Open Case Studies/FRST522/India

Import of illegal logs and wood based products in India by Stephanie Lee

Introduction

Illegal logging is creating havoc in some of the remaining pristine natural forests in the world, including in Brazil, Indonesia, Malaysia, Mozambique, and the Democratic Republic of Congo. It is a leading cause of deforestation, loss of biodiversity, collapse of community forestry and conflicts. In simple terms, illegal logging occurs when timber is harvested, transported, processed, bought or sold in violation of national or sub-national laws.The complexity of illegal logging is compounded when countries trade in illegally sourced timber in the international market. Economic data associated with illegal timber trade confirms that it is one of the most lucrative business for individuals and countries to profit from their rich natural resource base. The trade in illegal timber is estimated to be worth between USD 30 and USD 100 billion annually.Like any other business of commodities, in the case of illegal logging there are producers, processors and consumers. Illegal logging has adverse social and economic implications for the majority of the timber producing countries, particularly the developing countries.There is loss of revenue to the exchequer as well as loss of livelihoods of forest dependent people. Illegal logging also fuels crime and promotes corruption at all levels including at government levels.

Illegal logging exists because there is an increasing demand for timber and other wood based products including pulp and paper. As much as the producer countries are to be blamed for undermining their laws and regulations in forest resource management, the consumer countries too have a major role to play in encouraging this illegal trade by importing timber and wood products without ensuring that they are legally sourced. Until the recent development of mechanisms of certifying sustainable forestry and agreements to enforce the legality of timber sourced, there were no legal mechanisms to exclude illegal timber by importing countries although it was detected.With the exception of a few tree species listed under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), importation of illegally sourced timber was widely seen as normative.

Framing the Problem

Framing the Problem: Forestry perspective

India as Consumer of Illegal Logged Timber and Other Wood Based Products

With a rising population and increasing demand for wood and wood based products in the real estate sector, India is emerging as a major consumer of illegal timber and one of the world’s largest importers of wood-based products. A decline in domestic wood production means that India needs to meet its demands from other sources. Almost 30% of the timber demand is met by imports.. In 2012, nearly 20% of timber imports were estimated to be illegally sourced.The timber and wood based product imports are sourced from some of the worst affected producer countries in terms of illegal logging. Although a minority of these producer countries are in the process of negotiating bilateral agreements with the European Union, however the vast volumes of timber imported from Burma (Myanmar) and Sarawak (Malaysia) are yet to come under the European Union Forest Law Enforcement, Governance and Trade (FLEGT) Voluntary Partnership Agreement (VPA) licensing scheme. Compared to other consumer countries, India's high risk imports consists of primary wood products (such as logs, sawn timber, plywood and veneer) with a larger share sourced directly from producer countries.. According to a study by Chatham House on illegal wood import in consumer countries, the Government of India has very limited recognition to address or even curb this problem.

India as a destination for high risk imports of logs and wood based based products

In the international market of timber and wood based products, India is becoming an attractive destination for opportunities in global wood products business. This opens up avenues for illegally sourced timber and other woods to be included in the business. Between 2002 and 2011, imports of illegally sourced timber and wood products increased from 1 million to 3.5 million cubic metres RWE (Roundwood equivalent volume).. A lot of factors have led to the creation of a unique market opportunity in India. These include the ban on domestic logging, economic liberalization, demand for processed wood products such as furniture, laminates, flooring, etc., among the rising middle income class. A large volume of its estimated imports of illegally sourced logs comes from Sarawak (Malaysia) and Burma; plywood, furniture and paper from China; and pulp and paper from Indonesia.. India leveraged these opportunities to import illegally logged timber so as to conserve its forest to meet its national forest cover goalsand maximize revenue from value addition and re-export of secondary processing wood products

Framing the Problem: Layering Perspectives

The description above describes illegal logging imports in India from the perspective of a forestry student. In this section we welcome contributions from other perspectives. Those interested in contributing to this case study may use the following questions as a guide:

1. How do scholars and professionals outside of forestry conceptualize the practice of illegal logging in India?
2. What are other possible ways of framing this problem?
3. What special expertise, resources, or theoretical orientations might others bring to help us understand this phenomenon better?

Reasons for Increasing Import of Logs and Wood Based Products

Forest Policy

In 1988, the National Forest Policy brought into force certain regulations that restricted commercial harvesting of timber, liberalized the imports of of wood and recognized that forest land be used primarily by forest dependent communities for their fuel, fodder and food and small scale industries.In 1997, the Supreme Court ruled that use of forest land for non forest purposes had to be approved solely by the central government. All of these policy measures had implications for timber production which gradually declined and led to sustained increase in wood imports.

