Legal framework for forest management and timber trade of Malaysia

Forest governance

Malaysia is composed of West Malaysia, also known as Peninsular Malaysia, and East Malaysia consisting of two forest states, Sabah and Sarawak. Generally, while forestry matters are managed by State governments, under the Constitution the Federal government can enact laws to harmonise and standardise State enactments. To this end, the National Forestry Act 1984 was formulated and later adopted by the individual States in Peninsular Malaysia.

The forestry and timber agencies in Malaysia who issue harvesting permits, licenses and log transport documents are:

Forestry Department Peninsular (FDPM) and the State Forestry Departments
Sabah Forestry Department (SFD)
Forest Department Sarawak (FDS); Sarawak Forestry Corporation (SFC)*; Sarawak Timber Industry Development Council; and Harwood Timber Sdn Bhd.

*Note: the role of SFC has been changed to manage protection forests and wildlife, while FDS will assume the previous functions of SFC.

Forest governance in Malaysia is divided into 3 main jurisdictions that establish legislation and regulate forest and timber activities: 1) Peninsular Malaysia and the 11 state governments that regulate forest activities, 2) Sabah Forest Department under the Chief Minister’s Department, and 3) Sarawak state government agencies that are under the Ministry of Urban Development & Natural Resources of Sarawak (MUDNR).

Peninsular Malaysia

Federal Laws

Aboriginal Peoples Act, 1954 including relevant decisions of the Civil Courts
Employment Act, 1955
Employees Provident Fund Act, 1991
Employees’ Social Security Act, 1969
- Employees’ Social Security (General) Regulations, 1971
Environmental Quality Act, 1974
- Environmental Quality (Prescribed Activities) (Environmental Impact Assessment) Order, 1987
Factories and Machineries Act, 1967
Human Rights Commission of Malaysia Act, 1999
Industrial Relations Act, 1967
International Trade in Endangered Species Act, 2008
Land Conservation Act, 1960
National Forestry Act, 1984
Occupational Safety and Health Act, 1994
- Occupational Safety and Health (Notification of Accident, Dangerous Occurrence,
- Occupational Safety and Health (Use and Standard of Exposure of Chemicals Hazardous to
Health) Regulations, 2000
Pesticides Act, 1974
Trade Unions Act, 1959 (Act 262)
Wildlife Conservation Act, 2010
Workmen’s Compensation Act, 1952

State Laws

State Forest Enactments
State Forest Rules
Johor State Park Corporation Enactment, 1989
Perak State Park Corporation Enactment, 2001
Selangor State Parks Corporation Enactment, 2005

Policies

Code of Conduct for Industrial Harmony, 1975
National Forestry Policy, 1978 (revised 1992)
National Physical Plan - 2, 2010
National Policy on Biological Diversity, 1998
National Policy on Environment, 2002
National Timber Industry Policy, 2009-2020

Sabah
Forest governance in Sabah is administered by the Sabah Forest Department that is under the Chief Minister’s Office. Sabah Forestry Department has district offices and staff to regulate forestry activities within the state. Sabah has recently developed a forest policy and has series of state legislative acts to regulate the forest & timber industry:

State

Biodiversity Enactment, 2000
Environment Protection Enactment, 2002
- Environment Protection (Prescribed Activities) (Environmental Impact Assessment) Order, 2005
Forest Enactment, 1968
- Forest Rules, 1969
Interpretation (Definition of Native) Ordinance, 1952
Labour Ordinance (Sabah Cap. 67)
Land Ordinance, 1930 (Sabah Cap. 68)
Native Court Enactment, 1992
- Native Court (Native Customary Laws) Rules, 1995
Sabah Parks Ordinance, 1962
State Cultural Heritage (Conservation) Enactment, 1997
Wildlife Conservation Enactment, 1997
Water Resources Enactment, 1998
All adat recognised and enforceable by the Native Courts, including relevant decisions of the Civil Courts

