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

ALDRED, Mr Tom, Executive Manager, Forestry, Department of Agriculture, Fisheries and Forestry

MITCHELL, Mr Ben, Manager, International Forest Policy, Forestry Branch, Department of Agriculture, Fisheries and Forestry

TALBOT, Mr John, General Manager, Forestry Branch, Department of Agriculture, Fisheries and Forestry

[15:52]

CHAIR: Welcome. I remind senators that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted. Officers of the department are also reminded that any claim that it would be contrary to the public interest to answer a question must be made by a minister and should be accompanied by a statement setting out the basis for the claim.

The department has lodged submission 26 with the committee. Would you like to make any amendments or additions to that submission?

Mr Talbot : No, thank you.

CHAIR: Mr Aldred, do you or any of the other officers want to make a brief opening statement?

Mr Aldred : I will pass to Mr Talbot.

Mr Talbot : The department would like to thank the chair and members of the committee for the opportunity to appear as a witness at these hearings and assist them in their inquiry into the exposure draft and explanatory memorandum of the Illegal Logging Prohibition Bill. I would like to note that the department has provided a detailed submission to inform the committee in its inquiry on the proposed legislation and the underlying policy. In addition to the submission I would like to make some short remarks in relation to the draft bill.

The draft bill provides a high-level legislative framework to effectively implement the government's policy to combat illegal logging. If passed in its current form, the draft bill would establish a prohibition on the importation of illegally logged timber and require industry to develop necessary legal verification procedures. The draft bill also provides the necessary authority to develop subordinate legislative instruments such as regulations that detail specific requirements for parties to undertake. The bill also presents offences that would impose significant criminal penalties and provide the government with the necessary monitoring, investigation and enforcement powers needed to maintain compliance with the proposed legislation. Key issues that are not contained in the draft bill would be further refined in regulations and include imported timber products and woods be regulated for legal logging requirements which may include due diligence and a code of conduct, importers' and domestic processors' approval process, timber industry certifier requirements and requirements for actually describing imported timber products.

The department will continue to involve industry and other stakeholders throughout the implementation of the policy, in particular the development of the regulations. The department has established a stakeholder working group to provide input into the development of the regulations. Membership of the working group is representative of a broad range of stakeholders who maintain an ongoing interest in the development and implementation of the legislation. The working group met for the first time on 15 April and the department worked closely with the group and is scheduled to meet every eight weeks to review progress and debate issues as they arrive in the implementation of operational requirements associated with the legislation. The department will also continue to conduct public information seminars for all interested stakeholders at key stages throughout the implementation of the government's policy. I note that a number of people at today's hearing are also part of our working group. For the record, over the last three years in developing the policy that has been a small working group of industry stakeholders that we have sought advice from.

CHAIR: Thanks, Mr Talbot. Just out of curiosity, are there any new questions raised today from those other members of the working group that you had not heard before?

Mr Talbot : There were a couple of new angles on things. We understand concerns that industry has about the possible costs of the implementation of this policy. We also understand concerns about the product range; we are fully aware of that. And we understand people's concerns about how it will be applied on the domestic stage, and also concerns about what the requirements will be for a due diligence framework. I would like to say early in the piece that we are working through all these issues and I am quite happy to share some early views as questions are asked or just put some comments on the table.

CHAIR: Good stuff. Senator Colbeck.

Senator COLBECK: I do appreciate that this is an exposure draft, not a final piece of legislation, that is being considered and there is, I assume, a development process that would flow with the completion of all that. What is your estimated time frame to complete this process, to get to a situation where you have got something that is workable?

Mr Talbot : There are different time frames for different elements. I will take it in bits for you, Senator. The first bit is to finish work on the products to be covered. We are going through a process with ABARES at the moment. We did an analysis for the RIS in terms of the products that would be covered. We are doing another analysis of the products to be covered based on what was in the RIS, based on what comes into the country and the risk management approach we might take with these products. In the RIS we only took into account 70 per cent and there have been some questions about the other 30 per cent, which was what we considered originally was product which only had small amounts of wood in it. We have been asked to relook at that and we are happy to have a look at it. So the first thing we are looking at is trying to finalise product coverage. The second thing that we are trying to do is work through with the states what possible mechanisms we can look at for the domestic stage to apply the due diligence more on a state basis or some other basis. We are trying to look at a sensible way of doing this. In Australia at a state level we have good legality frameworks, we have codes of practice and we have certification for 90 per cent of the product. We are looking at how we can meld that with our international obligations under this law and make it a reasonable playing field in how we apply things domestically. That is the second thing we are looking at. I hope to have something close by the end of the year. Also, by about halfway through next year, I hope to have a lot of the regulations in some sort of draft form covering a number of the other things that I mentioned in my opening submission.

The third thing that I would also be looking at that will be worked through in tandem with this is the issue of the code of conduct or code of practice. There is a range of work that has already been done on this issue. It has been done by us in a number of reports for DAFF. I note that a number of private institutions have also done work on this. One of the other things I will be hoping to do is work with industry on this, first of all in the regs to get some sort of framework in place and, second, to help them with the majority of it in order to be able to apply it to their own local situation.

