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Origin fraud - Vietnam is a transit point for Chinese wood

Origin fraud - Vietnam is a transit point for Chinese wood

Sunday 20, 10 2019
Since the dawn of US-China trade war, there have been many warnings against China using Vietnam as a transit point to export goods the US. In particular, the sharp increase in import and export value of Vietnam’s timber industry has been raising concerns.

Dramatic growth and repeated warnings 

The Department of Agro-product Processing and Market Development (Ministry of Agriculture and Rural Development) said that the export value of wood and wooden products in September 2019 was estimated at USD 842 million. Accordingly, the cumulative export of wood and wooden products in the first 9 months of 2019 was estimated at USD 7.5 billion, increasing 16.8% over the same period in 2018. In addition, the import value of wood and wooden products in the first 9 months reached USD 1.87 billion, up 13% over the same period in 2018. In the first 8 months of 2019, China is the largest market of Vietnam, reaching over USD 365 million, accounting for more than 21% of total import turnover.

 

Notably, many studies have warned risks to Vietnam's export activities, especially wood exports with some evidence of trade and origin frauds from China, which enters the US market through another way to avoid taxes, especially for plywood products (HS 4412).

In reality, this is no longer a warning. Vietnam’s plywood product exports to the US have soared, coinciding with the fact that the same item from China imported into Vietnam has increased equally. Specifically, the export of plywood to the US was only USD 53 million in 2010, by 2017, this figure reached USD 387 million; in 2018 it was USD 632 million and by the end of the first 7 months of 2019, exports of plywood to the US reached USD 368 million.

Meanwhile, the import of plywood and veneer (raw material for plywood) nationwide reached USD 320.2 million in 2018, an increase of only 22.7% in value compared to 2017. In the first 3 months of 2019, it was USD 72 million, up 33% in value over the same period in 2018. Of which, imports from China in the first 3 months of this year reached USD 60.7 million, up 36.8% yoy, accounting for 84.3% of the total import value of the country.

According to the Department of Agricultural Product Processing and Market Development, this could make the US take trade remedies to avoid tax evasion of Vietnam's plywood products as well as the risk that China "borrows" Vietnam’s origin to export to the US.

Sharing the same opinion, the Ministry of Industry and Trade said that in the context of plywood products imported from China being imposed anti-dumping and anti-subsidy duties by the USD with the import tax rate rising from 10% to 25%, increasing the risk of commercial fraud on the origin of goods, Vietnam's plywood production and processing will be negatively impacted.

The Ministry of Industry and Trade has noticed signs of commercial fraud, taking advantage of investment activities to get Vietnamese origin for plywood products exported to the US. And recently, the Vietnam Chamber of Commerce (Ministry of Industry and Trade) has also released a list of 13 products that are likely to be subject to trade remedies or tax evasion investigations from major markets like the US, Europe and Canada.

 

Plywood received warning level 4 – the highest level

This has also causing many timber export businesses to worry. Mr. Le Tran Anh Tu, Director of Ledecor Wood Company, said: "At present, there are some enterprises having their products processed in China. Due to the fact that import tax for Chinese products in the US is too high, so a number of Vietnamese and Chinese enterprises have co-operated to avoid taxes, for example, 40 - 60% of a product will be processed in China, then it will be imported and completed in Vietnam for export. If these cases are known by the US, there is a possibility that this country will impose tariffs on Vietnamese wood products". According to companies in this field, one of the main reasons for this is that the domestic wood source cannot meet the domestic production demand.

 

Mr. Tran Quoc Manh, Chairman of Saigon Trade and Production Development Corporation (SADACO) said: "Vietnamese wood manufacturers used about 60-70% of raw materials imported from abroad. This proportion has recently been reduced to about 50% due to the increase in domestic timber resources. Identifying sources of wood materials purchased from countries is extremely difficult. If they are imported from some developed countries like Germany, France or the US ... then that's alright. But it is much harder for wood from some other countries".

Prevent trade fraud in timber export before it is too late

According to Mr. Nguyen Chanh Phuong, Vice Chairman of Ho Chi Minh City Handicrafts and Wood Processing Association (HAWA): "We are actively looking into the issues of businesses affiliated with Chinese companies. If any business in our association does this, we will take appropriate remedies. We will ask for the intervention of competent authorities to handle it in order to avoid affecting Vietnam’s wood brand as well as timber export of decent businesses. "

Accordingly, timber enterprises must be very cautious as Chinese companies may use Vietnam as a "transshipment point". They should follow policies properly and strictly control the granting of permission to avoid commercial fraud. At the same time, should any frauds be detected, they have to notify the State management agencies.

In addition to a sharp increase in import and export value, according to a report of the Foreign Investment Agency, in the first 9 months of 2019, the total foreign investment in the wood industry also increased by nearly 1.2 times compared to 2018. This shows that the wood industry is attracting investment capital.

However, according to the Binh Duong Furniture Association, foreign investment in the wood industry will make it difficult to control the quality of these projects. Accordingly, Vietnam is at risk of receiving small-scale projects, outdated technology, failing to meet environmental requirements, as well as facing potential risks of commercial fraud and goods origin. 

 

Dien Quang Hiep, Chairman of BIFA, said that Vietnam's wood processing industry has a great opportunity for strong export growth. It is essential for domestic wood processing enterprises to co-operate to dominate export markets. In the context that foreign investment in the timber industry is growing rapidly, the State needs to strictly manage it, avoiding the situation that foreign enterprises invest in Vietnam only to avoid taxes and take advantage the origin of goods instead of doing business properly.

 

In fact, there have been domestic wood processing manufacturers bought by foreign enterprises in the form of shares. They produce goods with Vietnam’s origin and export to the US. Therefore, BIFA recommends that the authorities conduct an overall assessment of the risks in foreign investment projects for exported products, such as project expansion, projects of share purchase, and M & A ...

The State also needs to carefully evaluate foreign investment projects in the wood processing industry, because in fact, many foreign businesses only get investment licenses to hire equipment, factories and Vietnamese workers to manufacture products for export, especially to the US market, which account for nearly 50 % of wood export value of the whole country. Besides, according to experts, if the problem of Chinese wooden products disguised in Vietnam origin for export to America are not solved, sooner or later, Vietnam's wood products will be subject to dumping tax by the US.

The US Department of Commerce (DOC) has affirmed that there is tax avoidance on galvanized steel and cold rolled steel products imported from Vietnam. Specifically, DOC said that these two products manufactured by Vietnamese enterprises who imported materials from Taiwan and South Korea. Therefore, DOC decided to impose a tax rate of more than 400% on Vietnam's steel products.

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