New Report: Wronging Indonesia – The EU’s Bait and Switch Illegal Logging Policy

The EU is delaying implementation of a ‘Voluntary Partnership Agreement’ (VPA) with Indonesia on illegal timber exports. Indonesia has complied with EU demands at significant cost, but the delays mean Indonesia’s exporters will now have to comply with a different, more costly system of regulation. This report examines the implications. 

Illegal logging first emerged as a campaign issue in 1998. The illegal timber trade was linked to global concerns over deforestation. Action against illegal logging in developing countries was supported by Western industries that were facing increased competition from timber and paper producers, particularly in China. It was also supported by environmental campaign groups that made unsubstantiated claims about the levels of illegal logging taking place globally.

However, there has been very little ground-based research on levels of illegal logging in many countries.

Indonesia has often been considered a ‘worst offender’ for alleged exports of illegal timber.  This has in part been due to high levels of administrative overlap during the country’s transition into a democracy. Despite this, Indonesia has undertaken successful action to reduce levels of illegal logging and been a driving force in taking action against illegal logging internationally.

In 2003 the European Union (EU) first announced it would attempt to prevent the sale of ‘illegal’ timber on European markets through a combination of domestic legal instruments and international agreements.  They are the European Union Timber Regulation (EUTR) and Voluntary Partnership Agreements (VPA) respectively.

These policy instruments have emerged following a long international campaign based on unsound data and emotive campaigning by Green groups and uncompetitive manufacturers in Europe.

Voluntary Partnership Agreements were introduced as the key policy measure for Europe to take action against ‘illegal’ timber.  The VPAs were ostensibly introduced as a means for exporting nations to ‘fast track’ timber products into Europe from nations that comply with European regulatory demands.   The real purpose is to pressure developing countries that export timber products to apply standards determined by the EU to regulate exports, under the threat of import bans.

VPAs require the implementation of a licensing system for exporters wishing to export timber products to Europe that verify the legality of the product. For many developing nations this is a costly exercise.

VPA uptake has been slow.  This has been in part due to a reluctance of developing nations to enter into trade agreements that propose conditions on non-trade items, such as environment and labour. The slow uptake and potential loopholes for non-VPA timber prompted European Greens to press for the introduction of the European Union Timber Regulation (EUTR).

The EUTR is set to come into effect in 2013. It threatens European operators with legal action if they sell ‘illegal’ timber in European markets and/or do not make efforts to mitigate the risk of selling ‘illegal’ timber on European markets.  This risk can be mitigated with the implementation of tools such as independent third-party verification of timber being exported to Europe, distinct from the VPA licensing system. This is an expensive undertaking for many developing country exporters.  Licensed VPA imports were supposed to be exempt from the EUTR and considered risk-free once VPAs were operational.

In the case of Indonesia, a VPA has been completed and signed, but is yet to be ratified by the EU. According to Indonesian officials, the EU appears to have stalled the agreement completely.  This means Indonesian timber exporters are effectively in policy limbo. They have chosen to have their products verified through the VPA-backed Sistem verifikasi legalitas kayu (SVLK – timber legality assurance system) with the promise of avoiding further costly verification under the EUTR. However, the VPA has stalled, and SVLK is not currently recognised under the EUTR.

Indonesia’s forest and forest-related industries are significant contributors to Indonesia’s economy.  There are many large and medium businesses exporting forest products to Europe. There are more than 18 million micro and small forest-based enterprises, producing wooden items, furniture and timber that also export to Europe. Most of these businesses are family enterprises comprising less than four people. For many Indonesian businesses, implementing the systems required under the VPA is prohibitively expensive. The EU’s own modelling has indicated it will have a detrimental impact on Indonesia’s industry.

The new EU policies are likely to have a significant impact on trade with partner nations such as Indonesia. These impacts would ordinarily be obviated by legal obligations under international trade law and/or bilateral trade agreements. However, the legality of these policies under international trade agreements is questionable.

The actions by the EU constitute a classic ‘bait and switch’ strategy.  Indonesia has been promised a particular action by the EU; the EU has since reneged. It is now offering Indonesia an inferior agreement, despite securing significant and costly policy actions from Indonesia.

Under bait and switch, customers are invited to purchase an item at a low price. The vendor then informs the customer that it is no longer available and must accept a more expensive item. Under European law this type of behaviour is illegal under the Unfair Commercial Practices Directive.

Indonesia has taken leading action on illegal logging globally. It has negotiated in good faith with Europe. In this case, the 18 million-plus Indonesians dependent upon the forest industry are likely to consider themselves wronged by Europe. Given these grievances, Indonesia has solid grounds to consider action through the World Trade Organization

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