Tuesday, July 25, 2017

When selling is more lucrative than protecting: Myanma Timber Enterprise and the deforestation crisis

For years, Myanmar’s state-owned timber giant has been subject to accusations of corruption and shadowy closed-door dealings. Environmental advocacy groups have long blamed Myanma Timber Enterprise (MTE) for operating its industry monopoly without transparency. On November 15, their allegations appeared to gain newfound teeth, substantiated by a landmark overseas lawsuit that has established a new industry precedent.

A worker clears an area where teak trees once grew in Bago Region after the land was scorched ahead of replanting. Photo: AFPA worker clears an area where teak trees once grew in Bago Region after the land was scorched ahead of replanting. Photo: AFP

The Swedish courts refused to accept MTE’s certification as proof of legally cut and harvested timber. The court ruled that Swedish company Almtra Nordic had imported Myanmar timber without proving evidence of due diligence in accordance with the EU Timber Regulation (EUTR). The EUTR was introduced in 2013 with the goal of rooting out illegal timber trading on EU markets. This was the first ever case in which an importer was sued based on failing to abide by the EUTR.

Jennie Sverker, a controller for the Swedish Forest Agency, told The Myanmar Times that Myanmar’s timber was disputed because the so-called “green folder” was incomplete. The folder normally contains documentation on specifications, destination invoices, legal certificates and a country of origin statement and a customs declaration. But according to Ms Sverker, the green folder provided by the Forest Department and MTE did not contain information about the subcontractors commissioned with carrying out the logging, the origin of the timber or the complete genesis of the supply chain. “It would only show what happened after MTE had received the timber,” Ms Sverker said.

The Almtra Nordic case involved timber purchased from another firm, which had in turn bought it from MTE.

The lack of information about the supply chain was deemed especially problematic because Myanmar is classified as a “high risk” country for illegal logging. In its analysis, the Swedish Forest Department takes into account factors like the probability of illegal logging, ongoing conflicts, trading embargos and the Corruption Perception Index by Transparency International, on which Myanmar was the 21st most corrupt country out of 168 ranked in 2015. Under such circumstances, the burden of proof for Myanmar’s supply chain is set quite high, according to Ms Sverker.

Peter Cooper, a forest campaigner with the UK-based Environmental Investigation Agency (EIA), sees the Swedish ruling as setting a precedent with far-reaching consequences for Myanmar’s timber trade. “The ruling means no Burmese timber can be legally placed on the EU market until the Myanma Timber Enterprise addresses illegality and transparency within the supply chain,” he said.

But in the wake of the verdict, MTE appeared nonchalant. “MTE already has clear instructions/procedures for the traceability of [the] timber supply chain,” the state-owned enterprise said in a statement, adding that, a “more reliable and data-based system will be developed”.

In contrast to MTE’s non-reaction, the Myanmar Forest Products Merchants Federation, which represents about 400 active exporters of timber products, released its own statement at the end of November articulating fears that Myanmar timber could stand to lose its good reputation on international markets.

Myanmar’s deforestation crisis

The troubles with Myanmar timber on the EU market come at a time when Myanmar is in the midst of a large-scale deforestation crisis. According to the UN Food and Agricultural Organisation (FAO), between 2010 and 2015 Myanmar lost 3.2 million hectares of forests and about 11 percent of its forest cover. Only Brazil and Indonesia lost more.

In the last 25 years more than a quarter of the country’s forest has disappeared, according to the UN. The consequences include loss of livelihoods for rural communities, loss of natural water storage, soil erosion and loss of the most important CO2 sink on the planet (through the photosynthesis process of trees). FAO estimates that around 43pc of the country is still covered in forest, with the largest expanses in Tanintharyi and Sagaing regions, and in Kachin and Shan states. But as FAO puts it, “Time is running out as deforestation continues at a rapid pace.”

The driver behind this development is evident: Forests are much more valuable cut than when they are alive. In fiscal year 2013-2014, before a log export ban came into effect, the export of raw timber was officially worth US$638 million. But experts say that this figure only represents a small fraction of the actual trade. According to the Oxford Business Group’s 2016 report on Myanmar, as much as 75pc of the timber exports are illegal and not officially registered.

