EU Deforestation Regulation and The Impact to Indonesia

Navigating EU Deforestation Regulation with Ad Hoc JTFs

  • InCorp Editorial Team
  • 8 November 2023
  • 6 minute reading time

EU deforestation regulation is critical to the union’s unwavering commitment to environmental sustainability. At the forefront of this regulatory framework lies the integral role of Ad Hoc Joint Task Forces (JTFs), a powerful and dynamic instrument in the EU’s strategy to combat deforestation. 

In this article, we delve into the pivotal function of Ad Hoc JTFs. We will explore their formation, operations, and impact on the broader global discourse surrounding environmental conservation.

Deforestation Concerns on Environmental Impacts

Forests cover 30% of the earth’s land and provide crucial services for human well-being and the environment. They are rich in biodiversity, hosting most of the world’s land-dwelling animal, plant, and fungal species.

Forests can also ensure clean water, offer a renewable source of raw materials, prevent soil erosion, protect against natural disasters, and create job opportunities, such as wood production, forest management, and recreational activities.

Moreover, forests act as important carbon sinks, helping mitigate climate change by absorbing greenhouse gasses. Unfortunately, in recent years, deforestation has been a significant issue. According to the World Resources Institute, an area of forest equivalent to 10 football pitches is lost globally every minute.

The expansion of agricultural land stands as the foremost catalyst for deforestation, driven by population growth and heightened food demand. This transformation frequently results in converting forests into farmland, with a predominant focus on maximizing agricultural output.

The New EU Deforestation Regulation

On June 29, 2023, the European Union introduced a new regulation called the “EU Deforestation Regulation” (EUDR). The law addresses the EU market’s impact on global deforestation and forest degradation. Here are ten critical points for companies to be aware of:

1. Wide Product Coverage

The EUDR covers a variety of products, including commodities like cattle, cocoa, coffee, oil palm, rubber, soya, and wood. Also,  many derived products like meat, leather, chocolate, and more are included. Companies should check the specific products covered based on their tariff classification.

2. Market Access Restrictions

Starting from December 30, 2024 (or June 30, 2025, for micro or small businesses), the EU will place an export restriction on the market in the regions. However, companies can still engage in trading if they meet specific criteria under the regulation. 

These products must be “deforestation-free.” It means that the productions must comply with local laws and be accompanied by a due diligence statement indicating a negligible risk of non-compliance.

3. Legal Deforestation Included

The EUDR considers both illegal and legal deforestation and forest degradation. As per the country of production laws, legal deforestation is also addressed. 

4. Compliance with Local Laws

Products must adhere to the relevant legislation of the country of production concerning land use rights, environmental protection, forest-related regulations, and more.

5. Future Impact

While the primary obligations of the EUDR begin in 2024, today’s production practices will affect the ability to market products in the future. Products entering the EU market should come from something other than land deforested or degraded since December 31, 2020.

6. Company Responsibility

Starting December 30, 2024, companies introducing products to the EU market must submit a due diligence statement to their national authority, utilizing a specialized system established by the European Commission.

7. Transparent Due Diligence

The EUDR outlines the due diligence process, involving collecting detailed information, conducting risk assessments for each product, and mitigating risks through surveys, audits, documentation, or collaboration with suppliers.

8. National Authority Checks

Competent authorities in EU Member States will enforce the EUDR, conducting checks (typically without prior notice) on operators and traders to ensure compliance.

9. Private Party Oversight

Private parties can raise concerns with operators or competent authorities if non-compliance with the EUDR occurs.

10. Potential Fines

Companies could face significant penalties for failing to comply with the EU Deforestation Regulation (EUDR).

While each EU country’s laws will determine the exact fines and punishments, the EUDR outlines potential consequences, which might include:

a. Fines

Penalties are calculated based on the extent of environmental damage and the product’s value, with repeat offenses incurring higher fines. 

These fines can reach a substantial portion, at least 4%, of the company’s EU turnover from the previous year and may even exceed the economic gains from the violation.

b. Confiscation

Offending companies may face the seizure of the products in question or the profits earned from their sale.

c. Exclusion from Public Procurement and Funding

Violators could experience temporary exclusion from participating in public procurement processes and receiving public funding, impacting their access to lucrative opportunities.

d. Product Trading Restrictions

In severe or recurrent violations, the EU may impose temporary bans on trading these products within its jurisdiction or revoke the option to employ simplified due diligence procedures.

Ad Hoc JTF Importance in EUDR

EU Deforestation Regulation and The Impact to Indonesia

The EUDR has strained relations between Europe and palm oil-producing countries like Indonesia. However, Indonesia and Malaysia recently formed a special task force with the EU to solve this anti-deforestation law, called Ad Hoc JTF.

The task force’s creation followed Indonesia and Malaysia’s visit to Brussels in May.

During this visit, Coordinating Minister for Economic Affairs Airlangga and Malaysian Plantation Minister Fadillah Yusof traveled to the EU headquarters to address concerns about the EUDR.

Palm oil is among the products affected by the EUDR, which requires proof of its origin to ensure it doesn’t come from deforested areas before entering the European market. 

Indonesia worries that this requirement will complicate matters for small-scale palm oil producers. Indonesia sees the establishment of Ad Hoc JTF on EUDR as a sign of the EU becoming more flexible, which could lead to progress in the Comprehensive Economic Partnership Agreement (CEPA) negotiations.

These negotiations between Indonesia and the EU started in July 2016 and have continued through 15 rounds of talks. Indonesia aims to conclude these negotiations by the end of this year.

The Progress of The Joint Task Force

Astrid Schomaker, the Director for Green Diplomacy and Multilateralism at the European Commission, acknowledged that Indonesia and Malaysia have made strides in reducing deforestation. 

The Director also appreciated the exchange of information and clarifications regarding the regulation. The three parties have agreed on the terms of reference for the Ad Hoc JTF, which covers several important topics.

These include involving farmers in supply chains, considering national certification systems related to land legality and deforestation timelines, ensuring traceability from producers to consumers, using scientific data on deforestation and forest degradation, and addressing data protection.

The Ad Hoc JTF is expected to complete its work by the end of 2024 and may be extended if all parties agree.

[elementor-template id=”229205″]

Ensure Compliance with InCorp Indonesia

With the growing concern about environmental impacts, businesses can consider maximizing the environmental, social, and governance (ESG) framework to minimize the environmental harm caused by company operations.

Contact our experts, who provide ESG advisory and business license services to help your business meet the ever-increasing market demand for environmentally friendly products.

Let’s embark on a journey toward a sustainable and prosperous future by filling out the form below.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

Get in touch with us.

Lead Form

Disclaimer: The information is provided by PT. Cekindo Business International (“InCorp Indonesia/ we”) for general purpose only and we make no representations or warranties of any kind.

We do not act as an authorized government or non-government provider for official documents and services, which is issued by the Government of the Republic of Indonesia or its appointed officials.

We do not promote any official government document or services of the Government of the Republic of Indonesia, including but not limited to, business identifiers, health and welfare assistance programs and benefits, unclaimed tax rebate, electronic travel visa and authorization, passports in this website.

Frequent Asked Questions

Yes, you must apply for it to be able to issue work permits for your foreign employees. This permanent business license is also a prerequisite for the applications for other business licenses and import licenses.

There are two main types, namely, primary business licenses and non-primary business licenses. The primary ones commonly apply to various industries, such as general and industrial business licenses. Additional non-primary ones are included, depending on the operations of your business. Examples of non-primary business licenses are operational and commercial licenses.