Corruption Stains Timber Trade

URL=http://www.washingtonpost.com/wp-dyn/content/article/2007/03/31/
AR2007033101287.html?hpid%253Dtopnews

Corruption Stains Timber Trade
Forests Destroyed in China's Race to Feed Global Wood-Processing
Industry

By Peter S. Goodman and Peter Finn
Washington Post Foreign Service
Sunday, April 1, 2007; A01

MYITKYINA, Burma -- The Chinese logging boss set his sights on a
thickly forested mountain just inside Burma, aiming to harvest one of
the last natural stands of teak on Earth.

He handed a rice sack stuffed with $8,000 worth of Chinese currency to
two agents with connections in the Burmese borderlands, the men said in
interviews. They used that stash to bribe everyone standing between the
teak and China. In came Chinese logging crews. Out went huge logs, over
Chinese-built roads.

About 2,500 miles to the northeast, Chinese and Russian crews hacked
into the virgin forests of the Russian Far East and Siberia, hauling
away 250-year-old Korean pines in often-illegal deals, according to
trading companies and environmentalists. In the highlands of Papua New
Guinea, Indonesia and Africa and in the forests of the Amazon, loggers
working beyond the bounds of the law have sent a ceaseless flow of
timber to China.

Some of the largest swaths of natural forest left on the planet are
being dismantled at an alarming pace to feed a global wood-processing
industry centered in coastal China.

Mountains of logs, many of them harvested in excess of legal limits
aimed at preserving forests, are streaming toward Chinese factories
where workers churn out such products as furniture and floorboards.
These wares are shipped from China to major retailers such as Ikea,
Home Depot, Lowe's and many others. They land in homes and offices in
the United States and Europe, bought by shoppers with little inkling of
the wood's origins or the environmental costs of chopping it down.

"Western consumers are leaving a violent ecological footprint in Burma
and other countries," said an American environmental activist who
frequently travels to Burma and goes by the pen name Zao Noam to
preserve access to the authoritarian country. "Predominantly, the
Burmese timber winds up as patio furniture for Americans. Without their
demand, there wouldn't be a timber trade."

At the current pace of cutting, natural forests in Indonesia and Burma
-- which send more than half their exported logs to China -- will be
exhausted within a decade, according to research by Forest Trends, a
consortium of industry and conservation groups. Forests in Papua New
Guinea will be consumed in as little as 13 years, and those in the
Russian Far East within two decades.

These forests are a bulwark against global warming, capturing carbon
dioxide that would otherwise contribute to heating the planet. They
hold some of the richest flora and fauna anywhere, and they have
supplied generations of people with livelihoods that are now
threatened.

In the world's poorest countries, illegal logging on public lands
annually costs governments $10 billion in lost assets and revenues, a
figure more than six times the aid these nations receive to help
protect forests, a World Bank study found last year.

Environmental activists have prodded some of the largest purveyors of
wood products to adopt conservation policies. Industry leaders and
conservationists have crafted standards meant to give forests time to
regenerate. They certify operations that comply and encourage consumers
to buy certified goods.

But such efforts are in their infancy and are vulnerable to abuse.
Corruption bedevils the timber trade in poor countries.

"What we've done very well so far with certification is to reward the
best players in the marketplace," said Ned Daly, vice president of U.S.
operations for a leading certification body, the Forest Stewardship
Council. "What we haven't done very well is to figure out how to
exclude the worst players. We're having a hard time getting the
criminals to label their products 'illegal.' "

This story is the result of a year-long Washington Post investigation
involving reporting in China, Russia, Indonesia, Burma, Thailand,
Singapore and the United States. The Post interviewed government
officers, diplomats, logging companies, traders, retailers,
environmental scientists and advocates. Given the risks of discussing
illegal activity, The Post sometimes granted anonymity to its
informants -- particularly in Burma, where the agents who brokered a
logging deal with military commanders displayed their bribe ledgers on
the condition they not be named.
From Asian Forests to Ikea Showrooms

The industry that connects forests in Asia with living rooms in the
United States via the sawmills of China is a quintessential product of
globalization. As transportation links expand and technology erodes
distance, multinational manufacturing operations can draw supplies from
almost anywhere and ship goods everywhere.

No company better symbolizes this reality than Ikea, the Swedish
home-furnishings giant. Ikea cultivates a green image, filling its
cavernous stores -- including three in the Baltimore-Washington
corridor -- with signs asserting that its products are made in ways
that minimize environmental harm.

