The Illegal Timber Trade in Asia - What routes do logs and timber take on their way to markets? - Who are the key actors and how are they organised? - What are the likely intervention points?

Who am I? Andy Roby Tropical forester (Bangor, Oxford), Henley MBA, 26 years working in international development (Africa, Latin America, Asia) and the UK timber trade Current work: Developing a licensing scheme to ensure only legal timber from Indonesia is exported to Europe

The Illegal Timber Trade in Asia 1.The nature of the problem 2.The trade in timber 3.Key Actors 4.How are they organised 5.What can be done to control the trade

Forest Products Typology Logs Sawn timber Panel Products (e.g. plywood, MDF, OSB, etc) Woodworking (e.g. decking, flooring, components, windows, door frames) Pulp and Paper Furniture Increasing Value

1. Illegal Logging in Asia Breaking forest laws in the country where the tree was harvested Examples from Asia include: Not having a valid felling license for the forest Felling in a protected area Not paying taxes Overcutting the forest Not respecting local people’s rights False customs declarations Transporting timber without proper documents EASY TO DETECT…… IN THEORY

1b. Aspects of Illegal Logging in Asia In some countries it is very easy to break the forest laws - Indonesia has 900 laws related to the forest It is thought to have cost the Philippines most of it’s natural forest (from 17m ha to 700,000 ha) It costs a lot (e.g. US$2 billion a year in Indonesia in lost revenue according to Human Rights Watch = cost of basic health care to 100m people for 2 years)

1c Main trade routes for illegal timber in Asia Used to be through Singapore and Malaysia – small wooden boats across the straits from Sumatra or across the border in Kalimantan to Sarawak and Sabah but stopped through better enforcement Singapore still involved in transhipment through the Free Trade Zone, finance and brokering. Now thought to be from Papua to China (especially merbau, ironwood, keruing) by container Laos to Vietnam Teak from Burma to China and Thailand PNG/Solomons to China Russian Far East to China Tropical logs to China from Africa and Latin America

China buys half of all tropical logs traded international ly (DFID “Crime and Persuasion”, 2007)

New Scientist, 12 August 2006 based on work by Forest Trends Russian Illegal Logs – where the money goes

Timber imports into Zhangjiagang Forest Trends Why China Needs Logs

2. The Trade – it matters!

Demand: Top 3 Countries in Global Consumption (2008) Industrial roundwood: USA (21%); Canada (10%); China (9%); Sawnwood: USA (23%); China (9%); Brazil (6%); Wood-based panels: China (28%); USA (16%); Germany (6%); Pulp for paper: USA (27%); China (16%); Japan (7%); Paper and paperboard: China (22%); USA (22%); Japan (7%); Source: FAOSTAT 2008

Supply: Top 3 Countries for Global Production (2008) Industrial roundwood: USA (22%), Canada (10%), Russian Federation (9%) Sawnwood: USA (18%), Canada (10%), China (7%) Wood-based panels: China (30%), USA (13%), Germany (7%) Pulp for paper: USA (27%), China (11%), Canada (11%) Paper and paperboard: China (22%), USA (21%), Japan (7%) Source: FAOSTAT 2008

3. Key Actors in the Supply Chain and their regulators 1.Logging companies 2.Manufacturing 3.Exporters 4.Shippers 5.Agents 6.Importers 7.Retailers/Wood users 1.Forest authorities, police, judiciary 2.Police, trade/industry regulators 3.Customs 4.Customs, International Maritime Org, insurance companies 5.The Markets! 6.Customs, Phytosanitary, Trading Standards, Environmental Authorities, retailers, wood users 7.Customers, Building Codes FINANCEFINANCE

Source: Scott Poynton, The Forest Trust Link their supply chains Secure system Legal wood From here Tracking from Stump To here

4a. How are they organised? Logging Companies Generally small unless part of a conglomerate or vertically integrated business. Low barriers to entry (capital, expertise, market linkage) Can be regulated fairly successfully (e.g. Congo Basin). Very mobile! But where do they get their machinery from?

