BURMESE TIMBER EXPORTS ON THE RISE

C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 000706 SIPDIS SSTATE FOR EAP/MLS, INR/EAP, EEB/TFS OES FOR ANN COVINGTON BANGKOK FOR REO OFFICE PACOM FOR FPA TREASURY FOR OASIA, OFAC E.O. 12958: DECL: 09/08/2018 TAGS: ECON SENV PREL PGOV ETRD BM SUBJECT: BURMESE TIMBER EXPORTS ON THE RISE REF: RANGOON 699 RANGOON 00000706 001.2 OF 003 Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4 (b and d) Summary -------------- ¶1. (SBU) The value and quantity of Burmese timber exports increased dramatically in 2007, up six percent and 26 percent respectively over last year's figures. Timber industry experts predict that 2008 will be a record year for Burmese timber exports, despite international sanctions on Burmese wood products. According to Burmese private consultant Business Investment Group, India remains Burma's largest legal market for teak and other hardwoods, followed by Thailand, China, Vietnam, and Singapore. However, if estimates of illegal border trade are included, China is by far the biggest importer of Burmese timber. Timber Exports Increasing -------------- ¶2. (C) According to Capt. Maung Aye, retired timber exporter and the former "King of Timber," (a nickname given to him by his colleagues in the timber industry) there is an insatiable demand for Burmese timber (including teak, ironwood, rosewood, and pine) and timber products (particularly hardwood flooring and furniture) on the world market. Timber sales bring in substantial revenues for the regime -- at least USD 300 million a year. State-owned Myanmar Timber Enterprise (MTE),which is responsible for the extraction and marketing of Burmese timber, each year exceeds the annual allowable cut of 250,000 cubic tons for teak and 1.5 million cubic tons for other hardwoods set by the Forestry Department (Reftel). The majority of felled timber is exported, U Khin Zaw, former Deputy General Manager of MTE, told us. ¶3. (C) In 2007, MTE (which under Burmese law is the only entity allowed to export unfinished timber) and private Burmese companies exported approximately USD 562 million in raw and finished timber products, a six percent increase from 2006 levels. The overall quantity of exported timber increased by 26 percent, from 1.9 million cubic tons in 2006 to 2.4 million cubic tons in 2007. This included 317,000 cubic tons of teak and more than two million cubic tons of other hardwoods. U Win Aung, owner of United International, one of Burma's larger private timber companies, explained the discrepancy between the increase in value (six percent) and quantity (26 percent) by noting that MTE increased exports of lower-priced hardwoods rather than high-value teak. U Win Aung also noted that as the quality of Burma's teak decreased, MTE earned less per cubic ton. Consequently, MTE has felled more trees each year to meet its revenue quota. According to the Business Investment Group (BIG),a private Burmese statistics company, MTE accounted for more than USD 440 million of timber exports in 2007, although an undetermined amount was exported through MTE by select private companies (Reftel). -------------- -------------- Burmese Timber Exports 2006-2008* Value in Millions USD Quantity in Cubic Tons -------------- -------------- Year Qty Teak Qty Other Total Total RANGOON 00000706 002.2 OF 003 Teak Value Other Value Qty Value -------------- -------------- 2006 384803 318.7 1530357 211.8 1915160 530.5 2007 317507 302.9 2092643 258.9 2410150 561.7 2008 128441 146.1 1089592 169.1 1218034 315.2 -------------- -------------- Source: Business Investment Group, August 2008 *Through June 2008 Where Do Legal Timber Exports Go? -------------- ¶4. (C) Almost half of Burma's legally exported hardwoods goes to India in the form of uncut logs. According to U Khin Zaw, Indian saw mills process the wood and Indian manufacturers use it to produce furniture, hardwood flooring, and handicrafts. Indian Embassy DCM Manoj Bharti told us that many of the higher value products were shipped back to Asia, including China and Thailand, or to the Middle East for resale. India does not illegally import Burmese timber through border trade, U Khin Zaw told us. ¶5. (C) Thailand is the second largest legal importer of Burmese timber, although the value and quantity of imports declined by 26 percent between 2006 and 2007. Industry insiders could not provide an explanation for the decrease. However, they predict that 2008 Thai imports of Burmese wood and wood products would exceed 2007 figures, due to higher demand in Thailand and among trans-shippers who resell the goods to Asian and European destinations as "Thai" products. -------------- -------------- Burmese Timber Exports by Country 2006-2008* In US Dollars -------------- -------------- Country 2006 2007 2008* -------------- -------------- India 247,774,020 270,360,092 141,573,286 Thailand 77,570,761 57,097,548 42,444,325 Vietnam 35,300,392 40,188,315 29,718,662 Singapore 31,137,214 32,812,361 21,882,437 China 27,273,487 41,887,961 25,017,713 Bangladesh 24,360,427 31,119,270 16,064,368 Hong Kong 21,538,313 25,050,808 13,783,962 Pakistan 11,639,054 10,438,888 3,955,057 Malaysia 10,795,782 7,956,213 6,561,727 Italy 10,698,248 14,375,179 2,503,317 Other 32,400,027 30,435,890 11,699,957 -------------- -------------- Total 530,487,725 561,722,525 315,204,211 -------------- -------------- Source: Business Investment Group, August 2008 *Through June 2008 ...And Illegal Exports? -------------- ¶6. (C) Although official trade figures show otherwise, anecdotal evidence indicates China is the largest market for Burmese timber. In 2007, China legally imported USD 42 million in Burmese timber products, a 54 percent increase over 2006 levels. According to BIG, teak accounted for only 25 percent of these timber sales. U Khin Zaw and Capt. Maung Aye explained that a substantial amount of Burmese teak enters China illegally each year, transported via truck across the border with the acquiescence of corrupt customs RANGOON 00000706 003.2 OF 003 and/or police officials. According to U Khin Zaw, these logs have not been included in MTE's timber figures, since they are cut down by ethnic groups or private Burmese companies working along the border. Capt. Maung Aye told us that because the GOB no longer publishes border trade values, there is no way to determine how much illegally cut timber is sent to China. U Khin Zaw noted that in FY2006-2007, Burma exported a total of USD 423 million in goods to China, 50 percent of which was logs and timber products. He then estimated that China in Calendar Year 2007 imported at least USD 250 million in Burmese timber through illegal border trade, which would bring total Chinese imports of Burmese timber to more than USD 290 million. Comment -------------- ¶7. (C) It appears that China, not India, is the primary destination for Burma's timber products. Official trade statistics provide only a partial picture; including illegal border trade, China's imports of Burmese timber were approximately USD 20 million more than India's in 2007. Truckloads of illicit teak and hardwood logs are shipped over the border to China daily, under the not-so-watchful eyes of Customs and police officials who earn pocket money from exporters. Various ethnic groups - including some ceasefire groups, like the Wa and Kachin, that operate with relative autonomy in their respective regions - contribute to the illegal harvesting, putting added pressure on Burma's timber supply. DINGER