During the 1980’s, the Brazilian government started investing billions of dollars into creating a ‘growth pole’ in the eastern Amazon. Called “Programa Grande Carajás”, this initiative had as its main axis the Iron Ore Project which involved construction of the following:
An open-pit mine (at the site of the largest deposit of high-grade iron ore in the world) to be managed by then state-owned mining giant CVRD
A deepwater seaport
An 800km railway linking the seaport and mine, also operated by CVRD.
In other fronts, the plan included the establishment of gold, tin, copper, manganese, nickel and bauxite mines, and the construction of a large hydroelectric dam (named Tucuruí) to generate electricity for these ventures, in particular an aluminum plant. The whole Programa Grande Carajás covered an area of 900 thousand km2, a territory far larger than any of the 48 states in the continental US, and Anthony Anderson (1990) called it “the most ambitious development scheme yet conceived for a humid tropical region.”
In sync with the state-led developmental ethos of the time, the Brazilian government planned to produce the raw materials and provide the infrastructure while private investors would establish and run the productive enterprises. The federal government offered a series of tax-breaks and subsidies to those willing to relocate to the region, and pig-iron smelters were among the first to move in. To produce pig-iron, smelters deploy what is probably one of the oldest technologies known to mankind: they combine iron-ore with a source of carbon in the presence of heat. In most places around the world, smelters use coal which is dug from mines in the ground. In the Amazon (and a few other places), they use charcoal, which is obtained by heating biomass (such as wood) in the relative absence of oxygen. The plan was for smelters to establish forest plantation, source the wood from the native forest for a few years, and then switch entirely to the plantations once these came into production. Yet, if history is any guide, the prospects for compliance with protective regulations in the larger Carajás region were dire.
Roughly 20 years before, in a development project called Jari, the American magnate Daniel Ludwig had tried to establish a forest plantation in the northern Brazilian Amazon to feed a pulp and paper mill. Despite massive investments, this particular initiative never took off as planned. In 1988, Philip Fearnside examined the history of Jari to draw lessons for Carajás and concluded that, “Jari’s plantations have proved to be far more costly and less productive than originally envisioned.” Problems included the onset of a range of fungi, bacteria, insects, and other pests that decreased overall productivity; the existence of many patches of soil that proved inadequate to sustain a forest plantation; and the permanent risk of erosion. Moreover, forest plantations also require a fairly high investment in land, saplings, personnel, and equipment to tend for the trees, plus the risk of invasion, fire or expropriation, while native timber is there for the taking. In the end, Fearnside concluded that smelters would surely “use large amounts of wood from felling native forests for as long as these forests continue to exist.”
At present, there are 15 pig iron smelters in two states (Pará and Maranhão), that acquire iron-ore from the now private CVRD. These smelters employ an estimated 5,000 to 10,000 people and produce an average of four million tons of pig-iron per year (10% of Brazil’s pig-iron production). Roughly 75% of this iron is exported (representing 50% of Brazil’s total pig-iron exports), mostly to the US automotive industry.
To acquire charcoal, these smelters turn to the 5,000-15,000 small, highly-mobile, and often informal charcoal producers spread throughout the eastern Amazon. Charcoal is fairly easy to make. To start, one builds sets of six rudimentary furnaces, which are igloo-like structures made of mud and the size of camping tents. These furnaces will be useful for as long as there is a forest nearby, i.e. roughly two years, and then they will be abandoned and the operation moved elsewhere. Next, one recruits a crew of unskilled laborers to cut the trees, clear the foliage, chop the trunks into smaller logs, and feed them into the furnaces. Each furnace is then sealed and set on fire. After roughly six days, the workers open the furnace and crawl in to retrieve the charcoal, which is loaded onto trucks and sent to the smelters. Charcoal producers employ an estimated 15,000 to 30,000 people and burn the equivalent of 14 to 16 million m3 of wood per year. For comparison’s sake, the Amazon’s 2,600 sawmills consume an estimated 28 million m3 of prime wood per year (Lentini et al 2003).
