Office of the Minister of Forestry

Chair
Cabinet Policy Committee
 

Illegal Logging and Associated Trade: Evaluation of Regulatory Action

Proposal

  1. I seek Cabinet’s agreement to a work programme on domestic action to address the sale of wood products in New Zealand sourced from illegally harvested forests both within and outside New Zealand.
  2. In November 2006, Cabinet invited the Minister of Forestry to report to POL by June 2007 on:  “the feasibility and practicality of introducing a regulatory requirement for suppliers of timber and wood products in New Zealand to produce a declaration of conformity with the laws and regulations of the country of origin (including New Zealand) as an alternative to a unilateral ban on suspected illegally produced timber and wood imports [POL Min (06) 24/11]”. This paper provides that report back (following an agreed deferral to August 2007).

Executive Summary

  1. Cabinet approved a New Zealand policy to address illegal logging and associated trade in November 2006 [POL Min (06) 24/11]. The policy sets out a framework for action that involves domestic and international engagement to address illegal logging and associated trade related issues.
  2. Informal consultation with forestry sector stakeholders carried out in the first half of 2007 showed considerable support to explore how to exclude illegally sourced wood products from New Zealand. Strong support has been shown across the forestry sector for working through options, including both regulatory and voluntary action, over the next 6 - 8 months. Forestry sector representatives met on 14 June 2007 and agreed on some initial actions to explore further.
  3. The regulatory approach considered in this paper is the introduction of a Supplier’s Declaration of Conformity (SDoC) scheme, whereby timber would be able to be sold in New Zealand only if it met a specified standard of conformance with legality. While the introduction of such a regulatory requirement has a number of benefits and is viewed favourably by many stakeholders, more work is required to establish whether it is the best option for approaching the issue.
  4. Officials are working through a number of identified practical issues involved in this option. A work programme has been put in place to support this process and involves working closely with forestry sector stakeholders. A number of other factors will also need to be addressed in more depth. These include consistency with New Zealand’s WTO obligations, trade policy positions, and relationships with important trade partners.
  5. If a decision were eventually made to go down the regulatory path, then the introduction of a legal requirement for a supplier’s declaration to identify legally sourced wood products would be a world first. A proactive international strategy of engagement would also need to be implemented if New Zealand was to consider introducing such a requirement.
  6. I recommend directing officials to report to Cabinet no later than February 2008 on outcomes of voluntary initiatives, independent research on regulatory and voluntary options and progress on engagement with other countries to help address the issue of illegal logging by seeking to prevent the sale of illegally sourced wood products in New Zealand.

Background

  1. Illegal logging takes place when timber is harvested, transported, bought or sold in violation of national laws. Illegal logging can frequently involve third party countries that purchase and process illegal wood products for re-export. Reasons for New Zealand to be engaged actively in helping to address this problem include:
  • the timber trade, in terms of price and the reputation of timber;
  • global biodiversity;
  • efforts to mitigate climate change through reductions in greenhouse gas emissions; and
  • sustainable livelihoods in developing countries including the human rights and property rights of forest dwelling communities, which can be affected by illegal logging practices.
  1. Research has been undertaken to assess the impacts of illegal logging on New Zealand forestry producers in both domestic and international markets. Results show that this trade distortion causes the New Zealand industry to lose on average NZ$265.5 million of revenue annually. Of this, forest owners will lose $40.8 million, sawmillers $22.1 million, and collectively the panel, pulp and paper industries $202.6 million per annum.
  2. It is highly unlikely, however, that these gains would eventuate from New Zealand acting alone. There is an opportunity for New Zealand to show leadership in this area by demonstrating the feasibility for countries to exclude wood products from sale that have been sourced from illegally harvested forests.
  3. In consultation on how to address illegal logging many stakeholders called for an import ban on all timber and wood products entering the country which could not be proved to be legally-sourced. Some stakeholders also wanted this to extend to wood products that could not satisfy sustainability criteria.
  4. A unilateral ban imposed at the border to exclude illegally sourced wood products was not recommended by officials [withheld under s6 (a) of the Official Information Act 1982]. As an alternative officials were asked to investigate the potential for a requirement for suppliers of wood products in New Zealand to produce a declaration of conformity with the laws and regulations of the country of origin (including New Zealand).

Supplier’s Declaration of Conformity

  1. The Supplier’s Declaration of Conformity (SDoC) (ISO standard 17050) is a process by which a supplier provides written assurance that a product conforms to specified requirements. In New Zealand, SDoC’s are used in a variety of contexts, e.g. under the Radio-communications Act 1989 anyone who manufactures, imports, sells or otherwise supplies electrical products or radio products to the New Zealand market has to produce an SDoC and attach a label to all such products as proof of safety compliance. The SDoC takes the place of testing that would otherwise be done to ensure that the product in question conformed to relevant standards specified in New Zealand law.
  2. A key feature of such a framework is that the initial point of intervention rests with the supplier, rather than the regulatory authority. In the case of timber, the supplier would have to ensure that a wood product was sourced from a legally harvested forest and sign a supplier’s self-declaration to this effect before selling it in New Zealand. This would be a novel use of the SDoC approach, and would require the supplier to examine the timber and accompanying documentation for evidence of compliance with a standard or other “reference point” of some kind.
  3. Analysis has shown that whilst there are potential benefits to this kind of regulatory approach there are also a number of practical difficulties:

