Overview

The Indonesian Government has issued Ministry of Trade Regulation 15/2020 which will drastically undermine the credibility of its legal timber product supplies to international markets. This new Regulation comes into force on 27 May 2020.

Under the pretence of an economic stimulus, Regulation 15/2020 will substantially weaken the national timber legality assurance system through large scale deregulation. This will re-incentivise illegal logging and illicit trade. It will also sweep away all progress made under Indonesia’s commitment to good forest governance, and efforts to halt deforestation. The result will be the ruination of people’s livelihoods, increased biodiversity loss and further fuel our climate crisis.

Ultimately, the fallacy of quick economic gain through deregulation will cause Indonesia to lose its unique position in the licensed timber market and tarnish the country’s reputation in demand side markets.

Overview

The Indonesian Government has issued Ministry of Trade Regulation 15/2020 which will drastically undermine the credibility of its legal timber product supplies to international markets. This new Regulation comes into force on 27 May 2020.

Under the pretence of an economic stimulus, Regulation 15/2020 will substantially weaken the national timber legality assurance system through large scale deregulation. This will re-incentivise illegal logging and illicit trade. It will also sweep away all progress made under Indonesia’s commitment to good forest governance, and efforts to halt deforestation. The result will be the ruination of people’s livelihoods, increased biodiversity loss and further fuel our climate crisis.

Ultimately, the fallacy of quick economic gain through deregulation will cause Indonesia to lose its unique position in the licensed timber market and tarnish the country’s reputation in demand side markets.

Indonesia – Before and after Timber regulations

[short summary, encouraging people to click and find out more below]

Indonesia – Before and after Timber regulations

[short summary, encouraging people to click and find out more below]

Beginnings – Unchecked crime with devastating consequences

The world’s forests have value far beyond any mercantile worth of the timber they contain – indeed, compared to their vital importance for livelihoods, culture, and biodiversity, as well as helping in the fight against the climate crisis, their cash value should pale into insignificance. But, unfortunately, it does not.

At the height of the illegal logging era in the 2000s, Indonesia lost, on average, 2.8 million hectares of forests per year (nearly the size of Belgium). During that period 80 per cent of the timber exported from the country was estimated to be illegal. In simple economic terms the country lost 40 trillion rupiah (approximately $4.35 billion) of revenue a year.

Beyond the economic, forest crime also has massive environmental and social consequences. For far too long forest destruction it has been regarded as a victimless crime. This was reflected in the approaches of the governments of the period, firstly not targeting the real criminals, including from within government ministries, and instead focussing on criminalising local people.

EIA has long been trying to turn the tide of illegal logging in Indonesia. Using investigations to highlight the destruction wrought by powerful companies and government officials, EIA and its partner Kaoem Telapak continued to investigate, expose and lobby in Indonesia as well as in consumer countries. Progress was, however, slow, sadly unlike the rate of destruction of Indonesia’s forests.

[Animated Stat: 2000’s 2,800,000 Hectares of forest lost per year]

[Animated Stat : $4,350,000,000 cost to Indonesia]

Beginnings – Unchecked crime with devastating consequences

The world’s forests have value far beyond any mercantile worth of the timber they contain – indeed, compared to their vital importance for livelihoods, culture, and biodiversity, as well as helping in the fight against the climate crisis, their cash value should pale into insignificance. But, unfortunately, it does not.

At the height of the illegal logging era in the 2000s, Indonesia lost, on average, 2.8 million hectares of forests per year (nearly the size of Belgium). During that period 80 per cent of the timber exported from the country was estimated to be illegal. In simple economic terms the country lost 40 trillion rupiah (approximately $4.35 billion) of revenue a year.

Beyond the economic, forest crime also has massive environmental and social consequences. For far too long forest destruction it has been regarded as a victimless crime. This was reflected in the approaches of the governments of the period, firstly not targeting the real criminals, including from within government ministries, and instead focussing on criminalising local people.

EIA has long been trying to turn the tide of illegal logging in Indonesia. Using investigations to highlight the destruction wrought by powerful companies and government officials, EIA and its partner Kaoem Telapak continued to investigate, expose and lobby in Indonesia as well as in consumer countries. Progress was, however, slow, sadly unlike the rate of destruction of Indonesia’s forests.

[Animated Stat: 2000’s 2,800,000 Hectares lost per year ] | [Animated Stat : $4,350,000,000 cost to Indonesia ]

FLEGT and SVLK – Turning the screw on illegal logging

Finally, after years of campaigning, the EU responded as a responsible consumer by taking the long overdue step of acknowledging the serious issue of illegal logging. In response, a governing framework built on a series of measures to prevent illegal timber from entering EU supply chains was established, known as the Forest Law Enforcement Governance and Trade (FLEGT) Action Plan. Crucially, FLEGT seeks to combat illegal logging at its illicit core – rampant corruption, poor governance, lack of transparency and accountability from those managing and utilising forests in producer countries.