Policies

State Forest Policy, 2018
National Policy on Environment, 2002
National Policy on Biological Diversity, 1998
National Timber Industry Policy, 2009-2020

Sarawak
Forest governance in Sarawak is administered by the Forest Department Sarawak (FDS) that is under the Ministry of Urban Development & Natural Resources of Sarawak (MUDNR). FDS now assumes the functions previously administered by the Sarawak Forest Corporation (SFC) since the role of SFC has been changed to forest protection and wildlife. Harwood Timber Sdn Bhd (HTSB) conducts log inspections and the endorsement of logs to licensed mills or export points. The Sarawak Timber Industry Development Corporation (STIDC) regulates manufacturing and trade of timber and timber products. The regulating agencies have created Inter-Agency Standard Operating Procedures (IASOPs) to implement the Sarawak Timber Legality Verification System (STLVS). The STLVS includes the Legality Standard for Forestry Operations under Principles 1-4 and Chain of Custody Standard under Principles 5-6 that is independently monitored under a voluntary system. Sarawak has a forest policy and legislative acts to regulate the forest & timber industry:

State Laws

Forests Ordinance (Cap. 126)
- Forest Rules, 1962
Interpretation Ordinance (Cap. 61)
Labour Ordinance (Sarawak Cap. 76)
Land Code (Cap. 81)
National Parks and Nature Reserves Ordinance, 1998
Native Courts Ordinance, 1992
- Native Courts Rules, 1993
Native Customs (Declaration) Ordinance, 1996
Natural Resources and Environment Ordinance (Cap. 84)
- Natural Resources and Environment (Prescribed Activities) Order, 1994
Sarawak Cultural Heritage Ordinance, 1993
Sarawak Forestry Corporation Ordinance, 1995
Sarawak Rivers Ordinance, 1993 (Cap. 4) and Regulations
Water Ordinance, 1994 and Regulations
Wild Life Protection Ordinance, 1998 (Cap. 26)
- Wild Life Protection Rules, 1998
All adat codified under the Native Customs (Declaration) Ordinance, 1996 and any other adat recognised and enforceable by the Native Courts under the Native Courts Ordinance, 1992 and the Native Courts Rules, 1993
Decisions of the Civil Courts pertaining to legal or customary tenure or use rights

Policies

Statement of Forest Policy, 1954
A Master Plan for Wildlife in Sarawak, 1996
National Policy on Biological Diversity, 1998
National Policy on Environment, 2002
National Timber Industry Policy, 2009-2020

Legal rights to harvest

Peninsular Malaysia
Any company or person wishing to take or remove timber from a forest area must first have a valid Harvesting license. The first step to securing a Harvesting license is to obtain approval from the state authorities or the relevant state forestry departments. Both are involved when issuing licenses for concessions. There is no requirement to get approval for harvesting on private land if the timber is not going to be traded.

Only companies or persons registered with the state forestry departments are eligible to apply for the Harvesting license. Concession licenses are awarded through open tender or by direct award by the State Forestry Department. In Peninsular Malaysia, concessions are categorized by size, each with its own length of tenure. Concessions up to 1,000 hectares are allocated for 1–2 years; 1,001–2,000 ha concessions are allocated for 1 - 5 years; 2,001 - 20,000 ha concessions for 10 - 30 years; and those exceeding 20,000 ha for 20 - 30 years.

A licensee-to-be must prepare a Forest Harvesting Plan for the approval of the state forestry departments before a license is issued for the Permanent Reserved Forests (PRF). The Licensee must then register its Classification mark with the relevant State Forestry Department.

A Forest Harvesting Plan is not required for privately-owned forest land. But a Harvesting permit from the State Forest Department is required for harvesting timber on either private and state land.

