Project #Sustainability, Publication §5: State Corporatism and the Forestry Sector in Indonesia – The role of ASEAN

State Corporatism and the Forestry Sector in Indonesia – The role for ASEAN, Teodor Kalpakchiev, the-enpi.org

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Introduction

Deforestation is one of the concerns of climate change and is often intertwined with problems relating to good governance or multi-level governance. This paper reviews the case of Indonesia, which is the world’s largest exporter of timber and a leader in the ASEAN relations. It is structured as follows:

· first part focuses on the situation in the forestry sector in Indonesia,

· second part focuses on the corruption practices in the country,

· third part focuses on the Indonesia-ASEAN relations and the role of leadership,

· fourth part focuses on the available instruments for dealing with the issue.

· Fifth parts delivers the final conclusions.

Indonesia

Indonesia is endowed with the third largest forest area in the world, which comprises 49.6% of its territory and is predominantly managed by private corporations (57.2%), resulting in a total decrease of forests with 12.6% between 1990 and 20101. It has been also estimated that the amount of illegal timber has grown to 40%2, which raises serious concerns also over the legality of this unsustainable practice.

Forestry and Haze

Ever since 1997 the burning of forests to clear land for the plantation of palm oil has been a severe problem in Indonesia, Malaysia and Brunei. Although sometimes initiated by subsistence farmers, “there is general agreement that the vast majority of fires were started by corporate interests in Indonesia”3. The resulting haze has brought along health concerns by the population. Due to the weakness of the governance regime, the resulted haze emissions have been removed only with the help of the monsoon rains.

Forestry and Timber

The Indonesian decision to focus on natural resource based industries stemmed from the insufficiency public revenues for infrastructure revitalization of the archipelago. Between 1967 and 1979, the industrialization focused on the export of logs, as Japanese wood-processors were eager to pay good prices4. In an attempt to generate added value and jobs, the Indonesian government then resorted to doubling and further gradually increasing export tariffs of logs, thus effectively flooding the domestic market with below market price goods and incentivizing companies to invest in own processing capacities.

Although the focus on plywood mills and the growing demand resulted in both export growth and processing capacities’ repositioning from other countries to Indonesia, often the logs had to be sold downstream to the pulp industry5. The resulting pulp and paper industry could not, however, replace oil export revenues, despite its 13 fold increase in volume. The focus on processed wood resulted in a strong concern over the competitiveness, efficiency and sustainability of the resource extraction both domestically and internationally and led to the adoption of a mandatory eco-labelling of tropical timber, which, however was applied to only 1.5% of Indonesia’s forest processing area6.

Indonesia has strengthened the resource extraction industry by means of its neo-liberal opening, reliance on property rights and the rule of law in their western understanding, which has been seen as a mean to overcome the autocratic legacy. Nationalism has positioned itself against this trend and resulted in preferences over domestic ownership of (esp. extractive) industries. The non-governmental sector has on the other hand been constrained by a tradition of non-participation in politics and thus found it hard to substitute the absence of political actors, who should fight for social struggles7. In essence, the Indonesian regime can thus be seen an opportunity seeker that restrains non-state actors, but inclusive to business.

Image result for corruption in indonesian forestry

Corruption in Indonesia

Corruption has been also a wide spread element in the Indonesian society. In the colonial years, weak organization and disciplinary control, ample trade opportunities, low salaries and collapse of financial accountability led to the institutionalization of corruption. A delineation between those profiting from allowances, participation in boards and committees and having access to development aid and traditional administrators can be done. While administrators were not dismissed, due to the fact that they cannot provide for their families in any way, lightning visits higher in the hierarchy never touched generals and senior servants. During Suharto’s rule these practices were institutionalized and expanded with the protection of family-close members, which resulted in more than 40% of Asian Development Bank’s loans being lost8.

State-level

The state has not had less important role in the instigation of these crony practices. As much as 70% of Indonesia’s land has been nationalized as a state forest, e.g. “political forest”, while criminalizing resistance as communistic9. The Saharto family is owns shares in the timber business and uses posts, such as that of Mohammad ‘Bob’ Hassan, the trade minister, to ensure the flow of exports. In essence, it has resulted in an oligopoly of the timber extractors, strengthened by the opening of markets and the granting of concessions, esp. to “yayasan”, e.g. military leaders close to the family. During the financial crisis of 1998, Indonesia found itself compelled to comply with the Washington Consensus market reforms (e.g. transfer of concessions, removal of taxes and export quotas, etc), which was fiercely opposed by the civil society, who saw good governance as respect for the rights of traditional communities and not decentralization10.

