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Rural and Regional Affairs and Transport Legislation Committee
16/05/2011
Illegal Logging Prohibition Bill 2011

HOLESGROVE, Mr Roderick Leslie, Biodiversity Policy Adviser, Humane Society International

HOWARTH, Mr Richard William, Policy Lawyer, Australian Network of Environmental Defender's Offices

SAHUKAR, Mr Nariman (Nari) Aspi, Acting Policy and Law Reform Director, Australian Network of Environmental Defender's Offices

Evidence from Mr Sahukar and Mr Howarth was taken via teleconference—

[12:20]

CHAIR: I welcome representatives of the Australian Network of Environmental Defender's Offices and the Humane Society International. The ANEDO has lodged submission 20 and the Humane Society International has lodged submission 21. Would any of you wish to make any amendments to those submissions?

Mr Howarth : No, We from ANEDO's end do not have any changes to make.

Mr Holesgrove : No—no changes.

CHAIR: Fantastic. Do representatives from ANEDO wish to make a brief opening statement?

Mr Howarth : I have a brief opening statement to make on behalf of ANEDO. I would like to thank you for the opportunity to appear today via phone link-up. We are here on behalf of ANEDO, which is the Australian Network of Environmental Defenders Offices. For those of you who are not familiar with ANEDO, we consist of nine independent community environmental law centres located in each state and territory.

I would like to briefly reiterate some of the main recommendations from our submission on this important bill. A key observation was that much of the detail of the framework has been delegated to the regulations, which are yet to be released. Whilst it is encouraging to see the development of legislation on this important issue, ANEDO believes that ongoing consultation is essential to ensure that the regulations address the uncertainties that currently exist within the proposed framework. ANEDO's overarching view is that the bill should go beyond regulating the point of importation and obligations should extend throughout the chain of custody to those distributing timber products. We believe the offences in this scheme and the due diligence requirements to establish the legality of products should apply to all importers, processors and retailers.

In assessing the scope of the bill it is not currently possible to determine the timber products that will be captured, because the regulated timber products are to be prescribed by the regulations. ANEDO looks forward to contributing to the development of the regulations to ensure that the bill covers a broad range of timber products. We think broad coverage is essential to achieving the bill's aims.

Our submission also called for a stronger penalty regime within the bill. As we understand it, the bill does not provide for civil penalties, so enforcement would rely on criminal prosecution. We think there should be a range of penalties available to deter breaches and allow for greater enforcement. As part of a civil penalties regime, we would like to see the inclusion of broad or open-standing provisions to allow any person to enforce or restrain a breach. Similar provisions already exist in other environmental laws, such as the Commonwealth Environment Protection and Biodiversity Conservation Act 1999. Our submission also suggested that the bill could include strict liability offences. These could form part of a tiered penalty system where different penalties are available according to whether enforcer or distributor knowingly engages in prohibited conduct. In relation to enforcement, we were encouraged to note that the bill to a large extent provides for a transparent and effective enforcement regime. As I have mentioned, that could be improved by expanding enforcement measures beyond the point of importation and throughout the supply chain.

A final element I would like to mention today is the need for a stipulated review period within two years of the act's commencement followed by ongoing review every 2 to 5 years. This is to ensure that the legislation is operating efficiently and effectively to achieve the desired outcomes.

CHAIR: Mr Holesgrove, do you wish to make a brief opening statement?

Mr Holesgrove : Yes, thank you. Humane Society International as well wishes to thank the committee for the opportunity to speak. I should just mention, in case you are not familiar with Humane Society International, that we are a global arm of the Humane Society of the United States. HSI works with national governments and NGOs to promote protection of wildlife and habitats. The Humane Society US, HSI, has approximately 10 million members, with 40,000 in Australia.

I would like to say a little bit about what we have been doing on international forest issues generally, because that provides a context for why we see this bill as so important and it also gives a context for our serious reservations. HSI has been very active on international forest issues. For example, we have been supporting NGO on-the-ground protection programs in Indonesia over a number of years, to which we have contributed hundreds of thousands of dollars over a ten-year period. We have been an active participant in the international climate change negotiations relating to reduced emissions from deforestation and forest degradation in developing countries. That is well known by the acronym REDD-plus. In that context we were one of the lead organisations in establishing the global Ecosystems Climate Alliance, an alliance of like-minded international NGOs dealing with the issue of deforestation globally.

