CROSSROADS The Illicit Timber Trade Between and Vietnam ACKNOWLEDGEMENTS CONTENTS This document was produced with the financial assistance of the European Union. The contents are the sole responsibility of EIA and can under no circumstances be regarded as reflecting the position of the European Union. 1 INTRODUCTION

2 THE THREATENED OF LAOS

EIA thanks the Adessium Foundation for its support 6 VIETNAM'S BURGEONING TIMBER INDUSTRY of our work on environmental crime.

This report was written and edited by the Environmental Investigation Agency 8 INSIDE THE ILLICIT CROSS-BORDER LOG TRADE Report design by: www.designsolutions.me.uk 16 ONWARD DESTINATIONS Many thanks to Emmerson Press for the printing of this report (Emmerson Press: +44 (0)1926 854400) July 2011 18 INTERNATIONAL GOVERNANCE POLICIES

20 RECOMMENDATIONS

CHINA VIETNAM Hanoi

LAOS

Vientiane

THAILAND Sekong town Attapeu town

Qui Nhon

CAMBODIA ENVIRONMENTAL INVESTIGATION AGENCY (EIA) 62/63 Upper Street, London N1 0NY, UK Tel: +44 (0) 20 7354 7960 Ho Chi Minh City Fax: +44 (0) 20 7354 7961 email: [email protected] www.eia-international.org

DOUBLE MEANING:

FRONT COVER: dong: Vietnam - unit of currency, money Trucks carrying Laos logs, Pleikan, Vietnam, 2010 dong: Laos - forest © EIA INTRODUCTION © EIA

Dusk is gathering at a remote forest Phonesack Vilaysack, who sells logs to ABOVE: inspection checkpoint in Attapeu, deepest Vietnamese buyers for hard cash while his Lao logs cut by a Vietnamese southern Laos, in February 2011. The own wooden flooring factory in Laos cannot military company, Vinh, Vietnam border lies a few kilometres supply orders due to a lack of raw material. Vietnam, 2011 . away, and the area is strangely quiet as the host of Vietnamese workers employed The main beneficiaries of this illicit trade in dam construction, plantations, and are Vietnamese-based companies logging have returned home for the Lunar and furniture factories obtaining cheap New Year. Two motorbikes are leaning supplies of logs. EIA investigations reveal against the office wall, confiscated from that one of the biggest loggers in Laos is people attempting to smuggle a few planks a company owned by the Vietnamese of valuable rosewood across the border. military; in April 2011 EIA observed a A few months earlier investigators from huge pile of logs in Attapeu owned by this the Environmental Investigation Agency firm, awaiting transportation to Vietnam. witnessed 34 trucks carrying logs along Through investment in logging, plantations the same road bound for Vietnam. Despite and hydropower projects, Vietnamese Laos banning the export of logs, the firms have appropriated large swathes of trucks are allowed to pass unhindered. forests in Laos, stretching from Xieng Khouang province in the middle of the Flagrant violation of Lao law is the norm country to Attapeu in the south. here, due to the powerful vested interests profiting from the illicit trade in logs from The vast majority of logs smuggled Laos to Vietnam. During field investigations across the border are processed into in 2010 and 2011, EIA met with three wooden products in Vietnam and exported firms engaged in logging operations in to the main markets of the US and Laos; between them they ship around European Union. Both have introduced 250,000 cubic metres of logs to Vietnam policies to exclude illegally logged timber every year. The total volume of the log from their markets, yet the flow of logs trade between the two countries is likely continues unabated. to be at least double this. EIA first exposed the illicit log trade These logs come from some of the last between Laos and Vietnam in 2008. Recent intact tropical forests in the investigations reveal that nothing has region, and are feeding Vietnam’s booming changed. It is now time for the governments wood processing industry. Meanwhile, of the two countries to work together to Laos’ own wood factories complain of a stem the flow of logs and curb the lack of raw material. Within Laos the only over-exploitation of Laos’ precious forests. people profiting from this log trade are corrupt government officials and EIA well-connected businessmen such as July 2011

1 THE THREATENED FORESTS OF LAOS © EIA

ABOVE: The land-locked country of Laos of in Laos today is Log storage area, Attapeu, (officially the ’s Democratic alarmingly high. has fallen Laos, 2011. Republic) lies at the heart of the from an estimated 70 per cent in the Mekong region and has some of the 1940s to just 41 per cent by 2002. largest tracts of primary rainforest left The annual rate of forest loss in the in mainland Southeast Asia. Home to past two decades is more than 90,000 large mammals such as the tiger and hectares.2 Much of the remainder is Asian elephant, and many ancient, composed of seriously degraded forest endemic and endangered species, with little biodiversity value.3 these forests retain a treasure trove of biodiversity. The implications of forest loss for Laos’ wealth of biodiversity are Laos’ forests also support the livelihoods severe. Large mammal species are of millions of rural and indigenous under pressure from the wildlife people. In 2008, 70 per cent of the trade and now face a fragmentation country’s population was rural, equivalent 1 and loss of habitat. Already, to 4.2 million people. These communities conservationists expect that Laos’ rely on forests for a host of services and biodiversity might not be as abundant livelihoods, such as food, fuel, building as commonly stated.4 materials and medicine. Yet Laos’ forests are seriously threatened The communities which rely on Laos’ by over-exploitation causing serious forests are being increasingly deforestation. One of the main threats marginalised by development policies is logging to feed the timber processing which pay scant regard to their industries of neighbouring countries traditional livelihoods. According to Vietnam, China and . As these the United Nations Development countries have implemented strict Programme, non-timber forest products provide 90 per cent of the income for controls of logging inside their own 5 borders, exploitation of Laos’ forests the poorest families in Laos. has increased. Forests also play a vital role in supplying Laos’ forest landscape is also clean water supplies and in water increasingly denuded by infrastructure resource management generally. Water, development, hydropower projects, in turn, is particularly important for mines and plantations, leading to both hydropower, a key element of the further unsustainable and . Lao Government’s development strategy, and in irrigation systems, a While forest cover statistics vary in key Government objective to guarantee accuracy, what is certain is that the rate food security for rural households.

