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COUNTRY GUIDE TO TIMBER LEGALITY: CHINA

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www.tft-forests.org

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INTRODUCTION

Introduction 2

1 China background 3

1.1 Overview of Chinese forest resource 3

1.2 Administrative and legislative context 5

1.3 China's timber processing sector 6

1.3.1 Imports 7

1.3.2 Processing 8

1.3.3 Exports 9

1.4 Key issues/complexities to consider in China 10

ACTIONS

2 Actions 12

2.1 Actions for timber producers in China 13

2.2 Actions for timber processors 18

2.3 Actions for exporters 23

ADDITIONAL RESOURCES

3 Additional resources 24

COUNTRY GUIDE TO TIMBER LEGALITY: CHINACONTENTS

1COUNTRY GUIDE TO TIMBER LEGALITY: CHINA

ABOUT TFTEstablished in 1999, TFT is a global non-profit that helps businesses bring responsible products to market. Responsible products improve people's lives and respect the environment at all stages of the product lifecycle. TFT helps more than 90 members worldwide build responsible supply chains by identifying and addressing embedded social and environmental issues. Having established a strong record of achievement in timber supply chains, TFT has expanded its work into palm oil, leather, stone, charcoal, coconut and sugar. TFT has offices in 15 countries and an on-the-ground presence in many more.

www.tft-forests.org

ABOUT TTAPThe Timber Trade Action Plan (TTAP) is a private sector initiative of the EU’s Forest Law Enforcement Governance and Trade (FLEGT) Action Plan, managed by TFT and its partner Timber Trade Federations of Europe (ETTF), the UK (TTF), Netherlands (VVNH), Belgium (FBCIB) and France (LCB). The project delivers a practical approach by supporting European buyers and their suppliers in producer countries towards legality verification as a means to promote responsible management of tropical forests.

www.tft-forests.org/ttap

ABOUT RAFTResponsible Asia Forestry and Trade (RAFT) is a programme to improve forest management and bring transparency to the timber trade in Asia. The programme has been funded by USAID's Regional Development Mission for Asia (RDMA) and is now funded through the Australian Government’s Illegal Logging Regional Capacity Building Partnership. RAFT influences the development and implementation of the public policies and corporate practices needed to make improvements, thereby reducing carbon dioxide emissions from deforestation and forest degradation.

www.responsibleasia.org

According to Article 4 of the Forestry Law3, Chinese forest stands which account for 85.5%4 of total forest area are classified into the following categories:

• Timber stands (56%) - forests designated for timber production;

• Protection forests (38%) - forests, designated for protection, inclusive of forests for water and soil protection, wind protection and farmland and forestland protection;

• Forests for special uses (4%) - forests designated for national defence, environmental protection and scientific experiments;

• Fuel wood forests (2%)5 - forests designated for production of wood-based fuel.

Laws have recently been introduced by the USA, EU and Australia that ban illegally harvested timber from their markets. Importers and buyers that place timber products on those markets must be able to demonstrate that timber was harvested legally. Failure to do so could imply prosecution through fines, seizure of products or imprisonment and could therefore affect businesses in producer countries.

To maintain market access, buyers will now need to rely on their suppliers in producer countries to provide evidence to demonstrate the timber has been legally harvested. This guide aims to give practical advice to timber producers, processors and exporters in China on how to demonstrate timber legality to their customers. Buyers can also use this as a guide to complement their understanding of the wood products industry in China and legal requirements such as the types of documentation and information needed by Chinese timber businesses.

The guide comprises of three main sections:

1. China background. This section is primarily for buyers importing timber-based products from China. It summarises China’s forests resource, the timber processing industry (including the industry’s use of imported timber), and official regulation of timber production and processing.

2. Actions for timber producers, processors and exporters. wherever you operate in the supply chain, it is recommended that you read all three sets of actions to understand what information and documents may be needed. Communication and exchange of information between supply chain partners about timber legality requirements is critical.

3. Further information provides links and sources of information about the laws in the US, EU and Australia to better understand the requirements and how to demonstrate assurances of legality.

2 COUNTRY GUIDE TO TIMBER LEGALITY: CHINA

INTRODUCTION

3www.tft-forests.org

China’s forestland covers 2,068,606 km2

or 21% of the country1, and comprises a wide mix of forest types. Forest cover has grown rapidly in recent decades as the Natural Forest Protection Program reduced timber production from natural forest from 60 million m3 in 1998 to below 20 million m3 in 2010, together with a tree planting programme. China now has the largest plantation area in the world, producing 80.88 million m3 annually, principally of fast-growing species2.

