Clean Wood Act and Due Diligence

Internal Use Only

 Introduction
What is Illegal Timber ? Japan’s wood/wood products import statistics

• Timber is illegal when harvested
in contravention of the applicable
legislation in the country of
harvest.
Timeline of Illegal Timber Regulations
• Japan is 4th largest forest timber products importer (USD)
• Vietnam is 3rd largest exporter of forest products to Japan (USD).
Chatham House estimated 12% of all timber imported to Japan
was illegal timber in 2014.

2008 Lacey Act [revised] (United States)

2012 European Union Timber Regulation (EUTR) (EU), FIT Law (Japan),
Illegal Logging Prohibition Act (ILPA) (Australia),
2016 Clean Wood Act (Japan)

2019 VPA-FLEGT (Volunteer Partnership Agreement – The Forest Law Enforcement, Governance and Trade) (Vietnam – EU)
202X Revision of Clean Wood Act
The Clean Wood Act: Key Points
The Act on Promotion of Use and Distribution of Legally Harvested
Wood and Wood Products (the CWA)

To promote legal timbers in order to avoid illegal timbers entering into the market.
→ It is not regulation that prohibits illegal timbers entering into the market.

To promote companies to register as Registered Wood-related Business Entity

→ it is not mandatory for companies to register.

Requires Registered Wood-related Business Entity to conduct Due Diligence

→ there is no clear instruction of how DD should be conducted.
The Clean Wood Act: Notes
Registered Wood-related Business:

Type Ⅰ Business Entity：Importer and/or the company that first places a timber product on the market
e.g. BMF, trading house, (chip/saw mills), etc.

Type Ⅱ Business Entity：subsequent business in the supply chain (equivalent to “Traders” in EUTR)

e.g. biomass power plant, furniture factory, pulp mill, construction, etc.

Due Diligence: (Voluntary) investigation business takes before making into agreement or making decision to minimize risk.

Example of DD
In finance industry, when investor decides to buy company, it is buyer’s responsibility to check the subject company’s operation of
main business, legal and financial management, etc.

Why?
Any loss due to buyer’s omission to conduct DD otherwise would have not occur is considered to be buyer’s responsibility.

Risk Based-Approach
To investigate things on a priority basis that are regarded as high-risk
Due Diligence：How to verify legality?
Due Diligence under the CWA
*Emphasis is made more on TypeⅠ. They are required to
Type Ⅰ: “confirm the content” of the documents collected. => the
CWA actually go beyond document-based system.

Step1* Step2*
1. Tree species (used for product) 1. Collect information from the Government Yes
2. Country of harvest 2. Collect information on past record with Legality confirmed
3. Weight, area, volume or quantity supplier
4. Name and address of company.
5. Product Category No Yes
6. Documents proving the legality of raw
materials were harvested in
Collect additional information from the No Not handling as legally
supplier or involved parties and/or check confirmed wood/wood
supply chain*. products**

**not-legally confirmed
wood/wood products still
can be traded.
Type Ⅱ:
required to check documents (which confirms legality) provided by typeⅠ=> document-based system.
Due Diligence：Alternatives
• The CWA states no further instruction on DD that should be taken for legality confirmation.
• Absence of penalty provides no incentive for business to conduct DD.

To make confirmation of legality easier for business, however, the CWA allows business to use following three
methods (Basic Policy, 3) in accordance with the Guideline introduced by the government in 2006 as
“Guideline for Verification on Legality and Sustainability of Wood and Wood Products”.

1. Forest certification and CoC

2. Industry association
3. Self-verification by original method of the individual company.

• The above verification methods are also adopted in FIT Law, and wood pellets imported to Japan for power
generation purpose must be confirmed with legality by either of the above methods.
• Most of the wood pellets imported to Japan are confirmed with forest certification method.
• Prior to applying to forest certification scheme, BMFV established self-verification method and our management
system is audited by JIA (Japan Gas Appliances Inspection Association)
Due Diligence：Controlled Wood (CW)
“FSC Controlled Wood is defined as virgin wood or wood fibre which has been verified as having a low
probability of including wood from any of the following categories”. (FSC UK)
1. Illegally harvested forests
2. Forests that were harvested in violation of traditional and civil rights
3. Forests where High Conservation Values are threatened by management activities
4. Natural forests that were converted to non-forest uses
5. Forests with genetically modified trees.