Potential benefits

  • reinforces the message that New Zealand will not support illegal logging;
  • supports producers and suppliers who are legally and sustainably producing wood products;
  • provides exporters the opportunity for legal conformance labelling for exported wood products;
  • provides a less resource-intensive type of regulatory approach (because the point of intervention rests with the supplier)- the industry has a stake in ensuring that it works and a de-facto self-regulation may occur;
  • places the burden of responsibility with the supplier who is the best placed to ensure that wood products are sourced from legally harvested forests;
  • offers flexibility in implementation because an SDoC approach allows changes to the regulation to be gazetted relatively easily;
  • does not discriminate against the country of origin; and
  • reduces undermining of suppliers who are already verifying the legality of wood products by other suppliers selling cheaper wood products that are not, or cannot be, verified as legally sourced.

Potential issues and practical difficulties

  • [withheld under s6(a) of the Official Information Act 1982]
  • [withheld under s6(a) of the Official Information Act 1982]
  • [withheld under s6(a) of the Official Information Act 1982]
  • possible high transaction costs for legal producers and suppliers;
  • need for a well-resourced regulatory authority to provide information, education, enforcement and auditing activities;
  • needs to ensure that duplicitous behaviour like fraudulent documentation can be addressed; and
  • consistency with international obligations and trade policy settings would need to be addressed.
  1. These issues need to be addressed before any regulatory approach could be recommended and this will require collaboration with the forestry sector. Assuming they can be resolved, an overall assessment will then need to be made on the costs and benefits of such an approach.

Other options

  1. Alternatives to a regulatory approach are also being considered. These are not mutually exclusive to the regulatory option.

Voluntary forest sector approach

  1. There is interest across the forestry sector to begin work immediately on voluntary approaches. It should be noted that the majority of interested stakeholders see this as a first step towards a regulatory option. A meeting was hosted by the Ministry of Agriculture and Forestry (MAF) on 14 June 2007 to discuss options. Representatives from major forest industry bodies, wood importers, large retailers and NGOs attended.
  2. The main response from this group was that a level playing field was needed for suppliers to operate in. Those that were considering taking on additional costs for verification of legality of wood products (or had already done so) were concerned that other suppliers were able to undermine their efforts by selling cheaper wood products that were not, or could not be verified as, legally sourced.
  3. The outcome of the meeting was agreement on the need to progress work in a number of areas:
  • encouraging major suppliers of wood products who are not currently taking action to be a part of the forestry sector group on illegal logging;
  • gaining agreement on what would constitute verification of legally-sourced wood products;
  • developing information for consumers on the merits of legally and sustainably-sourced wood products;
  • working together with government to assess the feasibility and practicality of regulation.
  1. The Timber Importers Association, which represents about 70 per cent of the tropical wood brought into the country, is beginning to scope opportunities for a voluntary legality standard on all wood its members sell.

Voluntary Partnership Agreements

  1. Voluntary partnership agreements (VPA’s) are bilateral agreements being negotiated between the European Union (EU) and a number of timber-producing developing countries. Such agreements would aim to help participating producer countries improve their governance and law enforcement and help them implement a licensing system to ensure that they only export legal timber to Europe. Malaysia, Indonesia, Cameroon and Ghana are currently in discussions with the EU on possible agreements.
  2. New Zealand could aim to develop similar arrangements with countries or work with such partnerships to leverage off agreed methods for verifying legality. However, such partnerships are expected to take considerable time to negotiate, and could involve significant amounts of financial assistance for capacity building. Officials are assessing this and other bilateral options as part of an international strategy on illegal logging.

WTO and Wider Trade Implications

  1. [withheld under s6(a) of the Official Information Act 1982]
  2. The WTO Agreement also requires products which have identical physical characteristics to be treated the same. [withheld under s6(a) of the Official Information Act 1982]
  3. [withheld under s6(a) of the Official Information Act 1982]
  4. [withheld under s6(a) of the Official Information Act 1982] New Zealand imports a negligible amount of the global volume of illegally logged wood products, though New Zealand is a very significant market for wood products from some Pacific countries, such as Solomon Islands, [withheld under s6(a) of the Official Information Act 1982]

Preliminary feedback from stakeholders

  1. Informal discussion with representatives of New Zealand forestry producers, processors, importers, major retailers and NGOs has shown preliminary support for exploring both voluntary and regulatory options. The majority of these stakeholders, however, support regulatory action as the ultimate outcome if voluntary measures prove ineffective or if there is no progress at an international level on addressing illegal logging.  

Research

  1. Given the complexities of introducing a regulatory approach, MAF is commissioning an independent report to explore in-depth the feasibility and practicality of a supplier’s declaration regulatory framework. A survey of current policies and practices employed by suppliers to determine legality of supply will also be carried out. This is expected to be completed before December 2007. Researchers will work closely with members of the forestry sector.
  2. MAF has commissioned a research project assessing the economic impacts of illegal logging on New Zealand producers on both domestic and international markets. This research is significant and its in-depth treatment and analysis of the economic impacts of illegal logging will likely generate considerable interest within and outside New Zealand. This research is due to be released in August 2007.