2 As logging and infrastructure projects The ongoing deforestation in Laos is a increasingly deprive these communities direct consequence of weak governance. of their livelihoods, laws enacted to Over the past two decades laws, ensure they are compensated for forest Government decrees and policy exploitation are routinely ignored. announcements have created an Far from improving the plight of its extensive regulatory framework rural people, Government policies on governing everything from land tenure management of natural resources are to timber exports, but in reality these making survival harder. regulations are widely subverted or simply ignored. Meaningful enforcement is virtually absent as powerful interest WEAK REGULATION groups including the military, businessmen and corrupt officials On paper, Laos has a raft of laws plunder the country’s natural resources controlling logging and timber trade, with impunity. As one forest inspector but on the ground the situation is told a journalist: “We catch many chaotic and prone to corruption. Under people. We ask them who they are the country’s Forest Law, logging is working for and they give us the names only allowed inside demarcated of some very important people. We then Production Forest Areas (PFAs) in line phone to ask them about the activities with approved sustainable management and they deny it. What can we do? plans. The only exception is in special They are big-bellied people.”7 cases, where the land is to be cleared for infrastructure projects. In reality, however, this is rarely observed. Under such an ineffective system, the Lao Government’s stated aim of Logging in protection and conservation returning forest cover to 70 per cent areas, as well as PFAs without of the country’s territory by 2020 management plans, is rife and has appears an impossible ambition. To been identified as the most important achieve its goal the Government driver of forest degradation by the Lao intends to naturally regenerate up to Government, along with shifting six million hectares of forest and to agriculture. Border areas and National plant a 500,000 hectares of trees. Conservation Forests, which hold the Yet with an annual deforestation rate largest remaining stocks of commercially of 0.6 per cent a year, it is more BELOW: valuable timber, are a particular focus likely that forest cover will decline Rural communities in Laos rely of illegal logging.6 further to just 30 per cent by 2020.8 on forests for their livelihoods. © EIA

3 Ironically, one of the principal reasons Corruption is widespread in Laos’ advanced by the Lao Government to sector, explaining why national increase its forest coverage is to laws are widely flouted. In 2010, a BELOW: protect the country’s water resources, Government prosecutor admitted that essential for the growth of hydroelectric the number of forestry officials charged Forest landscape, Attapeu, Laos. power which has become a major with taking bribes was increasing, with source of export earnings.9 Yet it is payments being made to inspectors to BOTTOM: rapid expansion of hydropower allow cutting in excess of quotas.10 In Forest area cleared for schemes across Laos which is fuelling 2010, Laos was ranked the 154th most plantation, Attapeu, Laos. severe deforestation. corrupt country out of 178 assessed by anti-corruption watchdog Transparency International.11 It has been estimated that 20 per cent of logging companies’ total overheads in Laos comprise bribes to senior officials to secure quotas. A further 15-20 per cent goes to lower level officials.12 In 2008, a Prime Ministerial decree imposed a significant reorganisation of the management of the forestry sector, diluting the concentration of authority within the Department of Forestry. The same year a new Department of Forestry Inspection (DOFI) was created to independently inspect the sector. Although DOFI has a strong mandate, to date it has been undermined by a lack of trained staff and budget restrictions. It has also been reluctant to take on wealthy vested interests In principle, trade in Lao timber is also regulated. Since 1999, the Government has introduced a series of measures to prevent the export of unprocessed timber in an attempt to curb the rate of logging and promote a domestic processing sector. An order by the Prime Minister in 2007 explicitly stated that raw logs are

© EIA banned from export and that only finished © EIA

4 timber products can be exported.13 Yet once again such laws issued by central IMPACT OF PLANTATIONS AND HYDROPOWER Government are largely ignored, with logs and sawn timber flowing out of The development of plantations and large hydropower projects are Laos; for example, an order by the Prime cornerstones of Laos’ long-term development strategy and have been Minister in 2002 explicitly stated that heavily promoted by both the Government and Asian Development Bank, raw logs are banned from export and among others. that only processed timber products can be exported. Hydroelectric power potential constitutes 16 per cent of Laos’ total wealth.18 Ten dams are already operating and at least 27 are in the Much of this trade is driven by demand pipeline.19 Such expansion is driven by demand for power from neighbouring for raw materials from neighbouring Thailand and Vietnam. Plantations form part of a long-term strategy to countries, especially Vietnam. The bring forests under what the Government considers more economically abject failure of the log export ban to productive forms of use. In particular, rubber plantations financed by be enforced is illustrated by the lack Chinese and Vietnamese companies are rapidly growing in number. of timber available to the Lao wood processing industry. In February 2011, These developments are leading to large flows of foreign investment into a spokesman for the Lao Wooden both sectors and the inundation and conversion of substantial areas of Furniture Association complained that forest, causing damaging social and environmental consequences.20 a lack of raw materials was affecting the profits of furniture factories and Both infrastructure and plantations enable access to valuable timber stocks causing export orders to be cancelled. outside Production Forest Areas, as companies are allocated quotas to He called on the Government to stop clear the land. The volumes available are substantial – it has been reported exports of unprocessed timber.14 that in the Nakai Plateau alone, more than one million cubic metres were logged to prepare for the Nam Theun 2 dam.21 The main reason the domestic wood industry in Laos cannot get sufficient In 2008, an estimated 60 per cent of the timber harvested in Laos was approved under special quotas for hydroelectric and other infrastructure raw material supplies is the huge trade 22 in logs to neighbouring Vietnam, in projects. Within Laos, the military is involved in the exploitation of breach of the log export ban in Laos. resources resulting from hydropower schemes. For example, the Ministry In the first 10 months of 2008, of National Defence was in charge of logging and the sale of timber in the Nam Ngum 3 dam, awarding contracts for logging 70,000 cubic metres of Vietnamese Customs recorded 220,000 23 cubic metres of round logs entering timber to two companies. from Laos at a single border crossing, 15 According to the Forestry Law, plantations must be located on degraded Bo Y in Gia Lai Province. land but the definition of ‘degraded’ is unclear. In reality, new plantations are often illegally developed on forestland and are a key driver of The failure of the Lao authorities to deforestation. As with logging operations in Laos, the development of enforce the log export ban was plantations is opaque. Increasingly, companies see obtaining permission highlighted in a 2004 article. A timber to develop a plantation as a means to obtain timber, and in some cases industry representative discovered more once the logging has occurred the land is abandoned.24 than 1,000 cubic metres of Lao logs in an unnamed neighbouring country. The buyers told him they had bought the logs for Government officials in Laos. When he told the buyers that logs cannot leave Laos “they laughed at me and asked who was it who stop the export of logs?”. In the same year, the Lao Government issued a quota of 270,000 cubic metres for domestic use, but only 20,000 cubic metres reached the factories.16 There are indications that the Lao Government is belatedly recognising the need to enforce its forest laws. In June 2011, the Prime Minister ordered forest inspectors and police to inspect trucks suspected of smuggling timber to Vietnam and China.17