If FSC holders want to source CW, they are subject to FSC standard FSC-STD-40-005 and must confirm the
above materials are not included and they are audited by certification body. Certification body issues
assessment report on CW and it is published on FSC website as required by the FSC-STD-40-005.
For those FSC holders that purchase CW without having assessment report published means they purchase
CW from those above FSC holders with assessment report published in accordance with FSC-STD-40-005.
DD Wood Pellet Producer
1 CW
with CW risk assessment

2 CW
DD Other companies Wood Pellet Producer
With CW risk assessment CoC without CW risk assessment
Current Issues with FSC Verification Method for FIT
What is it
Forest Stewardship Council (FCS) announced
their concern, on June 2020, for possible
mistreatment of uncertified wood pellet under
FIT especially from Vietnam.
“Currently suspicions of large-scale fraud involving FSC
certification are raised based on the fact that the amount
of woody biomass fuel imported into Japan and South
Korea significantly exceeded the amount that could be
produced by FSC-certified forests in the producing
countries......Should any FSC certification fraud be
brought to light, FSC will take resolute action, even
against non-certified organizations, up to and
including legal action.....any claims of fraud that threaten
the credibility of the FSC certification system are
investigated and decisive measures taken against
certificate holders found to be responsible for the
misconduct, if necessary.”
What should we be cautious of ?
1. FSC-certified materials can ONLY be sourced from FSC
certified suppliers i.e. if non-certified supplier is in the supply
chain, the certified material become immediately uncertified.
2. Wood sourced from an FSC-certified organization may not
always be certified because they usually handle non-FSC
materials too.
3. FSC-certified products do not necessarily come from FSC
certified forests because below materials can be mixed.
• FSC Mix
• Post Consumer Reclaimed Wood (e.g. construction waste)
• Controlled Wood
• Neutral Materials (PKS, bagasse, husk, etc. that are not from
forest)
“the FSC system allows for the mixing of wood from non-FSC-
certified forests such as Controlled Wood, reclaimed materials
and neutral materials, the large amount of certified materials on
the market does not necessarily indicate wrongdoing involving the
FSC system.”
FSC CW holders with risk assessment report
FSC “Public Certificate Search” (https://info.fsc.org/certificate.php)

All FSC certificate holders

of wood pellet producer
which conduct risk
assessment (DD) on
sourced materials that are
procured from uncertified
forests can be checked.
List of Pellet Producers with Assessment Report
No. License Number Certificate Code Issue Date Expiry Date Organization Name
1 FSC-C105416 SGSHK-COC-008636 2021/3/28 2021/9/27 CAT PHU VUNG TAU JOINT – VENTURE COMPANY LIMITED
2 FSC-C112885 SGSHK-COC-010621 2021/1/27 2022/9/24 QUANG NAM WOODCHIP JOINT-VENTURE COMPANY LIMITED (QUANG NAM WOODCHIP CO.,LTD)
3 FSC-C119417 SGSHK-COC-011209 2019/12/27 2023/12/22 CAT PHU QUANG NINH JOINT VENTURE COMPANY LIMITED
4 FSC-C165840 NC-COC-061437 2021/4/9 2026/4/8 Biomass Fuel Vietnam Co., Ltd.
5 FSC-C138570 SGSHK-COC-370141 2021/4/14 2022/11/27 LUONG SON JOINT STOCK COMPANY
6 FSC-C138892 SGSHK-COC-370147 2019/11/1 2022/12/17 TRIEU PHUONG COMMERCIAL JOINT STOCK COMPANY
7 FSC-C135761 NC-COC-029281 2017/6/23 2022/6/22 HAO HUNG COMPANY LIMITED
8 FSC-C135861 SGSHK-COC-370118 2020/9/22 2022/6/8 HUE WOOD PELLET JOINT STOCK COMPANY
9 FSC-C140065 SGSHK-COC-370161 2020/10/6 2023/3/7 NGUYET ANH JSC
10 FSC-C143735 NC-COC-032490 2018/9/29 2023/9/28 MJ Agri Vina Co. Ltd
11 FSC-C144320 NC-COC-032628 2018/11/9 2023/11/8 Wind-smile Dong Nai Co. Ltd.
12 FSC-C145415 NC-COC-053381 2019/3/26 2024/3/25 Tam Phuc Gia Lai Trading Company Limited
13 FSC-C146165 SGSHK-COC-370221 2021/1/11 2024/1/24 BINH AN PHU DUNG QUAT FOREST COMPANY LIMITED
14 FSC-C146247 NC-COC-058467 2020/9/23 2025/9/22 Binh Dinh Wood Joint Stock Company
15 FSC-C149511 NC-COC-056308 2020/9/3 2024/6/23 TIN NHAN COMPANY LIMITED
16 FSC-C155134 NC-COC-058384 2020/2/12 2025/2/11 EASTWOOD ENERGY JOINT STOCK COMPANY
17 FSC-C154376 NC-COC-056651 2020/1/13 2025/1/12 Thanh Ngan Joint Stock Company
18 FSC-C157724 NC-COC-059371 2020/6/15 2025/6/14 Y My MDF Corporation
19 FSC-C157742 NC-COC-058386 2020/7/13 2025/7/12 Thuan Loi BP Joint Stock Company
20 FSC-C158434 NC-COC-059748 2020/7/13 2025/7/12 Chi Nhanh Cong Ty TNHH Lien Doanh Cat Phu Quang Ninh – Phu Tho

