EU-INDONESIA FLEGT VPA EXPERTS MEETING. Jakarta, 15 January Technical Annex of the 2 nd meeting

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1 EU-INDONESIA FLEGT VPA EXPERTS MEETING Jakarta, 15 January 2010 Technical Annex of the 2 nd meeting 1. BACKGROUND: The European Commission (EC) and Indonesia commenced the negotiation of a FLEGT Voluntary Partnership Agreement (VPA) in January Two Senior Official Meetings were organized in March and July A Technical Working Group (TWG) meeting of the EU-Indonesia FLEGT followed in April The 2 nd meeting took place on the 01 st and 02 nd of December One of the key items of the meeting agenda was to review the conclusions of the September 2009 joint EU-Indonesia experts meeting concerning the gaps and compatibilities between Indonesia's new timber legality verification system (SVLK) and the EU expectations for the FLEGT Timber Legality Assurance System (TLAS). The key findings of the joint expert team are summarized below: (i) SVLK lacks two key elements of a FLEGT compatible timber legality assurance system: FLEGT Licensing and Independent Monitoring. Therefore, it is important that the system will be amended with a clear set of criteria for the issuance of FLEGT licenses, including the appointment of a competent licensing authority and procedures for the licensing of export consignments for the EU market. Terms of Reference for the independent monitor to specify organizational competence requirements, scope of monitoring and reporting requirements, and outline the monitoring methodology. (ii) More specific descriptions and guidelines would be needed to efficiently control movements of round timber and processed timber products. These should contain flowcharts on the critical control points throughout the entire supply chain, tasks of the private sector operators and government agencies, data handling and analysis (notably reconciliation) and record keeping. (iii) SVLK provides practically no information on the procedures of the various government agencies involved in the control of private sector operators. In order to strengthen the overall integrity of SVLK, the system is recommended to address how the results of regulatory inspections by the government affect the issued legality certificates; what are the consequences, if non-compliances are detected during the government control activities? What are the possible sanctions to be ordered? (iv) A separate analysis is recommended to identify the capacity building needs of the private sector/ communities and government agencies, and outline the actions to be taken The Ministry of Forestry has convened four multi-stakeholder Working Groups to further develop SVLK and respond to the findings of the joint EU-Indonesia expert team. The themes and member organizations of the Working Groups are presented in Table 1: 1

2 Table 1 SVLK Working Groups Working Group Theme Member organizations 1 Capacity building MoF, KAN, LEI, APHI, EC-IND FLEGT Support Project, MFP 2 SVLK socialization MoF, MFP, EC-IND FLEGT Support Project, Sucofindo, TNC, APHI 3 Independent monitoring TI Indonesia, Pustanling, MoF, ISWA, MFP, EC-IND FLEGT Support Project, Working Group 3 is currently developing guidelines concerning the independent monitoring of SVLK implementation. As Working Group 3 is still in the early stages of the guidelines development, the first draft output was not shared with the EU-Indonesia expert team. In addition, a fourth Working Group was established later on to develop guidelines for the Independent Assessment and Verification Agencies (LP&VI) for use as a formal tool to support the verification of the SVLK standards. The current versions of the guidelines, in Bahasa Indonesia, were finalized over a two days workshop held between 5 and 6 January The draft guidelines, to be field tested in East Kalimantan between 11 th and 18 th of January 2010, will be further revised based on the results of the field work. Final approval the guidelines will be made by the MoF. 2. OBJECTIVES: The objectives of the 2 nd experts meeting are divided into two categories. Firstly, to provide further clarifications on specific elements of the SVLK / TLAS and relevant regulations, in particular: Rules that apply to the different types of areas. The information may be provided in a matrix providing an overview of rules for each type of area and referring to relevant regulations. The extent to which legality criteria are included in the Sustainable Forest Management (SFM) standard and related protocols and guidelines and the conditions under which it could be made clear that, when SFM certification is satisfied, it also satisfies all the criteria corresponding to the legality standard. Control procedures that apply at the different stages of the supply chain, and the use of operator based chain of custody systems Verification responsibilities (e.g. who is responsible for verifying what elements of the legality definition), and how these controls are linked to the regulatory controls of the government and the functions of the licensing authority (e.g. how does the LA know the timber exported is FLEGT/SVLK compliant). Provide information on approaches to independent monitoring in other VPA processes clarifying the different elements related to i) independent monitoring/auditing of systems performance; ii) independent observation by NGOs; 3) the use of a complaints procedure. 2

