1. 1 The Reform of Public Timber Procurement in Japan Federico Lopez-Casero Henry Scheyvens Kimihiko Hyakumura Forest Conservation Project Institute for Global Environmental Strategies (IGES) Chatham House Illegal Logging Update and Stakeholder Consultation 20 July 2006

2. 2 Overview 1.Japan’s role in timber trade 2.Japan’s response to illegal wood imports 3.Legal and policy context of the public procurement (PP) reform 4.Reform of timber procurement policy 5.Definitions and Verification Modalities 6.Policy Implementation: a) domestic; b) imported timber 7.Preliminary observations: a) certification / legality verification schemes and b) addressees 8.Conclusions

3. 3 1. Japan’s role in timber trade Total timber demand in Japan is about 89 million m 3 p.a., of which roughly 80% are imported (world’s 3 rd largest importer)Total timber demand in Japan is about 89 million m 3 p.a., of which roughly 80% are imported (world’s 3 rd largest importer) Source: FRA (2005) Largest importer of tropical plywood: 4.6 million m 3 in 2005Largest importer of tropical plywood: 4.6 million m 3 in 2005 3 rd largest importer of tropical logs: 1.6 million m 3 in 20043 rd largest importer of tropical logs: 1.6 million m 3 in 2004 Russia is now Japan’s main log supplier: 11 million m 3 in 2004Russia is now Japan’s main log supplier: 11 million m 3 in 2004

4. 4 2. Japan’s response to illegal wood imports Since the G8 Summit in 2002, Japan has repeatedly expressed its commitment to tackle illegal loggingSince the G8 Summit in 2002, Japan has repeatedly expressed its commitment to tackle illegal logging “We will not use timber that has been produced illegally” (Forestry Agency 31.03.2005)“We will not use timber that has been produced illegally” (Forestry Agency 31.03.2005) Government stresses financial/administrative support to international organisations and producer countriesGovernment stresses financial/administrative support to international organisations and producer countries Low engagement of private sector:Low engagement of private sector: – Only 12% of 115 firms claimed to make any effort to assess the legality of the procured timber (survey by JFWIA) Potential of PP reform to force a response from the private sector:Potential of PP reform to force a response from the private sector: – Public sector: 3% of total wood procurement （ estimated)

5. 5 3. Legal and policy context of PP reform “Green Purchasing Law”: Law Concerning the Promotion of Procurement of Eco-Friendly Goods and Services by the State and Other Entities of 2000 (Law No. 100/2000), enacted January 2001“Green Purchasing Law”: Law Concerning the Promotion of Procurement of Eco-Friendly Goods and Services by the State and Other Entities of 2000 (Law No. 100/2000), enacted January 2001 Basic Policy for the Promotion of Procurement of Eco- Friendly Goods and Services:Basic Policy for the Promotion of Procurement of Eco- Friendly Goods and Services: – Identifies specific items for public procurement – Revised on 1 April 2006 by including: ◦Legality as a “criterion for evaluation” ◦Sustainability as a “factor for consideration” – Refers to “Guideline for Verification on Legality and Sustainability of Wood and Wood Products” formulated by the Forestry Agency

6. 6 4. Reform of timber procurement policy “Guideline for Verification on Legality and Sustainability of Wood and Wood Products”:“Guideline for Verification on Legality and Sustainability of Wood and Wood Products”: − Prescribes modalities to verify legality and sustainability − Aims to “promote verified products as appropriate items for procurement” of the public sector − Is mandatory for central-level ministries/agencies, Diet, courts and independent administrative institutions, but also addresses local government and administration − Gives the suppliers a lot of leeway when verifying legality − Includes revision process based on multi-stakeholder consultation (exploratory committee and working groups)

7. 7 5. Definitions and Verification Modalities Legality (Criterion for evaluation):Legality (Criterion for evaluation): Timber “should be harvested in legal manner consistent with procedures in the forest laws of timber producing countries”Timber “should be harvested in legal manner consistent with procedures in the forest laws of timber producing countries” Sustainability (Factor for consideration):Sustainability (Factor for consideration): “should be harvested from the forest under sustainable management”“should be harvested from the forest under sustainable management” 3 different modalities for verification:3 different modalities for verification: 1.Forest certification / chain of custody 2.Codes of conduct of Japan’s wood industry associations 3.Own procedure set up by an individual company

8. 8 (1) Verification through Forest Certification Wood products certified under a forest certification schemeWood products certified under a forest certification scheme Accepted schemes include:Accepted schemes include: −Local scheme: Sustainable Green Ecosystem Council (SGEC) −Overseas schemes: FSC, SFI, CSA, PEFC, LEI, MTCC  No justification, no prior assessment Very limited availability of certified timber in Japan/Asia:Very limited availability of certified timber in Japan/Asia: −Less than 1.85 % of total forest area in Japan (461,000 ha) in 2005 −Less than 1% of natural production forests in Asia