1 FAO. (2010). Forest Resources Assessment2 National Bureau of Statistics of China. (2013). www.stats.gov.cn/tjgb/ndtjgb/qgndtjgb/t20130221_402874525.htm3 Forest Law of The People’s Republic of China. (1985). www.rrting.net/res/sentence/law/forest.htm4 CIFOR. (2006). The assessment and monitoring of forest resources and forestry products statistics in China, CIFOR Working Paper, http://webdoc.sub.

gwdg.de/ebook/serien/yo/CIFOR_WP/36.pdf5 UNECE. (2009). Geneva Timber and Forest Discussion Paper 57: The Importance of China’s Forest Products Markets to the UNECE Region, www.unece.

org/fileadmin/DAM/timber/publications/dp-57.pdf

CHINA BACKGROUND 1.1 OVERVIEw OF CHINESE FOREST RESOURCE

The State Forestry Administration (SFA) is the central agency responsible for China’s forestry activities, under the State Council. The SFA is responsible for policy making, plantation establishment, conservation and wood industry management. It has 11 departments, and is affiliated to institutions such as industry associations, regional branch offices and press10. The SFA is also leading China’s international process against illegal timber and associated trade from the country together with the Ministry of Commerce, Ministry of Foreign Affairs and Customs.

The National Forest Law has been in place since 1984, and was most recently revised in 1998. Elements of legislation concerning environment, transport, health and safety are also relevant and should be considered throughout all forestry activities.

China’s 12th Five-Year Plan, announced in March 2011, sets out binding economic and environmental targets that include increasing total forestland coverage to 21.66%, increasing nature reserve area to 13% of total land area, and increasing annual commercial timber output to 100 million cubic metres11.

4 5COUNTRY GUIDE TO TIMBER LEGALITY: CHINA www.tft-forests.org

CHINA BACKGROUND 1.2 ADMINISTRATIVE AND LEGISLATIVE CONTEXT

farms9, while collectively-owned forests, mainly plantations, are situated in the south.

This classification and ownership of forestland in China has implications for domestically grown timber, and therefore timber producers, processors, exporters and importers should be aware of each, and of the relevant requirements to demonstrate legal harvest.

Ownership of China’s forestland is divided between the state (42.5%) and collectives6 (57.6%), whilst the ownership of commercial growing stock for production purposes is 42.2% state-owned, 37.5% collective-owned, and 20.3% privately-owned7. State-owned forests are principally located in the Northeast and Southwest8 and are primarily managed by either state-owned forestry enterprises or state forest

6 People's Republic of China Ministry of Forestry. (2005). Sixth National Forestry Resources Inventory7 UNECE. (2009). Geneva Timber and Forest Discussion Paper 57: The Importance of China’s Forest Products Markets to the UNECE Region, www.unece.

org/fileadmin/DAM/timber/publications/dp-57.pdf8 New Forests. (2010). The Changing Landscape of China’s Domestic Forestry Sector, www.newforests.com.au/news/pdf/articles/

TheChangingLandscapeofChina.pdf9 Ho, P. (2005). Developmental dilemmas: land reform and institutional change in China, https://fp.auburn.edu/sfws/yaoqizhang/Collective%20Forests%20

and%20Forestland.pdf

FIGURE 1: MAP OF CHINA’S FOREST COVER AND PROTECTED

AREAS

10 UNECE. (2009). Geneva Timber and Forest Discussion Paper 57: The Importance of China’s Forest Products Markets to the UNECE Region, www.unece.org/fileadmin/DAM/timber/publications/dp-57.pdf

11 China’s 12th Five Year Plan. (2011). www.forestry.gov.cn/uploadfile/main/2011-11/file/2011-11-1-4b12d4c81c4f4851a94a7aecd73a69b7.pdf

6 COUNTRY GUIDE TO TIMBER LEGALITY: CHINA 7www.tft-forests.org

worth $3.7 billion. These constituted 10% of China’s total wood products imports in 201115. Major flows of illegal logs are said to originate from Russia, Papua New Guinea, the Solomon Islands, Myanmar, Congo Brazzaville, Equatorial Guinea and Mozambique, with major flows of illegal sawn timber from Russia, Indonesia, Myanmar, Peru, Thailand and Malaysia16.

Combined with the prevalence of complex and opaque supply chains due to numerous forest sources (domestic and imported), traders, middle men and composite products (See Figure 4), Chinese importers and processors should secure as much information as possible of their upstream suppliers to trace back to the forest of origin, whether in China or abroad, to demonstrate evidence of harvest legality. This requires strong collaboration for transparency by all parties throughout the supply chain.

Given the geographical reach and volume of China imports, there are different risks of illegal harvest associated at the country of origin. China imports timber from numerous countries where forest governance is weak – the risk of illegality can be broadly assessed on the basis of the Corruption Perception Index (CPI), with countries that score under 50 on the CPI likely to be of higher risk. This broad classification includes Russia and many major timber producing countries in the tropics and sub-tropics.

