Authors: Mihir Gupta and Beau Hug
In January 2015 the Department of Agriculture and Water Resources engaged the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) to undertake research to inform the ‘Independent review of the impact of the illegal logging regulations on small business’ (the review). The Australian Government announced the review on 1 December 2014, and it was conducted by independent consultant KPMG.
The Illegal Logging Prohibition Act 2012 (the Act) came into effect in Australia in November 2012, making it a criminal offence to intentionally, knowingly or recklessly import or process illegally logged timber or timber products in Australia. The Act is supported by the Illegal Logging Prohibition Regulation 2012 (the Regulation), key elements of which came into effect on 30 November 2014. The Regulation requires importers and processors to carry out due diligence checks, including gathering information about the wood products, assessing the risk that the products have been illegally logged, mitigating the risk and declaring to the Australian Border Force that the due diligence process has been followed. Timber import consignments with a value of less than AUD$1,000 are currently exempt from the requirements. Products made of recycled materials and packaging material used to support, protect or carry another product are also outside the scope of the due diligence requirements.
The list of regulated timber products is specified in the Regulation. Each regulated product is defined using the 2012 edition of the World Customs Organization (WCO) Harmonised System (HS) nomenclature. The regulated products fit within Chapter 44 (wood articles), Chapter 47 (pulp), Chapter 48 (paper) and Chapter 94 (furniture) of the HS nomenclature.
This report builds on previous ABARES work (Gupta & Hug 2013) on the Regulation. It investigates differences in characteristics of importers of regulated timber products for four different business size categories:
- category 1—businesses with turnover of less than $2 million
- category 2—businesses with turnover of $2 million to $5 million
- category 3—businesses with turnover of $5 million to $10 million
- category 4—businesses with turnover of more than $10 million.
Importers who would have met the due diligence criteria set out in the Regulation in 2012, who had a valid Australian Business Number (ABN) and for whom the ABS had turnover data are categorised into one of these four business size categories and referred to as ‘businesses’ in this report.
ABARES also conducted sensitivity testing to examine the potential impact of changes to the Regulation’s key eligibility criteria.
Number of importers by size of business
If the Regulation had been in place in 2012, 17 254 importers would have had to undertake due diligence. Of these, 6 633 category 1 businesses, 2 088 category 2 businesses, 1 338 category 3 businesses and 3 108 category 4 businesses that imported consignments would have met the criteria described in the Regulation. Another 4 087 category 5 importers without usable turnover data would have imported regulated timber products (RTP) and met the Regulation criteria.
Value of regulated timber products imports
The total value of selected RTPs in 2012 was $5.6 billion, excluding the value of regulated chapter 47 (pulp) products. The majority of businesses importing RTPs were category 1 size businesses, but these businesses accounted for the lowest proportion of the total value of RTP imports. Category 4 businesses accounted for nearly 80 per cent of the total value.
In 2012 the Australian forest and wood products statistics (AFWPS) product category ‘wooden furniture’ accounted for the largest proportion of total value of RTP imports for category 1, category 2 and category 3 businesses. The ‘paper and paperboard’ category accounted for the majority of total value of RTP imports for category 4 businesses. Compared with businesses in other categories, category 4 businesses also imported large value imports of regulated panel products and ‘prefabricated buildings’.
The average value per consignment for category 1 businesses was around $14 400 compared with $38 300 for category 4 businesses.
Trade flows between Australia and primary source countries
Businesses from all four business size categories imported a variety of timber products from a wide range of countries. Category 1 and category 2 businesses shared a number of similarities in the regulated timber products they imported and the source countries for their imports. Some similarities in these characteristics were also found when comparing category 3 and category 4 businesses. However, in general, category 4 businesses imported timber products from a wider range of countries than businesses in other categories.
The top 10 countries (by value) accounted for 87 per cent of total value of RTP imports for category 1 and category 2 businesses. For category 3 and category 4 businesses, the top 10 countries accounted for 82 per cent and 79 per cent of total value of RTP imports respectively.
China was consistently the primary source country across all business size categories based on total value of RTP imports and percentage of importers importing from a particular country. Chapter 94 (furniture) products accounted for the majority of value of RTP imports from China.
Indonesia and Malaysia were consistently in the top three source countries for value of RTP imports for category 1, category 2 and category 3 businesses. For category 4 businesses, New Zealand was ranked second and Indonesia third by value of RTP imports. Regulated timber products imported from Indonesia and Malaysia were primarily from chapter 44 (wood articles) and chapter 94 (furniture) respectively for all business size categories. New Zealand was the major source country for Australian imports of chapter 44 (wood articles) products.
Sensitivity testing of value thresholds
ABARES conducted extensive analysis of the impact of changes to the existing consignment value threshold in the Regulation. It also analysed the effects of alternative value thresholds such as an importer value threshold or a combined consignment and importer value threshold.
Overall, findings suggest that a change in the value threshold for due diligence could significantly reduce the total number of importers affected by the Regulation without significantly reducing the total value of RTP imports. For example, based on 2012 data, using a $10 000 consignment value threshold in place of the existing $1 000 consignment value threshold would decrease the number of importers affected by the Regulation by 57 per cent but reduce the value of RTP imports by only 4.6 per cent.
However, further analysis of alternative value thresholds for due diligence is required. The value of RTP imports can act as a proxy for the scope or coverage of the Regulation, but a number of other criteria could be considered when examining the effectiveness of the Regulation. Detailed analysis of value thresholds could include testing to determine the relative trade-offs between coverage of import value and number of importers regulated across a range of alternative thresholds. Additional analysis of exempted consignments and importers to investigate characteristics such as frequency of import and primary source countries may also prove useful.