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Papua New Guinea and the Solomon Islands
Estimated 100% Level of Illegality NGOs and reseachers (including Greenpeace) believe that most, if not all logging concessions in Papua New Guinea are operating illegally. However, levels of corruption and poverty in the country mean that little control is possible. There have been calls by local groups within PNG, as well as international NGOs for the major consuming countries, Japan and China, to exert pressure on the Malaysian logging companies, mainly Rimbunan Hijau, which dominate the country's logging sector. The country, which comprises 1% of the world's land area, is home to some 5% of the world's land-based species, and most of that 5% are endemic to Papua New Guinea. However, 85% of Papua New Guinea's forests are under threat from logging. Further, the country's coral reefs and marine life are at risk from soil erosion caused by logging activities. Chart 1 indicates that, although Papua New Guinea is a substantial but not a major supplier to Japan of timber, Japan's imports have nevertheless been a major driving force behind Papua New Guinea's (export dominated) timber industry. During the 1980s, companies controlled by Japanese interests had logging concessions covering half of the forest area then allocated as concessions. Chart 2 shows that Papua New Guinea supplies a small share of Japan's timber imports. Chart 3 shows that these imports doubled during the mid-1990s. In so far as this was a response to Sabah's ban on log exports, it is highly unlikely that - in the short time available - the logging companies which supplied this increase carried out forest inventories and prepared management plans for approval by the Papua New Guinea government. This implies that those increased imports were unsustainable and probably illegal. During the 1980s, international and domestic concern about (high level) corruption in the industry, unsustainable rates of logging, and related violence, prompted a Commission of Inquiry between 1987 and 1989. Led by Judge T Barnett, this exposed high levels of transfer pricing fraud (used by companies to minimise tax liability). At that time, Japan imported about half of Papua New Guinea's timber production. It appears that Japanese companies have recommenced transfer pricing, perhaps so as to minimise the effect of recently increased tax rates. The situation persisted into the 1990s, despite major changes in the law. Japan's log imports soared (partly in response to a ban on log exports from Sabah). Under international pressure, the World Bank demanded a moratorium on logging in the country as a condition of a Structural Adjustment Loan in 1999 pending a review of logging concessions. Neither a review nor corrective action took place. Logging (and lending) continued. Japan and Korea have subsequently reduced their direct timber imports from the country. However, the reduction in Papua New Guinea's exports to Japan and Korea has been partially offset by sharply increased imports by China. A substantial proportion of China's timber imports are processed in China and then exported - including to Japan. Japanese companies dominated commercial logging at the time Papua New Guinea became established and independent (1975). Ethnic chinese (the most notorious and largest of which, Rimbunan Hijau, is based in Malaysia) and (to a lesser extent) Korean logging companies now predominate. Most of the labour used is imported. Solomon Islands Chart 4 indicates that Japan used to be the destination for half of the Solomon Islands' timber exports (which are predominantly in the form of logs). Chart 5 indicates that, during the early 1980s and mid-1990s, Japan alone imported more timber from the Solomon Islands than the maximum sustainable yield from the country's natural forests (which supply the great majority of the country's timber exports). Japan's imports (and particularly any supplied by Malaysian logging companies) were associated with tax evasion including transfer pricing fraud (for example: under-valuation, mis-classification of species).
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