Pig iron is a globally-traded commodity whose price is determined by the international market, so smelters do not have much control over their revenues. A key ingredient, iron-ore, represents 22% to 25% of the final cost of pig-iron and is also a commodity whose price is set by the international market. Smelters see financial and logistical expenses, which represent 20% to 28% of final cost, under a similar light. In the end, charcoal represents more than 50% of the cost of pig-iron, and as stated by an industry insider, “for a smelter, the only cost that can be managed is the cost of charcoal; to make money, it is all in the charcoal”.63
Not surprisingly, charcoal production is rife with problems: a very large proportion of the wood used to make the charcoal comes from illegal deforestation;64 and charcoal workers are often not properly registered and not provided with safety equipment, appropriate living conditions, or none of the other health & safety and wage & hours requirements stipulated by Brazilian law. Many charcoal workers live in improvised tents, without access to toilets or potable water, and are forced to buy food and supplies from a company store. In fact, conditions can be so bad that many end up entangled in a system of illegal debt servitude that has been likened to modern-day slavery.
For the past 10-15 years the Brazilian government has been trying to curb these violations. Interestingly, the government has been enforcing labor and environmental laws separately, with very different results in each of these fronts. I discuss each of these fronts next.
Environmental regulators have been trying hard to convince and cajole smelters into complying with applicable laws, but results remain scant. In 2005, IBAMA’s regulators based in Brasilia cross-referenced smelters’ pig-iron production with their charcoal receipts, and concluded that from 2000 to 2004 these firms had consumed 22,400,000 m3 of charcoal, while they only had sourcing documents to account for 65% of this total (IBAMA 2005). As a result, IBAMA imposed fines worth more than R$800 million and required that smelters replant 700 km2 of native forests. At roughly the same time, in 2005 and 2006, IBAMA’s inspectors visited smelters to check whether they had environmental receipts for the charcoal deposited in their warehouses. In a series of highly publicized raids, inspectors found plenty of irregularities and impounded 200,000 m3 of charcoal worth R$10 to R$20 millions. And in 2007, the government of Pará, formerly pro-business, joined in and tightened reporting requirements for smelters and removed tax-breaks and other subsidies from those that did not comply with environmental regulations (Reporter Brasil, 2007).
The regulators wanted smelters to establish enough forest plantations to supply their own charcoal needs, as had always been required of them by the Brazilian law (see “Código Florestal” of 1965). Smelters agreed in principle, but claimed that the Reserva Legal requirements were an insurmountable obstacle. The Reserva Legal is a legal directive asserting that in the Amazon, landowners must maintain 80% of their land covered with native forests.65 In response to this demand, the smelters pointed out how in their region, large tracts of land had already been clear-cut, and that to reforest them with native species would be too expensive and cumbersome. Instead, they proposed to plant eucalyptus in the entire plot. To this end, they requested that the law be changed and claimed that: “the only obstacle for the success of this initiative is the anachronism of the law that limits the use of land that has been degraded, abandoned and/or underutilized.”66
The “reserva legal” of 80% had been adopted in 1996 (see Medida Provisória 1.511), when deforestation numbers had reached an all-time high. This threshold has always been hotly contested by agribusiness’ interests and defended fiercely by environmentalists. In such a contested setting, prosecutors were not likely to compromise. IBAMA and smelters had been discussing the terms of a deferred prosecution agreement (i.e. a TAC), but the prosecutor had some demands as well. In a memo distributed to journalists, he affirmed that “the Ministério Público will only sign a TAC that mandates … the replanting of all native forests that have been clear-cut because of the smelters’ operations.”67 However, no concessions were made, and the agreement was never signed.
Instead, regulators started searching for alternative solutions. Prodded by officials from the Ministry of Environment, BNDES (Brazil’s development bank) offered subsidized credit for forest plantations, EMBRAPA (the federal government’s agronomic research institute) started studying new agronomic technologies, and INCRA (the federal government’s land reform agency) considered encouraging land-reform settlers to reforest their plots. Yet, progress was minimal.
The smelters also explored alternative possibilities, but did not achieve much. For instance, they considered buying babaçu, açai, and/or brazil-nut husks; or collecting scrap wood from sawmills, and using the residues from their own furnaces to make briquettes, but prices were high and quantities available were low. Some smelters started importing coal (Steel Business Briefing, 2007), but in addition to being expensive, coal can only be used at a 20:80 proportion with charcoal. Other smelters started injecting charcoal dust back into their furnaces, and nine of them created a rotating capital fund to finance forest plantations (Diario do Para, 2007). Finally, the smelters’ association started lobbying the state government of Pará to build a pipeline to bring natural gas to their plants, but this was unlikely to be achieved anytime soon.