Yet such actions serve as a minor deterrent given the forces at work grasping for the natural resources of Laos. As a largely rural-dwelling country with a low population density, coupled with weak governance and high levels of corruption, Laos is preyed upon by its more economically advanced neighbours. This does not just apply to logging for timber, but also to agricultural commodities such as rubber and

hydropower schemes. © EIA

5 VIETNAM’S BURGEONING TIMBER INDUSTRY © EIA

Vietnam’s timber industry has increasingly becoming significant experienced a multi-billion dollar surge sources of demand for Vietnamese over the past decade, largely driven by furniture, particularly for products the country’s lucrative wood furniture made with rarer and more expensive manufacturing sector, which is now tropical hardwood species.30 the sixth largest worldwide. In 2010, Vietnam earned $3.4 billion from Since Vietnam ‘closed’ its forests in exporting wood products, with the 1997, logging in the country has been amount expected to rise to $4 billion strictly controlled. As its export for 2011.25 market for wood products has boomed, Vietnam has become increasingly Export markets are the key driver of reliant on imports of timber to feed its growth in Vietnam’s timber industry, timber processing industry. Currently, which now comprises 2,500 wood imports account for about 80 per cent processing enterprises nationwide.26 of timber supplies.31 In 2007, furniture exports of $2.4 billion made up 20 per cent of Vietnam’s overall In 2000, Vietnam imported $123 million export earnings.27 The Government plans worth of logs and sawn timber.32 By © EIA to almost double the value of wood 2008, this had risen rapidly to $1.1 billion product exports to $7.8 billion by 2020.28 worth of timber.33 By 2011, it was TOP: estimated that Vietnam was importing Outdoor furniture factory, In 2010, Vietnam exported wood products three million cubic metres of timber a Qui Nhon, Vietnam. to 26 countries, the main markets being year.34 In 2010, the Vietnam Timber & the European Union, United States and Forest Product Association (VIFORES) ABOVE: Japan. In 2008, the US provided the claimed the country’s factories required Yellow balau planks being dried, largest market for Vietnam’s furniture 6.4 million cubic metres of timber to Qui Nhon, Vietnam. products, at a value of almost $1 billion, meet planned production, with only with EU imports worth $600 million. 1.6 million cubic metres available from The importance to Vietnam’s economy domestic forests, mostly plantations.35 of furniture exports is highlighted by the fact that in the first half of 2010, Vietnam’s timber-sourcing policies one-third of all shipments from Vietnam often reflect the changing demands of to the US were of furniture.29 consumers. It imports ever-larger amounts of plantation hardwoods such While EU and US demand slumped in as eucalyptus, acacia and , mostly 2009 and has not yet recovered to for the increasingly environmentally pre-financial crisis levels, countries sensitive outdoor furniture markets in such as China and the Middle East are the EU and US. Yet the wood industry

6 still relies on large volumes of tropical under the policy initiative termed timber from natural forests, including Reducing Emissions from Deforestation yellow balau, keruing and natural teak. and Forest Degradation (REDD). This states: “Proof of legal provenance is not Of Vietnam’s major tropical timber required for imports of species other suppliers, Asian countries with the last than those listed under CITES. This remaining tracts of natural forest in the leads to a situation where wood imports region feature highly, including Burma, are deemed legal even though they Malaysia and Laos. As a direct neighbour, may have been illegally exported from and due in part to the special political elsewhere, in particular from Laos and BELOW: and commercial relationship with the Cambodia from areas where there are Sign for Vietnamese-owned rubber country, Laos now provides much of log and sawn wood export bans.”39 plantation in southern Laos. the natural tropical timber feeding Vietnam’s furniture sector. In 2008, Vietnam imported $130 million of logs and sawn timber from Laos, a steep rise from the $36 million of imports in 2000. Of these imports, $55 million worth was logs, which are prohibited from export in Laos, but made up 16 per cent of Vietnam’s total log imports.36 In 2008, EIA estimated that Vietnam was importing 500,000 cubic metres of logs a year from Laos.37

SECURING SUPPLIES Vietnam has instituted forestry and timber trade policies designed to respond to the threat posed by raw material supply uncertainties to furniture sector expansion plans, while maintaining and strengthening domestic logging controls and investing significantly in reforestation and plantations. Vietnam’s Forestry Development Strategy for 2006-20 seeks to develop 16 million hectares of sustainably managed and protected forests, with 8.4 million hectares of production forest, thereby increasing forest cover to 47 per cent by 2020. Expected to cost investors, the Government and donors over $6.5 billion, the project aims to

generate six million cubic metres of © EIA sawn timber per year by 2020.38

Despite this plan, the country’s wood NEIGHBOURLY TIES sector remains heavily reliant on imported timber, with the Government Economic and political ties dating back to the mid-1970s bind Laos and aiding imports through a zero per cent Vietnam, with a raft of special agreements and memoranda. This tariff on logs and sawn timber, relationship leaves Vietnam well-placed to exploit its neighbour’s natural compared with tariffs as high as resources. By 2010, Vietnam had jumped ahead of China and Thailand to 28 per cent for finished wood products. become the largest foreign investor in Laos, with 252 projects worth $2.7 billion.40 While on paper Vietnam’s timber trade regulations require that only timber from Vietnam and Laos intend to increase their bilateral trade from $1 billion in 2010 to $5 billion in 2020, with a significant part of the growth expected a legal origin is imported, in practice 41 this is ignored. In 2003, EIA alerted the to come from exports of minerals, timber and power from Laos. Vietnamese authorities to a shipment of round logs arriving at the port of Vietnam plans to invest in 31 hydropower projects in Laos by 2020 and is already engaged in construction at several sites, such as the Xe Kaman 1 Haiphong. The consignment had been 42 smuggled out of Indonesia in dam in southern Laos. This increasing investment by Vietnam in contravention of its log export ban, hydropower schemes in Laos is ironic, given that it has recently yet after being temporarily detained the announced measures to clamp down on logging associated with dam shipment was released to the importer. construction in its own territory, with Vietnam’s Natural Resources and Environment Ministry blaming flooding on logging in upstream forests by hydropower plant developers.43 This is also reflected in Vietnam’s submission for World Bank funding