Domestically we have played a significant role, starting with the former environment minister, Minister Turnbull, in establishing what is now called the International Forest Carbon Initiative, which is a program that has been providing some hundreds of millions of dollars in terms of increasing capacity for REDD in developing countries. In our involvement with the international negotiations on REDD, one of the key things we have been saying is that there is a need to address the demand side of deforestation, and that obviously includes the trade in illegally produced forest products. To us it seemed inconsistent for Australia to be actively pursuing being an active participant in REDD and paying out hundreds of millions of dollars through the International Forest Carbon Initiative and not having any regulation in Australia to support the diminished demand for illegally logged products. We do support, finally, the government bringing in draft legislation on this point. We have actually lobbied both the former coalition government and the current Labor government over a number of years to have the legislation.

We think this is a great start, but we do have a number of serious reservations about the path we are going down. I will start with some general ones. Firstly, what we are talking about is regulating trade in an activity causing environmental degradation. What we have been saying in our messages to government over a long time is that government should seriously consider using the Environment Protection and Biodiversity Conservation Act, which is rarely used for dealing with environmental degradation. We suggest a new part could be introduced into the EPBC Act similar to part 13A of the act, which relates to international trade under CITES. This could be done in the context of the current review, which followed the Hawke committee inquiry into the EPBC Act. Secondly, as a general overarching comment, we think that the legislation should also ban the importation of unsustainably produced forest products as well as illegally produced. As you would be aware, there are a number of certification schemes which could be used in this regard. We note also that 90 per cent of forest products in Australia from public and private forests are covered by the Australian Forest Certification Scheme. We argue that a similar situation should apply to imported forest products.

Thirdly, as an overall comment we argue that the legislation should deal not only with timber but also with nontimber forest products, such as rattan nuts and palm oil. We note that it is, of course, important that we deal with not only unprocessed timber products but also processed products. This appears to be covered in the bill.

I just want to run through quickly a few of our more detailed comments. The prohibition to ban import of illegally and unsustainably produced forest products should come into effect immediately upon passage of the legislation. We do not like the delay where it could be some years before these particular provisions come into effect. We believe that the legislation should be aimed not only at importers but also at all other parts of the supply chain: processors, distributors and sellers. All parts of the supply chain should be required to provide information on imported forest products.

We think that the definition of illegality is too narrow. It is not just harvest; there are a number of other actions that could be judged illegal, such as trespass on community owned lands. There is a whole range of activities which could be judged illegal, not just harvest. There are significant deficiencies in the processes set out in the bill for approving certifiers. The penalties need to be significantly strengthened, and there are no clear provisions for monitoring and enforcement. There should be provision for standing, and there seems to be no provision for transparency and accountability. And the bill should contain a provision requiring a review of the effectiveness within five years after Royal assent.

I would like to emphasise that a major concern of HSI is that the bill, as currently drafted, seems to be no more than a shell, leaving almost all subsequent matters to be dealt with by subsequent regulations. We think that this is just not acceptable.

Finally, as we say in our submission—this is really a nonlegislative comment—while the EU and the United States have legislation in place, much more needs to be done to address the global problem of trade in illegally and unsustainably produced forest products. We would like to see a much firmer commitment by the government—preferably a bipartisan commitment—for Australia to work actively in banning the global trade in illegal and unsustainably produced forest products.

Senator MILNE: I would like to ask both groups about one of the big issues which has come up in the course of the day. What, essentially, are we trying to achieve with this piece of legislation? What actually is the object of the act? I think you have both answered that to some extent by saying that you think this would be better dealt with through an amendment to the EPBC act rather than by a stand-alone piece of legislation. This goes to the heart of the matter: is the object of the act to do as the explanatory memorandum says, to address the harmful environmental social and economic impacts of illegal logging, or is it just to take some sort of general regulatory approach that protects Australian timber production against illegal imports, which is a different object of an act altogether?

So I would like to ask both organisations whether you have had any discussions with the government around being much more specific as to what the object of this measure is and, secondly, why have they indicated to you that they want to go down the road of a separate piece of legislation rather than an amendment to the EPBC Act? Could we start with Environmental Defenders and then come to the Humane Society.

