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4-Traders Homepage  >  Equities  >  Swiss Exchange  >  SGS    SGSN   CH0002497458

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SGS Societe Generale de Surveillance SA : The Indonesian Timber Legality Assurance System (INDO-TLAS/SVLK) Effective in Early 2013

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09/13/2013 | 04:14pm CEST
What is the INDO-TLAS/SVLK?

Indonesia has the largest natural forest area, about 80 million hectares, in Asia and the third largest in the tropics. Nowadays, Indonesia is a leading producer of many forest products such as plywood, furniture, pulp and paper, mouldings, windows, etc. 

The Indonesian Timber Legality Assurance System (INDO-TLAS)/Sistem Verifikasi Legalitas Kayu (SVLK) is an Indonesian scheme to assure the international timber market of the legality of its timber products. This implementation will help Indonesia to meet growing demand for legal timber. It is also expected to enhance the competitive advantage of the country's timber products in the wider international market and form part of its contribution to global environmental sustainability.

The new timber legality framework replaces Indonesia's previous BRIK system. INDO-TLAS will improve governance of Indonesia's forestry business through effective administration and management thereby reducing illegal logging and illegal trading. INDO-TLAS has been developed in response to increasingly rigorous timber legislation in key markets, including EU Timber Regulation No. 995/2010 (effective since March 3, 2013), Australia's Illegal Logging Prohibition Bill, the US Lacey Act and Japan's Goho Wood system.

Enforcement of INDO-TLAS/SVLK

Since January 1, 2013, the Ministry of Forestry and Ministry of Trade of the Republic of Indonesia has enforced and imposed INDO-TLAS/SVLK. It is based on a certification approach also known as 'operator-based licensing'. To achieve certification, Conformity Assessment Bodies must audit the legality of the operations of timber producers, timber traders, processors and exporters.

The Ministry of Trade of the Republic of Indonesia issued Regulation No. 64/M-DAG/PER/10/2012 on October 22, 2012, on Forestry Product Export Regulation, to support INDO-TLAS/SVLK. This regulation classifies forest products into two categories: Group A and Group B. Each category has a different mandatory date for achieving INDO-TLAS/SVLK certification:

  • Group A: plywood, sawmill, chip wood, LVL and veneer. This group category will have INDO- TLAS/SVLK certification before January 1, 2013
  • Group B: furniture, woodworking, pulp and paper. This group category will have INDO-TLAS/SVLK certification before January 1, 2014

After then, if any company or industry that exports its product will have to pass through the legality verification process in order to obtain "V-LEGAL" documents. If a company or industry has not been verified for its legality, then an inspection will need to be done by a Conformity Assessment Body (CAB).

The Role of Conformity Assessment Bodies (CABs)

Conformity Assessment Bodies (CABs) are tasked to ensure that companies audited operate in compliance with INDO-TLAS and have credible supply chain controls. Companies that meet these requirements are certified for legality for a period of three years, subject to surveillance audits at least once a year. The legality certificate will expire after three years and can be renewed, subject to a renewal application and another audit.

CABs, like SGS, are accredited by the Indonesian Accreditation Body (KAN) against ISO/IEC standards and relevant regulations relating to SVLK are directed to fulfil their auditing tasks by the Ministry of Forestry, to whom they also report the outcome of their audits. As standard certification practice, CABs are contracted by the companies that want to be certified and are required to operate according to ISO, the International Organization for Standardization guidelines.

CABs also check timber exporters using the legality verification process. If compliant, exporters are supplied with an export licence in the form of a V-legal document, or when the Voluntary Partnership Agreement (VPA) is fully implemented, with a FLEGT Licence, if the shipment is intended for the EU. Any exports without a V-legal license will be prohibited.

If an exporter, or one of its suppliers, does not hold a valid legality certificate, or is found to be in breach of the relevant regulations, several things can happen: firstly the request for an export licence will be denied, stalling the shipment; secondly the exporter in question is at risk of losing his legality certificate altogether, making all exports impossible until he has amended his operations; and thirdly, if malfeasance can be proven, the exporter or his suppliers are at risk of being prosecuted.

