scope of subclause (5) as further due
diligence requirements may be necessary to strengthen the legislation.
19
Part 3 - Processing
This part makes it an offence for processors of raw logs grown in Australia to process
illegally harvested raw logs (Division1). The due diligence requirements (Division 2)
apply to processors of raw logs who represent the first point of entry of timber onto
the Australian market. This enables the risk of mitigating the processing of illegally
harvested raw logs to be addressed before timber enters the supply chain for further
processing, manufacture or sale, thereby removing business compliance and
government monitoring, investigation and enforcement costs at each point of sale
further along the timber supply chain.
Under the monitoring, investigation and enforcement powers provided by Part 4 of the
Bill, authorised inspectors, however, may investigate any business along the timber
supply chain in the process of obtaining evidentiary material to prove an offence has
been committed under the Bill. This would be part of the government's post-border
monitoring, investigation and enforcement of the prohibition provisions of the Bill in
relation to raw logs that have been processed from illegally harvested timber.
The Bill is not intended to exclude or limit the operation of a law of a state or territory
that is capable of operating concurrently with this Bill (clause 5). Divisions 1 and 2
are viewed by the government as a means of reinforcing compliance of domestic
processors of raw logs with existing state and territory laws and regulations for the
legal harvesting of timber.
The government will seek to use state and territory processes of compliance with their
own laws for legal harvesting of timber as a basis for processors of raw logs to
demonstrate compliance with the due diligence requirements of this legislation. By
ensuring compliance with laws and regulations for the legal harvesting of timber
across all Australian jurisdictions, an even economic playing field for the sale of
legally harvested raw logs in Australia should be established in line with the
government's policy on illegal logging.
The following clauses set out the fundamental principles associated with the due
diligence requirements and allows for the requirements to be further prescribed by
regulations. The clauses also prescribe the key elements of the due diligence process
to allow for a transparent and accountable system that can be verified by the
government and scrutinised by the public.
Division 1 Processing illegally logged raw logs
Clause 15 Processing illegally logged raw logs
15(1)
This clause specifies that a person who is a constitutional corporation or the person
who processes a raw log, as defined within constitutional limits in accordance with
paragraph 1(b), commits an offence if they process a raw log, which has been illegally
logged, into something other than a raw log. To be classified as a corporation under
the constitution, a person or entity must be incorporated as a company under the
Corporations Act 2001 (or its predecessor state and territory corporation laws),
20
incorporated under state and territory associations incorporation legislation, or is a
body established under legislation (state, territory or Commonwealth) which provides
that the body is incorporated (e.g. many statutory authorities).
Unincorporated entities, such as, state authorities that are not established as bodies
corporate, partnerships, trusts, unincorporated associations and sole traders
(individuals) would not come under the provisions of clause 15. However, a processor
of raw logs, such as a sole trader or contractor, who is defined within constitutional
limits in accordance with paragraph 1(b), would be subject to the provisions of clause
15 if they processes raw logs on behalf of a constitutional corporation, processes raw
logs for the purposes of supplying timber products to a constitutional corporation, or
for the purposes of trade and commerce with other countries, or among the states or
between a state and a territory.
The offence for an individual has a maximum penalty of five years imprisonment,
500 penalty units or both, a multiplier of five for the penalty units applies to
corporations. The offence and penalties for domestic processors of raw logs are the
same as those for importers of regulated timber products who do not undertake due
diligence in accordance with clause 14 of the Bill. They are intended to ensure
equivalent treatment of domestic processors and importers of regulated timber
products who seek to circumvent the Bill. The substantial maximum pecuniary
penalty applied to the processing of illegally logged raw logs is aimed at providing a
high level deterrent for corporations. 500 penalty units have been prescribed to
provide for a financial deterrent that is equivalent to the profitability associated with
importing illegally logged timber.
15 (2)
This clause excludes a domestic processor of raw logs from the offence if the raw log
was imported into Australia.
The Note to subclause (2) reverses the standard evidential burden of proof from the
prosecution to the defendant. This is because it would be significantly more difficult
for the prosecution to prove that a raw log was imported into Australia than it would
be for the defendant to disprove them, given the relevant information is known
particularly to the defendant.
The Note refers to clause 13.3(3) of the Criminal Code Act 1995, which provides that
a defendant who wishes to rely on any exception, exemption, excuse, qualification or
justification provided by the law creating an offence bears an evidential burden in
relation to that matter. Subclause (2) allows for the regulations to exclude imported
raw logs as their due diligence would have already been subject to compliance with
the requirements of the Bill through a customs import declaration at the border in
order to gain entry into Australia. The reversal of the evidentiary burden would
require the defendant to prove that raw logs were excluded by the regulations.
Clause 16 Forfeiture
This provision applies to imports of illegally logged timber, whether or not it is a
regulated timber product and follows the `Guide to Framing Commonwealth
Offences, Civil Penalties and Enforcement Powers' as it relates to forfeiture. The
clause is consistent with elements of the Proceeds of Crime Act 2002.
21
Subclause (1) specifies that a court may order all or any part of a thing containing
illegally logged timber to be forfeited to the Commonwealth if a person is (a)
convicted of an offence for processing illegally logged raw logs (clause 15) and that
(b) the illegal timber or timber products in question are the property of the person.
Subclause 1(b) will allow for innocent third parties to be protected against forfeiture.
Subclause (2) allows for a person to be heard in relation to the thing subject to
forfeiture.
Subclause (3) specifies that a thing containing illegally logged timber subject to
forfeiture under subclause (1) may be dealt with or disposed of in any manner that the
Secretary thinks appropriate after a conviction and (a) time has lapsed for an appeal or
(b) all appeals against that conviction have been exhausted.
Division 2 - Processor's due diligence
This division places a legal obligation on Australian processors of domestic raw logs,
who are classified as a corporation under the constitution or are defined within
constitutional limits in accordance with subclause 1(b), to comply with the due
diligence requirements, which may be prescribed by regulations, to mitigate the risk
of processing illegally harvested raw logs.
Clause 17 Processing raw logs
This clause specifies that a person who is a constitutional corporation or the person
who processes a raw log, as defined within constitutional limits in accordance with
subclause 1(b), commits an offence if they process a raw log, into something other
than a raw log without undertaking due diligence. To be classified as a corporation
under the constitution a person or entity must be incorporated as a company under the
Corporations Act 2001 (or its predecessor state and territory corporation laws),
incorporated under state and territory associations incorporation legislation, or is a
body established under legislation (state, territory or Commonwealth) which provides
that the body is incorporated (e.g. many statutory authorities). For example, a
company that operates a saw-mill would normally be a trading corporation for the
purposes of clause 17 and therefore would be required to comply with the due
diligence requirements of section 18.
Unincorporated entities, such as, state authorities that are not established as bodies
corporate, partnerships, trusts, unincorporated associations and sole traders
(individuals) would not come under the provisions of clause 17. For example, an
individual timber craftsman who purchases raw logs off private land or state forest
and processes the raw logs into various products for sale at fairs, markets or galleries
within the state where the raw logs were processed, would not be covered by clause
17, and therefore would not be required to comply with the due diligence
requirements of clause 18 for processing raw logs.
However, processors of raw logs, who are a sole trader or an individual contractor,
would be subject to the provisions of clause 17 and therefore would be required to
undertake due diligence, if they processed raw logs on behalf of, or supply to a
constitutional corporation, or processed raw logs in the course of, or for the purposes
22
of trade and commerce with other countries, or among the states or between a state
and a territory.
The offence has a maximum penalty of 300 penalty units. It is equivalent to the
penalty for importers of regulated timber products who do not undertake due diligence
in compliance with requirements of the Bill. These penalties have been set at
equivalent levels deter both timber importers and processors of raw logs from
importing or processing illegally logged timber in order to meet the government's
policy to restrict the importation and sale of illegally logged timber in Australia.
Administrative sanctions and civil penalties for minor breaches of provisions in this
Division may be included in regulations. These are to be prescribed in a manner and
form similar to those to be developed for importers of regulated timber products.
Clause 18 Due diligence requirements for processing raw logs
This clause sets out the due diligence requirements for domestic processors who
process raw logs into something other than raw logs. As state and territory legislation
for the legal harvesting of timber would meet the due diligence requirements of
processors of raw logs under this Bill, the Commonwealth may seek to use existing
state and territory approval processes for compliance with the Bill to reduce business
compliance and government monitoring, investigation and enforcement costs.
18(1)
This subclause specifies that due diligence requirements for processing raw logs shall
be prescribed by regulations. This provides the Commonwealth with flexibility to
develop regulations in alignment with the objectives of the government's illegal
logging policy and to amend requirements in response to improvements in risk
management approaches and legality verification processes without amending the
primary legislation.
18(2)
This subclause specifies that due diligence requirements may be prescribed only for
the purposes of reducing the risk that illegally logged raw logs are processed.
18(3)
This set of subclauses sets out the likely requirements for due diligence which may
include one or more of the following:
18(3)(a)
Gathering of information about the supply of raw logs, in a manner and form
prescribed by regulations, to enable an assessment of the risk of processing illegally
harvested raw logs. This is the first step in the risk management process for mitigating
the processing of illegally harvested raw logs.
18(3)(a)(i)
Provide the name of the kind of timber, details of origin and harvest, including any
certification. This information may be used by the Commonwealth to develop a trade
description to demonstrate to consumers that regulated timber products imported into
Australia are compliant with the Bill. The circumstances under which a trade
description may be used may be prescribed by regulations.
23
18(3)(a)(ii)
The name and business addresses of, and other details about, suppliers of timber or
timber products to enable traceability of the supplier of raw logs.
18(3)(a)(iii)
Evidence of compliance with the applicable laws in place where the raw logs are
harvested, in a manner and form prescribed in regulations. Such evidence would be
based on state and territory legislation applicable to the area where the raw logs are
harvested. Processors would not be required to undertake due diligence for processing
imported raw logs as due diligence for such logs is monitored for compliance with the
legislation at the Australian border before they are cleared for entry onto the
Australian market.
18(3)(a)(iv)
Assess the completeness, accuracy or reliability of information gathered to determine
deficiencies in information, in a manner and form prescribed in regulations that is
necessary to undertake the next step in the due diligence process of assessing and
identifying the risk of processing illegally harvested raw logs.
18(3)(b)
Assess and identify the level of risk of processing illegally harvested domestic raw
logs based on the information collected in a manner and form prescribed in
regulations. This is the second step in the due diligence process, which involves
identifying additional information that would need to be collected to mitigate the risk
of processing illegally harvested raw logs.
18(3)(c)
Undertake measures, in a manner and form prescribed in regulations, to mitigate the
risk of processing illegally harvested raw logs depending on the level of risk
identified, unless the risk is assessed as negligible. This is the third step in the due
diligence process. It requires processors of raw logs to offset risks by asking questions
or seeking additional information to treat an identified risk which provides the
processor with a reasonable level of assurance, that the raw logs have not been
harvested in contravention with the applicable legislation of the state or territory.
18(3)(d)
Make a statement of compliance, in a manner and form prescribed by regulations, that
due diligence has been carried out for all processed domestic raw logs in compliance
with the Bill.
18(3)(e)
Undertake independent audits of compliance with the due diligence requirements of
the Bill, in a manner and form prescribed in regulations, for domestically processed
raw logs. This information may be used by the Commonwealth for the purposes of
monitoring, investigation and enforcement of compliance with the Bill.
18(3)(f)
Carry out remedial action, in a manner and form prescribed by regulations, to improve
due diligence risk management procedures where deficiencies are identified by
independent audits and investigations of compliance. The requirement for remedial
24
action is intended to contribute to continuous improvement in the due diligence
process of processors to assist them meet the requirements of the Bill and to reduce
the incidence of non-compliance with the Bill.
18(3)(g)
Provide reports and other information, in a manner and form prescribed in regulations,
to the Minister. These may include independent audit reports, records and information
on due diligence and statements of compliance with the due diligence requirements of
the Bill for domestically processed raw logs. This information may be used by the
Commonwealth for the purposes of enforcement of compliance with the Bill. All
records or documents would be required to be retained by processors for a period of
five years.
18(3)(h)
Publish information, in a manner and form prescribed by regulations, for example, in
relation to compliance with the due diligence requirements of the Bill. This would
provide transparency and enable public scrutiny of raw log processors with the due
diligence requirements of the Bill, including providing a basis for assessing the
effectiveness of the Bill in meeting the Government's policy objectives. The provision
of information for the purposes of publication must have regard to commercial-in-
confidence considerations and privacy legislation.
18(4)
This clause enables the regulations to be amended to keep up-to-date with
developments in approaches to due diligence, risk management and procedures for
verifying the legality of timber products.
18(5)
This subclause recognises the importance of enabling processors to reduce their
business compliance costs by utilising or adapting appropriate existing systems and
processes to meet the due diligence requirements of the Bill. This clause provides for
regulations to be prescribed for due diligence requirements for processors who
process raw logs into something other than raw logs, to be satisfied, wholly or partly,
by compliance with specified laws, rules or processes, including the following:
18(5)(a)
This subclause specifies that laws, rules or processes, including the laws, or processes
under laws, in force in a state or territory may be utilised in a manner and form
prescribed by regulations. Domestically, these may take the form of state or territory
licences, permits or other mechanisms of approval that processed domestic raw logs
have been harvested in compliance with applicable state and territory laws.
18(5)(b)
This subclause specifies that rules or processes established or accredited by
recognised industry bodies or certification bodies may be used in a manner and form
prescribed by regulations to contribute to processors' due diligence processes. This
provision relates to accredited independent third party audited legality verification and
forest certification schemes that include a requirement for demonstrating the legality
of timber sources for their compliance with the particular scheme. Application of
25
relevant rules or processes from these schemes may assist processors in meeting their
due diligence requirements.
18(5)(c)
This subclause specifies that established operational processes utilised by processors
may be used, in a manner and form prescribed by regulations, to support due
diligence, for example, existing company management systems, company policies and
practices for the procurement of legally harvested domestic raw logs or related quality
assurance schemes.
18(6)
Paragraphs (5)(a) to (c) do not limit subclause (5) as further due diligence
requirements may be necessary to strengthen the legislation.
26
Part 4--Monitoring, investigation and enforcement
This part outlines powers of officers who are authorised--that is appointed
inspectors-- to monitor, investigate and enforce suspected breaches of the legislation.
Part 4 creates a regime under which warrants to search premises and seize evidence
may be issued, and appointed inspectors can execute warrants, in order to enforce the
requirements of the Bill. The regime includes the ability to enter and search premises
with a warrant, and to seize evidence to support investigation of suspected offences or
contraventions of civil penalty provisions. The provisions of the Bill empower
appointed inspectors to ask questions, and to seek production of documents.
Division 1--Inspectors
Clause 19 Appointment of inspectors
This clause allows the Secretary (as defined in clause 7) to appoint a person with
relevant training and/or experience as an inspector to exercise monitoring,
investigation and enforcement powers of this Bill.
Subclause (5) states that a direction given under subclause (4) is not a legislative
instrument and is only present to assist readers and is not an exemption of clause 5 of
the Legislative Instruments Act 2003.
Clause 20 Identity cards
Inspectors must be issued with an identity card which must be carried when exercising
powers under this Bill.
Subclause (3) provides that a person will have committed an offence if that person
fails to return an identity card to the Secretary within 14 days after having ceased to
be an inspector. The penalty for this offence is set at one penalty unit.
Subclause (4) provides that an offence against subclause (3) is an offence of strict
liability. The application of strict liability negates the requirement to prove fault and
allows a defence of honest and reasonable mistake of fact to be raised (see section
6.1 of the Criminal Code).