Robust due diligence should identify and assess the specific illegal harvest risks associated with these countries, and it is important to take adequate actions to mitigate those risks. Indeed, the Environmental Investigation Agency (EIA) has published information that indicates that China is the biggest international consumer of illegal timber, importing at least 18.5 million cubic metres (RwE) of illegal logs and sawn timber in 2011,

CHINA BACKGROUND1.3 CHINA'S TIMBER PROCESSING SECTOR

15 EIA. (2012). Appetite for destruction: China’s trade in illegal timber 16 EIA. (2012). Appetite for destruction: China’s trade in illegal timber

China’s domestic timber production falls short of the timber processing sector’s timber needs. According to statistics12, China's annual timber demand is 260-280 million m3.

To meet this expanding wood supply deficit in the country, China has become the world’s largest importer of timber, accounting for 37.9 million m3 of logs and 20.6 million m3 sawn in 201213. The EU, US, Canada, Russia, New Zealand and other temperate countries represent approximately 75% of log imports. Significant volumes are imported from tropical countries; principally PNG, Solomon Islands, Myanmar, Congo and Malaysia. Sawn wood imports rose strongly between 2004 and 2011, mainly due to declining availability of logs worldwide.

CHINA BACKGROUND 1.3 CHINA'S TIMBER PROCESSING SECTOR

12 Zgmy. (2010). wood supply gap and prices of wood products,www.zgmy114.com/zxshow-181.html13 Forest Industries Intelligence Ltd (2013) 14 Forest Industries Intelligence Ltd (2013)

FIGURE 2 & 3: CHINA’S TIMBER IMPORTS bY sawn wood and logs beTween 2004 and 201214

CHINA: VolUMe oF sawn IMPoRTs bY CoUnTRY

25

20

15

10

5

0

MIL

LIO

N M

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2007

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2005

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CHINA: VolUMe oF log IMPoRTs bY CoUnTRY oF sUPPlY 2004 To 2012

45

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20

0

MIL

LIO

N M

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2009

2008

2007

2006

2005

2010

2011

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MALAYSIA

GONGO

MYAMAR

SOLOMAN ISLAND

EU

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RUSSIA

PAPUA NEw GUINEA

OTHER TEMPERATE

UNITED STATES

OTHER TROPICAL

PHILLIPINES

OTHER TEMPERATE

EU

UNITED STATES

RUSSIA

CANADA

2012

INDONESIA

THAILAND


The main products China exports are wooden furniture, plywood, joinery and paper. Given the different species used in these products, each with a different associated risk from country of origin and supply chain complexity, the role of exporters in determining and managing the risk within the supply chain and providing supply chain transparency to buyers is of paramount importance to maintain trade flows.

Between 2004 and 2012, the value of China’s wood products exports increased from $10 billion to $35 billion.19 China’s top five export destinations are the US, Japan, UK, Canada and Australia – see Figure 5. Three of these have illegal logging legislation in place – as does the European Union – which demonstrates the importance for Chinese exporters to provide buyers in these countries with the supply chain information required of them to maintain market access.

1.3.2 EXPORTS

This diversified structure, together with high volumes of imported timber from countries where illegality is common, and with complex supply chains for composite products (See Figure 4), mean that China’s processing sector faces major challenges in demonstrating the legal harvest of the timber it uses.

China‘s timber processing industry consists of 100,000 individual companies17, mostly small and medium sized enterprises (SMEs) with the China Forest Industry Association data estimates that there are 6,000 plywood manufacturers, 10,000 veneer mills, and 650 particleboard mills. The National Economic Census shows China has 25,000 furniture manufacturers, while the China National Furniture Association indicates that number could be doubled if small mills are included. More than 50% of China’s wood product manufacturers are privately-owned18.

17 Forest Trends. (2010). China: Overview of Forest Governance, Markets and Trade18 Forest Trends. (2010). China: Overview of Forest Governance, Markets and Trade

19 Forest Industries Intelligence. (2013)20 Forest Industries Intelligence. (2013)

1.3.2 PROCESSING

FIGURE 4: eXaMPle oF a CoMPleX sUPPlY CHaIn In CHInaFIGURE 5: CHINA'S TOP 5 EXPORT MARKETS bY PRodUCT TYPe (In $M)20

bUYeR (EU/USA/AUS)

CHINA

CoUnTRY b

bUYeR (EU/USA/AUS)

bUYeR (EU/USA/AUS)

EXPORTER

EXPORTER

EXPORTER

PROCESSOR 1

PROCESSOR 1

TRADER 1

TRADER 1

PROCESSOR N

PROCESSOR N

TRADER N

TRADER N

TRADER

TRADER

PROCESSOR

FOREST 1(SMALLHOLDER)

FoResT 2(CONCESSION)

FOREST N.

FOREST 1(SMALLHOLDER)

FoResT 2(CONCESSION)

FOREST N.