We have left things fairly flexible because with the code of conduct or practice—both words have been used—we have had a situation where a number of the industry players have said to us that they would like a degree of flexibility in this because at one end of the scale you have companies with something in place and at the other end of the scale you have very little in place. So what we are trying to do is provide some flexibility in terms of having a framework of key things that it has to do. So the code of conduct would have in the regs a framework and then people could pull out of the framework what they needed to manage things for their business on the ground. Those are the types of things that we are looking at at the moment.

Senator COLBECK: With the products to be covered, how much variance are you finding with what is listed in the Lacey Act and the EU provisions?

Mr Talbot : There is some variance between the RIS that we did and the EU provisions and the Lacey Act. There are about four categories. I will have to take that on notice to give you a specific answer but, for example, in the EU and the US firewood is mentioned in their product categories. It is not mentioned in our product categories. We may not import that or it may be simply recorded under another HS code. So there is some variance at the moment and we would like to explore it. I should say that there is also variance between the EU and the US too. I actually have the product categories and I can table them. Just to give you some idea, the US one is a lot longer and more extensive than the EU one.

Senator COLBECK: The US one also covers plant material though, doesn't it?

Mr Talbot : I will just check. We only have here the wood materials.

Mr Mitchell : We have looked at what is involved in the amendments to the Lacey Act. The Lacey Act itself, prior to the amendments, covered plant material in general so these are further to the amendments that were made.

Mr Talbot : We can table this. It only includes the wooden timber categories.

Senator COLBECK: I was interested to know, looking through those categories and some of the stuff that is in there particularly around packaging, how is that managed in those other jurisdictions and how do you look at that?

Mr Talbot : I would have to take that on notice. We are having a hook-up with the EU next week. Some of the questions you have just asked are some of the things we are working through in how they might apply them. I am not aware, off the top of my head, sorry.

Senator COLBECK: Where did the concept for the timber industry certifier come from and how are you proposing it? That has probably been the most controversial element of what we have discussed today, along with perhaps concern about that adding a layer of duplication into the system. Where did that come from? Without regs it is a bit hard to know how it develops, but where does that all stem from?

Mr Talbot : That came about as part of looking at the coregulation framework, looking at several things—first of all giving the industry the opportunity to have some control over the certification in terms of things like flexibility and cost effectiveness to allow them the opportunity to set up their own bodies if they wish to.

I understand it has been controversial today. We actually put it in place as something we thought may actually be an advantage to them in terms of a coregulation approach and being more able to manage their own affairs. I guess what industry is waiting for is for more of the detail to be worked out. It was simply something put on the table as something to assist in managing the affairs.

Senator COLBECK: What about the concept of the certification at the border and the process around that? We have heard that from a number of submitters today. Even New Zealand before you and the Canadians are saying 'we are all over this country'. Again, in our own local context, certification based on a registered timber harvest plan or something of that nature really does fulfil the requirements and yet having to go through an agency or body, which will obviously have some costs associated with it, adds a layer that is not necessarily welcome in the process. If you line that up with 'okay you have the certification here in Australia and you have got certification at the border that this product is provided as legally logged', there may be a requirement for the importer to do some further due diligence and that can be dealt with through the code of conduct or your risk rating. There seems to be a lot of concern about an additional layer of red tape versus taking a risk based approach where people can make an assessment of their relevant risks and then make an assessment based on that.

Mr Talbot : I agree with what you say. The idea of the code of conduct is that it is a due diligence process. Basically what is under that is the risk management framework. It is based on a number of things. One of them would be: what country has the timber come from? Is it a low-risk country or a high-risk country? Other things that would possibly be in it are things that have been mentioned at the hearings today—things like the species within a country and what sorts of schemes have been involved. Certainly there are a number of countries that have made representations that have been what I would consider low-risk countries.

One of the things I did at the seminars around the country was that, without actually mentioning countries, I talked briefly about a hypothetical situation with a high-risk country and a low-risk country and what might be some of the applications you would put in place. I said that with a low-risk country you would probably have a number of triggers that would get you over the line. One would be certification. One would be the frameworks they have in place in those countries. I compared that to another country which may not have frameworks in place, may not have certification and may just be starting out on the route to have some sort of verified legal origins of timber processes in place. I gave those examples and I got fairly positive feedback. A number of people were importing timber from low-risk countries and obviously it raised the attention of those who were importing from countries they thought might be high risk.

Senator COLBECK: Perhaps it has been lost in the language. I think the concept of a risk management framework as opposed to a code of conduct or a code of management will have different connotations for different people. Perhaps it has been lost in the communication or in the language to a certain extent, because certainly we have had representations about risk management profiles and risk management processes quite consistently here today. Yet the concept of a code of conduct or a code of management has not necessarily, in my view, been received all that well because it perhaps has cost connotations that might apply to it, particularly when you apply the industry certifier process, which certainly has cost connotations attached to it as part of that overall process.