Mr Sahukar : We would support an objectives clause in the act to give a bit more clarity around what the purpose of the act is. As you have stated, Senator, the explanatory memorandum gives an idea of some of the purposes that are envisaged. We felt that some of the objectives that could be included are to ban the importation and distribution of illegal timber and timber products, to diminish the availability of illegally logged timber on the Australian market, to decrease international demand for illegal timber and to combat global deforestation, as well as to raise industry and consumer awareness of illegal logging, legal processes and labelling. We have not had any discussions with the government ourselves, but it was in our submission that the guide to the bill, which is currently at the start of the bill, is perhaps not sufficient even though it serves a particular purpose. We feel that an objects clause would provide greater certainty for the purpose of this act and assist in interpretation. We also feel that it would assist in the review of the legislation that we are proposing in two to five years time to see if those objectives are being achieved by the bill as it is.

Mr Holesgrove : I agree with what you are saying, Senator. We see the issue of dealing with the demand from Australia or the brining into Australia of illegally produced forest products as environmental, economic and social issues in the source countries. We definitely think those underlying rationales should be reflected in the objects clause of the bill. Therefore, as we said in our submission for example, one clause of the objects part of the bill could be contributed to the conservation of biodiversity and natural terrestrial carbon stores in forest ecosystems. We would also like to see the sustainability issue reflect in the objects clause of the bill.

In terms of your question as to the response we have had from government on our suggestion that it be covered under the EPBC Act, I think in the very early stages of our earlier submissions to the government we did raise this in some discussions. The carriage of this over the last three years has been with the Department of Agriculture, Fisheries and Forestry and I guess there has not been a particularly responsive indication from them to our suggestion that it be done under the environment act. I do not recall our raising this issue specifically with the environment portfolio but as far as we have been able to make out we have never been aware of any strong interest in this from the environment portfolio. Perhaps we could have pursued this more strongly, but that is the way it was.

Senator MILNE: One of the things that has come out today in the course of the inquiry is the lack of clarity on the definition level, which makes it very difficult for importers into Australia as well. I note in your submission that you would like to have the importation and distribution of illegal timber products, but the problem for people who either import or distribute the products is to be adequately informed that the information is out there for them to access in a reasonable manner. The point has been made that a lot of people do not feel that there is enough information to allow them to make those decisions. So this comes to the definition of what a 'regulated timber product' is for the purposes of the bill. I note that the US and the EU have very much more specific definitions about what constitutes timber products for the purposes of the legislation. How important do you think it is that we get into the bill not only the object clause but the definition of what it is we are actually talking about rather than just a regulated timber product?

Mr Howarth : We found, as noted in our submission, that specifying exactly what is included in regulated timber products is extremely important to the functionality of the bill in what is covered by this legislation and what is left outside. At the moment it is defined in section 5 as meaning a timber product prescribed by the regulations. Obviously that is not sufficient at this stage to see how effective the bill will be in regulating illegal timber.

What we would like to see is a definition that is similar to the US act, as we put in our submission, which provides that very specific definition of the term 'plant' which we have stated in our submission. There were concerns about the amount of information out there. That is why we suggested a due diligence approach that is similar to the EU to get that information. The European Council came up with three elements to deal with obtaining that information. The first element includes providing information on identification of risk through collecting data and information. The second is the implementation of all risk management procedures. The third is making sure there are risk mitigation procedures in place such as obtaining additional information or third party verification.

Mr Sahukar : The due diligence that is required by different people in the supply chain, we recognise that will vary depending on where they are in the supply chain. We would hope they would be able to manage those issues based on the resources that are available to them and the chain that the product has come down to them. It may be that the importer, at the first point of entry into the country, has a greater obligation of due diligence to check the particular origins and so on and that further down the chain certain different types of checks will need to be made to ensure that at each point of sale we are dealing with a legal product.

Mr Holesgrove : I agree with and would support the comments from PDO. As I have said previously, and as we say in our submission, we believe there are a number of actors in the supply chain within Australia that should be required to provide information and undertake due diligence down to the sellers. I agree with what the PDO said.

Senator MILNE: On this due diligence—and I have raised this with several of the groups giving evidence today—one of the suggestions is that there is a declaration in the same way as there is in the US and the EU by the exporting company in the country so that there is clear statement of species, origin, supply chain, even down to the coops et cetera. That is not something that is in the government's bill and yet everybody seems open to it. It would seem to me that that would reduce the liability of people in this country because at least they would have that certification to go on. The next thing is certification in the country of origin. Would you like to comment on how critical it is in your view that we get something like that declaration in place in this legislation if nothing else to give you somewhere to start in tracing this?

Mr Sahukar : We think it is important to have those sorts of statements. In achieving the aims of the bill, we think that is important.