Strict liability is used as a deterrent so that identity cards are returned once a person
has ceased to be an inspector. Strict liability is applied where the persons targeted by
the offence can be expected to be aware of their obligations and the need to guard
against the risk of contravention. Returning an identity card when that person has
ceased to be an inspector is well within the inspector's knowledge. A failure to
comply with the requirement to return the identify card within 14 days is obvious and
unacceptable and as such, the penalty is considered appropriate. The aim is to avoid
unauthorised or fraudulent use of the identity card.
Subclause (5) provides that the offence under subclause (3) does not apply if the
identity card in question was lost or destroyed. In this case the defendant bears any
evidential burden in relation to these matters, in accordance with subsection 13.3(3) of
the Criminal Code.
27
Division 2--Monitoring
Clause 21 Simplified outline
This clause provides an overview of the monitoring division of the Bill.
Clause 22 Inspector may enter premises by consent or under a warrant
Allows for inspectors to enter a premises to determine compliance with the Bill;
and/or whether information given in compliance with the Bill is correct. Restrictions
for entering a premises are also outlined.
Clause 23 Monitoring powers of inspectors
This clause outlines the broad monitoring powers given to inspectors that they may
exercise under clause 21.
Clause 24 Operating electronic equipment
This clause provides powers for inspectors to operate electronic equipment and what
they can do with relevant data (defined in subclause (2)), if they have reasonable
grounds to suspect that those things listed under this subclause (1) contain relevant
data.
Clause 25 Expert assistance to operate electronic equipment
Further to the powers under clause 23, this clause provides for an inspector to secure
electronic equipment if he or she believes on reasonable grounds that certain evidence
may be accessible by operating the equipment, that expert assistance is required to do
so and that evidence may be destroyed, altered or interfered with if action to secure
the equipment is not taken.
Clause 26 Securing evidential material
This clause expands on the monitoring powers of inspectors in relation to their ability
to secure evidential material.
Clause 27 Persons assisting inspectors
Subclause (1) provides for inspectors to be assisted by other persons if the inspector
considers the assistance is necessary in the exercise of his or her powers, functions or
duties. For example, an assistant could be an interpreter, timber expert or information
technology specialist.
Subclause (2) provides that assistants may do anything the relevant inspector
reasonably requires them to do to assist in the exercise of his or her compliance
powers and must not do anything that the inspector does not have power to do, except
as provided under a search warrant (e.g. use of force by an assisting police officer to
enter premises). This clause ensures that assistants are always subject to directions
from inspectors and the same restrictions that apply to inspectors.
Subclause (3) and (4) provides that anything lawfully done by the assistant under the
direction of an inspector is taken for all purposes to have been done by the inspector.
This means that the inspector is accountable for the actions of the assistant. This
clause is intended to ensure the close supervision of assistants by the responsible
inspector.
28
Subclause (5) states that a direction given under subclause (2)(c) is not a legislative
instrument as it is only present to assist readers and does not contribute to the context
of the law. It is not an exemption of section 5 of the Legislative Instruments Act 2003.
Clause 28 Monitoring warrants
This clause allows for the issuing of a warrant in relation to premises and provides
conditions surrounding the issuing and contents of the warrant.
Division 3--Investigation
Clause 29 Simplified outline
This clause provides an overview of the investigation division of the Bill.
Clause 30 Inspector may enter premises by consent or under a warrant
Allows for inspectors to enter a premises if they have reasonable grounds for
suspecting that there may be evidential material on the premises. Restrictions on
entering a premises are also outlined in subclause (2).
Clause 31 Investigation powers of inspectors
This clause outlines the investigation powers an inspector may exercise under
clause 30.
Clause 32 Operating electronic equipment
This clause details the investigation powers as they relate to operating electronic
equipment.
Clause 33 Expert assistance to operate electronic equipment
This clause applies to securing electronic equipment for use by an expert, the period
of time the equipment may be secured, and provisions relating to extensions of time
for securing equipment.
Clause 34 Seizing other evidential material
This clause gives powers to inspectors who enter premises under a search warrant to
seize other evidential material, on certain conditions, that may not be specified in the
warrant, found in the course of searching for evidential material.
Clause 35 Persons assisting inspectors
This clause outlines the responsibility of a person assisting an inspector for the
exercising of powers under the Bill, more detail on the provisions for persons
assisting inspectors can be found in the Note to clause 27.
Clause 36 Copies of seized things to be provided
This clause applies if an inspector is requested to provide a copy of a thing or
information seized and provides when an inspector is not required to comply with the
request.
Clause 37 Receipts for seized things
An inspector is required to provide a receipt for things seized.
29
Clause 38 Return of seized things
This clause provides provisions for the return of things seized as well as exceptions
which apply.
Clause 39 Issuing officer may permit a thing to be retained
This clause provides for things to continue to be retained under certain conditions.
Clause 40 Disposal of things
This clause provides that if the Secretary has been unable to locate the person or the
person has refused to take possession of the thing seized that the thing may be
disposed of in a manner the Secretary thinks appropriate.
Clause 41 Compensation for acquisition of property
This clause provides for compensation for the acquisition of property otherwise than
on just terms as provided for in the Constitution and provides recourse in a competent
court if the person disagrees with the amount of compensation.
Clause 42 Investigation warrants
This allows for the application and issuing of a warrant in relation to a premises,
including conditions surrounding the issuing and contents of the warrant, for the
purposes of investigation and gathering evidential material.
Clause 43 Investigation warrants by telephone, fax etc.
This clause provides that a warrant may be issued to an inspector by electronic means,
including telephone and fax, in certain circumstances and sets out to requirements for
doing so.
Clause 44 Authority of warrant
This clause provides that powers under the warrant for inspectors under clause 43(6)
are the same as those provided for in clause 43(4).
Clause 45 Offence relating to warrants by telephone, fax etc.
This clause outlines actions carried out by inspectors that constitute an offence
relating to warrants by telephone, fax etc, and provides that the penalty in
contravention of this provision is a maximum penalty of 2 years imprisonment.
Clause 46 Completing execution of an investigation warrant after temporary
cessation
This clause applies when there has been an emergency situation in the execution of a
search warrant to enable an inspector to have an extension of the search warrant to
resume investigation.
Clause 47 Completing execution of an investigation warrant stopped by court
order
This clause allows inspectors to complete the execution of an investigation warrant if
a court ordering it to be stopped is later revoked or reversed.
30
Division 4--General provisions relating to monitoring and
investigation
Clause 48 Simplified outline
This clause provides an overview of the general provisions relating to the monitoring
and investigation division of the Bill.
Clause 49 Consent
This clause provides that an occupiers (as defined in clause 7) consent to an inspector
entering premises must be voluntary. Inspectors must abide by the terms of the
consent given.
Clause 50 Announcement before entry under warrant
This clause provides for the requirements of inspectors when entering premises under
a warrant.
Clause 51 Inspector to be in possession of warrant
This clause provides what form a warrant must be in if a warrant has been issued
under clause 28, 42 and 43(6) when an inspector executes that warrant.
Clause 52 Details of warrant etc. to be given to occupier
This clause provides that an inspector must make a copy of the warrant to be given to
the occupier of premises and under what conditions this needs to be done.
Clause 53 Use of force in executing a warrant
The use of force is allowed against persons and things as necessary and reasonable in
the circumstances. The use of force for persons assisting inspectors is limited to
things.
Clause 54 Inspector may ask questions and seek production of documents
An inspector may ask questions and request the production of documents from the
occupier of premises, if entry has been by consent or by investigation warrant. An
offence of 30 penalty units applies to occupiers, or those representing occupiers, who
fail to produce documents if entry has been authorised by an investigation warrant.
Clause 55 Occupier entitled to observe execution of warrant
Allows occupiers, or those representing occupiers, to observe the execution of a
warrant, unless they impede that execution.
Clause 56 Occupier to provide inspector with facilities and assistance
An offence of thirty penalty units applies to occupiers of premises, or those
representing occupiers, who do not provide reasonable facilities and assistance for the
effective exercise of the powers of inspectors, or persons assisting inspectors.
Clause 57 Powers of issuing officers
This clause provides details of the powers of issuing officers (defined in clause 7).
31
Clause 58 Compensation for damage to electronic equipment
This clause provides for the circumstances by which persons can be paid reasonable
compensation for damage done to electronic equipment.
Division 5--Civil penalty provisions
Clause 59 Simplified outline
This clause provides an overview of the civil penalty provisions in division 5 of the
Bill.
Clause 60 Civil penalty orders
This clause sets out how the Secretary may go about, and under what circumstances
they can, apply for a civil penalty order from the relevant court for contraventions to
civil penalty provisions in the Bill. It also sets out limits on pecuniary penalties and
what is considered by the courts in handing down a pecuniary penalty.
Clause 61 Civil enforcement of penalty
This clause provides that a pecuniary penalty is a debt payable to the Commonwealth
and provides for the circumstances where the Commonwealth may enforce the civil
penalty order.
Clause 62 Conduct contravening more than one civil penalty provision
This clause allows for contravention of two or more civil penalty provisions to be
proceeded with. It also provides a double jeopardy provision in subclause (2) which
states that a person cannot be liable for two or more pecuniary penalties for the same
conduct.
Clause 63 Multiple contraventions
This clause provides for circumstances where there have been multiple contraventions
of civil penalty provisions.
Clause 64 Proceedings may be heard together
This clause provides for two or more civil penalty orders to be heard together.
Clause 65 Civil evidence and procedure rules for civil penalty orders
Rules of evidence and procedure for civil matters apply to relevant courts hearing
proceedings for civil penalty orders.
Clause 66 Contravening a civil penalty order is not an offence
This clause provides that contravention of a civil penalty order is not an offence.
Clause 67 Civil proceedings after criminal proceedings
This clause provides that a court may not make a civil penalty order against a person
if that person has been convicted of a criminal offence and the conduct constituting
the offence is the same, or substantially the same, as the conduct constituting the civil
penalty order.
32
Clause 68 Criminal proceedings during civil proceedings
This clause provides that civil proceedings are stayed if criminal proceedings have
commenced for the same, or substantially the same conduct. It also provides for civil
proceedings to be dismissed, without costs, if a conviction is found for a criminal
offence.
Clause 69 Criminal proceedings after civil proceedings
This clause provides that criminal proceedings can be proceeded with regardless of
whether there exists a civil penalty order for the same, or substantially the same,
conduct.
Clause 70 Evidence given in civil proceedings not admissible in criminal
proceedings
This clause provides where evidence given in civil proceedings is not admissible in
criminal proceedings. Subclause (2) provides that subclause (1) does not apply if it
relates to the falsity of evidence given in the civil penalty order proceedings.
Clause 71 Ancillary contravention of civil penalty provisions
Subclause (1) provides what a person must not do in relation to a civil penalty
provision and provides in subclause (2) that if a person contravenes subclause (1) in
relation to a civil penalty provision, they are taken to have contravened that clause.
Clause 72 Continuing contravention of civil penalty provisions
This clause provides for civil penalty provisions which have particular time
restrictions to continue to apply until the act or thing is done and that a separate
contravention of those provisions applies if the act or thing is not done within the
required time frame.
Clause 73 Mistake of fact
This clause provides for persons to have the defence of mistake of fact against civil
penalty orders. Mistake of fact is detailed in subclauses (1) and (2). Subclause (3)
places the evidential burden onto the person who wishes to rely on the defence of
mistake of fact.
Clause 74 State of mind
This clause provides that excluding clause 71(1), it is not necessary for the
prosecution to prove a person's state of mind for the contravention of a civil penalty
provision. Subclause (2) states that subclause (1) does not affect the defence of
mistake of fact provided for in clause 73.
Division 6--Infringement notices
Clause 75 Simplified outline
This clause provides an overview of the infringement notices division of the Bill.
33
Clause 76 When an infringement notice may be given
This clause provides for circumstances when an infringement notice may be given.
This provides those in contravention of the Bill, if they receive an infringement
notice, the option to pay an amount to avoid prosecution.
Clause 77 Matters to be included in the infringement notice
This clause details all of the matters that must be included on an infringement notice.
Clause 78 Extension of time to pay amount
This clause provides for the process of extending the time to pay an infringement
notice. An extension of time may be given more than once.
Clause 79 Withdrawal of an infringement notice
This clause provides that a person may ask the Secretary, in writing, to withdraw an
infringement notice. It also provides that the Secretary may withdraw an infringement
notice whether or not the person has sought withdrawal of the notice under subclause
(1). Subclause (3) lists what the Secretary must and may take into account when
deciding whether or not to withdraw an infringement notice. Subclause (4) provides
for what is required on the withdrawal notice. Subclause (5) provides that if a person
has already paid the infringement notice amount and then it is withdrawn, the
Commonwealth must refund the amount to the person.
Clause 80 Effect of payment of amount
This clause provides that if a person pays the infringement notice amount before the
end of the period referred to in paragraph 77(1)(h), then any liability of the person is
discharged and no further proceedings, either criminal or civil, may be brought
against them for that alleged contravention. By paying the infringement notice, the
person is not regarded as having admitted guilt or liability, nor are they regarded as
having been convicted of the alleged offence.
Clause 81 Effect of this Division
This clause provides for the effect of this Division in that it does not require an
infringement notice to be given to a person for an alleged contravention, affect the
liability of a person for an alleged offence, prevent the giving of two or more
infringement notices to a person for an alleged contravention, or limit a court's
discretion to determine the amount of a penalty.
Clause 82 Further provision by regulation
This clause provides that further provision in relation to infringement notices in
relation to contraventions to which this Division applies may be provided for in
regulations.
34
Part 5 - Miscellaneous
Clause 83 Publishing reports
Subclause (1) allows the Secretary to publish reports about the operation of this Bill.
Subclause (2) does not require or authorise the disclosure of the information for the
purposes of the Privacy Act 1988. The information to be included in reports may be
prescribed by regulations to allow for public scrutiny of compliance with the Bill in a
visible and transparent manner.
Clause 84 Review of operation of Bill
Subclause (1) requires the Minister to cause a review to be undertaken of the first five
years of the operation of the Bill. Subclause (2) requires a person undertaking the
review to give a written report to the Minister within 12 months after the end of the
five year period. Subclause (3) states that the review is to be tabled in the Senate and
House of Representatives within 15 sitting days after its receipt by the Minister.
Clause 85 Delegation by Secretary
Subclause (1) allows for the Secretary to delegate, by writing, their powers or
functions under this Bill to a Senior Executive Service employee or an acting Senior
Executive Service employee in the responsible department. This delegation provision
allows the Commonwealth to carry out the powers and functions under this Bill at an
appropriate level of authority and in a cost effective manner.
Subclause (2) provides that when carrying out the powers or functions of the
Secretary under this Bill, the delegate must comply with any directions of the
Secretary. Any direction or delegation given in writing by the Secretary is not a
legislative instrument within the meaning of section 5 of the Legislative Instruments
Act 2003.
Clause 86 Regulations
Subclause (1) empowers the Governor-General to make regulations prescribing
matters required or permitted to be prescribed by the Bill, or prescribing matters
necessary or convenient for carrying out or giving effect to the Bill. Specific aspects
of the Bill relating to the purpose and operation of provisions will be addressed
through regulations.
Subclause (2) provides, without limiting subclause 1, that the regulations may be
made to:
· prescribe fees to any matter under this Bill;
· prescribe penalties not exceeding 50 penalty units in respect to offences
against the regulations;
· declare that specified provisions of the regulations are civil penalty
provisions, and prescribed penalties for contraventions of such provisions
that do not exceed:
- for a body corporate - 100 penalty points; or
- in any other case - 100 penalty points, and
· provide for review by the Administrative Appeals Tribunal of reviewable
decisions made under the regulations.