Your submission refers to about nine per cent of what comes into the country as being illegal product. In your investigations, what forms of timber, from sawn through to highly manufactured, fall within that nine per cent? Where are the high-risk elements of that profile?

Mr Talbot : I will have to take that on notice. I cannot remember where the risks are. I believe the nine per cent comes out of a number of studies that have been done both overseas and also taken up by the CIE in its report. It is best that I take that on notice because I am not sure which products in particular it would be.

Mr Aldred : Just to add to that, my recollection is that it is actually across a range of the different products. There may well be concern on paper, on manufactured products, on furniture and so on. Obviously it is difficult to get a precise figure on the degree to which illegally logged timber would come into the country.

Senator COLBECK: By nature of its being illegal.

Mr Aldred : Absolutely. It is an indicative figure, but my recollection is that it does cover a range of different products.

Senator COLBECK: I think we had one submission in particular that I looked at that was critical of that data. So, if you could give us that information but also annotate the sourcing of it, that would assist. You have taken us through a rough time line for different elements. How does our commencement date align with current processes in other jurisdictions? The Lacey Act has already had, perhaps, some actions, and the EU one is not necessarily in form yet. It is probably closer in the UK than in any of the other countries.

Mr Talbot : In terms of the Lacey Act, I think there are four phases. I have a sheet on that that I can give you, Senator. They have introduced phase I, which was introduced in March 2009. This does not have the products on it. I am looking for the products. I might take that on notice, because I think we are only up to phase I. Sorry, we are up to phase III. Phase I was that they introduced the declaration. Phase II, from April to September 2009, was wooden articles of wood categories. That was solid timber products including timber sheets for veneering. Then phase III was from October 2009 to March 2010, when additional articles of wood plus wood pulp categories were introduced. There is phase IV still to be introduced, which would include additional wood articles plus paper and articles of paper plus furniture. I will give you those bits.

In terms of the EU, I think that, by the time they have finished their process, it would be pretty closely aligned with ours if it went through. Say, for example, we had legislation to start a process later this year—I am not saying it will or it will not. If my recollection is correct, they are due to complete their process within 27 months from this month, but I will take that on notice. One of the things that I thought were very useful was that the EU processes seem to be marching to similar times to a number of our processes, so I thought there was a lot of opportunity to work with the EU.

Senator COLBECK: An important question to talk with the EU about would be the likelihood or propensity for the jurisdictions within that to take up the legislation. Obviously it is an overarching shell.

Mr Talbot : Yes.

Senator COLBECK: But it does not have any effect unless the individual countries take it up. As I said, the UK might be the furthest advanced in relation to that, but that is an obvious requirement under the EU provisions: they have to actually be taken up by individual countries.

Mr Aldred : I might just jump in again. It is probably not a specific characterisation, but the EU and the US were certainly ahead of the game, if you like. I think the work that has been done on the preparation of this bill and all of the supporting documents leading to the regulation impact statement has caught Australia up a fair bit. So, if I were characterising it, I would say we are starting to get pretty well aligned and, as you point out, therefore the opportunity to talk across those countries to share experiences and possible approaches to implementing some of the legislation is probably improving.

Senator COLBECK: There has been a bit of discussion about the interaction with trading partners in relation to this, and obviously this process has facilitated that or caused other countries to take note of where we are at and what we are doing. We did have some discussion earlier in the day about interaction with some of our South-East Asian neighbours, some of whom would potentially be regarded as high risk. What conversations have we been having with them in the development of this to see how any frameworks that they might be building might align with what we are doing in a similar way to how the EU are quite actively doing that with some of the African nations at the moment? What conversations are we having and what work are we doing in relation to that?

Today we have had the Papua New Guinea Forest Industries Association saying that they have a framework in place, yet we have also had Greenpeace here saying that 80 percent to 90 percent of what they harvest is illegal. How do you align those two claims? As I understand it, even with Lacey and EU, this is about timber that is logged legally in its country of origin—that is the fundamental description. How do we make sure that that is what we stick with rather than get caught up with some of the other value based stuff that some other groups might like to impose? There are a few questions in there, I know.

Mr Talbot : Yes, there are. We have been keeping our South-East Asian neighbours up to date with the development of our policy through our posts and also, in the case of a number of them, with bilaterals. We have either commenced or signed bilaterals with a number of countries, and we have been in contact with Papua New Guinea, Indonesia and China on a regular basis. So we have been keeping a number of our neighbours informed, and we have kept New Zealand, the EU and the US informed of our process progress as well.

When we originally started on this trek, we saw that there was quite a discrepancy in some of our earlier studies between certification schemes and what people were doing in various countries; we also saw that standards were going to change as a result of announcements by the EU and the US—in the EU through its VPAs covered with capacity building and in the US with its announcement of changes to the Lacey Act—that would lead to the generation of significant momentum to try to improve practices. We originally looked at three broad options in our RIS, and we did not go with option 3, which talked about are basically having only certified timber coming into the country. Again, the stats here are a bit hard to get a handle on, but we had figures saying that between, I think, nine percent and 20 percent of wood trade was certified, and the costs both to industry and the economy were considered to be too high.

