Saturday, May 12, 2012

Illegal Timber logging, proposed Australian law and WTO


Reports of Indonesia challenging the Australian legislation relating to prohibition of importation of illegal timber logging is the news here. The Australian Government has introduced a legislation in Parliament called the "Illegal Logging Prohibition Bill, 2011" relating to combatting illegal logging. A few salient provisions of the Bill are:

The Guide to the Bill states:
"This Act prohibits the importation of illegally logged timber and the processing of illegally logged raw logs.
This Act also requires importers of regulated timber products and processors of raw logs to conduct due diligence in order to reduce the risk that illegally logged timber is imported or processed.
Importers of regulated timber products must provide declarations, at the time of import, to the Customs Minister about the due diligence that they have undertaken."
 The definition of "illegally logged" as per the Bill , in relation to timber, means harvested in contravention of laws in force in the place (whether or not in Australia) where the timber was harvested.
"Section 8  Importing illegally logged timber  A person commits an offence if: (a)  the person imports a thing; and (b)  the thing is, is made from, or includes, illegally logged timber; and (c)  the thing is not prescribed by the regulations for the purposes of this paragraph. Penalty:  5 years imprisonment or 500 penalty units, or both.
Section 9  Importing illegally logged timber in regulated timber product (1)  A person commits an offence if:(a)  the person imports a thing; and                (b)  the thing is, is made from, or includes, illegally logged timber; and                      (c)  the thing is a regulated timber product; and (d)  the thing is not prescribed by the regulations for the purposes of this paragraph.Penalty:  5 years imprisonment or 500 penalty units, or both. (2)  The fault element for paragraph (1)(b) is negligence.(3)  A regulated timber product is a timber product prescribed by the regulations." 
The Bill states that importers have to follow "due diligence" for importing regulated timber products. The due diligence requirements that would be prescribed in the regulations have been broadly prescribed in Section 14.
14  Due diligence requirements for importing regulated timber products
 (1)  The regulations must prescribe due diligence requirements for importing regulated timber products.

(2)  The requirements must be prescribed only for the purposes of reducing the risk that imported regulated timber products are, are made from, or include, illegally logged timber.

(3)  The requirements may include requirements in relation to one or more of the following:
      (a)  gathering information for the purposes of assessing that risk, including in relation to the following:
       (i)  the kind, origin and details of harvest of timber;
      (ii)  the name and business addresses of, and other details about, suppliers of timber or timber products;
     (iii)  evidence of compliance with the laws of the country in which timber was harvested;
     (iv)  the completeness, accuracy or reliability of information gathered;

      (b)  assessing and identifying that risk;
      (c)  depending on the level of risk, measures to mitigate that risk;
      (d)  making declarations to the Customs Minister under section 13;
      (e)  providing statements of compliance;
      (f)  auditing;
      (g)  taking remedial action in prescribed circumstances;
      (h)  providing reports and other information to the Minister;
      (i)  publishing information."
Joe Ludwig the Australian Minister for Agriculture, Fisheries and Forestry supporting 
the Bill stated:
"The Government has been careful to make the bill consistent with Australia's trade obligations. It is true that the bill will support the trade in legally harvested timber. In fact, the University of Sydney Centre for International Law's submission to a previous inquiry commented it would be difficult to imagine a country prosecuting Australia for restricting the trade of a good which is against the law in the country of export."
 The Bill essentially penalises importation and processing of illegally logged timber and timber and timber products as well as processing illegally logged timber in Australia. Hence, timber that is logged illegally in contravention of national laws where they are logged would not be able to be imported. Further, timber illegally logged in Australia would also be punishable. Thus, both importation of illegal logged timber as well locally 
logged timber illegally is prohibited.

Is this Bill in contravention of Australia's WTO obligations? Two legal opinions from the Australian academicia provide divergent views:

1. Arguing that the Bill does not contravene Australia's WTO commitments with certain caveats, Tim Stephens and Ben Saul from the Sydney Centre for International Law, University of Sydney have opined:
"In our opinion, the Bill is largely compatible with Australia’s obligations under WTO law, although there are a number of issues which may require further scrutiny.
First, the Bill falls squarely within Article XX(g) exception for conserving timber as an ‘exhaustible natural resource’. 
Second, there is a sufficient nexus between illegal logging abroad and importing such timber into Australia. While the timber prohibited from import is harvested wholly in the territory of other states, Australia has a legitimate interest in preventing illegal logging in other states so as to maintain reserves of biodiversity and carbon stocks.
Third, the measures clearly relate to the environmental object of conservation (as well as to pursuing legitimate anti-corruption objectives). 
Fourth, strictly speaking, Australia is not a party to any multilateral agreement which requires it to legislate to prohibit imports of foreign illegally logged timber. Nonetheless, as note above, unilateral environmental measures which restrict trade may still be lawful even in the absence of binding bilateral or multilateral agreements, and Australia’s measures are consistent with the objects  and purposes of the various environmental law sources above."
They have further opined:
"  Careful consideration is therefore needed of the extent to which Australia has pursued genuine negotiations with affected countries with a view to reaching agreement on bilateral or multilateral measures to prevent trade in illegal logging. Such negotiations should relevantly include consideration of possible alternative non-restrictive measures (such as those suggested by Indonesia in its submission, among others).
...
Finally, it was noted above that WTO law requires a restrictive measure to be enforced evenly as between domestic and foreign products. We draw attention again to Canada’s objection that the Bill may favour domestic timber processing by imposing more onerous due diligence obligations in respect of foreign timber in certain circumstances (eg, composite products). 
This submission does not take a view on the facts whether this is a correct characterisation of the Bill’s impact. If, however, the Bill does in fact treat certain domestic and foreign timber differently without justification, it may be regarded by the WTO as unjustifiably discriminatory."
 2. On a divergent note, a more detailed legal analysis by Andrew D. Mitchell and Glyn Ayres have addressed the issue of consistency of the Bill in the context of Australia's WTO obligations under GATT 1994 and the TBT Agreement. They have concluded:

H          "However, by conditioning the legality of importing timber into Australia on the laws of the place where it was harvested, the Bill would likely cause discrimination between like products, contrary to Australia’s obligations under the WTO Agreement. Moreover, although Australia’s objectives are to protect the environment and promote fair competition in its domestic market, the shifting content of the term ‘illegally logged’ would likely undermine its ability to pursue those objectives in a consistent way. Finally, government-commissioned economic analysis of the Bill is far from supportive, with the CIE Report concluding that its benefits would be slight, its costs significant and its effectiveness limited.124 For these reasons, it is likely that the Bill would be inconsistent with Australia’s obligations under the GATT 1994."
However, they offer a way out for Australia:
"However, by conditioning the legality of importing timber into Australia on the laws of the place where it was harvested, the Bill would likely cause discrimination between like products, contrary to Australia’s obligations under the WTO Agreement. Moreover, although Australia’s objectives are to protect the environment and promote fair competition in its domestic market, the shifting content of the term ‘illegally logged’ would likely undermine its ability to pursue those objectives in a consistent way. Finally, government-commissioned economic analysis of the Bill is far from supportive, with the CIE Report concluding that its benefits would be slight, its costs significant and its effectiveness limited.124 For these reasons, it is likely that the Bill would be inconsistent with Australia’s obligations under the GATT 1994."
Indonesia and Canada have raised objections to the Bill in their submissions to the Australian Senate Committee. The Bill raises many issues in relation to Australia's WTO commitments:

1. Is the Bill in contravention of various provisions of GATT and TBT Agreements relating to  national treatment and unreasonable restriction of international trade?

2. Is the requirement of "due diligence" imposing an unreasonable restriction as well as treating imported products less favourably than local products? It is a fact that different countries have different standards and law relating to legal logging. Would the requirement of following due diligence of different standards a de facto discrimination?


3. Does the ban on illegally logged timber contravene Article XI (1) of GATT as being a "quantitative restriction" not permitted by GATT?


4. Does the General Exception of Article XX (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption justify the ban on import of illegal logged timber? Is it a disguised restriction on trade and unjustifiable since "same conditions" don't prevail in different countries in relation to laws or prerequisites related to illegal logging.?

5. Is it in violation of Article 2.1 of the TBT Agreement ? Article 2.1 TBT Agreement states:
"Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country."
By treating timber based on the legal regimes of logging in different countries (some being more onerous than others), is it not treating imported imported products less favourable than locally logged timber? For example, if timber logging standards are much more onerous in X than Australia, is it not in violation of Article 2.1?