9. 9 (2) Verification under Codes of Conduct of Wood Industry Associations The gist of this modality is voluntary codes of conduct:The gist of this modality is voluntary codes of conduct: −established by wood industry associations −procedures to guarantee that their members supply wood products verified as legal (sustainable) −mandatory for their members (auditing, penalisation) Leading role of the Japan Federation of Wood Industry Associations (JFWIA) as the umbrella organisation:Leading role of the Japan Federation of Wood Industry Associations (JFWIA) as the umbrella organisation: Established code of conduct in March 2006Established code of conduct in March 2006 It has served as a template for most other associationsIt has served as a template for most other associations Exception: The Japan Lumber Importers’ Association (JLIA) formulated their code in November 2005Exception: The Japan Lumber Importers’ Association (JLIA) formulated their code in November 2005

10. 10 Forest Owners Producers (Owners’ Assoc.) Manufacturers, distributors Government purchasers Certificate (invoice) Process of licensing suppliers What associations have to do have to do Verification flow under modality (2) Information brochure edited by the JFWIA The JFWIA has focused on implementation in Japan:The JFWIA has focused on implementation in Japan: explaining to stakeholders in Japan why verification is neededexplaining to stakeholders in Japan why verification is needed giving a domestic example for suppliers from abroadgiving a domestic example for suppliers from abroad Invoices Evidence doc. Ｌｉｃ ｅｎｃ ｅ Ａｐｐｌｙ Ａｐｐｌｙ

11. 11 (3) Verification through own procedure set up by an individual company Applies mainly to suppliers, which:Applies mainly to suppliers, which: are not members of wood industry associationsare not members of wood industry associations prefer handling timber under own code of conductprefer handling timber under own code of conduct Introduced at the paper industry’s urgingIntroduced at the paper industry’s urging To be used by chip/pulp importing businesses (?)To be used by chip/pulp importing businesses (?) No examples of implementation so farNo examples of implementation so far In principle it will work similarly to modality (2)In principle it will work similarly to modality (2)

12. 12 Flow under Modalities (2) and (3) for JLIA members Logging Processing & distribution Delivery Public Procurement Segregated Management: DOCUMENT FLOW: STAGES: Modality (2) Modality (3) Logging notification or other evidence (copy) Notification & log sales contract (copies) Unveri- fiable Verifiable timber Invoice & (or incl.) evidence documentation Invoice, shipping account, received documents & photos Certificate based on evidence from all received documents Not procured by gov. Invoice & (or incl.) evidence documentation Segregated Management as in modality (3)

13. 13 6. Policy implementation: a) Domestic timber Association type Codes of conduct OthersSum Estab- lished Planned for June - August Local Timber Associations 12161846 Local Forest Owners Associations 162330 National Industry Associations 110415 Total24224591 Modalities expected to work from September 2006Modalities expected to work from September 2006 Number of associations involved in the implementation process

14. 14 b) Imported timber  Working groups (researchers) under Exploratory Committee for Measures against Illegal Logging investigating options Major exporter countries Scheme Indonesia BRIK, SKSHH Malaysia Export Declaration, Form 2 Papua New Guinea SGS for now; upcoming workshop Russia Still being developed between JLIA & partners in Russia Re-export of manufactured products from China Prior research required, to be undertaken by Working Group Main schemes with high probability of being accepted by the government as evidence of legality:

15. 15 7. Preliminary observations: a) Certification/Legality Verification Schemes Modality (1):Modality (1): Government has no intention to assess certification schemesGovernment has no intention to assess certification schemes Modalities (2) and (3):Modalities (2) and (3): Organised by the private sector in JapanOrganised by the private sector in Japan Key role of industry associations (especially JFWIA)Key role of industry associations (especially JFWIA)  Initial evidence of policy impact: National producers & environmental NGOs see new policy as a chance to enhance demand for domestic timberNational producers & environmental NGOs see new policy as a chance to enhance demand for domestic timber Importers under pressure to demonstrate legality of imported timber, as domestic timber is increasingly favouredImporters under pressure to demonstrate legality of imported timber, as domestic timber is increasingly favoured

16. 16 b) Actors  Main focus on the private sector: Granted wide autonomy to establish their own voluntary codes of conduct for the verification of legalityGranted wide autonomy to establish their own voluntary codes of conduct for the verification of legality Considered trustworthy by the Japanese governmentConsidered trustworthy by the Japanese government  Prominent officials used the argument of the “Japanese way” based on the assumption of “the goodness of human nature” ( 性善説 - theory developed by Mencius [ 孟子 ])  Less focus on the public procurer: Expected to accept provided documentation for legality verification in accordance with one of the modalities Expected to accept provided documentation for legality verification in accordance with one of the modalities No independent government/ 3 rd party verification required No independent government/ 3 rd party verification required No major capacity building efforts or advice intended No major capacity building efforts or advice intended However, public procurer is free to pay a price premium However, public procurer is free to pay a price premium

17. 17 8. Conclusions Stepwise approach:Stepwise approach: –Priority of legality over sustainability –Need for studies, and for negotiations of private sector and government with counterparts in producer countries –So far, a paper trail is being implemented A major shortcoming is a lacking 3 rd party auditingA major shortcoming is a lacking 3 rd party auditing Remaining questions:Remaining questions: –Will the private sector suppliers prove worthy of the trust the government has put in them? –How reliable will the schemes for verification of legality negotiated with the major producer countries be? Thank you!