Audits could curb illegal logging

Vincent Lingga , Jakarta Tue, 10/07/2008 9:58 AM Opinion

The Indonesian Forestry Ministry's bold move to require forestry companies to have their wood stocks audited throughout the supply chain to ensure the wood is derived from sustainably managed forests could go a long way in reducing illegal logging in the country.

Hadi Pasaribu, the Forestry Ministry's director general for the management of forestry production, who revealed the new policy recently, did not elaborate as to when the audit -- internationally known as forest certification scheme -- would be mandatory for wood-based companies.

But surely the new measure needs thorough preparation because the audit or certification process requires independent certifiers who must be accredited according to the international standards as those applied by the Bonn-based Forest Stewardship Council.

It is international market forces (consumers and traders) united into a global green consumer campaign that have forced wood-based companies to have their wood certified as green by independent certifying companies.

Hence, whatever the system used by the Forestry Ministry for the wood audit, an inspection or certification scheme, it must be based on international standards to gain international recognition.

Wood audit for forest certification aims at verifying that a particular wood is derived from sustainably managed forests. This process requires companies in the whole wood supply chain to hold chain-of-custody certificates so that the label or bar-code can follow the word from the forests to the finished product.

The chain of custody itself is the process of wood harvesting, primary and secondary processing, manufacturing, distribution and sales. The wood audit, as referred to by Pasaribu, inspects each of these processing steps to ensure that the timber or wood originated from forests which are being managed in accordance with social, environmental and economic aspects of sustainable forest management.

Hence, for example, a buyer of a wood cupboard from a furniture store in Denmark which sells certified green products is able to ascertain that the product he or she is purchasing was made from timber derived from sustainably managed forests in a particular area in a specified country.

The current wood or timber inspection carried out by the Forestry Industry Revitalization Agency, besides being ineffective and vulnerable to corruption and abuse, inspects only legal documents from forestry offices which can easily be forged or falsified.

No wonder Indonesia is on the losing side in a battle against illegal logging, despite an intense crackdown by authorities.

The government has enacted laws on environmental protection and has issued myriads of regulations and rulings to protect forests and erected non-tariff barriers to prevent the trading of illegally-cut wood.

However, illegal logging continues on a massive scale.
But the new wood audit scheme, called Wood Legality Verification System, will involve independent certifiers such as environmental NGOs which have been accredited to conduct such certification, according to Pasaribu.

Since forest certification involves the employment of multidisciplinary teams consisting of various specialists such as forest engineers, ecologists and sociologists to evaluate the various aspects of forest management, the audit or certification process could be quite costly.

Therefore market incentives are necessary to make wood audit or forest certification attractive to wood-based companies. Certainly, the best incentives are premium prices paid to wood products derived from certified forests.

Even though premium prices gained by certified wood today do not seem to be high enough to spark a rush by wood companies to certify, neither the government nor companies can wait much longer.

Market forces have become much stronger now and can force companies to certify the origin of the wood they use. Five European Union governments, including Britain's, have adopted procurement policies that would oblige state-funded construction projects to use certified wood.

Certainly, countries cannot demand that all wood entering their territories be certified, since that would break the rules of the World Trade Organization. But more consumer organizations, especially in major developed countries, have pressured suppliers of wooden products to certify, otherwise they will face massive boycotts.

The concept of forest certification thus uses market forces to curb illegal logging through demand-side and supply-side approaches, mobilizing consumers and traders to shun forest products that are not certified according to internationally recognized standards of sustainable forest management.

Such threats of boycott from powerful consumer organizations and environmental NGOs could force forest-based companies (producers) to have their operations and products certified by accredited, independent forest certifying bodies.

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OECD growth ideas and our national remedies

Thursday, July 31, 2008 Vincent Lingga, The Jakarta Post, Jakarta

Some analysts and many politicians in Parliament may reject the Organisation for Economic Cooperation and Development (OECD) economic policy recommendations for the Indonesian government last week as another one-size-fits-all formula, simply a copy of the "infamous" list of dos and don'ts within the Washington consensus on the virtues of liberalization, deregulation, privatization and free markets.

Even without the upcoming parliamentary and presidential elections next year, the OECD reform recommendations -- which include a further easing of restrictions on foreign investment, further market liberalization, more flexible labor regulations to make it easier for companies to lay off workers, and privatization of state companies -- have always been difficult.

The tone and central theme of the first Economic Assessment of Indonesia by the Paris-based OECD feel very much like the annual report on the Indonesian economy the World Bank used to prepare for the now defunct Consultative Group on Indonesia creditor consortium.

The OECD study seems still too focused on the common formulae and strategy across widely differing developing country conditions, acutely short of country and context-specific solutions.
Having said all that, this doesn't mean the OECD policy options, including those on the need for bigger investment in infrastructure, health and education, are irrelevant to our economy.
On the contrary, evidence has shown that successful economies -- those which are able to post high growth for a long period -- have pursued almost all the policies recommended by the OECD.
They have by and large been implemented by such successful emerging economies as South Korea, China, Thailand, Singapore, Malaysia, Vietnam, India and, to a certain extent, even Indonesia.

These successful economies have many things in common: macroeconomic stability, fiscal discipline, fairly effective government, market-based incentives, adequate investment in infrastructure, health and education and engagement with the global economy.

The main issue for our government is how to sequence and set priorities of the needed reforms so as to make them economically feasible and socially and politically acceptable.
The biggest challenge for the government is to focus on narrowly targeted reforms, proceeding step by step, to discover local solutions.

Several economists cited the gradual reform approach launched by China's Deng Xiaoping in 1978 -- crossing the river by feeling for the stones -- which created the most spectacular period of steady, high economic growth and poverty reduction.

It is the job of both the government and Parliament to devise the right recipe, the right growth concept and strategy most suitable to our economic condition and political complications, using the policy recommendations of the OECD only as the ingredients.

Take for example the recommendation for the easing of labor regulations, one of the reform measures all foreign investors have asked for since 2003 because the labor code has been seen as too rigid, hindering new investment and consequently job creation.

In the absence of an adequate social safety net and unemployment insurance system, however, the government should tread carefully in easing the labor regulations, otherwise the pace of job destruction will exceed job creation.

The gradual reform of the labor code should be designed, however, to protect people, not jobs. This requires measures to make it easier for workers to acquire new skills and enter new trades.
Put another way, labor reform should include programs designed to increase labor mobility across the various sectors of the economy. Most important is that the necessary rules and institutions are well placed to safeguard the basic rights of labor and defend workers against exploitation, abuse, underage employment and unsafe working conditions.

Likewise, the OECD view on the importance of foreign direct investment (FDI) is quite legitimate. An adequate inflow of FDI is vital not only because of the financial capital it brings but, sometimes more important, the concurrent transfer of skills, innovation and ideas to the national economy. FDI brings in knowledge about foreign production techniques, foreign markets and international supply chains.

Just look how our banking industry as a whole has benefited from local bankers who once worked for foreign banks such as Citibank, Standard Chartered, ABN Amro, HSBC, etc.

Then again, the main challenge here is how to strike the right balance between national interests and the need for foreign capital and expertise and for the exposure of national businesses to international competition. The government needs to put the demand it puts on foreign investors in balance with the alternatives provided by other countries competing for foreign capital and expertise.

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