Vietnam’s wood industry struggle to prevent trade fraud

SGGP
According to a market research on wood processing market of Vietnam by Forest Trend, in the first five months of this year, the number of new foreign direct investment (FDI) projects in wood industry totaled 49 projects, of which there were 32 projects belonging to wood processing field.

Processing wood for export. (Photo: SGGP)

Processing wood for export. (Photo: SGGP)

The remaining FDI projects investing in wood industry included woodchip manufacturing, timber services, wooden pallets,  supporting industry of wood industry, artificial wood boards and wood pellets. According to Mr. To Xuan Phuc from Forest Trend, China led the list of countries investing in the wood industry of Vietnam. In the first five months of this year alone, more than US$50 million from new projects of China were registered to invest in Vietnam, 1.7 times higher than the same period last year.

However, it is noticeably that investment capital scale was merely $2.1 million per project, compared to $4.2 million per project in the same period last year. The Handicraft and Wood Industry Association of Ho Chi Minh City (HAWA) warned that enterprises in wood industry should be alert to find out what are opportunities and what are potential risks. Local enterprises must not abet FDI firms which merely invest to change or fake origin of export products so as to avoid being hit by tariffs themselves.

Annually, Vietnam exports around $3-4 billion worth of processed wood products to the US. Earlier, China was the leading country in exporting of these products with $20 billion annually.

Deputy minister of the Ministry of Industry and Trade Tran Quoc Khanh said that in the first seven months of this year, Chinese furniture exports to the US fell by 18.3 percent with export turnover at $14.3 billion, accounting for 50 percent of market share. In the same time, Vietnamese furniture exports to the US jumped $270 million, or more than 10 percent of market share. A decline of $2.1 billion has created a wide gap and this opportunity is divided equally to countries including Poland, Greece, Chile, Malaysia and Indonesia.

If Vietnam is able to take advantage as well as stabilize domestic raw material and human resources, invest more in equipment and technology and do well in trade promotion, Vietnamese wood products will not only gain more market share from ‘this pie’ but also achieve greater target which is to make Vietnam become the center of wood furniture processing and exporting of the world.

It raised a question that whether Vietnamese enterprises in the wood processing industry actually connect with each other. Especially, whether the Government are able to control origin fraud or not when there are some FDI enterprises investing in Vietnam to avoid duties and change origin of their products instead of doing business honestly. This is the matter that raised concerns among enterprises in the wood processing industry in Vietnam. 

If this issue is controlled, Vietnamese wood processing industry will hold a great opportunity to strongly increase export market share, according to Mr. Dien Quang Hiep, chairman of Binh Duong Furniture Association.

In fact, this risk was no longer a warning but a fact. Particularly, the fact that wood flooring and chair details from Vietnam to the US rocketed coincides with the situation that these products from China to Vietnam increased correspondingly.

According to analysis by the HAWA based on figures of Vietnam Customs, Vietnamese plywood exports to the US rose by more than 70 percent last year whereas it only surged by 9 percent in the same period this year. However, statistics by the US Customs showed that Vietnamese plywood exports to the US soared by more than 70 percent in the first seven months of this year.

Mr. Le Trieu Dung, head of the Trade Remedies Authority of Vietnam under the Ministry of Industry and Trade, said that it is necessary to look carefully for signs of tax evasion on plywood products. At the present, the US imposes tariffs of up to 300 percent on Chinese plywood products so Chinese enterprises are unable to export plywood to the US, leading to the situation that some Chinese enterprises shifted investments to Vietnam to change origin for their products. Last year and in the first six months of this year, the Trade Remedies Authority of Vietnam cooperated with Vietnam Customs and the Vietnam Chamber of Commerce and Industry to inspect some enterprises with abnormal signs, such as having sharp increase in exports though they were newly established.

Meanwhile, the United States Customs and Border Protection sent a delegation to Vietnam to investigate an enterprise as there was a suspiciously sudden hike in its furniture products which were exported as disassembled parts then when arriving in the US, they will be assembled into finished products. According to CBP, export of this product to the US increased strongly at the same time that import of this product from China to Vietnam also climbed. 

The way that the Trade Remedies Authority keeps watch on a certain product is based on declining exports from China to the US, increasing exports from Vietnam to the US and increasing exports from China to Vietnam. When these three factors meet, they will pose a risk of being investigated by the US. With first uncovering, that enterprise will be fined separately but if it uncovers more enterprises, there is a risk that that product of all Vietnamese enterprises will be affected.

In reality, there is situation that wood processing factories of Vietnam were bought by Chinese enterprises in the form of shares to produce products with Vietnamese origin then export them to the US. Organizations and association in wood industry proposed authorities to assess risks in FDI projects as for export products, including project expansion, purchase of shares, and merger and acquisition.

Authorities should carefully check FDI projects in wood processing industry as actually, they only get the investment certificate in order to rent equipment, factories and Vietnamese workers to produce products for export, especially to the US market.

Deputy minister of the Ministry of Industry and Trade Tran Quoc Khanh ordered the HAWA with its agility and know-how in the industry as well as its ability to access data of authorities to find out sudden increases of products and detect unusual enterprises to inform the ministry for it to timely inspect and handle those enterprises to prevent the wood industry from being affected.

By Cong Phien – Translated by Thuy Doan

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