So what we went with was a due-diligence approach where we thought that with constant changes in schemes in countries we could look at that with the research that we had done on a number of our projects and that this could provide a framework for providing surety to Australian businesses. You are quite correct, Senator—this is not designed to override sovereignty in countries. However, it is, in terms of the input of wood, designed to get people thinking about where that wood has been harvested and what stands behind that harvesting.

Senator COLBECK: The issue of capacity building is an important one and it has been discussed here today a number of times. That brings me to the 'certification at the border' concept that has been discussed and raised by a number of submitters from a number of different perspectives, whether it be from an environmental group or whether it be in New Zealand or even the local industry—so that you have a certification at the border that this product has been provided legally. That certification, or declaration, if you like, can then work its way down the line. There would have to be a due diligence process behind that, and a risk management framework is obviously appreciated as a part of that process, but why haven't we had, as the EU and the US systems have, a 'declaration at the border' process which then drives some of that requirement back down into the supply chain and therefore contributes to capacity building?

Mr Talbot : Part of the matters we are working on at the moment is to have something included in the customs declaration when the material comes into the country. So there is something planned. I think we were going to put it into the regulations, but I will take that on notice. I know we have had discussions with Customs, and I know that there is something of that format.

Senator COLBECK: We were told this morning that Customs were not too happy about it, but that is hearsay, so I am not making an allegation against them. It was certainly a piece of hearsay evidence. I am pleased to hear that that is a direction you are taking. But again it raises the question for me: if you are going to have a declaration process, why do you need to overlay that with an industry certifier process? If you are going to deal with the legality, why do you need that additional layer if you have got a process that says, 'Here it is; it is what we say it is,' or the due diligence says, 'No, it is not; we will not go ahead with the process'? Why do you need to overlay that with another process?

Mr Talbot : In the Customs process, there will be something in terms of what is imported into the country—some sort of declaration or something included in a customs form. We are still interested in people doing some sort of due diligence process. I guess the question becomes whether that due diligence should be approved or endorsed by an industry certifier or whether the due diligence should just be endorsed by the minister or what. There is another side to this coin, and that is: what assurance are we giving the community that there are some checks to the process and some independence? We have tried to balance that by putting these sorts of processes in place.

Senator COLBECK: Doesn't that come back to whether or not the businesses themselves have a process in place? Some of them may have a certification process. Some may have a quality management system. Doesn't it come back to what level of process these businesses have in place if they are going to be involved in these markets, and again it is tying everyone up with red tape due to the lowest common denominator, or the legislation does provide a legal standpoint but also penalties. Then it comes to how you actually apply those processes within that legislative framework.

Mr Talbot : Certainly the intent was not to add another layer of bureaucracy to the process. In terms of first of all the code of practice or due diligence, the idea was to have some key areas that the code of conduct would have to cover that would be included in the regulations. We were hoping that we could assist industry in developing their codes of conduct to suit their business. The idea was to provide flexibility so that you got a cost-effective approach. On that level, that is what we were trying to do.

Where we have gone is that we have also said there has to be some process to say whether this code of conduct meets a certain standard or not and also to provide a system to them. We looked at an industry certifier as maybe an easier process than having everybody certified by the minister, as we thought that a certifier would be able to do things in a more cost-effective manner. I understand also that there are some companies whose early thinking is that they will not have an industry certifier and that because of their size they would like to simply use processors, similar to what they have in place if they meet the regs, and have them certified by the minister. It was something that we did not look at to add red tape; we thought we were providing something that might assist industry.

Mr Mitchell : If I could add to that as well, I think there may be a bit of misconception about what the certifying body may or may not do. Rather than looking at each specific consignment that may cross the border, I think the certifying body will be established simply to approve the systems that are out there. For a company which already has a system in place, it would be a very straightforward process. The certifying body would just come, assess the process that it has in place and grant it approval to use that process to import its goods. The certifying body would not be overlaying each consignment, so to speak, or each time across the border; they would simply be there to make sure a company has a system in place and then to potentially audit that system on a regular basis.

Senator COLBECK: How does all of this process actually effect a prosecution, for example? If you have all of these bells and whistles, systems, sign-offs and ministerial sign-offs, how does that effect a prosecution?

Mr Mitchell : When somebody breaches the legislation?

Senator COLBECK: Yes.

Mr Mitchell : We have tried to simplify it to the point that a breach will occur if somebody is not approved either by the minister or a certifying body. If they import goods and they do not have approval then they have breached the regulation; they have breached the prohibition.

Senator COLBECK: That does not actually achieve anything, though, as far as—

Mr Mitchell : It means that they have to have a system in place. If they do not have approval then they are not able to trade. They are not able to import any goods.