35
Regulation Impact Statement
This Regulation Impact Statement (Reference 9816) has been approved by the Office
of Best Practice Regulation.
Addendum to the Regulation Impact Statement on the Australian Government
policy on illegal logging.
Introduction
A Regulation Impact Statement (RIS) on the government's illegal logging policy was
finalised on 7 May 2010 and publically released on 9 December 2010. On the basis of
the matters considered in this RIS, it was recommended that the government utilise a
due diligence co-regulation approach for identifying illegally logged timber and
restricting its importation into Australia.
This Addendum describes how the government's policy has evolved since the date of
completion and finalisation of the RIS, to incorporate a number of recommendations
arising from a Senate Inquiry and stakeholder feedback.
Draft Bill
Following the release of the RIS, the Illegal Logging Prohibition Bill 2011 was
drafted based on a co-regulation approach--option two of the RIS--and the
government's policy announcement. The draft Bill included a prohibition on regulated
timber products and legal logging requirements, comprising of industry codes of
conduct and risk management with underlying due diligence principles.
Senate inquiry
On 23 March 2011, the Minister for Agriculture, Fisheries and Forestry Senator the
Hon. Joe Ludwig referred an exposure draft and explanatory memorandum of the
Illegal Logging Prohibition Bill 2011 to the Senate Committee on Rural Affairs and
Transport (the Committee) for public inquiry. Approximately 30 submissions were
made to the inquiry along with a public hearing on 16 May 2011 which further
informed the Committee. The Committee released a report on 23 June 2011 that
included seven recommendations (Appendix 5) and a dissenting report from the
Australian Greens (Appendix 6). The recommendations included:
1. The committee recommends the Government consider alternatives to
provisions for timber industry certifiers and the certifier requirements in
relation to them from those listed in the bill.
2. The committee recommends that importers provide a mandatory and
explicit declaration of legality of product at the border and that such a
requirement be incorporated into the bill.
3. The committee recommends that the Department of Agriculture, Fisheries and
Forestry ensure that the declaration requirements are consistent, to the fullest
extent possible, with those in the US Lacey Act and European Union Timber
Regulation and others that meet a similar standard.
4. The committee recommends that the Department of Agriculture, Fisheries and
Forestry in consultation with the Australian Customs and Border Protection
Service adapt the current Customs declaration to incorporate the bill's declaration
requirements.
36
5. The committee recommends that the Department of Agriculture, Fisheries and
Forestry give consideration to providing visibility to the declaration process and
that transparency is assured by way of:
· A requirement that the importer regularly publish, or provide publication
of, the declarations in a publicly accessible form;
· A requirement that at a minimum, an annual audit of the importer be
undertaken to determine the legality of their timber;
· A requirement that the importer publishes, or provides for publication, a
report outcome of the audit; and
· A requirement on the part of the Commonwealth Government to
undertake random audits of the importer declarations, and where
warranted (based on risk assessment) undertake further investigation of
the supply chain from forest to importer.
6. The committee recommends that regulations prescribe that importers and
processors should demonstrate due diligence under one of the following:
a) an internationally recognised third-party certification scheme, or
b) an individual country initiative, or
c) have in place a management system to ensure legal compliance.
7. The committee recommends that the Department of Agriculture, Fisheries and
Forestry conduct a review of the bill's provisions five years after enactment.
The committee recommends that consideration be given in the five-year
review to further periodic reviews.
Government response
The government reviewed the Committee recommendations and stakeholder feedback
and provided a formal government response. This will be made available through the
Australian Parliament House and the Department of Agriculture, Fisheries and
Forestry's (the department) websites. The government's approach for restricting the
importation of illegally logged timber into Australia remains consistent with option 2,
recommended by the RIS. The two key regulatory elements from option 2 still apply
under the government's current policy, that is (i) a prohibition on illegally logged
timber and wood products (with an additional prohibition on the processing of
illegally logged raw logs) and (ii) a requirement for industry to carryout due diligence
to mitigate the risk of importing illegal logged timber into Australia. Industry will
retain its role in the development of due diligence requirements--to be prescribed in
subordinate legislation--to provide flexibility in how these requirements are applied
to reduce compliance and administration costs.
Revisions to the Bill based on recommendations of the Senate inquiry
Industry codes of conduct and timber industry certifiers were viewed by the Senate
Committee as an unnecessary layer of bureaucracy that would impose additional costs
and administrative requirements on industry. Based on this view, codes of conduct
and timber industry certifiers were removed, however the underlying principles of due
diligence, outlined in option 2, remain in the current policy. Key changes to the Illegal
Logging Prohibition Bill 2011 reflects the government's response to the report's
recommendations, including:
· Prohibition on the importation of all illegally harvested timber and wood
products to be introduced on commencement of the legislation;
· Prohibition on processing illegally logged raw logs to be introduced on
commencement of the legislation;
37
· Removal of timber industry certifiers, codes of conduct and related industry
certifier and Ministerial approvals processes;
· Legal logging requirements to be replaced with due diligence requirements
for the importation of regulated timber products and processing of
domestically grown raw logs, the manner and form of which is to be
prescribed in regulations;
· An explicit and mandatory declaration at the border for imports of regulated
timber products, similar to the US Lacey Act requirement;
· New reporting and publishing requirements; and
· Broadening of the offences to include non-compliance with due diligence
requirements and increased penalties to ensure compliance of importers and
processors in the absence of timber industry certifier and ministerial
approval processes that would have provided additional levels of
intervention to ensure compliance.
The above revisions have been developed in consultation with key stakeholders
through a series of meetings with members of an Illegal Logging Working Group
comprising a representative cross section of private businesses, industry association
and non-government stakeholders. The department has also held numerous one-on-
one meetings with other industry associations, businesses, conservation and social
justice groups.
Australian Government policy on illegally logged timber
This Regulation Impact Statement (RIS) assesses the costs and benefits of viable
regulatory and non-regulatory policy options to give effect to the government's
election commitment for restricting imports of illegally logged timber.10 Five
measures were identified in the election commitment to encourage the sourcing of
timber products from sustainable forest practices and to seek to ban the sale of
illegally logged timber products:
1. Build capacity within regional governments to prevent illegal harvesting;
2. Develop and support certification schemes for timber and timber products sold
in Australia;
3. Identify illegally logged timber and restrict its import into Australia;
4. Require disclosure at point of sale of species, country of origin11 and any
certification; and
5. Argue that market-based incentives aimed at reducing emissions from
deforestation and forest degradation should be included in a future
international climate change agreement.
Whilst the above suite of measures represents the government's overall policy
response to the issue of illegal logging, the RIS focuses on measures 3 and 4 which
involve potential regulation. The effectiveness and cost of any regulatory approach
proposed will be dependent on its consistency with measures taken by consumer and
producer countries to promote trade in legally logged timber and the capacity of
timber suppliers to meet the proposed regulatory requirements. Government
10 Securing the Future of Tasmania's Forest Industry (2007).
11 Country of origin in this context refers to `country of harvest'.
38
investment in capacity building and bilateral and multilateral engagement, therefore,
will be an integral part of each option available to the government.
Recommended policy response
On the basis of the matters considered in this RIS, it is recommended that the
government utilise a due diligence (co-regulation) approach for identifying illegally
logged timber and restricting its importation into Australia. The co-regulation option
would include targeted investment in capacity building and maintaining Australia's
bilateral and multilateral engagement with other countries in the Asia-Pacific region.
This conclusion is supported by the findings of the cost-benefit analysis and a
consideration of the intangible costs and benefits and potential effectiveness of the
policy options available to the government.
1. Assessing the problem
For many years illegal logging has been recognised as a significant global problem12.
Stakeholders have repeatedly called for effective national and global action to
mitigate the social, economic and environmental impacts of illegal logging13.
Globally, the issue of illegal logging in developing countries is now considered
critical as the significance of its impacts on forest degradation, climate change, habitat
loss and community livelihoods are becoming more widely recognised and better
understood.
In Australia, domestic timber harvesting is controlled through a comprehensive
framework of laws, regulations and policies14. However, in relation to the control of
imported timber, where a regulation exists, e.g. under the Convention on International
Trade in Endangered Species of Wild Fauna and Flora (CITES) management, only a
limited number of timber products would need to comply and therefore indirectly
meet the government's election commitment to restrict illegally logged timber
imports. Under this arrangement, timber continues to be imported into Australia
without any requirement for verifying its legality, other than through voluntary
industry measures.
Illegal imports, often trade at lower prices, create unfair competition for Australian
producers and suppliers who source their products from legally and sustainably
managed forests. As a consequence domestic market prices are undercut, impacting
on business decisions, industry investment, business profitability and jobs.
The ongoing deforestation and degradation of tropical forests in the Asia Pacific
region through illegal logging represents a threat to Australia achieving its goal of
promoting sustainable forest management and sustainable livelihoods for forest-
dependent communities in countries of this region.
12 Chatham House (2009).
13 Joint Statement on illegal logging (2009) by industry and NGOs.
14 URS Forestry (2009).
39
Defining illegal logging and associated trade
Illegal logging and associated trade is traditionally defined within a `criminal'
context. In developing this policy the Australian Government considered illegal
logging15 as occurring when:
· Timber is stolen
· Timber is harvested without the required approvals or in breach of a
harvesting licence or law
· Timber is bought, sold, exported or imported and processed in breach of law,
and/or
· Timber is harvested or trade is authorised through corrupt practices.
The lack of rigorous legality and forest certification schemes and lack of technical
capacity for producers and suppliers to implement them contributes to the problem of
illegal logging. Yet, if the market requires legality verification, companies may
change their practices and develop appropriate systems to demonstrate compliance
with the forestry laws in the individual countries of harvest.
Importantly though, not all illegal logging involves criminal intent. Illegal logging
may also occur at a technical level where those harvesting timber may breach logging
codes of practice or where there are disputes over land tenure. For example, it might
be claimed that illegal logging arises where there is no clear land tenure arrangements
in place. Illegal logging may therefore be a product of technical limitations, noting
that there have been recent efforts within producer countries to address this problem.
It is generally acknowledged that, as the forestry laws in developing countries are
sufficiently robust to stop illegal logging if they were adequately enforced16, it is not
the legal framework that is the problem. A lack of capacity of governments to enforce
those laws or to monitor compliance with the regulatory regimes applying to forestry
has subsequently led to consumer countries taking action to address the illegal logging
problem.
A critical opportunity exists for governments and industry to reduce the extent of
illegal logging by encouraging the use of forest certification and legality verification
schemes (or similar procedures) by industry to demonstrate that the timber is logged
in compliance with the relevant laws of the country of harvest, and for government to
ensure that their laws and regulations are properly enforced.
International context for action
National governments and international organisations have made considerable recent
investments in combating illegal logging and associated trade. However, progress has
been slow. For example, agreement was reached only in 2009 on a licensing scheme
for the export of legal and sustainably produced timber to the European Union (EU)
under a bilateral voluntary partnership agreement between the EU and Indonesia.
Negotiations with respect to this agreement commenced in 200317.
15 Definition of legality in Securing the Future of Tasmania's Forest Industry (2007).
16 Auer et al (2006); Reeve (2007).
17 EU Forest Law Enforcement, Governance and Trade Action Plan (2003).
40
At a multilateral level, governments have achieved only limited success in attempting
to reach agreement on processes for combating illegal logging and associated trade 18.
Significant recent advances, however, have been made through a more focussed
approach involving bilateral cooperation between countries. This approach has been
employed by the United States (US) and EU, in particular, which have developed
policies and regulations aimed directly at combating illegal logging and associated
trade.
Under the 2008 United States Lacey Act Amendments, it is unlawful to import certain
timber products into the US without an import declaration or to import these products
in contravention of the laws of the country where the timber was harvested. The
Council of the EU is currently developing a new regulation aimed at minimising the
risk of placing illegally harvested timber into that market. A due diligence19
regulation is being developed to enable operators to manage the risk of sourcing
illegal timber. A key element of both these approaches is their focus on capacity
building in developing countries to support their direct domestic policy measures.
Many key producer countries, including Indonesia and Papua New Guinea, are also
developing legality verification, chain of custody and forest certification schemes in
response to direct pressures from consumer countries to demonstrate the legality of
their timber products20.
Complementary regulatory and non-regulatory measures have now reached a point of
development where a new international policy environment has been established.
These efforts create an environment which enables individual nations, such as
Australia, to more effectively combat illegal logging and associated trade by
establishing domestic policy settings to allow a differentiation of legally and illegally-
sourced timber products. The effectiveness and costs of these domestic policy settings
will be strongly influenced by the government's commensurate investment in regional
capacity building and bilateral and multilateral engagement.
Global extent and cost of illegal logging
It is important to recognise the level of uncertainty involved in deriving robust
estimates of the global extent and cost of illegal logging. Limited transparency of
regulatory environments in producer countries, coupled with imprecise export and
import trade statistics make current methodologies unreliable21. The small number of
estimates regarding the extent and cost of illegal logging commonly quoted in the
literature are out-of date and do not take into account recent developments in.
consumer and producer countries to reduce the extent of illegal logging and associated
trade.
18 East-Asia Pacific Forest Law Enforcement and Governance initiative; Resolution 16 of the UN Commission on
Crime Prevention and Criminal Justice, UN Forum on Forests Non Legally Binding Instrument.
19 Due diligence will require operators (timber importers and domestic producers within the EU) to determine the
risks their timber product and log purchases, respectively, have been obtained from illegally-harvested sources
and to put in place systems for verifying the legal origins of those products commensurate with the identified
risks.
20 FLEGT Briefing Note Number 08 Market participant based legality and FLEGT licensing.
21 Poyry (2010). Legal Forest Products Assurance - a risk assessment framework for assessing the legality of
timber and wood products imported into Australia.
41
Financial costs of illegal logging
Multiple business costs have been described for illegal logging. Studies used by the
Centre for International Economics (CIE) estimated that between 20 - 80 per cent of
timber was illegally sourced in high risk countries22. Seneca Creek and Associates
(2004) estimated that illegal logging undercuts global prices for legally produced
timber by between 7 to16 per cent.
The World Bank (2006) estimates financial losses to the global market from illegal
logging of more than US$10 billion a year and losses of government revenues of
about US$5 billion a year. These figures are based on undeclared values and may
therefore represent a significant under-estimation of the global cost of illegal logging.
They equal only 1.5 per cent of global timber production. The CIE, in their
assessment of the global problem, assumed that illegal logging and trade in illegally
logged timber was 10 percent of the respective totals of total timber production and
global timber products trade. That is, world trade in illegally logged timber products is
valued at US$15 billion per annum.
The CIE estimated that traded and non-traded output from those sectors of the
global industry dependent on illegally-sourced timber as being worth
US$91 billion per annum, or 6% of total industry output. This estimate was
derived on the basis of global efforts being effective in stopping illegal logging.
Production costs associated with the supply of wood derived from illegal logging
operations are far cheaper than those for legal logging because many of the cost
components are not paid. Illegal loggers might only pay the cost of harvesting and
transportation, without internalising the costs of legal and sustainable activities. These
avoided costs include the costs associated with forest management planning,
environmental protection and silvicultural treatment, combined with the reduced
investment by industry in the delivery of social infrastructure.
In an analysis of the trade impact of the Voluntary Partnership Agreement for
Indonesia, the costs of legal log production were estimated at between US$63-76 per
cubic metre compared to illegal log production costs of between US$19-29 per cubic
metre23.
