VIII. THE ROLE AND RESPONSIBILITY OF ARARA ABADI, APP, AND THE SINAR MAS GROUP

Corporations are not directly regulated by international human rights law. However, it is widely recognized that corporations do have a responsibility to uphold human rights, environmental, and other standards during the course of their operations. The proliferation internationally of voluntary principles and codes of conduct reflects this trend. Among these agreements are: the International Labor Organization's Tripartite Declaration of Principles for Multinational and Social Policy, the U.N. Global Compact, and the joint U.S. State Department and U.K. Foreign Office Voluntary Principles on Security and Human Rights.

Human Rights Watch believes that corporations have a clear responsibility to avoid complicity in human rights violations. Complicity occurs in several circumstances. First, corporations may themselves be solely responsible for acts of violence or other abuses that government authorities fail to address, constituting human rights abuse by state omission and corporate commission. Second, corporate actors may facilitate or directly participate in abuses alongside government agents, as when they rely on state or state-controlled security forces that commit human rights violations that benefit the company. Third, corporate actors, though not themselves involved in abuses, may benefit from the failure of government to enforce human rights standards, as they do, for example, when military or police acting as company security have violently quelled local protests.

Corporations have a responsibility to ensure that land acquisition takes place in a manner that complies with the law and that the affected communities are adequately consulted and compensated. To the extent that Arara Abadi obtained land without regard for indigenous land rights and other rights held by members of local communities, its actions violated international standards. Moreover, according to local residents, at the time of the initial land seizures Arara Abadi representatives misled a number of local communities about the scope of their operations, were unresponsive to community concerns, and Arara Abadi ultimately benefited from organized violence by their own personnel against local people who protested. Arara Abadi has also failed to provide information that would enable monitors to determine whether it has fulfilled the legal requirement that it contribute to surrounding community development and welfare.¹⁹

Arara Abadi and APP's Indah Kiat mill are separate corporate entities. However, they are affiliates held by Sinar Mas Group, which has a fundamental obligation to see that its employees are not complicit in human rights abuses. Furthermore, Human Rights Watch believes that corporate entities that enter into contractual relationships with supplier companies have an obligation to demand and ensure that these suppliers also respect human rights. APP and Indah Kiat, therefore, in Human Rights Watch's view, have a responsibility to ensure respect for human rights in the workplaces of their fiber suppliers and are complicit in these abuses when they fail to do so, particularly when APP/Indah Kiat directly benefits from these abuses.

Even though the most recent attacks created negative publicity and NGO pressure, APP/Sinar Mas Group has made little effort to ensure that human rights protections are in place. This raises serious concerns not only about their present operations, but about the possibility of even wider human rights abuses given the expansion of operations currently in progress.

Arara Abadi's Company Security
The handling of company security by Arara Abadi raises important human rights concerns. Although there are no binding human rights standards for corporations or the conduct of company security, the Voluntary Principles on Security and Human Rights in the Extractive Industries ("Voluntary Principles," see Appendix A) provide useful guidance into what is considered appropriate conduct by companies. These principles were developed by the governments of the United States and United Kingdom, several of the world's largest oil and mining companies, and human rights organizations, including Human Rights Watch. The Voluntary Principles recognize that adequate assessment of risk in the company's operating environment is "critical to the security of personnel, local communities and assets; the success of the Company's short and long-term operations; and to the promotion and protection of human rights." Among other things, this assessment should include consideration of the potential for violence; the human rights records of state security; rule of law and the capacity of the local prosecuting authority and judiciary to hold accountable those responsible for human rights abuses; and conflict analysis to identify and understand the root causes and nature of local conflicts and the potential for future conflicts.

APP and Arara Abadi have not signed the Voluntary Principles because sponsors of the document to date have not involved the pulp and paper industry. The forest industry, however, is an extractive industry and, as such, the principles provide relevant and useful guidance.

As detailed in this report, the companies have not taken actions necessary to protect the rights of members of local communities and, indeed, its actions have in many respects undermined the security of such communities. Human Rights Watch believes that APP and its sister company Arara Abadi have been complicit in human rights abuses. Arara Abadi benefited from attacks committed by its own employees acting as private vigilante forces. They also benefited from state security forces that intimidated, harassed, and assaulted villagers who opposed the company's operations and its acquisition of land.

