Mandatory legality licensing for exports of Indonesian timber products: Balancing the goals of forest governance and timber industries

The government of Indonesia implements a Timber Legality Verification System (Sistem Verifikasi Legalitas Kayu/SVLK) as an instrument to improve forest governance and secure better trade linkages to foreign markets. It obliges all exports to be legally verified. Nonetheless, legality licensing has become increasingly controversial in the past decade because export policies keep changing whether to require the licensing for all types of products and scales of manufacturing. This paper discusses the pros and cons of mandatory legality licensing for exports. While overall there is a compelling argument that Indonesian exports have tended to increase in aggregate terms, different types and scales of forest industries have had different experiences with legality licensing. More specifically, small and medium-sized enterprises (SMEs) are experiencing with significant technical and financial burdens in contrast with the consummate ease with which larger manufacturers engage in legality. However, a complete termination of legality licensing for all exports, as was promoted and ruled on in early 2020, might not be the best viable solution. We argue that the termination will not necessarily result in a boost for SMEs, nor will such a decision solve challenges faced by small operators in engaging in global markets. Such a measure could also be viewed as a violation of the country's Voluntary Partnership Agreement with the European Union (EU). Instead, we recommend revisions to the legality systems and its policies, addressing the key issues and challenges that SMEs face and identifying support mechanisms for SMEs to navigate adverse impacts. In deregulating the legality policy, the Government of Indonesia will also need to establish communication and dialogues with the EU to explore the potential of opening new negotiations on any recommended amendments.