4b. How are they organised Processing industry From tiny cash-based 1 man workshop e.g. Java furniture To enormous integrated capital intensive companies such as in the pulp and paper industry (e.g. Sinar Mass and APRIL in Sumatra) The bigger the company the easier to regulate in theory, but in practice the enormous companies are economically and politically powerful

4c. How are they organised? Agents Generally small (1-10 people), with low business barriers to entry Manage currency and sourcing risk for importers Find customers and help with marketing for their suppliers Increasingly are doing some importing themselves Used to be part of the problem (hiding source information) but in UK and other sensitive markets, some now see an opportunity to add value to their function Difficult to regulate because often they do not own the timber, but they still arrange the finance

4d. How are they organised? Importers Hold the stock and take the business risk of importing Offer their customers (merchants, retailers and wood users) rapid supply of stock items, and even manage the retailer/merchant timber stock for their customers Many now do some drying/manufacturing/repackaging to add value Powerful group in the supply chain, but generally low profile and not well known outside the timber trade

4e. How are they organised? Retailers, builders and other wood users Ordinary consumers do not buy much timber and don’t usually care where it comes from Retailers do care, and have reputations and nervous directors/shareholders to look after Builders are split; large companies are very concerned for same reasons as retailers, plus the rise of Green Building Codes, and they generally make an effort to control their timber supplies. Smaller jobbing builders are only bothered if their customers care

5a. What can be done? Enforcement examples: May 2008; Indonesian government highlighted trade in illegal timber across border of Kalimantan to East Malaysia. National police force clamped down hard. Result; trade flow stopped - industry in Sarawak and Sabah reported shortages of raw material EIA/Telepak report in 2003 on Ramin trade from Indonesia to Peninsular Malaysia, Malaysia introduced reciprocal legislation banning import of logs from Indonesia, and the trade in logs across the Malacca Straits virtually stopped

5b. What can be done? Border controls: Imports and Customs Check paperwork against what you can see (OK for logs but not containers) CITES certificates Species declarations Phytosanitary HS Codes for any import duty (generally very low for timber) Country of origin Check paperwork against export requirements for country of origin – SHARING INFORMATION

5c. What can be done? Demand-side Measures Procurement Policies such as the UK, Dutch and Danish policies require contractors to supply proof of legality Laws such as US Lacey and EU Due Diligence put the onus on the private sector to check the timber is legal Net effect of these policies is to make it more risky to do buy timber from countries with high illegal logging

5d What can be done Partnerships and trade agreements Declarations; Bali, Africa, Europe/North Asia MoU’s; Indonesia with UK, Norway, Japan, China, Australia Bilateral Trade Agreements such as Voluntary Partnership Agreements (EU) and Free Trade Agreements (US)

5e. What more can be done? Finance and Shipping Anti-money laundering stuff (see later presentations) Maritime Insurance Payments for timber through the banking system (Letters of Credit, etc.) Seizing ships if found carrying illegal timber, blacklisting carriers and masters Checking flags of carriers against origin of timber Checking ships own estimates of cargo against the exporting government

5f. Peter Young, Interpol 2009 “Illegal logging as a crime type is large and complicated, to the point where many agencies simply are not skilled or resourced sufficiently to deal with it. Hard end law enforcement is not the only way to deal with this problem. Compliance strategies, adoption of in-country green procurement policies, media, public awareness campaigns - just to name a few – all have a significant part to play. Existing and established law enforcement practices and networks are of almost no use when initiatives to suppress illegal logging are discussed. Dealing with those involved in this criminal activity, to date, has been patchy, uncoordinated and significantly under resourced.”

The Asian Timber Trade: Conclusion Asia needs timber imports for it’s manufacturing especially China, India and Vietnam This manufacturing can be either for export or, increasingly, for domestic consumption The Asia region is on the rise politically and is not going to be told what to do!! BUT Asian governments also understand the business case, especially when markets are changing to require proof of legality AND new streams of finance promised to combat Climate Change Markets may still be the best entry point …… And markets can be regulated too!

Thank You