Legislative options and conclusions

6.1 Full Commonwealth imported food regulation
6.2 Co-regulation (partnership)
6.3 Industry codes of practice
6.4 No Commonwealth imported food regulation
6.5 Optimum legislative solution
6.6 Conclusion

The Review Committee considers that there is a regulatory spectrum available to assist the achievement of policy goals. It consists, not of a limited number of defined approaches, but a continuum of potential solutions, ranging from full regulation, through such measures as quasi-regulation (including co-regulation), self regulation, market-based instruments, and information and education campaigns, to no regulation or specific action at all. 

This section provides detail on the four principal regulatory options:

• full Commonwealth imported food regulation, including licensing of food importers;
• co-regulation (partnership between the Commonwealth and the imported food industry);
• industry codes of practice; and
• no Commonwealth imported food regulation.

In each case, the advantages and disadvantages for the Commonwealth government, the imported food industry and the community (defined as the nation as a whole — particularly consumers, food processors and food exporters using imported ingredients, and State/local governments) are presented, with additional detail provided on the impact of the particular model for regulation.

In view of the difficulties encountered in undertaking a full cost–benefit analysis of IFIP (see Section 5), it was not considered feasible to attempt a cost–benefit analysis of each of the legislative options described in this section. The Review Committee therefore decided only to identify, in general qualitative terms, advantages and disadvantages of the four options. Comparisons are with the administration of the Imported Food Control Act as it now stands.

All food sold in Australia is required to comply with the Food Standards Code, irrespective of the existence of the Imported Food Control Act. Any reduction in impact of the Act would throw responsibility for enforcement of the Food Standards Code onto States and local authorities, and would probably result in a reduction in Australia’s effectiveness in dealing with imported foods.

6.1 Full Commonwealth imported food regulation

6.1.1 Description of arrangement

A move to full regulation would entail the introduction of licensing of food importers and probably a more rigorous inspection and testing regime in terms of frequency of inspections. The Commonwealth would assume responsibility for administering the licensing system and would continue to enforce compliance of imported foods with the Australian food standards. The likely advantages and disadvantages of this arrangement are summarised in Table 6.1.

Table 6.1 Advantages and disadvantages of full Commonwealth imported food regulation

                                                                                                                                         

Commonwealth Government	Imported Food Industry	Community
Advantages
Greater control of imported food sector through licensing	Full government regulation should result in more predictability and transparency for importers	Perception of greater food safety by consumers         Potential for greater transparency and accountability
Disdvantages
Arrangements may not properly recognise industry capability           and maturity and may thus promote sub-optimal solutions         Greater reliance on inspection may hamper innovation in securing compliance from industry through less prescriptive means         More resource-intensive to manage licensing and more inspections         Potentially inconsistent with WTO principles	Arrangements may not properly recognise industry capability and maturity and may thus promote sub-optimal solutions         More costly         Less flexible         Licensing may adversely impact on competition through restricting entry to the industry	Higher imported food prices through greater cost of operation of scheme         Less consumer choice because of higher costs, restricted imports         May result in inconsistent treatment of imported food compared to domestic food         Potentially inconsistent with WTO principles         Higher costs to food manufacturers using imported ingredients         Could lead to resource misallocation

6.1.2 Impact

• Costs of IFIP to industry would include higher direct costs, eg, testing and inspection fees and probably new registration charges, and higher indirect costs such as stockholding costs.

• The scheme would be too prescriptive and may stifle attempts by industry or individual companies to be innovative and introduce their own quality assurance systems.

• Additional costs and licensing requirements may create barriers to entry and result in reduced competition in the food importing sector.

• The price of imported foods is likely to rise, whilst food choice may be reduced.

• Government control over industry would be enhanced but licensing reviews and decisions by authorities will increase workload and may lead to contested outcomes that could be expensive for both the government and industry.

• The scheme may afford domestic food processors a greater than warranted level of protection and could become — or be perceived as — a barrier to trade.

• The effectiveness of the current scheme indicates that a move to greater regulation, including licensing, would not be justifiable. A full regulatory scheme would increase costs and is unlikely to lead to any additional benefits.

6.2 Co-regulation (partnership)

6.2.1 Description of arrangement

It is assumed that under this option the Australian food standards are retained and that importers of food need to meet these standards. In the strict sense of the term, the option described here cannot be defined as co-regulation because it does not go as far as allowing industry to develop its own code or standard which is then ratified by the government (ORR 1997). Co-regulation here means the continuation of the existing arrangement where government sets the food standards and AQIS is responsible for their enforcement for imported foods, but allows firms with a proven record to conduct their business without having to be subject to the normal inspection and testing arrangements. Under this system the means for achieving compliance are more flexible.

