Jan 29, 2009 Editorial
A year and a half ago, in his address to the Commonwealth Finance Ministers Meeting on Climate Change, President Bharrat Jagdeo outlined four initiatives that could reduce the greenhouse gas effects. Since then he has vigorously championed the one on “Reducing Emissions From Deforestation and Degradation” (REDD) which addresses environmental degradation by assigning value to intact ecosystems like rainforests – and, not so incidentally, helps countries like ours by giving us dollars for preserving our forests.
In fact, he is right now making a pitch in Davos, Switzerland for REDD, at the World Economic Forum.
While we supported the President then, and still do, in the initiative, we do believe that under the present world economic conditions, reduction of greenhouse gas emissions will not be very high on the agenda of the economically developed countries that would have provided most of the funding.
With both the developed and the major developing economies either in a recession or sliding into one, their political directorates are feverishly throwing trillions at businesses and consumers to stimulate demand and thus production – and, inter alia, emissions.
They will in all likelihood point out that in the near term, emissions would have been reduced in any case through lower industrial activity. Specifically with our REDD initiative, backsliders will reason cynically that with world housing and construction in a slump, it is very unlikely that there will be a whirlwind of economically-driven deforestation in the immediate future.
So in the meantime, what do we do with our forests vis-à-vis our need for greater revenues to fuel our developmental thrust? Well, for one, in this downturn this may be time to tighten our controls over the endemic problems of “under-invoicing and/or transfer pricing” that is a feature of most timber exports from Third World nations. While we boast that “Guyana is probably the only country in the world with a complete national log tracking system”, this has not prevented illegal processing and export, misdeclaration to Customs, and avoidance of taxes and other charges which has cost us millions (in US$) annually in lost revenues.
Looking at the export of logs alone, the GFC reported that for 2007 the two major destinations were India and China with 78,867 and 58,596 cubic metres respectively. However, figures collected by Global Timber from those countries’ official statistics show that 56,900 and 61,500 cubic metres were received.
Where did the missing 22,000 cubic metres purportedly shipped to India go?
There are also the related scams of “transfer pricing and under invoicing”. The former involves companies using subsidiaries and interlocking ownerships while the latter involves colluding separate companies, to undervalue the product at the point of production and after transferring to an affiliate company, the real value is asserted.
According to one report, the import price at Guangzhou City in China for purpleheart was US$569-US$700 per cubic metre – as apposed to the declared FOB export price ex-Georgetown = US$195-US$235 plus say, US$150 insurance and shipping costs per cubic metre. This is a discrepancy in the range of US$220-US$315 per cubic metre not in our favour, which might be due to transfer pricing or under-invoicing.
According to Global Timber, “The unit prices cited in the International Tropical Timber Organisation’s (ITTO’s) fortnightly “Tropical Timber Market Report” indicate that the difference between the unit prices for Guyana’s log exports are remarkably small relative to unit prices for equivalent products exported from other producer countries.
The difference might well be attributable to transfer pricing fraud. Given that, during 2005, logs account for almost all India’s (and half of China’s) timber imports from Guyana, and that India and China (primarily India) account for more than half of Guyana’s log exports, entities in India and China might be unwittingly party to such fraud.
The loss of export revenue attributable to transfer pricing fraud probably now amounts to approximately US$50 million per annum.” The possibility of under-invoicing and transfer pricing in exports from the forestry sector depriving our treasury of huge amounts of revenues annually were highlighted in the press several years ago by several individuals au fait with the sector.
While the authorities promised an inquiry into the allegations, we have never received a definitive answer.
With REDD not likely delivering on its promise soon, maybe a tightening of the rules of forestry exports may help us out of the red.
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