Next Steps: Proposed Work Programme

  1. Implementation of the following work programme over the next 12 months is proposed:

Key theme Supporting action Time period for action
Underpinning research and provision of information Complete economic analysis on the impacts of illegal logging on New Zealand producers in international and domestic markets. Completion August 2007
Independent study on practicality of regulatory and voluntary supply chain requirement for legality. Completion December 2007
Summary of current private-sector wood procurement policies. Completion December 2007
Evaluation of the effect of voluntary initiatives to ensure wood sold in New Zealand is sourced from legal sources. Completion December 2007
Working with forestry sector stakeholders MAF host and provide secretariat services to high-level forestry sector group exploring voluntary-led initiatives; June 2007 and ongoing
Engagement with other countries Implement international strategy on illegal logging, after agreement by Ministers. October 2007 and ongoing.
[withheld under s6(a) of the Official Information Act 1982] October 2007 and ongoing.
Review and report Assessment of information, progress and recommendations for future action to Cabinet. February 2008

Linkages with other government programmes

  1. The work proposed in this paper links with:
  • domestic policy on the sustainable management of New Zealand forests;
  • the Government’s broader international forestry work;
  • international climate change policy, specifically work under the UNFCCC on avoided deforestation;
  • NZAID’s programmes, including its environmental programme with its focus on good governance and environmental sustainability; and
  • Government policy on sustainability and eco-verification.

Consultation with stakeholders

  1. As well as involving New Zealand stakeholders, exploring options at an international level through bilateral, regional and international work is vital. Building relationships with other countries to tackle illegal logging relies on producer and consumer countries working in partnership to address the problem from both production and demand perspectives. Consultation with other countries will therefore be a key part of future action.

Consultation with other departments

  1. The following departments and agencies have been consulted during the preparation of this paper: Ministry of Foreign Affairs and Trade, Department of Conservation, New Zealand Customs, Ministry for the Environment, Treasury, New Zealand Agency for International Development, Ministry of Economic Development and Te Puni Kokiri.

Financial implications

  1. Funding to implement the proposed work programme can be covered by departments’ baseline funding. Financial implications arising from recommendations in the report back to Cabinet in February 2008 would be presented for consideration as part of the Budget 2008 process.

Human rights

  1. There are no human rights implications associated with this paper.

Regulatory impact and compliance cost statement

  1. A regulatory impact and compliance cost statement is not needed at this point.

Recommendations

  1. I recommend that the Committee:

1. note that Cabinet invited the Minister of Forestry to report to POL by June 2007: “on the feasibility and practicality of introducing a regulatory requirement for suppliers of timber and wood products in New Zealand to produce a declaration of conformity with the laws and regulations of the country of origin (including New Zealand) as an alternative to a unilateral ban on suspected illegally produced timber and wood imports” (following an agreed deferral to August 2007);

2. note that analysis of the economic impacts of illegal logging on New Zealand forestry industry in both domestic and international markets will be released in August 2007 and will likely generate considerable domestic and international attention;

3. note that stakeholders across the forestry sector met in June 2007 to discuss voluntary sector-led approaches to address trade in illegally sourced wood products and that there was agreement amongst members of this group to progress work in a number of areas, including:

  • encouraging major suppliers of wood products who are not currently taking action to be a part of the forestry sector group on illegal logging;
  • gaining agreement on what would constitute verification of legally-sourced wood products;
  • developing information for consumers on the merits of legally and sustainably-sourced wood products; and
  • working together with government to assess the feasibility and practicality of regulation.

4. note that the Ministry of Agriculture and Forestry (MAF) will assist the process described in paragraph (3) by providing secretariat support;

5. note that, whilst there may be significant benefits from a regulatory approach to excluding sale of wood products sourced from illegally harvested forests, there are a number of practical difficulties and further work is needed to address these and to assess the overall benefit to New Zealand of such an approach;

6. agree to a programme of work over the next 8 months that focuses on completing key underpinning research, information dissemination and working with forestry sector stakeholders;

7. note that part of this programme of work will include engagement with other countries in line with the recommendations of the (separate) international strategy on illegal logging once that has been considered by Ministers;

8. note that officials will be reporting to the Ministers of Forestry, Trade, Foreign Affairs and Conservation with an international strategy for illegal logging by 30 September 2007;

9. [withheld under s6(a) of the Official Information Act 1982]

10. invite the Minister of Forestry and Minister of Trade to report to POL by February 2008 on the outcomes of voluntary sector-led initiatives, independent research on regulatory and voluntary options and progress on engagement with other countries, in line with the international strategy, to address the issue of illegal logging by seeking to prevent the sale of illegally sourced wood products in New Zealand.

Jim Anderton
Minister of Forestry

Contact for Enquiries

Senior Policy Analyst
International Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND

Phone: +64 4 894 0650
Fax: +64 4 894 0742

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