The Voluntary Principles lay out guidelines for the conduct of private security personnel that include specific policies regarding respect for human rights and adherence to standards of conduct consistent with U.N. Principles on the Use of Force and Firearms by Law Enforcement Officials and the U.N. Code of Conduct for Law Enforcement Officials. Principles particularly relevant to the APP/Sinar Mas Group case include the following:

Private security should have policies regarding appropriate conduct and the local use of force (e.g., rules of engagement). Practice under these policies should be capable of being monitored by Companies or, where appropriate, by independent third parties. Such monitoring should encompass detailed investigations into allegations of abusive or unlawful acts; the availability of disciplinary measures sufficient to prevent and deter; and procedures for reporting allegations to relevant local law enforcement authorities when appropriate.

All allegations of human rights abuses by private security should be recorded. Credible allegations should be properly investigated. In those cases where allegations against private security providers are forwarded to the relevant law enforcement authorities, companies should actively monitor the status of investigations and press for their proper resolution.

Human Rights Watch recognizes the legitimate role of company security in protecting company property and personnel, but such security forces must act in accordance with local laws and regulations. Arara Abadi representatives told Human Rights Watch that it had no performance standards, no guidelines for the use of force, no accountability mechanisms in place, and that no investigation into those responsible for the attacks had been conducted, as they were "unaware of who had been present at the time."²⁰ In addition, an Arara Abadi representative told Human Rights Watch that there were no internal or external reports filed following the attacks.²¹

While weaknesses in Indonesian law and law enforcement can mean that rights violators pay little or no price for their actions, Human Rights Watch believes that corporations should not seek advantage in such shortcomings. Arara Abadi, for example, should report attacks occurring on its concessions, including those involving company personnel, to the relevant authorities and press for proper investigations to identify the perpetrators of abuses.

Although it has been a year or more since the attacks on communities described in this report, at this writing Arara Abadi still had not implemented performance standards for its security operations and personnel. Although Arara Abadi asserts that its employees acted spontaneously in each of the attacks,²² it took no action to investigate the incidents, let alone hold accountable those responsible. Nor did it take any corrective measures to strengthen its internal safeguards that could prevent future problems.

Land Seizures and Joint Ventures
Land rights, central to the livelihoods and culture of forest dependent peoples, are at the core of community grievances against Arara Abadi. Human Rights Watch believes that corporations have a responsibility to uphold these rights and to see that their suppliers do so as well. Land rights are of pressing relevance not only because of continued questions concerning the legality and legitimacy of the processes by which Arara Abadi obtained its concessions during the Soeharto era, but also because APP/Sinar Mas Group has publicly announced its intention to dramatically expand its operations in the next five years. At present there is no clear commitment that local rights will be adequately protected as these expansions go forward.

APP/ Sinar Mas Group currently holds concessions for 500,000 hectares in Riau and Jambi provinces.²³ But this large area has proven insufficient, in part because of the rapid increase in fiber demand for expanding production capacity. In addition, APP reports that only about 50 percent of the current concession was available for conversion to plantation due to land claims "and other problems."²⁴ As noted above APP currently plans to double the area of plantation by 2007 through the use of "joint ventures" with community cooperatives and companies already holding permits, such as oil palm plantations, logging concessions, or other pulpwood plantations.

Audits and ISO Certification: No Guaranteed Protection of Rights
APP/Sinar Mas Group often points to its environmental certifications and its recent "Sustainable Wood Supply Assessment" as evidence of its sound environmental and social performance. In particular, APP/Sinar Mas Group representatives point to ISO 9001 and ISO 14001 certifications as indications that it is has received independent verification of its sound environmental and social record and as evidence of continual improvement in its practices.²⁵ Financial analysts by and large seem to tacitly accept this argument and have informed Human Rights Watch that investors and analysts normally assume, based on these external certifications, that there is no cause for concern over the company's environmental or social impacts. One analyst said bluntly: "In order to be considered credible by many in the financial community, a report of [human rights violations] would have to explain how this could happen with these certificates in place." ²⁶

Such statements reveal the widespread misunderstandings of the significance of ISO certification. ISO certification is designed to rationalize international trade by defining technical specifications and guidelines to ensure materials, products, and processes are applicable worldwide.²⁷ It is not designed to provide any other standards or criteria of performance. ISO 9000 series certificates are concerned with product quality control, and, as such, are not in any way relevant to either environmental or social impacts.

ISO 14001certification is designed to verify that the organization has established an environmental management system to identify, measure, and monitor these environmental impacts to assist companies in continual improvement of these impacts. ISO 14001 does not set requirements for environmental performance; these are set internally by the company.²⁸ Nor does ISO 14001 verify that these internal objectives are met, only that there is an internal measurement and tracking system in place. Therefore, ISO 14001certification is an indicator of internally generated management plans but is an inappropriate indicator of a company's actual environmental impact. Such certification is in no way an indication of social impact, as it does not have any required social component.

