2nd High Level Market Dialogue - 2012
"Boosting the Export of Indonesian Verified Legal Timber Products to Europe-USA-Japan and China
JW Marriott Hotel, Jakarta - Indonesia
March 20th 2012
Organized by GPEI in collaboration with PT. Mutu Hijau Indonesia
Nearly 200 delegates from across the globe assembled in Jakarta for a two day conference on 20th and 21st March. The conference aim was to help boost the awareness of Indonesia’s Timber Legality Verification System (SVLK)established by the Indonesian Ministry of Forestry in June 2009, otherwise referred to as Timber Legality Assurance System (TLAS), in discerning international markets, as an effort to increase the exports of Indonesian Verified Legal Timber Products. An impressive line up of speakers addressed participants, including Indonesian Ministers, Indonesian and international business leaders and representatives from four continents – North America, Europe, Asia and Australia. These included Ambassadors from the EU, an official from the Australian government, the President of the European Timber Trade Federation and experts in the field of solid wood and paper as well as consultants, ENGOs, institutions, corporations and other stakeholders.
Background: With less than a year before new European Union Timber Regulations (EUTR) comes into effect and will prohibit the placing of illegal timber products in the EU, efforts are being stepped up to boost the preparedness of Indonesian producers of SLVK timber products and their ability to access the EU market. With support from the EU, the Indonesian Exporters Association in collaborating with PT. Mutu Hijau Indonesiahosted this event with the aim of boosting the exports of Indonesian Verified Legal timber products to Europe and also to other countries. The EU imports annually US$ 1.2 billion in timber and paper products from Indonesia,or 15% of the nation’s exports. In March 2013, compliance with the new EUTR will be required. In line with the request of the Government Indonesia to consumers around the world not to buy illegal products, this regulation will prohibit the trade of illegal timber products into the EU. It will also require EU operators to exercise Due Diligence (DD) to minimise the risk of placing illegal timber products onto the EU market. This regulation will complement efforts from countries like Indonesia to tackle illegal logging on the production side. It could also facilitate Indonesia's access to additional markets in the EU. In May 2011, Forestry Minister Zulkfli Hasan and EU Trade Commissioner Karel De Gucht signed a declaration on the conclusion of a deal on legal timber trade, the Voluntary Partnership Agreement (VPA). The new EUTR recognises that products from VPA countries will automatically be considered legal, making compliance by EU buyers easier.
The Keynote Presentations were opened under the chairmanship Dr. Boen Poernama, Senior Advisor To The Indonesian Minister of Forestry.
Dr Ken McDicken of FAO was who provided an overview of the global forest resource over 4 billion ha, representing 31% of global land. While the same area of forest resource still stands as in 1948, this figure masks regional differences such as a decline of forest resources in the tropics which offsets gains in the Northern Hemisphere. He pointed out that Indonesia’s forest area of 50 million ha of forest was larger than the other four VPA countries (all in Africa) combined. He reviewed the capacity of each county to produce legal timber and manage carbon stocks based on the results of FAO General Forest Resource Assessment (GFRA). “In the capacity to meet legality standards,” he said“Indonesia leads with SVLK.” He concluded that if SVLK meets future importer standards and the forest area follows, then Indonesia is well placed to lead.
Dr. Ken McDicken, FAO
Kerstin Canby, of Forest Trends in the USA, pointed out that in 2009 only 0.8% of the world’s certified forests are in Asia – compared to 56% in USA and 26% in Europe. Indonesia sends 41% by value of its forest products to the environmentally sensitive markets in Europe, North America, Japan and Australia. In each of these markets, new policies or legislative requirements such as the EUTR or the amended Lacey Act, are driving the market in verified legal or certified sustainable timber and paper products. She went on to suggest that systems which demonstrate a ’robust’ system of Due Diligence, such as certification or SLVK, should help assure importers and retailers in these markets that they are meeting the due diligence / due care requirements of the EU TR and Lacey Act in USA, but she noted that even this is not a guarantee.
Kerstin Canby, Forest Trends USA
John Talbot from the Australian Dept of Ag, Fish & Forestry gave a thorough description of the new Australian Law on Forestry aimed at eliminating illegal wood. The Bill still needs to go through Parliament and receive the official Royal Assent. Once passed, it will place requirements on importers and domestic raw material suppliers to undertake Due Diligence to determine the legality of a list of regulated products. Six countries had given inputs to the Australian government during a consultation process.
Clive Suckling of PWC UK covered the prospects and opportunities for Indonesian paper and gave supporting statistics from which he then suggested that “Indonesia can be very competitive in the global market.”
The following Q&A Session covered issues referring to whether certification should offer Sustainable Forest Management (SFM) or legality assurances; if legal verification is sufficient and whether the Australian government will accept imports of Indonesian furniture. Mr Suckling pointed out that the EU perception is that the Indonesian bar has been set low whereas in fact the issue of perception goes beyond certification and laws in Indonesia. Mr Talbot said that Australia is not accrediting any system but is just requiring importers to undertake Due Diligence. “If the SVLK is used by an importer for Due Diligence, then so be it” he said.
A Panel Session followed with the HE Ambassador Julian Wilson, Head of Delegation of the EU to Indonesia, Dr Agus Sarsito, Director of International Cooperation, Ministry of Forestry, James Carouso US Counselor for Economic Affairs and Vice Minister Shimokawa of Japan, who all made short addresses. This panel session is chaired by Dr. Frances Seymor (DG of CIFOR).
Ambassador Wilson said that the “impact on Indonesia depends on whether SVLK is perceived as credible by EU buyers” - a theme repeated throughout the rest of the day’s discussions.