Senator COLBECK: It does not, say, capture the Gibson guitars example, where Gibson guitars said they were importing legally supplied product. They were found not to be doing the due diligence that sat behind the process and were, quite famously, fined by the court and fined by that process. This process does not do any of that. All it says is just, 'Okay, I'm ticking a box.' That is all it does: 'I'm undertaking due diligence.' How do you effect something?

Mr Aldred : In the construct of the system, a company would be certified by the certifying body on the basis that they are undertaking certain due diligence type activities. There is provision within the legislation to have audits undertaken to ensure that those due diligence—

Senator COLBECK: So you are creating another certification process and system. That is what you are doing.

Mr Aldred : So that you can check that the due diligence is actually being undertaken. It is technically possible that the audits and so on can be undertaken by the federal government department, but as Mr Talbot said, the reality is that it is most likely to be more responsive and cheaper to have a different body undertake that work. For example, there is a range of firms around at the moment who already provide certification services. Those sorts of firms may well be able to certify a company and look at the processes, and potentially do a check of those processes occasionally, far more efficiently and at a cheaper cost than the government doing so. It was that sort of thinking that led to the concept of the certifying body. I hesitate to use the word 'assurance', because the auditors always tell me it has a particular technical connotation, but the certifying bodies provide an assurance that the myriad companies that are importing timber, and that may well be using slightly different systems, are actually going through the processes of satisfying themselves about the legality of the timber.

Senator COLBECK: How do you align that with a process where you have a declaration at the border saying that this is legally logged. You are creating a significant bureaucracy and cost to the industry. You will have to have formal certification. That is effectively what you are doing.

Mr Aldred : To clarify, when you are talking about a declaration at the border, are you talking about the border of the exporting country or the importing country?

Senator COLBECK: It does not matter at which point it is at, quite frankly. Whether it is the exporter declaring that it is or the importer declaring that it is, it is a declaration at the border. Most of the discussion here today has been about a declaration at our border, as it comes in, that it has been logged in accordance with the laws of its source. It gets a little murkier where you have product from multiple countries. That becomes difficult, but then it goes back to the individual business's due diligence arrangements.

Both Lacey and the EU are based around a declaration at the border. Ours is very different; it is about a bureaucratic certification process. If you are certified and registered, you are in. If you import without that process, you are outside it. I am not sure how you are going to capture everybody who falls within that remit. A company that is importing a crusher, for example, that has a timber crate around it effectively falls within the system, because you have got a timber crate coming supporting the cargo. They are not going to be thinking about the process of importing timber. How do you manage that? They are not going to have a certification process in place. They will not have a system in place, because they are importing a crusher. What you want is a piece of paper at the border that says, 'Here's the crusher but the crate that it comes in is sourced from legally logged timber.'

Mr Talbot : I have just a couple of comments. Yes, the EU has a declaration. The EU will also have a due diligence process. Yes, each country will have laws. I think that one of the things we can explore is how the EU due diligence system operates in practice.

Mr Mitchell : I would like to add that, apparently, a number of exclusions have been incorporated into the US Lacey Act amendments, for instance. They include instruction manuals, labels, pallets, crating and things like that. They are excluded.

Senator COLBECK: Yes. I know that we are not yet to the finalisation stage, but I am pretty sure from what I have read that crating and packaging are in the EU system. I am happy to be corrected on that. I am just trying to find and look at as simple and cost-effective a process as I possibly can without creating a cost centre that does not need to be there that is potentially there for a lot of the cases already, so that you are not just copping a layer on top of that. I would have to say that I would be really, really concerned if a big business like Bunnings, Coles, Woolworths or one of those guys could put their hand up and say, 'Just tick us off, Minister; you know we're safe,' and they did not incur any cost and a small business copped the impost of the timber industry certifier that they had to join up and pay fees to. I have to say that I would be really, really dirty on that, and so would they. They probably cannot buy at the same price as those blokes buy in the first place, and yet you put them further out of the game by putting another impost on top.

Mr Aldred : I understand the concern there, and those are—

Senator COLBECK: I am trying to find ways to make sure it does not happen.

Mr Aldred : Yes, I understand, and those are some of the mechanics that we will be working through with the working group through the process that Mr Talbot outlined earlier. It is entirely possible that under this system we will have a range of different processes or systems, depending on scales of industry and so on. It has been very, very much the intent of all of the work that has been done to reduce the impost on importing and timber-using industries. To the extent that we can design things in consultation with industry that achieve the outcomes that are being sought at low cost, we will certainly be doing that. And, as Mr Talbot said a couple of times, the concept of an industry certifier was put in to minimise the involvement of government in doing day-to-day stuff.

Senator COLBECK: We heard today from a number of places. We heard about, I think, the process that Malaysia are putting in place to certify that product that comes out of there is legally sourced. Papua New Guinea talked about a process that they were dealing with. Okay, you might have some questions about the efficacy of those processes and perhaps you might say to have a scaled up level of due diligence, but, if the fundamentals of this are about accepting that the product complies with the laws of the country it comes from, at what point do we or don't we take the word of the government who say, 'We put our stamp on this and say this is legally certified,' and apply some other process on top of that?