The following harvesting permits can be obtained (Note: “Licence” is often spelled as is in the regulations, when used as a noun):

Timber Licence (Form 1) - Licence to take forest produce), applicable for PRF and State land;
Minor licence (Form 3) - Minor Licence to take major forest produce not exceeding 70 cubic meters or any minor forest produce, applicable for PRF and State land;
Removal licence (Form 5): To remove timber from private land and reserved forest.

Sabah
Parties wishing to commercially harvest timber shall be legally registered with the Sabah Forestry Department. Any company or person/organisation who intends to harvest forest produce from a forest area needs to have a valid Harvesting licence which, in Sabah, can be in the form of:

Sustainable Forest Management License Agreement (SFMLA) / Long-term License Agreement (LTL) for concessions on PRF;
Form I license: a short-term license for logging activities in forest reserve or State land;
Form IIB: Normally issued for transporting logs harvested from alienated (privatised) land, where timber can be harvested for land clearance for agricultural purposes (mostly oil palm, rubber and other short-term crops).

Concession areas are subdivided into coupes and compartments. Under the principle of sustainable forest management (SFM), one company is permitted to harvest only a few compartments at any given time in accordance with the Forest Management Plan (FMP), Comprehensive Harvest Plan (CHP) and Annual Work Plan. The Coupe permit validity is normally 15 years depending on the conditions of the license. The Company is not permitted to operate in any area for which it has not yet been issued a Coupe permit even though that area may be within its concession.

All concessions must have an approved 10-year Forest Management Plan (FMP) and/or 10-year Plantation Development Plan (PDP). The FMP describes the long-term management and land use for the SFMLA areas, based on forest types, terrain and current conditions of the forest management unit (FMU). The FMP and PDP identify areas for conservation and production along with social issues and schedule for harvesting and site preparation. The licensee (SFMLA/LTL) must then have an approved Annual Work Plan (AWP) containing maps and description of areas and types of operations to be carried out during the year. The licensee is required to obtain approval for the AWP based on the schedules defined in the FMP / PDP.

Sarawak
Currently, parties wishing to commercially harvest timber shall be legally registered with the Forest Department Sarawak (FDS). The Sarawak Timber Industry Development Corporation Ordinance of 1973 also requires those involved to establish, manage or operate any mills or manufacturing, sale, distribution or marketing activity of timber and timber products, to register with STIDC. Timber may be harvested in Sarawak from Gazetted Forests meant primarily for sustainable timber production and agriculture plantation. There are three types of harvesting licenses in Sarawak:

Forest Timber Licence (FTL)
License for Planted Forests (LPF)
Occupation Ticket (OT) Licence (clearing of forest for plantations and native land)
Mangrove and Belian (Iron Wood) Licence

Each forest concession area must hold a Forest Timber License (FTL), which can be obtained from the Director of FDS (often referred to as the 'Director of Forests'). Attached to the FTL is the Forest Management Plan (FMP) that sets out management and harvesting prescriptions. When issuing concessions, there could be a call for tender; however, the Director of FDS has the power to issue licenses and permits under conditions as he deems appropriate. Thus, information relating to the allocation of concessions is not publicly available. The license period of timber concessions is at the discretion of FDS and generally is for a period of 25 years but it has been up to 60 years in cases where the Licensee had received MTCC certification.

The FDS issues the FTL in conjunction with an approved General Harvesting Plan (GP), which has been prepared by the concessionaire. The GP shows the layout and size of coupes, the harvesting sequence, proposed road networks, camp sites, log yards and other general planning particulars.

Before extraction can commence, the permit holder is also required to prepare a Detailed Harvesting Plan (DP) and to submit it for approval. The FDS processes and approves the DP, which contains operational prescriptions at coupe level, the layout of logging blocks, surveyed road networks, and protected or conservation areas as well as the proposed harvesting methods.