Mr Howarth : While we see certification as important, we would not believe certification alone to be sufficient to stop prosecution. The fact that you have certification does not negate the requirement to take appropriate due diligence to make sure that you are sourcing information as best you can to get as much information about the product as possible. While we definitely would support certification, we would need to see the details of that certification. On top of that there is a requirement that whatever stage in the supply chain you are still required to undertake the due diligence requirements.

Senator MILNE: How would you propose to deal with issues like Indigenous rights to land and timber? Most of the certification processes, it seems, do not deal with the allocation of the timber rights in the first place; they deal with what happens after the rights have been allocated. What is your view about how we could deal with that in the legislation? It seems to me that the corruption that is alleged in many countries goes to the allocation of the rights and the failure to recognise the rights of Indigenous peoples et cetera.

Mr Holesgrove : On your previous question, Senator: broadly we are very attracted with the Lacey Act and the European legislation, and many of our comments on the deficiencies in the Australian legislation would suggest a firming up in the direction of those pieces of legislation—certainly having more information available through the supply chain, including at the sales point. We believe it is very important. I do not think there is as much interest in Australia as in Europe, where there is a very strong interest in the issue of sustainability of forest products coming in, but I think there is a growing interest in Australia and I think it is important to enable consumers and different actors in the supply chain to be aware of what the details are regarding the forest product.

In relation to your second question, that is a very difficult issue. As you say, it is not really covered in the certification schemes. It may be difficult to deal with in legislation at this stage. We would urge the government to be more involved in working with countries in the region to improve governance—and that is I think something which is aimed to flow from the international REDD negotiations. REDD is not going to work without good governance. So there are some things happening, but I am not sure how that can be covered in the legislation at this stage. It is work that has to go on between countries over a period to improve governance in these countries.

Senator MILNE: As a final question in relation to this, going to the issue of penalties: one of the criticisms that have been made is that the penalties are not strong enough and do not provide for the seizure of goods. They may provide for a fine or whatever, but not the seizure of the goods. The consignment may be worth a great deal more than the fine. Is it your view that the penalty should be reviewed to make sure that there will be seizure of the imported consignment if it is shown to have resulted from illegal logging? Second to that, we have heard from representatives of the Window and Door Industry Council, the Decorative Wood Veneer Association and the

Timber Merchants Association about the concern that, if the definitions are not right and are not comprehensive enough, what we will see is basically leakage into processed product to avoid the laws. Can you comment on how you think the penalties might be changed, and what is your view of the risk of leakage into manufactured product from product further down the supply chain?

Mr Sahukar : We would advocate for, as you know, the inclusion of a civil penalty regime, and that gives quite a lot of flexibility in terms of the enforcement provisions that are available. Certainly you could look at greater penalties than are under the existing bill and under the criminal provisions generally. I understand it is Commonwealth practice that civil penalties can be and often are larger than criminal penalties for similar offences, so that may be a way to boost the availability of fines that are exceeding the current requirements or provisions in the bill. We feel that that could be part of a tiered penalty regime, and again we would cite the Lacey Act as an example, where there is a tiered system of known violations; secondly, a failure to exercise due care; and, thirdly, a strict liability approach which, as you mentioned, includes seizure of goods regardless of whether the person who has those goods knew or should have known of the illegality. We feel that that reflects the chain of custody approach that we would favour. So we do think that boosting those penalties and including a civil penalty regime to provide an alternative to criminal punishment would definitely bolster the scheme .

In terms of the other issues you have mentioned, there is the definition of 'illegally logged' and the fact that it only refers to 'harvested in contravention of certain laws'. We do not feel that that encompasses things like how it might be processed, traded or exported, which I think is in the intention of the bill but is not necessarily reflected in that definition.

Senator MILNE: So you think an expansion of the definition would assist in that. Do you want to expand on that little bit.

Mr Sahukar : A clarification of the definition, I would say. If you look at the Lacey Act, basically any law, foreign or domestic, that promotes the protection of plants or can be seen to promote the protection of plants is to be included. That could include taxation laws, making sure people have paid taxation, as well as taking products from non-loggable areas. We feel that those types of offences should be included in this bill to give it broad coverage, but the current definition of 'illegally logged' perhaps does not encompass those.

Mr Holesgrove : I would just add that we think the penalties do need to be strengthened. In some cases there do not appear to be any penalties in relation to contravention of provisions of the bill. We think there should be forfeiture of the product whatever the offence is because, as you say, sometimes the value of the product could be greater than the fine. So there does need to be a strengthening in line with the Lacey Act.

