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Commitments to curb illegal logging and deforestation have proliferated in recent years with the increase of global trade in tropical timber and wood products. While they reflect international sustainability demands, the employed mechanisms to assure timber legality verification may not reflect conditions faced by local private sector actors. Facing rapid forest loss and limited foreign market access, government of Myanmar started reforming its forest policy to include a system of timber legality verification. Drawing on policy analysis and mixed-methods field research, we evaluate the feasibility of the policy reform to achieve economic and environmental upgrading in the timber value chain. Our findings question the transformative capacity of this policy reform. Not only that it failed to meet its sustainability goals, it has also created favourable conditions for a race to the bottom and concentration in the timber value chain. Economic and environmental upgrading take place at the expense of private smallholders who are expected to address a range of obstacles, including limited access to inputs, quality downgrading, and increased operational costs, which hamper their performance. To prevent socio-environmental losses, forest-sector regulatory reforms should be particularly mindful of these challenges in the midstream segment of the value chain. • Feasibility of policy reform to achieve economic and environmental upgrading. • The case of timber and wood products value chain in Myanmar. • Policy analysis and mixed-methods field research. • The reform failed to meet its sustainability goals. • Conditions for race to the bottom and concentration in the timber value chain. [ABSTRACT FROM AUTHOR]