3 The second category aims to provide recommendations on the aforementioned issues and on additional elements of the TLAS which are being / should be further developed, in particular on independent monitoring and licensing. Recommendations should take into account the fact that the guidelines/protocols concerning the implementation of the SVLK are still being developed. Wherever possible, the recommendations should relate to these protocols and how they could be designed in a way that takes into account the clarifications / add-ons / options raised by the experts. Recommendations should take into account the guidance provided in the FLEGT briefing notes and should, where relevant, take into account solutions applied in other VPA countries. Recommendations should take into account the forthcoming work on the formulation of the VPA annexes. Wherever appropriate, the recommendations should be formulated in a way that provides basis for the preparation of these VPA annexes concerning the TLAS description. 3. RULES FOR THE DIFFERENT TYPES OF FORESTS: The main principle is that same government regulations apply to all state-owned s on production zone ( concessions and community s), whereas there is a specific set of legal requirements for conversion s. The rules for the management of privately-owned s are sparse, though the regulatory system does encompass laws relating to the movement of timber from privately-owned lands and how these are to be controlled (ref. Section 5: Control of the supply chain). Table 1 summarizes the application of the primary rules by use-rights types stipulated in the SVLK i.e. (a) concessions within production zones on state-owned lands (IUPHHK-HA/HPH, IUPHHK- HTI/HPHTI, IUPHHK RE), (b) community plantation s and community s within production zones on state-owned lands (IUPHHK-HTR, IUPHHK-HKM), (c) timber utilization rights within non- zones on state-owned lands (conversion s) and (d) privately-owned s. Table 1 Applicability of key rules No. Indicator and Verifier Inquiry Permanet state Community License on Private Conversion 1. Legal status 1.1. Decree Letter document IUPHHK- HA/HTI/RE IUPHHK- HTR/HKm Land ownership document 1.2. Areal mapping and its attachment IPK / ILS 1.3. Map of area conformity with the map of area or 3

4 No. Indicator and Verifier Inquiry Permanet state Community License on Private Conversion allocation by consensus (TGHK) Evidence of the fulfilled obligation of the payment of the (License) Fee 1.5. Document of area shifting (if applicable) V 2. Annual Working Plan (AWP) / Working Schedule Natural, approved AWP Plantation, approved working schedule 2.2. Map of areas that cannot be logged in the AWP/ Working Schedule and proof of implementation in the field 2.3. Clear marking of felling block location/awp block in the map, and proven in the field 3. Work Plan 3.1. Availability of legal Work Plan (could be in-process of approval) 3.2. Location and volume of wood utilization in the prepared area 4. EQUIPMENT PERMIT AND MIGRATION Mid-term managament plan (10 years) Mid-term managamen t plan (10 years) - Forest Work Plan 4.1. Equipment permit document 4.2. The permit is physically conformance in the field 5. ROUND WOODS/LOGS HAVE BEEN ADMINISTERED (LHP) 5.1. Timber administration has been legalized 5.2. Random check between timber administration and crusing report 4

5 No. Indicator and Verifier Inquiry Permanet state Community License on Private Conversion 5.3. Random check between timber administration report with the physical timber 6. TIMBER TRANSPORTATION DOCUMENT 6.1. Logyard Intermediary log yard: - Natural, SKSKB - Plantation, FA-KB 6.2. Intermediary log yard industry (FAKB) 6.3. Intermediary log yard Public Harbour (FAKB) 6.4. Log Yard Public Harbour - Natural, SKSKB - Plantation, FA-KB Letter of Origin (SKAU) or SKSKB with a stamp of community timber - - V Faktur / invoice - - V - 7. ROUND WOOD/LOG MARKING 7.1. PUHH mark/barcode 7.2. Wood identification applied consistently 8. RECORD OF TIMBER TRANSPORTATION OUT OF TPK 8.1. SKSHH file/archive and attached Forest Product List (DHH) 8.2. The authority of the officer making the document 9. OBLIGATION TO THE COUNTRY 9.1. Decree Letter document 9.2. Areal mapping and its attachment 5

