Going Against the Grain : U.N. Sanctions on Cambodian Lumber Could Cost Thai Investors Millions

When Chatrachai Tantangsakul paid the Khmer Rouge for a concession to cut timber in Cambodia, he knew that he was running a risk, but one factor he did not count on was the United Nations.

Now, several months later, instead of being fleeced by the radical communist group, Chatrachai and many others who have made business deals with the Khmer Rouge stand to collectively lose tens of millions of dollars because of a timber log export ban the U.N. blue berets in Cambodia will begin enforcing Friday.

The squeeze comes in a tightening vise of sanctions aimed at choking off the revenue stream of the Khmer Rouge, which is still obstructing the U.N. peace plan in Cambodia by refusing to disarm or to allow the U.N. into the 15% to 20% of the country it controls. The Khmer Rouge has already earned more than $100 million from the logging concession so far, according to a Thai intelligence report.

But Thai investors, who have the most extensive dealings with the Khmer Rouge, say the sanctions seem unfairly directed at them.

The Thai government has said it will abide by the U.N. resolution. At the same time, Bangkok appears to be dragging its feet on cooperating in enforcement--an approach that could damage its image by being associated with the Khmer Rouge, which terrorized Cambodia during the 1970s.

Chatrachai’s own concern, though, is to truck as much timber out of Cambodia through this dusty checkpoint as quickly as possible.

Records in the makeshift customs office show that his company took out 1,158 logs between mid-May and June, when the rainy season interrupted operations. Taking out 100 logs a day nowadays, his company is working triple-time.

“We only heard a couple of months ago that the U.N. might impose sanctions, and now I just want to take out the trees that have been cut already and get my equipment out so I get back some of the money I have invested,” Chatrachai said.

He and his partners have invested $12 million, including the payment to the Khmer Rouge, for the purchase of equipment and a share of the cost of plowing a road though rugged jungle terrain into Cambodia to their 200- to 300-square-kilometer logging tracts.

The sanctions place a “tremendous burden on Thailand and our private sector,” said Thailand’s foreign minister, Prasong Soonsiri, who added that it is “totally legitimate for Thailand to see what can be done . . . to minimize the impact on Thailand.”

Prasong said he will ask the United Nations for a few more months’ “grace period” for Thai loggers to remove the trees that have already been cut. But the U.N. special representative in the area, Yasushi Akashi, is expected to object. He has said he believes that the Thais have had enough time to wind down their operations.

Thailand’s sincerity in cutting off the trade is in doubt, in part because the Thai military, which controls all checkpoints along the 840-kilometer border, is heavily involved in business with the Khmer Rouge--either directly, or as shareholders in private firms that have been awarded potentially lucrative gem or logging concessions in Cambodia.

The deals also benefit almost all Thai members of parliament who represent border provinces, along with many of the major parties’ financiers--typically from the military-allied opposition camp.

Taken together, the alliance of Thai business and Khmer Rouge poses a challenge for the fragile civilian Thai government.

Pressures on Bangkok will be even greater if the United Nations slaps a ban on the export of gems, which the Khmer Rouge benefits from disproportionately because its areas are the most well-endowed with world-famous rubies and sapphires. Thailand’s jewelry industry is one of the country’s largest foreign exchange earners.

And like the sizable furniture industry and house construction business, the jewelry industry relies on foreign raw materials since Thailand has depleted its own resource base.

The Thais “have to weigh these business interests against their longer term interests,” a senior Western diplomat said.

“Whether these measures have an influence on (the Khmer Rouge) thinking (to rejoin the peace process and the election) is only a hope,” said another Bangkok-based Western diplomat monitoring Cambodia.

Other analysts insist that it is imperative to begin twisting an economic tourniquet on the Khmer Rouge if they continue to stay out of the political process.

Thailand clearly has an interest in seeing peace in Cambodia, which it could quickly dominate economically as a buffer against its ancient rival, Vietnam.

But many Thais argue that the export bans will have little effect on the Khmer Rouge.

A petroleum products ban, also to go into effect Jan. 1, is meant to crimp the Khmer Rouge’s war-making ability. But buying oil from the highly corrupt Phnom Penh government-controlled areas (where the price is half that in Thailand) should not be difficult, and any interruption will have a minor impact on the group’s relatively low-tech guerrilla warfare, some observers say.

Similarly, the Khmer Rouge could probably easily expand its existing export of logs to traders in the Phnom Penh government controlled areas.

From there, Thailand could purchase (at higher prices) sawed lumber--which is not banned but put under the regulation of the United Nations Transitional Authority for Cambodia--as the Japanese and Singaporeans are doing in quantity now.

At any rate, some observers believe that the Khmer Rouge have sufficient military stores to wage war far beyond the U.N.-supervised elections in May.

“We also believe that there is no direct link between the Khmer Rouge’s material gains through trade with Thailand and its continued intransigence,” Prasong insisted. “The Khmer Rouge are a very dogmatic people and will continue to do and say what they believe, regardless of the material wealth.”

A former air force squadron leader, Prasong served for a decade as one of Thailand’s most senior intelligence officers. He was instrumental in building up Khmer Rouge forces to fight Vietnamese troops that invaded Cambodia in 1979.

Despite views that the Khmer Rouge is not influenced by its business deals, Thai intelligence reports show that the group’s activities have been lucrative.

The group has awarded 15 concessions to Thai firms to harvest well in excess of 15 million cubic meters over the course of three to five years.

“After the peace agreement was signed in Paris, our Chinese friends stopped all assistance,” Khmer Rouge leader Ieng Sary told a Thai newspaper recently. “So we had to sell some trees to the Thais to meet the immediate needs of the people.”

The Khmer Rouge first began granting limited logging concessions in areas they controlled one month after the last major Vietnamese troop withdrawal in 1989, but most concessions were just awarded earlier this year.

By contrast, the faction led by Prince Norodom Sihanouk has sold off more than 2 million cubic meters in four concession areas it controls, while the faction led by Son Sann was able to sign over less than 500,000 cubic meters in two contracts.

And as logging resumes in earnest after the rainy season, the Khmer Rouge could soon be earning about $28 million each month, according to Thai reports.

That means the Khmer Rouge could take in more than $1 billion over the next few years, if Thai loggers are allowed to finish out their contracts.

A timber expert at the Food and Agriculture Organization office in Bangkok says this revenue figure is unrealistically high because production costs are normally subtracted from the royalties due.

Based on a more realistic U.S. $10 per cubic meter of wood, which is close to what wood commands elsewhere in the region, the Khmer Rouge take is more likely to be closer to $160 million over three years, said the FAO official, Dr. Y.S. Rao. “And I suspect it (the timber) would be undersold.”

Other analysts suggest that the Thai military may want to exaggerate the extent of the investment at stake, either to dissuade a crackdown or as a leverage if there is to be some form of compensation to Thai investors.

Regardless of their worth in cash, the trees are coming down at a rate that alarms forestry officials.

About 7 million hectares of Cambodia’s 16 million hectares remain covered by forests, but the country also has one of the world’s highest per capita deforestation rates, according to recent studies.

More than 2 million cubic meters will be cut this year, which is several times the sustainable level, studies estimate. More than half of that amount will be exported, and most of it will be bound for Thailand, which buys from all four of Cambodia’s political factions. That accounts for a sizable chunk of Thailand’s wood imports. Since a logging ban was imposed in 1988 to halt rapid deforestation, Thailand has had to import between 2 and 3 million cubic meters each year.