Discussion Paper

Issues to be Addressed
in Discussions on a Certificate- Verifying Effectiveness Mikihiko WATANABE, Yuki NANJO and Riichiro OKAWA

Final Version
January 2008

Reproduced in May 2008

Japan Bioindustry Association (JBA)Discussion Paper

Issues to be Addressed
in Discussions on a Certificate- Verifying Effectiveness Mikihiko WATANABE, Yuki NANJO and Riichiro OKAWA

Final Version
January 2008

Note
This paper represents the findings of a study commissioned to the Japan ResearchInstitute, Ltd. (JRI) by the Bio-Industry Division, Manufacturing Industries Bureau,
Ministry of Economy Trade and Industry (METI) of Japan and the Japan Bioindustry
Association (JBA). The opinions expressed in this paper are those of the authors only anddo not represent the official views of JRI, METI or JBA. It should be emphasised inparticular that this paper in no way represents the views of any party to the CBD.
VersionThis paper is the final version of an interim report that was distributed as promotional
material in October 2007.
Acknowledgement
The authors would like to thank Mr Takashi KOBAYASHI of Marubeni Corp., Mr
Takayoshi ARAKAWA and Mr Takahiro KUROBE of Denso Wave Inc., Mr Masatomo
KOBAYASHI of Riken, Dr Makoto KAWASE of NIAS Genebank, Dr Henry SCHEYVENS,
and many others who wished to participate anonymously. Obviously, any defects or
mistakes are entirely the responsibility of the authors.
Contact Addresses
Mikihiko WATANABE, Senior Consultant, Research and Consulting Division, the Japan
Research Institute, watanabe.mikihiko@jri.co.jp
Yuki NANJO, Consultant, Research and Consulting Division, the Japan ResearchInstitute, nanjo.yuki@jri.co.jp
Riichiro OKAWA, Senior Consultant, Research and Consulting Division, the Japan
Research Institute, okawa.riichiro@jri.co.jp

2

Contents
1. The Objective of this Paper .................................................................................................8
2. Review of the Discussions in the Group of Technical Experts .......................................8
3. Issues in Effectiveness........................................................................................................14
3.1 Practicality Issues ..........................................................................................................14
3.2 Feasibility Issues ...........................................................................................................18
4. Issues in Effectiveness – A Case Study of Forest Certification .....................................21
4.1 Description of Forest Certification..............................................................................21
4.2 Practicality ......................................................................................................................23
4.3 Feasibility .......................................................................................................................25
5. Conclusion – Implications for Further Certificate Discussions ....................................29
5.1. Lessons...........................................................................................................................29
5.2. Priority Issues for Discussion .....................................................................................31
Bibliography............................................................................................................................32
Appendices ..............................................................................................................................34
Appendix 1 Cases of Existing Logistics Management Systems for Biologically-derived
Products....................................................................................................................................34
Appendix 2 Cases of IC Tag Systems ................................................................................36
Appendix 3 Cases of QR Codes..........................................................................................41
Appendix 4 Current Certification/Certificate Systems....................................................43
Appendix 5 Tracking System Applicability, Diffusion and Cost..................................463

List of Tables and Figure
Table 1 The Degree of Practicality........................................................................................14
Table 2 Scopes and the Degree of Practicality.....................................................................15
Table 3 Management Systems and the Degree of Practicality ..........................................17
Table 4 The Concept of Cost..................................................................................................18
Table 5 Forest Certification Schemes ...................................................................................22
Table 6 Certified Acreage (As of 2001）...............................................................................23
Table 7 Costs Necessary for Certification ............................................................................25
Table 8 Expected Benefits of Certification...........................................................................26
Table 9 Forest Certification Case Studies ............................................................................26
Table 10 Certification Costs Over 5 Year Period.................................................................27
Table 11 Cost Allocation Over Time ....................................................................................27
Table 12 Net Present Value (NPV) of Certification ............................................................27
Table 13 Current Certificate/Certification Systems............................................................44
Table 14 Tracking System Diffusion....................................................................................46
Figure 1 Envisioned Procedure of the Certificate ...............................................................124

Summary
The objective of this paper is to propose issues that should take priority in discussions on
a certificate, so that discussions on the international regime proceed in an appropriatemanner on the basis of discussions on an internationally recognized certificate oforigin/source/legal provenance. In the pages that follow, the authors objectively analyse
certificate discussions to date, provide information that focuses on questions ofeffectiveness and, as conclusions, identify priority issues. The paper also contains
information regarding related matters deemed to be useful.
We consider issues in the certificate based on the report and findings of the Group ofTechnical Experts (GTE) (January 2007). We acknowledge that this report should be wellnoted. That being said, given the extraordinarily large number of items commissioned to
GTE by the Conference of the Parties (COP), the timing of the commission, and theschedule of the meetings themselves, some issues still inevitably require further
discussion. Thus while respecting and valuing the content of the report, we also believethat we can contribute to discussions of the certificate and an international regime byidentifying matters requiring further study and examining them from an objective,
technical standpoint.
Outcome A
Possible rationale, objectives and the need for an internationallyrecognized certificate of origin/source/legal provenance
The issue here is to more concretely define the objective. Another issue is whether it ispossible to expect benefits when a change is made from a situation in which there is no
certificate system to a situation in which a certificate system is established; a discussion
from the perspective of fundamental needs is therefore required. With respect to theforecastability of benefits, the key question will be “who benefits?” There is therefore aneed to examine the scope of beneficiaries.
Outcome B
Distinctions between the options of certificate of origin/source/legal
provenance and the implications for Articles 15 and 8(j) of the Convention
Whether the purpose of the certificate is compliance or includes something else (e.g.
facilitation of access) is an important question that deserves repeated emphasis.
Outcome C
Potential characteristics and features of different options of such aninternationally recognized certificate
An important issue is the scope of the resources handled and the linkage to intangible
traditional knowledge and protection of biodiversity. With respect to “content andformat” and “procedure,” there are two important questions to be answered from theperspective of effectiveness. The first is how to create a management system that is suited5

to the flow of information and goods. It will be possible to create an effective
tracing/tracking system if one can rationally limit objectives and scope. On the other
hand, it will be difficult to build a management system for all genetic resources. The
second is whether content includes user details. Ordinary corporations, as parties
accessing with good intent, will seek to obtain prior informed consent (PIC) at the time ofresource access, but will be hesitant to disclose information on access to resources prior tolaying open patents. New ideas are needed to solve this fundamental dilemma.
Outcome D
Implementation challenges, including the practicality, feasibility,
costs and benefits
Verifying effectiveness will require better definitions of the concepts of “practicality” and“feasibility,” their component elements and the relationship between them. In addition,
studies will also be required of “acceptability” and “efficiency” in policy
decision-making. In this paper, it is assumed that “practicality” is a technical element
while “feasibility” is an economic element. Assessments of practicality will vary widely
depending upon the objectives, scope and management system used for the certificate.
Presumably, the wider the scope the lower the practicality. For feasibility, one can begin
by focusing on costs, and it is a welcome development that the concept of “transaction
costs” has been recognized. Transaction costs include commonly recognized components
such as “negotiation costs” for negotiations and procedures, but also the necessary“measurement costs” to assess the value of the resource and “enforcement costs” to coverrisks when legal enforcement is inadequate. “Opportunity costs” are another importantcomponent in cost. For instance, loss or suspension of the opportunity to access aresource eliminates the benefits that would have been obtained from that resource during
the period in which it cannot be accessed. This is an opportunity cost. Care must be taken
not to lose or suspend access opportunities.
The following lessons can be drawn from a case study of forest certification. There doexist forest certification systems that are international in terms of their nature. However,at a practical level, there are many cases in which these international certifications arealtered to match the content of national or regional certification systems. Forest
certifications are also voluntary in nature. They each have their own clear objectives aswell as corresponding standards and tracing/tracking systems. The extent of diffusion
for forest certification is between four and seven percent. While the effectiveness of forest
certification and the efforts of those involved merit respect, an assessment of this ratio inlight of ABS certification leads to the conclusion that a certification system targeting awider range of resources would likely have difficulty being effective, given that forest
certification adoption is still less than 10% despite relatively high visibility, the fact thattimber is amenable to various tracking systems, and the fact that over 10 years havepassed since the idea for certification was introduced. The cost of acquiring certification
tends to be higher in resource-rich countries. To put it another way, measurement costs in6

resource-rich countries are high. The fact that measurement costs are high also meansthat transaction costs are high because they include these costs. The upper limit on thepremium for certified timber on the international market (the higher price that buyers arewilling to pay for certified timber) is around one to five percent.
Having outlined lessons from forest certification in light of the discussion thus far andthe practicality and feasibility of certificates and/or certification in general, we proposethat the following matters be prioritised in future discussions related to a certificate
system.
1)

2)

3)

4)

In continuing discussions on a certificate, determining objectives and scope should be
the highest priority. Without clarity in these areas, the discussion on certificatecomponents cannot proceed.
In determining scope, the issue of effectiveness must be given adequate attention. In
particular, the effectiveness of tracing/tracking systems for biological resources thatcannot be packaged needs to be sufficiently considered.
Once objectives and scope are clearly determined, options that have the potential toachieve the objectives should be identified and organised in more concrete detail. The
benefits obtained through fulfillment of the objectives and the costs incurred to fulfill
the objectives should be compared via a cost-benefit analysis for each option.
Unacceptable options identified by the cost-benefit analysis should be excluded fromconsideration and the most cost effective of the acceptable options should be selected.
These constitute objective, fair and essential means for making objective decisions.
Discussion on certificate considerations should continue so as to increase the benefit
to all countries party to the convention.

