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May 2, 2017

EU trade with Indonesia in the spotlight following FLEGT licensing

EU trade with Indonesia in the spotlight following FLEGT licensing

Indonesia issued the first ever FLEGT licenses in midNovember last year with high expectations that these would boost the value and share of Indonesia’s wood exports to the EU.

This is a reasonable expectation, given the very significant commitment and investment by Indonesia, supported through the FLEGT Voluntary Partnership Agreement with the EU, and the mandatory requirement that all timber and timber products exported from Indonesia to the EU must now be licensed.

The fact that EU importers no longer need to undertake a potentially expensive due diligence assessment to demonstrate EUTR conformance for any timber product of Indonesian origin should give a significant edge in the EU’s highly competitive market.

Nor has Indonesia stopped short at imposing a requirement for exports to the EU. The SVLK certification system on which FLEGT licensing is based (and which was first introduced in 2010) is now mandatory for nearly all wood produced and traded in the country and applies to industrial plantations (HTI), natural forest concessions (HPH) and community plantation forests (HTR).

Anecdotal evidence indicates that Indonesia’s SVLK certificates and FLEGT licenses have been well received and are at least benefitting some Indonesian suppliers. For example, the Jakarta Post reported on 17 March that “many exhibitors at the recent Indonesian International Furniture Exhibition (IFEX) said the SVLK helped them increase exports, especially to the EU”.

The news report quotes one Indonesian furniture exporter as suggesting that “with the SVLK, buyers from the EU are more confident about us and we can even sell directly to them without using traders, and so we enjoy high profit margins and a market under our own brand”. The increase in profit margin in this instance was reported to be up to 40% compared to 10% previously.

There is similar anecdotal evidence from European importers. In an interview published on the Global Timber Forum website in February this year, a representative of one of Europe’s largest importers of Indonesian plywood said that “arrivals from Indonesia have increased over the last few weeks as importers and traders are stocking up on FLEGT licensed material”.

He noted that the FLEGT license has given European importers more confidence to engage in active promotion to increase sales of Indonesian plywood and to make more product available in the market. He added that Indonesia will have an increasing advantage over time as EU Competent Authorities are getting stricter and there are more checks on operators. These early anecdotal reports are encouraging, but they refer to isolated cases and the underlying question of the extent to which FLEGT licensing contributes to real increases in export share and value remains uncertain.

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