SCOPE  Forestry in THE MALAYSIAN TIMBER LEGALITY ASSURANCE SYSTEM AND RELATED  EXPERIENCE FROM VPA NEGOTIATIONS  Emerging market requirements  Timber legality & Sustainability Subtopic No. 12  Importance of FLEGT VPA B.C.Y Freezailah  Voluntary Partnership Agreement (VPA)  VPA FLEGT Process  Further work ASEAN – MARD - EU FLEGT ASIA TLAS Training Workshop  Verification of Legal Timber under VPA & Hanoi, 24-25 November 2010 Certification of Sustainable Timber  Conclusions

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FOREST LAND USE IN MALAYSIA IN BRIEF MALAYSIA 2006 (million ha) SOCIAL CONTRIBUTION

TOTAL FOREST AREA  Land area – 32.95 million ha 18.35  A major sector in Malaysia’s (55.7%) economic growth, revenue  Multiethnic population of about earning and employment National Parks/Wildlife 24.8 million State land/ Permanent Reserved Forests & Bird Sanctuaries Alienated Land (8.3%)  Total exports USD 6.28 billion  Federation of 13 States & 3 (18.5%) (73.2%) (2009) 13.43 Federal Territories 3.39 1.53 Production Totally  Accounts for 3.9% of GDP Production Totally Protected  Forestry – State responsibility (SFM) Protected (Conversion)  Empoyment about 337,000  Coordination by NLC 3.39 10.81 2.62 1.53 Source: Forestry Departments of Peninsular Malaysia, Sabah & Sarawak workers Ministry of Natural Resources and Environment

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1 HISTORY OF FOREST EXPORT OF TIMBER PRODUCTS – 2009 EXPORT BY DESTINATION – 2009 MANAGEMENT IN MALAYSIA (RM Million) (RM Million)

UAE EU Mouldings 599 2,706 686 3% Others 14%  First Forest Officer appointed in 2,170 (4%) Logs Japan (11%) 2,021 3,736 USA 1901 (10%) 19% 2,393 12%  Matang mangroves managed Sawntimber 2,345 since 1904 (12%) India  Bukit Nanas Forest Reserve 1,336 Fibreboard Others 7% Furniture 1,033 4,553 South Korea gazetted in 1906 6,248 (5%) 24% 1,141 (32%) Plywood China Taiwan 6% Singapore  Forest Ordinance enacted in 1907 4,987 667 Australia 838 (26%) 3% 721 801 4% 4% 4% TOTAL : RM 19.49 Billion Source : MTIB Source : DOS & MTIB

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Major Timber Products Exported to EU-2009 ( in RM Million) ILLEGAL LOGGING EMERGING MARKET REQUIREMENTS  Global concern - loss of assets and revenue, environmental impact, biodiversity loss  Green consumerism  Illegal logging estimated at $23 billion annually (8-10% of global total)  Increasing demand for timber and timber products from a sustainable or legal source  Recent study by WWF of illegal timber in EU market (July 2008)  Efforts directed to combat illegal logging and its associated trade  16-19% illegal  largest quantity from Russia  Markets and public procurement policies in many developed  Top exporters of illegal wood into the EU; countries now demand legal timber assured through due diligence or credible verification system (TLAS) oRussia (10.4); (4.2);China (3.7); Brazil (2.8); Belarus (1.5); Ukraine(1.5);Bosnia H (1.2); (0.645); (0.590) million  EU Timber Regulation / VPA m³ of RWE. TOTAL : RM 2.7 Billion  US Lacey Act  Malaysia 0.28 million m³ of RWE. About 1.4 % USD 871 Million  Public Procurement Policies on Timber Products of other  Negative perceptions about Malaysia Source : MTIB countries

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2 IMPORTANCE OF FLEGT VPA TIMBER LEGALITY & VOLUNTARY PARTNERSHIP AGREEMENT  Sustainability & Legality Of Malaysian Timber SUSTAINABILITY • Logs harvested from 3 land categories: (VPA)  Sustainable timber product of SFM (social,  Permanent Reserved Forests (PRF)  State Land (SL)  2003 EU FLEGT Action Plan environmental & economic factors)  Alienated Land (AL)  Bilateral Partnership Agreements between EU and  Sustainable timber assured through certification • PRF under SFM Timber Exporting countries schemes, e.g., PEFC, FSC, LEI, MTCS etc.  1/3 certified mainly under MTCS and logs are legal & sustainable  logs from uncertified PRF are legal  VPA focus on legal timber  SFM / certification long-term goal • SL & AL not under SFM but logs harvested are legal  Legality definition based on existing laws of  • 80% of Malaysia’s total log production are harvested from uncertified PRF, exporting country Legal timber milestone on journey to attain SFM / SL & AL sustainable timber • Need for TLAS to assure legality of logs harvested from SL / AL and  TLAS based on existing control and licensing system uncertified PRF  Legal timber embraces relevant legislation dealing  VPA legally binding • VPA recognises timber from uncertified PRF, SL and AL as legal license with social, environmental & economic aspects with under FLEGT VPA  TPM lesser number of criteria and indicators  FLEGT Licensed Timber is recognized as legal timber by EU and public procurement policies of various EU Member Countries  Market benefits  Verification of legal timber through TLAS  Provide an assurance system that can address the demand for legal timber in  Capacity building assistance other environment-sensitive markets