These pellet producers conduct their own DD and assessment report by CB is published.
In Vietnam total number of FSC holders with CW assessment report is 78. (SGS40, NC,23,BV,14,SCS1)
Summary and Further Questions

• In many aspects, the CWA is still required to improve and strengthen its enforcement, however,
it understands the value of DD.
• Not only rely on document-based confirmation of legality and traceability, DD plays important
role for pellet producers in Vietnam, especially in current situation of possible FSC fraud is
implied.
• Those wood pellet producers which purchase CW from assessment holder, they should
conduct DD on them.

Questions
• How can/should those wood pellet producers which claim FSC 100% confirm their inputs procured from wood
processing companies?

• Is there any required format for assessment report CB prepare?

Reference
Forest-Trend, 2020, “The Japanese Clean Wood Act: Effectively Cleaning Up?”, https://www.forest-trends.org/wp-content/uploads/2020/06/Japan-CWA-Revised.pdf.

Fairwood Partners, 2020, Wood Due Diligence Guidance https://www.fairwood.jp/data/DDguidance_main.pdf.

木材・木材製品の合法性、持続可能性の証明のためのガイドライン
“Guideline for Verification on Legality and Sustainability of Wood and Wood Products” (Provisional Translation), 15 February 2006,
http://www.rinya.maff.go.jp/j/boutai/ihoubatu/ pdf/gaido1_e.pdf.

合法伐採木材等の流通及び利用の促進に関する法律
“Act on Promotion of Use and Distribution of Legally-Harvested Wood and Wood Products”, May 20, 2016,
https://www.rinya.maff.go.jp/j/riyou/goho/english/pdf/02act-on-promotion.pdf.

合法伐採木材等の流通及び利用の促進に関する法律施行規則
“Ordinance for Enforcement of the Act on Promotion of Use and Distribution of Legally-harvested Wood and Wood Products”, May 23, 2017,
https://www.rinya.maff.go.jp/j/riyou/goho/ english/pdf/03ordinance01.pdf.

合法伐採木材等の流通及び利用の促進に関する基本方針
“Basic Policies for Promoting the Use and Distribution of Legally-harvested Wood and Wood Products” (Provisional Translation), May 23, 2017,
https://www.rinya.maff.go.jp/j/riyou/ goho/english/pdf/05basic-policies.pdf.

木材関連事業者の合法伐採木材等の利用の確保に関する判断の基準となるべき事項を定める省令
“Ordinance on Specifying the Standards of Judgment for the Wood-related Business Entities to Ensure the Use of Legally-harvested Wood and Wood Products”
(Provisional Translation), May 23, 2017. https://www.rinya.maff.go.jp/j/riyou/goho/english/pdf/03ordinance01.pdf.

FSC Japan, https://jp.fsc.org/preview.special-note-for-biomass-business-operators-english.a-684.pdf.