FLEGT VPA of Indonesia and EU in Forestry Exports: Why Does It Matter? [English]

As the 4^th largest country in the world, Indonesia is yet to fully optimize their rich biodiversity and resources when it comes to forestry trading with its foreign partners. Indonesia’s forest woods products which was categorized in HS two-digit code as HS-44 have become one of the important commodities to be traded and it entails substantial contribution to Indonesia’s export outside of oil and gas. With Indonesia is upholding an outward-looking principle on its foreign trade, a fit-for-purpose and diplomatic approach on its foreign trade policies are needed to secure Indonesia’s momentum within the global supply chain (BP2KP, 2014). One of which is the balance between economic interests and environmental concerns subjected to public scrutiny not only in Indonesia, but also its trading partners who are concerning the said subject. The quest of this matter began when countries were becoming aware of their national conditions and now striving for better endeavors. One of which is by adjusting trade policies and closing their potential markets to the unregulated market, in this case is the European Union who are demanding timber-exporting countries to adhere with the sustainable development goals and environmentally-sound policies by establishing a specific partnership agreement that will drives their trade partner to comply with their preferred standards. 

FLEGT VPA in a Glance

Forest Law Enforcement Governance and Trade Voluntary Partnership Agreement (FLEGT VPA) was signed by Indonesia through the Presidential Order No. 21/2014 as the official partnership between Indonesia and European Union to uphold the best practices of good forest governance in balancing sustainability and trade exports. FLEGT VPA is implemented in four phases. The first phase is the negotiation preparation to exchange information and consensus-building that involves the civil society, forestry exporters, ministerial actors, and scholars. These actors then proceed to define, build, explore, examine, and review the models that are suitable for Indonesia’s forest industries as the assurance that all provisions and stipulations that will be agreed upon is sustainable and proper (EFI, 2009). The second phase is the decision-making process to reach consensus among both parties (Indonesia and EU) and indeed it’s a very consultative and vital process that will determine the policies’ articulation (EUFLEGT, n.d). It’s a very complex case due to the fact each national stakeholders has to reach their consensus, pertaining to the fact that FLEGT VPA is multidimensional in nature and crossed jurisdictions of many stakeholders (environment, trade, foreign affairs, and civil society engagement (FAO, 2014; EFI, 2009). 

The third process is the ratification where the parties enact the agreed policies into force. Parliament from both parties begin the legislation process, however it doesn’t end there – while the legislation is in the process, all parties created a system called LAS or Legality Assurance System (FAO, 2014). LAS is the system where the government settles the compliance system for stakeholders in order to ensure positive development can be developed and all parties can consult and monitor the VPA implementation with the assistance from the appointed independent auditor. Lastly, the fourth phase is called ‘licensing’ – government starts to provide and require all exporters to be licensed and held accountable for their production and distribution (EFI, 2009; EUFLEGT, n.d). 

From the Indonesia and EU’s case of FLEGT VPA, all of the 4 phases were concluded in the following points: (1) establishment of Indonesia’s timber LAS and verification mechanism with ‘FLEGT’ licenses; (2) the stipulations of commitments to public disclosure of relevant and important information and other matters regarding the best practices of forest governance; (3) monitoring and evaluation framework on its trade, environment, and social impacts within the national level; and (4) trade regulation and licensing mechanism, followed by revisions if there is any disputes is filed (EUFLEGT, 2017).

FLEGT VPA and Indonesia’s Foreign Trade in Forestry Products with EU 

FLEGT VPA is one of the original products of the EU, with environmental concerns arising due to climate change, EU as one of the world’s advanced regional cooperation restricts trade-in-goods, particularly in forestry products because of deforestation and irresponsible acts that deprived the green forests. From FLEGT VPA, EU intends to force countries who wish to do cooperation with Europe to be more sustainable and complying with international development. This legally binding commitment within the treaty also becomes a moral obligation for Indonesia to comply and reform its bureaucracy to administer the 80-billion hectare of forests in the country for a more sustainable and inclusive green economy. FLEGT VPA also became a wake-up call for Indonesia to deter collateral damage and refrain substantial loss from illegal timber industries (Jonsson, et al., 2015). Indonesia needs the EU as their timber strategic trading partner more than they do, European timber demands are becoming more important as the key action to recover from the pandemic crisis. Indonesia’s hope is proven by the data that EU and Indonesia trade relation is reaching € 26,2 billion with the surplus in Indonesia’s side (Zufrizal, 2020). 

