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Background

The Indonesia-EU Voluntary Partnership Agreement

What is the Indonesia-EU VPA?

The Indonesia-EU Voluntary Partnership Agreement (VPA) is a legally binding trade agreement. It aims to ensure that only legal timber and timber products from Indonesia reach the EU market. In addition to promoting legal trade, the VPA addresses the causes of illegality by improving forest governance and law enforcement. A major strength of the VPA is that it looks beyond trade to consider environmental issues, as well as how policies affect local populations.

Several other countries are implementing or negotiating VPAs with the EU. Such agreements are a key component of the EU Forest Law Enforcement, Governance and Trade Action Plan (FLEGT) of 2003.

Indonesia and the EU have both ratified the VPA and are implementing the commitments laid out in the VPA text and annexes. An Indonesia-EU Joint Implementation Committee oversees this work (see Implementing the VPA).

Under the VPA, Indonesia issues FLEGT licences to accompany verified legal products it exports to the EU. FLEGT licensing become operational on 15 November 2016. The advantage of this is that FLEGT-licensed products are considered to comply with the requirements of the EU Timber Regulation, which prohibits EU operators from placing illegally harvested timber and timber products on the EU market.

The regulation requires EU importers to perform due diligence checks to ensure the products they import and trade are legal. FLEGT licensed timber products are, however, exempt from due diligence.

While FLEGT licensing is an important goal, it is not the VPA’s end point. Governance reforms, impact monitoring, continual improvements to the timber legality assurance system, efforts to improve transparency and other activities continue. The VPA has already had an impact, both as a result of what Indonesia and the EU have committed to, and as result of the multistakeholder process of negotiating and implementing the Agreement (see Indonesia’s VPA process and key elements).

Illegal logging and trade

Indonesia’s forests provide millions of people with jobs and subsistence products. Between 1990 and 2010, however, 24 million hectares of Indonesia’s forests were destroyed and many millions more hectares were degraded. Illegal logging, driven by trade and development, is a major contributor to deforestation. Since the signing of the VPA, the annual rate of deforestation has steadily fallen from 1.1 million hectares in 2014-15, to 630 000 hectares in 2015-16, and 480 000 hectares in 2016-17. Trade is therefore an important tool with which to address the problem, as is transparency, enforcement and inter-ministerial coordination. The EU buys 10%, by value, of timber products and paper exported from Indonesia. Indonesia supplies 33% of the EU’s tropical timber imports by value.

Selective logging in East Kalimantan

Selective logging in East Kalimantan

Indonesia, 2008

Source: EU FLEGT Facility

Selective logging in East Kalimantan

Indonesia, 2008

Source: EU FLEGT Facility

Indonesian and EU efforts to tackle illegal logging

Indonesia has become a leader in the global fight against illegal logging. In 2001, it hosted a regional conference, which concluded with the Bali Declaration on Forest Law Enforcement and Governance. This helped to make illegal logging an issue of global concern.

Indonesia’s efforts to tackle illegal logging therefore pre-dated and influenced the EU Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan of 2003, which aims to address illegal logging through both demand and supply side action, including VPAs.

By 2003, Indonesia had launched a multistakeholder process to design a timber legality assurance system. The goal of the system is to ensure that timber and timber products harvested, imported and processed in Indonesia originate from legal sources and that companies producing and processing timber products comply with relevant Indonesian laws and regulations.

VPA negotiations between Indonesia and the EU began in 2007 and concluded with the signature of the agreement in 2013. The following year, Indonesia became the first Asian country to ratify a VPA. Indonesia is now one of the eight tropical countries that are implementing VPAs with the EU. On 15 November 2016, it became the first VPA country to deliver FLEGT licensed timber.

Through progress on VPAs, the implementation of the EU Timber Regulation and dialogues with other important timber market, including China, the EU and its VPA partner countries are contributing to a growing global movement to stop trade in illegal timber and timber products. Australia, the United States, Japan and South Korea also seek to restrict the placing of illegal timber on their markets through their respective national regulations. FLEGT licences may therefore help Indonesia and other VPA partner countries meet the legality requirements of markets beyond the EU.

