EU Deforestation-free Regulation can hinder Indonesia’s exports

This article has been translated by PwC Indonesia as part of our Plantation News Highlights service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Investor Daily - UU Antideforestasi UE bisa hambat ekspor Indonesia

17 July 2023

By: Leonard AL Cahyoputra

Jakarta - The European Union Deforestation-Free Regulation (EUDR) can hinder Indonesia’s exports to the European Union. This is due to the severe difficulties faced by exporters in following the rules regarding traceability and geotagging to determine whether a product is involved in deforestation.

Coordinator for Deputy Chairperson 3 for Maritime, Investment, and Foreign Affairs of the Indonesian Chamber of Commerce and Industry Shinta W. Kamdani explained that these two regulations would be very difficult to implement in almost all developing countries. This is due to the gap in digital literacy and in the adoption of technology for traceability, which is significantly advanced in developed countries. Thus far, countries that can implement traceability on plantation products are developed countries such as New Zealand or Australia for their fruit products. “This is also made easy because they have adopted smart farming which uses quite a lot of agricultural technology so that traceability is easier,” she said to Investor Daily in Jakarta on Saturday (15/7/2023). 

Shinta estimates that only large companies can follow the EUDR due to the need for technology adoption. It will be far more difficult for small companies or plasma farmers, so this policy highly detrimental towards the development of economic or trade inclusiveness. 

“[We] reflect on the experience of implementing traceability policies in the fisheries sector, in which the traceability of product origins has been requested earlier to prevent illegal, unreported, and unregulated (IUU) fishing. Even in fisheries, the implementation is not in the form of geotagging, which is certainly more difficult to apply because our digital literacy is still low,” she said. 

Shinta suggested the government to make the option to file a dispute regarding the law as the last resort, if all other diplomatic efforts to change or reduce the impact of the EUDR on Indonesia have failed. She explained that it is better to optimise consultation, dialogue, lobbying, and diplomacy first with EU parties, including the parliament and the European Commission and each EU country representative with the authority to implement this policy. 

Shinta explained the Indonesian Chamber of Commerce and Industry supports and cooperates with the government in the government’s diplomacy efforts regarding this deforestation issue, especially in conveying aspects that can put burden on business entities/exporters and the global expectation of this policy. She revealed that her agency also expressed objections against this policy to trade stakeholders in the EU and strived for cooperation to address this regulation so that it would not become a trade barrier. 

“Internally, we also facilitate the exchange of information, establish good understanding, and educate fellow business entities regarding this policy, so that during this transitional period we can all be prepared to make the necessary internal adjustments to avoid trade barriers,” said Shinta. 

She said that, in the diplomacy, Indonesia could overcome this challenge by establishing new economic cooperation that is mutually beneficial to both parties. Shinta believes that, if Indonesia’s export products are subject to sanctions, it will not only be Indonesian exporters who suffer, but also the EU market. “This is because all the burden of compliance with this regulation will certainly be transferred by the exporters to the consumers in export destination countries. So that product prices in their markets will be more expensive. This is certainly undesirable for them because their inflation remains high,” Shinta said. 

Shinta admitted that the Indonesian Chamber of Commerce and Industry has yet to calculate losses due to this law because the scope is very broad, not only CPO or timber products, but also specific commodities and products related to deforestation and forest degradation. 

“So, it is not just the products mentioned. This could also apply to their derivative products, such as paper, furniture, tyres, and others,” she said. 

Shinta said CPO export to the European Union has a value of US$3.5 billion each year. Likewise, rubber export is valued around US$ 1 billion, furniture export around US$600 million, excluding wood flooring products of which the export volume increases every year. 

“This is not counting other emerging export products, such as processed coffee, cocoa, or CPO in the form of food and beverages, which if counted can certainly inflate the estimated negative impact on Indonesia,” she said.

Up to US$7 billion losses 

The Coordinating Minister for Economic Affairs Airlangga Hartarto said Indonesia’s potential losses due to the implementation of the EUDR could reach US$7 billion. 

Airlangga explained that the EUDR policy targets seven commodities that must be guaranteed to be free from deforestation, namely palm oil, rubber, coffee, soybean, cocoa, beef, and wood, along with their derivative products. “The potential losses could reach up to US$7 billion. But if they can apply standards, then we can have an agreement that can still work,” Airlangga said when met at the Presidential Palace Complex in Jakarta on Thursday (13/7/2023). 

Airlangga explained that EUDR implementation would burden 15–17 million smallholder farmers because the commodities must be verified based on land due diligence. 

The EUDR also requires the implementation of “geolocation” of oil palm lands, which will classify the country in 3 categories, namely low risk, medium risk, and high risk. 

On the other hand, Indonesia’s export of plantation commodities has met global standards for sustainable production, for example the RSPO (Roundtable on Sustainable Palm Oil) standard for palm oil products and their derivatives, as well as the Timber Legality Verification System (SVLK) for wood products and their derivatives. 

He reckoned that this standard could be adopted in the implementation of the EUDR policy, so that the geolocation plot obligation would be no longer required. If the country is classified as high risk, 8 percent of the exported products must pass deforestation-free verification, 6 percent for standard-risk countries, and 4 percent for low-risk countries. 

“In various cases, they will certainly need verification and there will be a cost. Who will pay for it?” said Airlangga. 

Indonesia has also proposed a joint mission with Malaysia to establish a task force for discussions and reviews so that the EUDR policy would not discriminate stakeholders and smallholder farmers. 

The EUDR policy framework has been discussed for a long time in the European parliament, but was only promulgated in April 2023. The new EUDR took effect on 16 May 2023, but the European Union has given an 18-month transition period for large companies to implement the new regulation and 24-month transition period for small companies.