7

1. The Objective of this Paper
The objective of this paper is to propose issues that should take priority in discussions on
a certificate, so that discussions on the international regime proceed in an appropriatemanner on the basis of discussions on an internationally recognized certificate oforigin/source/legal provenance.
In the pages that follow, the authors objectively analyse the certificate discussions to date,provide information that focuses on questions of effectiveness and, as conclusions,
identify priority issues. The paper also contains information regarding related mattersdeemed to be useful.

2. Review of the Discussions in the Group of Technical Experts
In this section, we consider issues in the certificate based on the report and findings of theGroup of Technical Experts (January 2007).
We emphasise that the conclusions reached by the Group of Technical Experts should bewell noted. The Group conducted its discussions “without prejudice” and produced thereport as the outcome of its deliberations. It should be respected as an outcome of theformal negotiation process on the Convention on Biological Diversity (CBD). That being
said, given the extraordinarily large number of items commissioned to the Group ofTechnical Experts by the COP, the timing of the commission and the schedule of themeetings themselves, it is only natural that there are some outstanding issues.
Thus while respecting and valuing the content of the report, we also believe that we cancontribute to discussions of the certificate and an international regime by identifying
matters requiring further study and examining them from an objective, technicalstandpoint. Our discussion below follows the “outcomes” of the report.
Outcome A

Possible rationale, objectives and the need for an internationallyrecognized certificate of origin/source/legal provenance

Summary of content
Outcome A is described in paras. 2-6. There is no explicit statement of whether it
constitutes “rationale,” “objective” or “need,” but it clearly states the need for thefundamental certificate. It says that national law is unable to guarantee the sharing ofresource benefits across borders. 12 objectives that are thought to cover the concerns of
the Parties were identified. Related wording can also be found in para. 46 of Outcome D.
IssuesThe mandate of the Group of Technical Experts includes studying the options of thecertificate, and it necessarily follows that the meeting produced a report that takes theexistence of a certificate system as a given and discusses the options. We value it as such.
On the other hand, there is a remaining issue of comparing circumstances with andwithout the certificate, and discussion of this issue will contribute to the overall8discussion of an international regime. The fundamental question here is whether we areable to expect benefits when the transition is made from a situation in which there is no
certificate system to a situation in which a certificate system has been established.
Discussions need to move forward from this basic perspective, and it would be desirable
to have concrete calculations of expected benefits. Calculations are particularly required
from the perspectives of “rationale” and “need.”
There is one issue of particular import in expecting benefits: Who benefits? Discussions ofresource access frequently consider corporations to be the users of resources, but it isconsumers who are the ultimate users. This distinction needs to be made whencalculating expected benefits because the concept of “surplus” is closely intertwined with“benefit.” The introduction of an appropriate system will presumably encourage access,reduce resource prices and generate a consumer surplus. In such a situation, even if theincrease in financial benefits to companies as resource suppliers and resource users are
not all that large, the system still has social benefits if through the spread of resources it
generates a consumer or social surplus. That is why it is necessary to consider our answer
to the question “who benefits?”
Another issue is to more concretely define the objectives. The following factors (forexample the scope of resources handled, the design of the system, the expected benefitsetc.) will all be influenced by the objectives.

Outcome B

Distinctions between the options of certificate of origin/source/legal
provenance and the implications for Articles 15 and 8(j) of theConvention

Summary of content
Outcome B is described in paras. 7-8. The concept of a “certificate of compliance” isincreasingly at the centre.

IssuesWhether the purpose of the certificate is compliance or includes something else (e.g.
facilitation of access) is an important question that deserves repeated emphasis.

9Outcome C
Potential characteristics and features of different options of such aninternationally recognized certificate

Summary of content
Outcome C is described in paras. 9-39. This is the outcome covered in the greatest detail.
Paras. 9-14 contain general content, following which the report takes up, in order: nature,
scope, content and format, procedure and consequence of infringement. There areproposals for specific certificate procedures in the “content and format” and “procedure”
sections.
The following points are of particular note.
1) Para. 10 (the range of genetic resources), a para. 17 (exemption) and para. 20(demarcation): The opinion expressed in these and other paragraphs that the scope of thecertificate should be limited or taken into account is valuable for the increase that it will
provide in the specificity and effectiveness of the certificate.
2) Para. 19: This and other paragraphs deserve praise for noting the difficulty ofhandling the certificate for intangible traditional knowledge. Having repeatedlyemphasized the need to take into account the traditional knowledge of indigenous
peoples or local societies, we would like to point out the large impact that the handling ofintangible traditional knowledge will have on the effectiveness of the certificate becauseof the sharp increase in transaction costs that will result.
3) Para. 12: This paragraph contains an extremely important perspective on linking
benefit-sharing, conservation and sustainable use of resources. This is because if the
sharing of benefit, from genetic resources is encouraged, then the most realistic process isfor a certain percentage of the use value and option value of resources in situ to bediscounted by the present value of the ultimate benefit and returned to the suppliers ofresources so as to prevent resource utilization that is destructive of the site containing theresources and irreversible loss of them. It is possible to construct the certificate
mechanisms linked to these concepts, but only if the scope of the certificate is extremely
limited.
4) Para. 9: This paragraph clearly states that derivatives could be included, which is an
issue that must be discussed very carefully and cautiously going forward.

IssuesIn light of the extremely broad range of discussions in Outcome C, we will identify issues
according to different categories of content.
1) General
One issue to be studied is specific ways to further limit the “range.” As suggestions forlimitations or organization there are:10 Commercial use/Noncommercial use
 Corporate user/Public agency user
 R&D use/Product as ordinary material
 Reproducible/Non-reproducible (pulverized etc.)
 Exclusion of resources subject to restrictions and other conventions (forexample, ITPGR)
Other approaches to categorisation and restriction are also possible.
2) Nature
The report discusses a “dichotomy” between “mandatory” and “voluntary,” but there areother options. One effective concept is that of a “de facto standard.” In other words, fromthe perspective of effectiveness, there does not necessarily need to be a dichotomy inlegal nature.
A de facto standard is not mandatory. In prior examples of “access and benefit-sharing”(ABS), that which can be used in each field of use automatically spreads as the de facto
standard and the need for intervention by international law is minimized. What should
be clearly guarded against here is the potential for monopoly, though the issues raised by,for example, a de facto standard in personal computer operating systems, will not beengendered in this area. We would like to identify this as an important issue requiring
full study.
3) Scope
The scope question needs to be thought through in conjunction with the concept of range.
4) Content and format and 5) Procedure
Given the linkage between content and format on the one hand and procedure on theother, we will deal with them together. Figure 1 attempts to organise the conclusions
found in the report of the Group of Technical Experts. Discussions of content and format
must proceed with particular care because they will directly impinge upon the design ofa certificate system. There are two issues of import from the perspective of effectiveness.
The first is how to create a management system that is suited to the flow of informationand goods. For instance, if the scope of the certificate is limited to the patent system, it ispossible to create a system using the “unique identifier” commented on in the report.
However, if the scope includes other uses and resources, the system will need to beadapted to the flow of goods and information. In other words, a tracing/tracking system1
will be required. The costs will be enormous in such a situation and, as noted above,
there will need to be a comparison of the objectives in introducing the certificate and the
expected benefits. It will be possible to create an effective tracing/tracking system if one
can rationally limit objectives and scope.

1

The term “supply chain management” could be used without any essential change in the discussion.

11

12

GR: genetic resources

GR

National Law/
Regulations on
ABSTK(a) Issuing national authority;(b) Details of the provider;(c) A codified unique alphanumeric identifier;(d) Details of the rights holders of
associated TK(e) Details of the user;(f) Subject matter(g) Geographic location of theaccess activity;(h) Link to mutually agreed terms;(i) Uses permitted and restrictionsof use;(j) Conditions of transfer to third
parties;(k) Date of issuance.

Data ID: Unique identifier

MTA/certificate
information

BRC

DesignatedNational Authority

MTA

Prior Informed Concent

Data of ABS/DNA

International
registry/CHM

the costums

quarantine

Issues…

Certificate(ofCompliance)

requests a certificate

user

GR

User country

GR
GR
GR
GR
GR

no

commercial
use?

no

Patentsought?

yes

yes

Data ID
Data ID
Data ID

Data ID
Data ID
Data ID

patentapplication

Data ID

Data ofABS

Additional
checkpoint(ex sitecollection)

Data ofABS
without
IPR

Registration
Point

Data ofABS

Patentoffice

r
e
s
o
u
r
c
e
u
s
e
r
s

t
h
e

a
s

C
o
n
s
u
m
e
r
s

（

International arenaGR

providerProvider country

Figure : Envisioned Procedure of the Certificate

Figure 1 Envisioned Procedure of the Certificate）

The second important issue is whether content includes user details. This will be an
impediment for the commercial use of resources and runs the risk of blocking access.
Ordinary corporations, as parties accessing with good intent, will seek to obtain priorinformed consent (PIC) at the time of resource access, but will be hesitant (or refuse) todisclose information on access to resources prior to laying open patents. New ideas areneeded to solve this fundamental dilemma.
6) Consequence of infringement
This is not particularly problematic, but the establishment of punitive measures may
cause participants to withdraw from the system,2 so care is needed from the point ofview of effectiveness.
Outcome D

Implementation challenges, including the practicality, feasibility, costs
and benefits

Summary of content
Outcome D is described in paras. 40-48. The term “transaction costs” is used frequently,
which we interpret as a high degree of awareness of the importance of costs on the part of
the technical experts.

