In 2019, Vietnam's wood export held a record when it earned more than USD 11 billion USD (an increase of nearly 107% compared to the plan and a trade surplus of more than USD 8 billion).
In 2020, the wood industry aims to export USD 12.5 billion. However, these impressive figures are not enough to erase anxiety about the dim future of Vietnam’s timber industry, which is increasingly evident.
In 2019, the US, Japan, China, South Korea and the EU continue to be the five most important import markets of Vietnam, with the export turnover reaching over USD 9.3 billion, accounting for 90% of the total wood export turnover.
In particular, the US was the largest market, importing USD 5.1 billion of wood products from Vietnam, a 42% increase compared to 2018. Currently, the export turnover from the US accounts for 50% of the total woos export turnover of Vietnam.
The three markets of Japan, China and the EU had a growth rate of about 10-17% compared to 2018. The items with high export value include furniture, wood chips and planks. However, when looking at the structure of enterprises exporting wood and wood products in Vietnam, it is easy to see that foreign-invested enterprises or foreign related enterprises still account for a large proportion.
The report "Foreign investment in Vietnam's timber industry 2019: Current situation and a policy aspect" recently published by the Vietnam Timber and Forest Products Association (Vifores) shows that in 2019, there were 663 FDI enterprises exporting wood and wood products (up 25% compared to 2018).
At the same time, the export turnover of these enterprises reached USD 4.95 billion, an increase of 25% over 2018, accounting for nearly 48% of the total export turnover of the whole industry in 2019.
Notably, along with the growth in exports, FDI capital in the wood industry and the proportion of imported raw materials of FDI enterprises also increased abnormally. The source of FDI capital into the wood industry is mainly from Asia, especially from China.
According to statistics of the Foreign Investment Agency (Ministry of Planning and Investment), in 2019, the total registered investment capital of FDI enterprises reached USD 6.3 billion, up 13.2% compared to that in 2018. Taiwan ranked first with 220 enterprises whose registered capital was USD 1,067 billion, accounting for 17% of the total registered investment capital, followed by Hong Kong (58 projects, accounting 15.2% of total investment capital).
Although ranked 5th in terms of total registered capital, China had the second position in terms of the number of enterprises investing in Vietnam's timber industry. In 2019, there were 56 Chinese-invested wood projects (up 2.3 times compared to 2018), with registered capital of USD 203 million (3.4 times higher than that in 2018). Import of wood materials also increased in proportion to FDI capital. In 2019, FDI enterprises imported nearly USD 820 million of wood materials (accounting for 32% of total wood import turnover).
China is topping the list of wood products suppliers for FDI enterprises operating in Vietnam. In 2019, FDI enterprises imported wood products from China with the import value of more than USD 316.1 million (accounting for 39% of total import turnover).
The strong growth of FDI enterprises in the wood industry, together with their unusual export-import proportion in recent years, shows that concerns about Vietnam becoming a "transfer station" for FDI enterprises to avoid tax when exporting are reasonable.
The export value of USD 11.2 billion in 2019, which is a record high, largely contributed by FDI enterprises, also shows a serious imbalance in the wood industry structure. Trade risks Contrary to the strong growth of FDI enterprises, domestic enterprises in the wood industry are quite sluggish. In addition to disadvantages in capital and production line, Vietnamese timber enterprises cannot control the source of raw materials, depending on imported input (mainly from China).
Although the country currently has 3 million hectares of forest, domestic wood processing and export enterprises have to import up to 80% of raw wood. This not only reflects the instability of raw materials but also shows that the added value of Vietnam's exported wood furniture is not high.
In addition, some major markets such as the US and EU strictly require furniture exporters to have FSC certification, which is not easy to apply to the situation of planted forests in Vietnam. Dr. To Xuan Phuc, an expert of Forest Trends, author of reports on the current situation of Vietnam's timber industry, said that the trade risks of Vietnam's wood export are more pronounced when non-tariff protection in key export markets of wood is increasingly tightening.
The signs of trade fraud when some Chinese timber products are imported into Vietnam, then exported to the US with Vietnamese labels, may be an excuse for the US and EU to implement sanctions policies, leading to difficulties for domestic wood enterprises.
The "Vietnam's Forest Law Enforcement, Governance and Trade” (FLEGT) of EU (signed by Vietnam) will be a barrier for Vietnamese wood exporters to this market. Similarly, in the US, the Lacey Act also tightens control over the origin of wood products.
The US Department of Justice has also warned that Vietnam's wood materials are mainly imported from Thailand, Laos, Cambodia, and Myanmar, or are usually unclear on origin. Therefore, when exporting to the US, it is likely that manufacturers, exporters and retailers of suspiciously sourced furniture originating from Vietnam may be fined or banned from exporting to this country.
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