Increase in demand

Demand for timber and wood based products has accelerated in recent years due to the increasing demand for fuel wood from the rising population, demand for imported hardwood and softwood varieties in real estate development and consumer demand for interior decorating materials and furniture.The total consumption is estimated to increase from 58 million cubic meters in 2005 to 153 million cubic meters in 2020.

Decrease in domestic supply

Following the ban on domestic logging to allow regeneration of degraded forest, there has been a slow decline in timber production. To close the demand and supply gap, India had to rely on imports. The decline in supply is also attributed to the land laws that restrict the amount of land that private firms can own for harvesting wood and growing plantations and the inefficiency of mills due to the protectionist policy adopted with respect to forestry industries

Liberal tariff rate

In order to facilitate increased imports of wood, India adopted a liberal import tariff policy whereby tariffs on wood and wood products were reduced. The bound tariff rate for wood products is set at 40%, while the applied rates of most wood products range from 5% to 15%. The tariff on log imports has been kept at a low 5% relative to processed wood products in order to capitalize on value addition and re-export of wood products and to reduce harvesting in India.

Indicators to Assess Import of Illegal Log and Related Trade in a Consumer Country: A Forestry Perspective

A study was carried out by Chatham House in 2014 to assess illegal logging and related trade, and associated forest governance, in countries that produce, trade and consume illegally sourced timber. A set of standardized indicators was developed for this study.The indicators considered the nature and extent of the problem, the attention it receives, and the responses by both the government and the private sector.

Government response

The study by Chatham House used a structured system for assessing the existence, design and implementation of laws, policies and regulations generally considered necessary to minimize illegal logging and ensure good forest governance in high-risk countries.

High level arrangements

Unlike other countries such as United Kingdom, the Government of India neither did a review of its role as a consumer of illegally sourced wood nor created an action plan to reduce this role.There is lack of awareness of the issue among government officials in the country. The forest ministry is primarily focused on domestic forestry issues, and the Customs Agencies are currently only concerned with proper taxation of imported wood.

Regulation of timber imports

According to the 2014 study, India has neither analysed the potential of existing legislation to prevent imports of illegally sourced wood products nor has there been any initiative to implement additional legislation to prevent such imports.

Enforcement

Currently an assessment of enforcement in India is limited to only those timber species that are listed under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) due to the absence of a legislative mechanism to curb illegally sourced wood imports.Although India claimed to provide sufficient training to Customs officers to enable them to enforce CITES controls on listed timber species, the study found the implementation of CITES listings for timber species to be poor.The poor performance of CITES control is evident in the lack of records of arrival of shipments from countries which have reported exports and re-exports of CITES-listed timber and wood products to India.The study also found non existence of specific systems in place for receiving enforcement alerts from source countries regarding shipments of illegal timber or wood products en route.

Government Procurement

The Government of India has no regulations or policies in place to mandate all government purchases of timber and wood products to be legally sourced. The government procurement regulations does not include generic requirements for legal sourcing of wood products.

Media Attention

In order to analyse the attention given to the role of consumer countries as importers and consumers of illegal wood, the study by Chatham House looked into media coverage, both domestic and international, and press release and NGO reports in all these countries. In the case of India only one media report relating to the country's role in illegally sourced wood from abroad was found. In comparison to other consumer countries such as the United Kingdom and France, very few stories on illegal logging were reported in India.There has been little attention paid to India's role in the illegal log trade in the international media. India is a major importer of illegal wood from Myanmar and Sarawak. However the NGO campaigns have instead focused on China for Myanmar and Japan for Sarawak.

Private sector response

The Chatham House study analysed private sector response as an indicator by looking into the voluntary sign up to verification and certification systems offered by third party systems to private companies in the consumer and processing countries. Such verification and certification systems was limited to the Forest Stewardship Council (FSC) certification for sustainability.

Forest Stewardship Council Chain of Custody

FSC certification is one of the common methods used by timber traders and wood product manufacturers to ensure the legality and sustainability of timber used. FSC certification ensures that the wood or the product is sourced from a responsibly managed forests and which have been evaluated to adhere to FSC’s stringent environmental and social standards.FSC Chain of Custody (CoC) certification obtained by companies references the extent to which the private sector is willing to curb illegally sourced wood. India has the smallest number of FSC CoC-certified companies per million population of any consumer or processing country.

WWF Global Forest & Trade Network

The WWF Global Forest & Trade Network (GFTN) is another way by which timber trading and processing companies in consumer and processing countries ensure wood is sourced legally. GFTN is an initiative to link companies, governments and communities to engage in responsible forestry and trade practices.Participation in this forest and trade program by companies gives an indication of the level of interest in cleaning up supply chains by companies in consumer countries. As of May 2013, India had 10 trade members who had joined the network.