Throughout this time, regulators had been trying to coax CVRD only to sell iron-ore to smelters with legal sources of charcoal. CVRD is one of the most powerful companies in Brazil and one of the largest in the world. It ignored these pleas and sat by the sidelines. Yet, in November / December 2006, Bloomberg Magazine published a cover story in English entitled “The secret world of modern slavery”, which described the horrible labor conditions facing Eastern Amazon’s charcoal producers, and linking their plight to the US-auto industry (Voreacos and Smith, 2006). The response was immediate: Ford and other auto-makers vowed to stop buying pig-iron from Brazil and two congressmen – Dennis Kucinich from Ohio and Eliot Engel from New York – started scheduling hearings to investigate the matter (Voreacos and Smith, 2006). In no time, CVRD reversed its prior position and declared that it would only sell iron-ore in quantities commensurate to the smelters’ legal charcoal (Smith and Voreacos, 2006). Reportedly, the smelters felt the pressure, but they sought relief from the courts and obtained injunctions that still stand.
In the end, the efforts by the regulators, together with CVRD’s threat, have produced some progress. The smelters have been planting some forests, and according to one unofficial estimate, the share of illegal charcoal in the industry has dropped from 60% to 30% (O Eco, 2008). Yet, the old dynamic still remains: smelters postpone making the investments in forest plantations (and the accompanying Reserva Legal) while reaching to the native forest to supply their immediate demand for charcoal. A permanent solution seems always to be “only a few years away”.
Labor enforcement From the early 1990’s on, and following on decades of groundwork, Brazilian human rights activists joined forces with labor inspectors and prosecutors to build a legal and organizational infrastructure devoted to combating degrading work conditions in the Amazon. This joint-mobilization was triggered by the 1991 assassination of Expedito Ribeiro da Silva, a local union leader. According to Padre Ricardo Rezende, “the press had been sensitized by the murder of Chico Mendes in 1988, so the killing of Expedito drew a lot of headlines. As a result, I traveled all over Brazil to give interviews, and in Brasilia I found an important ally, the head prosecutor of Ministério Público, Dr. Aristides Junqueira.”68
Together, Ricardo Rezende and Aristides Junqueira created a forum to discuss labor conditions in the Amazon, and they held their meetings at the Ministério Público’s premises in Brasilia. In 1995, these meetings yielded one of their first concrete results, when President Fernando Henrique Cardoso reversed a history of denials and officially recognized the existence of slave-like work conditions in the country. That same year, the Ministry of Labor created the “mobile inspection squads” (‘grupos móveis’). These squads are independent task-forces managed directly from Brasilia (and not by the Ministry’s state representatives, which may be politically beholden to the states) and that conduct surprise raids in areas or industries likely to harbor slave-like conditions. The squads are staffed by labor inspectors and prosecutors who volunteer for the job, and according to their coordinator, this partnership is the cornerstone of their success: “in these operations, labor inspectors and prosecutors are joined at the hip; we are crucial partners in performing the job and obtaining results.”69
Throughout this period, labor regulators had been basing their actions on one of the most succinct articles in the Brazilian criminal code. Adopted in 1940, the code stated in its article 149 that it was forbidden to “submit someone to condition analogous to slavery”. Thanks to concerted action by activists, prosecutors, inspectors, and sympathetic legislators, in 2003 Congress amended the code. From then on, anyone who (i) employed armed guards to monitor the workforce, (ii) retained documents or other collateral to prevent workers from leaving the worksite, (iii) maintained laborers under debt servitude, or (iv) promoted degrading, exhaustive, or forced conditions, would be guilty of the crime of enslavement.
And in 2004 the Ministry of Labor created the Lista Suja (see Portaria 540), a directory of private firms found engaging in enslavement, as determined by labor inspectors. A firm found guilty stay in the list for two years, and thanks to an agreement with Brazilian banking authorities, these firms are barred from borrowing any money from official banks and thus have no access to subsidized credit.
