Independent inquiry needed into transfer pricing.

Why we need an independent inquiry into transfer pricing

Dear Editor,

One of the most encouraging aspects of the 2006 pre-election PPP/C manifesto was the four mentions of “value-added” products and industries for forestry (page 15).

Implementing the National Forest Plan of 2002 in this way obviously requires knowledge of the potential of Guyana 's timbers.

Contrary to the assertion in Samantha Griffith's (or is the real name the original Vivek Persaud in Guyana Chronicle of December 21?) letter in SN of December 30, much is known about Guyana's approximately 1000 types of timber. Identification and testing of Guyanese timber characteristics were undertaken at the Imperial Institute in London from c.1910.

The great collection of world woods by Samuel Record at Yale University includes a large number of samples from Guyana from the 1930s, which were used with Venezuelan timbers for descriptions in the classic text “Timbers of the New World ” (Record & Hess 1943, facsimile reprint 1972). Properties of the main commercial Guyanese timbers are available in public-domain comparative databases such as PROSPECT (www.plants.ox.ac.uk/ofi/prospect), of which both Indian and Chinese log importers are aware.

In the ten months from January-October 2006, the Guyana Forestry Commission (GFC) recorded names of 125 timbers produced as logs, of which 60 timbers were exported. Fourteen of those were exported in volumes greater than 1000 cubic metres (m3) and three of those in
volumes greater than 10,000 m3.

The GFC recorded, for the same period, 93 timbers produced as chainsawn lumber, of which 51 chainsawn and millsawn timbers were exported. There are considerable errors in volumes, and confusion about names in the GFC data, but Samantha Griffith is simply wrong in saying that “Guyana is not . . . well established in the timber market”, at least in qualitative terms.

My clarification in SN of December 25 concerned the fine furniture and flooring timbers, which constitute only a small proportion of Guyana 's forest growing stock, but which are of such intrinsic value that they are always in danger of being over-harvested. This point was either
missed or obscured by the Commissioner of Forests in the press conference which SN reported on December 9.

The Commissioner was adamant that Guyana 's forests are being harvested at an average rate of 5m3/hectare, only one quarter of the average sustainable level estimated by the GFC. I am not concerned about the average overall commercial timbers, but about the over-cutting, lack of field monitoring by the GFC, under-valuation and under-declaration, and transfer pricing associated with those few fine timbers which are so much in market demand.

Eighty-seven per cent of the recorded 41,000 m3 of purpleheart — the fine timber which I used in my example —- produced in January/October 2006, was exported as unprocessed logs, while local value-adding industries are short of this timber. This is not a case for an export ban, because the modern flooring mills in China can obtain a higher intensity of utilisation of logs than Guyana 's under-capitalised and relatively crude timber industries (see www.gtisproject.com).

It is a case for a thorough investigation of transfer pricing, and the persistent under-valuation of fine timbers and under-taxation of exports of unprocessed logs and squared timbers. The GFC is clearly not briefing the Minister for Forestry correctly, to judge from the recorded statements by both Minister and GFC Commissioner at the December 8 press conference.

Again I call for Government to bring in independent expertise to study transfer pricing, as the GFC seems not to understand either the gravity of losing US$3-5 million per month, or how to set about such a study.

Mahadeo Kowlessar