7 INSIDE THE ILLICIT CROSS-BORDER LOG TRADE © EIA

ABOVE: In 2008, EIA published a report exposing Sekong and Khammoune; in Vietnam, Truck carrying Lao logs, Pleikan, the widespread use of logs from Laos EIA travelled to Ho Chi Minh City, Qui Vietnam, 2010. The logo signifies by Vietnamese outdoor furniture Nhon, Pleiku, Pleikan, Danang, Vinh, Xe Kaman 1 dam area as the source manufacturers, especially the wood Hanoi and Haiphong. of the timber. species yellow balau and keruing. In response to EIA’s findings, wood industry These latest investigations reveal associations in Vietnam claimed that the on-going large-scale trade in logs from sector did not use logs smuggled from Laos to Vietnam in contravention of the Laos, explaining photographic evidence log export ban in Laos. On a single of trucks carrying logs across the border October day, EIA witnessed 34 trucks by saying that the timber was either loaded with logs travelling in Attapeu bound for export or had come from en route to the border crossing at Bo Y. plantations in Laos. Neither of these statements was true, as EIA had Whereas EIA had previously focused observed Lao logs actually being on the use of illicit Lao timber by processed at scores of furniture factories Vietnamese factories, the target of this in Vietnam. None of the reported investigation was the actual logging comments by industry challenged the operations inside Laos’ territory. EIA existence of a log export ban in Laos. met with three companies which claimed In meetings with the Government, after to be exporting a total of 250,000 cubic EIA’s findings were released, timber metres of round logs from Laos to industry representatives defended the Vietnam a year. The biggest of these use of timber exported illegally from logging operations is run by a Laos by saying that if Vietnamese Vietnamese military-owned company. factories did not buy the wood, others in Chinese would. EIA also discovered that the southern province of Attapeu is bearing the brunt In 2010, EIA investigators returned to of the current logging activities in Laos. Vietnam and Laos to document changes The majority of the logging is linked to to the dynamics of the timber trade hydropower plant construction and the between the two countries. Between spread of plantations. Within Attapeu, October 2010 and May 2011, EIA massive forest clearance is taking place undertook three field trips; the main in the forests around the Xe Kaman 1 focus in Laos was the southern province dam site, owned by Vietnamese firms, of Attapeu, as well as the provinces of and thousands of hectares of land are

8 © EIA being cleared to make way for a vast A worker in the port said that 95 per cent ABOVE: rubber plantation owned by a of the logs had come from Laos, adding Lao logs owned by Vietnamese Vietnamese firm. that most were owned by the Vietnamese military company, Qui Nhon military; specifically Military Zone 4. Through field observations and port, Vietnam, 2010. undercover meetings with the key To understand where these logs had players, EIA has built up a picture come from in Laos and to probe deeper of widespread forest devastation in into the involvement of the Vietnamese southern Laos, with virtually no official military, EIA followed the trail westward control on the ground, the routine towards the Lao border and documented flouting of Laos’ log export ban and the logs with identical markings loaded on central involvement of the military, trucks in the Vietnamese border towns corrupt officials and well-connected of Pleiku and Pleikan. businesses in this lucrative illicit trade. EIA then crossed into the Lao province of Attapeu via the Bo Y border crossing. LOGGING OPERATIONS In an area between the two formal border checkpoints, a huge storage area INSIDE LAOS full of logs was observed. The trail then led to the village of Phao Samphane, COECCO: Military Connections adjoining the main highway running EIA first came across the Vietnamese though Attapeu to the Bo Y border Company of Economic Cooperation crossing. Just behind the village was a (COECCO) in October 2010 during a large cleared area for storing logs. visit to Qui Nhon port. The town of Qui Although only a few logs were visible, Nhon, in Binh Dinh province, is a major villagers said many logs had been there hub for wood processing and timber the previous month but had now been trade in Vietnam. After gaining access transported to Vietnam via Bo Y. The to the port, EIA investigators documented log pond was empty as the logging huge piles of logs with green paint season, which runs during the dry marks and tagged with yellow labels period from October to May, had been printed with the Vietnamese name "CTY delayed due to late rains. HOP TAC KINH TE.BQP, which translates into Company of Economic Cooperation - After travelling around the area, EIA Ministry of Defence (or COECCO). was able to confirm that most of the

9 © EIA

logs passing through the log storage be inside the Dong Amphan protected yard at Phao Samphane had come from area, which abuts the planned Xe logging operations linked to the Kaman 1 dam reservoir. construction of the nearby Xe Kaman 1 hydropower dam. This tallied with a logo In April 2011, EIA visited the Xe Kaman EIA observed on trucks as far away as 1 area for a third time. On this occasion Qui Nhon which read “Board for the the log storage area was choked with Management of Logging and Clearance logs, totalling about 60,000 cubic metres of the Reservoir Area of Xekaman”, of timber. Many of the logs had the confirming the dam location as the green paint marks and yellow tags source of the logs. Also, in November denoting COECCO’s ownership. © EIA 2010, EIA found an advertisement by COECCO publicising an auction which In order to find out more details of the TOP: was held on June 2010 to sell logs company’s operations and end markets, COECCO’s log storage area, obtained from the Xe Kaman 1. Other EIA undercover investigators posing as Attapeu, Laos, 2011. adverts by the company claimed an timber buyers travelled to COECCO’s annual availability of 200,000 cubic headquarters in Vinh city, Nghe An ABOVE: metres of logs from Laos. province, Vietnam, in May 2011 to Yellow tag and green paint log meet with representatives from the marks signifying COECCO. In February 2011, EIA returned to the wood trading division. Xe Kaman 1 area to ascertain whether COECCO’s logging operations had EIA met with Mr Thuy, Director of recommenced. The dam construction COECCO’s wood trading division, and area itself was eerily quiet as the Nguyen Trang, the export division Vietnamese workers had returned home manager. According to Thuy, COECCO for the lunar New Year celebrations. has been in the timber trade and logging Yet at the Phao Samphane log storage business in Laos for over 20 years, area, EIA documented several hundred making it one of the oldest and biggest fresh cut logs bearing the green paint logging operators in the country. Thuy mark and yellow tag denoting COECCO. confirmed that it sources all its logs from Laos. Thuy acknowledged that all The military involvement in the logging its logs are from dam clearance sites operations around Xe Kaman 1 was and that it is one of a handful of confirmed when EIA investigators companies permitted to carry out attempted to follow a log-loader vehicle logging in these areas. to a possible cutting site. After following the vehicle along a dirt road a Thuy explained that in order to checkpoint was encountered, manned undertake logging operations in Lao, by out-of-uniform Lao military personnel, it first has to apply for a quota from the and EIA staff were not allowed to Government. He said this is usually proceed. The logging area appeared to done once a year, or sometimes once