Issues
The essential issue is to confirm the effectiveness of the fundamental certificate.
Effectiveness will depend to a great extent on the objectives and scope of the certificate.
Particular measures may or may not be effective for particular objectives or scopes.
Confirmation of effectiveness will, as a first step, require better definitions of the conceptsof “practicality” and “feasibility”, their component elements and the relationshipbetween them. Once elements have been defined, they will require individual study. If
cost concepts (described below) are correctly understood, they will need to be concepts ofefficiency and, in the context of policy decision-making, acceptability, so these areas mustalso be addressed.
The fundamental issue in the certificate discussions is to think through the concepts ofcosts and benefits as they relate to the certificate and to arrive at numerical values for
those that can be calculated so as to make an objective assessment. At the very least, thediscussions in the Group of Technical Experts made frequent use of the term “transaction
costs,” which we take as indicating an appropriate increase in awareness of theimportance of costs. However, the awareness of transaction costs will require someThough the political and technical background is completely different, we would note that in thenegotiations of the Kyoto Protocol for the United Nations Framework Convention on Climate Change, there
was a discussion of punitive measures for failure to achieve protocol targets and repeated comments about
the risk of signatories withdrawing from the protocol if the punishments were too strict.
2

13

correction if costs are to be accurately calculated. There appears to be little cognizance ofopportunity costs, which play an important role, so the experts in costs and othereconomic factors will need to take the lead in correctly recognizing and studying thispoint. There will also be wide variance in benefits depending upon the objectives, criteria
and methods of calculation. At the risk of repetition, the discussion must return to theissue of defining objectives and scope.

3. Issues in EffectivenessThis section focuses on the issue of effectiveness within the items identified above toprovide more detailed discussion. While there are no established definitions ofpracticality and feasibility or their relationship to each other, for our purposes we willassume that practicality is a technical element while feasibility is an economic element.
We will present the degree of effectiveness for issues in accordance with information
obtained to this point.
3.1 Practicality Issues
To examine in more detail the outstanding issues from the report of the Group ofTechnical Experts described above, we will focus on the technical aspects of effectivenessbased on rationale from the case studies described below.
1) Objectives
Practicality will change according to the objectives of the certificate. The table below
attempts to predict the degree of practicality for different options. Objectives must be
finalized in order for these degrees of practicality to be achieved.
Table 1 The Degree of Practicality

Objective

Degree of practicality

Compliance

Unclear (depends on
system)Facilitation of access

Unclear (depends on
system)Remarks
We anticipate practicality if
the system is limited topatents.

It is difficult to determine practicality until the objectives are articulated and the resulting
scope and system defined. The kind of information required at the time the certificate
procedures are initiated will differ according to the objective, and therefore effectivenesswill differ as well.
There is, however, one exception. We anticipate the system to be practical if it is limited
to patents. That having been said, this exception is unlikely to be accepted unless two
criticisms can be avoided. The first criticism is that the objective has been limited topatents even though there are many uses of genetic resources outside the patented scope.
14

The second is a criticism of the introduction of a patent system into the CBD arena. If the
discussion is limited to patent systems, the proper arena(s) might be other organizations,such as WIPO.
2) Scope
Scope cannot be decoupled from objectives, but practicality will differ widely depending
upon the scope.
Table 2 Scopes and the Degree of Practicality

Scope

Degree of practicality

Remarks

Commercial use

Depends on use

Users will comply, but will notwish to disclose information
until the patent has beenobtained

Noncommercial use

Somewhat highHowever, management imposes
heavy work burdens
It is possible to “design”
management systems, but theactual work burdens will be
extremely heavy

User is corporation

Depends on use

Users will comply, but will notwish to disclose information
until the patent has beenobtained

User is public agency

Somewhat highHowever, management imposes
heavy work burdens
It is possible to “design”
management systems, but theactual work burdens will be
extremely heavy

Research and development

High

We are informed that PIC has
been implemented andinformation is managed;
therefore, it is “technically”
possible
However, there is also thedilemma commented on aboveof the high degree of non-public
information15

Product as ordinarymaterial

Depends on the scope

It will depend on whether
equipment for physicalmanagement can be installed
Closely related to cost

Reproducible

Low

It is difficult to attach “tracing
mechanisms” if the resource isreproducible(See case studies)

Non-reproducible(pulverized etc.)

Somewhat highIn particular, there is a highdegree of practicality if
packaging methods are constantand “tracing mechanisms” canbe attachedIntangible resource

Extremely low

Management is impossible
unless the resource is tangible
and standardised

We rated practicality “somewhat high” if the scope was noncommercial use and publicagencies, and our rationale for doing so was that traffic would be lower than forcommercial use. However, in an interview with the Plant Gene Bank, we were informedthat people at the working level anticipated heavy work burdens for the management ofadditional information. It is therefore physically possible to provide management, but notwithout adding staff and infrastructure. In other words, the management system ispractical, but actual operations perhaps not so. This will need to wait for a determinationof feasibility from cost data.
A
point
shouldberaisedregardingcategorisationaccordingtocommercial/noncommercial use or corporate/public agency use: the definition andscope of commercial use. For example, a corporate actor seeks to make profits, but may
also include basic research functions that are of a noncommercial nature. Similarly, a
university may be a public institution that engages in research and development, but it iscommon for universities to originate enterprises from their findings or to enter into joint
ventures with corporations and engage in commercial activities. There will be many cases
in which use by a public agency is not necessarily noncommercial. Care will therefore
need to be taken in employing form of use as a means of categorisation.
3) Management system
The practicality of the management system will vary depending upon how the objectivesof the certificate are defined and what the system’s scope is.

16

Table 3 Management Systems and the Degree of Practicality

Scope
Management of information
only

Degree of practicality
Somewhat highRemarks
Problems with the reliability of
individually-input information
Criticism of theappropriateness of the systemitselfTechnically practical, but will
experience constraints in termsof burdens on the operationalside

Tracking of all resources

Low

It is possible to “design” asystem to manage all resources
However, there are intractableproblems with practicality on
the operational side; inparticular, there is the issue ofthe supplying country’s
capacity to input resource
property information

Tracking of a limited scopeof resources

Unknown; will dependon scope

The physical requirements willbe that the resource bepackagable andnon-reproducible

Below is the rationale for our assessments of the effectiveness of options based on
information obtained to date.
According to information from a company with expertise in tracing and tracking systems,
there will be a major burden for the input of the initial information required by thesystem. In practical terms, this will mean printing out codes in relevant countries andregions and using readers to read them. In the opinion of this company, questions remain
about the capacity of countries supplying genetic resources in particular to maintainorganisations manage information and conduct the printing/reading work.
According to the report of the Group of Technical Experts, it will be resource-using
countries that first pull the trigger on the certificate, but it will be necessary first for
countries supplying resources to formulate their national laws and input and manage
information suitable to the certificate when they are requested to issue certificates. It canbe anticipated that this will impose burdens on resource-supplying countries. This is apoint that will have fundamental influence on effectiveness.
Information input is not a one-off process. Each time the form (including packaging) of a
resource changes, and each time the owner of the resource changes, new informationmust be input. This work will have to be done by both resource-using countries and17resource-supplying countries. For example, if a plant resource’s ownership changes every
time the resource moves within the resource-supplying country, inputting all of that
information will impose heavy burdens.
3.2 Feasibility Issues
On the economic side, it is necessary to think through issues of costs, benefits andassessment criteria. We welcome the fact that discussions to date have shown an
increasing awareness of the importance of cost. On the other hand, we also note that costs
are not recognized correctly and that important cost concepts have been undervalued.
These points require correction. We summarise the main issues below.
1) Concept of cost
The table below illustrates the concept of cost.
Table 4 The Concept of Cost
1.1 Variable costs
1. Costs

1.2 Fixed costs (initial investment)
1.3 Sunk costs
2.1 Negotiation costs

2. Transaction costs

2.2 Measurement costs
2.3 Enforcement costs

3. Opportunity costs(Foregone benefits)

4. Decrease in corporate value
5. Marginal costs（Additional costs, incremental costs）

First, the concept of “cost” itself is not particularly problematic when used in the manner
generally understood. The Group of Technical Experts and the report use “cost” todescribe the necessity for infrastructure enhancements in conjunction with certificate
systems, and that is appropriate usage.
Transaction costs must be given adequate consideration. The term "transaction costs"
appears frequently in the GTE report. This is based on the recognition that costs will be
incurred by negotiations until agreement on a certificate is reached, and the concept itself
is a welcome development. However, as indicated in table above, transaction costs are
made up of three different concepts/components.
1)

2)

Negotiation costs: Negotiation costs correspond to the cost recognized by the Groupof Technical Experts. They are the costs required for negotiations. The longer andmore complex the negotiation process, the higher the negotiation costs.
Measurement costs: Transaction costs also include measurement costs. In the context
18

3)

of genetic resources, measurement costs are the costs required to measure resource
value. As is well known, measurement of resource value in situ does not necessarilymean that systematic means to do so have been established. Nevertheless, if thecertificate is made mandatory, resource value will have to be measured in order toacquire it. Costs for this purpose are measurement costs.
Enforcement costs: Transaction costs further include enforcement costs.
Enforcement costs are the costs required to guarantee the outcome of a transaction in
the case the transaction is conducted in a country where legal enforcement is weak.
This type of cost is generally impacted by the country's legal infrastructure andeffectiveness.