The financial impacts of illegal logging alone, however, do not provide a complete
picture of all the costs associated with illegal logging. They do not include
environmental, social or intangible impacts.
22 The CIE (2010). Final report to inform a Regulation Impact Statement for the proposed new policy on illegally
logged timber (Chapter 2); provided as an attachment to the final RIS.
23 EU (2008). Analysis of the trade impact of the VPA for Indonesia.
42
Social and environmental costs
The CIE estimated the social and environmental costs of illegal logging from various
studies and their own analysis to be around US$60.5 billion per annum.
Estimates of social and environmental costs of illegal logging
Source Estimate
$ billion a year
Social costs
Loss of non-wood forest products <1
Wasted resources 7.5
Displacement of forest communities <1
Environmental costs
Greenhouse gas emissions 43.0
Loss of ecosystem services (biodiversity) 4.5
Soil and water degradation 5.0
Total non-market costs 60.5
Source: The CIE
These costs are based on FAO and World Bank estimates, whilst the cost of annual
greenhouse gas emissions caused by illegal logging is based on estimates of global
emissions prepared by the CIE. However, the assessment of social costs by the CIE is
likely to be substantially underestimated as only a one-off relocation cost for
individuals displaced by illegal logging was included (see Chapter 3 and Appendix C
of the CIE report for details).
Further assessment of the social impacts of illegal logging indicated a much wider
range of social costs of illegal logging and therefore potentially greater benefits from
stopping it24. For example, fees and other benefits associated with legal and
sustainable logging, which would normally be returned to the community in various
forms of social benefits beyond some arbitrary payments for harvested timber, are
foregone due to illegal logging. These include government taxes and charges which
may be transferred to forest-dependent communities, the delivery of government
services, and the social services provided directly to communities by legal logging
companies, such as roads, education and health services, as part of their logging
agreements25. The figure presented in Attachment 1 describes the multiple social
impacts of illegal logging.
Intangible costs
Illegal logging imposes a number of intangible costs on forest-dependent communities
in developing countries. Intangible values impacted by illegal logging include a
reduction in the standard of living, erosion of sustainable livelihoods, destruction of
customary, spiritual and heritage values of forest dependent communities, human
rights abuses, use and exploitation of illegal foreign workers, and reduction in the
quality of the forest environment, including contamination of food and water
24 Coakes (2010) A review of the social costs of illegal logging.
25 Ibid.
43
sources26. These intangible costs extend to the citizens of consumer countries such as
Australia, who place an immeasurable value on the existence of forests and the
sustainable use of those resources. Stopping illegal logging, therefore, will have
potentially significant intangible benefits.
In their cost-benefit analysis, the CIE did not include an assessment of the intangible
costs or benefits. They were of the view that intangible benefits would not be large
enough to alter the cost-benefit outcome of domestic action to address illegal
logging27. Concerns with this approach were noted in the stakeholder comments on
the draft RIS and identified as a major deficiency in the CIE analysis (Chapter 5).
These concerns have been addressed in Chapter 5 of this final RIS.
Australia's share of the problem
Australia imports approximately A$4.4 billion (US$3.75 billion) of timber and wood
products (excluding furniture) annually. Australia's proportion of illegally sourced
timber products has been estimated at 9 per cent of total imports or around A$400
million28 (US$340 million). This is equivalent to 0.034 per cent of global production.
On this basis, and as many processing mills supply their manufactured products for
domestic consumption and exporting to other countries, the illegal logging problem
for consumer countries such as Australia extends beyond the impacts associated with
just the traded products. Australia's share of the problem is therefore estimated at
US$21 million per annum (0.034% of US$60.5 billion).
2. Objective of current and future government action
Since 2007 government (and industry) action on combating illegal logging has been
guided by the five elements of the election commitment. This commitment provides a
framework to support an assessment of the regulatory options for identifying illegally-
logged timber products and restricting their imports into Australia. Where possible,
any new approach will seek to build on existing industry initiatives.
The Australian Government's current approach
The Australian Government currently addresses the issue of illegal logging in other
countries through non-regulatory measures, including capacity building and bilateral
and multilateral engagement. The following provides a brief summary of Australia's
activity in these areas.
Capacity building
The Asia Pacific Forestry Skills and Capacity Building Program provides institutional
and technical support for developing countries to combat illegal logging and to
promote better management of their forests. Areas of support include improving and
strengthening forest law enforcement and governance, forest industry practices,
26 Australian Conservation Foundation (2006). Bulldozing Progress: Human Rights Abuses and Corruption in
PNG's Large Scale Logging Industry.
27 The CIE (2010). Final report to inform a Regulation Impact Statement for the proposed new policy on illegally
logged timber (Chapter 6).
28 Poyry (2010) Legal Forest Products Assurance - a risk assessment framework for assessing the legality of
timber and wood products imported into Australia.
44
logging codes of practice compliance, legality verification and certification, and forest
industry training29.
Bilateral cooperation
Australia has signed bilateral agreements with China, Indonesia and PNG which
include cooperation arrangements for combating illegal logging and promoting
sustainable forest management. The government is seeking to strengthen the current
level of cooperation with Indonesia on combating illegal logging, has arrangements in
place to work with Malaysia in this policy area and is engaged in discussions to
formalise cooperation with Vietnam and New Zealand on similar issues30.
Multilateral engagement
Australia is a signatory to a large number of multilateral agreements and processes
that include forest-related objectives and a focus on illegal logging, including the
United Nations Forum on Forests, the Asia Pacific Forestry Commission of the Food
and Agriculture Organization, and the International Tropical Timber Organization31.
Effective measures for combating illegal logging also have strong implications for
efforts to address climate change. The government is a strong advocate of reducing
emissions from deforestation and forest degradation in developing countries (REDD).
A key objective of Australia's International Forest Carbon Initiative is to demonstrate
that REDD can be an equitable and effective part of a global agreement on climate
change. This includes supporting partnerships to establish national policies and
systems that underpin credible emission reduction from deforestation and forest
degradation in developing countries.
Industry's approach
Under the existing policy of self-regulation, there is no national approach or
consistent use of measures that provide industry-wide assurance of legality for timber
products imported or sold in Australia. Only a small number of businesses and
industry associations have implemented legality assurance measures32. Some parts of
industry may feel that the costs of any action by the government would be prohibitive
whilst generating negligible benefits and therefore, the government should do nothing.
Industry is uncertain as to what constitutes an adequate level of legality verification
for timber products and is concerned that not all business enterprises undertake
equivalent levels of legality verification. Industry is concerned that some businesses
undertake no legality verification of their products (free-riders) and may obtain an
unfair market advantage from sourcing cheap, potentially illegal, timber as well as the
impacts that illegally-sourced timber products can have on market prices. This
provides an economic benefit over companies which seek to ensure the legality of
their products, thereby creating distortions in the market place.
29http://www.daff.gov.au/forestry/international/asia_pacific_forestry_skills_and_capacity_building_program.
30 http://www.daff.gov.au/forestry/international/regional.
31 http://www.daff.gov.au/forestry/international/fora.
32 Australian Plantation Products and Paper Industry Council Code of Conduct, Australian Timber Importers
Federation Code of Ethics, World Wide Fund for nature Australian Forest Trade Network and Bunnings Ltd
Procurement Policy.
45
Any consideration of future government action needs to take into account these
existing industry efforts and the capacity for buyers to verify the legal origins of
timber products. Industry self-regulation using voluntary measures is implemented
through a mix of guidelines, codes of conduct and procurement policies for the
purchase and sale of legally sourced timber. However, there is limited independent
auditing or monitoring of performance against those scheme and system
requirements33. The effectiveness of these current measures in excluding imports of
illegal timber is difficult to determine.
Legality of Australia's domestic timber products
The national policy framework surrounding Australia's forest and timber industry is
provided by the Environmental Protection and Biodiversity Conservation Act (1999),
the Regional Forest Agreements Act (2002), and the National Forest Policy Statement
(1992). This national policy framework is underpinned by relevant legislation in the
States and Territories. Each State and Territory has responsibility for defining and
regulating legal timber harvesting within their jurisdictions.34 Compliance with these
forestry laws would ensure that domestic timber products are derived from legally-
harvested sources.
Voluntary forest certification standards, such as those of the Forest Stewardship
Council or Australian Forestry Certification Scheme, can be used to provide an
assurance that domestic timber is legally (and sustainably) produced. Under these
arrangements, approximately 90 per cent of timber produced in Australia is sourced
from certified forests. The remaining 10 percent of timber product that is not certified
comes from wood supplied by small forest growers who are, nevertheless, required to
comply with the relevant state and territory regulations for growing and harvesting
wood.
Future government action
The Australian Government's policy objective is to combat illegal logging and
associated trade by establishing systems that will promote trade in legally logged
timber and, in the long term, trade in timber and wood products from sustainably
managed forests.
The government is seeking to meet this objective by identifying illegally logged
timber and restricting its import into Australia and requiring disclosure of species,
country of harvest and any certification at the point of sale. Any regulation to identify
and restrict the importation of illegal timber into Australia would similarly apply to
domestic industry. The objective distils the multiple elements described in the election
commitment for what would be defined as illegally sourced timber. To provide a
workable definition that can be assessed using legality verification systems, it is
proposed that legally sourced timber products are defined as those where timber
suppliers have:
· Right of access to the forest;
· Complied with the legal right to harvest; and
· Paid all taxes and royalties.
33 Timber Development Association (2010). A generic code of conduct to support procurement of legally logged
wood based forest products.
34 URS Forestry (2009).
46
Establishing a framework for promoting trade in legally logged timber is an important
step towards achieving the government's ultimate goal of promoting trade in timber
and wood products from sustainably managed forests. The illegal logging policy
objective provides a further demonstration of the government's commitment to the
principles of environmental protection and sustainable forest management.
3. Options that may achieve the objective
The regulatory options analysed in the RIS are aimed at changing the behaviour of
timber producers by directly limiting opportunities for the production and trade of
illegal timber. In the absence of any multilateral agreement in this area, utilising the
available processes for legality verification and forest certification provides an
enabling environment which will allow producers to benefit from being part of the
legal timber market.
The preferred option of the RIS should complement the government's broader suite of
non-regulatory measures outlined in its election commitment. The capacity building
costs required for the government to achieve its policy objective will be determined
by the nature of each regulatory option and the capacity of producers to comply with
the proposed domestic regulatory approaches. For this reason, the non-regulatory
elements need to be considered alongside the costs and benefits of each regulatory
option. In assessing the implementation requirements of each of these options, it is
apparent that the more demanding the compliance requirements of an option, the
larger the costs of capacity building for the Australian Government.
The total costs and effectiveness of the government's overall policy response will be
determined by the combination of the regulatory and non regulatory measures to meet
the government policy objective. A detailed description of the regulatory and non-
regulatory options available to the government can be found in chapter three of the
CIE final report. The following clauses add to those descriptions, noting that the
government has capacity to select or phase-in the range of products covered in each
option.
Option 1 - Quasi-regulation - codes of conduct enforced by industry
Under quasi-regulation, industry would be responsible for managing compliance and
enforcement of codes of conduct for undertaking adequate due diligence to verify the
legal origins of the timber products they sell. This would remain a voluntary
arrangement for industry to manage. A generic code of conduct for completing
adequate due diligence has been recently developed (with funding from the
government) and made available to industry.
Industry has shown no willingness to utilise the generic code (unless it is forced to do
so by the government) as a means of demonstrating that timber products are sourced
from legally-harvested forests or to substantiate that efforts are being made to identify
and restrict imports of illegally-logged timber products. On that basis, implementing
quasi-regulation on its own is not likely to achieve the government's policy objective
for promoting trade in legally-logged timber products.
To fulfill its policy objective, the government would be heavily reliant on the non-
regulatory elements of the policy. That is, bilateral cooperation with other countries,
promoting a consistent approach to legality verification through the existing
47
multilateral forestry forums and investing in capacity building in producer countries to
support the credible legal verification of timber products. Estimates in Appendix 2
indicate a cost to government for the capacity building element of $270 million over 5
years. The estimates were based on costs of helping other countries in the Asia-Pacific
region to introduce effective legality verification systems and then determining
Australia's share of those costs as a proportion of the volume of timber products
imported into Australia.
Option 1 was recommended by the Centre for International Economics (although they
did not provide any costing of the capacity building element for this option). Option 1
would only meet the policy objective if other governments similarly contributed on a
proportional basis to the substantive capacity building requirements for verifying the
legal origins of timber products.
Option 2 - Co-regulation using a prohibition element and a requirement for due
diligence
Option 2 would contain two regulatory elements - a prohibition on illegal timber
imports and a requirement for companies or other organisations placing timber on the
market in Australia to be signatories to Commonwealth-accredited codes of conduct
for undertaking due diligence in verifying the legal origins of timber products. For the
prohibition on illegal timber imports, it would be an offence to import timber products
into Australia that have been derived from illegally-harvested forests. Offences and
penalties already exist under State and Territory legislation for illegally harvesting
wood within Australia.
The due diligence requirement would apply to the first point of entry for timber
products onto the market in Australia. That is, the importers of timber products and
timber mills processing domestically-grown wood. Industry would develop their
codes of conduct in response to new legislation defining the due diligence
requirements. Those codes would be accredited by the Commonwealth. To gain
accreditation, codes would be administered by industry-run code administration
bodies which would require individual signatories to have their due diligence systems
assessed by third-party independent auditors each year and for those audit reports (and
their recommendations) to be provided to the code administration body.
Each code administration body would need to establish processes for dealing with
non-conformance by their signatories and for addressing complaints raised about the
activities of signatories. These bodies would present an annual report to the
Commonwealth for assessment in order to retain accreditation of their respective
codes. Once the codes of conduct are accredited, companies could undergo pre-audits
to determine if their due diligence systems meet the requirements of the code.
Companies that obtain signatory status would need to conform to each code
administration body's requirements in order to retain their signatory status, which will
be required to place those timber products covered by the policy onto the market in
Australia.
As part of the code requirements, signatories would need to provide information on
the species, country of harvest and any certification in their annual compliance
reports. This essentially addresses the fourth element of the illegal logging election
commitment. It will incur a small additional cost for industry, which will have to
48
provide new information that is not currently required within existing forest
certification and chain-of-custody schemes. The election commitment proposed that
this information be provided at the point of sale. However, preliminary consideration
of this matter indicates that it would be costly for the final sellers to comply with this
point of disclosure requirement. Enforcement of the disclosure requirement by
government at point of sale would require working with a large set of stakeholders in
addition to the group required to fulfill the due diligence obligation. It is therefore
proposed that this information is disclosed at the first point of entry onto the
Australian market.
Overseas capacity building would be required to support compliance with any new
requirements proposed by Australia and to ensure that developing countries, in
particular, are in a position to meet those requirements. This is consistent with the
election commitment to `build capacity within regional governments to prevent illegal
harvesting'. It would be based on addressing critical gaps in producer countries for
supporting the legality verification processes. For example, assisting with training of
compliance auditing for logging codes of practice, verifying that sustainable yield
harvest volumes are not being exceeded and improving the traceability of financial
transactions and the harvested wood (or other forest products) from forests right
through to the point of export. Further capacity building support may be required
where forest dependent communities shift their income dependence from illegal to
legal forest operations.
Domestic capacity building might include support for developing industry codes of
conduct for legality verification. Under this approach, the government may register a
trademark for use by code signatories to demonstrate their conformance with the due
diligence requirements as accredited code signatories.