But in Suifenhe, a wood-processing hub in northeastern China, workers
at Yixin Wood Industry Corp. fashion 100,000 pine dining sets a year
for Ikea using timber from the neighboring Russian Far East, where the
World Bank says half of all logging is illegal.

"Ikea will provide some guidance, such as a list of endangered species
we can't use, but they never send people to supervise the purchasing,"
said a factory sales manager who spoke on condition she be identified
by only her family name, Wu. "Basically, they just let us pick what
wood we want."

China is Ikea's largest supplier of solid wood furniture, according to
the company. In 2006, about 100 Chinese factories manufactured about
one-fourth of the company's global stock. Russia is Ikea's largest
source of wood, providing one-fifth of its worldwide supply. Ikea
executives said they are confident this wood is legal, because the
company dispatches auditors and professional foresters to factories and
traces wood to logging sites.

But Ikea has only two foresters in China and three in Russia, the
company said. It annually inspects logging sites that produce about 30
percent of the wood imported by its Chinese factories, more commonly
relying on paperwork produced by logging companies and factories.

"Falsification of documents is rampant," acknowledged Sofie Beckham,
Ikea's forestry coordinator. "There's always somebody who wants to
break the rules."

Sending more people to inspect logging sites would make Ikea's products
more expensive.

"It's about cost," said Ikea's global manager for social and
environmental affairs, Thomas Bergmark. "It would take enormous
resources if we trace back each and every wood supply chain. We can
never guarantee that each and every log is from the right source."

Two years ago, Ikea set a goal that by 2009, at least 30 percent of the
wood for its products will be certified by the Forest Stewardship
Council. But now, the company says, only 4 percent of the wood used to
make its wares in China meets that grade.
The Ecosystem Effect

China's voracious appetite for foreign timber is the direct result of
its campaign to protect its own forests, even as its demand for wood
has exploded.

In 1998, floods along China's Yangtze River killed 3,600 people. The
government, blaming deforestation, imposed logging bans -- particularly
in Yunnan province, bordering Burma. What logging goes on must adhere
to plans for regeneration.

China also unleashed an ambitious replanting effort, expanding its
forest cover by an area the size of Nebraska from 2000 to 2005. A 2005
assessment of the world's forests by the U.N. Food and Agriculture
Organization pointed to China's replanting as the primary reason Asia's
total forest cover grew during that period, even as deforestation
continued worldwide "at an alarmingly high rate."

But in those same years, unprecedented expansion has unfolded at
China's factories, requiring enormous quantities of wood. In 2005,
China exported $8.8 billion worth of wood furniture, an eightfold
increase from 1998, according to Chinese customs data. About 40 percent
landed in the United States. China's exports of all timber products,
including plywood and floorboards, exceeded $17 billion in 2005, nearly
five times the 1997 level.

All that wood had to come from somewhere. In the years since China
enacted its logging bans, it became the world's largest importer of
tropical logs, according to the FAO. Its log imports swelled nearly
ninefold in a decade, reaching $5.6 billion in 2006, according to
China's State Forestry Administration.

China's imports of wood and exports of finished wood products are both
expected to double again over the next decade, according to Forest
Trends.

Whatever environmental benefits have resulted from China's replanting
have been undone by the damage to the tropical regions now supplying so
many of its logs, said Mette Wilkie, the U.N. officer in Rome who
coordinated the FAO report. China is primarily adding tree plantations
with little biological diversity. Much of the logging in Burma, the
Russian Far East, Indonesia and Papua New Guinea is assailing natural
forests that hold creatures and plants found nowhere else.

"You're losing tropical rainforest, and you're gaining areas of
plantation, and that of course is a concern," Wilkie said. "A lot of
the biodiversity is found in the moist forests."

The FAO report found grave environmental risks -- particularly in
Indonesia, home to 10 to 15 percent of all known animal, plant and bird
species. Several species are imperiled, among them the Sumatran tiger,
according to the World Conservation Union in Switzerland. In Burma,
tigers, red pandas and leopards are threatened as logging roads open
forests to a range of exploitation, a dynamic at play across Southeast
Asia.

"The arrival of logging operations has an immediate and devastating
effect," said Jake Brunner, a regional environmental scientist for
Conservation International. "We see a fragmentation of the forest and a
collapse" in wildlife.