Taxes and fees

Peninsular Malaysia
Concessions or Harvest permits will not be allocated or issued if relevant fees have not been paid by the Forest Management Enterprise (FME) or private land owner. In Peninsular Malaysia, the State Forestry Department is the tax authority that collects the following types of fees from licensees:

Deposit
Premium charged on land area under permit
Boundary preparation fee
Royalty & Cess on log volume extracted (see next section).

The State Forest Rules includes: First Schedule (license to take forest produce); Second Schedule (premium rate), Third Schedule (royalty rate), Fourth Schedule (forest premium and Cess – “Cess” is another word for an extra tax levied for a specific purpose like Education) and Fifth Schedule (liquidated damages). Rates may vary as these regulations change over time. The Malaysian Timber Industry Board (MTIB) is the tax authority setting tax rates in Peninsular Malaysia. This includes Cess rate of timber and timber products. Cess is collected when the exporter applies to MTIB for an export licence, after registration procedures have been fulfilled. So, the taxation of exports is internalised with the export process with MTIB to obtain export licenses, and taxes are paid in relation to each export consignment and license. There is no export tax on logs (total log export ban from Peninsular Malaysia) nor on processed wood products. More information on registration and Cess rates is available here.

Sabah
The Sabah Forestry Department (SFD) is the tax authority setting rates and collecting taxes in Sabah. Forest concession holders must pay fees to obtain a permit for removal of forest produce (log). Fees include: licenses & permit fees; royalties, based on volume and species of logs extracted; premium (unless exempted); Community Forestry Cess; Forest Conservation Fees; and Forest Rehabilitation Fees (unless exempted). The logs are scaled at a stumping site (log yard) within the forest to assess fees payable for logs. The Forest Department staff will issue a Timber Disposal Permit (TDP) and Removal Pass as well as Royalty hammer mark each log prior to transport to a defined destination recorded on the Removal Pass and TDP.

There is no expo rt tax on logs (temporary log export ban) nor on plantation logs from Sabah. Processed wood products with a volume-based export tax include: sawntimber, plywood, veneer, mouldings, and woodchips. The taxation of exports is internalized with the export process with SFD to obtain export permits, and taxes are paid in relation to each export consignment and permit.

Sarawak
The Forest Department Sarawak (FDS) collects the following types of fees from licensees: Annual Licensing Fees, Annual Land Rent, Royalties, and premiums charged for log extraction. Rates charged are available from FDS. Fees for royalty and premium are invoiced monthly, based on batches of logs that are assessed to obtain a Removal Pass Royalty. There is no Cess/export tax on either round logs or processed timber products from Sarawak. Royalty assessment: see next section.

Timber harvesting activities

Peninsular Malaysia
Management and harvesting plans are prepared by the FMEs (forest management enterprises), and have to be approved before harvesting can take place. In Peninsular Malaysia, felled logs are inspected for payment of royalties and premium fees at the Forest Checking Stations (FCS) manned by State Forestry Department officials. FME places a deposit for payment of Royalty & Cess based on anticipated harvest volumes. Final payment is then made through deduction of the prepaid deposit against volumes for each lorry inspected at the checking station. Once payment of the balance is registered, a Removal Pass (RP) is issued by Forestry Department staff at the checking station for each lorry load to transport the logs to a processing mill. The RP references the log number, tree species, diameter, length, volume, that royalty and premium fees are paid, and destination. Once the royalty is assessed, each log is Royalty Hammer Marked at the FCS.
Timber tracking systems are used only for logs harvested from permanent reserved forests (PRF). Peninsular Malaysia has a paper-based tagging system and a RP system to trace logs from the forests to the mills. The licensee must ensure that all logs transported from the FCS to the mills are accompanied by an RP or Exchange Removal Pass (ERP). An ERP is issued by the relevant State Forestry Department in cases where the loads have been inspected during transit or for a load transported from one mill to another.