As suggested here, transaction costs entail more than just negotiation costs and initialinfrastructure. Transaction costs tend to increase when they are understood correctly, andthis point will have an impact on discussion outcomes.
Opportunity costs are extremely important, not only to certificate discussions but also as
a problem for ABS as a whole. An opportunity cost is defined as a foregone benefit. In thecontext of genetic resources, opportunity costs refer to the benefits that had beenobtained through access to a resource that are lost when access to that resource isrestricted. To put it another way, when a benefit can no longer be obtained for a given
reason, the state of affairs must be understood not simply as a lost benefit but as anopportunity cost.
What is important in the context of a certificate system is that even supposing that an
appropriate system is established and the discussion shifts to future implementation, thisprocess will take time. If the current system is promoted, however, system
implementation will not take much time. Even supposing that benefit allocation increases
under a new, appropriate system, the opportunity costs incurred during the time until
the new system takes effect may be greater than the benefits ultimately brought about by
introduction of the system. In particular, future benefits are discounted to net present
value (NPV), so the more time that it takes, the greater the possibility that opportunity
costs will exceed benefits. This point is extremely important in the context of certificate
discussions. It is very important to consider the fact of restricted access until certification
implementation and the concept of opportunity costs caused by this.
Another cost that must be considered is potential declines in corporate value caused bydamaging rumors. Companies can lose value simply by a third party asserting that they
are using resources improperly.
Marginal costs are also a concern. Ideally, they need to be accurately assessed, but when
it is impossible to obtain accurate figures, there is no need to fixate on them. An accurate
19understanding of the concept is sufficient.
2) Concept of benefits
The concept of benefit is usually considered in terms of monetary and nonmonetary
benefits. However, additional clarification will be required in order to understand theeconomic aspects of the certificate.
For example, if business opportunities increase as a result of receiving a technology
transfer and incomes increase for society as a whole, that would be a benefit. This benefit
is not necessarily included in the actual MTA. In addition, money is not actually received.
However, the benefit does really occur. To be precise, such benefits are benefits througheconomic appraisal. In the context of the CBD, however, what are called monetary
benefits are benefits through financial appraisal.
Another important issue related to benefits is who receives them. If transaction costs
incurred by certification procedures are passed on to consumers, the social benefit
decreases. This cuts to an issue that has been tacitly discussed thus far, the issue of
whether to consider companies and research institutions as resource users or whether toalso include consumers. Effectiveness that takes into account costs and benefits will vary
substantially depending on how this issue is decided.

20

4. Issues in Effectiveness – A Case Study of Forest Certification
This section will take up existing forest certification as a case study. Forest certification isjustified as a case study, because 1) forest certification systems currently exist, 2) theultimate form certification takes is timber labeling and timber is a botanical resource, 3)
compliance is an important component (that is to say, certification requires that thetimber was not logged illegally), 4) there are empirical data in terms of effectiveness andcosts and benefits, and 5) allocation of the costs and benefits of acquiring certification has
been a point of contention. At the same time, in using forest certification as a case study itshould be noted that 1) the original goal of forest certification is sustainable forest
management, not benefit-sharing like the ABS problem under the CBD, and 2) parties
acquiring forest certification are not likely to acquire patents on derivative products.
4.1 Description of Forest Certification■Concept and Basic Characteristics
The objective of forest certification is sustainable forest management, a concept that canbe traced to the Forest Principles, which was adopted at the Rio Earth Summit (United
Nations Conference on Environment and Development) held in 1992. The attempt todevelop indicators and standards for sustainable forest management emerged out of theHelsinki Process and Montréal Process. International nongovernmental organizations
also developed certification systems to counter rapidly occurring deforestation. The basic
characteristics of such systems are that they are voluntary, not legally binding, and thatthey entail certification, not a certificate.
The basic mechanism that forest certification hopes to bring about is outlined below.
 Certified timber is valued more highly by the market than uncertified timber(price premium).
 The existence of a price premium provides an incentive to companies to acquirecertification.
 Adoption of forest certification automatically increases due to this incentive.
 Sustainably managed forests increase and the problem of deforestation improves.
This certification system is comprised of the following four components.
 Standard - the set of requirements that must be met
 Certification - the process of verifying whether the standard has been met
 Accreditation - the process of accrediting the organisations responsible forundertaking certification
 Labelling - rules for applying labels to show that products contain timber fromcertified forests
21

What is important here is that these components are based on the two concepts of forest
management certification and chain of custody certification. What is important in thecontext of ABS certificate discussions is that an accreditation body is necessary and that
there is an inevitable need for traceability for chain of custody.
■Current Forest Certification Schemes
Forest certification systems are numerous and include international schemes, regional
schemes and national schemes. Major certifications are included in the table.
Table 5 Forest Certification Schemes
Name

Characteristics

ISO14001

Technical report 14061
Applicable to all countries
Organised by initiative of WWF

Forest Stewardship Council (FSC) Consists of 10 principles and 56 standards
Asia-Pacific countries with FSC national working groups
and/or developing FSC national standards include PNG,
Viet Nam, New Zealand, China, Australia and Japan
Established by AF and PA
American Forest and Paper
Association, Sustainable Forestry External accreditation body in necessary
Initiative (AF&PA SFI)
SFM is a goal
Pan European Forest Certification(PEFC)

UK Woodland Assurance Scheme(UKWAS)

Established by German initiative
Has relationship between Helsinki processes
British certification
Compatible with FSC
Japan national scheme

Sustainable GreenCouncil (SGEC)

Ecosystem

Biodiversity and watersheds are the important elements
7 standards
Includes non-timber forest products

Malaysian Timber Certification
Malaysian national scheme
Council (MTCC)
Indonesian Ecolabeling InstituteIndonesian national scheme(LEI)
Australian
SchemeForestCertification

Australian national scheme

Source : Zenrinkyo ed. (2004) and data from interviews.

22

4.2 Practicality
This section takes up the issue of forest certification effectiveness by first looking at theextent of diffusion and then considering barriers to diffusion and implementation.
1) Extent of Diffusion
In considering the effectiveness of forest certification schemes, we will first look at theextent of their diffusion, which is part of the consideration of effectiveness.
The extent of forest certification diffusion can be organised according to several
standards.
As of 2006: 270 million ha; 7% of all forest land (UNECE/FAO, 2006)
As of 2003: 150 million ha; (excluding ISO) 4% of all forest land (Iwasako and Sato, 2006)
An important point related to diffusion is that certified acreage is unevenly distributed
among regions. Diffusion ratios for each region are shown in the table. What is important
here is that diffusion in Europe and North America is high, while in Asia and SouthAmerica, which have vast forestland, diffusion is low.
Table 6 Certified Acreage (As of 2001）
Acreage

Region1,000 ha％Africa

974

0.1

Asia

158

<0.0

Oceania410

0.2

Europe46,708

4.5

North and Central America

30,916

5.6South America

1,551

0.2

Total

80,717

2.1

Source: FAO, quoted in Zenrinkyo 2004, p.26

2) Barriers to Diffusion and Implementation■Management Systems
Effective management systems, such as barcodes and satellite management systems, arecurrently in use. However, IC tags and other wireless management systems are notprofitable3. Also, unless timber is managed from the time it is still part of the forest, thetracing system is unable to determine whether the timber strictly meets the certification
3

Information obtained through interviews.

23

standard.
■Compatibility of Certification with Market Structure
One of the reasons why the diffusion ratio for forest certification is high in Europe is thata moderate price premium is expected given consumers' level of environmental
awareness (sustainable timber and timber that is acquired through means other thanillegal logging) due to the fact that timber is distributed as a consumer good. To a certain
extent acquiring certification is compatible with the market structure for timber.
In Japan, on the other hand, government and public environmental awareness withrespect to forests is high but most timber demand is for building materials, so a consumer
driven price premium does not function as an incentive. Environmental awareness ishigh. The Green Procurement Law enacted in 2001 actually requires thatgovernment-procured timber adhere to standards for legality and sustainability. Also, as
mentioned above, Japan does have its own certification scheme. However, much forest
management in Japan is small in scale and proprietors are not able to bear the cost ofcertification. At the same time the price premium does not function as an incentive.
Accordingly, the certification system itself is currently not necessarily able to utilize
market functions.
■Certification Acquisition Costs
Cost has a major impact on effectiveness. (Details stated below)
 There is a trade off between examination costs and sufficiently reliable
examination content. If an adequate amount is spent on examination for initialcertification acquisition, standards and mechanisms can be created that will notcause a problem later when updating certification. However, parties acquiringcertification that cannot afford expensive examination costs have difficulty interms of cost.
 With respect to certification examination costs, the cost to acquire a national
certification is lower than the cost to acquire an international certification. This isbecause international standards are quite complicated, it takes time to create
forestry standards that fulfil the requirements, and there is much work involved.
Another realistic factor related to certification examination cost is that there aresubstantial examination costs (i.e. personnel costs) for international certification
experts who conduct examinations for international certification.