The other part of your question I understood to deal with different sorts of manufactured products. I was interested in the comments made by the Wood and Door Industry Council about the difficulty in where you have a cut-off point. I am afraid I do not have an answer to that either, but certainly it needs to go down into the product to some reasonable extent. A product which is 50 or more per cent made up of illegally or unsustainable product should come under the provisions. I do not know quite what the answer is, but it does need to go a fair way down into the manufactured product. I cannot say much more than that.

Senator MILNE: Thank you.

Senator COLBECK: You talk about extending this process to the entire supply chain. If a product is determined as being legal or illegal at the border, as it enters, what is the value in imposing a provision all the way down the supply chain if you have achieved your objective at the first point of entry? Why do you need to impose the cost and the imposition on everybody subsequently when you have achieved your result at your first point of entry?

Mr Holesgrove : I would suggest that is in regard to providing further confidence through the total process of dealing with imported forest products and it would be aimed at the distributors or processers, so they could be sure themselves, and ultimately the sellers and the final consumers. I do not know whether one could be completely confident of it all being met at the border.

Senator COLBECK: If it is legal at the border or if it is not legal at the border why is that going to change down the supply chain?

Mr Holesgrove : Perhaps one cannot be totally sure, I suppose.

Senator COLBECK: If you are not sure when it gets here, how are you going to be sure when it gets three stages down the line? I am just trying to see this.

Mr Holesgrove : I understand.

Senator COLBECK: I am as interested in this as anybody else. You are saying yes it is, no it is not and no I am not sure. If all the verifications have occurred there that can occur—and we will move on to extended manufacture stuff later—why impose a cost on the product, the economy and all through the system if you have made a decision at point A that it is or it is not—and if it is not there is a process to deal with it and if it is it goes on through the system? Why apply that all the way down the supply chain? If a retailer wants to be assured that a product manufactured in Australia is legal and it is made up of partly imported wood—as windows may be, for example, or as joinery or a range of products may be—surely they will have a quality management process that will certify that and they will say to the person who has made it, 'Okay, you've imported the panels for this. Are you happy that it is legal? The solid timber in this is Australian. Are you happy that that is legal?' There is a process for them to actually understand that. A lot of the big retailers—Bunnings, IKEA and others like that—have got those processes in place, because they want to be certain for their own verification purposes. But what we are saying is that anything coming into this country needs to be legally logged or legally sourced and then individual certification processes or quality management processes can deal with it down the supply chain. Why mandate that everyone has to go through the expense of checking it?

Mr Holesgrove : I think in a way you put your finger on it when you said—and I think EDR have already referred to this—you might have different levels of due diligence requirement. Obviously, the top level would be at the importing point. But as I think you yourself said, Senator, the manufacturer and then the retailer/seller also need to be assured, so there needs to be something. I guess there needs to be a continuation down through the supply chain. Somehow each part of the supply chain needs to have confidence that the product is legal. It will not be as onerous at the importing level. Perhaps our submission does not really deal with that effectively, but that is the issue: to be assured all the way through the supply chain you need something to follow that product through. There is a due diligence aspect there all the way through, and somehow the legislation has to provide for that certification.

Senator COLBECK: It has already provided for it by the fact that when it came to the border it was legal. If the environmental defenders officers want to add to that they can. I understand certification as I have had an involvement in it. But why make it a legal requirement at each point of the process?

Mr Sahukar : I suppose one way of answering that is that it depends on how well the certification or verification at the border is policed, and that would include the role of the timber certifier in making sure that approved importers are complying with the requirements. As we know, a lot of those requirements are left to the regulation. So it is a bit difficult at this stage to assess the effectiveness or rigour that those importers will be held to. We know that the legal logging requirements must be complied with; we do not yet know exactly what those requirements must be. So we feel that having that chain-of-supply approach means that, if things come in through a border that may not be well policed—perhaps flying under the radar of the timber certifier, for example—they can be picked up at subsequent points. Particularly if, for example, you have got willing purchasers of illegal timber who know that it is coming in and jump on the bandwagon and buy those products, you have that problem of leakage where some people will be complying but others could be flying under the radar. We want to make sure that the retailers and people slightly further up the supply chain are not cottoning on to that—though obviously a very small minority. But that is the reason we feel that a chain-of-custody approach is preferred.