6 No. Indicator and Verifier Inquiry Permanet state Community License on Private Conversion 9.3. Map of area conformity with the map of area or allocation by consensus (TGHK) 9.4. Evidence of the fulfilled obligation of the payment of the (License) Fee 9.5. Document of area shifting (if applicable) 10. DOKUMEN AMDAL (EIA Documents) 10.1 Validity and important note of EIA documents : Andal, Environmental Management plan (RKL), Environmental Monitoring Plan ( RPL) Check the preparation and development process AMDAL document quality is in conformance with the current valid environmental regulation when it s approved 11. RKL & RPL ACTIVITY REPORT Legalized RKL & RPL document Proof of the implementation of RKL and RPL All the rules of Table 2 seem to be covered by the SVLK standards. 4. COMPATIBILITY BETWEEN SFM AND LEGALITY VERIFICATION STANDARDS: These two standards providing criteria and indicators for concessions are rather different in terms of their requirements. The SFM standard is not in all cases as specific as the legality verification standard. This is demonstrated through the comparison in Table 2. 6

7 Table 2 Compatibility between SFM and legality verification standards Legality Verification Standard K1.1/1.1.1 K1.2/1.1.2 K2.1/2.1.1 FMU is located within a production zone/utilization License for Timber Forest Products (IUPHHK) Annual Work Plan approved by the proper competent administrative authority Work Plan is valid Permits for all harvesting equipment are in order and be physically verified in the field K2.3/2.3.1/ 2.3.2/2.3.3/ K2.4/2.41 K3.1/3.1.1/ All timber from Log Yard (onwards) are physically market and have the appropriate documentation Payment of applicable royalties and fees/settlement of reation fund and Forest Resources Provision Environmental Impact Assessment and implementation what has been stipulated in the AMDAL document Reports indicating the actions being taken to mitigate environmental impacts and provide social benefits SFM Standard 1.1 Area certainty for license holder/certainty of area in IUPHHK- HA/HT/HTI 1.4 Conformity with prevailing legal framework Not specifically addressed 2.1 Long term working arrangement in SFM/approved business work plan 1.4 Conformity with prevailing legal framework Not specifically addressed 2.6 Cutting realization in accordance with (business) work plan for felling/ harvesting/utilization Not specifically addressed 1.4 Conformity with prevailing legal framework Not specifically addressed 1.4 Conformity with prevailing legal framework Not specifically addressed 1.4 Conformity with prevailing legal framework Not specifically addressed 3 Ecology criterion addressing protection of, management and monitoring of the impacts on soil and water, species identification and management of protected, endangered, rare, threatened and endemic flora and fauna Not specifically addressed 4 Social criterion addressing customary and legal rights of traditional people and communities, mechanisms for fair distribution of benefits and planning/ implementation of management have considered the above rights 7

8 Due to the differences in the articulation of these two standards, it is recommended that within the verification guidelines of the SFM standard; it is clearly stipulated that the Independent Assessment and Verification Agencies (LP&VI) have to check that the license holders comply with all the Principles, Criteria, Indicators and Verifiers of the legality verification standard. 5. CONTROL OF THE SUPPLY CHAIN: The Minister of Forestry Regulations No. P.55/Menhut-II/2006 and P.63/Menhut-II/2006 for state s and No. P.51/Menhut-II/2006 and P.62/Menhut-II/2006 for private s and No. P.33/Menhut-II/2006 constitute the legal basis for the Indonesian timber administration system launched on 1 st of January On state-owned lands the legality verification process at management unit level covers permits to use the resources, pre-harvesting inventory, harvesting operations, incl. physical checks of products (species, dimension, quantity etc.) and paying of applicable royalties and fees. Advancing from the prior to the subsequent level in the supply chain requires passing of the legality test as described in Figure 1. Figure 1 Flow of legality process at management unit level The SVLK standards and draft SVLK guidelines acknowledge the transport documents specified by the timber administration system as part of the controls of the timber supply chain (Table 3). However, it was observed SVLK standards translated into English refer to obsolete transport documents (SKSHH [Caps]). 8

