The implementation of the European Union Deforestation Regulation (EUDR) and the Timber Legality Verification System (SVLK) is causing double cost burdens, potentially eroding the competitiveness of Indonesian furniture products.
The EUDR, which came into effect in the European Union on May 16, 2023, stipulates that only products derived from lands that have not experienced deforestation or forest degradation after December 31, 2020, are allowed to circulate in the EU market or be exported to the region.
Meanwhile, the SVLK is a regulation established by the Indonesian government to promote the implementation of regulations related to the trade and circulation of legally sourced timber in the country.
“The EUDR is a more comprehensive regulation, making it challenging for us to oppose as it is an internal policy. In our assessment, not only trees and wood, but also the forests must be certified by them. The EUDR should eliminate the need for SVLK and other regulations since it has a broader scope,” Chairman of the Indonesian Furniture and Handicraft Association (Himki) Abdul Sobur said.
“In principle, we hope to simplify and alleviate export activities. Unnecessary burdens should be eliminated to enhance our competitiveness” he added.
Threats to export targets
Both the EUDR and SVLK policies aim to ensure that exported furniture products do not originate from deforestation. However, if similar regulations to the EUDR persist, it will impose double costs that diminish the competitiveness of Indonesian furniture products.
Furthermore, Sobur highlighted that the furniture industry is currently experiencing a decline in orders from major markets such as the US and Europe. Consequently, the overlapping regulations and resulting decrease in competitiveness will further strain Indonesian furniture products entering the European market.
Moreover, Europe remains the second-largest export market for Indonesian furniture products after the US. Annually, the European market contributes around US$1 billion or 32 to 35 percent of the total national exports.
These restrictive regulations are also feared to impede the achievement of the furniture and handicraft export target of US$5 billion by 2024. Last year, furniture and handicraft exports reached US$3.5 billion, and it is expected to grow by 8 percent to approximately US$3.78 billion by 2023.
The role of government assistance
Vice Chairperson of the Indonesian Chamber of Commerce and Industry (Kadin) for Maritime, Investment, and Foreign Affairs Shinta Kamdani, stated that businesses need government support to improve their performance and exports.
One of them is to reduce unnecessary export restrictions and procedures that are not requested by the destination country. Additionally, the government is also expected to help create expanded financing products that cover export supply chain financing, reduce export duties, and others.
“We can further expand strategies to boost exports, such as facilitating productive credit distribution/business loans, increasing affordability and efficiency, and utilizing incentive funds for productive economic activities,” Shinta said.
Furthermore, according to Shinta, businesses required increased affordability of real loan interest rates, especially for MSMEs. “If the real interest rates cannot be lowered, there should be assistance schemes such as guarantees or graduating interest rate schemes based on the loan amount, relaxation of credit terms, and more,” Shinta concluded.