Mr Howarth : Just to add to that: the idea is to get as robust and transparent a program as possible and to provide as much information throughout the supply chain as we possibly can. You were saying that IKEA and those companies are starting to check. We want to make sure that those companies that are beginning to have a look at the origins of the timber and the legality are not punished for that. So that cost should be made mandatory across the whole scheme, as opposed to those companies that are leading the way and supplying legally logged timber products having to bear that cost alone. That is a cost that should be borne by the entire industry. We do not want to punish those people who are starting to lead the way in this area.

Senator COLBECK: You still have not answered my question: if it is illegal at the border, why is it not illegal later on in the supply chain? I just do not understand where the difference is. All you are doing is imposing a whole heap of costs. Why do we not just say, 'Okay, it is illegal to retail anything that is illegally logged'?

Senator O'BRIEN: I am interested to follow this through because the implication of what you are saying, Mr Howarth, Mr Sahukar and Mr Holesgrove, is that we should have a regulatory process at every stage of the supply chain in Australia. And the extension of that is that the importer, the wholesaler, the transporter, the retailer and any subsequent levels would be subject to some scrutiny and therefore there would be a regulatory cost. Can you tell us what thought you have given to what that regulatory cost would be and who would meet it?

Mr Holesgrove : It is the chain of custody issue: each part of the supply chain needs to have confidence in the nature of the product they are dealing with. To deal with these perhaps more unscrupulous actors—and I take your point Senator Colbeck—it should be that if a processor or a retailer does happen to come into the possession of illegally harvested timber, they are subject to penalties for processing or selling it. That needs to be covered in some way. So there has to be some sort of diligence requirement. I am not quite sure how you can do that, unless you put it in the legislation. As you say, Senator Colbeck, if you have the requirement at the border, as the legislation does, and leave it at that, it is a bit of an open slather. Surely companies should be penalised if they do knowingly sell illegally logged timber. The likelihood of that happening is pretty small if you have that efficient control of the border, but there does seem to be a need to cover that. Right down to the final consumer they have to have confidence that they are getting timber that is legally logged.

As to the question of Senator O'Brien about the costs for covering all actors in the supply chain, we have not done any research on that. We have devoted limited resources to this issue. I could not answer that. It may be in some of the original regulator impact statement material, but I am not sure.

Senator O'BRIEN: You can take that on notice if you want to take it away and think about it and come back and answer it.

Mr Holesgrove : Yes.

Mr Sahukar : We have focused on the most effective legal framework that we feel is possible, but similarly our expertise is not in the economic modelling side of things as to how those costs might be apportioned or recouped. We would bring it back to this thing about holding to account different players in the supply chain and the ability of a regulator to do that rather than just at the point of entry or the point of processing a raw log. Regulators can make decisions about the most efficient point to prosecute or to call someone on a breach. They can make those decisions. We feel it is important that regulators, timber certifiers and so on have that flexibility where you have a chain of people who might be involved in the harvesting and sale of illegal logging all the way down to the point of sale. It may be that most of the resources are spent at the point of importation and that others subsequently down the chain, provided they are exercising due diligence and due care, are compliant. But in cases where those parties further down the supply chain are not compliant, we feel it would be important to regulate that and to pursue a penalty.

Senator COLBECK: Mr Holesgrove, you talked about a ban on unsustainably produced forest products as part of this process as well. Who makes that determination?

Mr Holesgrove : It would be however the legislation is constructed. At the moment there is a requirement to establish whether product is not just legally harvested but all the way through the process has been legally produced. On the question of sustainability, our thought was that the reliance would have to be placed on the FSC and the different sorts of certification schemes. I am not aware of any other way at present. I think this argument is about how, to an extent, these sustainability schemes measure sustainability. But they are the only means available is my understanding. There would have to be a provision in the bill for only timber that has had an appropriate third-party certification, whether through the different certification schemes that are listed or some general formulation.

Senator COLBECK: The Lacey Act and the EU provisions all talk about timber that is harvested in accordance with the laws of respective countries as part of the fundamental definition. So if you go to Denmark, the timber is harvested in accordance with the laws of Denmark. If you go to the United States, the timber is legally harvested, processed and dealt with in accordance with the laws of the United States. That is the fundamental basis of what we are talking about. Who makes the assessment as to whether that is sustainable or not from an Australian perspective?