9 Table 3: Transport documents Stage Natural state-owned s Plantations on Processing within Logs (diameter Medium logs state lands the concession 30 cm or more) (diameter less area than 30 cm) From to log yard Not applicable SKSKB Between log yards Not applicable FA-KB From /log yard to mill From mill to secondary processing From mill to end user/warehouse From mill to export point Not applicable FA-KO SKSKB FA-KO FA-KBK FA-KB FA-KBK FA-KO FA-KBK FA-KB FA-KBK FA-KO SKSKB is issued by Forestry Service/MoF SKAU is issued by Head of Village FA-KBK, FA-KB, FA-KO and invoices are issued by registered company staff is Log Document specifying e.g. tree species, diameter and length is Processed Timber Document specifying e.g. tree species and product dimensions Community s SKSKB FA-KB SKSKB FA-KO Private s Not applicable Not applicable SKAU FA-KO 9

10 The regulatory framework provides the key elements to efficiently control the movement of timber from the to domestic market or the point of export. However, the regulations are not clear how to manage and analyze quantitative data to make sure the timber volumes throughout the supply chain are logical (e.g. the accumulated harvesting volumes do not exceed the allowable cut, or how to manage the material flows within timber processing plants). It is recommended that implementation guidelines are prepared to help companies put information systems (databases) in place. These systems can be simple spreadsheets or more sophisticated commercial products to manage quantitative and other data on inventory, harvesting, transportation, storing and processing of timber. The databases would useful tools for the company itself and external parties while the companies are being subject to a conformity assessment: The company is fully aware of its timber flows and able to demonstrate consistency of timber quantities between the various stages of the supply chain The LP& VI has a good overview of the operations of the company and is able to make the first compliance judgement based on the data analysis by the company. In addition, the LP&VI will check the reliability of the recorded data in the field and from other sources. The Independent Monitor (IM) is also provided with data on the supply chain controls by the company. Like in the case of LP& VI, the IM shall crosscheck the data recorded in the information system. Table 4 aims to put across examples what a timber supply chain related database can encompass. The table is just a generic illustration and should be adapted to the context of the company concerned (e.g. the scope of a harvesting company is limited to stages before timber processing). Table 4 Data management & reconciliation STAGE OPERATION 1 DATA NEEDS 2 RECONCILIATION Pre-harvest Delineate felling site and set aside areas within the felling site Carry out inventory of the resource base Identify harvestable, retention and other trees Harvesting Felling of trees, production of tree lengths or logs Measurement Hauling to log yard (at roadside) Felling site data: use right, location Trees: ID no (e.g. bar code no), felling site, species and diameter at breast height Allowable cut Tree lengths/logs: ID no, felling site, species, butt end and top diameter, length Calculation of volumes Between pre-harvest inventory and harvesting (e.g. no of products, volumes) Transport Loading of logs onto truck Transport of logs Log yard Grading of logs Storing Logs: ID no, felling site, species, butt end and top diameter, length, quality, volume ID of transport equipment Transport destination Logs: ID no, felling site, species, butt end and top Between reported and measured/ observed quantities and grades Between harvesting, inputs to log yard and 10