Experts point out four main drivers for illegal logging: high demand from importing countries – mainly from China and India – the government’s inability to administer most logging concessions in ethnic armed group-controlled areas close to the borders, corruption on all hierarchical levels and domestic use by villagers for firewood and construction.

According to EIA’s research, China, the world’s top consumer of illegal timber, imported 30 million cubic metres between 2000 and 2013, with almost a third, or $2.7 billion-worth, coming from Myanmar.

“When combating illegal logging, we are not just talking about trees – government issues must be addressed with the core issue being corruption,” said Faith Doherty from the EIA.

Long before the Swedish court’s verdict it was widely accepted that Myanmar timber poses a significant risk of illegality. The EUTR monitoring organisation NEPCon for example reported that bribery and corruption in the allocation of harvesting licenses is “normal” and “essential” and that sourcing low risk timber from Myanmar is basically impossible. And a 2016 report by local, EU-supported non-profit ALARM (Advancing life and regenerating motherland) found that “illicit logging practices have been widespread”, including corruption, illegal logging, overharvesting, laundering of illegal timber and falsified documents.

A state-owned, large-scale timber trader

The structure of forest management and timber trading in Myanmar is rather complex and murky. The Ministry of Environmental Conservation and Forestry (MOECAF) is the overall body dealing with the management of Myanmar forests. The subordinate Forest Department is responsible for “sustainable forest management, biodiversity conservation and for the restoration of degraded forests”. MTE is the Forest Department’s counterpart, standing on the same hierarchical level. It currently has 16,639 employees and retains 3007 elephants for tree felling and transportation. It is the only authority permitted to extract and sell timber to local merchants and exporters.

For decades MTE exported valuable teak logs to raise money for the military government. The enterprise is very reluctant to provide information to the public about its activities – even though it operates within the Union budget.

Every year, the Forest Department establishes logging quotas, called the Annual Allowable Cut. The quota is intended to ensure sustainable forest management. MTE is supposed to respect these numbers when harvesting and certifying timber. But in a 2016 study by ALARM, partly funded by the EU and co-authored by professor U Kyaw Htun who used to work for the Forest Department, researchers from the University of Copenhagen and East Anglia found that the quota for teak was likely to have been exceeded from the 70s until 2014-2015. Teak is historically the priority timber harvested by Myanmar foresters due to its extremely valued properties of resilience to salt water and its suitability for shaping, particularly for boat hulls. Taking into account an estimated 20pc of undocumented illegal logging and 10pc wastage in the felling process, the annual quota was for several years exceeded by more than 100pc, and in 2012, by 500pc, the researchers said. In 2012-2013 the teak extraction in Sagaing Region alone exceeded the Annual Allowable Cut for the whole country.

Photographs shot by ALARM in spring 2014 at the Yangon port show huge cargo ships heavily loaded with timber logs for export – just days before the logging ban was supposed to get into action. According to the authors of the ALARM study, that the logging export ban was delayed by six months to enable the MTE and subcontractors to export the huge volumes they had previously amassed.

As MTE lacked the production capacity to process the yearly cuts in the past, it commissioned subcontractors to harvest and process timber on its behalf. Beneficiaries were well-known companies, included several formerly sanctioned by the United States, according to a 2013 report by environmental advocacy group Forest Trends. Timber was commonly used as a form of reimbursement for public, large-scale infrastructure projects. Companies with strong ties to the military were allowed to keep the timber felled for land conversion development projects, for example road building, agriculture, hydropower or mining, the Forest Trends’ researchers found. MTE then provided those companies with the necessary certificates for exporting the logs through Yangon port or the border to neighbouring countries.

“Prima facie evidence of corruption”

According to the 2016 ALARM study, to obtain concessions subcontractors paid very large bribes to senior military officials and MTE staff. “In conjunction with the MTE the timbers have been sold off at low prices to neighbouring countries. Windfall profits to subcontractors from ‘mining’ the forests, free grants of timber as patronage for loyalty and in return for substantial bribes and timber allocations – all kept the dysfunctional system generating huge profits for those unethical enough to plunder the nation’s heritage,” the authors wrote. While this refers mainly to the practices before the log export ban and the 2016 logging ban, irregularities seem to remain.