Mr Aldred : There certainly has been some discussion in the committee today about just how far Australia goes to, if you like, try and effectively overrule the sovereign rights of other countries.

Senator COLBECK: I think it was perhaps from our perspective a concern that we did not.

Mr Aldred : Absolutely. But I am talking about in the committee as a whole, Senator. Therefore the definition of illegally logged timber tries to make sure that that is very clear from the Australian government's point of view. It is entirely possible that, if there is government certification from the exporting country, that provides a higher level of assurance where countries do that. Indeed, that provides a greater opportunity for continual capacity building to improve those systems—absolutely. So the framework of the current bill should allow us to effectively have a lighter touch on imports that have that higher level of assurance and, therefore, lower level of risk.

Senator COLBECK: I do have some more questions but I am mindful that Senator O'Brien might want to have a crack.

CHAIR: Feel free, Senator Colbeck.

Senator COLBECK: In our discussions this morning, industry expressed disappointment that they had not been consulted with this draft before it came through into this process. That leads to the question of confidence in the continued process of consultation. I know that we always intend to make sure that we consult effectively and properly. But how do we stay aligned with what is happening into the future? Obviously we have been given an exposure draft of this piece of legislation, but we are all aware that there are gaps—there are bits missing. There was a reference today to potential changes to the Customs Act, because requirements that might apply there do not appear in any of this stuff so far. How do we actually stay across all that and make sure that that consultation process does work okay and that the view is that inputs are actually being taken into consideration rather than, 'Okay, we have had a yarn to you,' and then all of a sudden, 'Here is an exposure draft that does not necessarily reflect what a lot of us are saying'?

Mr Talbot : We have several processes going within the department. One is the workshop process where we try and look at what needs to be done, workshop the issues or find people's views and then have studies done or whatever needs to be done. We were hoping to run that every eight weeks with a group of stakeholders. The other process we had going was that we were giving people updates through seminars around the country whenever there was new information. I guess this is my view of the future: if the workshop group got close to a decision on something then we would also go out, through seminars across the state, and just test these issues with those groups as well. So that is another mechanism.

The other thing is that we also have the Forest and Wood Products Council. That meets every six months, and illegal logging has been on that agenda for the last three years, I think. There has also been a subgroup of that group that has worked on those issues and did so up until the policy was finished. Now we will be using the workshop and the seminar approach.

Mr Aldred : In terms of consultation on the draft legislation, there has been a great deal of interest, obviously, in the legislation, and the decision was taken that it was better to provide an exposure draft to a much wider range of clients and to refer it to the committee so that a great deal of input could get put in before it got absolutely too far down the track. So while some people may have expressed some disappointment that they did not receive a pre-exposure draft or something of that nature, there has been a broad range of interest, and the exposure draft was meant to do just that.

Senator COLBECK: We have had some submissions today, most specifically from the ENGOs, talking about declaration requirements at each point of sale down the supply chain. What has been your interaction and discussion in relation to that? You probably heard what our reaction to it was.

Mr Talbot : We had a look at this from the 2007 election commitment in terms of what was the best place to apply this. It is thought for a number of reasons that were stated in the interaction today that the most cost effective place to introduce this was at the first point into the market, or into Australia. The reason for this was that it was the most cost effective point. If you left it until the retail end you would increase costs significantly. Also, if you applied it to each stage of the process you would also increase costs significantly. Again, we were trying to keep costs down and we saw it as first point of entry.

Senator COLBECK: What about the concept of civil penalties and allowing anybody in the system to take up a complaint?

Mr Talbot : I would have to take that one on notice. I would need some legal advice. I know it is something that has been discussed. I also know that there is a standard for the Commonwealth. So I would be best taking that on notice.

Senator COLBECK: I would be very interested in that because the ENGOs, in particular, have raised that with us today. If there is some sort of formal standard that we are conforming to as part of this process I would be more than interested in that.

Mr Talbot : I am not 100 per cent sure so I would like to take it on notice.

Senator COLBECK: I am not trying to put words into your mouth. I am interested in it as a concept. The flip side of that particular conversation is how we actually stop this being a mechanism just to beat people up with. I was at a conference in New Zealand the week before last where one country said to me, 'We are not going to be able to export to Australia any more after this comes in, because we will not be able to get FSC certification.' My reading of this is that that is not true, but obviously there is somebody very helpfully telling people out there that this is the case. We might not be happy with the processes that are occurring in that particular country, as far as sustainability or a range of other things are concerned, but how do we actually prevent this sort of thing—I do not know how to effectively describe it, not in polite company anyway? How do you prevent it from being used as a tool or as a weapon against industry, which potentially it could be if we do not have the boundaries right?