Companies able to demonstrate that they have systems in place which can ensure that the foods imported are safe and meet labelling requirements, will be allowed to operate subject to a lower level of inspection and testing. The development of such a system is linked to the development of certification agreements and pursuit of equivalence with exporting countries, and relies on a much more flexible inspection regime to provide an economic incentive to encourage importing companies to participate in such an arrangement. Audits administered by the Government will need to be carried out to monitor the performance of the importers that choose to operate under this system. A higher frequency of audits or a stricter inspection regime can be introduced for companies that are found not to comply with the food standards. The likely advantages and disadvantages of the partnership approach are summarised in Table 6.2.

Table 6.2 Advantages and disadvantages of co-regulation (partnership)

                                                                                         

Commonwealth Government	Imported Food Industry	Community
Advantages
Retention of legislative imperative by Commonwealth         Sharing responsibility with industry         More effective as it is outcome driven         Better enforceability through use of administrative sanctions against           non-compliance         Reduction in pressure on State/local authorities         Reflects current Government policy	More interactive, with industry participation in the definition of systems         Assumption of greater responsibility will encourage industry maturity         Opportunity for industry to develop and implement systems that suit their particular circumstances but still secure compliance         Lower costs in the medium to long term as quality systems are bedded down         Reduction in legislative prescription         Outcome-oriented, as companies will be able to develop systems and processes to achieve the desired results	Government still involved with food safety through regulation and audits         Uniform approach between domestic and imported food sectors         Australian food exporters continue to have imported inputs validated by Government         Potential benefits from efficiency and effectiveness as optimal solutions are derived through the partnership process

Table 6.2 continued

                                                                                         

Commonwealth Government	Imported Food Industry	Community
Disadvantages
Assurance will not rely on detailed, direct control         More complex auditing systems may need to be developed	Possible increases in company costs in the short term as they develop quality assurance systems         Perceived attenuation of Government control through lessening of "direct"           involvement         More care will need to be exercised in relation to interpretation of regulatory requirements	Perceived attenuation of Government control through lessening of "direct" involvement         Potential for some loss of confidence

6.2.2 Impact

• Greater flexibility for companies to put in place arrangements that suit their particular circumstances best, while still delivering the desired outcomes.

• Emphasis on outcomes is consistent with the current focus of domestic food regulation and developments in food processing.

• Integration with industry structures in a partnership approach is likely to lead to improved effectiveness.

• Sanctions for non-compliance are administrative and therefore less challengeable and easier to enforce. Non-compliance becomes costly for industry as the rate of audits/inspections increases. This provides a strong incentive for industry to comply.

• Lower government costs for all spheres of government are likely because lower levels of Commonwealth (AQIS) inspections need not lead to a corresponding increase in inspection by other governments.

• Given the relatively low impost of IFIP on industry, some firms — particularly smaller importers — may prefer to continue operating under the current inspection system. For firms already operating under quality systems there are likely to be savings due to the interaction of their own systems and QA-type systems designed to meet AQIS requirements.

6.3 Industry codes of practice

6.3.1 Description of arrangement

Under this arrangement IFIP would be wound up, although some basic Commonwealth legislation may be retained to permit a supervisory role for the Commonwealth and to ensure that the industry codes of practice are observed. The imported food industry would develop and adopt its own code of practice to ensure compliance with the Australian food standards and would police the conduct of companies. Compliance may be achieved by adoption of ISO standards. The likely advantages and disadvantages of industry codes of practice are summarised in Table 6.3.

6.3.2 Impact

• Under this option the imported food sector would not in effect be deregulated, although the Commonwealth would substantially withdraw from enforcing the food standards.

• The substantial withdrawal of the Commonwealth may cause the States and local governments to perceive the need for some intervention, although the voluntary standards applying to industry would assist.

• If States decide to replicate the Commonwealth’s arrangements under IFIP, there would be no material change for importers or the community, depending on how much reliance is placed on industry systems. States may be worse off as they would have to expend their own resources to monitor the scheme. There would be the loss of the ability to enter into agreements with overseas countries at a national level.

• To the extent that the States decide to replicate the Commonwealth’s arrangements under the Imported Food Control Act, the incentive for industry to adopt and police a code of conduct will be proportionally reduced.

• The costs of IFIP on an industry-wide basis are relatively small, therefore the costs savings for deregulation are unlikely to be large.

• Industry efforts could be jeopardised by opportunistic or marginal operators who have no long term stake in the food sector and hence can see no benefit in conforming with the association’s voluntary code.