The two cents that could be offered about FLEGT VPA will not sway further from the fact that FLEGT VPA is a proof where Indonesia’s forest industries are not sustainable in practice, hence this agreement was adopted as the driving power to prevent further climate crisis. Another cent could reflect this as a proof where Indonesia is now more willing to sustain best practices and balancing the industrial demand and environmental protection. However, this motivation didn’t come without trade-off, one of which is to reform bureaucratic technicalities of the industry towards the vast market actors. Indeed it’s not an easy job to be done for Indonesia to enforce compliance in such urgency. Indonesia’s forestry exports have this urgent homework to cope because further delay will obstruct the exports of Indonesia’s forestry products to EU, and to note that the EU is one of Indonesia’s vital markets. Not only that, the previously adopted Act No. 5 1967 regarding main forest provisions; Act No. 41 1991 regarding forest protection; Act No. 6 2007 about sustainable forest management, and the Presidential Order No. 25 that was adopted in 2012 stipulated fundamental stance of Indonesia regarding forestry and FLEGT VPA could be one of the feasible accountability that can be implemented.

The EU’s 2002 Indonesia’s forestry exports ban was the benchmark of Indonesia’s new economic diplomacy priorities and Indonesia back then accelerated their commitment to standardize the legal timber verification system which is known as “SVLK” (Kunkunrat & Hariyadi, 2017). This ban actually proves that Indonesia’s forestry exports is better than the other exporting countries, hence EU somehow intended to press any possible gaps to make room for the European market to strive without the competitive quality of Indonesia’s timber and forest exports. This may be experimental since the stance that was upheld by the EU during the negotiation itself depicted their concerns regarding Indonesia’s market sustainability and one may not simply shift the gears into political concerns. But this doesn’t merely mean that the aforementioned narrative is baseless, but more into a contestation where any parties that complies can be perceived by the international community (not limited only to EU) as the positive example for the whole world in trading and conservation. 

Since the ratification process of FLEGT VPA in Indonesia, during the year 2018-2020 product HS-44 (a two-digit code for timber products) were experiencing a downturn of 4% YoY, however this wasn’t directly a result of FLEGT VPA and instead it was caused by US-China trade war that disrupted the global supply chain (Susanto, 2020) because China is also Indonesia’s largest timber market outside of the EU. And textually speaking from theory, when it comes to economic liberalization, there are only two problems that directly affect progress: tariff and non-tariff factors (Ginting, 2014). And one of notable factor that affects forestry exports are the overlapping tariffs acquired by bilateral, regional, and even multilateral trade agreements (PTA, FTA, CEPA, etc). It’s also added by other problems such as the non-tariff factors like regulating the upstream and downstream forestry industrial actors. In which these problems are mainly intertwined with government interventions and trade facilitation issues. 

FLEGT VPA: Does it Matter and Effective for Indonesia – EU Forestry Trade?

Because of the fluctuating external factors that affect trade simultaneously like the previous case of 2018-2020 timber downtrend, it is better for us to perceive it through Indonesia’s perspective to assess it. First, Indonesia-EU FLEGT VPA has its own shared jurisdiction at the ministerial level such as the Ministry of Trade, Ministry of Environmental Affairs, and Ministry of Forestry. The three said ministries encounter several common problems such are: (1) Bureaucratic problems where the exporters are not aware of the FLEGT VPA licensing technicalities such as the one-door system and V-legal documentation. This kind of issue has led into the failure of these products to be exported and this clearly contributed on the question of why the increase of forestry exports sometimes were not linear to the market potentials even after the implementation of FLEGT VPA; (2) Difficulties of each ministry to enhance the online licensing system for the exporters which happened because of one single flaw: a conventional and manual confirmation system for the licensing. Although it can be accessed online for the registration, the said stakeholders need to confirm it to the exporters manually without any online verification; and (3) COVID-19 pandemic that disturbed the whole supply chain for both imports and exports. 

Thus, for the question of: does it matter? 

Yes, it does matter. 