10 every six months, but never longer as Trang also revealed that COECCO has the Government is reluctant to grant a timber processing facility in Baan longer logging concessions. Laongam in Laos, but this only handles simple processing of logs into flitches According to Thuy, COECCO was (square logs) and is not designed to granted logging rights for 100,000 process timber into semi-finished or cubic metres in 2010 and the same for finished products. The end destination 2011, both from the Xe Kaman 1 dam for these flitches is also to markets in site and other unspecified sources. Vietnam. In April 2011, EIA/Telapak Thuy added that these quotas were visited COECCO’s factory in Baan issued directly by the central Laongam and observed four trucks Government in Vientiane and not by carrying freshly cut trees with roots provincial forestry bureau. and bark intact, parked near the entrance to the facility, although the BELOW: The meeting revealed that COECCO factory appeared old and dilapidated. Fresh cut logs arriving at organises every aspect of its timber COECCO’s log storage area, operation in Laos itself, using its own COECCO serves as the business arm of workers. The firm’s staff survey the Vietnam’s Military Zone 4 command, Attapeu, Laos, 2011. forests to identify desirable tree species. with the headquarters of both located in Once its log list has been signed by a Vinh City. Both also profit from close BOTTOM: Lao official, it then brings in its own connections with the Lao military. In Sign outside COECCO’s factory, logging teams, trucks and drivers to 2010, the Lao Defence Ministry awarded Vinh, Vietnam. “QK4” denotes take the timber to Vietnam. the Labour Order, first class, to the Military Zone 4. Most of the logs are transported directly to Qui Nhon port and Tien Sa port in Danang; Qui Nhon port because of its massive furniture processing industry, which makes up the bulk of its end markets, and Tien Sa port mainly because of its logistical convenience and shipping routes. Trang said the company had sold all of its logs in 2010 to Vietnamese wood processors but was hoping to attract foreign buyers for at least half of the available 100,000 cubic metres in 2011. She offered EIA investigators 15,000 cubic metres of keruing logs, which she said would be transported from Laos to either Danang or Qui Nhon in the next few months. © EIA © EIA

11 Military Zone 4 High Command and The claim that Phonesack was engaged COECCO “for their contributions to in smuggling logs to Vietnam appeared developing the friendship, solidarity and to be at odds with statements of the comprehensive cooperation between the company’s website which stressed its two Parties, States, armies and peoples adherence to Lao laws. Phonesack of Vietnam and Laos”.44 Such collusion Wood’s website states how it operates: helps explain COECCO’s emergence as “In compliance with government the biggest logging operation in Laos regulations to export timber by turning and its ability to disregard the country’s log (raw material) into near finished log export ban. product in order to increase profitability, restrict the export for the purpose Phonesack: Cash for Logs of preserving forest area. It also In February 2011, EIA investigators increases the number of employment travelled to the province of Sekong, to the community.” situated to the north of Attapeu, to document logging linked to the To verify the involvement of Phonesack construction of the Xe Kong 4 in illicit log trade to Vietnam, EIA hydropower dam. The area around the investigators posing as timber buyers dam site contains the Houay Asam travelled to the town of Thakhek, Protected Forest, as well as former Khammoune Province, in Laos, in logging concessions. Evidence of April 2011 to meet with company intensive logging was discovered; large representatives at its flooring factory. cleared areas for storing logs, logging roads criss-crossing the area, and EIA initially met with Phonesack denuded forest landscapes. Wood’s Chief Administrative Officer BELOW: Sam Lengsavath at the factory on the Logo on log truck denoting In a village on the edge of the Xe Kong 4 outskirts of Thakhek. Lengsavath spoke Xe Kong 4 dam area. dam area, EIA witnessed piles of fresh about how the company was shifting cut logs. Lao workers, dressed in all its production to a new integrated BOTTOM: jackets emblazoned with “Xe Kong 4” flooring factory at nearby Gnommalat. Phonesack-owned logs bound for were measuring the logs, which had He stressed how the company complies Vietnam, Xe Kong 4 dam area. been marked with blue paint. The with relevant laws in Laos, obtains logs workers said that all the logs were from hydropower, mining and road bound for Vietnam and were owned by projects, and was familiar with a company called Phonesack. requirements for proof of legality for timber products shipped to the US. A subsidiary of Phonesack Group, Phonesack Wood (also known as Nancy) The EIA investigators were then escorted is the namesake company of one of the to visit the new factory by Butch Lugay, wealthiest men in Laos, Phonesack the export manager. During discussions Vilaysack. EIA first came across the with Lugay, an entirely different story company in 2007 when following a Thai emerged. Lugay stated that the company company called LVT International which could not guarantee delivery on orders sourced its timber from Phonesack. The for flooring as it was struggling to owner of LVT, Prakit Sribussaracum, obtain raw material. He admitted that claimed to have paid large amounts in the wood processing factory was bribes to Lao officials to secure quotas essentially a front to show Lao from the clearance of Nam Theun 2 Government officials its investment 45

© EIA hydropower site. in and development of a domestic processing facility. In reality, the factory is used to secure large logging quotas from the Government. Lugay said: “You have a big factory, the Government will visit… oh, you have a lot… they will give you a lot of quota. The small small company, they don’t get, only me”. Phonesack reportedly secures quotas for over 120,000 cubic metres of timber each year.

According to Lugay: “… a lot (of timber) coming from the Government, the quota we have, sawn timber and logs, go to Vietnam”. Lugay estimated that 90 per cent of its timber, or about 108,000 cubic metres, is exported to Vietnam as logs via the Naphao-Chalo checkpoint and other crossing points, with fleets of log trucks leaving the factory at night bound for the border. Lugay explained that Phonesack’s log

© EIA export business to Vietnam takes

12 © EIA precedence over its wood processing company has wood processing factories business because of the quick inside Laos, the bulk of the timber it cash-transaction profits to be made by cuts in Laos is transported to Vietnam Vilaysack, the owner. He revealed that unprocessed. Vilaysack makes far more money from his log exports to Vietnam compared Xuan told EIA the company had with profits made by the flooring factory. previously exported decking and flooring products from its Lao factories to a In order to carry out his wood business, range of countries, including the UK, the Vilaysack aligns himself closely to Netherlands and Korea. Yet he went on politically powerful and influential to explain that the company was not individuals within the Lao Government. currently producing finished products Vilaysack is said to be very close to the and did not appear keen to promote this