6. Another question is that can international trade be restricted based on conditions prevailing outside the importing country? Is it an "extra-jurisdictional" measure? Can the illegal logging example be extended to labour standards and human rights implementation? What if  a country bans imports of products from countries where a product is produced in violation of national labour standards? Does it not have the danger of being a "disguised "protectionist tool?

The Australian Illegal Logging Prohibition Bill is not yet passed and hence is not contestable at the WTO. However, the issues being contested throw up interesting issues of international trade law. Are we missing the wood for the trees?













145 comments:

Anonymous said...

From a layperson's point of view, the Bill breaches WTO requirements because:

1. The Illegal Logging Bill's Import Declaration requires importers (and therefore their overseas suppliers) to inform the Australian Government of the the concession, sub-national region of harvest and species of all the timber and wood-components in products (eg in furniture and fibre products such as paper and MDF) . This is not something that is required from Australian manufacturers selling the same product, but one which is made made locally.

2. The"standard of proof" (fault element) that businesses will be required to meet to show their timber isn't illegal is "weaker" for Australian timber ("recklessly, knowingly, intentionally") than for imported timber, which will be judged more harshly ("recklessly, knowingly, intentionally, negligently").

3. This difference in the standard of proof will result in higher costs for importers compared to local processors (ie will act as an import barrier not equivalently applied to local/domestic timber)

Srikar said...

Interesting points. What you are saying is that the onerous conditions treat imported products less favourably than domestic products. The COOL Panel Report findings may have some lessons in this regard.

Anonymous said...

Hi again Srikar,
The "devil will be in the detail". That is, whether the law breaches WTO requirements won't be known until we see the details of the regulations attached to the bill.
But what is the COOL Panel Report?

Srikar said...

Absolutely! The devil is ALWAYS in the details. The COOL panel report is the Country of Origin Labels case that was decided by a WTO Panel recently. The Panel's reasoning May be of relevance when considering the more onerous conditions imported products have to face.

Srikar said...

Absolutely! The devil is ALWAYS in the details. The COOL panel report is the Country of Origin Labels case that was decided by a WTO Panel recently. The Panel's reasoning May be of relevance when considering the more onerous conditions imported products have to face.

Anonymous said...

Dear Srikar,

Thanks, I looked up COOL http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds384_e.htm. It was very interesting.

With regards to the second key finding on this site: "In particular, the Panel found that the COOL measure violates Article 2.1 of the TBT Agreement by according less favourable treatment to imported Canadian cattle and hogs than to like domestic products." -

Do you think the US Lacey Act's Import Declaration Form http://www.aphis.usda.gov/plant_health/lacey_act/downloads/declarationform.pdf would also breach the same article 2.1 of the TBT?

Srikar said...

It would be difficult to comment on the compatability of the Lacey Act declaration without studying the details.
However, generally,I would suppose that if the conditions imposed by the declaration accord "less favourable treatment" to imported products as compared to domestic products (even by affecting the market conditions of the product in the US) and the distinction is discriminatory and not relevant to the regulatory objective, it could be challenged.

Anonymous said...

Hi Srikar,

The Draft Regulations and Draft Statement of Compliance ("Import Declaration") for the Australian Illegal Logging Bill are now available at http://www.daff.gov.au/forestry/international/illegal-logging/consultation-by-the-australian-government

New Zealand, PNG, Indonesia worried about the Bill - see: http://www.radioaustralia.net.au/international/radio/program/pacific-beat/australias-ban-on-illegally-logged-timber-upsets-jakarta-and-png/1007982
and
http://hardwoodfloorsmag.com/editors/blog/default.aspx?id=1401&t=New-Zealand-Nervous-About-Australias-La

The Australian Opposition voted against the bill in the lower house (House of Reps), the bill has gone to the Senate - due for final debate, reading and vote maybe next sitting (next month).

Srikar said...

Thanks for these details. Since the devil is in the details, are the regulations something to be concerned about in terms of WTO compatibility?

Anonymous said...

Yes, the Regulations will contain material that will affect WTO compliance.

For instance, the Regulations will list the products which will be required to have Due Diligence done. This Due Diligence could be costly. If the same Due Diligence isn't required to be done on "like" product of domestic origin, then this will act as a selective trade barrier on the imported product. For instance, if imported furniture is required to have Due Diligence done, but locally made furniture will not. The argument could be made that all the timber used in the furniture has already had Due Diligence done on it, but it’s a lot cheaper and easier to do Due Diligence on a load of logs straight from the bush, or imported timber, than do it for a complex composite item like furniture that could contain wood from tens of different logs, forests and countries, with long supply chains back to such forests.