Key dates

  • 2001: Indonesia hosts regional conference on forest law enforcement and governance
  • 2003: Efforts to define timber legality begin in Indonesia
  • 2003: EU launches Forest Law Enforcement, Governance and Trade Action Plan
  • 2007: Indonesia-EU VPA negotiations begin
  • 2009: Indonesia adopts SVLK Regulation
  • 2010: Indonesia revises SVLK Regulation
  • 2011: Indonesia-EU VPA negotiations end
  • 2012: Indonesia and EU test systems for handling FLEGT-licensed timber
  • 2013: EU Timber Regulation enters into force
  • 2013: SVLK begins to issues V-Legal documents (a precursor to FLEGT licensing)
  • 2013: Indonesia and EU sign the VPA
  • 2013: Indonesia-EU joint evaluation of SVLK against the VPA begins
  • 2013: Indonesia and EU launch joint action plan on VPA implementation
  • 2014: Indonesia and EU ratify VPA and form Joint Implementation Committee
  • 2014: Indonesia revises SVLK Regulation
  • 2015: Indonesia and EU update joint action plan on VPA implementation and revise three VPA annexes
  • 2015: Indonesia and EU establish a joint multistakeholder working group to monitor VPA implementation
  • 2016: Indonesia revises SVLK Regulation
  • 2016: Indonesia and the EU announce that Indonesia has met the final major VPA requirement ahead of FLEGT licensing
  • 2016: Indonesia began FLEGT licensing on 15 November 2016
  • 2017: Indonesia and the EU celebrate one year of FLEGT licensing with event in Jakarta
  • 2018: The Joint Implementation Committee publishes the first independent assessment of VPA implementation, the Periodic Evaluation
  • 2019: Indonesia and the EU meet for the 7th Joint Implementation Committee and publish the second Periodic Evaluation
  • 2019: Indonesia passess the 100 000 mark of FLEGT licences issued for export to the EU
  • 2020: Indonesia revises one trade regulation creating a dispute with the EU
  • 2020: Indonesia revises trade and SVLK regulations, re-instaling compliance with the VPA
     

Indonesia’s VPA process and key elements

Indonesia and the EU negotiated the terms of the VPA through a cooperative process: both parties share the goals of eliminating illegality and fostering good forest governance.

The VPA negotiations involved representatives of Indonesian civil society organisations, the private sector and different government ministries and agencies. Significant national ownership and stakeholder engagement was achieved. The VPA therefore reflects a broad consensus among stakeholders.

Key elements of the VPA are described in its main text and annexes. They include:

  • A timber legality assurance system which issues verified legal timber products with ‘FLEGT’ licences (see below)
  • Commitments to public disclosure of information and other improvements to forest governance
  • A framework for overseeing, monitoring and evaluating implementation of the VPA and its economic, social and environmental impacts
     

In addition, to these agreed commitments, the VPA process itself has fostered multistakeholder participation, transparency, legislative clarity, legal reforms and other aspects of good governance (see Improved forest governance). Since its implementation in 2014, three VPA annexes have been revised (in 2015) to reflect the changes in policy developments.

An Indonesia-EU Joint Implementation Committee oversees the implementation of the VPA. It has published and regularly updates action plans to guide this work. The committee is supported by a secretariat, led by both parties, and located in Indonesia’s Ministry of Environment and Forestry. EU-Indonesian exchanges take place at least three times per year in the form of joint expert meetings and the Join Implementation Committee that occurs once per year. In addition, multiple thematic, coordination, and policy related meetings take place as needed. JEM and JIC meetings invite all relevant stakeholders. Records of discussions from JICs are made public.

The Joint Implementation Committee, the Government of Indonesia and the EU respond to any concerns about problems in implementation as they arise. Implementation therefore improves as it proceeds. The Joint Implementation Committee will be regularly informed by an independent auditor (called a periodic evaluator, see below), which is a third-party organisation that assesses the overall performance of the timber legality assurance system and reports on any detected failures.

7th Meeting of the Joint Implementation Committee Indonesia-EU VPA, Jakarta, 18 November 2019

7th Meeting of the Joint Implementation Committee Indonesia-EU VPA, Jakarta, 18 November 2019

Source: Pheakkdey Nguon, EU FLEGT Facility

7th Meeting of the Joint Implementation Committee Indonesia-EU VPA, Jakarta, 18 November 2019

Source: Pheakkdey Nguon, EU FLEGT Facility

Indonesia’s timber legality assurance system

Indonesia has developed a rigorous yet practical system for assuring the legality of its timber, through an inclusive multistakeholder process. This work began before VPA negotiations started in 2007. Since then, Indonesia has refined its timber legality assurance system (Sistem Verifikasi Legalitas Kayu; SVLK) with ongoing stakeholder input through both its national process and the VPA process. As in all VPAs, the timber legality assurance system has the five essential components listed below. In addition, civil society monitoring is also an integral part of Indonesia’s timber legality assurance system (see Independent monitoring).