Indonesia needs the EU and EU markets need Indonesia, it’s a natural reciprocality among the actors when it comes to trade liberalization. FLEGT VPA is the key to reduce the liability that comes with trade, and in the current state of international trade, sustainability is an objective to be complied to move forward and accelerate the sustainable development goals’ achievements while also maintaining interdependencies among states in global affairs through economic integration and inter-regional cooperation. The key to ensure an effective trade of forestry products is by maintaining the best practices and increasing efficient forest management to maximize its economic value for both national and environmental interest amidst the dynamic supply and demand  (Suryandari et al, 2018; Profundo, 2019). Until now in 2021, with Indonesia’s Trade Minister Agus signing the Trade Minister Regulation (Permendag) No. 74/ 2020 in late 2020 to enhance the FLEGT VPA implementation and forestry foreign trade, we can expect further improvements and empowerment to the forestry market sector to push a positive force for the post-pandemic trade recovery and  empowerment. 

References:

BP2KP. (2014). Kajian Penyusunan Strategi Pengembangan Ekspor Indonesia 2015-2019. Jakarta: BP2KP Kementerian Perdagangan RI.

EFI. (2009). EFI Policy Brief 3. European Forest Institute.

EU FLEGT. (2020). Summary of EU-Indonesia AP 2020. EU FLEGT.

EU FLEGT. (n.d). Maps, icons and illustrations. Retrieved from EU FLEGT Facility: https://www.euflegt.efi.int/maps-and-illustrations

EUFLEGT. (2017, November 8). The Indonesia-EU Voluntary Partnership Agreement. Retrieved from EU FLEGT: https://www.euflegt.efi.int/background-indonesia

EUFLEGT. (2018). Annual Report 2018: Implementation of the Indonesia-EU Voluntary Partnership Agreement on Forest Law Enforcement, Governance and Trade. EUFLEGT.

EUFLEGT. (n.d). How are VPAs negotiated? Retrieved February 8, 2021, from EUFLEGT Facility: https://www.euflegt.efi.int/vpa-negotiations

EUFLEGT. (n.d). National VPA Negotiating Structures. Retrieved from EUFLEGT: https://www.vpaunpacked.org/national-vpa-negotiating-structures

FAO. (2014). The Voluntary Partnership Agreement (VPA) Process in Central and West Africa: From Theory to Practice. Rome: Food and Agriculture Organization .

Ginting, A. (2014). Perkembangan neraca perdagangan dan faktor-faktor yang mempengaruhinya. Buletin Ilmiah Litbang Perdagangan, 8(1), 51-72.

Jonsson, R., Giurca, A., Masiero, M., Pepke, E., Pettenella, D., Prestemon, J., et al. (2015). Assessment of the EU Timber Regulation and FLEGT Action Plan. European Forest Institute.

Kunkunrat, & Hariyadi, R. P. (2017). Kerja Sama FLEGT-VPA (Forest Law Enforcement Government and Trade-Voluntary Partnership Agreement) Indonesia-Uni Eropa dalam Peningkatan Ekspor Produk Hasil Hutan Indonesia ke Uni Eropa. Jurnal Transborders, 1(1), 50-61.

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Ridho, A., Fathun, L. M., & Juned, M. (2019). Implementasi Kerjasama Inggris Dalam Kerangka Multistakeholder Forestry Programme (MFP 3) Terhadap Peningkatan Produk Kayu Indonesia 2014-2016. Journal Asia Pacific Studies, 3(1), 74-83.

Suryandari, E. Y., Djaenudin, D., Indartik, & Alviya, I. (2018). Liberalisasi Perdagangan dan Dampaknya Terhadap Kinerja Perdagangan Produk Kayu Indonesia. Jurnal Penelitian Sosial dan Ekonomi Kehutanan, 15(3), 225-239.

Susanto, V. Y. (2020, January 4). Ekspor kayu olahan Indonesia sepanjang tahun 2019 turun 4%. https://industri.kontan.co.id/news/ekspor-kayu-olahan-indonesia-sepanjang-tahun-2019-turun-4-1

Zufrizal. (2020, October 3). Surplus Lagi! Ekspor RI ke UE Tembus 16 Miliar Euro Tahun Lalu. https://ekonomi.bisnis.com/read/20201003/12/1300102/surplus-lagi-ekspor-ri-ke-ue-tembus-16-miliar-euro-tahun-lalu#:~:text=Bisnis.com%2C%20JAKARTA%20%E2%80%94%20Indonesia,dengan%20Uni%20Eropa%20selama%202019.&text=Bagi%20UE%2C%20tulis%20laporan%20tersebut,

Hino S. Jose is an International Relations undergraduate at UPN Veteran Jakarta and currently an intern at the Directorate General of Foreign Trade, Ministry of Trade Indonesia. He can be found on Instagram @samueljose737

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