11 Transport Loading of logs onto truck Transport of logs Processing site 3 Reception of logs or other timber products (hereinafter raw materials) Storing of raw materials Feeding of raw materials into processing Handling of processed goods Storing of processed goods Delivery of products diameter, length, quality Calculation of volumes Stock management: input and output quantities Logs: ID no, felling site, species, butt end and top diameter, length, quality, volume ID of transport equipment Transport destination Logs at reception, storing and feeding into processing line: ID no, felling site, species, butt end and top diameter, length, quality, volume Processed and delivered goods: dimensions, quantity, grade Transport Loading of processed products onto transport equipment Processed goods: mill, ID no, dimensions, quantity, grade Transport ID of transport equipment Transport destination Point of Unloading (if relevant) Logs: ID no, felling site, export Custom declaration and species, butt end and top clearance diameter, length Loading for export Processed goods: mill, ID no, transportation (if relevant) dimensions, quantity, grade 1 Define responsibilities, when and where to carry out the activity, and intensity 2 Define how data is recorded, transferred and stored 3 Primary or further processing site outputs from log yard Between reported and measured/ observed quantities and grades Raw materials: between point of dispatch and arrival at mill; between arrival, storing and feeding into processing line Between inputs and outputs at processing lines (acceptable yields) Processed products: Between outputs of processing lines, storing and deliveries Between reported and measured/ observed quantities and grades Between reported and measured/ observed quantities and grades The PUHH on-line traceability system contains a centralized database into which the concessionaires harvesting more than m 3 /a must feed data on licenses, inventory, harvesting, payment of royalties/reation fund (PSHD/DR), log transportation (SKSKB &) and transportation of processed timber products (FA-KO). The system can check the coherence between data on inventory, harvesting and transport of logs. In order to make the on-line system to cover the entire supply chain, it would need to be revamped to record and analyze timber flows within the mill site. 6. VERIFICATION RESPONSIBILITIES: Compliance to SVLK requirements is periodically assessed by LP&VIs. NGOs or civil society organizations can submit objections to the assessment results to LP&VIs for settlement (Figure 2). At present there are no documented channels in SVLK for the government agencies to affect the assessment results and consequently issuance, suspension or withdrawal of conformity certificates. The working group 4 is currently producing guidelines for the verification to the five standards of the SVLK. The guidelines are meant to harmonize the competence and verification procedures of LP&VIs and assist them to prepare their own verification manuals meeting the accreditation requirements (scope of 11

12 verification, requirements for LP&VIs and auditors, verification process, decision-making on certification, SVLK logos, surveillance audit, re-certification, suspension & withdrawal of certificates, dispute mechanisms, public consultation, auditing of timber supply chain, legal requirements included in SVLK). The guidelines will also be integrated in the accreditation documents of KAN. The draft guidelines do not address the roles of or environmental administration in the legality verification. It is recommended that the provincial and district level administration is incorporated into the SVLK control structures, since all the operational permits are issued at provincial or district levels, and the company operations are steadily monitored by local level Forest Service Officers. The authorities can react quickly to infractions detected in the field and report to the LP&VIs, if certified companies have violated regulations (note that periodic assessment of the LP&VI is carried out only once a year). In terms of FLEGT licensing, it is expected that the legality of each single export consignment is secured. The SVLK leaves to a large extent the responsibility to demonstrate the legality to the exporting company, and therefore it would be important the FLEGT Licensing Authority receives up-to-date information on the performance of the exporting company and its suppliers. We recommend a new SVLK guideline is prepared to instruct how the provincial and district level authorities communicate on possible non-compliances to the LP&VIs and the FLEGT Licensing Authority. 12

13 Figure 2 SVLK Architecture ISO Performance requirements Assessment criteria ISO Guide 65 or ISO Performance requirements Assessment criteria SVLK Standards Performance requirements Accreditation body Periodic assessment Assessment and verification agency Periodic assessment Forest company Industrial company Certificate Objection to asessment result Independent Monitor (NGO) Legality selfendorsement for export products 13

14 7. FLEGT LICENSING: EC Regulation on establishment of a FLEGT licensing scheme for imports of timber into the European Community (2173/2005) stipulates that each partner country shall have a Licensing Authority to issue and validate FLEGT licenses. The authority and licensing procedures shall be defined in the VPA. Imports into the European Community of timber products exported from partner countries shall be prohibited unless the shipment is covered by a FLEGT license. Working Group 4 is tasked to develop guidelines for issuing SVLK logos 1 and FLEGT licenses. The group has come up with the first non-documented ideas that are summarized below: One or some of the LP&VIs will take the responsibility to issue FLEGT licenses (through appointment by MoF) The selected LP&VIs will be accredited by KAN to ISO 17020: General Criteria for the Operation of Various Types of Bodies Performing Inspections, which is an internationally recognized standard for the competence of inspection bodies An LP&VI specialized for both verification and licensing is foreseen to issue FLEGT licenses in a designated territory (provinces) If compared to the institutional setup of other countries entered into the VPA process, the first ideas of Working Group 4 are rather exceptional. The other FLEGT partner countries have preferred to separate the verification function from the licensing function, and selected existing bodies (such as government agencies tasked to issue export permits for timber products) to take over the licensing responsibilities. By applying the same logic in the Indonesian context, the licensing role would naturally have fallen to BRIK. The employment of more than one FLEGT licensing Authority can be rational and justified in Indonesia with numerous provinces administrated by autonomous/decentralized governments. This type of provincial approach is likely to facilitate better access to the licensing services for the exporters than if a single service provider organized the FLEGT licensing for the whole country. The accreditation of licensing authorities by KAN would improve consistency between the procedures by different entities involved and increase the integrity of the scheme in general. While further developing the FLEGT licensing concept brought about by Working Group 4, it is recommended that: A separate guideline is prepared to assist the licensing authorities in developing procedures for ensuring that only legally verified timber is FLEGT licensed. The procedures shall unambiguously require that compliance with the relevant SVLK standard has been verified and the products originate from known legal sources prior to issuance of licenses. The procedures should also cover how to keep records on issued licenses and rejected applications. The guideline is suggested to be part of the accreditation requirements. 1 Green logo for 100% SFM; Yellow logo for mixture of SFM and legality-verified; Red logo for legality-verified; Blue logo for mixture of legality-verified and legality not verified but compliant with Regulations P55 and P51; White logo for compliant with Regulations P55 and P51 14