Local-Level

The local authorities and the decentralization, have played a crucial role on the issuance of certifications for forest regions. After the Suharto period the decentralization that was introduced in Indonesia allowed local authorities to issue logging permits on the small scale, which brought not only fees and taxes, but also financial support in times of elections. This has brought problems with the accountability towards the population, monitoring and sanctioning of activities that have gone beyond the territory predefined for extraction11. Despite accounts for limited benefits on the local population, the issues was not addressed, as it was predominated by a district-province-national divide for influence on regulation and control over the issuance of permits. The inherited customary land-rights system has introduced semi-autonomous social actors (sultans, traders, subcontractors), whose illegal activity has not been sanctioned and who abide by law selectively. Finally, the certification for compliance with domestic laws has been issued chaotically on the local level and oftentimes to companies identified as corrupt by the Anti-Corruption Commission12. Speaking of haze, the Indonesian law makes it much more difficult to prove an intention to burn, as a witness must be present. The cases are usually brought on a local level, where the officials are not aware of the environmental requirements13.

Business and Corruption

It can also be argued that the state-corporatism in Indonesia has evolved to a main-decision making model that has even been uploaded to ASEAN. Wood processing industry (incl. plywood and pulp) is based in few hands and subsidies for land clearing are disbursed by an overtly centralized administration to increase agricultural production14 (esp. of palm oil and biofuels). The business has further benefited from strong representation during the programming of the ASEAN common market, built on the four pillars of “single market and production base, a competitive economic region, equitable economic development, and integration into the global economy”15 within a regional corporatism relationship.

Despite the social equity framework of the market, the civil society and labour organizations are virtually not present16 in the decision making, allowing thus the critique towards the indigenous population’s inability to protect its interest from MNCs to persist. Industry has also cooperated against decentralization and regulation that can hinder their access to the forest resources17. Furthermore, most microenterprises are bereft of access to infrastructure, as well as legal and financial uncertainty, which impedes the development of stable SME environment. One of the side effects of deforestation is the land erosion, resulting in landslides, resp. opportunity costs for the logistic networks.

ASEAN

Indonesia took a leadership role in the foundation of ASEAN and has been widely regarded as entitled to such, not only due to its sheer size, but also due to the repulsion of the colonizers’ rule and the transition from autocracy to a democratic leadership, which has strengthened the resilience of the country. Both due to variable economic strength and the principles of the elite-drive intergovernmental ASEAN, the Indonesian leadership has been inconsistent and constrained18.

The hazard of natural disasters and hazards has been first recognized by Indonesia, Philippines and Malaysia, but their political leadership did not lead to enhancement of the cooperation. However, the growing number of incidents, raised the necessity to turn declaratory statements into real cooperation for rescue, relief and mitigation of non-traditional security concerns, such as the smoke haze. Had it not  been so, ASEAN would have lost its authority in the eyes of its international and domestic nonstate partners19. In the economic domain the the Hanoi Plan for Action, strengthened by the Bali Concord II and the Vientiane Action Program aim to create a four-freedom common market by 202020 as a response to the economic strength of China and India.

Important milestones

· With the ASEAN Declaration on Mutual Assistance on Natural Disasters / 1976

· ASEAN Cooperation Plan on Trans-boundary Pollution / 1995

· ASEAN Senior Officials on the Environment / 1995

· ASEAN Ministerial Meeting on Haze and the Haze Technical Task Force / yearly, transaction

costs, establishes relationship, p.282

· ASEAN Agreement on Trans-boundary Haze Production / 2002, binding

· ASEAN Coordinating Centre for Trans-boundary Haze Production / 2002, voluntary

· ASEAN Regional Programme on Disaster Management (ARPDM) / 2004

· ASEAN Agreement on Disaster Management and Emergency Response / 2004

Critique

As already reviewed, the main problem with implementation is stemming from corruption practices embedded in the judiciary and the inability of the state to control the local level governance, the ASEAN response was directed towards the trans-boundary pollution and “did not include any mention of forest conservation as a measure to reduce the haze”21. However, both due to the centrality of Indonesia and the foundational norms and principles of ASEAN, its intervention possibilities are quite restrained.