Mr Carouso wanted Indonesia to use its natural resources in a sustainable way and affirmed that the USA would continue to assist financially in its efforts.
Mr Shimokawa discussed the progress Japan has made in implementing verification policies.
Dr Agus Sarsito talked about the challenges and opportunities of SVLK and suggested that FSC is not the only game in town and also expressed his concern about the cost of certification for SMEs. He also pointed out that more and more wood in Indonesia comes from plantation forest – which now accounts for 79.46% of Indonesia’s forest area. But most important of all, he suggested, was that “we need partner countries to promote our SVLK. Then together we can meet the challenge.”
In the Q&A Session a delegate from IKEA, which sources in 51 countries and retails in 25 countries with 60% of its products in wood, called for a unified certification system. A representative from WWF asked when the VPA, now agreed by EU and Indonesia, will actually be signed - which drew diplomatic but non-committal answers from both sides.
After a Networking Lunch, delegates heard from Rachel Butler and Mr Andreas von Moeller, President of the European Timber Trade Federation (ETTF), who talked of the decline in imports of Indonesian and other tropical timber products into the EU. “Buyers there are confused” he said and suggested that the consumer pressure in EU is for certified rather than legal wood. “Buying wood should not be controversial, but clean and easy,” he concluded. Ms Butler had earlier said that certification is likely to be viewed by trade as good evidence of Due Diligence but at present the EUTR does not automatically accept certified timber products as exempt/zero risk under the EUTR but as yet the implementing regulation and guidance is not published.
Mr.Wu Shengfu of the Chinese Forestry Products Industry Association discussed how to export legal timber products to China, for re-export to EU, USA and Japan; but added that time is needed to refine procedures.
Rupert Oliver of Forest Industries Intelligence gave a comprehensive review of the American hardwood industries’ approach to its resource challenges through risk assessment. For years, he said, the US hardwood industry, which is the largest hardwood lumber producer in the world, had addressed the needs of verification for 3.7 million small forest owners, with 220,000 owners harvesting annually. The US industry commissioned an independent risk assessment of illegal logging (Seneca Creek Study, 2008) that had shown less than 1% risk of illegal logs entering the supply chain. He concluded that the US could offer many lessons learned and that it was all about “getting incentives right”. Finally Christian Mengel from IWPA in USA spoke of the many changes in the wood industry and called for mutual recognition of certifications schemes as now essential.
Questions and Dialogue subsequently focused on business ethics with regard to China; the quality of Indonesian wood furniture compared to that in Malaysia; and the cost of verification. During this period it was confirmed that the SVLK (and EUTR) cover furniture.
An Awarding Ceremony of Timber Legality Verification,
Afther the report of Dipl Ing Benny Soestrino, Chairman of the Indonesian Exporters Association (GPEI) which had organised the event in collaboration with PT Mutu Hijau Indonesia, than followed by awarding the Timber Legality Verification from PT Mutu Hijau Indonesia to Kelompok Tani Sejahtera, PT. Inhutani I Unit Gresik, PT. Inhutani I Unit Juata, PT. Abhirama Kresna and FMU Enggal Mulyo and an evocation of commitment (petition) to two Ministers present.
Awarding MHI timber legality certificates by Minister of Trade and Minister of Industry
Both Ministers responded:
Ir M.S. Hidayat, Minister of Industry, stated that wood production accounted for 5.5% of the national non-oil and gas economy and that the trade had suffered from the effects of illegal logging. He re-stated much of what had been discussed during the day and asserted that this market had greater expectations and hoped that “we will continue in a sustainable way”.
Dr Gita Wirjawan, Minister of Trade, pointed out that Indonesia’s export trade in 2011 at $2,003 billion had doubled in 5 years. The nation’s 2011 level of exports was due to trade with China and India which had enjoyed double digit growth. “The SVLK, done by the Ministry of Forestry was a noble effort” he said “and was in line with the government’s policy towards added value and industrialisation.” He concluded that Indonesia is still at an early stage of industrialisation and therefore he was sensitive to the fact that implementation of SVLK would take time for Indonesia to be verifiable.
The Final Panel Session of the day was opened with an informative presentation by Ms Aida Greenbury, MD of Asia Paper & Pulp on the trade by both Indonesia and her company which had participated in a pilot project of SVLK from the very start. But she warned that there were still challenges ahead for the scheme. Clive Sucking said that SVLK is at the beginning of a journey and that raising awareness will be important; that lack of knowledge needs to change. “Indonesia needs to communicate SVLK as a rather high bar” he concluded. Andreas von Moeller, in giving a European view warned that “all of us are a little bit afraid of EUTR” and added that bureaucracy is the biggest enemy of free trade. A representative from the furniture association ASMINDO, in the absence of its President Mr Ambar Tjahyono, affirmed that his 2,780 member association would support SVLK. He concluded that the four main challenges, especially for SMEs, are: getting official, regional and national permission; a wood tracking system; the cost of certification and securing international acceptance of the scheme. Anders Hildeman of IKEA said that the companies’ customers rated sustainability at the top of their list of expectations and called for harmonisation in the field of voluntary certification. “SVLK will help IKEA and Indonesia in working at the often complex supply chains”, he stated.
Michael Buckley, wood industry consultant and raporteur for the day, made a few closing remarks with regard to the constant themes that had threaded through the dialogue relating to the lead that Indonesia has taken, the challenges facing SVLK and the importance of establishing and communicating credibility to the markets. The global market for furniture, that had averaged $100 billion in 2009 & 2010, presented Indonesia with huge opportunities he suggested, and agreed with the earlier statement by Clive Suckling that “Indonesia is well placed to move forward as a competitive industry internationally.”