This option allows both producers and suppliers to seek out cost-effective means of
formalising their existing or new arrangements for legality verification in order to
achieve compliance with the code requirements. These efforts would be guided by the
requirements for supplying other markets, such as the US and EU, and be assisted by
the development of credible legality verification systems in some producer countries.
It is proposed that the Category III timber products (defined in Appendix 1) would be
covered by the prohibition and due diligence elements of the policy. The prohibition
element of the policy would become effective immediately on the enactment of
legislation. Industry could be given a period of up to 2 years to comply with the due
diligence requirement (the EU will give industry a period of 2 years to establish the
necessary systems for meeting the due diligence requirements once that regulation has
been agreed by the European Parliament).
Review elements of the policy necessary to meet the government's policy objective
would include consideration of the range of timber products that are covered and the
possible timing of a shift from a legality requirement to one based on sustainability.
49
Option 3 - Explicit regulation requiring a minimum standard for legality verification
Under explicit regulation, the government's approach would be to:
· Create an offence for importing or supplying illegal logged timber products in
Australia;
· Specify a minimum standard of legality verification with Commonwealth
accreditation of acceptable schemes; and
· Establish a separate system for disclosure of species, country of harvest and
any certification of imported and domestic timber products.
The coverage of timber products (from Categories I to III as described in Appendix 1)
and a minimum standard of legality verification could both be phased in. The
standards of legality verification could change from the less onerous SDL35 to VLO,
VLC and full certification over time.
Under this option, it would be an offence to place timber products on the market in
Australia that were illegally logged and/or did not meet the specified standard of
legality verification. The minimum size of businesses required to comply with such a
regulatory approach could be based on the value and/or volume of products they trade
in order to avoid unintended economic consequences for small businesses.
The Commonwealth would be required to assess and accredit the systems of legal
verification available to industry. There are over 21 such schemes already used by
industry in the Asia-Pacific region alone. Accreditation of these schemes would be
complex and expensive. This approach would represent action by Australia that was
not consistent with the approaches being adopted by major consumer countries and
may create sensitivities among Australia's trading partners. As part of the
enforcement component of the policy, the Commonwealth would need to assess
company compliance with the requirements of the standard to ensure that only those
meeting the legality verification requirements retain their right to place timber
products on the market in Australia.
Substantive capacity building assistance would be required to establish the systems
underpinning legality verification and forest certification in producer countries, in
order for their suppliers to meet the requirements for entry onto the Australian market.
Domestic capacity building investment would also be required to help Australian
producers (particularly small-scale growers) meet the rigorous compliance
requirements of this explicit regulatory approach.
The existing systems of legal verification do not include information on species or the
country of harvest. An additional compliance system would therefore need to be
established for monitoring conformance with disclosure element of the policy.
35 The CIE described four levels of legality verification - SDL (self-declared legal), VLO (verification of legal
origin), VLC (verification of legal compliance) and FC (full certification).
50
4. Impact analysis - costs, benefits and risks
Assessments of the costs and benefits of the potential regulatory options were initially
undertaken by the CIE36 using:
· CIE assumptions for estimating compliance costs for developed countries,
developing countries and Australia;
· Four levels of legality verification - SDL, VLO, VLC and FC; and
· The timber products to be covered by the policy options falling into three
groups:
o Category I solid timber and wood products and some paper products
(12% of Australia's timber imports),
o Category II partially processed/processed timber and wood products plus
category I products (39% of Australia's timber imports), and
o Category III highly processed/composite timber and wood products from
multiple sources plus category II products (70% of Australia's timber
imports).
More detail on the products covered in each of the three categories is provided in
Appendix 1. The remaining 30 percent of Australia's timber imports not included in
Category III are those products where the timber pieces are small in volume or are
minor components, making them difficult to identify and therefore regulate. These
might include some furniture products with wood components, small consignments of
decorative wood or complex composite products. It should also be noted that the US
has delayed requirements for compliance with their import declarations on complex
composite products due to the difficulties with verifying the multiple sources of wood
inputs37.
Modelling approaches
A GTAP model38 was initially used by the CIE to analyse the costs and benefits to the
world and the Australian economy of stopping illegal logging. The CIE modelling
captured the effects of the actions taken in the form of supply shocks introduced as
`export taxes' in producer countries or increased production costs for Australian
suppliers.
This analysis was supplemented with additional modelling undertaken by ABARE
using GTEM model39. Differences between the CIE and ABARE analytical
approaches and the assumptions used for the assessment of costs and benefits revealed
major differences in the economic outcomes for Australia from combating illegal
logging.
36 Details of the CIE analysis can be found in Chapters 4 and 5 of the CIE final report.
37 One year delay (on or after September 1, 2010) in the enforcement of import declaration requirements for
certain composite products by the US Department of Agriculture. Federal Register Vol 74, No. 169,
September 2 2009.
38 Global Trade Analysis Project.
39 General Trade Equilibrium Model.
51
The assumptions employed by the CIE are described in their report. Assumptions
underlying the additional ABARE analysis are described in Appendix 1. Compliance
cost estimates used in the ABARE analysis were derived from overseas studies by
ITTO (2004), EU (2008) and Cubbage et al. (2009)40.
Costs and benefits to the global economy from stopping illegal logging
The CIE estimated that stopping illegal logging would benefit legal producers by
US$46 billion per annum in addition to providing social and environmental benefits
of US$60.5 billion per annum. These total benefits of US$106.5 billion per annum
would be off-set by a decline in the illegal sector of US$91 billion per annum. From
these results, the CIE indicated a benefit: cost ratio of 1.2:1 (106.5/91) from global
action to stop illegal logging. In effect, it demonstrates a global benefit from
eliminating illegal logging.
However, when using the GTEM and the same assumptions as those employed by the
CIE, ABARE found that at equilibrium, the legal forestry sector's output would
increase by US$33.7 billion per annum at the new equilibrium with a decline for the
illegal sector of US$34.5 billion per annum. After taking into account this small
global decline in GDP and the net global economic, social and environmental benefits
from eliminating illegal logging, there would be a net global benefit from stopping
illegal logging of approximately US$60.5 billion per annum after the industry adjusts
and restructures itself following the initial shock of shifting to only legally-sourced
timber. Global benefits would be US$101.3 against the economic losses of US$34.5
billion per annum.
The status quo
In assessing the costs and benefits of the different regulatory options, the Office of
Best Practice Regulation (OBPR) requires an assessment of the costs and benefits of
each option, using the status quo as a benchmark for comparison. On the basis that an
estimated 10 per cent of Australia's timber imports are suspected as being derived
from illegally-logged sources, the CIE concluded that voluntary arrangements were
therefore 90 per cent effective. No estimate was provided by the CIE of the cost to
industry for the existing systems of voluntary self-regulation. Without industry self-
regulation, the CIE proposed that illegal imports might account for 20 per cent of
Australia's total imports.
In terms of the costs to government at present for activities associated with combating
illegal logging, there would be approximately US$5 million per annum being
delivered through capacity building, bilateral cooperation and multilateral
engagement, and the on-going policy work of the Department of Agriculture,
Fisheries and Forestry (DAFF).
40 An additional report from ABARE is available which addresses the department's concerns with CIE
compliance cost estimates, which were confirmed by the EU in their submission on the draft RIS. An example
of the uncertainty arising from the GTAP modelling results was the scale of the impacts for China from global
action to eliminate illegal logging. GTAP estimated the costs at US$31 billion per annum or 2% of that
country's GDP - the global financial crisis did not decrease China's GDP by more than 2% in 2008 or 2009
(ABARE, 2010).
52
Costs and benefits of the three possible regulatory options
The costs and benefits of the three potential regulatory options available to the
government are described using the outputs of the CIE and ABARE analysis41.
Estimates of the capacity building investment requirements are provided for each of
the regulatory options (rather than being presented as a separate non-regulatory
option) together with the relevant estimates of the government enforcement costs.
Option 1 - Quasi-regulation - codes of conduct enforced by industry
It is assumed that there would be no cost for the Australian economy from a quasi-
regulatory policy response. This approach would be expected to have minimal
impacts on industry or industry structure as the small and large companies currently
using legality verification systems would continue to do so. Those companies that
don't invest in legality verification would see no incentive for taking on this extra
cost. As such, there is no justification to support the CIE estimate of increased costs to
Australian businesses and the economy with this option.
It is possible that under this option that a greater volume of illegally logged timber
products could be diverted to Australia as the regulatory requirements imposed by the
EU and US on their timber imports come into effect42. Such a policy response by
Australia might therefore undermine the effectiveness of other global approaches to
combating illegal logging.
Government costs
The costs to government associated with quasi-regulation would require maintaining
the existing level of bilateral and multilateral engagement (costing around $1 million
per annum) and investment in capacity building. There would be no requirement for
increased costs to any of the regulatory or enforcement agencies.
Quasi-regulation would not meet the government's election commitment or achieve
its illegal logging policy objective. In order to meet that objective, Australia and other
consumer countries would need to invest in the forest governance systems within
developing countries to provide credible legal verification for timber products. It was
estimated that Australia's share of the capacity building effort for the Asia-Pacific
region alone would be at least US$270 million over five years (or A$300m with an
exchange rate of AUD1=USD0.90) (Appendix 2). It is important to note that this
approach would only be effective if other countries contributed their share of the
capacity building costs with respect to supporting the development and use of suitable
legality verification systems.
41 The CIE analysis of the costs of illegal logging (and therefore the benefits of stopping illegal logging) provide
an important input for the cost-benefit analysis presented in this RIS. Those cost estimates were derived from
published reports and the CIE's own analysis, determined separately from the GTAP modelling results.
42From the FAO Yearbook (2009), imports of sawnwood, wood panels, pulp and paper into the US and Europe in
2009 represented two-thirds of the global imports of those products. As the US and EU approaches take effect,
it would be highly likely that illegally-logged timber products would be diverted to less discerning markets.
Pursuing option 1 could lead to Australia's imports of illegally-logged timber products actually increasing.
53
Overall additional costs for this option of approximately US$52 million per annum
with limited benefits unless other countries pay their share of the legality verification
capacity building costs in producer countries. Australia's overall benefits would be
expected to remain significantly below Australia's share of US$21 million per annum
until the credible systems are in place. Without that commitment, Australia's policy
response may not have any impact on the rates of illegal logging in overseas
countries.
Option 2 - Co-regulation using a prohibition element and a requirement for due
diligence
A due diligence regulation will allow industry to verify the legal origins of timber
products at the first point of entry onto the Australian market and at minimum cost. In
terms of estimating the compliance costs for this approach, it is important to note that
targeting the first point of sale in Australia would limit the points along the supply
required to incur the costs of legality verification. `Like `measures for imported
timber would also be applied to domestic products43, in line with Australia's
commitments under the World Trade Organization and obligations under its free trade
agreements.
The costs to Australian consumers, businesses and the economy will increase from
requiring importers and domestic producers to verify the legal origins of timber
products at the first point of sale or entry onto the market in Australia. However, the
costs of the due diligence approach were not directly assessed by the CIE. In the
additional analysis completed by ABARE, and using the assumptions described in
Appendix 1, the economic impacts for Australia, high risk countries, low risk
countries and employment in Australia were provided.
The costs for the Australian economy with category III product coverage were
estimated as US$8.9-17.9 million per annum once the new equilibrium is reached. For
category II product coverage costs were estimated as being in the range of US$4.4-9.8
million per annum, and US$2.1-5.1 for category I product coverage. It is important to
note the size of these net costs compared to the size of the Australian forest industry,
independent of whether it is domestic mill production ($2.5-$3 billion per annum) or
industry turnover ($23 billion per annum).
Under this option, the costs to consumers will increase as a result of higher timber
prices associated with a reduction in the volume of illegally-logged timber products
entering Australia. The Australian industry will gain from these higher prices, which
have the capacity to off-set part if not all of the increase in production due to the new
legal verification compliance costs. From the government's domestic action, there
will be costs for the Australian economy. However, most of the benefits from this
action will accrue to overseas countries. According to the ABARE analysis, the legal
timber producers in developing countries will benefit and GDP in developing
countries (where there is high risks of illegal logging) will fall although this will be
43 From the ABARE Forest and Wood Products Statistics (2009), the value of timber products manufactured in
Australia's mills is approximately $2.5-$3 billion per annum. If the additional compliance costs to the
Australian industry for Option 2 represent 0.1% of the final product price, the costs of legality verification to
the domestic industry using the point of entry onto the market in Australia would be 0.1% of $2.5-$3 billion or
$2.5-$3 million per annum.
54
offset by those countries receiving a significant share of the social and environmental
benefits from Australia's actions to stop illegal logging.
The range of potential benefits arising from Australia's actions to combat illegal
logging using Option 2 is US$0-21 million per annum (based on the CIE estimates of
benefit). Given that the proposed due diligence approach for Australia would combine
the US and EU regulatory mechanisms, it is possible that Australia could claim that it
is generating a significant proportion of these potential annual benefits.
Impacts on industry
It is anticipated that large businesses would be in a better position than small
businesses to absorb the additional costs associated with a co-regulation option based
on the use of legality verification due diligence systems. This is not expected to have
a significant effect on industry structure, particularly small businesses, as the rebound
in market prices for legal timber products that would occur if the sale of illegally-
sourced product was severely restricted in Australia, would be expected to cover at
least part of the due diligence costs. It is expected that Option 2 would have a lesser
impact on industry structure than Option 3.
Government costs
Costs to government with the due diligence option would include the administration
costs for DAFF associated with the accreditation of due diligence codes of conduct,
the assessment of code administration body compliance with the regulatory
requirements, and some post-border surveillance activities (less than US$1 million per
annum). Capacity building would be targeted at addressing critical gaps in producer
countries, assisting industry develop the codes of conduct and an outreach program to
inform governments and industry of Australia's approach (US$8-14 million over the
first four years of the regulation coming into effect). The capacity building activities
would be designed to assist developing countries to implement legal verification
systems that are appropriate for meeting the requirements for gaining access to the
Australian market. Enforcement costs for the Australian Customs and Border Control
Service (Customs) would include developing the capacity to differentiate accredited
and non-accredited suppliers and providing information to DAFF on product imports.
In a cost-benefit sense, the potential costs and benefits of Option 2 are similar in
size even after allowing for the costs to government, noting the potential
variability in these estimates.
Option 3 - Explicit regulation requiring a minimum standard for legality
verification
The CIE modeling presented in the draft RIS indicated an increase in costs to
Australia of US$13-168 million per annum, depending on the legality verification
system employed and the range of products to be covered. The cost of US$168
million (plus or minus 50%) represented the costs for using full certification to verify
legality with category III product coverage. When the same variables were applied to
the GTEM, ABARE estimated the costs to the Australian economy as being US$100
million per annum.
As described in Appendix 1, DAFF and ABARE cited a number of international
references which provided justification for using considerably lower legality
verification costs in developing countries to achieve each of the minimum standards
55
of legality verification that might be required for entry onto the Australian market.
Using the DAFF/ABARE cost estimates, the costs for the Australian economy from
requiring suppliers to meet a standard of full certification and category III product
coverage was reduced to US$32.7 million per annum.
Costs to consumers would be expected to rise as a result of the higher costs of
compliance associated with requiring a minimum standard of legality (compared to a
due diligence approach) plus the additional costs of buying legal timber in a market
where cheaper illegally-logged products have been excluded.
The CIE estimates of compliance were based on the same proportional costs for forest
management certification applying to all stages along the various chains of custody
for suppliers. Based on the reasons outlined in Appendix 1 and in ABARE (2010),
this is unlikely to be the case. Alternative cost estimates for chain-of-custody costs
based on the complexity of the supply chains in producer countries, indicate the costs
to the Australian economy being reduced to the range of US$6.8-16.8 million per
annum. This is similar in size to the Option 2 economic costs from GTAP.