Timber logs are transported to the Yangon port on the back of a truck in 2015. Photo: Kaung Htet / The Myanmar TimesTimber logs are transported to the Yangon port on the back of a truck in 2015. Photo: Kaung Htet / The Myanmar Times

Oliver Springate-Baginski, a senior lecturer in environment and development at the University of East Anglia and one of the ALARM study’s authors, told The Myanmar Times that during field visits in 2015, the research team saw clear evidence that unofficial extracting was taking place like tree felling occurring in areas where it was banned. Additionally, an analysis of export documents showed timber that was trucked to China through the Ruili-Muse border and at the checkpoint, officials issued documentation – even though it is illegal under Myanmar law to export whole timber logs (as opposed to sawn timber) and to export it anywhere else but through Yangon docks.

“How do unregistered logs get to China through government checkpoints?” said Mr Springate-Baginski. “This is a prima facie evidence of corruption.”

Richard Holloway, an activist working with ALARM, told The Myanmar Times that corruption continue to be prevalent within MTE. He finds it particularly alarming that despite its dogged record, MTE continues to maintain a monopoly on timber certification. “When we visited the National Wood Industry – a very large timber processer and exporter in East Dagon – he [the chief of the company] said that all the importing companies ask whether the timber is legal. He just tells them that MTE says it is. Why should he make problems?”

The Myanmar Times’ requests to meet with MTE senior staff or to conduct a telephone interview to discuss the corruption allegations were turned down. Instead MTE responded with a list with general statements, “[MTE] has been performing its tasks in line with State laws and regulations and all of its accounts are yearly audited by the Union Auditors’ General Office. MTE will carry on its performances transparently.”

At a press conference on November 25, The Myanmar Times confronted U Myo Win, director of the natural forest and plantation branch within the Forest Department, with the corruption allegations. “Our President’s Office is very clear that no corruption is allowable … with[in] the private sector. Currently our situation is without corruption,” he said.

The government does not require MTE to make public detailed data on extracted timber amounts, subcontractors and revenues public.

“The timber extraction process remains currently highly inaccessible and non-transparent. Even with senior support we have experienced a range of difficulties in many locations due to non-cooperation, obstruction from public servants (particularly from MTE) and reluctance to speak openly,” the ALARM study authors said. They conclude that in a sector notorious for illegality and corruption these nontransparent responses themselves indicate a serious institutional problem.

“Even forest boundaries are not confidently known, let alone timber extraction contracts and volumes granted that would form the basis for citizen monitoring,” Mr Springate-Baginski told The Myanmar Times. At the same time he stressed that some within the Forest Department, like Director General U Nyi Nyi Kyaw, were very helpful and shared data the researchers requested.

Even insiders admit the sector is plagued with problems. Barber Cho was secretary for the Myanmar Timber Merchants’ Association until 2015, and, currently he is secretary of the Myanmar Forest Certification Committee while also acting as a managing director of Myanmar Inter Safe Co., a Yangon-based timber trading company. He told The Myanmar Times that it is no secret anymore that MTE – with the approval of the Ministry of Forestry – for years harvested teak far over the Annual Allowable Cut during the junta era in order to fill the administration’s pockets with hard foreign currency. But Cho points to the fact that for the first time MTE is headed by a civilian, appointed last year. Cho added that while MTE’s past selection of subcontractors was not transparent and may not have been up to international standards, “this specific problem does not exist anymore”. “After the logging ban, MTE stopped their work with subcontractors,” he said. Only transportation services are still subcontracted.

The authors of the 2016 ALARM report admit that things are changing within Myanmar’s forest governance. They observed improved stringency with regards to enforcing harvesting regulations. But at the same time, the authors blame an ongoing lack of transparency and entrenched interests for the unaccounted illegal flows and malpractices which persist until today.

According to the authors, illegal timber felling in Myanmar is now “scraping the barrel”, but is still going on. This has recently been confirmed by news reports. In August, nearly three tons of rosewood were seized from a military vehicle in Sagaing Region, according to AP. In July and September, The Myanmar Times reported the discovery several caches of luxury hardwood on the Tatmadaw Science and Technology research compound No 745 located in Mandalay Region’s Pyin Oo Lwin township.

To ensure more lawful forestry practices, experts, including the ALARM researchers called for right to information throughout all bodies concerned with forestry, a revision of the forest law and a promotion of community forestry. And for the forests to once again become a blessing rather than a resource curse on the country, they regard the future closure of MTE as a necessary step.

Additional reporting by Su Phyo Win