Central to the FLEGT Action Plan are Voluntary Partnership Agreements (VPAs) – bilateral trade deals negotiated between timber producing countries and the EU – designed to prevent illegal timber products from entering supply chains and subsequently finding their way to European consumers. VPA negotiations with Indonesia began in 2007 and concluded with the signing of the agreement in 2013.

Safeguards of legality under such agreements are national timber legality assurance systems (TLAS) designed to have legality checkpoints along the chain of timber custody from harvest or import up until export of finished wood products from Indonesia. This system is referred to as “Sistem Verifikasi Legalitas Kayu” (SVLK) in Indonesia and mandates every wooden product destined for export to have a certificate of legality or “V-legal” document.

Successful implementation of the SVLK was a crucial step to fulfil Indonesia’s good forest governance commitments signed under the VPA and the final stepping-stone to become licensed under the FLEGT Action Plan. A FLEGT licence will attest to the legality of Indonesian timber in the same way as a V-Legal Document and guarantees privileged access to EU markets. In 2016 Indonesia thus became the first country in the world to export timber products under the FLEGT instrument – effectively creating the world’s first controlled green supply chain for timber

FLEGT and SVLK – Turning the screw on illegal logging

Finally, after years of campaigning, the EU responded as a responsible consumer by taking the long overdue step of acknowledging the serious issue of illegal logging. In response, a governing framework built on a series of measures to prevent illegal timber from entering EU supply chains was established, known as the Forest Law Enforcement Governance and Trade (FLEGT) Action Plan. Crucially, FLEGT seeks to combat illegal logging at its illicit core – rampant corruption, poor governance, lack of transparency and accountability from those managing and utilising forests in producer countries.

Central to the FLEGT Action Plan are Voluntary Partnership Agreements (VPAs) – bilateral trade deals negotiated between timber producing countries and the EU – designed to prevent illegal timber products from entering supply chains and subsequently finding their way to European consumers. VPA negotiations with Indonesia began in 2007 and concluded with the signing of the agreement in 2013.

Safeguards of legality under such agreements are national timber legality assurance systems (TLAS) designed to have legality checkpoints along the chain of timber custody from harvest or import up until export of finished wood products from Indonesia. This system is referred to as “Sistem Verifikasi Legalitas Kayu” (SVLK) in Indonesia and mandates every wooden product destined for export to have a certificate of legality or “V-legal” document.

Successful implementation of the SVLK was a crucial step to fulfil Indonesia’s good forest governance commitments signed under the VPA and the final stepping-stone to become licensed under the FLEGT Action Plan. A FLEGT licence will attest to the legality of Indonesian timber in the same way as a V-Legal Document and guarantees privileged access to EU markets. In 2016 Indonesia thus became the first country in the world to export timber products under the FLEGT instrument – effectively creating the world’s first controlled green supply chain for timber

Benefiting from legal timber supply

The cost of certification has been a point of contention since the inception of SVLK. Recently, the landmark Indonesian timber legality verification system (SVLK) has been under increased pressure from commercial interests again and Indonesia’s Coordinating Minister for Economic Affairs in 2019, Darmin Nasution, argued that the Government’s plan to relax timber regulations would give the country a competitive advantage by cutting costs and thereby increase exports of wood products, stating that the SVLK should only be applicable to furniture products destined for Australia, Canada, the EU and UK.

Further, the Indonesian Furniture and Craft Association (HIMKI) has been instrumental in a push to drop the legality assurance requirements, despite trade data showing there has been a substantial increase in market response to V-Legal documentation and the SVLK system. Nevertheless, HIMKI Secretary General, Abdul Sobur, stated that under the present conditions, Indonesia cannot compete with Vietnam, for example, in attracting foreign investment. However, since the implementation of the SVLK, FLEGT licenced exports of wood products with a V-legal document have rocketed.

 

[Animated Graph]

 

Since 2013 the SVLK system has contributed exports of wood products amounting to a total of US$68.37 billion giving testament to Indonesia’s reputation as a certified timber goods producer. In addition to the economic benefits there have been significant environmental and social benefits from the VPA.

Benefiting from legal timber supply

The cost of certification has been a point of contention since the inception of SVLK. Recently, the landmark Indonesian timber legality verification system (SVLK) has been under increased pressure from commercial interests again and Indonesia’s Coordinating Minister for Economic Affairs in 2019, Darmin Nasution, argued that the Government’s plan to relax timber regulations would give the country a competitive advantage by cutting costs and thereby increase exports of wood products, stating that the SVLK should only be applicable to furniture products destined for Australia, Canada, the EU and UK.