Mr Aldred : My colleagues can talk about the individual interactions with other countries, but there has been a fair bit of liaison with the major countries from which Australia imports timber, including advice about the status of the bill and the fact that the policy was launched in early December, and so on. So the team has a range of contacts who are used to explain those things. It is explained certainly at government levels in the various interactions that we have had at international fora. That is from the government point of view. I do think that there will be a need for us to make sure that there is a range of explanatory material and background material on our website, as there is. As this proceeds we will need to make sure that that is kept updated and that we use industry-to-industry links to provide access and remind our trading partners that the information is there.

Mr Talbot : To add to that last response from Mr Aldred: there was a point I made earlier that there is a lot of interest in both producer and consumer countries at the moment in terms of what we do about the issue of illegal logging. We are seeing movements in terms of standards and processes being put in place. One of the interesting ones at the moment is that the US and Indonesia are trying to put together a process to look at how we might put in place international mechanisms on illegal logging, for example. So there is this movement. What we have been trying to do is, on one hand, inform people about what our policy is about both domestically and internationally, and, on the other hand, have some input into the international agenda in terms of what reforms may take place in the future.

Senator COLBECK: The work with individual nations is important, and I have asked a couple questions about that and talked about what the EU in particular has been doing in, for example, Africa, where they are doing some very specific work in setting up processes and procedures. The Papua New Guineans told us this morning that there is a process that is going on there. We were made aware of processes that are occurring in Malaysia. I sat on another inquiry a few weeks ago that talked about the very strict legislative framework that is being applied now in Indonesia. They are still trying to get that to filter back down to the forest floor as far as actual practical application.

But how do we provide a disincentive for an ENGO base certification system—say, 'We're just not going to go there'—which then provides almost no artificial trade barrier to that particular location for supply? We need to work with those countries to deal with their legality issues, which are fundamentally what this is all about. We can also work with their sustainability issues, which are of course important, but we do not want an effective blackballing process going on with systems that say, 'We're not going to go there,' and that rules them out of the market. There is a real risk that we do that, and we need to have some expression of displeasure as part of our process so we do not set those things up. Or we need to have some alternative in place so we can ensure that those countries can legitimately participate in our processes or our trade. Is there any thought that has been given to that? There are some that will not go into some places for their own reasons, and some of those have variability based on different jurisdictions.

Mr Aldred : In the interaction at government-to-government level and the communication that we will need to do to facilitate industry-to-industry level, we will be making it clear that the focus of the legislation is on the legality of the timber. The definitions are quite clear in terms of the draft bill. This is not a sustainability focus; this is about a verification of legality.

Senator COLBECK: Although we already have been told today that part of the promise was sustainability. I am not saying that that is necessarily what the bill is about, but we have been given evidence today that that is what the government's commitment was as part of this process.

Senator O'BRIEN: There have been submissions which question the explanatory memoranda, particularly in relation to the business impact of the system proposed in this legislation, particularly from small manufacturing groups in relation to the importation of timber for the manufacture of products like windows, joinery products, kitchens and the like. A suggestion in their submission was that those compliance costs will make timber products in their businesses—and, perhaps, their businesses—less competitive than non-regulated products such as metals, polymers, ceramics et cetera. What is the basis of the suggestion in the regulatory impact statement for the cost assertions—or lack of cost assertions?

Mr Talbot : On option 2, which is the one that was taken up in the regulatory impact statement, I think what we said was the cost to the community as a whole was—I will check this—$8 million to $23 million. I think that what we said for small businesses or businesses in one of the reports that we did—I think it was the small business impact statement, although they could not get down to costs—was that if this policy were introduced, there would be a rise in price for the consumer. There would be some compliance costs and they would be partly offset by the price rises that people would get for domestic product. It did not go into any more detail than that, so I would have to take that on notice, but I know getting those costs was quite difficult.

Mr Aldred : They will obviously vary depending on the nature of the final operational details. That in a large way explains the structure of the enabling legislation, supported by a lot more detail in the regulations, which, as Mr Talbot went through earlier, will take some time to work through with the working groups. We have tried to establish a framework that enables us to minimise the impost on importers and small business as a result of that, but it will rely on a heap of quite detailed discussions like, 'This is the sort of system a broad range of us have in place now; how can we utilise that system to make sure that it meets the objectives of the act and minimises cost?'

Senator O'BRIEN: In terms of the cost burden, one assumes that, the more complex the process of due diligence, the bigger the cost. So I appreciate that it is pretty hard to come up with a figure. Has the department given any thought to the circumstance which I believe would occur, which is that there will be businesses developed to assist in the process of managing the risk for individual business? Have you given any thought to that? Is there any expectation of the growth of those businesses and how they would function with individual businesses in managing the regulatory burden?

Mr Talbot : We have not given any thought—hold on; that is not quite correct. What we have envisaged is that, as we stated earlier, we would help industry to develop codes of practice. In terms of whether there is industry created for timber certifiers or something like that, obviously we were hoping for everything to be done in the most cost-efficient manner. If that means that there would be some businesses created and that was the most effective way then that would be so, but we have not given any thought as to whether or not it would create this new industry, no.