More than 1 billion people in poor countries depend on forests for
their livelihoods, according to the World Bank. As forests are
degraded, and as logging proceeds on steep slopes, allowing soil to
wash away, communities are suffering from flooding, forest fires and a
dearth of game.

"Whole ecosystems are being wiped out," said Horst Weyerhaeuser, a
forester with the World Agroforestry Centre research group who advises
the Chinese government.

Meanwhile, the spoils of the timber trade are monopolized by those who
control the trees, typically local authorities acting with military
groups.

"For local people, it just gets more difficult," said a community
leader in Kachin state, in Northeastern Burma, bordering China, where
Chinese logging has stripped mountains bare. He spoke on condition that
he be identified only by his given name, Shaung, citing threats to his
safety. "The commanders sell our natural resources and our local people
get nothing."
'Take-and-Run System'

The buzzing sawmills and clattering furniture plants in China explain
why the pace of logging in Papua New Guinea is four times faster than
legally permitted, according to Forest Trends. It explains why ships
ferry logs to China from the African nation of Gabon, where 70 percent
of logging is illegal, according to the World Bank. It explains why
Chinese traders armed with cash line the Russian border, overwhelming
the regulators charged with preserving trees.

"There is no strategy for forest resources," said Alexei Lankin, a
researcher at the Pacific Geographical Institute in Vladivostok,
Russia. "What you have is a take-and-run system."

Chinese authorities acknowledge they rarely challenge imports. As long
as shipments are accompanied by harvest permits issued by authorities
in the country of origin, customs officers allow the wood in, making no
effort to authenticate the paperwork.

"China can only ensure that the logging companies and traders obey
Chinese law," said a researcher in Beijing affiliated with the State
Forestry Administration. "What they do in other countries is not
something the Chinese government can control."

Each year, illegal logging costs Indonesia at least $600 million in
lost royalties and export taxes, more than double what the government
spent to subsidize food for the poor in 2001, according to the World
Bank. Five years ago, China pledged to help Indonesia halt shipments of
merbau, a threatened tree species. Shippers have evaded an Indonesian
ban on exports of merbau logs by transporting them through Malaysia,
forging documents saying that the trees were harvested there, Chinese
traders said.

But China has done nothing to follow through.

"They said they have no authority to implement this kind of agreement,"
complained Tachir Fatmoni of the Indonesian Forestry Ministry. "Merbau
is still getting to China."

North of Shanghai, the Zhangjiagang port has become perhaps the largest
trading place on Earth for tropical logs. According to state figures,
$500 million worth of wood passed through the port in 2004.

One morning a year ago, tens of thousands of logs laid stacked on the
muddy banks. A four-story hotel next to the port had become a trading
house where buyers from furniture and flooring factories haggled over
cups of green tea. A bulletin board in the lobby was jammed with offers
for logs from South America and Africa, and one trader whispered to a
visitor that for the right price, he could get his hands on merbau.
Bribery at the Border

In the rugged mountains of southwestern China, automobiles worth more
than many villagers earn in a lifetime traverse dirt roads, a testament
to the riches that Chinese timber merchants are extracting from
next-door Burma. The trade amounts to a joint venture between China's
frontier capitalists and corrupt Burmese generals leading one of the
world's most repressive regimes.

For more than four decades, Burma's military dictatorship has plundered
the country's natural resources. In the northeast, ethnic Kachin
minority communities resisted the regime's rule with a long-running
guerrilla war, until they signed cease-fire deals with the Burmese
government in the 1990s. The Kachin had been sustained by jade mining,
but as those rights went to the government, they shifted aggressively
into logging, leaning on Chinese partners for capital, laborers and
transport.

The cross-border log trade swelled by 60 percent between 2001 and 2004,
reaching $350 million in 2005, according to a London environmental
group, Global Witness. With competing Burmese generals involved and
some using force to evict villagers in the way, control over land is in
flux, contributing to forest destruction: Chinese logging crews work
fast, cognizant that new armed forces could show up any minute and shut
them down.

"You bribe one army and you get the right to cut everything," said Li
Tao, a Chinese logger preparing last May to sneak across the border
from the Chinese town of Ruili. "Then another army comes and threatens
to arrest you, and you have to bribe them, too."

Ethnic Kachin agents working for a Chinese logging boss consented to
interviews in Myitkyina, a town in northeastern Burma, on the condition
of anonymity, citing fears they would be imprisoned or killed. They
said they wished to publicize the details of the trade to bring
international pressure on Burma's government to aid local people.

