"If timber is not included in the sanctions, then the problems with Liberia and the region are going to continue," Alley told Reuters in an interview.

"It is timber revenues that have enabled him to maintain his power base and continue to fund the RUF. And the conflict on the Liberia-Guinea border is also funded by those revenues."

The United Nations imposed the diamond ban and extended an arms embargo on Liberia earlier this year to cut off support for the RUF in its decade-long civil war.

It also blamed Taylor for his part in spreading regional instability, including to neighbouring Guinea. Taylor has in turn accused Guinea and Britain of backing rebels who have been fighting to topple him for the past year.

France and China, which are both permanent members of the U.N. Security Council and also the main importers of Liberian wood, opposed timber's inclusion in the sanctions, arguing there was not enough evidence to link it to regional conflicts.

"We have specific examples of logging ships arriving in Liberia, unloading arms and loading up with logs," said Alley, who plans a full report in September.

He gave the recent example of a ship coming from Senegal that docked in Liberia's southern Harper port on May 10. He said arms had been loaded from the ship onto a military helicopter.

He was also investigating reports that a ship from China had brought arms to Buchanan port in early July before loading logs.

Alley said timber companies regularly hired Sierra Leonean rebels, former Liberian civil war fighters and members of Taylor's personal and feared Anti-Terrorist Unit.

CONTROL OF NATURAL RESOURCES

The Strategic Commodities Act adopted by parliament last year effectively gave the president control over key natural resources - including gold, diamonds, iron ore and logs.

Alley estimated the value of Liberia's timber trade at $187 million a year, based on market prices. He said the government had declared timber revenues of just $6.6 million in 2000.

"We think that when you take out production costs, there is basically $100 million a year on top of that which is unaccounted for," he said.

"The logging industry clearly has to make a profit, but we think that a major part of that money goes into funding regional conflicts - you can buy a lot of guns with $100 million."

Citing government and international trade statistics, Alley said the volume produced in 2000 was 934,000 cubic metres (33 million cubic feet). However, according to the International Tropical Timber Organisation (ITTO), Liberia produced only 495,000 cubic metres (17 million cubic feet).

The U.N. report, on the basis of which the sanctions were imposed on Liberia, also named big players in the timber industry as being linked to the arms trade.

Among them was Dutchman Gus Kouwenhoven of the giant Oriental Timber Company, who is on the board of the Forestry Development Authority, set up by the government to monitor the industry and headed by Taylor's brother D. Robert Taylor.

In the long term, London-based Global Witness said indiscriminate exploitation of Liberia's forests would cause huge economic and environmental damage.

Alley said some logging companies themselves predict they will do business in the country for only another five years.