Further, the Indonesian Furniture and Craft Association (HIMKI) has been instrumental in a push to drop the legality assurance requirements, despite trade data showing there has been a substantial increase in market response to V-Legal documentation and the SVLK system. Nevertheless, HIMKI Secretary General, Abdul Sobur, stated that under the present conditions, Indonesia cannot compete with Vietnam, for example, in attracting foreign investment. However, since the implementation of the SVLK, FLEGT licenced exports of wood products with a V-legal document have rocketed.

 

[Animated Graph]

Since 2013 the SVLK system has contributed exports of wood products amounting to a total of US$68.37 billion giving testament to Indonesia’s reputation as a certified timber goods producer. In addition to the economic benefits there have been significant environmental and social benefits from the VPA.

Deregulation – Return to the bad old days

Despite the economic success, the Indonesian SVLK needs further support to improve effectiveness as the system continues to be exploited. In 2019 alone, the Directorate General of Law Enforcement of the Ministry of Environment and Forestry (DG Gakkum) seized 455 containers of illegal timber, for example. With the Covid-19 pandemic induced economic downturn in 2020, the existing SVLK faces yet another battlefront as legality safeguards are considered a hinderance to economic recovery. As part of a general economic stimulus drive, the Indonesian ministry of trade pushed for a new regulation 15/2020 on the export of wood products.

Under the new, substantially flawed system set for implementation on 27 May 2020, companies will no longer need to obtain special licences attesting legality –V-Legal Documents – at the point of export. This regulation will violate Indonesia’s VPA commitments to keep timber legality standards in place which are effectively locking stolen wood out of the country’s supply chains. The resulting deregulation of the majority of wood products, will further introduce uncertainty and scope for illicit activities to the extent that Indonesian wood products cannot be guaranteed to be legally exported.

Relaxing legality requirements will likely re-incentivise the illegal logging sector further, thus exacerbating the still present illicit timber trade and increase the risk of environmental destruction last seen 20 years ago. Deregulating legality will be especially detrimental to Indonesia at a time when timber legality legislation is now in place with consuming countries such as, Australia, the EU, Japan, South Korea, the USA and, most recently, China, which is revising its forest law to address illegally sourced timber.

Deregulation – Return to the bad old days

Despite the economic success, the Indonesian SVLK needs further support to improve effectiveness as the system continues to be exploited. In 2019 alone, the Directorate General of Law Enforcement of the Ministry of Environment and Forestry (DG Gakkum) seized 455 containers of illegal timber, for example. With the Covid-19 pandemic induced economic downturn in 2020, the existing SVLK faces yet another battlefront as legality safeguards are considered a hinderance to economic recovery. As part of a general economic stimulus drive, the Indonesian ministry of trade pushed for a new regulation 15/2020 on the export of wood products.

Under the new, substantially flawed system set for implementation on 27 May 2020, companies will no longer need to obtain special licences attesting legality –V-Legal Documents – at the point of export. This regulation will violate Indonesia’s VPA commitments to keep timber legality standards in place which are effectively locking stolen wood out of the country’s supply chains. The resulting deregulation of the majority of wood products, will further introduce uncertainty and scope for illicit activities to the extent that Indonesian wood products cannot be guaranteed to be legally exported.

Relaxing legality requirements will likely re-incentivise the illegal logging sector further, thus exacerbating the still present illicit timber trade and increase the risk of environmental destruction last seen 20 years ago. Deregulating legality will be especially detrimental to Indonesia at a time when timber legality legislation is now in place with consuming countries such as, Australia, the EU, Japan, South Korea, the USA and, most recently, China, which is revising its forest law to address illegally sourced timber.

Recommendations

Indonesia

Recommendations

Indonesia

Revoke Regulation 15/2020, recognising the importance of having a strong chain of custody from forest to port in the fight against illegal logging, and its value in creating a market for Indonesia’s timber.
Find ways to support small medium enterprises to comply with the legality standards without undermining the integrity and credibility of the system.

Demand side countries

Demand side countries

Ensure existing EUTR cases focussed on Vietnamese supply chains are prosecuted, including those cases submitted by EIA in Italy

Serial Offender – The full report

Download the full report, detailing the results of our investigations. This includes references and an annex of the organisations at risk of involvement in the trade.

Download full report

Serial Offender – The full report

Download the full report, detailing the results of our investigations. This includes references and an annex of the organisations at risk of involvement in the trade.

Bản dịch tiếng Việt có sẵn (Vietnamese translation available) »

មានការបកប្រែជាភាសាខ្មែរ (Khmer translation available) »

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