24

■ Implementation Difficulties Faced by Developing Nations with Diverse Forest
Resources
Developing nations with diverse forest resources bear a larger burden when acquiringcertification compared to developed countries. The more diverse a country's ecosystem,
which is to say, the more biological resources it has, the more time preparations take tomeet the standards for acquiring certification. This is because resource assessment andmonitoring take more time for a forest with a diverse ecosystem than for a monoculture
forest. Also, when land ownership is unclear or forestry laws are only minimally effective,
acquiring certification becomes quite difficult. In the above discussion of costs,
measurement cost was shown to be a component of transaction cost. Given the fact thatthe costs for resource assessment and monitoring discussed here correspond tomeasurement costs, it is evident that measurement costs for developing nations when
acquiring forestry certification are at the very least too large to be ignored.
4.3 Feasibility
This section provides an analysis of the economic feasibility of forest certification (i.e.
costs and benefits) based on actual data.
4.3.1 Approach to Costs and Benefits
Simula, et al. (2004) categorizes costs and benefits related to forest certification as shownin the table below.
Table 7 Costs Necessary for Certification
Direct costs

External auditing

Internal costs

1

Initial costs

2

Cost of surveillance audits

1

Preparation

2

Participation in the process

Indirect costs

Compliance with

1

Forest management(compliance withthe standard
requirements)

performance criteria

2

Ecological3

SocialCompliance with

1

Resource assessment and forest inventory

management system criteria

2

Records3

Planning (Strategic and Operational)

4

Monitoring

Source Simula at al (2004). Arranged by the authors

25

Table 8 Expected Benefits of Certification
DirectPrice premium―

Additional sales―(Additional
revenue)

Indirect

MonetaryNon-monetary1.

Cost reduction

2.

Avoidance of loss of sales revenue

3.

Other

1.

Environmental

2.

Social3.

Organisational

Source: ibid.

4.3.2

Cost-Benefit Analysis

Simula et al. (2004) conducts case study research on five forest certification schemes. The
research targets the following five sites, and the following table shows costs and theresults of a cost-benefit analysis.
Table 9 Forest Certification Case Studies
Total areaha

Annual timber production
3

m

3

m /ha

Inpacel.Brazil.Plantation forest.

49,942

1,400,000

28.03

Cikel.Brazil. Natural forest.

140,658

80,0000.57

DRT(PT Diamond Raya). Indonesia.
Natural forest

90,65657,177

1.59

KPKKT. Malaysia.Natural forest.

136,000

112,568

0.83

PITC. Malaysia. Natural forest.

9,000

10,0001.11

426,256

1,659,745

32.13

Total
Source ibid.

26

Table 10 Certification Costs Over 5 Year Period(US$1,000)

DirectIndirect

Total

Annual Average

Inpacel

77.0

184.9

261.9

52.4

Cikel

144.6

875.5

1,020.1

204.0

DRT

215.2

2,660.7

2,875.9

575.2

KPKKT

93.6

281.6

375.2

75.0

PITC

94.6

135.2

229.8

46.0

125.0

827.6

952.6

190.5

Average
Source: ibid.

Table 11 Cost Allocation Over Time(%)
First year

Years 2 to 5

Total

Inpacel

38.9

15.3

100.0

Cikel

44.4

13.9

100.0

DRT

21.2

19.7

100.0

KPKKT

81.0

4.8

100.0

PITC

84.7

3.8

100.0

54.0

11.5

Average－

Source: ibid.

Table 12 Net Present Value (NPV) of Certification(US$1,000)

Sensitivity analysis

NPV
Discount rate 12%

Discount rate 5%

Discount rate 0%

Inpacel

199.4

232.1

261.9

Cikel

-257.3-248.3-236.1

DRT

194.8

338.3

477.5

KPKKT

-319.7-349.6-375.2

PITC-197.6-215.1-229.8

-76.1

-48.5

-20.3

Average
Source: ibid.

27

■ The following points regarding costs in these case studies are worth noting.
 Indirect costs exceed direct costs. The former includes measurement costs, which
are important in the context of biological resources. For example, in the case of
DRT, inventory and monitoring costs are large, US$12,766/year and
US$10,476/year, respectively. The more diverse the natural resources, the higher
the costs.
 Initial costs are high even if a large-scale traceability system is not implemented.
High initial costs tend to make net present value (NPV) negative.
 National schemes are likely to cost less than international schemes.
■ The following points regarding benefits in these case studies are also worth noting.
 We will first look at two contrasting case studies. Cikel has a negative net present
value, while the net present value of DRT is positive. In the case of Cikel, timber
prices increase by as much as 30% (price premium) upon acquiring certification.
However, in order to meet the requirements of certification, harvestable forestland
must be restricted, which has led to increased access costs for timber and has madenet present value negative. DRT, on the other hand, yields no price premium, but
certification leads to a major decrease in distribution costs. The requirement thatcertification criteria be met has led to a major decrease in export intermediaries,
and this cost reduction has functioned effectively as an indirect benefit. Net
present value is positive as a result.
 In Indonesia, illegal logging has been a problem. As demand has increased fortimber that has been harvested legally, plywood companies in Indonesia havedecreased in number from around 200 to about 150.4 Such trends are ultimately insync with cost reductions under the DRT scheme.
 Price premiums occur under schemes like Cikel in the country that supplies thetimber. However, the price premium in the countries that are the end-users(consumers) of the resource is extremely small. According to Veisten (2002), basedon a survey of the UK and Norway, the price premium on eco-labelled wood
products is no more than five percent. The median premium in the UK on wood
products is 1.6%. In Norway it is one percent. This is another way of saying that a
price premium cannot be expected to bring about a major increase in benefits, if theend-user of the resource is also taken into consideration.

4

Based on interviews with major forestry companies in Japan.

28

5. Conclusion – Implications for Further Certificate Discussions
To conclude this paper, the following section lays out lessons learned and priority issues
for discussion in future certificate considerations, based on the information on
certificates/certification that has been organised and assessed thus far.
5.1. Lessons■ Nature

There exist certification schemes that are international in nature. However, at apractical level, the schemes are often altered to match the content of national orregional certification systems. Also, these schemes are voluntary in nature.
Some certification schemes have been found to be effective. Even the domestic
certification systems of individual countries have eliminated resources obtained
through illegal means while the resources remain within the country.

■ ScopeEach certification scheme has its own clear objectives and corresponding standards
and tracing/tracking systems.
The scope of existing certification schemes encompasses multiple resources, so if thescope of a new certificate extends to all genetic resources, then there would beoverlap with existing schemes. Future discussion needs to consider the issue of
redundancy with existing voluntary certification schemes beyond the exceptions
provided by other conventions.

■ EffectivenessThe extent of certification diffusion is between four and seven percent. This fact isinterpreted differently depending on the commentator. In terms of general
impressions, however, it is difficult to conclude that this figure represents
widespread adoption. At the same time, experts with knowledge of the difficulty of
preventing deforestation regard this figure as laudable and have expectations forfurther diffusion in the future. When this figure is interpreted while emphasising its
suggestiveness toward biological resources targeted by ABS certification, the fact thatthe diffusion ratio has not yet reached 10% for certification systems related to timber
products, which enjoy relatively high visibility and are readily amenable to various
tracking systems (by barcodes), even though over 10 years have passed since the idea
was introduced, leads one to conclude that a new system would likely face difficultyin terms of its effectiveness.
29





As stated above, the reason it is often necessary for countries or regions to alter forest
certification content and standards in order to conform to the characteristics of theirrespective resources is that natural resource characteristics, resource supply anddemand structure differ substantially depending on the country. While we haveavoided touching on the meaning of unified international standards, at the very least,
applying such standards without alteration cannot be expected to result in a highdiffusion ratio.
A hardware-based management system is needed for a functioning
traceability/tracking system. When the system is simple and requires only minimal
initial investment, operating costs are higher. In contrast, when initial investment ishigh, operating costs are lower. This is the trade-off/dilemma of management
systems. (See the Appendix.) (This is also a problem of costs and benefits.)■ Costs and BenefitsImplementing certification systems sometimes results in the occurrence of additional
benefits. Implementation of a certification system can lead to improved supply
chains and lower management costs. When this function of a system is effectively
utilised it can become a factor that promotes access.
Certification acquisition costs tend to be higher in resource-rich countries. This isbecause when there are diverse resources it takes time to create a system forassessment and meeting the requirements of certification. To put it another way,resource-rich countries have high measurement costs. When measurement costs are
high, it means that transaction costs are also high, because they include measurement
costs.
The upper limit for a premium for certified timber on the international market (thehigher price that buyers will pay for certified timber) is around one to five percent.
Accordingly, if the higher cost per unit of certified timber exceeds five percent, there
is no longer an incentive for companies to acquire certification. If companies raise
prices over five percent in order to recover certification acquisition costs, the social
benefit will decrease through a decrease in consumers' surplus. At the same time, thesocial benefit will also decrease through a producers' surplus if companies do notpass on the costs.