Independent Monitoring and Periodic Evaluation

Indonesia has developed an innovative approach to monitoring and evaluation to ensure that the integrity of the INDO-TLAS is maintained:

  • Independent Monitoring by Civil Society: Civil society groups and individuals are allowed to raise objections about the audit of an operator by a CAB. Local groups and individuals can file complaints with the CABs in the event of illegal activities detected during operations. They can request that CABs conduct ad hoc surveillance and review their audit results on the basis of evidence supplied. Civil society groups and individuals can also file complaints against the CABs with the Indonesian Accreditation Body (KAN). Indonesian civil society has formed a number of networks to take up the task of independent monitoring as the INDO-TLAS/SVLK is rolled out.
  • Comprehensive Evaluation: A Ministry of Forestry Director General's decree has established a multi-stakeholder monitoring and evaluation working group that will oversee the functioning of INDO-TLAS/SVLK. The group will regularly review the implementation of INDO-TLAS/SVLK using independent monitoring reports and other inputs, to provide recommendations for strengthening the system, including the standards.
  • Periodic Evaluation: This evaluation was established under the FLEGT-VPA and consists of a formal system audit to review the functioning of the whole INDO-TLAS/SVLK, from production in the forest to the point of export. This audit is undertaken by a qualified body recruited through the Joint Implementation Committee and will review reports from the above evaluations.
  • Independent Market Monitoring: This evaluation will keep track of the market position of Indonesian FLEGT-licensed timber in the European market and how the market-based measures are performing.
Relationship between INDO-TLAS/SVLK and VPA

The EU adopted the Timber Regulation to halt the circulation of illegal timber in the European market. The EU Timber Regulation (EUTR) became effective in March 2013. From that date, all imports of timber into any member state of the EU have to pass a due diligence assessment to prevent illegal timber from entering the market. Importers will not have to apply this due diligence assessment to timber products arriving from an exporting country, like Indonesia, that has signed and implemented a VPA with the EU. Such timber is considered as having zero risk of being illegal under the EUTR.

The VPA outlines the forest-related information to be placed in the public domain, the institutions responsible for making that information available and the mechanisms by which this information can be accessed.

Indonesia and the EU have been negotiating a VPA for the past four years to ensure that key forestry related information is made available to the public under the FLEGT-VPA in a timely and appropriate manner. The aim is to ensure that:

  • Joint Implementation Committee operations during VPA implementation are transparent.
  • A mechanism exists for both parties as well as involved stakeholders to access key forestry related information.
  • INDO-TLAS/SVLK functioning is strengthened through the availability of information for civil society independent monitoring.
  • Larger VPA objectives are achieved. Thus both parties see the availability of information as an important contribution to reinforcing good forest governance.
The Key Message

Indonesia is the first Asian country that has a VPA with the EU, although negotiations between Malaysia and Vietnam and the EU are showing some progress.

The initial test shipments of timber from Indonesia, backed by the V-legal proof of legality licensing system, have been sent to destinations around Europe, opening the way for the first exports to be licensed under the EU FLEGT VPA scheme in 2013.

By signing the VPA all timber products exported from Indonesia to the EU will be considered as having zero risk of illegality under the EU Timber Regulations and will not have to go through any due diligence assessment process, saving time and money, which can benefit the forestry and timber companies as well as the wider industry. In addition, this will increase the confidence of EU importers in Indonesian timber products and make their products more attractive compared with non-VPA timber.

SGS is an Accredited Certification Body for INDO-TLAS/SVLK by KAN Commission, offering integrated INDO-TLAS/SVLK and Program for Endorsement Forest Certification (PEFC) - Chain of Custody (CoC) Certification to our clients assisting them with added value and immense benefits from these certifications.

For the latest updates on INDO-TLAS/SVLK certification, please visit SILK.

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Financials ( CHF)
Sales 2018 6 802 M
EBIT 2018 1 059 M
Net income 2018 713 M
Debt 2018 682 M
Yield 2018 2,98%
P/E ratio 2018 27,67
P/E ratio 2019 25,23
EV / Sales 2018 3,05x
EV / Sales 2019 2,87x
Capitalization 20 074 M
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