Table 6.3 Advantages and disadvantages of industry codes of practice

                                                                                                                                             

Commonwealth Government	Imported Food Industry	Community
Advantages
Minimal resources for Commonwealth         Decrease in amount of responsibility and controversy         Some government involvement possible in setting up of standards	Very flexible         Assumption of responsibility by industry         Company control over processes	Possibly cheaper imports         Possibly more consumer choice
Disadvantages
Loss of Commonwealth control         Not enforceable         Loss of information to formulate policy         Government may still be held responsible for an imported food-based           disease outbreak	Loss of Commonwealth Government assurance ("safety blanket")         Heavy commitment of resources required (all internal mechanisms)         Exposure to more commercial risk         No check on "fairness" of code, industry self-interest might take over         Possible restrictions on competition (eg, associations may restrict membership)         Importers have little influence over food manufacturing processes in foreign countries, hence may be unable to prove adherence with required standards	Loss of Commonwealth Government assurance/control         Potential pressure on State and local authorities to maintain inspections/testing         Greater variability in application and effectiveness         Competitive disadvantage to domestic industries (higher costs of establishment inspection compared to border inspection)         Reduction in community involvement by inability to participate or have input to government-based "public" process         Loss of accountability and transparency         Potential increase in illness due to higher food risk

• If the level of testing and inspection is reduced or becomes more ad hoc, there could be:

• Non-compliance may not be discovered until after contaminated food has been released in the marketplace.

6.4 No Commonwealth imported food regulation

6.4.1 Description of arrangement

In the context of this analysis, deregulation means repeal of the Imported Food Control Act. It does not mean that imported food would be subject to no regulations in terms of being exempt from meeting Australian food standards. In the absence of the Act, imported foods would still have to comply with the food standards but enforcement of the standards would probably occur at State or local government level. Such an arrangement would involve inspection at retail or wholesale point of sale. Effectively this system would take the imported food sector back to the situation that existed in Australia prior to the existence of the Act. The likely advantages and disadvantages of this option are summarised in Table 6.4.

6.4.2 Impact

• Under this option the imported food sector would not in effect be deregulated, although the Commonwealth would withdraw from enforcing the food standards.

• The responsibility for upholding the food standards would revert to the States and local governments.

Table 6.4 Advantages and disadvantages of no Commonwealth imported food regulation

                                                                                                                                             

Commonwealth Government	Imported Food Industry	Community
Advantages
Lower commitment of Government resources	Assumption of control and responsibility         Simple         Flexible, possible reduction in industry costs	Lower prices         Possibly greater product choice
Disadvantages
Criticism of Government for abrogating responsibility in relation to public food safety         Lack of control generally, and in relation to emergent imported food risks in particular         Government may still be held responsible for an imported food-based disease outbreak         Lack of information to formulate policy	Loss of Government assurance         Exposure to more commercial risk in a potentially less stable marketplace         Possible loss of confidence in imported foods         Some firms may not act in the best interests of industry overall, and may operate unchecked         Loss of "blanket" assurance as part of a government-regulated industry         Reduction in the ability of small firms to identify risks with the loss of the government information and education process	Loss of Commonwealth Government assurance at the barrier         Likely increased pressure on State and local government to maintain  inspections/testing         Greater variability in application and effectiveness         Probable higher recall rate, undermining public confidence on safety of food         Increased risk of food-borne illness from imported foods         Higher level of litigation         Loss of accountability and transparency         Competitive disadvantage for local producers

• If States replicate the Commonwealth’s arrangements under IFIP, there may be no material change for importers or the community. States may be worse off as they will have to use their own resources to manage the scheme, or they may lack the resources to do so. Net costs to industry may rise or fall depending on how efficiently these governments fulfil that role. It should be noted that the cost of IFIP on an industry-wide basis is fairly small, therefore the costs savings for deregulation are unlikely to be significant.

• Abolition of border testing and inspection may result in:
  
  • a small reduction in prices and greater choice of imported food;
    
  • a possible decline in the level of consumer protection, accompanied by an increase in food-borne disease incidence;
    
  • an increase in recalled foods and an erosion of public confidence in imported foods;
    
  • the possibility of precipitation of outbreaks of food-borne illness through contaminated or sub-standard foods finding their way to consumers;
    
  • in addition to costs of treating, investigating and controlling these illnesses, these outbreaks could have severe repercussions on the entire affected sector of the industry, given consumer perceptions of food as a generic rather than differentiated product;
    
  • complaints from domestic food processors that these arrangements put them at a disadvantage;
    
  • the loss of the ability to enter into agreements with overseas countries (at a national level) to ascertain safe processing and transport.

• Non-compliance may not be discovered until after contaminated food has been released in the marketplace.