Indicators to Assess Import of Illegal Log and Related Trade in a Consumer Country: Layering Perspectives

What assessment indicators might someone from another discipline or profession consider? How might individuals from other disciplines assess the impact of illegal logging in India? Examples might include:

• Law
• Geography
• Environmental Science
• Social Justice
• Economics
• History
• Anthropology
• Philosophy

Example of Illegal Log Imports: Case of International Trade Between Guyana and India

The import of illegal logs involves a complex network of stakeholders along the supply chain who become a part of it either intentionally or unintentionally. In order to disentangle this web of illegal log imports, it is important to understand the entire chain of custody both at the producer and consumer end. An example of tracking and understanding what is entailed in an illegal timber import case is the export of logs from Guyana to a furniture business company called DAFFCO in India. To begin with, the illegality can be traced to the acquisition of a forest concession licence held by a company named Simon and Shock in Guyana by an Indian enterprise Vaitarna Holdings through a local subsidiary Dark Forest Company. Simon and Shock had a State Forestry Exploratory Permit (valid for up to three years) for concessions of total area c.392,000ha.Such transfer of concessions without the intermediate step of a public auction by the government is considered illegal and moreover this transfer was not made public until 2011. The allocation of concessions to enterprises like Dark Forest Company without prior international advertisement and sub-contracting of logging concessions by a concessionaire are not legal in Guyana. While allocating the concession to Simon and Shock, the Guyana Forestry Commission had carried out due diligence to establish the eligibility of the enterprise and later granted the permit on the condition that the business enterprise had to invest and establish a sawmill before logging. In the case of Dark Forest, no such due diligence was carried out and there seems to be no intent to establish a processing mill in Guyana either. Dark Forest Company is an affiliate of an Indian business group managing a chain of cafés under the brand name Coffee Day. This group intends to expand its furniture business called DAFFCO. It was floated in the stock market for private equity investments. A lot of questions arises in the private equity investments made by Standard Chartered and KKR here. Were the investments made with thorough checks on the reputation of DAFFCO or the legal source of wood that it uses to make furniture? Such investments may have been done knowingly or unknowingly which would eventually be exposed.

Recommendations

Recommendations: A Forestry perspective

As reiterated before, as much as producer countries are responsible for illegal logging in their home countries, the consumer countries are equally responsible in fueling such illegal acts. Consumer countries play a major role in sustaining the business of illegal imports of logs and other wood products. In recent years, some of the consumer countries such as United Kingdom, United States and the European countries have taken initiatives to check and control the wood sourced by them. This comes from good governance, strong law enforcement systems and the general recognition of the adverse impacts of exploitation of natural resources. Such recognition is lacking in many of the consumer countries such as China and India which are the largest importers of illegal timber. This is evident in the lack of legal mechanisms to exclude illegal timber from the imports.There are several measures that can be adopted by India to curb and control the imports of illegally sourced timber. Some of these are -

• Encourage more private companies in timber and related business to sign up to voluntary verification and certification systems such as the Forest Stewardship Council or WWF GFTN.
• Re-assessment of India's liberal import policy on timber and wood based products with the aim to make import of illegal timber cost inefficient.
• Strict adherence to CITES rules and following its protocols of operations and reporting to the CITES authority of any discrepancies in the report.
• Encourage and support producer countries to enter into bi-lateral agreements to exclude illegal timber such as the voluntary partnership agreements (VPA) negotiated under the European Union's plan of action for Forest Law Enforcement, Governance and Trade (FLEGT).
• Broaden the provisions in the Forest Act to include measures to exclude illegal timber in the absence of an international agreement.
• Make changes in the government procurement policy to ensure that only legal and sustainable timber products are purchased.
• Establish a system of accountability and transparency at all levels of government to check on corruption
• Impose heavy fines in cases of bribery related to trade in forest products.
• Creating awareness about illegally sourced timber among government officials and those involved in CITES and Customs administration.
• Capacity building and training of Custom officers to identify illegally sourced timber and reporting the same to the relevant government authority.

Apart from these recommendations that aim at exclusion of illegally sourced timber, the government should also consider the following -

• Revision of forest policy and forest laws using a broader lens so as to improve domestic production.The last revision of forest policy was in 1988 and the forest law in 1980.
• Collaboration between small farmers and private enterprises for sustainable domestic timber harvesting.
• Sensitize and encourage urban consumers to opt for certified wood products and other interior decorations and home building materials.
• Publish seizures of illegal timber to the wider public

Recommendations: Layering Perspectives

What recommendations might someone from another discipline or profession make to combat the issue of illegal logging in India? Examples might include:

• Law
• Geography
• Environmental Science
• Social Justice
• Economics
• History
• Anthropology
• Philosophy

References

The words timber,logs and wood have been used interchangeably to mean the same

External links

• Forest Stewardship Council
• WWF GFTN
• The Royal Institute of International Affairs
• EU FLEGT
• The Indian Forest Act 1927
• National Forest Policy 1988