The Reform of Public Timber Procurement in Japan

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

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

3. 1. Japan’s role in timber trade • Total timber demand in Japan is about 89 million m3 p.a., of which roughly 80% are imported (world’s 3rd largest importer) • Largest importerof tropical plywood:4.6 million m3 in 2005 • 3rd largest importer of tropical logs: 1.6 million m3 in 2004 • Russiais now Japan’s main log supplier: 11 million m3 in 2004 Source: FRA (2005)

4. 2. Japan’s response to illegal wood imports • Since the G8 Summit in 2002, Japan has repeatedly expressed its commitment to tackleillegal logging • “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 countries • 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: • Public sector: 3% of total wood procurement （estimated)

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 • Basic Policyfor 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. 4. Reform of timber procurement policy • “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 ofleeway when verifying legality • Includes revision process based on multi-stakeholder consultation (exploratory committee and working groups)

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

8. (1) Verification through Forest Certification • Wood products certified under a forest certification scheme • 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: • 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. (2) Verification under Codes of Conduct of Wood Industry Associations • 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: • Established code of conduct in March 2006 • It has served as a template for most other associations • Exception: The Japan Lumber Importers’ Association (JLIA) formulated their code in November 2005

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

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

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

13. 6. Policy implementation: a) Domestic timber • Modalities expected to work from September 2006 Number of associations involved in the implementation process

14. b) Imported timber Main schemes with high probability of being accepted by the government as evidence of legality: • Working groups (researchers) under Exploratory Committee for Measures against Illegal Logging investigating options

15. 7. Preliminary observations: a) Certification/Legality Verification Schemes • Modality (1): • Government has no intention to assess certification schemes • Modalities (2) and (3): • Organised by the private sector in Japan • 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 timber • Importers under pressure to demonstrate legality of imported timber, as domestic timber is increasingly favoured

16. b) Actors • Main focus on the private sector: • Granted wide autonomy to establish their own voluntary codes of conduct for the verification of legality • Considered 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 • No independent government/ 3rd party verification required • No major capacity building efforts or advice intended • However, public procurer is free to pay a price premium

17. 8. Conclusions • 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 3rd party auditing • 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!