OTHER PRODUCTS (NES)PLYwOODwOOD FURNITURE

OTHER

JOINERY

LAMINATE

CHINA: ToP 5 eXPoRT MaRkeTs In 2012 bY PRodUCT ValUe

8000

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AN UK

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IA

FLOOR


• Complex land tenure due to overlapping land ownership22 can result in conflict such as companies using this confusion to convert natural forest to plantations. This exists due to historical background e.g. the implementation of Forest Land Tenure Reforms, which varies across different regions.

Action: Ensure that land tenure issues are resolved prior to harvesting and purchase. Companies and investors that seek to avoid any timber from land tenure conflict origins should investigate land rights and ongoing land-related conflicts. They should not assume that local rights and interests are protected, or that laws are enforced, just because local governments are involved.23

• Collection of paperwork/document cannot cover all aspects of legality, such as social impacts and third-party rights.

Action: complement the collection of documentation from upstream suppliers with field and site visits to understand the sourcing and production methods, and evaluate performance against local law and legislation.

• Although the SFA has engaged with the international community on addressing illegal logging activities in recent years, such as guides for Chinese forestry companies operating overseas, the process has been hampered due to the complexities of numerous ministries concerned. To date no legislation has been endorsed prohibiting illegal trade into and within the country.24

The following sections provide further advice on actions for timber producers, processors and exporters in China can take to help demonstrate legal harvest to their customers.

• The Corruption Perception Index (CPI) developed by Transparency International, scored China with 3921 in 2012 with a ranking of 80 places below least corrupt countries. As an approximate guide, a CPI score lower that 50 indicates that governance is week and official documentation is not necessarily reliable.

Action: Processors, exporters and buyers alike should use a variety of approaches of risk assessment, documentation checks, site visits (internal or external e.g. verification/certification) to demonstrate evidence of legally harvested timber.

• Large volumes of timber processed in China are imported, often from unknown and illegal origin.

Action: Chinese importers should identify the forest origins of the timber they buy, and assess and mitigate the risks of illegal harvest. This information together with associated documentation of traceability should be provided to downstream customers.

CHINA BACKGROUND 1.4 KEY ISSUES/COMPLEXITIES IN CHINA

• As required by the Forest Law, the act of timber harvesting requires a Timber Harvesting Licence, except for farmers harvesting small volumes - though this is not specified - of timber from their homestead. Given the lack of formal documentation in these instances it is challenging for processing sites to demonstrate the origin of the logs used and that other wood sources are not being mixed.

Action: Processing sites purchasing raw material sourced from these smallholders should upon change of ownership collect a sales invoice with the identity of the farmer together with species and volume of logs and the forest site of origin. where there is any doubt, the timber should be segregated and the supplier information cross checked with the village committee together with field checks if necessary.

21 Transparency International. (2012). Corruption Perception Index 2012, www.transparency.org/cpi2012/results

22 Ping Li, J. D. (2003). Rural Land Tenure Reforms in China: issues, regulations and prospects for additional reform www.landesa.org/wp-content/up-loads/2011/01/LP-RuralLandTenureReforms.pdf

23 Forest Trends. (2010). China: Overview of Forest Governance, Markets and Trade24 EIA. (2012). Appetite for destruction: China’s trade in illegal timber

within China, forest and timber regulations and document systems vary, as do the types and degrees of risks of illegal harvest. Regulations change, and sometimes appear to contradict each other. The large volumes of timber imported from numerous countries, often with high levels of corruption, also introduce a wide range of significant risks.

The following ‘actions’ indicate the types of information, documentation and activities that are likely to be needed for a) timber producers, b) processors and c) exporters within the supply chain. They do not provide a comprehensive and definitive list of exactly what will be needed for every product type, wood species and region of harvest, but they provide guidance as to the type of approach you are likely to need for your specific wood sources.


2 ACTIONS ACTIONS2.1 ACTIONS FOR TIMBER PRODUCERS IN CHINA

13www.tft-forests.org

A timber supply chain as represented in Figure 6 below, generally comprises a:

• Timber producer: this could be forest owner or manager, a farmer growing trees, a community forest group, or a timber buyer who buys standing timber and harvests it.

• Processor: this could be a company engaged in any stage of processing between the raw logs and the finished product - for example, a small sawmill or log-peeling operation, a component maker, or a large factory that assembles furniture. The raw material could either originate from domestic sources in China or be imported from a third country.

• Exporter: this could be a company engaged in exporting products to the US, EU or Australia, or to other countries for processing, manufacture or assembly before shipment to the USA, EU or Australia.

The timber producer is critical - everyone else depends on you to demonstrate evidence of legal harvest! You need to ensure that you:

• show evidence that you have the legal right to harvest your forest resource;

• provide information that proves you have paid all applicable fees and taxes;

• take into account third-party rights;

• demonstrate that you comply with all required timber harvesting regulations; and,

• respect all requirements for trade and transport of timber.

