It looks like the Norway flag in design, but they could have just changed the colors and in all probability, it was meant to resemble the old German iron cross anyway.
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However, I do agree that they did a pretty lackluster job with it, especially compared to the excellent atmosphere building they did with Cacao Island and the sea of Totto Land, with a lot of reused shots that got more boring than mysterious after a while.
I do have to agree there, comparing to the overall design of the locale in the anime. Thriller Bark also had more of an atmosphere in the anime when they first set foot and went on the carriage and these woods should have more of a mood than they do in this episode, though it is partially rectified by the music direction of the song bits.