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VPA PROCESS MARKET STUDY NEGOTIATING STRUCTURE  Informal consultations since April 2004 Market study on impact of a FLEGT VPA between Malaysia and  Formal negotiations announced September 2006 Malaysia-EU National the EU by Forest Industries Intelligence Ltd.  Negotiations through SOM supported by TWG; 2 Negotiations Undertaken in 6 major EU markets National Analysis of trade data and structured interviews SOMs and 9 TWG meetings held; several Senior Steering Negotiating • 80 Timber trade and industry companies video-conferences Officials Committee Team • 21 Trade associations  Preparations by Malaysia Meeting (NSC) (SOM) • 29 Government departments • NSC - Mandate to the Negotiating Team • 21 NGO’s • WG I - Legal drafting & General provisions 3 Working NGO’s supportive of VPA but some concerns on Malaysian • WG II – TLAS Groups (WGs) forestry • WG III - Market Benefits and Capacity Building Technical Little willingness by EU private sector to pay premium for VPA Working timber  Major issues subjected to Stakeholder Consultations; Group (TWG) Public procurement 25% of overall trade TLAS, Market Benefits Stakeholder Potential for premiums Consultations

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3 MARKET BENEFITS & PROMOTION TIMBER LEGALITY ASSURANCE SYSTEM (TLAS) STRUCTURE OF TLAS Malaysia’s request for market benefits include:  Full acceptance Development of TLAS involved extensive Regional basis; Peninsular Malaysia, Sabah, Sarawak  Harmonisation of PPP consultations with stakeholders Annex A lists relevant legislation throughout the production  Incentives for use of VPA timber Components chain to be complied clustered under 6 principles; Right to  Green premium harvest, forest operations, statutory charges, other users’  IMM • Product coverage rights, mill operations, trade and customs Measures by EU • Definition of Legal Timber  Communication on public procurement • Principles & Criteria of Legal Timber (Annex A) Principle divided into criteria with corresponding control  Due diligence regulation (DDR) • Control Procedures (Annex B) procedures in tabulated form to facilitate monitoring by TPM  Initiatives with other major markets • Sources of Timber (Annex C) Annex B provides control procedures for each criterion in a  VPA product visibility campaign • Third Party Monitoring (Annex D) tabulated manner indicating principle and legislation  Capacity building assistance addressed, enforcement agency and means of verification • Management of Seized Timber (Annex E)

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TECHNICAL EVALUATION OF TLAS IMPLEMENTATION / MONITORING INPUTS BY STAKEHOLDERS OF VPA  International & 3 Malaysian Consultants; Development of TLAS  Licensing of VPA timber by existing authorities  6 stakeholder consultations / briefings 2 Sept – 9 Oct 2008  Informal meetings  Assess auditability, adequacy, capacity  TPM to verify implementation of TLAS  Meetings with Minister building needs, effectiveness TPM and cost  Written submissions  IMM to monitor market benefits implications Technical evaluation of TLAS  Roles of RB and JIC • Discussions with consultants  Based on Consultants’ Report, EU raised • Written submissions some issues to be addressed  Mid-term Review • Presentation and discussion of consultants’ Draft Report and  Malaysia in general agreement; the issues further written submissions During implementation of TLAS raised clustered into: • Public summary of TPM’s reports  Issues addressed before signing VPA • RB to seek and receive views from stakeholders on the TLAS  Issues to be addressed with EU assistance for and its implementation capacity building • Consideration of report by JIC  Issues for further reflection Review of TLAS

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4 Verification of Legal Timber under VPA & Certification of Sustainable Timber LEGAL TIMBER SUSTAINABLE TIMBER CONCLUSIONS P&C on social, environmental & P&C on social, environmental & Scope economic issues required by law & FURTHER WORK economic issues required by law forest sustainability  VPA is on legal & not sustainable timber Substantial progress Bilateral Agreement (VPA); Legally Application Voluntary  Strategic and catalytic role of VPA to achieve timber binding Finalisation of TLAS legality and SFM in the long-term Status Governmental Non-governmental  EU approach; consultations, assistance for capacity  Capacity building projects Supporting Legislation EU DDR PPP in certain countries building, market benefits Market benefits Institutional Arrangement JIC/RB NGB (e.g. MTCC) Assessment Third party monitor Certification body  Stakeholder inputs and concerns  Issuance of Compliance  Legal drafting Licensing authority for timber export Certification body VPA cannot solve all problems; some outside scope of Document VPA/forestry sector Administrative & funding arrangements Market Performance Independent market monitor -  Success depends on stakeholder cooperation; Market promotion Development Process Relevant authorities & stakeholders Stakeholders Funding Government Private sector assistance for capacity building; and market response Source of Timber All forest land Permanent Forest Estate  VPA unprecedented and legally binding; steep learning curve Level of Application System-based / Operator-based Operator-based  Need for pragmatism Entry into all EU countries Acceptance under PPP (public & Benefits of Implementation Acceptance under PPP of certain private) 25 27 countries (e.g. UK) 26

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