Mr Aldred : In terms of creating specific businesses to assist—

Senator O'BRIEN: Not the government creating them. I am not suggesting that. It falls into the potential area for work which is created by this. It is if there is work for small business and they feel it is more taxing than they are competent to deal with or they want to manage their risk by having more expert advice in managing the process.

Mr Aldred : I suspect that there are businesses out there that can do some of those things already. I mentioned earlier the certifying body. One of our beliefs is that certifying bodies who already offer a range of services would be able to offer services to small business at a much cheaper rate because they are set up to do it. I believe the same will apply to firms that deal with due diligence, risk management and so on as well. It is entirely possible that there will be new players or existing players expanding the range of services that they offer.

Senator O'BRIEN: So would you envisage any regulatory regime for those businesses?

Mr Aldred : We have not considered specific regulatory regimes solely in respect of this bill, no. Obviously, if a firm were offering advice, they would be covered under the broad range of existing requirements for businesses.

Senator O'BRIEN: This has partly been covered by Senator Colbeck. In terms of the proposition that certification of exports by bodies authorised by foreign governments have sufficient legality to pass a test under this proposed legislation, is there any reason why that could not be the system implemented by the Australian parliament to meet the government's commitment to legislate?

Mr Aldred : I think, as I said earlier, I would expect those sorts of systems to get more ready acceptance or to provide the level of assurance that we are looking for.—

Senator O'BRIEN: So in your view they would provide the level of assurance that we are looking for.

Mr Aldred : This is without looking at the specific details of an individual system, but it is likely that they would—

Senator O'BRIEN: But Country A says, 'We certify that timber products exported from this country have been legally sourced.' In that circumstance, would that in your view meet the sort of test which the government has committed to introduce?

Mr Aldred : I believe it would go a long way.

Senator O'BRIEN: Where there was some body authorised by government to make such a certification, do you think that could fit into the system?

Mr Aldred : It is certainly possible. Again, in working through the framework, some of those sorts of systems that may, for example, exist in other industries could be looked as possible guides for ways to have the system work.

Senator O'BRIEN: Does the government have the capacity to create a series of what you might call lists, for want a of a better word, of countries separated by the likelihood that there is a risk of imported timber being illegally sourced? In other words, can you say that in the European Union it may be very low, in Indonesia it might be moderate and in the Congo it might be high?

Mr Talbot : In the lead-up to the illegal logging policy we did a range of studies. One of the studies looked at things like the risks from a number of countries. One of the other studies we did looked at the rigour of various certification schemes across South-East Asia. I cannot remember the names of those reports, so I will take them on notice and give you those.

Senator O'BRIEN: Sure. The purpose of the question is that, if we have a system where there is some form of reliable information provided by government to business, surely that will reduce the regulatory burden. If we can separate the areas of risk in a way that business could rely upon the government's indication, that would be much better from the point of view of businesses' certainty under the legislation.

Mr Talbot : I do not disagree with what you are saying. I think there are a range of things that have already been done that could be put into the top level of the framework in a regulation. I think they could also be used, along with some work that has been done by private sources, in helping people set up the risk framework under a code of conduct. So I agree with you.

Senator COLBECK: There is probably only one other question I have. There are a lot of references in here to 'approved by the minister' or 'the minister approving' certification, industries or whatever. To what extent does that mirror what is happening in the other jurisdictions—the EU and the US?

What I am thinking of is in terms of different layers of the process that is being implied here. I understand that the government wants to keep a watching brief or have some process whereby it keeps an eye on what is going on. I understand that, and obviously the minister's capacity to delegate powers into the system. I am interested in how that mirrors what the need is. If we create a framework then is the framework allowed to work without adding other stuff on top that we do not necessarily need?

Mr Aldred : Obviously we cannot say at this point, nor fetter the minister's decisions about delegations and so on. But the bill, as you have pointed out, clearly is structured to allow delegation to the secretary and to allow for the secretary to delegate further certain roles. In the normal course of events, once the system is operating that well may be the way that it turns out.

Senator COLBECK: But I am interested in the minister's involvement versus what is happening in the EU and the US, and whether it is necessary or not, and how it gets designed into the system.

Mr Talbot : we will take that on notice, Senator. I made a comment earlier in terms of the EU implementation. I gave a wrong date. Mr Mitchell can update that.

Mr Mitchell : In terms of the implementation in the European Union, their overarching regulation was passed in October 2010. They are granted 27 months from that point to put their regulations in place.

Senator COLBECK: At an individual country level?

Mr Mitchell : Yes—so that would be June 2013, I think. It would hit the road then.

Senator COLBECK: I s there an obligation passed back down to them to do that—if the EU body actually puts it in place, does everyone actually have to pass the RIS?

Mr Mitchell : From my understanding there is not an obligation for each country to go back and demonstrate how they have put those things in practice. I am not sure of the penalties associated with not complying. I assume there are sanctions under the European Union setup that would apply if they did not take that into account.

Senator COLBECK: Thank you.

CHAIR: I thank officers of the department. That concludes today's hearing. The committee now stands adjourned.

Committee adjourned at 17:17