In China, commercial forest land is owned by the state, collectively, and by private owners and can be managed by the four different entities mentioned in Chapter 1.1.

Laws and regulations that govern the timber operations vary between these ownership types and you should therefore know the requirements concerning your specific situation.

Your customers may ask for documentary evidence that your timber was harvested legally. If you operate in an area where illegal harvest is significant or timber from unknown forest sources is commonly traded, or if you sell higher risk, commercially valuable species, you are likely to be asked for specific evidence of legal harvest. However, you may be asked for such evidence wherever you operate, and for any species you sell.

Table 1 shows the types of documents that may be requested, depending on which regulations apply to your specific context. Often not all of these documents will be requested – the most frequently requested are likely to be: harvest permission, compliance with harvest codes of conduct/regulations, evidence of stumpage payment, and transport licences (shown in bold in Table 1) and you should therefore be ready to provide these to your customer.

Additional guidance for processors can be found in the Generic Guide to Legality.

FIGURE 6: RePResenTaTIon oF a TIMbeR sUPPlY CHaIn

TIMbeR PRodUCeRs > TIMbeR PRoCessoRs > eXPoRTeRs > bUYeRs


ACTIONS2.1 ACTIONS FOR TIMBER PRODUCERS IN CHINA

LEGAL REqUIREMENTdoCUMenTaRY eVIdenCe

CaTegoRY sUb-CaTegoRY

LEGAL RIGHT TO HARVEST

THE BUSINESS IS REGISTERED

- BUSINESS LICENCE AND TAX REGISTRATION CERTIFICATE- Individual Forest Managers are not required to have a tax registration number or business

licence, however, private forest managers that manage collective forest shall provide the contracts, Forest Tenure Certificate, and documents relating to reducing or waiving taxes and fees.

THE BUSINESS OPERATES ON AN OFFICIAL FOREST MANAGEMENT UNIT AND HAS THE TENURE RIGHTS AND HARVESTING PERMISSION TO DO SO

- FOREST TENURE CERTIFICATE (Issuing authorities vary according to forest entity types)

- TIMBER HARVESTING LICENCE

TYPe oF enTITIes REqUIRED DOCUMENTS

ISSUING AUTHORITIES OF FOREST TENURE CERTIFICATE

ISSUING AUTHORITIES OF TIMBER HARVESTING LICENCE

State-Owned Forest Management Enter-prises (FMEs)

Land use leasing contract between FME and Forest Tenure Certificate holder

- State Forestry Administration, or

- Forestry authority of their common people’s government, or

- Local people’s governments above the county level.

Competent departments of forestry at or above the county level.

Forest Management Corporations

Land use leasing contract between FME and Forest Tenure Certificate holder

Land use leasing contract between FME and Forest Tenure Certificate holder Forest Tenure Certificate of the holder.

Depending on the type of Forest Tenure Certificate holder, the Timber Harvesting Licence should be issued by the competent departments of forestry at the county level or the village or township people’s governments.

Collective Forest Management Organizations

Forest Management Agreement with the villagers who hold the Forest Tenure Certificates

Forestry authority of the local people’s government at county level.

Competent departments of forestry at or above the county level.

Individual Forest Managers

Forest Tenure Certificate

Forestry authority of the people’s govern-ment at the county level where the Individual Forest Manager is located.

Competent departments of forestry at the county level or the village or township people’s governments.


CaTegoRY SUb-CaTegoRY

THE BUSINESS POSSESSES A FOREST MANAGEMENT PLAN

- Forest Management Plan - approved by responsible issuing party (Issuing authorities vary according to forest entity types

TYPe oF enTITIes ISSUING AUTHORITIES OF TIMBER HARVESTING LICENCE

State-owned FMEs To be in accordance with the long-term forestry planning this should be submitted to the competent department at the next higher level for approval.

Forest Management Corporations To be approved by the relevant authorities according to the forest category of the Forest Tenure Certificate holder.

Large scale Collective Forest Management Organizations

To be approved by the forestry authorities of the local people’s government at or above the county level.

Individual Forest Managers Not Required, but shall have a cutting quota for harvest permission.

TIMBER HARVESTING

THE BUSINESS CONFORMS TO AUTHORISED AAC, SPECIES, DIAMETER LIMITS

- FOREST TENURE CERTIFICATE- TIMBER HARVESTING LICENCE

TABLE 1: doCUMenT TYPes FoR PRodUCeRs To deMonsTRaTe legal HaRVesT TABLE 1: doCUMenT TYPes FoR PRodUCeRs To deMonsTRaTe legal HaRVesT


LEGAL REqUIREMENT doCUMenTaRY eVIdenCe


THE BUSINESS UNDERTAKES ENVIRONMENTAL IMPACT ASSESSMENT (EIA) AND PROTECTED SITES ARE IDENTIFIED

ENVIRONMENTAL IMPACT ASSESSMENT (EIA)

NOTE: According to the Law of the People’s Republic of China on Appraising of Environmental Impacts, (1) where considerable effects may be exerted on the environment, a full EIA report is required with comprehensive evaluation of the effects on the environment; (2) where mild effects may be exerted on the environment, an EIA statement with analyses or special evaluation of the effects shall be made; (3) where the effects on the environment are minimal and it is not necessary to make a full assessment, a registration form of the environmental effects is required.