The benefits arising under option 3 across the range of US$0-21 million per annum,
would be relatively small as this option would represent a response by Australia that
is inconsistent with approaches being pursued by producer and consumer countries.
This would be the case independent of the legality verification system adopted or the
category of product coverage, as there would be considerable capacity for product
leakage to less discerning markets. As such, the option would have limited
effectiveness, generating relatively small economic, social or environmental benefits.
Impacts on industry
This approach would be expected to have significant impacts on the domestic and
overseas industry. With only a small proportion of products carrying credible forms of
legality verification, it is anticipated that there would be significant restrictions on
imports from developing countries (which do not yet have these systems in place)44.
Domestically, around 90% of the timber harvested each year is supplied from certified
sources. As a consequence, large companies would be able to meet any specified
standard of legal verification. However, there would be significant cost impacts under
Option 3 for small-scale growers who are not yet certified. As a consequence, this
approach may lead to a larger impact on industry structure than option 2 if small
businesses find it is too expensive to comply with the minimum specified standards of
option 3. Australian importers may also be affected if the products they import are not
certified to the specified standards.
Government costs
Significant additional costs to government, beyond those for option 2, would be
associated with scheme accreditation, assessing compliance with the government's
regulatory requirements, and the costs of capacity building. DAFF would have a
significant role in the on-going monitoring and accreditation of the numerous legality
verification schemes currently available in the Asia-Pacific region. The compliance
assessment approach would require that assessment being undertaken both at and
beyond the border. Capacity building would be required both domestically and
44 2009 study estimates that only 26% of global industrial roundwood is supplied from certified forests and of this,
96% comes from Western Europe and northern America.
56
overseas. A significantly larger proportion of the overseas capacity building costs
would need to be incurred by Australia than was estimated for option 1 because by
setting a prescribed standard of legality verification, Australia would be acting in way
that is not consistent with approaches being pursued by other producer and consumer
countries.
Compliance costs for product disclosure
An additional system would need to be established to meet the requirement for
disclosure of species, country of harvest and any certification. The CIE modeling of
the disclosure element compliance costs for full certification and category III product
coverage (using the assumption that the cost of product disclosure would increase
across the board by 0.5 per cent) indicated the impacts for the Australian economy
would rise by 43 per cent.
Overall the additional costs to the economy and compliance and capacity
building costs associated with Option 3, combined with a reduced share of the
benefits arising with limited policy effectiveness, indicate a benefit to cost ratio of
significantly less than one.
5. Consultation
The CIE was commissioned to consult stakeholders during the RIS process and to
prepare a public consultation statement45. Stakeholders representing forest, wood
products, paper and construction industries, retailers, non-government organizations,
academic institutions, certifiers, consultants, and federal and state government
agencies were engaged in this process. Three rounds of consultation were conducted.
Steps in the consultation process included:
· Individual meetings with sixty five stakeholders to introduce key issues and
questions likely to influence the outcome of the RIS. An issues paper was
prepared and made available on the CIE's website as the basis for providing a
structured discussion during the individual stakeholder meetings;
· A second round was undertaken with a select group of stakeholders and
certifiers via telephone to test the initial CIE estimations of the cost of forest
certification. Stakeholders were sent a document with the general assumptions
and costing per certification component. Input from this stage contributed to
the CIE's understanding of the cost of achieving full certification of forest
management (which includes legality verification); and
· A third round over a seven week period, seeking input on the draft report from
the CIE (which described the problem and its size, policy options, modeling,
the costs of regulatory options, the benefit-cost analysis and conclusions).A set
of questions were posed in order to gain feedback from stakeholders.
Twenty one submissions were received on the findings and methodology of the RIS.
Eighteen of these were made available on the CIE's website with the authors'
permission. Twelve thousand, two hundred and fifty one `postcards' were received
over the 7-week period, which demanded the Government fulfill its election promise
of banning illegally logged timber imports. The CIE sought to address stakeholder
issues from the perspective of their cost-benefit analysis in the final report to DAFF.
45 Chapter 8, CIE final report.
57
Stakeholder response to three options
A summary of the stakeholder concerns, their preferred approach(es) and views on
implementation are provided at Appendix 3. It is important to note that stakeholders
did not always demonstrate a preference for a single option. The views of
stakeholders with respect to the three options, summarised from Appendix 3, are:
· Option 1 - Quasi-regulation - A voluntary approach with investment in
capacity building, bilateral and multilateral engagement (the CIE
recommended options) was favoured by six stakeholders, of whom four
offered qualified support for Option 2;
· Option 2 - Co-regulation - A due diligence approach backed by some form of
mandatory requirement was supported by eight organisations; and
· Option 3 - Explicit regulation - requiring full certification of timber products
received support from four stakeholders, with three indicating support for
Option 2.
General stakeholder issues with the draft RIS
Stakeholders consistently identified three broad areas of concern with the draft RIS
and the impacts of the 3 options. These issues were consistently raised in the industry
and NGO submissions:
· Illegal timber production should not be seen as an economic benefit:
In this RIS, illegal timber production is not viewed as providing an economic benefit.
It is noted that illegal logging can have a significant impact on industry structure,
employment, investment and profitability. Where it has been separately assessed, it is
noted that illegal timber production is significant and if illegal logging is reduced, it
will impact on communities and the structure and activities of the legal forest industry
sectors. These impacts could also be negative where communities are dependent on
the income from illegal activities. Australia's capacity building activities might
therefore need to include improving the capacity of these communities to identify
alternative sources of income.
· Intangible and social impacts/costs in the cost-benefit analysis should be given
more emphasis:
- A more detailed social assessment undertaken by DAFF to support the
completion of the RIS highlighted the social impacts associated with
illegal logging. Significant tangible and intangible costs were noted. In
particular, the loss of human, resource and other forms of capital for
forest-dependent communities, the loss of payments for timber and the
lack of social services supplied by industry and government where there
are illegal forestry operations. Beyond the forest-dependent communities,
other sections of society note the loss of intangible benefits where forests
are illegally logged.
· Moral and treaty obligations for Australia including Australia's political
leverage should be included in the cost-benefit analysis:
- If Australia, through its strategic location in the Asia-Pacific region, is
able to influence governments to take action on combating illegal logging
through the domestic measures it employs to identify and restrict illegally-
logged timber imports, there may be some justification for claiming a
58
greater proportion of the benefits than 0.034%. That is, the benefits might
be greater than US$21 million per annum.
· A comprehensive assessment of the policy options available to the government
for combating illegal logging requires an examination of both the tangible and
intangible costs and benefits:
- Under Option 2, an assessment of the range of intangible benefits adds
weight to the benefits component of the benefit to cost ratio, although they
remain similar in size; and
- Under Option 3, the variation in benefits and costs is sufficiently large as
to indicate that even with the inclusion of intangible benefits of taking
action to combat illegal logging, the benefit: cost ratio may still not be
close to one.
Industry concerns
A number of more specific issues were identified in the industry submissions on the
draft RIS:
· Illegal logging suppresses product prices and provides unfair competition to
Australian producers and suppliers:
- Australian businesses should gain a price rise from preventing trade in
illegally-logged timber products under Options 2 and 3 because of price
adjustments to a legally operating market where the full value of timber is
paid.
- It is possible that these price rises will offset at least part of the additional
industry compliance costs under Options 2 and 3.
· Minimise disruption to trade:
- Option 2 - disruption to trade will be minimised by allowing importers
and domestic suppliers to determine the most effective means for
verifying the legality of products from potentially multiple sources based
risk assessment of the potential illegality of timber using a framework for
due diligence system developed by industry;
- Option 3 - a minimum standard of legality verification is expected to incur
some level of disruption to trade. This will depend on the minimum
standard of legality verification required by regulation and the capacity of
suppliers to utilise the schemes accredited by the government. In those
cases where exporters cannot use acceptable schemes (for example, where
no acceptable schemes are available in the producer countries) the
suppliers would not be able to provide products to Australia;
- A 2-year lead time after the introduction of legislation for Option 2 or 3
should give industry sufficient time to establish the necessary systems and
processes to minimise trade disruption. Providing capacity building
support to assist industry develop acceptable codes of conduct under
Option 2 would help address concerns that suitable codes may not be
available for use by the various domestic industry sectors;
- The proposed date of enforcement would be consistent with the timing
proposed for implementation of the EU due diligence regulation; and
59
- It is important to note that Option 2 would not restrict imports into
Australia from any particular source or country. The limitation is that only
importers that are signatories to government-accredited codes of conduct
would be able to import the timber products specified in regulation.
· Minimise compliance costs to industry:
- Compliance costs may be at least partially offset by the recovery in prices
if products derived from illegally-logged sources are prevented from
entering Australia. This is the reverse of arguments raised by stakeholders
that prices are depressed due to the availability of illegally-logged
products. The CIE estimated that if illegal logging was stopped, the prices
for timber products would rise by 3 per cent;
- Industry submissions noted the importance of maintaining the reputation
of timber with buyers. There would be some benefit (tangible and
intangible) to timber product sellers from being able to claim that their
products are derived from legally-harvested sources;
- Not all costs to industry associated with meeting the requirements of
Option 2 will be new, as timber exporters in producer countries will need
to establish these same systems for trading to the EU and US markets. The
costs of adapting their systems to meet any similar requirements from
Australia for timber legality would be limited;
- Producers in other countries are increasingly required to demonstrate
compliance with forestry laws. As such, the new costs they would incur to
meet the requirements of Option 2 would be potentially limited to
formalising their current processes into a systematic fashion that supports
legality verification. Even if they do not have the systems currently in
place to verify legality, they will have some systems already being used to
support conformance with forestry laws;
- Meeting the requirements for Option 3 would be expected to raise new
costs for overseas and domestic producers. They would not face these
same requirements to supply alternative markets;
- Mandatory timber legality verification may create an incentive for
suppliers to formalise existing arrangements for demonstrating proof of
legality for their products as the basis for maintaining market access.
However, if industry were required to administer codes of practice or
other elements of a due diligence approach, government support should be
provided to develop their capacity in this area;
- Expanding product coverage to more than 70 per cent of timber-
containing products may raise the compliance costs for industry. GTEM
and GTAP modeling results indicate that the costs will rise exponentially
as the range of products to be covered increases.
· Uneven distribution of costs and impacts across industry sectors - small
business versus large business:
- Costs of compliance under Options 2 or 3 will not be incurred by all
companies in the supply chain - only for first point of entry onto the
Australian market;
60
- In response to the Option 2 or 3 legality verification requirements, fewer
companies (e.g. small businesses) might import timber directly due to the
higher costs of meeting those requirements. As an alternative, they might
rely on larger timber merchants bring in goods in bulk.
· Relative cost versus effectiveness of the measure:
- Consistency of Option 2 (for regulating illegal timber imports) with the
actions of EU and US will improve its effectiveness relative to action
under Option 3, which is inconsistent with these approaches.
· Potential for unfair competition for domestic manufacturers and suppliers if
some timber imports are included and not others, e.g. raw materials to make
furniture and not pre-packaged timber furniture imports:
- The range of products to be covered by Options 2 and 3 will take into
account the costs and effectiveness of including complex and composite
wood products, with the capacity for phasing in the range of products to
be covered.
· Concerns regarding free-riders who do not verify the legality of their timber
and take advantage of cheap imports from potentially illegal sources:
- Option 1, which relies on voluntary measures, does not address this
concern and may have the opposite effect of encouraging the diversion of
illegally-logged products to Australia until producer countries fully
implement systems for achieving legality verification;
- Options 2 and 3, which involve mandatory requirements will stop free
riders and ensure that the cost advantage for these product suppliers does
not continue.
· Potentially perverse outcomes from restricting illegal timber imports resulting
in a reduced demand for timber and increased demand for wood substitutes:
- It will be important to design legality verification requirements in a way
that minimises disruption to timber products trade and supply;
- Option 2 is designed to address this matter, whilst option 3, with its more
onerous requirements for legality verification, is unlikely to address this
concern.
6. Conclusion and recommended option
A regulatory approach for using due diligence or establishing a minimum standard of
legality verification could be effective in preventing illegally-sourced timber products
from being placed on the market in Australia. However, the effectiveness of the policy
in stopping illegally logged imports from entering Australia and helping other
countries to combat illegal logging will depend on whether Australia is taking action
that is consistent with or goes beyond approaches of producer or other consumer
countries and is consistent with Australia's international trade obligations. Identifying
the preferred option also requires an assessment of the costs and benefits of each
policy option and ensuring that the concerns of stakeholders are given adequate
consideration.
The CIE noted that because Australia's imports account for such a small share of
illegally logged timber and restricting imports has limited effect in reducing illegal
61
logging, Australia incurs all of the costs of restricting imports without achieving
commensurate benefits of reducing the damaging effects of illegal logging. This
conclusion, however, is heavily dependent on no other countries taking action.
If the ultimate policy outcome of eliminating illegal logging could be achieved,
ABARE estimated that Australia's GNP would increase by US$155 million per
annum. This estimate does not include the compliance costs associated with legal
verification, which have previously been shown to be significantly less. Therefore,
there is a benefit to Australia taking action and action that is consistent with other
approaches, especially given that the US and Europe account for two-thirds of the
world's imports of timber products.
Where global action is not complete in eliminating illegal logging, the findings in this
RIS indicate there are costs to Australia and benefits to overseas countries. While
Australia's share of this global trade is small, its strategic location and regional
engagement in combating illegal logging and associated trade should add to the
process of change.
The complementary benefits of actions by both consumer and producer countries,
therefore, need to be taken into account in the cost-benefit analysis of Australia's
action. In addition to the small net financial cost to Australia and a reduction in GNP
in high risk countries, the economic benefits of stopping illegal logging largely accrue
to other developed countries that increase their supply of legal timber products. It is
expected that these costs will reduce and the benefits accruing to Australia will
increase incrementally over time as the world moves to stop illegal logging.
Stakeholders, in their response to the draft RIS, indicated significant support for moral
reasons for change and an acceptance of small costs for Australia from removing
illegally sourced products from Australia's market.
Option 1 - quasi regulation - codes of conduct enforced by industry
This option maintains the status quo, but does not meet the government policy
objective given its voluntary nature. Whilst quasi regulation offers a low cost option
to industry and government (in terms of the enforcement costs), substantial
investment in overseas capacity building would be required to provide credible
systems of legality verification in producer countries. This option would only be
effective if other countries contributed on a proportional basis to the legal verification
capacity building programs, although there would be long lead times before
acceptable legality verification schemes would be available in all producer countries.
As indicated by submissions on the draft RIS, limited support for this option was
based on it being a low-cost approach for industry compliance for those sectors made
up largely of small businesses.
Option 2 - co-regulation using a prohibition element and a requirement for due
diligence
Co-regulation in the form of a due diligence regulation is recommended as the most
effective option. The benefit-cost analysis presented in Chapter 4 indicates that the
costs and benefits of implementing a due diligence regulation would be of a similar
size. When the intangible costs and benefits of stopping illegal logging together with
Australia's capacity for encouraging action by foreign governments are taken into
account, this option should generate benefits to industry, the economy and the
62
community that outweigh the costs. Applying similar measures to domestic suppliers
and importers would ensure the approach is consistent with Australia's trade law
obligations whilst providing a comprehensive policy response at both domestic and
global levels.