15 Working group 4 will set out explicit requirements for the resource needs and level of technical capacities of the licensing authorities. Compliance with these requirements are suggested be integrated in the accreditation process. The FLEGT licensing and legality (or SFM) verification functions are formally distinguished from each other (e.g. different staff or departments making sure that the same person are not involved in the verification and licensing) Since the VPA is an accord between the government of Indonesia and the EU, MoF or another relevant Indonesian ministry shall have the authority to interfere in the FLEGT licensing activities and where necessary require changes to the current practices or initiation of corrective actions 8. INDEPENDENT MONITORING: IM is needed to provide credibility to the TLAS by inspecting that the whole system is working as intended. It is generally expected the IM organization must be independent of the partner country s sector regulatory bodies and private sector operators. The monitoring methodology must be evidence-based, carried out at specified intervals and documented. The assessment results are reported to the Joint Implementation Committee (JIC) 2 and at a minimum, a summary report is made publicly available. Working Group 3 has prepared a working draft on the guidelines for IM of SVLK implementation. Based on discussions with three members of the working group, the proposed monitoring process draws on a model allowing any NGO registered in Indonesia and following commonly agreed monitoring protocols to participate in the activity. Since there are several NGO interested and involved, it is seen as necessary to establish an IM Forum (Civil Society Forum, CSF) to share views, harmonize IM procedures, organize training and create standards for the IM reports to be submitted either to LP&VIs, KAN or MoF. The legal status, responsibilities and authorities of the forum are not yet defined. The information shared does not provide enough details to form an opinion on the proposal s adequacy for monitoring of the implementation of a VPA compatible TLAS. However, it is obvious the communicated concept for IM needs to be further developed to settle with the FLEGT principles. Two options have been brought up for consideration of Working Group 3: 1. The IM concept under preparation is reinforced with a formal oversight structure (on the basis of CSF?) to systemize the monitoring methodologies and build up the capacities of individual NGOs and their staff to adhere to the relevant ISO standards. In addition, the oversight structure would officially be contracted by the government of Indonesia, be provided with access to necessary information sources and report to the JIC on monitoring findings. 2. A more external body with proven records to meet the requirements of the referred ISO standards will be contracted to periodically monitor the implementation of SVLK/TLAS. This body would actively consult the NGOs/civil society organizations and collect inputs for the monitoring reports. This arrangement would be more an additional control layer rather than a replacement for the outlined NGO-run monitoring system. 2 A committee established for each VPA made up of representatives of the FLEGT partner country, the European Commission and EU Member States 15

16 As a reference to the other ongoing VPA processes, the FLEGT partner countries have agreed to appoint a third party monitor through a transparent mechanisms open to all qualified applicants complying with Terms of Reference (TOR) attached to the partnership agreement. The TOR specify (i) requirements for the organization and its monitoring staff, (ii) scope and methodology of monitoring, incl. information sources to be used, (iii) handling of non-compliances and checking of the effectiveness of corrective actions, (iv) reporting arrangements and (v) handling of complaint and disputes. This package reminds more of the option no 2 presented above. 16