The main problem stems from the non-interference into domestic affairs rule, whose origin is in the political and security arm of ASEAN, as well as the consensus decision-making process based on “clear preference for informal diplomacy and personal elite relationships over rule-based interaction”22. “Naming and shaming” of rules non-implementation is therefore not a plausible strategy. The vagueness of obligations, specific timetables and lack of concrete policy formulations diminishes the possibility for attainment of expected outcomes23.

Available Instruments

There are three main economic and market instruments available that can control the deterioration of the deforestation in Indonesia: the Ecosystem Restoration Concessions, the UN REDD+, the FLEGT and the embedding of environmental concerns into trade instruments.

The Ecosystem restoration concessions is a market instrument introduced in 2004 that establishes a new type of area of forests, where external aid (esp. from Germany) is distributed to businesses after the presentation of a robust revenue plan focusing on non-timber forest products, such as mushrooms, medicinal plants, beekeeping, eco-tourism, or ecosystem services. The companies pay for these licences and ensure habitat rehabilitation, monitoring and safeguarding and have the possibility to obtain carbon credit through REDD+24. Problems with administering these arise not only from the corrupt local administration, but also by the provision of land by customary leaders or village officers to wealthy migrants, who establish patron-client relationships with indigenous people, who account for 10% of the population25. Local communities are also not safeguarded by mediators, who pursue their own interests26 and need to be granted facilitated access to the instrument.

The existence of an EU carbon market allows that investments in carbon emissions mitigation to be partially counted as allowances domestically. The essence of this idea has been transfused into the UN REDD+27, funded by Norway. It generates payments for a state-driven sustainable management of forest resources, a biannual moratorium on licences for primary forests usage, strengthened with satellite surveillance and participatory feedback, creation of a licences database to review legality28. Primary concerns include the stratification of the land, the inaccessibility of documents on local level and rights of indigenous people. Critiques are that industrial replanting of trees would allow more pollution to the north, while indigenous people would have to use their compensation to participate in the building of new markets.

The regulation of the logging sector has moved from the national to the sub-national level and has included non-state actors, while internationally, it has been increasingly dependent on voluntary instruments for certification, standardization and extraction according to the principles of good governance. The legality of extraction according to domestic law is the main focus of FLEGT29 initiative, which has been transposed domestically through the issuance of compliance certifications.

The regional AFTA allows for sub-regional arrangements, includes a WTO-framed dispute settlement mechanism with enforcement dependent on consensus, avoids trade of sensitive goods and proceeds with liberalization of services much more slowly30. Further extension of the regulation of environmental (and labour) matters has been their embedding in FTA’s ever since the foundational new trade deal with Korea, which gives preference to environmental products, according to the GSP+ system, introduced and pushed through the by the EU within WTO. However, a main concern remains the so called “right to regulate”, as effectively it allows the issuance of compliance certifications according to domestically defined norms31. Seemingly, the EU has begun a learning process by means of embedding various stipulations (e.g. timber export in the EU- Singapore FTA and oil as biofuel within the EU-Korea FTA), which would allow it to strengthen its understanding of the local particularities before stepping up the signing of a region-to-region FTA.

Conclusions

The Indonesian state has overcome the colonial rule to become the initiator of ASEAN, which finds it hard to establish itself as a leader, due to the constitutive norms of non-interference and consensual, behind the curtain, elite-driven intergovernmental organization. Indonesia’s colonial heritage has provided the fundament not only for the emergence of a highly corrupt, but also a crony capitalist state, dominated by neo-patrimonial military. With the emergence of democracy, the state corporatism has been thus uploaded to ASEAN, which although having a number of commitments, has not addressed the issues stemming from deforestation with particular effectiveness. Although there are a number of market instruments to control the deforestation with the help of external donors, they often result in less than optimal results for the indigenous population and their rights.

References

1 ERC, p.278-280

2 Krystof Obidzinski & Koen Kusters (2015) Formalizing the Logging Sector

in Indonesia: Historical Dynamics and Lessons for Current Policy Initiatives, Society & Natural

Resources, 28:5, 530-542, DOI: 10.1080/08941920.2015.1014605, p.531

3 Vinod K. Aggarwal & Jonathan T. Chow (2010) The perils of consensus:How ASEAN’s meta-regime undermines economic

and environmental cooperation, Review of International Political Economy, 17:2, 262-290, DOI:

10.1080/09692290903192962 p.278

4 Kian Wie Thee (2009) The Indonesian wood products industry, Journal ofthe Asia Pacific Economy, 14:2, 138-149, DOI:

10.1080/13547860902785971, p. 140

5 Ibid., p 140-144

6 Kian Wie Thee (2009) The Indonesian wood products industry, Journal of

the Asia Pacific Economy, 14:2, 138-149, DOI: 10.1080/13547860902785971, p. 146

7 Paul K. Gellert (2010) Rival Transnational Networks, Domestic Politics and Indonesian Timber, Journal of Contemporary

Asia, 40:4, 539-567, DOI: 10.1080/00472336.2010.507041, p.560-2

8 Jon S T Quah (2003) Causes and Consequences of Corruption in Southeast Asia: A Comparative Analysis of Indonesia, the

Philippines and Thailand, Asian Journal of Public Administration, 25:2, 235-266, DOI: 10.1080/02598272.2003.10800416,

p.238-255

9 Rini Astuti & Andrew McGregor (2015) Responding to the green economy: how REDD+ and the One Map Initiative are

transforming forest governance in Indonesia, Third World Quarterly, 36:12, 2273-2293, DOI:

10.1080/01436597.2015.1082422 p. 2277

10 Stephen McCarthy (2014) Norm diffusion and the limits to forestry governance reform in Southeast Asia’s new

democracies, The Pacific Review, 27:5, 755-778, DOI: 10.1080/09512748.2014.948565, p.765-767

11 Krystof Obidzinski & Koen Kusters (2015) Formalizing the Logging Sector in Indonesia: Historical Dynamics and Lessons for

Current Policy Initiatives, Society & Natural Resources, 28:5, 530-542, DOI: 10.1080/08941920.2015.1014605, p.535-536

12 Ibid., p.536-538

13 Vinod K. Aggarwal & Jonathan T. Chow (2010) The perils of consensus:

How ASEAN’s meta-regime undermines economic and environmental cooperation, Review of

International Political Economy, 17:2, 262-290, DOI: 10.1080/09692290903192962, p.279

14 Reiner Buergin (2016) Ecosystem Restoration Concessions in Indonesia: Conflicts and Discourses, Critical Asian Studies,

48:2, 278-301, DOI: 10.1080/14672715.2016.1164017, p.280

15 Jürgen Rüland (2016) Why (most) Indonesian businesses fear the ASEAN Economic Community: struggling with Southeast

Asia’s regional corporatism, Third World Quarterly, 37:6, 1130-1145, DOI: 10.1080/01436597.2015.1133245, p. 1130

16 Ibid. p.1140

17 Paul K. Gellert (2010) Rival Transnational Networks, Domestic Politics and Indonesian Timber, Journal of Contemporary

Asia, 40:4, 539-567, DOI: 10.1080/00472336.2010.507041, p.558

18 Pattharapong Rattanasevee (2014) Leadership in ASEAN: The

Role of Indonesia Reconsidered, Asian Journal of Political Science, 22:2, 113-127, DOI:

10.1080/02185377.2014.895912P.114-116, 120-123

19 Angela Pennisi di Floristella (2016) Dealing with natural disasters, The Pacific Review, 29:2, 283-305, DOI:

10.1080/09512748.2015.1013498, p.290-295

20 Vinod K. Aggarwal & Jonathan T. Chow (2010) The perils of consensus: How ASEAN’s meta-regime undermines economic

and environmental cooperation, Review of International Political Economy, 17:2, 262-290, DOI:

10.1080/09692290903192962, p.273

21 Ibid, p.278

22 Ibid, p.267-9

23 Meta P.281

24 Reiner Buergin (2016) Ecosystem Restoration Concessions in Indonesia: Conflicts and Discourses, Critical Asian Studies,

48:2, 278-301, DOI: 10.1080/14672715.2016.1164017, p. 283

25 Ibid, p.287

26 Ibid, p.294

27 Reduced Emissions From Deforestation And Forest Degradation

28 Rini Astuti & Andrew McGregor (2015) Responding to the green economy: how REDD+ and the One Map Initiative are

transforming forest governance in Indonesia, Third World Quarterly, 36:12, 2273-2293, DOI:

10.1080/01436597.2015.1082422, p.2278-2288

29 Forest Law Enforcement, Governance and Trade

30 Vinod K. Aggarwal & Jonathan T. Chow (2010) The perils of consensus: How ASEAN’s meta-regime undermines economic

and environmental cooperation, Review of International Political Economy, 17:2, 262-290, DOI:

10.1080/09692290903192962, p.270-274

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