How do we impose our perspectives on top of that? I know how FSC works. It has six chambers and you have the environmental groups, the processors and the industry people; you have the community groups as part of that. But if FSC, for example, as a completely external body, decides, 'We don't like the way that's operating so we're going to say it's not sustainable,' you have this process that is totally external to a country's sovereign capacity to make the declaration: 'We are logging this legally.' It might not be sustainably; I am quite happy to accept that, and I could cite plenty of examples of that. In fact, I met some representatives of countries a couple of weeks ago that were quite able to accept that what they were doing was not sustainable, but it was legal. Who gives us the right to impose that onto another nation?

Mr Holesgrove : Yes, I see what you mean.

Senator COLBECK: How do we deal with it in the context of that? In fact, it was one of the points that the Papua New Guineans made today: 'You might not like what we're doing, but it's being done legally, or we say it's done legally. We've got a process to certify that.' Who are we to say that this is not sustainable? It is almost like the missionary coming in and saying, 'Believe in this.'

Mr Holesgrove : You have made some good points there, but you also mentioned that something could be legal but done in an unsustainable manner, and therefore could be legal but contributing to—

Senator COLBECK: I get that we all hold our own values. I understand that.

Mr Holesgrove : environmental degradation, so you are defeating the purpose in fact, in a way, if you allow this sort of timber or wood product to come in.

Senator COLBECK: Yes, but the objective of this is all about legality. That is the—

Mr Holesgrove : The objective of this, but I am saying the objective should be broader. We are saying the objective should be broader.

Senator COLBECK: How do you assess that?

Mr Holesgrove : Only timber that has FSC or certification. I understand that you have raised that important point about sovereignty. I am afraid I do not have enough expertise to say to what extent countries do have legislation that goes into the sustainability area. It is a newer area and I am not really familiar with it. I cannot quote you any examples. You are right with the Lacey Act and the EU requirements. I do not think there is any forest product or timber type import legislation that goes into the sustainability area, so I guess we are shooting ahead a bit there. The sort of system we saw was using FSC or some sort of certification, but I have to say that we have not thought through what that means in terms of countries' sovereignty.

Senator COLBECK: I have seen an example of that. In fact, I had a representative of a country tell me the other day that they had been told they would not be able to export to Australia under this process because they did not have FSC certification. I have concerns about that. I am trying to think of a way to manage that sort of approach where someone goes and imposes it on top. I do get the issue, but I have not worked out how you legitimately deal with the sovereignty of a nation to make its decisions about its resources unless there is some other broader process that manages that.

Mr Holesgrove : I think the other thing that relates very much to this is that you probably have great confidence when importing timber or forest product from a number of developed countries such as Australia. I believe 90 per cent of the forest product meets the Australian certification standards, so you are pretty right that in importing forest product from Australia it is going to be not only legal but sustainable, and that is probably the case with most developed countries. But my understanding is that with developing countries FSC and other certification schemes have pretty limited coverage, so that is part of the problem, I suppose.

Senator COLBECK: That is correct. But, if you then layer on top of the process that you are looking to see—both you and the environmental defenders are talking about having a process where you have to be certified at each stage of the process—your additional requirement that there be capacity for civil penalties and then put the sustainability or the values based stuff on top of that, you could make the whole system basically unworkable by that process.

Mr Holesgrove : If you could get around the sovereignty thing it may not be unworkable but it could perhaps become pretty biased against developing countries which do not fit. There is certification in developing countries but it would be fairly restrictive. I am aware that some of our other NGO colleagues such as Greenpeace, for example, are suggesting that a review clause be built into the legislation—I understand they are talking to you this afternoon—and that that would be something the government should work towards. In fact, I think even in the explanatory memorandum there is reference that the government wants to move towards that position. It is not actually being ruled out even by the government. They are suggesting perhaps that that is where we should be aiming. We would certainly agree with that. I guess we are saying we should do it now, and you have raised some points that suggest that perhaps other players are more correct, that it is something that has to be put in the pipeline to work on and perhaps can be achieved in a few years time. We may be being a bit premature. To actually achieve it right now—

Senator COLBECK: Nothing wrong with being ambitious. It is just the realities and practicalities of actually making it work that we are dealing with right now.

Mr Holesgrove : I do not know what that would mean in terms of international trade rules. I am not familiar enough with that. If a product is legal but you ban it because it is unsustainable in terms of third-party certification scheme, what would that mean in terms of sovereignty and international trade rules or whatever.

CHAIR: Senator O'Brien, we have gone over but I am prepared to keep going if there are a few questions you wish to ask.