■ Other

Third-party examination and auditing is always necessary.
In the case of forest certification, there is close involvement with resource exportingand importing, so the need for compatibility with WTO rules (fullnon-discrimination) has been put front and centre. A full non-discrimination rule isessential in connection with resource access restrictions.
30

5.2. Priority Issues for Discussion■ In continuing discussions on a certificate, determining objectives and scope should be
the highest priority. Without clarity in these areas, the discussion on certificatecomponents cannot move forward.
■ In determining scope, the issue of effectiveness must be given adequate attention. In
particular, the effectiveness of tracing/tracking systems for biological resources thatcannot be packaged needs to be sufficiently considered. At minimum, experts involved in
actual systems have pointed out physical limits in management devices for biologicalresources. On the other hand, if objectives and scope are limited, efficient management
would be possible through implementation of a management system.
■ Once objectives and scope are clearly determined, options that have the potential toachieve the objectives should be identified and organised in more concrete detail. The
benefits obtained through fulfillment of the objectives and the costs incurred to fulfill theobjectives should be compared via a cost-benefit analysis for each option. Unacceptableoptions identified by the cost-benefit analysis should be excluded from consideration andthe most cost effective of the acceptable options should be selected.
■ These constitute objective and fair means for making objective decisions. Discussion
on certificate considerations should continue so as to increase the benefit to all countries
party to the convention.

31

Bibliography[1] Boardman, A. E., Greenberg, D. H., Vining, A. R., and Weimer, D. (2001) Cost-Benefit
Analysis: Concept and Practice, Printice-Hall[2] Convention on Biological Diversity, Secretariat (CBD) (2007) Analysis of Gaps in Existing
National, Regional and International Legal and Other Instruments Relating to Access andBenefit-Sharing, UNEP/CBD/WG-ABS/5/3[3] Convention on Biological Diversity (2007) Report of the Meeting of The Group of TechnicalExperts on an Internationally Recognized Certificate of Origin/Source/Legal Provenance,
UNEP/CBD/WG-ABS/5/2 20 February 2007
[4] EFPIA (2007) Good Business Practice and Case Studies on Biodiversity, EFPIA Submission in
response to CBD COP Decision Ⅷ/18
[5] Mitsubishi Research Institute (2007) Applicability of Treaseability Systems for Foods, Food
Marketing Research and Information Center (in Japanese, shokuhin tore-sabbirithi no tameno
sikibetu kigou-no fuyoto yomitori joukyou chousa)[6] International Chamber of Commerce (2006) Issues for Consideration by the Group ofTechnical Experts concerning a Certificate relating to genetic resources[7] IUCN-Canada (2005) Analysis of Claims of ‘Unauthorised Access and Misappropriation of
Genetic Resources and Associated Traditional Knowledge, UNEP/CBD/WG-ABS/4/INF/6(sited16th

October

2007

http://www.cbd.int/doc/meetings/abs/abswg-04/information/abswg-04-inf-06-en.pdf)[8] Iwasako, T. and Sato, N. (2006) Expectation and Reality on Forest Certification (orShirin-ninsho eno kitai to genjitu) (in Japanese) , Science bulletin of the Faculty ofAgriculture, Kyushu University , Vol.61, No.2, pp. 381-387[9] Kate, T. K. and Laird S. A. (1999) The Commercial Use of Biodiversity : Access to genetic
resources and benefit-sharing, Earthscan[10] Laird, S. A. and Wynberg, R. (2005) The Commercial Use of Biodiversity: An Update on
Current Trends in Demand for Access to Genetic Resources and Benefit-Sharing, and Industry
Perspectives on ABS Policy and Implementation, UNEP/CBD/WG-ABS/4/INF/5 (sited 16th
October

2007

http://www.cbd.int/doc/meetings/abs/abswg-04/information/abswg-04-inf-05-en.pdf)[11] Muller, M. R. and Lapena, I. L. eds. (2007) A Moving Target: Genetic Resources and Options
for Tracking and Monitoring their International Flows, ABS Series No.3, IUCN
Environmental Policy and Law Paper No. 67/3
[12] Oliver, R. (2005) Price premiums for verified legal and sustainable timber (sited on 1st
November

2007

http://www.forestandtradeasia.org/files/Pricepremiumstudyfinal1.doc).
[13] Schmidt, C. (2000) Designing International Environmental Agreements – Incentive Compatible
Strategies for Cost-Effective Cooperation, Edward Elgar32

[14] Simula, M., Astana, S., Ismael, R., Santana, E.J. and Schmidt, M.L. (2004) Report on
financial cost-benefit analysis of forest certification and implementation of phased approaches.
Report prepared for the thirty-seventh session of ITTO. 13-18 December 2004. Yokohama,Japan.

(Sitedon

1stNovember

2007

http://www.itto.or.jp/live/Live_Server/2033/Annex-D.pdf )[15] Tacconi, L. ed. (2007) Illegal logging – Law enforcement, livelihoods and the timber trade,
Earthscan[16] UNECE/FAO (2006) Forest products annual market review 2005-2006, UNECE and FAO[17] Veisten, K. (2002) Potential Demand for Certified Wood Products in the United Kingdom and
Norway, Forest Science, Vol. 48, No. 4, pp. 767-778[18] Veisten, K. (2007) Willingness to pay for eco-labelled wood furniture: Choice-based conjoint
analysis versus open-ended contingent valuation, Journal of Forest Economics, vol. 13, Issue 1,
pp. 29-48[19] Yeager, T. J. ( 1999) Institutions, Transition Economies, and Economic Development, Westview
Press[20] Zenrinkyo ed. (2004) Certificate on Timber, Forestry, and its Industry by SGEC (in Japanese,
midori-no ninsho kaigi niyoru sinrin ninshou to ringyo mokuzai sangyo) Ringyo-Kairyou
Fukyu Sousho

33

Appendices
Appendix 1 Cases of Existing Logistics Management Systems for Biologically-derived
Products
Case study from major retailer Ito-Yokado: 5 Disclosure to customers of source
information for fresh foods
Certificate technology:

QR Code (allows access to information using the camera
functions on consumers’ mobile telephones)

Information available:

Source, cultivation conditions etc.

Information input by:

Retailer (Ito-Yokado etc.)

Stickers printed with QR codes are affixed to the packages of vegetables etc. In
stores, consumers can use their mobile telephones to obtain information on source
and cultivation conditions etc.

Case study in disclosure of food producer information: “Seica Net Catalog”(http://Seica.info/)
Certificate technology:

Information is registered on an Internet site and managedwith “catalog numbers”

Information available:

Producer profiles, cultivation methods, features, shipping
conditions, other audio and video information etc.

Information input by:

Producers and shippers of vegetables and fruit

Seica is owned by the Organization of Food-marketing Structure Improvement, apublic corporation for the promotion of improvements in food distribution under
the jurisdiction of the Minister of Agriculture, Forestry and Fisheries (of Japan) andis operated as a public database jointly by the National Food Research Institute of
the National Agriculture and Food Research Organization and the Computer
Center for Agriculture, Forestry and Fisheries Research of the Minister ofAgriculture, Forestry and Fisheries. It began operations on August 23, 2002.
Currently, it contains more than 140 items of data for approximately 1700 varieties.
Producers and shippers access the Seica website to register theirproduction/shipping information etc. Registered producers and shippers receive
an 8-digit “catalog number,” and distributors and consumers can use that number
to access production information via the Seica site. It is hoped that this system will
improve consumer confidence in fresh fruits and vegetables, enable distributors toaccurately purchase the fruits and vegetables that consumers desire and provide
producers with new and expanded sales channels. Searching, browsing andregistration are all free.
5

Large Japanese retailer.

34

There are a number of similar examples of logistics management for vegetables,
fruit and seafood in Japan. Their purposes are to ensure safety and to provide
brand management for places of source.

Case study from pharmaceuticals and medical equipment (including biologically-derived
pharmaceuticals): Production management obligations on manufacturers ofpharmaceuticals and medical equipment (Ministry of Health, Labour and Welfare (ofJapan))
Certificate technology:

2-dimensional code (not the QR code andconsumers are not able to access information using
their mobile phone cameras)

Information available:

Production conditions (data production, place of
production, production method, lot number etc.)

Information input by:

Manufacturers of pharmaceuticals and medical
equipment

2-dimensional code enables hospitals and pharmacies to contact the manufacturer
in the event of problems with pharmaceuticals and medical equipment.
The amended Pharmaceuticals Law requires very rigorous management, andmanagement levels differ according to the category of product. The strictest
standards are on vaccines and other “designated biologically-derived products,”
followed by blood plasm and other “biologically-derived products.”

35Appendix 2 Cases of IC Tag Systems
1) Characteristics


IC tag systems are management systems in the RFID (Radio Frequency Identification)category. “RFID” is comprised of a tag and an antenna, and uses electromagnetic waves
or radio waves etc. for wireless communications and data exchange.

It was developed at roughly the same period of time as barcode technology, though legal
restrictions on the use of the airwaves and other technical impediments tocommercialization meant that it has only recently come into commercial application.

This technology has the following features compared to other technologies:(A) Non-contact reading (unlike barcodes, “IC tags” do not require that they belined up in a certain direction and come in contact with a reader, but can beread at random from a remote location)(B) Ability to simultaneously identify multiple samples(C) Excellent durability(D) Able to read data(E) Able to store large volumes of data(F) Expensive; where a barcode or 2-dimensional code like the QR code costs 1
yen per unit, RFID can cost between 20 and several thousand yen per unit)Vulnerable to water and metal

2) Cases
Below are some meeting cases of IT tag systems to provide an image that will aid in
evaluations of suitability and effectiveness for genetic resources.

Case 1: Infectious waste management system·

Went into full operation in October 2006 at the Kamio Central General Hospitalin Saitama Prefecture (of Japan).

·

Hospitals are obligated to provide proper management and disposal of needles,
IV needles, waste products, blood and other “specially managed waste.” They
cannot be treated the same as ordinary industrial waste (approx. 20
yen/kilogram) but require more expensive treatment (200-400 yen/kilogram).
Hospitals must provide management to ensure that they are appropriately
treated and also need to reduce the amount of such waste they generate.