Environmental Impact Assessments for projects with an impact across provinces have to be approved by the Ministry of Environmental Protection at the national level. All other are approved by the Environmental Protection governments at provincial level.

THE BUSINESS HAS LEGAL EMPLOYMENT CONTRACTS AND SOCIAL SECURITY IN PLACE

OCCUPATIONAL HEALTH & SAFETY RESPECTED

legal eMPloYMenT ConTRaCTs

SOCIAL IMPACT ASSESSMENT

NOTE: There is no single official document to confirm compliance with social/occupational health and safety requirements. Based on the Technical guidelines for environmental impact assessments (HJ 2.1-2011) in effect since 2012, Social Impact Assessments have been integrated as a part of the Environmental Impact Assessments. However, only projects that are considered with considerable environmental impacts (see above) are required to conduct a full Environmental Impact Assessment report. According to the Law of the People’s Republic of China on Appraising of Environment Impacts, only projects in pulp and paper industry are explicitly required to conduct full EIA report in the forestry context. It is advised to conduct site assessment to factories for further validation should there be any doubt on the factory performance.



FEES AND TAXES THE BUSINESS PAYS ALL APPLICABLE AND LEGALLY PRESCRIBED FEES, ROYALTIES, TAXES AND OTHER CHARGES FOR THE PRODUCTS

NOTE: No public registry exists where compliance with this criterion can be checked. The only means to do this is to check receipts. Below are examples of an non-exhaustive list:

Payment made to all relevant taxes and fees, including, but not limited to:

INCOME TAX AND VALUE-ADDED TAX

REFORESTATION FUND FEE

SPECIAL AGRICULTURE FEE RECEIPT

TRADE AND TRANSPORT

DOCUMENTATION RELATED TO TRANSPORT AND TRADE IS AVAILABLE FOR THE PRODUCTS CONCERNED

TRansPoRTaTIon lICenCe, IssUed bY a FoResTRY adMInIsTRaTIon aT oR aboVe CoUnTRY leVel.

TRansPoRTaTIon lICenCe (oUT oF PRoVInCe), IssUed bY a FoResTRY adMInIsTRaTIon aT oR aboVe CoUnTRY leVel.

A Transportation Licence is required during the whole journey from the dispatching to the destination. If the destination is in another province, the company needs to apply for a separate Out-Of-Province Transportation Licence.

THIRd-PaRTY RIgHTs THE BUSINESS RESPECTS FREE PRIOR & INFORMED CONSENT (FPIC) AND CUSTOMARY/INDIGENOUS PEOPLE'S RIGHTS

To be verified through site visit

There is no single official document to confirm compliance of FPIC/indigenous people’s rights/social/occupational health and safety issues.

ACTIONS2.1 ACTIONS FOR TIMBER PRODUCERS IN CHINA

* while you might be asked for all or any of the documents listed in Table 2, you are more likely to be asked for those that are highlighted

TABLE 1: doCUMenT TYPes FoR PRodUCeRs To deMonsTRaTe legal HaRVesT TABLE 1: doCUMenT TYPes FoR PRodUCeRs To deMonsTRaTe legal HaRVesT


As a processor you need to demonstrate that there is minimal risk of illegal timber entering your products.

what you need to know and do:

• The timber species in your product:

Action: obtain trade and scientific name from your suppliers. Request that this information is included in your invoice from your suppliers. This should be checked with evidence of the forest/country of origin to ensure that it truly originates from that area. All species in your products should also be stated in the invoice to your customers. Develop a database as shown in Figure 7 to collect this information.

• In which country and sub-region the timber in your product was harvested (whether in China or another country)

Action: obtain country/forest of harvest from your suppliers and request that this information is included in your invoice from supplier. This information should also accompany your products to your downstream customers. Develop a database as shown in Figure 7 to collect this information.

• The risks of illegal harvest associated with the area of harvest and the timber species

Action: once you know the country/forest of harvest assess the corruption index (CPI), risks of illegality in the area, verification/certification. If you uncover evidence of illegality then you should seek ways to exclude this from your raw material supply and locate other suppliers. You should maintain records of this and regularly monitor your suppliers to be able to supply this information to your customers, if required.