Finally, copies of these certification provided by APP/Sinar Mas Group to Human Rights Watch indicate that it is the mill-and not the plantations-that received these certifications, and they therefore have no relevance in assessing the environmental, social, and human rights impacts of Arara Abadi's forestry operations.

The Sustainable Wood Supply Assessment
2001 was a troubled year for APP/Sinar Mas. News of attacks on community protests quickly reached the environmental NGO community that had already been long critical of APP. Shaken by APP's tumbling share prices, its default in March, and its de-listing from the New York Stock Exchange in July, financial analysts were scrambling to figure out what went wrong. Indeed in 2001, the coalescence of revelations about APP/Sinar Mas Group's financial, environmental, and social problems brought their Riau operations into the public spotlight. Nevertheless, unlike the financial and environmental problems, the human rights abuses associated with APP/Sinar Mas Group's operations have not elicited a response from APP/Sinar Mas, nor have they registered any apparent notice with the financial community.

APP/Sinar Mas Group's financial weaknesses have already been the focus of much public debate and pressure, both nationally and internationally. While many shareholders have suffered tremendous financial loss, many creditors are pursuing their cases in court. At the same time, questions from international research institutions and environmental groups about the sustainability of fiber to supply APP's mills have begun to come to the attention of the financial analysts and paper buyers. In November 2000, the Center for International Forestry Research (CIFOR) and the World Wide Fund for Nature (WWF) released a detailed study on Indonesia's pulp and paper industry.²⁹ This report documented the fact that the country's two largest pulp producers-APP's Indah Kiat and APRIL's Riau Andalan pulp mills-will fall well short of securing sustainable supplies of fiber from their groups' existing plantations, and will likely seek to clear large new areas of natural forest to meet their raw material needs. In June 2001, Friends of the Earth³⁰ launched an NGO campaign against APP for its role in rainforest destruction, which, together with press coverage by London daily The Guardian³¹ that alerted British paper consumers to the destruction of Indonesia's forests, resulted in one of the U.K.'s major paper suppliers, Robert Horn, temporarily suspending purchases from APP in August 2001. These efforts suddenly gained attention outside the environmental community because activists were able to link APP's financial collapse with the alleged unsustainability of its wood supply, making a strong case that in Indonesia's forest industries, the high pressure on forests is a financial as well as an environmental risk.

In response to the boycott and rising concern from buyers and environmentalists, APP/Sinar Mas Group commissioned an internal "Sustainable Wood Supply Assessment" from AMEC Simons Forest Industry Consulting in September 2001.³² While this was a positive first step, the assessment was marred by questions from environmental organizations about the independence and scope of the assessment. The assessment is intended more as an internal review rather than an independent audit, and, as such, the scope of work, access to work sites, and output of report and recommendations were tightly regulated.

Further, although the stated scope of the assessment was to include "associated social and community impacts" of the wood supply, the assessment was woefully inadequate in addressing these concerns, even though there had been a great deal of press attention to attacks on communities earlier in 2001. None of the assessors had any specific social science or human rights expertise and made only cursory inquiries into the nature and extent of social impacts and disputes of the company.³³ Even the superficial treatment of social concerns in the report, however, included indications of the severity of conflict around APP/Sinar Mas Group's operations:

· "[I]t is highly possible that [local land] claims are going to increase in size, number and audaciousness." (p.20)
· "A total of over 57,000 ha of claims have been made on AA lands out of total of 300,000 ha. The existing level of claim disputes (19 percent) can have a large impact as the 57,000 ha has the potential to produce 1.2 million m³ of Acacia pulpwood per year...If the number of successful claims increases it will have a severe impact on sustainable wood supply plans." (p.20)
· "One of the greatest challenges comes from factors concerning land control and tenure...Even though known to company personnel, the Auditor believes the extent of the risk to full sustainable wood supply realization has been underestimated." (p.16)
· "The detailed sustainable wood supply assessment should comprehensively address...the impact of current and future direct action/suppression policies and tactics on communities and other issues relating to human rights and internationals labor law." (p.20)