Sabah
All timber harvesting in natural forest concessions requires the development and approval of a Comprehensive Harvest Plan (CHP) that defines the compartment boundaries and areas for protection, identifies infrastructure, and lists all commercial trees planned for harvesting. SFD requires all harvesting within natural forests to use Reduced Impact Logging (RIL) techniques based on RIL Guidelines developed by SFD. All logs extracted from the compartment are traceable to the marked felled tree listed in the CHP and must be inspected by SFD staff for royalty assessment and issuance of transport permits.

Sarawak
Following approval of the Detailed Harvest Plan (DP) the felling permit (commonly known as a Permit to Enter Coupe - PEC) is issued and endorsed by the FDS which allows for harvesting in the approved block. The PEC process requires verification of satisfactory ground compliance in terms of coupes and block boundary demarcation, preparation of topographical work map, road alignment and construction, tree enumeration before endorsement of blocks for logging. Enumeration is not applicable to planted forest.

A licensee is required to register the company Property Hammer Mark with the FDS. At the forest landing, the Licensee marks both ends of each log with his registered Property Mark, affixes a unique pre-approved Log Production Identity (LPI) tag to each log. The Licensee then scales and grades each log and submits log details in the Daily Production Return (DPR) to the FDS, together with their Log Specification Form and Log Specification Summary. FDS then checks to ensure that harvesting operations have taken place within approved areas in compliance with the Forest Timber License (FTL) terms and conditions and that licensees have used only approved LPI numbers. FDS checks the DPR information and uploads this this to the online information system called LoTS, which is used in Sarawak to monitor and control the movement of logs. After this the Licensee moves the logs from the licensed area to the Forest Checking Station (FCS) where logs are royalty-assessed and physically inspected.FDS conducts the royalty assessment of the logs by embossing the Government hammer mark 'JH' (which stands for Jabatan Hutan / Forest Department) at both ends of the logs. In addition, Harwood Timber Sdn Bhd (HTSB), a subsidiary of the Sarawak Timber Industry Development Corporation (STIDC), carries out an independent check of logs to ensure they have been royalty-assessed.

Third parties’ rights

Peninsular Malaysia
Rights of local stakeholders are addressed as part of management planning. Management plans must identify local communities that claim user rights to the PRF and address claims in regards to harvesting of forest produce prior to operations.

Sabah
Sabah acknowledges native and community rights as part of the Sabah Timber Legality Assurance System (Sabah TLAS) under Principle 4 (Other User Rights) that include the following requirements.

The Organisation shall conduct a Social Baseline Survey and Social Impact Assessment of the licensed area as part of the preparation of a 10-year FMP, which shall include:

Identification of communities
Identification of potential impacts
Mitigation measures.

The Organisation shall identify and set aside Community Forestry Areas in their licensed area (where relevant) and include such areas in the Forest Management Plan (FMP).
The Organisation shall identify and respect community rights within the licensed area and exclude community areas from harvesting.
The Organisation shall record and document communications and consultation with communities
Areas with Native Customary Right (NCR) claim described under the Land Ordinance shall be excised from Temporary Occupation Licence (TOL) area
Native rights shall be respected

Sarawak
Sarawak legislation defines the rights of third-party claims to forest land in respect to Native Customary Rights (NCR). Sarawak has recently developed a Timber Legality Assurance System (STLVS) that identifies the need for a social assessment along with agreements by local communities that claim third party rights to the Permanent Reserved Forest (PRF) prior to logging operations. The requirement for social assessment and formal agreement with communities prior to starting operations, forms the basis for Free Prior and Informed Consent (FPIC).

Trade and transport

Peninsular Malaysia
The quantity of logs received by the mills as recorded in the Removal Pass (RP) will also be kept and maintained by the mills. The mills are required to keep a log book containing information on logs stored and processed in these mills.
The holders of the RP/ERP are the primary processing mills (that is, the sawmills and plywood mills). Value-added processing mills, which usually source their timber supplies from primary processing mills, do not possess a RP/ERP.