"We know what we are doing is rotten," one agent said. "There is
nothing else for us to do. This is how we are surviving."

They displayed a logbook showing records of the bribes they said they
paid to facilitate teak logging in the Sinpo area beginning in October
2004 through March 2006: $200 per year to the local police, $250 to the
forestry department, $225 to the Burmese military special intelligence
and $950 to the local brigade of the Burmese army, plus $8,000 worth of
gold to battalion-level leaders. The Chinese boss independently
funneled $4,000 each to five officers in the northern regional command,
the Kachin men said.

In January 2005, the agents said, a crew of more than 120 Chinese
workers slipped into Burma and set up camp on a mountaintop near the
town of Bhamo, adding the whine of chainsaws to the screeching of
jungle insects. "They cut the whole mountain," one agent said. "They
cut it all."

Caravans of 10 and 20 trucks, each carrying about 20 logs, ferried the
wood into China. The Kachin agents said they rode ahead on motorbikes,
giving soldiers $40 per truck at eight government checkpoints. Where
the government's control yields to the territory of a separatist group,
the Kachin Independence Organization, they paid $125 per truck to
Burmese soldiers, $83 to the forestry department and $25 to the drug
police. At Laiza, the final stop before the border, the Kachin group
collected a tax from the Chinese truckers, then issued documents
declaring the shipments legitimate.

In the first six months of 2005, this operation hauled 150 truckloads
of teak into China, with each truck carrying about 20 tons, the men
said. On the other side of the border, each ton fetched nearly $1,000,
making the total haul worth about $3 million.

Last May, in one hour, a reporter counted six big trucks loaded with
logs as they made their way down a narrow, winding road from the border
toward the Chinese town of Yingjiang.
'This Keeps My Child in School'

At the opposite edge of China, along the meandering border with Russia,
the logging trade has transformed backwater towns into bustling hives.
Russia has become China's primary wood supplier, with shipments
multiplying 20-fold in less than a decade.

In Vostok, a Russian town of 4,000 with crumbling Soviet-era apartment
blocks, villagers receive about $100 a month to haul logs from the
forest. Chinese workers run sawmills across the region.

South of Vostok, just outside the Russian town of Roshino, eight
Chinese workers sliced oak and ash trees into planks one day last year,
at a small plant where they also live, sleeping on cots in converted
offices. Piles of oak and ash awaited the saw blades. At the railyard
in the city of Dalnerechensk, freight cars bore loads of Korean pine
and linden trees -- both protected species -- with the cargo bound for
furniture factories in China.

Shi Diangang is typical of the entrepreneurs who control the trade. He
once sold clothing to Russian tourists on the border. Now he brings
laborers from China into Russia, paying them $375 per month to work 12-
to 15-hour days, prying wood from the forest. He sells timber to
Chinese traders who supply Chinese factories that he says make
furniture for Ikea. He is shopping for a villa in Macau, the gambling
mecca. He tells time with a gold watch.

"It's been hell to heaven," he said.

Shi operates inside Russia largely free of regulation, with his
business partner's government pedigree rendering everything legal, he
said.

"The Russian company settles all the documents," he said. "Russia has
very loose controls."

Already, logging has laid bare much of the Russian forest bordering
China. Crews are moving farther into the interior, penetrating
officially protected terrain. In the Primorsky region -- an area rich
with wildlife, including 450 Amur tigers, the world's largest cat --
Yappy lumber company struggles to satisfy orders from its Chinese
customers for unprocessed oak and ash logs.

"The forest is exhausted," complained Alexander Sobchenko, the
company's general-director.

The Russian Forest Service issues licenses for cutting in protected
areas under the guise of so-called sanitation logging, to remove sick
or fallen trees. In Primorsky, one-third of exported logs have been cut
under such licenses, according to Josh Newell, a researcher at the
University of Washington.

"Sanitation logging is a cover to get into areas that should be
protected," he said.

Last year, Russia's environmental prosecutor opened a criminal
investigation of Forestry Service officials after 14 firms with such
licenses harvested 1.3 million cubic feet of wood in a protected zone
near Vostok. The logs were exported to China with documentation,
prosecutors said. How much more passed through undetected no one really
knows: About the size of Florida, Primorsky has 12 forest inspectors.