President of Lao PDR and has allegedly side of Nicewood’s business. © EIA given relatives of the President positions at Phonesack Group. Even Sam Xuan revealed that the bulk of its TOP: Lengsavath, who is related to the business is not in finished products but Phonesack Timber's factory in current Lao PDR Deputy Prime Minister in raw materials – mainly round logs Khammoune, Laos. The company Somsavad Lengsavath, is hired for his and square logs or flitches. Once again, political connections. It is a particularly it appears that the company’s processing cannot guarantee orders of convenient connection, given that facilities in Laos exist mainly as a front finished products due to shortage quotas are approved by the Prime to secure logging quotas from the Lao of raw material. Minister’s office. Government, with the bulk of the raw timber being sent to Vietnam. ABOVE: As well as logging operations, the Square logs from Laos, Nicewood Phonesack Group is heavily involved in According to Xuan, Nicewood is allocated factory, Hanoi, Vietnam, 2011. mining and construction projects in about 30,000 cubic metres of timber Laos. In 2010, the company was annually, with the logging taking place accused of carrying out gold mining inside forest concessions rather than under a contract with the Lao military hydropower sites. He added that in order inside the Nakai Nam Theun National for Nicewood to secure quotas, it “must Protected Area.46 have relationship with the Government”. He went on to elaborate that it has Nicewood: Nothing is Difficult with Money “to pay money for the Government to Research carried out by EIA indicated have quota… and give them money to that the Vietnamese company Nicewood transport wood here… for example, was also engaged in logging operations customs officer and forest manager… in Laos, specifically in the northern we have to give them money”. province of Xieng Khouang. In April 2011, EIA investigators posing as Probed further, Xuan acknowledged that wooden flooring buyers travelled to the “Laos forbids the export of round logs company’s head office on the outskirts and square logs, but some company like of Hanoi to discover more details of us can import”. He then added: “Nothing Nicewood’s activities in Laos. is difficult, if you have the money’”. During a one-hour meeting with Tony At Nicewood’s warehouse, the entire Xuan, Nicewood’s Import-Export storage area was full of flitches, mostly Manager, it emerged that although the from Laos. There were also three trucks

13 being unloaded that had arrived from Vietnam, you know a lot of under-the- Laos full of yellow balau flitches. Trucks table money. Very difficult to take the transporting timber from its factory in log out. It is illegal. In Qui Nhon, there Laos to Vietnam travel via Nong Het - are many ways to have the log, but I Nam Can checkpoint. don't know how. Because we are a big company, we don’t know how to do that, Xuan also said that Nicewood exports we don't dare to do that”. Lao logs to overseas buyers. In January 2011, Nicewood exported 1,200 cubic Duc Long Gia Lai metres of rosewood logs to Yantai City EIA meet with Pleiku-based Duc Long in China. Previously, it had exported Gia Lai Furniture, a company owned by 3,000 cubic metres of yellow balau logs Duc Long Group. The company is known to Kandla port in India. to have close links to the Vietnamese Government and military. According to the Director of Duc Long VIETNAMESE COMPANIES Gia Lai, Do Thanh, the company imports most of its logs from Laos through a USING LAO LOGS regular supplier there. The logs are transported to Pleiku via the Bo Y Between October 2010 and May 2011, checkpoint, where they are processed EIA investigators met with a series of at its factory into flooring and furniture. Vietnamese wood processing companies At the company’s factory, EIA observed to gauge the degree to which logs from large piles of Lao logs, including yellow Laos are used by the industry. EIA balau, keruing and pyinkado. discovered that factories in the commercial centre of Ho Chi Minh City tend to avoid Thanh also said Duc Long provides Laos logs due to transportation costs timber to the Vietnamese military. and source raw materials from further During the meeting, EIA saw a afield, such as Africa and South whiteboard which listed the names of America. Yet wood processing factories Duc Long’s clients in Vietnam, including visited by EIA in Qui Nhon, Pleiku in the Intelligence Unit of Vietnam’s the centre of Vietnam, and Hanoi in the Military Zone 5, and Army Corps No. north were found to be using logs 320 – Division No. 3, both of which it imported from Laos. EIA investigators supplies with timber for projects. This also documented substantial piles of illustrates Duc Long’s close ties to the Lao logs in the Vietnamese ports of Vietnamese Government. Haiphong, Danang and Qui Nhon, awaiting sale or onward transportation. In addition, Duc Long also does considerable business overseas, exporting BELOW: One manufacturer EIA met in Ho City regularly to clients in Germany, the Log loading, Sekong, Minh City summed up the situation: Netherlands, Greece, Japan, Israel and Laos, 2010. “Laos, the way to do business is like various other countries. © EIA

14 Thanh Thuy Furniture EIA visited a medium-size outdoor furniture company in Qui Nhon called VIETNAM Thanh Thuy which was offering various Haiphong types of outdoor furniture made from Hanoi yellow balau and keruing. EXPORT LAOS According to Vice-Director Nguyen Thi Hong Thuy, the company ships 300 Nong Het - Nam Can containers of furniture a year, with 70 per cent of its products made from yellow Vinh balau and the remaining comprising Nam Phao keruing and other woods. Both balau - Cau Treo Ha Tinh and keruing are sourced from Laos and EXPORT Vietnam. Most of the materials are Naphao brought into Qui Nhon as logs, but some - Chalo are brought in as sawn timber. Nguyen Khe San revealed that it does not import the logs - Lao Bao from Laos itself but instead sources Route 15 Danang EXPORT them from local agents. Most of Thanh - Saravan Thuy’s production is geared towards Dak Cheung export to Europe and the USA. Phoukeau Pleikan - Bo Y Khang Thinh Pleiku EXPORT In Qui Nhon, EIA also visited a factory Qui Nhon owned by the Khang Thinh Company. This company was found to rely heavily on Laos logs to produce outdoor furniture for export.

Director Tang Thi Tuyet Nga revealed that balau and keruing make up about 70 per cent of Khang Thinh’s raw Ho Chi Minh material, with about 3,000 cubic metres of logs being sourced from Laos every year via a Qui Nhon-based agent called EXPORT Duy Tuan Pte Ltd. Khang Thinh exports most of its products to Europe. Vinafor Danang EIA met with the Danang subsidiary of Vinafor, a state-owned company engaged CROSSING POINTS in nearly all aspects of the wood trade in Vietnam, from timber plantations to Based on EIA’s investigations since 2007, the vast majority of material trading and wood processing. timber exported from Laos to Vietnam as either logs or sawn During a tour of its factory, it appeared timber contravenes Lao law. The main border crossings used that the firm’s processing capacity was for smuggling Lao logs into Vietnam are: relatively small but it also emerged that Vinafor Danang’s main business is Phoukeau - Bo Y checkpoint: Convoys of log trucks, mainly from Attapeu timber trading. EIA subsequently and possibly Sekong, were seen travelling to Vietnam via this checkpoint. telephoned Johnny Cuong, who oversees Logs taken across this checkpoint are generally destined for the cities of much of the company’s trade in raw Qui Nhon, Vinh and Danang. materials. Cuong revealed he was able to supply large quantities of Lao logs Route 15 in Saravan: Log truck drivers in Sekong revealed that most logs from Sekong 4 hydropower site travel to Vietnam via this crossing. Most and currently had up to 6,000 cubic logs are believed to end up in Danang. metres of yellow balau logs in Laos awaiting transport to Vietnam. Dak Cheung crossing in Sekong: Logs from Xekaman 3 hydropower site are believed to be taken to Vietnam through this crossing. Hoang Phat Furniture In 2007, EIA met with Hoang Phat Nong Het – Nam Can checkpoint: A trader in Vietnam revealed to EIA Furniture in Qui Nhon and discovered that the Nonghet-Nam Can checkpoint is regularly used to transport log the company was importing yellow and flitches. Timber moving through this checkpoint is known to end up in balau logs from Laos which were Vinh, Haiphong or Hanoi. processed into furniture for subsequent export to Europe. In April 2011, EIA Naphao – Chalo checkpoint: In 2007, EIA filmed a convoy of log trucks observed trucks belonging to Hoang crossing into Vietnam via this checkpoint. In April 2011, a trader from Phat being loaded at COECCO’s log Phonesack confirmed the crossing remained active and that logs continue storage area in Attapeu Follow-up to be taken through it to Vietnam. correspondence with Hoang Phat Khe Sanh – Lao Bao & Nam Phao – Cau Treo checkpoints: High-valued revealed the company could offer and often illegal ‘precious woods‘ are also reportedly smuggled to Vietnam arge amounts of keruing sourced from via both of these checkpoints. “local forests”.