ACTIONS2.2 ACTIONS FOR TIMBER PROCESSORS

• Your legal obligations as a processor when you purchase, process and sell timber products vary by region, processor type, product and species:

Action: establish a list/database of laws/regulations that apply to you and undertake internal audit to ensure you fulfil all of the requirements.

• Your customers’ requirements for information and evidence of timber legality:

Action: understand your customers’ requirements whether domestic or international (your domestic customers might be selling to the US, EU or Australia) and secure that information and evidence from your up-stream suppliers. Find

more information in the Generic Guide to Legality.

• Your legal timber supply is not mixed with other, potentially illegal, timber:

Action: if you have multiple sources of timber, ensure that those from assessed legal sources cannot be mixed with unknown sources at any point in your production process. Implementing a Chain of Custody (CoC) system that tracks and records and segregates the different sources/species and volumes, can assist in this matter. It also enables you to demonstrate to your customers that no mixing has occurred. See Generic Guide to Legality for more information on the role Chain of Custody, certification and legality verification schemes.

Table 2 documents the type of evidence needed to demonstrate that your mill or factory buys, processes and sells timber products legally – part of the requirements for the point above. Not all of these document types are always needed or applicable (for example, to date, no FLEGT licences have been issued yet).





LEGAL RIGHT TO OPERATE

BUSINESS IS LEGALLY REGISTERED

BUSINESS REGISTRATION CERTIFICATE, issued by the Industry and Commerce Administration Authority

TAX REGISTRATION CERTIFICATE

BUSINESS HAS THE RIGHT TO PROCESS FOREST PRODUCTS

TIMBER PROCESSING CERTIFICATE, issued by the Forestry Administration above county level.

NOTE: Timber processing certificate is pre-licence, and cannot be used as a substitute for a business licence issued by the industrial and commercial administrative departments. According to Article 34 of the Regulation on the Implementation of the Forestry Law of the People’s Republic of China, Timber Processing Certificates are not required for companies outside forest areas.

FEES AND TAXES THE BUSINESS PAYS ALL APPLICABLE FEES AND TAXES.

NOTE: No public registry exists where compliance with this criteria could be checked. The only way is to check receipts. Below are examples of an non-exhaustive list:

VAT TAX RECEIPT

eXPoRT VaT and ConsUMPTIon TaX FoR wood – FOR IMPORTERS AND EXPORTERS

TRADE AND TRANS-PORT

THE BUSINESS ADHERES TO ALL APPLICABLE TRANSPORT AND TRADE LICENCES.

TRansPoRTaTIon lICenCe, IssUed bY a FoResTRY adMInIsTRaTIon aT oR aboVe CoUnTRY leVel. TRansPoRTaTIon lICenCe (oUT oF PRoVInCe), IssUed bY a FoResTRY adMInIsTRaTIon aT oR aboVe CoUnTRY leVel.- Contracts and invoices for the purchase of timber- Contracts and invoices for the sale of timber

NOTE: A Transportation Licence is required for the whole journey from the origin to location of arrival. If the destination is in another province, the company needs to apply for a separate Out-Of-Province Transporta-tion Licence.



IMPORT AND EXPORT THE BUSINESS INVOLVED IN IMPORT AND EXPORT IS REGISTERED wITH THE INDUSTRY AND COMMERCE ADMINISTRATION

BUSINESS LICENCE, registered with the administrative department for industry and commerce, and,

IMPORT/EXPORT OPERATING LICENCE, if the company itself is involved in import and export

THE IMPORT AND EXPORT COMPANY SHOULD SUBMIT OFFICIAL DOCUMENTS BY RELEVANT AUTHORITIES AS APPROPRIATE

- Export licence

- Packing list

- Invoice

- Bill of lading

- Customs declaration forms

- Sales contract

- Shipping order

- Delivery order

- Commodity inspection and quarantine certificate, issued by each port’s Entry and Exit Inspection and Quarantine Agency.

- Import and export certificate from the local authority in charge of wild animals and plants of the government of province, autonomous region and municipality directly under the central government.

- Official receipts should be available for audit. The import and export company should demonstrate payments of Export VAT and Consumption Tax for wood Phytosanitary Certificates.

- Certificate of origin issued by a notary organization or government or the exporter.

- Certificate of fumigation issued by entry - exit inspection and quarantine of the People's Republic of China.

- weight list

- CITES/FLEGT licences

- Import licence

- Certificate of origin

- Packing list

- Contract between domestic importer and foreign supplier.

- Timber quarantine certificate issued by entry-exit inspection and quarantine bureau.