While lobbying for these legal and organizational changes, inspectors and prosecutors kept on combating degrading work conditions in the field, and charcoal producers in Eastern Amazon had always been one of their main targets. A prosecutor who joined one of the first raids by the “grupos móveis” reports horrible work conditions in these plants:
“At inspections conducted in charcoal plants, I saw cattle living in better conditions than the workers. Rarely is a worker found with Individual Protective Equipment; they work amid coal soot and smoke, without shirts or with a shirt that is completely ripped and filthy; in shorts and without boots and gloves. In none of the charcoal plants visited did we find drinking water”70 (Veras, 2004)
As mentioned earlier, charcoal tends to be produced by informal and highly-mobile operations; they have no fixed asset that can be seized or reputation to preserve. In such a scenario, neither punishment nor education is likely to produce meaningful results. To move forward, prosecutors and inspectors looked back and started invoking a precedent set forth by the Brazilian Superior Labor Court (“Tribunal Superior do Trabalho”) in 1993, known as TST-331 (Artur 2008). This provision and its subsequent interpretations had created the figures of “legal” and “illegal” outsourcing and defined the criteria that separate the two. According to TST-331, firms can outsource support activities (“atividades-meio”), but core-activities (“atividades-fim”) must be conducted in-house. In other words, TST-331 allowed prosecutors and inspectors to ignore outsourcing contract and attribute responsibility over labor standards directly to those enterprises at the end of the supply-chain.71 A labor inspector explains how this applies to charcoal:
“Charcoal is not a marginal activity for the smelters – it is the quality of the charcoal that determines the quality of the pig iron. We, alongside the prosecutors, defended this argument in court, and won. So now we impose the fines not on the charcoal producers but on the smelters and make them pay. To us, and for all legal purposes, the smelters don’t have charcoal suppliers. Instead, smelters produce the charcoal themselves and thus must respond for labor conditions in charcoal production.”72
The smelters resisted, and even gained the theoretical support of prominent scholars. A respected Brazilian economist told me the following:
“Now one can only outsource support activities, but not core-activities... you know what, this is crazy. Prosecutors and labor inspectors are really messing things up with this story of illegal outsourcing. This is stupid, and does not benefit anyone. Still, they give it a lot of attention, thinking that they are saving the world. What a folly.”73
Regulators see no other way forward, and have their actions backed by the Brazilian courts, so they persevere. As described by a labor inspector:
“There is no solution to slave labor unless we drag the smelters in. If charcoal producers complied with the law, I would gladly ignore the illegal outsourcing. In fact, I don’t even care about illegal outsourcing. What I care about is ending slavery.”74
In 1999, and thanks to all the pressure, inspectors, prosecutors, and smelters reached a compromise and signed the Brazilian equivalent of a deferred prosecution agreement (TAC).75 On one side, prosecutors and inspectors agreed to recognize smelters and charcoal producers as separate legal entities. And on the other side, smelters agreed to pay for a variety of health and safety provisions directly, and to check whether their suppliers were complying with other health and safety and wage and hour provisions, including the formalization of the workforce. In case a charcoal producer breaches the law, the smelter is supposed to sever commercial relations and pay the charcoal workers what they were due.
Despite all the professed good intentions, regulators report that smelters never fulfilled their part of the deal. One labor inspector related how:
“Whenever we conducted inspections we detected several violations, so we invoked TST-331 and imposed all those heavy fines on the smelters. We could have invoked the TAC, but our fines were higher. Still, the smelters would say ‘the TAC allows me to outsource charcoal production, I’m not responsible for what the supplier does!’ What a joke. If the smelters were not keeping their part of the deal, why should I keep mine?”76
This continued for some time, until a group of non-profit institutions, plus the ILO, stepped in and convinced the parties to try something else. First, they all signed a non-binding “letter of intentions” or Carta-Compromisso. In this document, signed in 2004, the smelters recognized that labor conditions in charcoal production remained dire, and once again took it upon themselves to “impose commercial sanctions on those firms that rely on slave labor.”77
Next, a group of seven smelters started implementing the earlier agreement. These smelters created a non-profit entity called Instituto Carvão Cidadão (ICC) devoted to auditing labor standards in charcoal producers. The ICC was the brainchild of Claudia Brito, a career labor inspector who, for eight years, had been the head of the ‘grupos móveis’ and who had plenty of experience inspecting charcoal producers. At first, smelters resisted asking: “Why should I pay for an auditor to denounce me?”, but eventually they acquiesced, and hired Claudia Brito to be ICC’s technical director.