·

The receptacles used to recover infectious waste products contain 4 varieties of
IC tag for “plastics,” “bottles and glass,” “needles” and “human waste.”
Movement information is verified at 3 points of time: 1) upon delivery to thegathering point in the hospital, 2) upon collection by the service provider and 3)
directly prior to incineration at the treatment plant.

·

The system goes beyond merely tracking to measure weight and density etc.,
taking advantage of the strengths of IC tags to accumulate data on “which units
dispose of how much infectious waste in what form.” This information is fed

36

back to units in the hospital to reduce the admixture of non-infectious waste,
prevent the disposal of residual fluids in IV bags and otherwise save on
treatment costs. As a result, the hospital has been able to cut its treatment costs
from about 25 million yen per year to about 20 million yen.
·

Units that accurately dispose of waste tend to be well organized and have few
mistakes. Management of waste is therefore expected to provide a means ofmonitoring and improving operations.

Case 2: Next-generation zero emissions system (in pilot operations stage)·

This project was conducted by Seikisui House, Ltd. (construction byproductcollection vehicles, collection points, recycling center) between January andMarch 2007. The Ministry of Land, Infrastructure and Transport (of Japan)
adopted the “Residence etc. Resource Conservation and Waste Reduction
Technology Development” initiative as part of its “Advanced Housing andConstruction-Related Technology Development Subsidy” program in FY 2006.
Marubeni Corp. (and affiliates) was responsible for providing the machineryand systems.

·

Sekisui House has traditionally used its own management system that sorts
waste from construction sites into 27 categories and returns it to recycling
centers located within the company’s factories, where it is resorted into 60
categories for recycling. Effective resource utilization is something that Sekisui
House has emphasized. Having developed its own waste collection andtreatment system, in July 2005 the company became one of the first in theconstruction industry to achieve “zero emissions” of waste from factories
handling new construction.

·

The company has introduced a system that is even more effective in waste
management.

·

As part of the management process, waste products are placed in collection
bags suited to the product’s specifications, at which time they are affixed with
IC tags to facilitate reading.

·This system makes it possible to compare the weights and volumes of waste
generated at different construction sites; contractors that generate less waste are
rewarded as a means of improving on-site motivation. It is also possible toforecast the amount of waste that will be generated, preventing illegal
dumping.

·

Finally, work efficiency improves as well because the type of waste generated
will differ according to the phase of construction, which makes it possible forthe company to manage the work process.

·As a result, the company has been able to reduce the average waste per house toa maximum of approximately 1 ton, roughly half conventional levels. It has also
been able to reduce the per-house construction materials requirement byapproximately 2.4%.

·

Sites that provide appropriate waste treatment and receive timely deliveries ofmaterials are cleaner and appear better controlled, which has earned praisefrom owners as well.

373) Cost
It must be emphasised that the cost will vary widely according to the scope and content of thesystem. The figures below are for reference only. It will be necessary to estimate the costs forapplication to genetic resources after finalizing the scope and content of the system.
The IC tag itself (chip and antenna) ordinarily costs 2-12 yen/each. The “Mu Chip” from
Hitachi Ltd. (approx. 0.4 mm square) is cheaper, between fractions of a yen to several yen.
Where the costs are incurred is in the technology to form the tags into easily-read shapes
and provide them with the needed water and weather-resistance. The IC tags used forconstruction waste are not mass-produced, but are still in the handmade prototype stage
and cost 500-600 yen each. The IC tags for infectious waste cost approximately 120 yen
each in 2006, dropping a bit to 80 yen in 2007.



Sekisui House ultimately plans to expand the system to 150 branch offices around Japan
during FY 2009, at which time it will require approximately 750,000 IC tags and 1,000
readers. It will also need scales and reading equipment at treatment plants (6 in different
locations around Japan). Factoring in software development costs, the entire project isestimated to require an investment of 1 billion yen.



The RFID market was estimated at approximately 40 billion yen in 2006, but is expected
to surge to approximately 300 billion yen in 2012. Some estimates put it at 400 billion yen
in 2010.

4) Implications for the certificate
Below are the opinions voiced by experts in IC tag systems.


It will be extremely difficult to apply IC tag-based distribution systems to all
biologically-derived products.
·

The current system manages waste using uniformly-shaped bags and content
weight. Each bag has an IC tag attached and weight information is used to
manage the waste. It is impossible to deploy a single standard for the
management of all biologically-derived products. For instance, tomatoes can bein many forms: raw tomatoes, canned tomatoes, tomato juice etc. Products
derived from the same biological resources are distributed in a wide variety offorms. Even for meat, it may be possible to provide management at the level oflivestock units, but not at the level of cuts.

·

In the Sekisui House case, a total investment of 1 billion yen is envisioned on
the assumption of 750,000 tags, 1,000 terminals and reading equipment for 6
locations. Were a system to attempt to cover all biologically-derived products,
the number of products to manage would be enormous. Assuming for
illustration that resource traffic volume was 100 times the Sekisui House Project,
the cost would be approximately 1 trillion yen. It is difficult to believe that thesystem would add enough value to justify these costs. Large servers would also
be required to process extremely large data volumes.

It would be possible to use IC tags for management of a limited scope.
·

For example, IC tag management is possible for products that are distributed ina standard form such as tomatoes in cardboard boxes.

38·It is technically possible to confirm the product’s history when the box is
opened after shipping, which will prevent the content from being changed
during the distribution process.

·Government subsidies have already been used to introduce IC tag management
systems for some vegetables from the perspective of food safety. As one
example, tags are attached to the packaging film on lettuce and can be shown toa reader to provide a means of assessing the source and agrochemicals used.

·

Pilot programs are also being run to attach tags to the distribution crates forcertain varieties of seafood (squid etc.) in which location of source has become
part of the brand. Though tags increase costs, the priority is on protecting thebrand’s quality. (Already demonstrated on the Internet level.)·

There are already systems in operation to manage trans-boundary shipments ofrecombinant-DNA crops.

·

As commented on in CBS/WB-ABS/5/2, a web-based biological resource
management system is in trial operation using a “unique identifier” system (11data items, including “issuing national authority,” “details of the provider” and“a codified unique alphanumeric identifier”). At the current point in time, it islimited to biological resources for which R&D application has been filed, but aslong as the scope is limited it appears to be possible to combine a “unique
identifier” with an IC tag to manage biological resources.

·

IC tag systems are being introduced into book and apparel distribution becauseof expected efficiency gains. This, however, is merely a matter of logistics
management; there would appear to be little in the way of added value.

Shifting focus to applicability to the certificate, there are several hints that can be derived,
particularly from the perspective of effectiveness. On some important points, these overlap
with the opinions expressed by experts.
A “unique identifier” is merely a standardized coding system; by itself it provides noguarantee that resources can be managed. Management requires that the unique
identifier be combined with a physical tracing/tracking system.

A system that covers “all” biologically-derived resources will be extremely difficult.

Management is, however, possible if the scope is limited. (The “practicality” aspect ofeffectiveness.)

The costs are not necessarily cheap. Systems require not only the tags themselves but the
hardware to check them during movement and the software for their management.
Careful study will be required to ascertain whether the effects (benefits) expected fromthe introduction of a certificate-oriented management system are commensurate with thecosts.

The companies and businesses that have successfully introduced and operated systems
are companies and businesses that already had management systems in place before the
IC tag systems were introduced. In other words, if domestic law and PIC procedures are
already adequate, function should be normal even if the certificate is introduced. On theother hand, the case studies from IC tags indicate that where this is lacking, it isquestionable whether functioning will be normal even if systems and infrastructure are
introduced.

39



Leaving aside the technical considerations, the success stories all have strong incentives
for use of the system. For example, in the infectious waste management system, reducing
the volume of waste emitted leads to lower waste treatment costs. This provides an
incentive to introduce and maintain the system. Considering overall ABS, one important
point for consideration is what the incentives are for suppliers and users to introduce thecertificate systems or whether incentives can be created.

40

Appendix 3 Cases of QR Codes
1) CharacteristicsThe “QR code” is a kind of matrix-based 2-dimensional code that was developed by
Denso Wave in 1994 to provide an “easily read code.”To facilitate widespread use, Denso Wave announced that it would not enforce its rights
for the patent (No. 2938338). The “QR code” has been standardized at both the national
and international levels.



While the conventional barcode contains information only in one direction, the QR code
contains information in both the horizontal and vertical directions, providing a dramaticincrease in the amount of information that can be recorded (from several dozen to several
hundred times what can be contained in a bar code). Within the code are 3 “opening
symbols” to provide for high speed reading from any direction. By expressing data inboth the horizontal and vertical directions, it is able to express the same data volume
with 1/10 the size of a barcode (making it possible to print the QR code in small spaces).
Even smaller sizes are possible with “micro-QR codes.”

The code contains error-correction functions that make it less vulnerable to dirt andbreakage. It is possible to split up encoded data for expression.



It is not possible to add new information after the QR code has been printed. If individual
precision components have been given codes, a new code will need to be printed on themodule once they are assembled. Likewise a new code will be required for the finishedproduct once all the modules are assembled. In other words, one of the characteristics of
the QR code is that all of the codes are carried on in a bundle.