Additionally, the details of the Due Diligence and Import Declaration requirements will be the main determinants of the COST of Due Diligence. If these costs are very high for imports but not local material (or not even applied to equivalent local material), this would make an even stronger case for a WTO breach.

These articles may also be of interest:
http://www.itsglobal.net/node/217
and
http://ictsd.org/i/news/biores/145029/
and
http://www.illegal-logging.info/uploads/MitchellAyresillegalloggingbill.pdf

Incidently the Bill hasn’t yet got to the Third Reading/debate/vote in the Senate.

Srikar said...

Great points. Thanks for this. Will be looking at this space very keenly!

Anonymous said...

Hi again Srikar,
This article (http://www.timberbiz.com.au/dtn/details.asp?ID=1250) about the Philippines having difficulty exporting to the EU under the EUTR regulatory requirements (European Illegal Logging legislation) indicates that such laws and regulations CAN indeed act as trade restrictions.

Srikar said...

Interesting. Wonder what the similarities between th EU regulation and Australian Bill are? A possible Philippines challenge to the EU regulation as violative of the TBT Agreement?

Anonymous said...

Hi Srikar,

The Illegal Logging Bill passed the Australian Senate on Monday. It has to go through formalities in the House of Representatives and then of being OK'd by the Governor General and then it will become law, in a week or so.

PAPUA NEW GUINEA
Papua New Guinea is considering taking Australia to the WTO - see podcast at http://www.radioaustralia.net.au/international/radio/program/pacific-beat/pngs-timber-authority-concerned-about-new-australian-law-on-logging/1050470

A NEW POINT ON WTO/GATT
The Bill allows for Government to publicly release the identity of importers and their suppliers. Government mandated release of such information means that confidentiality for overseas suppliers cannot be guaranteed, breaching the GATT "Rules of Origin - Article 3: General Agreement on Tariffs and Trade" confidentiality requirement:

"All information which is by nature confidential or which is provided on a confidential basis for the purpose of the application of rules of origin is treated as strictly confidential by the authorities concerned, which shall not disclose it without the specific permission of the person or government providing such information, except to the extent that it may be required to be disclosed in the context of judicial proceedings."

REGULATIONS
The Regulations will be available in about 6 months time. Not a lot is known on what they will include apart from the drafts (link already on this page).

COMPARISON TO LACEY AND THE EUTR
In many crucial aspects the Australian Bill is quite unlike Lacey or the EUTR. The Lacey Act lacks the presumption of guilt that is implicit in the Australian Bill’s Due Diligence requirement to show legality for every import. Nor does Lacey require importers to declare legality on the import declaration (in a sense, that is asking people to perjure themselves, because no-one could ever declare that any product no matter what it was made of, had only been made using 100% legal processes and that “every law” had been complied with at every point on its manufacturing and supply chain. You cannot prove innocence, only guilt!).

Under the Voluntary Partnership Agreement (VPA) system, the EUTR allows exemption from Due Diligence requirements for timber sourced from major supplier countries. The Australian Bill requires that Due Diligence requirements be carried out for all countries because Australia does not have the VPA system. The EUTR also does not have any import declaration requirement. Additionally, neither the EUTR nor Lacey includes strict liability (as in the Civil Provisions section of the Australian Bill).

CIVIL PROVISIONS STRICT LIABILITY
Indemnity insurance costs to cover the Civil Strict Liability (see towards the back of the Bill) would likely be significantly higher for importers than for processors of domestic logs. This is because a domestic log processor could recover costs by suing their (domestic) supplier for selling them illegal logs. However, an importer would have great difficulty in suing his overseas timber supplier, such laws (enabling this suing) may not even exist in his/her supplier country. Additionally, in the case of an Australian processor, the Australian State Governments would be the ones sued by the domestic processor, as most forests are owned by the State Governments. In this sense Australian tax payers and Governments would subsiding the costs of liability for the domestic processor. This will not happen for importers!

Surely this is “unequal treatment/higher costs for importers versus local saw-millers and therefore a breach of WTO rules (a selective trade barrier)?

Srikar said...

Great points. Definitely requires deeper analysis!

Would you like to collaborate on undertaking a detailed study? Email me at srikar.ms@gmail.com if you so wish to.

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