Phase II of the assessment is intended to provide further detail and make recommendations on how to address areas of concern from the preliminary assessment. After being delayed for many months Phase II was just getting off the ground as this report was being prepared, but there were signs of positive developments, such as the inclusion of a social impact reviewer and security analyst with social science training. The Scope of Work, although quite vague on details, does include a "risk assessment" of select examples of joint ventures with local communities, and will include land claims as an component of the assessment and recommendations relevant to social and community development research and recommendations.³⁴

There are strong indications, however, that APP/Sinar Mas Group will not seriously consider land rights issues that underlie community grievances. When questioned about the role of social concerns in the audit, Mark Werren, the director of the forestry audit from APP/Sinar Mas Group, told Human Rights Watch, "We will be sensitive and firm. We have legal rights to the land and have to make a stand."³⁵ While topics such as "Legal Rights and Enforcement Strategies," "Illegal logging," and "Stealing from SMG log stocks"-topics which are included in Phase II of the assessment-are clearly relevant to the security of the operations in an increasingly tense atmosphere, it is worrying that pro-active assessments of community claims, social conflict risks, and how best to institutionalize dispute resolution mechanisms appear to be absent from Phase II. It is especially disturbing that there is no clear indication that performance standards and accountability for security forces will be part of the implementation strategy.

19 Decree of the Forestry Minister Numbers 690/1991, 170/1997, and No.610/Kpts/VI/1993 and Decree of Director General of Forest Utilization No.208/Kpts/IV-Set/1993. See note 213.

20 Human Rights Watch interview with Mulyadi Gani, Maj. Gen. (Ret.) Tumpal S., and Rasyim N.A., Perawang, February 14, 2002; with Mark Werren, Jakarta, February 13, 2002.

21 Human Rights Watch interview with Mulyadi Gani (Field Director, Joint Ventures Division, Arara Abadi), Perawang, February 14, 2002.

22 APP/Sinar Mas Group communication to Human Rights Watch February 21, 2002.

23 Human Rights Watch interview with Mark Werren, Jakarta, February 13, 2002.

24 Ibid.

25 Ibid.; and Human Rights Watch interview with Indah Kiat and Arara Abadi staff, Perawang, February 14, 2002.

26 Human Rights Watch telephone interview with Singapore-based financial analyst, September 16, 2002.

27 International Organization of Standards, http://www.iso.ch/iso/en/ISOOnline.frontpage, (retrieved October 3, 2002).
One example of ISO standards requires credit cards have a standard format and thickness so they can be used worldwide.

28 Det Norske Veritas, one of the independent certifying bodies for ISO 14001, used by APP.
http://www.dnv.com/certification/, (retrieved October 3, 2002)

29 Christopher Barr, "Profits on Paper: The Political Economy of Fiber, Finance, and Debt in Indonesia's Pulp and Paper Sector," draft report released by Center for International Forestry Research (CIFOR) and WWF's Macroeconomics Program Office, November 28, 2000. This report was later included as a chapter in Barr's Banking on Sustainability, published in October 2001.

30 Edward Mathews and Jan Wilhelm Van Gelder, "Paper Tiger, Hidden Dragons," Friends of the Earth--England, Wales, Northern Ireland, London, 2001.

31 Paul Brown, Steven Morris, and John Aglionby, "Rainforests Hit By Paper Trail to UK," The Guardian, June 26, 2001; Paul Brown and John Aglionby, "British Money Fuels Cycle of Debt and Destruction," The Guardian, June 26, 2001; Steven Morris, "Offices, Schools, Hospitals at the End of Paper Tail from Diminishing Forests," The Guardian, June 26, 2001; John Aglionby, "Fishermen Driven to Illegal Logging As Pulp Factory Poisons River," The Guardian, June 26, 2001.

32 See Sara Webb, "APP Orders Study to Gauge Damage to Environment," Asian Wall Street Journal, September 12, 2001; Sara Webb, "Audit Questions APP's Future Access to Cheap Wood," Asian Wall Street Journal, December 7, 2001.

33 For example, a cursory conversation with a single fisherman encountered at the mill jetty was used to conclude that the productivity of fish stocks near the mill remains high and the environmental impact on the water quality is negligible (AMEC Simons, "Preliminary Assessment," p. 25). Likewise, a local leader who was "introduced to the auditor by a Indah Kiat public relations officer" concluded that it was not true that local people were not hired by the company, rather that "often a local candidate has an attitude problem which causes them to fail final selection." (AMEC Simons, "Preliminary Assessment," p 26).

34 However, reportedly, the sites for review are to be chosen by APP/Sinar Mas Group, not by the reviewers themselves.

35 Human Rights Watch interview with Mark Werren, Jakarta, February 13, 2002.