  1. Legality definition: The legality definition clearly states the aspects of Indonesian law for which the timber legality assurance system will systematically seek evidence of compliance. Indonesia has different legality definitions for different kinds of rights and permits for forest use.

  2. Supply chain controls: The purpose of supply chain controls is to ensure that unverified products do not enter the supply chain.

  3. Verification of compliance: This means checking that all the requirements of the VPA legality definition and supply chain controls have been met to ensure that timber products are legal. In Indonesia, 27 independent private companies called Conformity Assessment Bodies verify compliance. These operate under ISO rules and need accreditation by Indonesia’s independent National Accreditation Committee. Overall oversight remains the responsibility of the government.

  4. FLEGT licensing: A FLEGT licensing authority issues FLEGT licences for consignments of timber products, if the verification system has evidence consignments are legally compliant. Indonesia has 25 registered FLEGT licensing authorities (20 are active), and its FLEGT licensing scheme became operational on 15 November 2016.

  5. Independent audit: The purpose of independent auditing is to regularly check that all aspects of a legality assurance system are working properly. An annex to the VPA provides terms of reference for the auditor. In Indonesia’s VPA the independent audit function is called ‘periodic evaluation’. Audits must take place no more than 12 months apart. The auditor will produce reports for the Joint Implementation Committee and a public report. The auditor needs to comply with ISO rules of auditing.

Indonesia has used the SVLK to audit more than 23 million hectares of forests and nearly 4500 forest industries, an unprecedented level of scrutiny. As of late 2019, Indonesia had issued just over 1 million V-Legal documents for verified legal timber products worth a total of EUR 59.3 billion. In the first 11 months of FLEGT licensing, Indonesia issued more than 35 000 FLEGT licences for shipments exported to the 28 EU Member States.

Independent monitoring of the timber legality assurance system

The VPA gives civil society organisations, individuals and communities a role as independent monitors as an integral part of Indonesia’s timber legality assurance system. This gives civil society unprecedented oversight of private sector and government performance.

Independent monitors can report if SVLK audits are flawed or companies do not comply with the Indonesian legality standard. They can file complaints about operators, audit companies, government agencies, the periodic evaluator, the licensing authority or the accreditation body and monitor how these complaints are addressed.

To perform this task, Indonesian civil society organisations formed a number of independent forestry monitoring networks such as the Independent Forest Monitoring Fund (IFM Fund), Jaringan Pemantau Independent Kehutanan (JPIK), Aliansi Pemantau Independen Kehutanan Sumatera (APIKS), Aliansi Anti Mafia Hutan (Alliance Against Forest Mafia), and Eyes of the Forests (EoF). JPIK is the largest independent monitor whose members include more than 2000 individuals and 60 member organisations.

How has the VPA improved forest governance?

Participatory decision-making

Representatives of civil society and the private sector participated in the negotiations and have seats in the Joint Implementation Committee. The VPA process is therefore a vehicle for addressing the needs of different stakeholders and for including many people who have never before had a voice in decision-making. Stakeholder consultations are a standard for the development of legislation in the forestry sector. However, they are not yet a standard in other sectors, sometimes resulting in challenges for the VPA.

Enhanced capacity

The VPA process has strengthened the capacity of government, private sector and civil society stakeholders to work together to address illegality in Indonesia’s forest sector. To strengthen capacity for SVLK at all levels, training has been provided to nearly 15,000 local government supervisors, sustainable forest management technician, staff at regional forests management offices and heads of villages. By the end of 2019, government capacity building on SVLK has been provided to just over 11 000 SMEs and household industries. However, given the size of the country, more capacity development is still needed.

Transparency

The VPA includes an annex on public disclosure of information that lists the information the government of Indonesia commits to making available, in line with Indonesia’s freedom of information act. During VPA negotiations, civil society representatives requested that the annex ensures that they have access to data that enables meaningful independent observation. Agreed requirements were later challenged in court, which decided in favour of civil society demands. In February 2016, the Ministry of Environment and Forestry (MoEF) made forest management documents public in their entirety for the first time. Since this decision, civil society has improved access to MoEF data, though the time-consuming nature of this process is still a concern. Since September 2018, civil society groups can upload and monitor the status of reported non-compliance cases in a database managed by the MoEF.