2) Cases

2-dimensional codes are already in widespread use around the world·

In Europe and the United States, the vast majority use the US PDF417 (Symbol
Corp.) or DataMatrix (CI Matrix Corp.). Each has its own strengths andweaknesses; which is used depends on the nature of the job.

·

The Japanese QR code is used in Japan, China, Vietnam, Korea and other Asian
countries because it is possible to include kanji (or other non-alphabetic
characters).

3) Cost

The cost of computer systems, readers and scanners etc. is not all that different from the
IC tag system.

The biggest difference is in the cost of the code. QR codes can be attached with simple
printing technology and therefore cost up to 1 yen each. By contrast, IC tags cost between
20 and several thousand yen each. Given the enormous number of products to be covered
if the system is to be applied to all biologically-derived products, the price difference forthe codes will have a major impact.

414) Implications for the certificate
Below are the opinions heard from QR code experts on the application of QR codes to thecertificate of genetic resources.
Will require common, standardized information·

Global distribution management requires that systems be common andstandardized: what language is used and how information is managed in theinformation processing generated by member countries. This is probably a very
difficult task given the number of interested countries and regions.



There are also problems with the human and technological capacity of countries andregions (particularly provider countries)·

The system will require the ability to print and read codes in all participating
countries and regions. Questions remain about the capacity of countries supplying genetic
resources in particular to maintain organizations for the management of information andthe printing/reading work.

42

Appendix 4 Current Certification/Certificate Systems
The objective of this paper is not to survey existing certification systems. Accordingly, we
have not provided a comprehensive survey of all certification systems. However,organising the systems that were surveyed is useful, so they have been organised andpresented in the following table.

43

Table 13 Current Certificate/Certification Systems
Category

Name

Objective

Effectiveness(Cost)

・
Beef
SystemTraceability Manage distribution via ・All organizations involved 1D barcodes can be created withindividual
cow in beef distribution manage extremely
simpleprinting
certification in order to ID codes for each individual technology, so one code only costs
ensure food safety
cow using 1D barcodes. Parts a fraction of a yen. With respect toimplementation,from the same cow are
costs
for
and
operation,
assigned the ID code for that management
cow. Assigning the same code readers, information processing
to every part of the same cow terminals, servers and other(Ministry of Agriculture, *Mandatory
hardware account for a majority
ensures traceability.
Forestry and Fisheries)of the cost.

・ Information provided Disclosure service for ・ Retailers enter the place of QR codes are two-dimensionalon the place of origin for customers (Ito Yokado, origin, cultivation conditions codes, but they can be createdfresh food products
etc.)
and other information on QR with extremely simple printing
codes, and stickers with the technology and cost less than one
codes are affixed to vegetable yen each. With respect to costs for
implementation, management andpackaging, etc.
operation, readers, information
processing terminals, servers andother hardware account for amajority of the cost.

(Retailers, etc.)*Service

・ Consumers are able toobtain information throughtheir cell phones at the store.

Food and Beverages

・QR codes can be created in
the form of extremely small
stickers, so information can
included on any shape andform of packaging, etc.
・ SEICA - Produce Improve structure of food ・ Produce producers and "Catalog
numbers"
are
Network Catalog
product distribution
shippers register information communicated via the Internet
throughthesite
and and are not directly attached to the
produced is managed via an targeted produce.
eight digit "catalog number"assigned on the basis of thisinformation.
http://seica.info/*Service, sales
expansion, etc.

channel ・Inputted
information Use of the site is completely freeincludes a profile of the of charge.
producer,
cultivation
methods,
characteristics,
shipping formats, voice andvideo, etc.

(A public database owned Helps distributors supply ・Distributors and consumers Costs are incurred on theby the Organization of precisely the produce are able to see production management side for system
Food Marketing Structure desired by consumers and information based on the management and administration.
Improvement
and helps producers develop code via the SEICA site.
managed by the National new sales channels.
Agriculture and Food
Research Organization's
National Food ResearchInstitute and Computer
Center for Agriculture,
Forestry and Fisheries
Research)(Continued on the next page)44

・ISO14001

Sustainable
forest ・ Diffusion ratio of 4-7% 10 (Discussed above)
management (SFM)
years since idea introduced

Wood (as a plant)

・FSC

・ Certified forests unevenly
distributed

・AF&PA SFI・ High diffusion ratios inNorth America and Europe,
but less than 0.2% in Africa,
Asia and South America,
which
have
enormous
forestland

・PEFC
・UKWAS, etc.

Ornamental horticulture

certification ・ 4,500 organizations in 35 Costs involved in receiving
・ Horticulture Industry Generalforthe countries
GeneralCertification systemhaveacquired certification include a membershiphorticulture industry that certification.
Programfee, annual fee, and the costs
targets
horticulture
associated with attaching the logo
producers
andto the product packaging, etc.
distributors
Costs vary depending on thecertification.
(MPS)(Certification
system for horticultureindustry originating in
the Netherlands)

・ 10 years since the program Costs are incurred on thewasstartedinthe management side for system
Netherlands, 790 participants maintenance, updating, etc.
on average have reduced
agricultural chemical andenergy usage by around 25%.
・ Attaching the MP logo tocertified products enables
differentiation from otherproducts and ensures quality
and traceability.

Source: Various sources.

45

Appendix 5 Tracking System Applicability, Diffusion and Cost
This table organises the applicability of ID codes (barcode, etc.) for ensuring thetraceability of food products. What is highly suggestive here is that the operationalburden of inexpensive systems is higher and that expensive systems may have a wider
scope of management, but because they are expensive, initial system costs are higher.
That is to say, there is a trade-off between cost and operational burden.

Table 14 Tracking System Diffusion
Means of assigning ID codes

Descriptive labeling

1D barcode（CSI128）

2D symbol

RF-ID

Very highSomewhat highIntermediate

Very low

Descriptive
labeling is used
for all products.

Diffusion

Very highImplementation costs

Interoperability is high In Japan, this form of ID There have been
because labelingcode is growing more
technical problems
methods arewidespread, primarily as with respect to reading
standardized, and use a means of providing
precision, etc., andon imported products information tothere are still few cases
in particular increases. consumers. However,of it being used in(Reference: This is very overseas in particular,
practical application,
widespread for
multiple standards are in but use is increasing as
domestically produced use so compared to GSI- an internal system at
beef, for which
128 interoperability is
produce sorting
traceability is
not high.
facilities, etc.
mandatory, andinteroperability with
imported products islaudable.)

Somewhat highIntermediate

Very low

Can beThe system used to
Codes can be read with RF-ID readers/writers
administeredassign and read JAN
such devices as a cellare more expensive
without a control codes, which are very phone, but commercial than those used for 1D
system, so can be widespread, can bereaders are somewhat
barcodes and 2D
implemented at a used, so device costs
more expensive thansymbols. Systemfairly low costand system
readers for 1D barcodes. development is also
(starting at several development costs stay Specialized software ishigh because there aretens of thousands low (several hundred also needed to print the no existing packages,of yen).
thousand yen).
characters, so this type of etc.
code costs more than 1D
barcodes.

(Continued on the next page)46

Very low

Potential for automating
assignment/reading

Very highVery highIntermediate

Very highReading cannot be Reading can be
Reading can be
Reading can be
automated, so
automated, so thisautomated, but dynamic automated, so thisregistration work form of code is suitable reading precision is low, form of code is suitableconnected with ID for use on automated so, as of the present, this for use on automatedcodes andlines, etc.
form of code is notlines, etc.
historical data isthought to be suitable formanual anduse on automated lines,
cumbersome.
etc.
Very low

Suitable
applications (interms of work
efficiency)

Intermediate

ID code reading
ID code reading can be ID code reading can be Batch reading iscannot be
automated. However, automated. However, 2D expected to be madeautomated, so
barcodes are read
symbols are readpractically viable in the
manualoptically, so to batch
optically, so to batch
future, which willregistration isprocess large numbers process large numbers of substantially reduce
required each time of codes the readers
codes the readers have to the amount of work
they arehave to be combined
be combined with some required to read andtransmitted.
with some sort ofsort of mechanized
write the codes.
mechanized system,
system, such as a belt
such as a belt
conveyor. But, in terms
conveyor.
of image recognition
processing speed,
dynamic reading
precision is low
compared to 1D
barcodes.
Very low

Shipment stage

Somewhat highSomewhat highIntermediate

Reading cannot be Reading can be
Reading can be
automated, so
automated, but the ID automated, but the ID
registration work codes must be readcodes must be readconnected with ID individually, so
individually, so
codes andregistration work takes registration work takes
historical data is time and labor.
time and labor. Even
Distribution stage manual andEfficiency can bewhen using automatedcumbersome.
improved by installing lines, etc., dynamic
an automated line, etc. reading precision is low
compared to 1D
barcodes, so the process
is difficult to expedite.

Somewhat highIntermediate

Reading the ID
It is necessary equip
codes can be done the sales floor withwithout
dedicated readers anda computer or similar
Consumption stage equipment, but
historical data
device to accesscannot be accessed historical data.
without acomputer orsimilar device.

Very highBatch reading ispossible, so it should
be possible to register
multiple ID codes
efficiently.

Intermediate

ID codes can be read and It is necessary equip
historical data can be
the sales floor withaccessed with a cellular dedicated readers andphone, so consumers can a computer or similar
search for information at device to accessthe store or at home.
historical data.

Source: Mitsubishi Research Institute (2007), Applicability of Traceability Systems for Foods,
Food Marketing Research and Information Center

47

Very high