Senator O'BRIEN: There are a host of questions I could ask in the circumstances but I think the one that I feel ought to be asked of these witnesses is this. We have had evidence this morning from Australian small business interests who talk about the potential impact of any legislation in this area on their operations, particularly with regard to competition from part-manufactured or manufactured products from overseas containing timber, and some examples were given to us. We talked about the difficulty in satisfying any importer in Australia of the provenance of, for example, certain timber products coming from China. What sort of solution would you see for an Australian small business potentially involved in such importation in dealing with their obligations under this legislation?

Mr Holesgrove : Perhaps I could defer to EDO and let them have a go.

Mr Sahukar : In terms of the small business requirement, a risk-based approach and a due diligence approach I think would take into account the resources available to the particular company involved, particularly if a regulator was assessing whether there had been a breach and whether or not a breach should be pursued and prosecuted. Certainly the aim of the scheme is about reducing illegal logging overseas and essentially domestically and it is not designed to have an undue regulatory burden on domestic industry. Hopefully an effective scheme making illegal logging more expensive, making it prohibitive, will assist small businesses who are wanting to comply and source their timber legally. So I bring it back to that due diligence approach which reflects the size of the entity involved.

Senator O'BRIEN: So you are saying that if they demonstrated that they made reasonable inquiry in the circumstances that would remove any chance of prosecution under the act.

Mr Sahukar : I cannot say what will remove the chance of prosecution from the act. I suppose the way the act is enforced will depend a lot on what is in the regulations and what the regulator—

Senator O'BRIEN: But you were saying that that was acceptable to you, that sort of due diligence.

Mr Sahukar : The tenor of the due diligence approach is that they do what is reasonable in the circumstances at their point in the supply chain.

Senator O'BRIEN: So assured by the exporter that the product was composed of legally logged timber; would that be good enough?

Mr Sahukar : It depends on the circumstances and the risk on the particular country involved. Where a country has a higher risk of corruption, for example, due diligence requirements may be higher and where countries have a good certification scheme or a good track record in terms of legal protections, then the due diligence requirements would be less, I would think.

Senator O'BRIEN: When you say 'higher', a small business in those circumstances would be required to go beyond the exporter's declaration and do what?

Mr Sahukar : I do not have specifics on the obligations in any particular case. I guess I am emphasising a risk assessment process whereby, if the risk is high, the due diligence requirements might be higher and, if the risk is lower, the due diligence requirements will be lower.

Senator O'BRIEN: And should the government published some sort of list of risk matrices?

Mr Sahukar : I guess the assistance the department provides would be a question for the department. Certainly assistance and guidance to businesses would obviously be very useful and would be important to up-skill the industry as well as consumers about the problem of illegally logged timber and the regulatory regime to resolve it.

Senator O'BRIEN: We have had two different approaches to the liability question from EDO and HSI. I think Mr Howarth talked about a strict liability approach in relation to the enforcement regime under this legislation and Mr Holesgrove, I think you talked about an importer who unknowingly imported a product which contained illegally logged timber.

Mr Holesgrove : Yes.

Senator O'BRIEN: That seems to me to be a completely different approach. Would you like to tell us what we should make of those two very different submissions?

Mr Holesgrove : I do not think there would be much of a difference between HSI and EDO on this. I am not a lawyer. I do not have any legal qualifications and I understand, in a legal sense, these are different segments. If somebody knowingly does something, it attracts a higher penalty and is a greater offence.

Senator O'BRIEN: That is a fairly high-level test, is it not?

Mr Holesgrove : Yes, that is the highest level and they should suffer the highest penalty.

Senator O'BRIEN: Strict liability almost means a fairly low-level test. If the product is not actually legally logged, there is strict liability whatever you knew or did not know when you imported it. That is why I said there is a great difference between the two positions.

Mr Sahukar : We were seeking strict liability offences as part of a tiered penalty regime which would take into account whether somebody knowingly or unknowingly imported illegally logged timber. We have seen that approach for example under the Lacey Act where regardless of whether the person in the point of the supply chain knew that it contained illegally logged timber there is strict liability in the sense that goods and products can be forfeited regardless of intention. We would support stronger penalties for intentional conduct and that is why we see a regime that incorporates criminal penalties, a civil penalty regime and potentially strict liability offences where that is appropriate. We understand there are particular provisions and safeguards around when strict liability should be applied and that there are high barriers to meet. That is where we have phrased our submission.

Senator O'BRIEN: Thanks for that.

CHAIR: I thank the witnesses.

Proceedings suspended from 13:25 to 14:23