Legislative clarity and reform

The VPA process has made legality in the forest sector much clearer in Indonesia (see box, How the VPA has made the law clear). The SVLK is based on a new national regulation, introduced in 2009. Amendments to that regulation in 2011-2019 reflect stakeholder views and VPA requirements. This represents a major reform of the law as it allows for independent oversight of the entire forest sector by professional audit companies and civil society.

Member of community forest in Java

Member of community forest in Java

Indonesia, 2014

Source: EU FLEGT Facility

Member of community forest in Java

Indonesia, 2014

Source: EU FLEGT Facility

How the VPA has made the law clear

In Indonesia, more than 900 laws and regulations apply in some way to the forest sector. As well as being numerous, the laws are confusing and at times incoherent.

In 2003, four years before VPA negotiations started, Indonesia civil society organisations began a process to clarify forest legislation and develop a legality definition. Participation by government and industry in this process increased after VPA negotiations began in 2007. By the end of 2008, a multistakeholder group had presented the government with a legality definition and a proposal for a timber legality assurance system. Within six months, the government and stakeholders had revised the proposals and incorporated them in new legislation.

In place of hundreds of existing laws, stakeholders had identified a subset of laws and regulations that together provided a legality definition that met their immediate interests. The VPA provides indicators and verification measures that auditors must use to assess legality. The private sector has largely welcomed the new definitions.

VPA implementation

Trade in FLEGT licensed timber

As decided by the Indonesia-EU Joint Implementation Committee, Indonesia’s FLEGT licensing scheme became operational on 15 November 2016. All Indonesian timber-based products listed in the amended Annex I of the VPA and exported to the EU must be accompanied by a valid FLEGT licence. Indonesia’s Licence Information Unit (LIU) monitors the issuance of FLEGT licences and makes related information available to stakeholders and competent authorities in the EU. The EU customs officials will deny entry to any products covered by the VPA that arrive without a valid FLEGT licence.

Periodic Evaluation

In Indonesia’s VPA, independent audit is termed ‘periodic evaluation’ to distinguish it from the independent Conformity Assessment Body audits mentioned above. The purpose of periodic evaluation is to regularly check that all aspects of a legality assurance system are working properly.

The first Periodic Evaluation of the functionality of the Timber Legality Assurance System (TLAS) under the VPA was conducted in 2017 by the independent consultant PT Sucofindo SBI. The second Period Evaluation was conducted in 2019 by the Netherlands-based organisation Profundo. Both assessments were comprehensive in terms of examining the design, functionality, and implementation of TLAS/SVLK. The Executive Summary for both assessments are available to all stakeholders. Detailed reports are published as well and are available upon request.

Continual improvement

Indonesia and the EU will make continued efforts to improve both the timber legality assurance system and its implementation. This includes improvements to the independent monitoring function, supply chain control, enforcement, disclosure of relevant data and information and efforts to ensure the effective implementation of the VPA by small and medium enterprises. In addition, some legal and governance reforms that the VPA describes are ongoing. The VPA also makes possible a review of the legality definition based on stakeholder input.

Impact monitoring

The EU and Indonesia made a joint commitment to monitor the social, economic and environmental effects of the agreement. Monitoring examines whether a VPA is having the desired outcomes. Monitoring informs government policymaking as assessments reflects the effectiveness of policies. Monitoring also can identify unintended negative effects for the parties to address and mitigate. The joint implementation committee established a multistakeholder technical working group to develop and test a national VPA impact monitoring system. The first national Independent Monitoring exercise was completed in December 2018, which produced a baseline data against which subsequent impact assessment would be measured. In May 2019, CIFOR (with support from the EU) conducted a quick assessment of the VPA impact in Indonesia (called evidence gathering), which reflected improvements in nearly all governance, legal, and economic aspects of the VPA.The joint implementation committee is responsible for endorsing the impact assessments.

Independent market monitoring

The EC has appointed the International Tropical Timber Organization as independent market monitor for all VPA countries. The monitor assesses the trade in timber products between Indonesia and the EU, and the impacts of FLEGT licensing on this trade. IMM objectives are as follows:

  • Improve understanding of impacts on timber prices, trade and market trends globally
  • Inform decisions by VPA Joint Implementation Committees by providing timely & accurate info on market impact
  • Contribute to monitoring the impacts of the FLEGT Action Plan and to inform its implementation

IMM regularly contributes to JEM and JIC meetings by providing updates and presentations.

Transporting logs

Transporting logs

Indonesia, 2014

Source: EU FLEGT Facility

Transporting logs

Indonesia, 2014

Source: EU FLEGT Facility