Other smelters later joined in, and currently the Instituto Carvão Cidadão has 12 members. Its board of directors is composed of six people: four representing the smelters, one representing the Ministry of Labor, and one representing the Ministério Público do Trabalho. The organization is funded by the smelters, and it claims to have an operating budget of roughly R$ 1.5 millions (~US$ 800,000) per year (ICC, 2009). The organization has three professional directors, a safety engineer, a doctor, and a cadre of 12 auditors who work out of offices in two states. They cover an area of 2 million km2 and since 2004 auditors have visited almost 2,000 charcoal producers and 50,000 workers in 200 municipalities in four states 78 (ICC, 2009). The ICC consolidated annual report is published online and submitted to the ILO, the Ministério Público do Trabalho, the Ministry of Labor, the Human Rights Division, and two other NGOs. The auditors also present a detailed report to their board at the ICC’s meeting, and more than 300 charcoal producers have had their contracts terminated and cannot sell charcoal to any of the members until the detected violations are solved.
These actions have produced other noticeable results. First, reported formalization rates in the charcoal industry have increased manifold, and ICC representatives boast that the proportion of registered workers in this industry is higher than in the retail sector in the same state. Nowadays, a large number of charcoal workers receive uniforms, personal protection equipment, and have access to toilets, clean water and other health and safety and wage and hours provisions, as mandated by Brazilian law. Second, the charcoal sector is undergoing significant structural change as a result of regulatory action. Ideally, charcoal for pig-iron has a certain rate of carbon, volatile materials, and fibers, meets certain granulometry standards, and presents a low percentage of dust or other extraneous materials (such as pieces of wood). Until recently, charcoal producers sold their output by weight in the open market. The charcoal would often go through a chain of intermediaries until it reached a smelter, and the quality of the product was not a relevant variable. Thanks to the regulatory interventions described above, smelters have started to sign long-term exclusive contracts with their suppliers and to send quality experts to help charcoal producers turn out a product of higher quality. These quality experts often join forces with labor auditors, and some adopt the time-tested good-cop-bad-cop routine to encourage charcoal producers to comply with the applicable standards. Finally, both smelters and the Brazilian government have been using the ICC to protect the pig-iron industry from regulatory sanctions and/or retaliation. For instance, when two US congressmen from steel producing states started conducting hearings on slave-labor in the Amazon, Brazilian diplomats posted around the world referred to the ICC to defuse the situation (Brazil, 2006).
Still, much remains to be done. Prosecutors and inspectors point out that many of the formal and law-abiding charcoal producers serve as fronts for other operations, deeper in the forest, that flaunt all applicable laws. For this reason, the prosecutors in charge have been saying that they will denounce the TAC of 1999 and require that the smelters hire all charcoal workers directly. Moreover, even those prosecutors who admire the work of ICC are frustrated with the fact that “manyworkers who are rescued from enslavement do not find jobs in the formal sector and thus end up going back to their old posts, starting the cycle of exploitation all over again.”79 The suggestion now is for the Brazilian government to scale-up a side project currently conducted by ICC, to act as intermediary connecting these laborers to formal jobs.
The bottom-line is that labor and environmental inspectors and prosecutors have achieved diverging results in their attempts to enforce protective regulation in charcoal production. Three points stand out. First, both environmental and labor regulators realized that charcoal producers – informal, mobile, with no assets or reputation to preserve – were unlikely to respond to fines, indictment, or any of the other “typical” tools of the regulatory trade. Second, regulators zeroed in on the smelters, and found ways to drag them in into the matter (the Forest Code for environmental regulators, and TST-331 for labor regulators). And third, the results diverged because labor inspectors and prosecutors had varying levels of success in finding (or, in one case, creating) other entities that made it relatively easy for smelters to comply.