6.5 Optimum legislative solution

Food regulation carries a strong public interest element because of major human health concerns associated with the sale and consumption of unsafe foods. Regulation of the food sector stems from the existence of market failure as market forces alone cannot deal effectively with the food safety issues. Accordingly, the Review Committee does not consider deregulation to be a viable option. Furthermore the Committee considers that health risks associated with possible non-compliance are serious enough to preclude reliance on a code of practice to secure compliance with the Australian food standards. On the other hand, the current effective mode of operation of the imported food sector indicates that full regulation may be too intensive an approach.

The Committee’s preferred option is that of a partnership approach with industry, as presented in Section 6.2. Such an approach balances a minor attenuation in Commonwealth control with an interactive relationship with industry, recognising and encouraging industry maturity and responsibility as the soundest way of ensuring compliance with Australian public health and safety standards. In the Committee’s opinion, the partnership approach, through the development of compliance agreements based on quality assurance type arrangements by food importers and greater use of certification and equivalence agreements, is desirable both in its own right, and for reasons of consistency with current developments in the domestic food sector.

In reaching this conclusion the Review Committee is aware that IFIP does not impose a large cost burden on the food importing industry as a whole. Therefore, quality assurance arrangements may be not be taken up by some sections of the industry, especially where significant up-front costs have to be incurred in developing QA or HACCP-based programs. This option would become more attractive to industry where its introduction by an importer is accompanied by a significant reduction or even elimination of border inspections by IFIP.

Moreover, the preferred solution is in close alignment with the specifications of the Office of Regulation Review (1998), which was the view that regulation should be considered where "the problem is high risk . . . for example, a major public health and safety issue", and where "universal application is required".

6.6 Conclusion

The Review Committee has concluded that the Imported Food Control Act should be retained to provide for the compliance of imported food with Australian public health and safety standards, and that a partnership approach between government and industry be developed to enhance the effectiveness of the legislation. All stakeholders contacted by the Review emphasised the necessity for the legislation and there is strong stakeholder support for a partnership (or co-regulatory) approach, to be developed in consultation with industry.

The recommendations of the Review are designed to strengthen the effective and equitable discharge by AQIS of its responsibilities under the legislation and incorporate a number of legislative changes. The recommendations for legislative change have been made where it has been concluded that this is the most effective method, or where there is no readily available alternative.

The partnership approach will encourage industry to take greater responsibility for food safety while, at the same time, retaining government assurance over the food importing system through regular government-controlled audits. The recommendations put forward by the Review will increase the flexibility of the imported food regulatory system to respond to change and are consistent with developments occurring in national food regulation and advances in food processing and food safety. Of particular significance will be the shift away from border inspection and end-point testing toward greater reliance on quality assurance-type systems under compliance agreements with importers.

There is also a need to enhance consultation between government and industry. Implementation of the changes recommended in this Report will benefit from detailed consultation with stakeholders. Because of the dynamic nature of the food safety environment, the Review Committee has concluded that appropriate legislative and administrative practices will be achieved from regular monitoring through the partnership process.

The Review Committee considered how the new program will reinforce Australia’s compliance with international requirements for imported food control systems, outlined in the SPS and TBT Agreements. Imported food must continue to comply with requirements of the Food Standards Code, as does food produced domestically for the Australian market. The responsibilities of AQIS and ANZFA in the imported food control system are and will remain clearly defined in the Imported Food Control Act. Through strengthened certification agreements, food safety controls in exporting countries — which are capable of assuring safe food complying with the Food Standards Code — will be recognised in order to simplify imported food controls applied in Australia. The Committee also recommended improvements in the system in order to achieve greater transparency, and to ensure that the system is truly risk and performance based.

The Review Committee is confident that the suite of recommendations put forward in this Report addresses the major concerns of stakeholders through attention to such factors as:

• increased industry responsibility and the use of compliance agreements with the importer, based on quality assurance-type systems;
• greater flexibility to adopt the method of compliance which best suits an importer’s operations;
• improved targeting of resources through greater use of risk profiling and performance-based testing;
• simplification of the inspection system by reducing the inspection classifications (categories) from three to two;
• reduction in incorrectly referred food through improved methods of dealing with labelling failures and enhancement of the tariff code system;
• increased contestability in the market for laboratory services;
• improved communication through a reconstituted consultative body and enhanced communication strategies;
• better management and operational effectiveness through the development of performance indicators and improved training of staff; and
• more appropriate enforcement.

Implementation of the Review Committee’s recommendations will provide the basis for a more effective, efficient and equitable imported food safety system. Development of a partnership approach will result in benefits not only to industry and government but also to consumers.