15 ONWARD DESTINATIONS © EIA

Of the hundreds of thousands of cubic demand certified timber. Yet other metres of logs flowing out of Laos into markets such as Italy still trade in Vietnam every year, the bulk enters the outdoor furniture from Vietnam made international market; mainly as finished from high risk species such as yellow products wood products made in balau and keruing, which EIA Vietnam but also as raw timber for investigations have revealed are processing in countries such as China widely sourced as logs from Laos. and India. As control over forest resources in other Asian countries such In one outdoor furniture factory in Qui as Indonesia improves Laos, with its Nhon visited by EIA, the company was bountiful forests and shambolic processing certified eucalyptus as well © EIA management, is an attractive proposition as yellow balau and keruing logs from for the timber processing industry in Laos at the same time. This example TOP: the region and beyond. shows market demand is a key driver Tien Sa Port, Danang, Vietnam . of the illicit trade in Lao logs.

ABOVE: During its investigations in 2010 and Outdoor furniture made in FINISHED WOOD PRODUCTS 2011, EIA documented the use of yellow Vietnam bound for Europe. balau and keruing logs by furniture Vietnam’s wood processing industry factories in Vietnam supplying EU specialises in indoor and outdoor markets. One factory in Qui Nhon furniture, although production of wooden claimed to be shipping yellow balau flooring and other finished products is outdoor furniture to two Italian growing. Given the export-oriented distributors called Sea Ingross SRL nature of Vietnam’s wood sector, it is to be expected that logs from Laos turned and Di.Mo Commerciale SRL, which in into finished products end up in a range turn sell it on to local retail shops. One of end markets, principally the EU and of the brand names seen by EIA at the the USA. factory, Cosma, is available for purchase on an Italian website. Another factory Within the EU, different member states in Qui Nhon claimed to ship yellow balau have different requirements in terms of outdoor furniture derived from Lao logs timber species used in outdoor furniture to the French-owned retailer Leroy imported from Vietnam, mainly due to Merlin’s stores in Poland. The two style preferences and awareness of the factories also ship keruing furniture to environmental impacts of illegal logging. customers in Greece and Finland. For instance, northern EU markets such Yellow balau products derived from Lao as Germany favour plantation species logs also enter the US market. Trade such as eucalyptus and acacia, and often data analysis carried out by EIA reveals

16 that a Qui Nhon-based manufacturer using Lao logs has made a series of exports of yellow balau outdoor furniture to US customers. One of the buyers is Kentucky-based Oxford Garden, whose website states that it specialises in “shorea” (balau) furniture, adding: “We only use premium wood and we are not stingy with it”. The Vietnamese manufacturer has also shipped yellow balau products to Fort Worth-based International Caravan Inc.

RAW TIMBER Vietnamese companies trading Lao logs also supply international buyers as well as domestic processors. For example, the Hanoi-based company Nicewood has shipped Lao logs to India and China. Internet searches reveal an active international trade in Lao logs; for instance the Vietnamese company Viet Anh Wood Co Ltd offered both yellow balau and keruing logs from Laos for export in 2010, with a monthly availability of 20,000 cubic metres. Traders from other Asian countries are also cashing in on Laos’ forests; Lao logs, Qui Nhon port, Singaporean, Indian and Chinese firms Vietnam, 2010.

are also involved in trading Lao logs. © EIA

THE ROSEWOOD BUSINESS In addition to trade in high-volume mid-price timber species such as keruing and yellow balau from Laos, a black market exists in expensive ‘precious woods’.

The species comprising this category include Siam rosewood, also commonly known by its Chinese name huanghuali, and Khamphi rosewood. In Laos, the logging and trade of these species are prohibited. Increasingly, precious wood traders are also targeting ‘non-traditional’ rosewood species such as narra padauk and makha. Here the term ‘rosewood’ refers to a combination of the above species.

In April 2011, EIA had a chance meeting with Xie Rongjian, of Guangzhou-based De Sheng Hang Company in Laos. Claiming to be one of the biggest rosewood traders in Laos, Xie has

a team of Chinese employees scouring the country for © EIA rosewood supplies. The two main species he trades are Siam rosewood and narra padauk – all of which are sourced Xie revealed that rosewoods are commonly taken across to from Laos and Cambodia. Vietnam via Nam Phao - Cau Treo and Khe Sanh - Lao Bao checkpoints. Once in Vietnam, logs are transported to In nearly a decade in business in Laos, Xie has seen stark Haiphong and Danang ports, where they are containerised declines in rosewood supplies. He attributed this to the and shipped to China. exorbitant prices consumers are paying for raw materials and finished products in China. He admitted: “the species is The end market for rosewood logs is entirely for the finished... there are only about five years left in the trade production of traditional furniture in China. Referring to (in Laos)”. So scarce are supplies that Xie offers to travel the more precious rosewoods, Xie said he sources logs in anywhere in the country if a supplier can offer just a few Laos for “only a few hundred US dollars” but can sell the cubic metres of logs. Xie does not have any logging materials in China for about $50,000 per cubic metre. operations and just buys logs from local sawmills and He added that the price of raw materials in China has risen traders, who in turn collect from villagers. as much as 30 times in value in the past 10 years.