The due diligence element of this option provides industry with a least-cost approach
for meeting the objective. This proposal combines the US and EU initiatives, with the
due diligence element supported by a prohibition on illegal timber imports that could
carry significant penalties for non-conformance. It is anticipated this proposal would
be highly effective in meeting the legality component of the policy objective. At some
future time, it would be possible to consider whether the legality verification
requirement could be replaced with due diligence applied to the sustainability of the
underlying forestry practices.
Australia's implementation of a regulatory approach that is consistent with the efforts
pursued in producer and consumer countries should ensure that the regulatory
elements of Option 2, supported by targeted capacity building and bilateral and
multilateral engagement will make a significant contribution to global effort for
combating illegal logging. Building on the existing systems and processes employed
by industry would further ensure that the costs associated with this approach are
minimised. Support for this option was provided directly in eight of the eighteen
submissions on the draft RIS, with qualified support in a further seven submissions.
Option 2 should minimise disruptions to trade, allow a recovery of depressed prices
(which will help offset the additional compliance costs), minimise industry
compliance costs, limit potential impacts on small businesses (and the industry
structure), address the free-rider problem, remove unfair competition and provide
assurances to Australian consumers of the legal origins of the timber products they are
purchasing. The use of a licensed trademark by industry would assist consumers to
identify legally-sourced timber products.
Stakeholders noted that if industry was required to implement a due diligence
approach, government support should be provided to establish codes of conduct.
Option 2 does not involve the testing of domestic industry compliance with State and
Territory forestry laws (or those of overseas jurisdictions) as each domestic
jurisdiction has separate measures for legal compliance and law enforcement. Similar
to the EU due diligence regulation, this approach seeks to ensure that all suppliers of
domestic and imported timber in Australia undertake assessments of the risks of
sourcing illegally-harvested timber products and employing legality verification
measures commensurate with the level of risk identified. This approach is consistent
with the overarching policy directions described in Australia's National Forest Policy
Statement (1992).
Costs to government for this option would be relatively small. While the government
may invest in targeted capacity building and an outreach program, the costs for
government enforcement, accreditation of codes and monitoring of compliance would
be relatively low (when compared to option 3), with industry bodies having
responsibility for administrating the codes of conduct which are accredited and
monitored by the Commonwealth.
63
Support for developing countries through the capacity building element of the policy
would assist the suppliers of those countries to comply with Australia's proposed new
requirements. This investment in capacity building is consistent with the
government's election commitment `to build capacity within regional governments to
prevent illegal logging'. These capacity building activities could be identified through
the cooperative approach established with other governments in the region under the
forestry bilateral agreements currently in place and being pursued by the government.
Capacity building costs to Australia would be complementary to the approaches taken
by the EU and US and broader global efforts to address illegal logging and associated
trade. Both the EU and US have invested substantially in capacity building programs
as part of their efforts to address illegal logging, and jointly, these efforts may
contribute to reduce the cost burden on Australia in meeting its election commitment
and policy objective.
Option 3 - explicit regulation requiring a minimum standard for legality
verification
This option offers considerable certainty in meeting the government's policy
objective. However, a minimum standard for legality verification would have high
government administration and industry compliance costs because of the high levels
of intervention. Relatively high annual costs for the Australian economy (relative to
the possible benefits) were identified in the CIE and ABARE analyses for this option
and need to be considered alongside the additional government capacity building costs
plus the additional costs for implementing a system to fulfill the product disclosure
element of the election commitment. These costs are expected to significantly
outweigh the potential benefits arising from action by Australia to combat illegal
logging that is inconsistent with the approaches of all other producer and consumer
countries. There was some stakeholder support for implementing option 3.
7. Implementation and review
Option 2 would be implemented by introducing new legislation administered by
DAFF and supported by the Australian Customs and Border Protection Service and
DAFF. New legislation would provide domestic and overseas stakeholders with a
clear understanding of the government's requirements for the importation and sale of
legally logged timber in Australia. A more detailed outline is provided in Appendix 4.
Industry would be required to develop and implement legality verification codes of
conduct through new code administration bodies which describe the processes for
assessing the risks of sourcing illegally-logged timber. Individual companies, as
signatories to the due diligence codes of conduct, would undertake third-party
independent auditing of compliance with the codes' requirements, in terms of
identifying the risks of sourcing illegal products and implementing approaches that
are relevant to minimising those risks. The code administration bodies would report
on the findings of the signatory audits, the signatory responses to adverse audit reports
and complaints against their signatories as the basis for retaining their Commonwealth
accreditation.
Legally compliant timber suppliers, who already use a range of voluntary legality
verification measures for imported and domestic timber, would formalise their current
64
arrangements to meet the legality verification requirements of the relevant codes of
conduct.
Business enterprises that do not have these systems in place (`free-riders') will need to
implement new due diligence procedures. Industry codes of conduct and supporting
procedures would help minimise the administration and compliance costs for all
industry stakeholders. The generic code of conduct prepared by industry in 2010 with
funding from the Commonwealth provides a template for preparing sectoral codes of
conduct. Importers and domestic timber processing mills, as the first points of entry
for timber products onto the market in Australia, would be required to provide
appropriate documentation of their due diligence arrangements to enable auditing and
reporting of compliance. Industry signatories to the Commonwealth-accredited codes
of conduct would be required to use a Commonwealth registered legality trademark.
The prohibition elements of the due diligence approach would apply from the date the
legislation comes into effect. To minimise the impact on stakeholders with respect to
the code of conduct elements of due diligence, transitional arrangements would be put
in place for a two-year period prior to these requirements being fully enforced. After
that time, timber products could only be placed on the domestic market by code of
conduct signatories. This should provide government agencies, importers and
domestic suppliers' sufficient time to establish the operational and administration
arrangements to meet the requirements of the legislation. A comprehensive awareness
raising outreach program would be implemented in advance of the code of conduct
legislation being enforced to facilitate compliance by industry.
Suitable constitutional heads of power are available to the government for
implementing the code of conduct compliance elements of option 246. The
Government could review the due diligence arrangements within 5 years to determine
their effectiveness, including (a) effectiveness of the industry codes of conduct; (b)
effectiveness of the enforcement and compliance procedures; (c) the range of timber
products covered by the regulatory elements of the policy; (c) the economic impacts
of the due diligence compliance requirements; (d) potential for increasing the
legislative requirement from `legality' to `sustainability' of timber products(to meet
the long-term objective of the policy); and (e) the effectiveness of the arrangements in
reducing illegal logging in producer countries.
46 Advice provided to DAFF by Australian Government Solicitor (April 2010).
65
References
Auer, M., Karr-Colque, C., McAlpine, J., and Doench, B. (2006). Forest law enforcement and
governance: resolve needed from all sides. Paper for Georgetown Public Policy Review,
2006.
Chatham House (2009). Illegal logging update and stakeholder consultation No.14. June
2009.
CIE (2010). Final report to inform a Regulation Impact Statement for the proposed new
policy on illegally-logged timber. Prepared for DAFF by the Centre for International
Economics, January 2010.
Coakes (2010). A review of the social costs of illegal logging. Report prepared for DAFF by
Coakes Consulting, March 2010.
Cubbage, F., Moore, S., Henderson, T., and Araujo, M. (2009). Costs and benefits of forest
certification in the Americas. In: Natural Resources: Management, Economic Development
and Protection. Ed: J.B. Paulding. Nova Sciences Publishers.
EU (2008). Analysis of the trade impact of the VPA for Indonesia. Main Report. Report
prepared as part of the EC-Indonesia FLEGT support project.
FAO (2009). FAO Yearbook: Forest Products 2007.
ITTO (2004). Report on financial cost-benefit analysis of forest certification and
implementation of phased approaches. Report prepared for International Tropical Timber
Organisation thirty-seventh session, Japan, December 2004, by M Simula, S.Astana,
R.Ishmael, E.Santana and M.Schmidt.
Joint Statement on illegal logging (2009). Eliminating illegal forest products in Australia. A
joint forest industry, wood product sector and conservation group statement. June 2009.
Poyry (2010). Legal Forest Products Assurance: a risk assessment framework for assessing
the legality of timber and wood products imported into Australia. Report prepared for DAFF.
Reeve, R (2007). Enforcement: challenges and lessons learned. The Growth and Control of
International Environmental Crime, Chatham House workshop, 10-11 December, 2007.
URS Forestry (2009). Review of the regulatory frameworks and documentation relating to
legality of timber production in Australia. Report prepared for DAFF.
66
Attachment 1
67
Appendix 1
Assumptions provided by DAFF for ABARE analysis of policy options
Assumptions and modelling approaches
The CIE modelling assumptions were used as inputs to a GTAP model that was used
for estimating the effects of various options available to the government for
combating illegal logging. These effects were presented in the draft RIS. Additional
modelling was undertaken by ABARE to complement that initial work and to address
the views raised in stakeholder submissions and IDC comments on the draft RIS.
DAFF provided ABARE with compliance cost estimates, collated from published
reports, as inputs for modelling the impacts with the trade equilibrium model GTEM.
GTAP and GTEM outputs
The GTAP model used in the CIE analysis provided estimates of the immediate
shocks associated with the introduction of new compliance systems for combating
illegal logging. The outputs of that modelling were presented as annualised impacts.
As noted elsewhere (EU, 2008) the immediate effects of stopping illegal logging
represent major initial shocks to the legal and illegal sectors of the industry.
The immediate shocks need to permeate through the industry, affecting industry
structure and outputs from the various industry sectors. GTEM estimates the total
impacts of the proposed changes. For example, when using the same inputs for GTAP
and GTEM, GTAP estimated a global output loss from stopping illegal logging of
US$91 billion per annum for the illegal sector and a benefit of US$46 billion per
annum for the legal sector. With GTEM, the total loss for the illegal sector was
US$34.5 billion with total benefits to the legal sector of US$33.7 billion.
DAFF and CIE compliance cost assumptions
· The CIE assumed that brand new legality verification schemes would need to be
established to meet the proposed legality verification requirements for options 2
and 3 in the RIS. This assumption, however, resulted in a significant
over-estimation of the compliance costs, given that there are:
o Legal loggers who already have systems in place to verify the legality of
their timber and will incur no new costs of compliance;
o Legal loggers who do not have systems in place but have the basic legal
approvals for their operation may formalise those arrangements at a
substantially reduced cost compared to the full costs of achieving legality
verification ; and
o Loggers who seek to minimise costs by not following due legal process,
but are willing to implement a basic level of legality verification, can do so
at a cost considerably below that of full implementation of new systems.
· The CIE based their legality compliance costs and percentage export tax estimates
of timber produced in high risk countries on the costs of implementing `full
certification'. However, an assessment of the international literature, including
68
work carried out by Cubbage et al(2009), ITTO (2004) and EU (2008), indicates
the range of compliance costs for achieving certification in developing countries is
substantially lower than the CIE estimates. Consequently, the range of compliance
costs estimates (low to high) proposed by DAFF based on the above international
reports (with CIE estimates in parentheses) were:
Full certification (FC) 0.67-3.33% (10%)
Verified legal compliance (VLC) 0.33-1.67% (5%)
Verified of legal origin (VLO) 0.2-1.0% (3%)
Self-declared legal (SDL) 0.07-0.33% (1%)
Note: only the higher of the DAFF cost estimates for each compliance system were
used to generate the ABARE modelling results presented in the final RIS.
Chain of custody costs
· The CIE assumed the `chain of custody' compliance costs (presented as a
percentage `export tax' increase for timber products from exporting countries sold
to Australia) were the same as the percentage cost increases for companies to
achieve full forest management certification. The CIE assumed that the full costs
of achieving forest certification in developing countries added an additional 10 per
cent to the costs of timber production and that this same percentage cost increase
applied to all steps in the supply chain (and for all products included in the
assessment).
· This assumption did not adequately address the differences between the costs of
achieving sustainability certification and the costs of chain-of-custody
certification for timber products once they leave the forest. Nor did this estimate
account for the supply chain complexities for the various countries and regions,
based on the range of products they supply to Australia. DAFF estimates of the
`export tax' rates to be used in GTEM were based on the length and complexity of
supply chains as being simple, intermediate or complex in the producer countries.
It was assumed that where the chain-of-custody costs were included, they would
be less than (on a percentage basis) than the costs of forest management
sustainability certification so that the `export tax' rates for countries with
relatively simple, intermediate and complex supply chains are estimated as being:
o Simple supply chain sources - 80 percent of the export tax rate for each
compliance system for timber products with a short and direct route from
the forest to the points of processing and export;
o Intermediate supply chain sources - 60 percent of the proposed export tax
for each compliance system for products which have intermediate supply
length and complexity;
o Complex supply chain sources - 40 percent export tax for countries that
supply a large proportion of complex products such as furniture and highly
processed composite products with relatively long supply chains.
Supply chain % estimated Countries/Regions
complexity compliance costs
Simple 80 Australia, NZ, Rest Oceania, Russia, Latin America,
Africa
Intermediate 60 Indonesia, Malaysia, Rest SE Asia, Canada, Brazil
Complex 40 China, Japan, South Korea, South Asia, EU, Rest
Europe,US
69
Assumption for modelling impacts of due diligence
The CIE did not model the compliance costs for the due diligence option. ABARE
undertook this analysis for high risk and low risk countries, including Australia, using
upper and lower cost estimates provided by DAFF. These estimates take into account
that not all producers will incur the new costs because some already have legality
verification systems in place.
For developed countries, including Australia, the average percentage compliance costs
were assumed to be within the range of 0.025-0.1 per cent. These are the same
estimates of compliance cost as used by CIE for developed countries to verify the
legal supply of products. These estimates recognise that a small number of suppliers
in each country would need to put in place some form of legality verification where
the options would range from self-declared legal through to full certification.
For developing countries, there is assumed to 5 per cent of products already certified
and another 5 per cent of products supplied with some other form of credible legality
verification. For the remaining 90 per cent of products, producers could use any of the
available systems (from self-declaration of legal through to full certification) for
verifying the legal origins of timber products. For developing countries, it was
assumed that legality verification under a due diligence regulation would lead to the
legality verification compliance costs adding between 1-1.67 per cent to the cost of
products. With 10 per cent of supplies backed by some form of credible legality
accreditation, the `export tax' percentage used for developing countries was assumed
to be 0.9-1.5 per cent.
Timber product categories used in the economic analysis
The following table describes the type and range of timber products, based on World
Trade Organization Harmonised Tariff Codes, within each of the three product
categories considered in the economic analysis for each of the policy options.
Category I Category II Category III
Solid timber and wood Partially Complex products - e.g. highly
products processed/processed processed/composite timber and
timber and wood wood products/from multiple
products sources
Wood in rough (4403) Category I plus Category II plus
Sawn wood (4407) Particleboard (4410) Household and sanitary (4803, 4818)
Plywood (4412) Fibreboard (4411) Packaging & industrial (4804-08,
Newsprint (4801) Mechanical pulp 4810-11, 4823)
Printing & writing (4701) Paper manufactures (4811-23)
(4802-03; Semi-chemical furniture (9403)
4808-11; 4823) (4705) Veneer (4408)
Chemical pulp Continuously shaped wood (4409)
(4702-07)
70
Appendix 2
Capacity building costs for illegal logging policy options
Food and Agricultural Organization forestry statistics47 have been used to provide an
estimate of Australia's share of Asia-Pacific trade in timber products derived from
countries without operational legality or certification systems in place. It is then
necessary to estimate the proportion of that trade which is imported by Australia and
therefore, our share of the costs for building capacity to combat illegal logging by
encouraging trade in legally harvested wood products. These costings will apply to the
capacity building elements for meeting the policy objective through policy option 1
(or quasi-regulation) or policy option 3 (explicit regulation). Separate capacity
building cost estimates are provided for option 2 (co-regulation).