Any company/person engaged in the export of timber products must register with the Malaysian Timber Industry Board (MTIB). To register with MTIB, a company must first be a member of any of the eight associations recognised by MTIB. Upon approved registration, MTIB will issue a Certificate of Registration depending on the types of application, i.e. timber exporter, timber supplier, timber processor or jetty operator. Registered companies are allowed to export these products upon obtaining an Export License from MTIB. Export licenses will be issued following online application and submission of all required supporting documents including an RP. In the case of export timber, MTIB is responsible for conducting the final check at the company premises before the timber can be transported to the port for export. This includes inspection of the timber itself and of the required documentation. Every shipment must pass through this procedure before any export is allowed.

Sabah
A licensee must register a Property Hammer Mark, and said Mark must be stamped at the end of each log produced (natural forest) or per batch (plantation forest). Additionally, the Licensee must incise each extracted log with a serial number. Daily felling and extraction is recorded on official documents, and harvested trees are inspected by the District Forestry Officer (DFO) prior to removal. The DFO marks the harvested trees with the SFD Inspection Hammer Mark, after which the marked logs can be transported to the approved "stumping site" (log yard) for royalty assessment. All timber to be transported must be accompanied by a Removal Pass (RP) upon payment of the royalties to the government, or a Transit Pass for transportation of logs from the extraction area to the royalty assessment area. After royalty has been assessed at the stumping area or in a later stage the trees are marked with an SFD Royalty Hammer Mark. For plantation logs from Permanent Reserved Forest (PRF) area the licensee records the production based on volume or weight and submits the records to the DFO for the issuance of a Transit Pass. Royalty-paid logs are accompanied by a Timber Disposal Permit (TDP) that provides details of the logs, including: the license where the logs were extracted, the serial number, log specification by species, log diameter and length, date of scaling and reference to the royalty payment receipt.

When the truck arrives at the mill, logs, trucks and RPs are recorded by the SFD in the Log Arrival Book kept at the mill and the used RPs are stamped as 'Used Removal Pass'. The Organisation must also register a Property Hammer Mark for sawmill/plymill processing and incise a serial number on all logs for sawmill processing.

A company intending to export timber and timber products must possess an Annual Export License from the SFD. The Company declares to the District Forestry Officer the timber and timber products to be exported with a valid export permit or annual export license, with supporting documents such as Log summary, Sales Contract, Invoice, Packing List and a declaration on the source of processed timber to be exported. A Timber export permit is issued by SFD to these persons/companies upon satisfaction of all export requirements.

Sarawak
Resulting from the assessment and inspection activities, FDS issues a Removal Pass (Royalty) while HTSB issues an Endorsement Clearance Certificate (ECC) as well as Transportation Pass or Shipping Pass, both pre-requisites to FDS’s issuance of a Transit Removal Pass (TRP) to transport the logs from the forest to manufacturing or export. Upon arrival at mills, logs are inspected by both FDS and HTSB and reconciled with ECC and TRP. All mills must have a valid Mill license issued by the FDS and all mills, except sawmills, need to obtain a Manufacturing license from STIDC demonstrating registration as manufacturer. The Mill and Manufacturing Licences are valid for only one year and subject to annual renewal.

Exporters need to be in the possession of a Certificate of registration with the STIDC. STIDC is also responsible for issuance of Export Licenses for every shipment of timber and timber products from Sarawak. The issuance of Export licenses is done through an e-Permit System on STIDC's portal. Additionally, exported sawn timber shall be accompanied with a Grading certificate.

Logs for export are first physically inspected by the HTSB to ensure that (i) export consignments do not include any logs supposed to be reserved for milling and (ii) royalty has been paid on them. HTSB then issues an Export Clearance Certificate (ExCC) as a pre-requisite to SFC’s issuance of a final Removal Pass (Transit/Export). STIDC issues the Export Licence, and finally the Royal Malaysian Customs Department undertakes customs clearance.

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