17 INTERNATIONAL FOREST GOVERNANCE POLICIES © EIA

ABOVE: Over the past decade, illegal logging and wooden products in the EU will have to Log truck heading towards the the associated timber trade has been obtain evidence from suppliers that the Vietnamese border, Attapeu, recognised globally as a major driver timber has been legally harvested and Laos, 2010 of deforestation. Strong evidence that traded. Under such a system Vietnamese demand for cheap timber products in exporters using raw timber from Laos major consuming markets such as the will be deemed high risk. EU and US is a major driver of illegal logging has led to the emergence of new FLEGT VPAs are designed to help policies specifically designed to exclude producer countries verify the legality of illicit timber, such as logs from Laos their timber products and to ensure that smuggled to Vietnam, from these markets. only demonstrably legal wood products are exported to the EU. VPAs are a bilateral agreement between the EU and EU FLEGT individual timber-producing countries. Under a VPA, licences are awarded for In recognition of the serious impact of proven compliance with a Timber illegal logging and the role played by its Legality Assurance System (TLAS) or market, the EU produced a Forest Law a ‘legality standard’ – a set of laws Enforcement, Governance and Trade governing timber trade which are agreed (FLEGT) Action Plan in 2003. This during the country’s VPA negotiations seeks to tackle illegal logging from both with the EU. Such legality standards the production and consumption ends of need to cover all timber, whether the timber trade. The two main pillars domestically produced or imported by of the plan are the Timber Regulation the partner country. In Vietnam’s case, and the Voluntary Partnership a company seeking a VPA licence for Agreement (VPA). furniture made with Lao timber would need to be able to demonstrate legal Finally agreed in July 2010, the Timber compliance with the laws of both Regulation prohibits the first placement Vietnam and Laos. Both of these of illegally logged timber on the EU countries have expressed interest in market. This means the initial importer negotiating a VPA with the EU. of illicit timber into the EU can be prosecuted. The regulation also compels A vital component of VPA negotiations companies to perform credible due is the involvement of a range of diligence to avoid trading in illegal timber. stakeholders, from local communities and civil society groups to timber Once the regulation comes into force in industry representatives and relevant March 2013, buyers of timber and government agencies. In Vietnam, a

18 FLEGT Taskforce was created in degradation (REDD+) is being negotiated October 2010 to work on a TLAS and in United Nations climate change talks formal negotiations with the EU and piloted in numerous counties. commenced the following month. Laos is also setting up mechanisms to Both Laos and Vietnam are involved in commence preparatory VPA work. developing REDD+ policies and pilot Forestry officials from the two countries projects. While REDD+ may represent working on VPA issues met in March an opportunity to place forests on a 2011 in Hanoi and discussed the need more sustainable footing in the two to improve timber legality tracking countries, and provide financial rewards systems.47 Obviously, any VPA with for doing so, it is clear that both illegal either Vietnam or Laos will have to logging and the illegal timber trade resolve the on-going illegal trade in between the two countries is in danger logs between the two countries. of undermining REDD+ in this part of the Mekong region. Indeed, this warning was expressed in THE US LACEY ACT a 2009 study into the displacement of Vietnamese deforestation to neighbouring In 2008, the US Congress amended the countries such as Laos through illegal Lacey Act to include plants and plant timber imports. The study found that the products, effectively extending its scope combination of Vietnam’s domestic logging to timber and wood products imported controls and its expanding furniture into and traded within the US market. sector had resulted in between 1.7 and The amended Lacey Act makes it an 3.5 million cubic metres of timber offence to import or trade in illegal harvesting being displaced abroad each timber. Penalties for contravening the year for 20 years. It also estimated that Act range from confiscation of the nearly 50 per cent of Vietnam’s timber timber shipment to prison sentences. 48 It also includes a declaration requirement, imports come from illegal sources. under which importers must list all Patrick Meyfroidt, lead author of the wood species included in the products study, said: “Efforts to control and state the country where the timber deforestation and illegal logging and was harvested. US firms importing timber trade need to be coordinated at Vietnamese-manufactured products the international level… between source derived from logs brought across the countries like Laos, Cambodia and border from Laos could potentially Myanmar and processing hubs like contravene the Lacey Act. Vietnam”. In a rare but informed vision of global trade realities, he added that responsibility for Vietnam’s displaced REDD+ deforestation and leaked emissions “is shared between the country consuming Deforestation is thought to generate Vietnamese products, Vietnam that BELOW: up to 20 per cent of global carbon imports illegal timber, and the source The US and EU are the largest emissions and an emerging scheme to countries where illegal harvesters often markets for Vietnamese reduce emissions from deforestation and collude with officials”.49 wooden furniture. © EIA

19 RECOMMENDATIONS The scale and persistence of the illicit log trade THE GOVERNMENT OF LAOS SHOULD: between Laos and Vietnam is a glaring example of weak forest governance. The Lao Government’s l Enforce its log export ban policy of banning the export of raw timber is routinely flouted, with hundreds of thousands of l Publish details of all logging quotas and the cubic metres of logs flowing across the border selection process every year. Meaningful inspection and regulation of logging operations on the ground in Laos are l Clarify rules for converting forest land virtually absent. for plantations As a result, corruption in the forest sector flourishes. Logging quotas are awarded in a THE GOVERNMENT OF VIETNAM SHOULD: secretive process to well connected individuals and companies, including the Vietnamese military. l Respect the policies of the Lao Government Bribery of officials is a routine business expense. by blocking log imports from the country The bulk of the cross-border log trade supplies l Hold bilateral talks with the Government of Laos Vietnam’s ever-expanding timber processing industry. over illicit wood trade between the two countries Revenue generated by the sector is expected reach $4 billion in 2011, and the Government plans to l Work with Vietnamese wood industry associations almost double this by 2020. Meanwhile, the much to exclude Lao logs from its supply chain smaller wood industry in Laos cannot secure sufficient raw material supplies. l Exclude military businesses from carrying out logging operations in Laos The impact of uncontrolled over-exploitation of forests in Laos is clear to see in affected regions like Attapeu in the south of the country. In 2008 THE EUROPEAN UNION SHOULD: over 200,000 cubic metres of logs passed into through the border post connecting Attapeu to l Ensure that any VPA discussions with Vietnam Vietnam. Between 2002 and 2010 southern Laos and Laos address the issue to log trade lost nine per cent of its forest cover, impacting between the two countries local livelihoods and biodiversity. l Ensure that VPA talks include the full range The governments of Laos and Vietnam need to of stakeholders urgently address this issue and shut the border to illicit trade in timber. As Vietnam has effectively l Promote forest governance lessons from FLEGT exported deforestation from within its borders to into the development of REDD+, specifically in neighbouring Laos, REDD+ negotiations with terms of displaced deforestation Vietnam must include a robust assessment of regional leakage. The fact that both countries have expressed interest in negotiating a VPA with the EU COMPANIES AND CONSUMERS SHOULD: provides a basis for resolving these issues. Until the required action is taken, consumers should l Obtain proof that wood products sourced shun Vietnamese-produced wood products made from Vietnam are not derived from logs from illicit logs from Laos. imported from Laos © EIA

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