- Custom duty payment certificate

- Timber transportation certificate

ACTIONS2.3 ACTIONS FOR TIMBER PROCESSORS

* while you might be asked for all or any of the documents listed in Table 2, you are more likely to be asked for those that are highlighted

TABLE 2: doCUMenT TYPes To deMonsTRaTe legal TIMbeR PURCHase, PRoCess and eXPoRT In CHIna TABLE 2: doCUMenT TYPes To deMonsTRaTe legal TIMbeR PURCHase, PRoCess and eXPoRT In CHIna

22 GUIDE TO LEGALITY: PRACTICAL ADVICE FOR TIMBER PRODUCERS, PROCESSORS AND EXPORTERS 23www.tft-forests.org

• Supply chain mapping and risk mitigation activities should be monitored on at least an annual basis or more often if you change suppliers/raw material sources.

• Understand what further information and documentary evidence your customers in the US, EU or Australia need.

As an exporter, or a manufacturer of finished wood products, you must have an overview and control of all timber sources that feed in to your products. It is to your advantage to be able to demonstrate legality to your customers in the US, EU and Australia. They rely on you for the information and documents they need to import your products legally. Access to this information over your competitors could help to gain market share.

what you need to know and do:

• Provide documents showing legal export;

Action: establish a list/database of laws/regulations that apply to you and undertake internal audits to ensure you fulfil all of the relevant requirements.

• Understand the risks of illegally harvested timber in your product;

Action: carry out supply chain mapping (see example database in Figure 7) to understand where your products originate. Collaborate closely with your upstream suppliers to collect information in invoices and accompanying sales documentation for species (trade/scientific name), forest/country of origin, complexity of supply chain, and volume.

• If your supply chains are simple and timber in your product comes from a known forest source it may be easy to demonstrate legal harvest. If your supply chains are long or complex and the harvest origins are unknown and potentially illegal, you will need to plan how to mitigate risk. The greater the risk of illegal harvest that you uncover, the more certain you need to be of the forest origins and legal harvest. Information will need to be more complete, and supporting documents checked.

ACTIONS2.3 ACTIONS FOR EXPORTERS

Action: understand the requirements of your customers in the US, EU or Australia and secure that information and evidence from your suppliers so that you can provide this to your customers.

Table 2 includes examples of documentary evidence to help demonstrate legal export from China.


FIGURE 7: eXaMPle daTabase To assIsT In MaPPIng THe oRIgIn oF YoUR Raw MaTeRIal sUPPlY base

PRODUCT 'ACME KITCHEN TABLE'

TIMBER PROCESSOR FINAL FURNITURE MAKER PRODUCT MANUFACTURER

NAME Fortune Furniture Corp

ADDRESS/LOCATION Street/city/country

ALL UNIQUE wOOD SOURCES A B C USED IN PRODUCT

MATERIAL TYPE Solid wood Veneer Fibre board

COMPONENT Table legs Table top face Table top core

SPECIES (SCIENTIFIC Fraxinus excelsior Acacia melanoxylon Populus deltoides & COMMON NAME) Common Ash Blackwood Poplar

TIMbeR PRoCessoR sawMIll PeeleR CoMPonenT MakeR

NAME Super Sawmill Ltd Ideal Veneers Company Best Components Ltd

ADDRESS/LOCATION street/city/country street/city/country street/city/country

TIMBER PROCESSOR MDF MILL

NAME QualityMDF Ltd

ADDRESS/LOCATION street/city/country

TIMbeR PRoCessoR wood CHIP MakeR

NAME PopChip Company

ADDRESS/LOCATION street/city/country

TIMBER PRODUCER Natural Forest Concession Plantation forest Farming region management unit

NAME XYZ Timbers New Eucalyptus Corp Farming Group

ADDRESS/LOCATION Address/Location Address/Location Address/Location


For more information and details on the USA’s Lacey Act, Europe’s Timber Regulation and Australia’s Illegal Logging Prohibition Act and how TFT can assist, please refer to the Generic Guide to Legality as well as the TFT website.

FURTHER INFORMATION3 ADDITIONAL RESOURCES

DISCLAIMERThis guide is intended as information only and does not constitute legal advice from TFT. Producers, processors and exporters who are seeking further clarity on legislative requirements should contact the legislative-making body or its nominated representative.

laCeY aCThttp://www.aphis.usda.gov/plant_health/lacey_act/index.shtml

Frequently asked questionshttp://www.aphis.usda.gov/plant_health/lacey_act/downloads/faq.pdf

EUTRRegulation (eu) no 995/2010 of the european Parliament and of The Council http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:295:0023:0034:EN:PDF

Commission Implementing Regulation (eu) no 607/2012 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:177:0016:0018:EN:PDF

EC guidance document http://ec.europa.eu/environment/forests/pdf/guidance_document.pdf

http://www.euflegt.efi.int/portal/home/the_eu_timber_regulation_and_flegt-licensed_timber/

AUSTRALIAN ACThttp://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r4740

SERVICE PROVIDERSTFT EUTR DDS Support: http://www.tft-forests.org/sure/

TTAP Guide to Service Providers http://tft-forests.org/ttap/page.asp?p=6228

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