Total wood supply
Asia-Pacific Region total wood supply equals 291 million cubic metres per annum
Wood supply in countries that have credible legality verification (or higher
requirements) already in place (Australia, New Zealand, Malaysia, Japan)
equals 87 million cubic metres per annum
Asia-Pacific region wood supply without legal verification equals approximately 200
million cubic metres of wood per annum.
Australia's share of this resource (in terms of traded wood products)
Estimates of Australia's estimated share are derived by estimating the total regional
exports and subtracting exports derived from Australia, New Zealand, Malaysia and
Japan across the four major product categories of sawnwood, panels, paper and
paperboard, and pulp. The volume of product is multiplied by a conversion factor of 2
to obtain an estimate of the volume of harvested wood required to manufacture those
products. That is, it is assumed that 2 cubic metres of wood are required on average to
produce 1 cubic metre (or tonne in the case of paper) of final product.
Regional exports
Million cubic metre or tonne US$million
Asia Oceania Asia Oceania
Sawnwood 7.4 2.3 2,581 683
Panels 29.5 1.4 10,386 468
Paper + P'board 18.1 1.3 13,598 782
Wood pulp 3.0 1.0 1,376 458
Totals 58.0 6.0 27,941 2,391
In total, regional exports are equivalent to 64 million cubic metres of final product
(using approximately 128 million cubic metres of wood input) with a value of
US$30.3bn per annum.
47 FAO Yearbook: Forest Products 2007 (FAO, 2009)
71
Exports from Australia, New Zealand, Malaysia, Japan
m cubic metre or tonne US$million
Sawnwood 4.3 1,418
Panels 8.5 3,031
Paper + P'board 3.2 3,102
Wood pulp 1.1 595
Totals 17.1 8,146
Approximately 34 million cubic metres of wood would be required to manufacture
these products. After adjusting the regional export figures to account for exports from
countries where legal verification would already be in place, the value is estimated at
US$22.5bn per annum and would require some 94 million cubic metres of wood input
to manufacture.
Australia's share of traded products from Asia-Pacific countries (apart from Japan,
Malaysia and New Zealand) using ABARE statistics48 is A$2.02bn for 2006-07.
Assuming an exchange rate of $A1=$US0.9, this is equivalent to US$1.8bn per
annum. In value terms, at least 8 per cent of the total exports from Asia-Pacific
countries are consumed by Australia each year.
Estimated costs of legal verification
Current capacity building efforts to establish legality verification systems for timber
products - note that these estimates of cost relate to legality verification for all timber
produced in Voluntary Partnership Agreement countries for the EU where cost
information is available:
Indonesia - annual total wood harvest equals 32 million cubic metres per annum and
investment in capacity building by the EU equals 130 million euro or US$175m49over
a period of five years. With total wood production in that period of approximately 160
million cubic metres, investment in legality verification is equivalent to US$1.10 per
cubic metre of wood. Aside from this investment, there has been considerable recent
funding of legality verification efforts and combating of illegal logging by the US and
other donors during this period. Indonesia will still require significant investment in
developing their capacity to implement the new timber legality assurance system (the
SVLK). This does not take into account Indonesia's own investment in legality
verification capacity building.
48 Statistics taken from ABARE Forest and Wood Products Statistics 13 May 2009. It is important to note that not
all countries in the Asia-Pacific region are individually identified in this report. The values referred to in the
estimates provided in this appendix represent those for the identified countries and would therefore represent
an under-estimation of the value of Australia's imports from Asia-Pacific countries (excluding estimates from
Japan, Malaysia and New Zealand).
49 Based on an exchange rate of 1.35 euro per USD.
72
Ghana - annual total wood harvest equals 1.3 million cubic metres per annum and
investment in capacity building by the EU equals 20 million euro or US$27m in the
first year. It is expected that this cost will apply for three years and the system will be
operational for 10 years off the back of that investment. That is, an investment of
approximately US$81m for 13 million cubic metres of timber or US$6.20 per cubic
metre of harvested wood. This does not take into account the investment by other
donors or industry in improving the legal verification systems.
Taking the mid-point of these estimates, it is proposed that the donor-country capacity
building investment required to support developing country efforts to achieve legality
verification would be USD3.35 per cubic metre of harvested wood (with a range of
US$1.10 to US$6.20).
Given that approximately 200 million cubic metre of wood is harvested annually in
the Asia-Pacific region without credible forms of legal verification or certification,
estimated capacity building requirements to assist developing countries achieve that
outcome would be approximately US$670m (US$220m-US$1,240m) per annum.
Across the next five years, that would equate to US$3.35bn (US$1.1bn-US$6.2bn).
To assist countries achieve full certification, the investment in capacity building might
be approximately 3 times greater (given the relative difference in estimates of
achieving VLO and full certification used by DAFF and ABARE in this RIS).
Australia's share of the legality verification capacity building cost, based on Australia
purchasing a minimum of 8 per cent of the products exported by Asia-Pacific
countries (excluding Japan, Malaysia and New Zealand) would be at least US$270m
over five years (or A$300m with an exchange rate of $A1=USD0.90).
Capacity building cost estimates for Option 2 (co-regulation)
Under Option 2, Australia would seek to implement a regulatory approach that is
consistent with the approaches being taken by producer and consumer countries at
present. However, a considerable effort is required to assist developing countries
achieve some form of credible legality verification for their timber products.
Australian support for capacity building is necessary to ensure that affected
developing countries are assisted in complying with legality verification requirements
of the regulation Under the co-regulation option, it is proposed that Australia would
invest in targeted capacity building activities with its existing and proposed bilateral
partners on combating illegal logging - Indonesia, China, Papua New Guinea and
Vietnam).
73
Stakeholder comments on the draft Regulation Impact Statement Appendix 3
Organisation Areas of Concern Preferred Approach Views on Implementation
Australian Timber Importers - Net overall cost from taking action that - Mandatory due diligence code of conduct - Due diligence code of conduct compliance to
Federation is inconsistent with producer and other compliance requirement be mandatory for timber product importers
consumer countries
- Establish industry body for code - Imposition of a mandatory code should be
- Minimise disruption to trade in legal administration with third-party and phased in with funding and technical support
timber products independent auditing from the Commonwealth
Furniture Industry Association - Need to `price' the intangibles - Code of conduct for due diligence - Seeking a mandatory code of conduct
of Australia (Vic/Tas branches)
- Some industry costs relate to protecting
timber's reputation
Australian National University - So-called intangible benefits of - Support the use of credible forest - Requiring certification is consistent with
combating illegal logging should be the certification schemes to verify forest policy option 3 (setting a minimum standard
basis for Australia's policy position management practices and track products of legality verification)
Uniting Church of Australia - Highly deficient in social analysis - Distinguish legal and illegal product - Approach consistent with using a due
diligence response or setting a minimum
- Recognising illegal logging as a net - Use anti-corruption treaty obligations to standard of legality verification
economic benefit should be off-set by fight corruption
commentary on social or human rights - action would be consistent with EU and US
dimensions - Ban the importation and sale of timber approaches
from illegally-logged sources
- Need to analyse Australia's political
leverage within the region - Utilise voluntary systems for independent
monitoring such as through the use of
- Who gains from illegal logging wealth certification systems
transfers? - Maintain multilateral action
Australian Forest Growers - Domestic private growers should not be - Include bilateral and multilateral - Self-declaration of legal origin for small-
subject to increased regulation agreements with capacity building scale domestic growers (could satisfy a due
diligence or minimum legality standard
- No support for developing legal and - Support for minimal and low cost requirement)
sustainable certification schemes measures that are not costly to comply with
applying to products sold in Australia
- No support for rigorous regulations
- Burden on Australian growers to be no
higher than on importers
74
Organisation Areas of Concern Preferred Approach Views on Implementation
Humane Society International - Profits of illegal logging do not - Australia can play a role model and send a - Requirements are consistent with both due
represent the same transfer of wealth as message to trading partners diligence approach and setting a minimum
for legal logging - Commitment to international cooperation standard of legality verification
- Social and environmental values are consistent with other efforts
recognised in Australia's international - Prohibition on imports of illegal timber
treaty commitments
- Moral obligations for Australia
- Treatment of intangible costs and
benefits should not be dismissive - Negotiate international action
National Association of Forest - Action that is inconsistent with - Support a phased approach in policy - Too early to implement a mandatory code of
Industries approaches of producer and other development conduct for responsible wood purchasing
consumer countries is likely to have
perverse outcomes - impact on domestic - Invest in capacity building to target the
industry with little change in illegal causes of illegal logging arising in producer
and consumer countries
logging
- `Blanket' ban could impact on trade in
legal timber
Timber Queensland - Consider reputational risks to timber - Establish a clear timetable to respond - Preference for setting a minimum standard
from uncertainty about what is legal - No significant barriers to introducing a of legality verification but note the importance
- Australian companies competing legality verification requirement for of having this requirement relate to the risk of
illegal sourcing of products as aligned with
against cheaper imports domestic producers the due diligence approach
- Seek comprehensive verification
- Phasing-in of product coverage
- Measure must be cost-effective
75
Organisation Areas of Concern Preferred Approach Views on Implementation
A3P (Australian Plantation - No support for the draft RIS conclusion - Mandatory application of the principles of - Support for due diligence with mandatory
Products and Paper Industry that any action by Australia would be due diligence in a risk assessment government requirements backed by
Council) futile framework flexibility offered by due diligence approach
- Need to differentiate legal and illegal - Action by Australia to compliment efforts for demonstrating compliance with the
requirements
timber products by other countries
- Need to account for intangibles - Australia to demonstrate leadership - System applies to importers and domestic
producers
- Illegal logging suppresses product - Government role in regulating system
prices compliance - Having a system that accounts for
sustainability and legality (as proposed with
- Minimise the impact on domestic - Broad product coverage trademark system and product disclosure
industry - Accept domestic industry and importers elements)
meet equivalent requirements
Australian Window Association - Costs should include estimates of - Need to consider supply chain risks - Use of self declaration and chain-of-custody
protecting corporate and broader industry systems while minimising business costs
reputation - Seek inclusion of windows and doors (consistent with a due diligence approach)
- Balance benefits of reducing free-riders - Documentation to support legal supply
could be provided by most suppliers
versus administrative costs for all
businesses to comply
Window and Door Industry - Regulatory options outlined in the draft - Quasi-regulation (voluntary code) would - Ensure buyers in Australia retain access to
Council RIS could have a significant impact on have least impact on members what might be classified as `risky' sources
members (due diligence could off-set risks)
- Don't reduce access to imports of - Be wary of small business compliance costs
hardwood products and impacts across sectors
- Possible impacts on price and supply
- Potential significant impact on small
business
- Will small business be disproportionally
affected?
76
Organisation Areas of Concern Preferred Approach Views on Implementation
Greenpeace - Australia acting in a way that is - Need to ban illegal timber imports - Ban illegal timber imports
inconsistent with approaches of producer
and other consumer countries is a flawed - Government to mandate requirements in - Specify independent verification systems
legislation that could be used to verify legality (closer to
assumption option 3)
- Key intangible costs and benefits have - Pursue multilateral efforts to eliminate
illegal and unsustainable logging - Shift to a sustainability certification
not been considered requirement within two years
- Introduce increased performance
- Illegal logging suppresses real timber requirements over time - (These requirements could be satisfied with
prices
- Should seek to cover more than 70% of all due diligence on legality and on sustainability
- Don't view illegal timber as an timber product imports at some future time which then capture the
economic benefit proposal for legal product procurement
- Procurement policies to support purchase policies)
- Moral value of ensuring timber products of legally-verified products
are legal outweigh costs of compliance
Decorative Wood Veneers - 90% small-medium enterprises - Bilateral arrangements would be more cost - Preference for lesser standard of self-
Association effective (no cost estimates provided) regulation noting that if government action
adds costs to industry then financial support
- Support self-regulation option should be provided
East Gippsland Shire Council - Support for measures that reduce unfair
competition on Australian businesses
Department of Infrastructure, - Be aware of the costs to Australia and - No support form Tasmanian government - Australia to act in a manner consistent with
Energy and Resources potential effectiveness of measures taken for any approach that places additional other countries
(Tasmania) compliance costs on State governments or
- Measures taken by Australia should be domestic industry
in scale with the costs and likely benefits
achieved - Certification to recognised international
standards should be sufficient proof of
legality but not a mandated requirement
European Union - Structure used in cost estimates for - Benefits from Australia developing an
analysis does not reflect the nature of approach consistent with other global
existing certification schemes initiatives
- Not generating all brand new costs by - A solution to illegal logging requires
requiring compliance with any standard - demand-side measures
forestry businesses have at least some of
these requirements in place, leading to - Need to consider alternatives to Australia
taking action that is not consistent with
significantly lower costs estimates such producer and other consumer countries, and
77
Organisation Areas of Concern Preferred Approach Views on Implementation
as those used by the EU moral and political dimensions in
- Analysis is extremely sensitive to the developing a policy response
assumptions employed
- How many enforcement regimes have a
positive benefit-cost outcome?
Construction, Forestry, Mining, - Australia has ethical and moral - Capacity building, bilateral and multi- - Phase in a minimum standard and have
Energy Union obligations to act lateral engagement combined with domestic coverage of all products identified in the draft
- Need to be wary of costs to the action, being a minimum threshold of legal RIS
compliance with eventual transition to full
domestic industry and the potential for certification
perverse outcomes such as raising the
demand for timber substitutes - Harmonise with EU and US systems
Note1: 3 other stakeholder submissions were provided to CIE on a confidential basis.
Note 2. Letter/postcards were campaign letters asking the government to take action on banning illegal timber imports.
78
Appendix 4
Due diligence regulation implementation
The `due diligence' legislation will include requirements for:
1. A prohibition of trade of illegally sourced timber by Australian importers and
domestic suppliers;
2. Government accreditation of industry codes of conduct (codes) outlining the risk
assessment and legality verification procedures for importers and domestic suppliers;
3. Timber importers and domestic suppliers (wood processing mills) to become
registered signatories to government accredited codes of conduct in order to place
their products on the Australian market;
4. Signatories to undertake assessments of risk over the illegal origins of timber products
and application of legality verification procedures commensurate with the risks
identified;
5. Disclosure of species, country of origin (harvest) and any certification will reported
by signatories as part of the code of conduct requirements, with disclosure applying to
the range of timber products covered by the regulation and applied at the first point of
entry onto the Australian market ;
6. Codes to be administered by industry including requirements for third party auditing
of compliance with codes and dispute resolution processes;
7. Offences and penalties for importers and domestic suppliers who (i) place timber
products on the Australian market when they are not signatories to a code of conduct;
(ii) demonstrate reckless or negligent behaviour in importing or selling timber in
Australia that does not meet due diligence requirements of the legislation; and (iii)
knowingly or deliberately import or sell illegal timber products in Australia;
8. There could be a phased-approach for the range of products covered by the legality
verification requirements (although it is not expected that such an approach will be
required with industry having two years to establish appropriate systems);
9. Use of a registered a trademark by code signatories for products of `legal' and `legal
and sustainable' origin;
10. A potential threshold for the size of businesses that might be required to comply with
the legislation, with possible exemptions for small businesses;
11. Potential use of existing legislation - Criminal Code, Proceeds of Crime Act (2005),
Anti-Money Laundering and Counter-Terrorism Financing Act (2006), and Financial
Transaction Reports Act (1998) to enforce the due diligence legislation.
79