"Barbaric" is one word Russian President Vladimir Putin has used to
assail the "critical problem" of illegal logging. By shipping logs out
of the country, Russia is exporting tens of thousands of jobs that
would go to Russians if the country had more sawmills and furniture
factories. "Our neighbors continue to earn billions of dollars relying
on Russian timber," Putin said.

Across the border, in the Chinese city of Suifenhe, 11 freight trains
were loaded with logs one morning about a year ago, some being
offloaded, others bound for factory towns throughout the country.
Shacks of corrugated tin and discarded tree bark encircled the rail
yard -- homes for migrant workers who have swelled the city's
population to more than 100,000 from 20,000 a decade ago.

On seemingly every lane, sawmills filled the air with black smoke, the
scent of fresh sawdust and the screech of metal blades biting wood.
Some were jury-rigged operations manned by workers lacking safety
goggles and gloves. At Jindi Wood company near the rail yard, four men
strained to haul huge logs to the saws with slats hung over their
shoulders. They earn $250 a week for seven days of work.

"This keeps my child in school," said Xiao Jifeng, 35, whose wife and
son remained in his village, a six-hour bus ride away.

Construction crews were filling the horizon with brick villas for the
bosses, as a modern city took shape on once-empty plains.

"Four years ago, there was nothing here," said Su Guanglin, chairman of
Guofeng Wood Co., a Hong Kong firm that employs 500 workers at a
floorboard plant in Suifenhe. Guofeng ships nearly all its products
overseas, about one-third to the United States, mainly through
Armstrong, a prominent Pennsylvania brand of floor products.

A China-Russia trading office was going up behind the factory. Empty
grassland had been transformed into a public square fringed with
neon-lighted restaurants and nightclubs offering Cognac and hired
female companionship. Oxcarts shared dusty roads with black Audi
sedans.
Moving to Certification

The Forest Stewardship Council, a body created by environmental and
industry groups in 1990, sets standards for the sustainable use of
forests. The movement has gained high-profile members, including Ikea
and Home Depot.

Home Depot conducts top-to-bottom investigations of the products on its
shelves, refusing to buy from vendors who cannot verify the wood's
origin, said Ron Jarvis, the company's merchandising vice president.

Home Depot sold some $400 million in products certified by the FSC in
2005, compared with $15 million in 1999. Still, those recent sales
represented less than 5 percent of the company's total wood-product
sales.

"If we could get 100 percent of our wood certified, we would do it
tomorrow," Jarvis said. "But we have to do it on a commercial basis."

In China, 20 companies per month are gaining certification, said
Alistair Monument, the FSC's country director in Beijing. In the
floorboard and furniture factories of Guangdong province in southern
China, management vernacular now includes forest conservation.

"All the big Chinese companies exporting to the United States are
really paying attention to this issue now," said She Xuebin, president
of one of China's largest flooring companies, Yingbin (Guangdong) Wood
Industry Co.

But many major Western brands have declined to join. Four-fifths of
Yingbin's exports go to the United States, some to Armstrong. Much of
Yingbin's wood comes from a sawmill in Indonesia, where as much as 80
percent of the logging is illegal, according to the World Bank.
Yingbin's president acknowledged "there's a gap between the law and
enforcement," though he said his company plays by the rules.

Armstrong does not require that Yingbin or its four other China
suppliers meet the standards of a certification body such as the FSC.
Armstrong buys Southeast Asian merbau for flooring that it sells as
"exotic," listing only the country of final manufacture -- typically
the United States -- but not the wood's source.

"I just don't think there's a need for it," said Frank J. Ready, chief
executive of Armstrong Floor Products North America.

Ready and his counterpart at Yingbin said they do not trade in wood
from one country that is synonymous with human-rights abuse -- Burma.
Yet as a reporter toured Yingbin's flooring factory in the Chinese city
of Zhongshan last spring, a pile of teak boards sat on the floor.

"It's from Burma," a worker said.

In the southern Chinese city of Guangzhou, merchants at Yuzhu
lumberyard hawked piles of Burmese teak to buyers from surrounding
furniture factories. In Shanghai, marketing representatives for one of
China's largest flooring companies, Anxin, boasted that they had a
large and steady supply of Burmese teak.

They were exporting it to the United States, they said.

Through which channels, they would not say.

Goodman reported from China, Burma, Thailand and Singapore. Finn
reported from Russia. Correspondent Ellen Nakashima in Indonesia,
special correspondent Eva Woo in China, and staff writer Justin Gillis
in Washington contributed to this report.