Opportunities for the wood industry from the Vietnam - EU Free Trade Agreement

“Made in Vietnam” wood products will be able to access the EU market with more preferential tax rates than their competitors. With proven quality, preferential tax rates will help the Vietnamese wood industry get more orders.

In Nghe An, most of the young forests are being exploited. Photo: Documentary

Accordingly, products such as plywood and particleboard currently subject to a tax rate of 7% will be reduced to 0% after 5 years. Meanwhile, wooden bars currently subject to a tax rate of 3-4% and wooden furniture for kitchens subject to a tax rate of 2% will be eliminated as soon as this agreement comes into effect.

The EU is the fifth largest export market for Vietnamese wood and wood products. Recently, wood product exports to the EU market have always accounted for 13-17% of the total wood product trade turnover. Export value to the EU has always remained stable and increased slightly. In this bloc, the UK is the largest importer of wood and wood products. In 2018, exports to this country accounted for 36.2%, reaching a turnover of 289 million USD, followed by France, Germany, the Netherlands, etc.

To ensure rules of origin, sustainable development... when exporting to the EU market, wood products have a new Voluntary Partnership Agreement on Forest Law Enforcement, Governance and Trade (VPA/FLEGT) that takes effect from June 1, 2019.

Because VPA/FLEGT is a strong signal of Vietnam and EU's commitment to promoting the implementation of the "Trade and Sustainable Development" Chapter of the EVFTA.

Implementing VPA/FLEGT will help improve competitiveness, promote trade in timber and timber products between Vietnam and the EU, as well as move towards a transparent, legal timber market and sustainable forest management.

According to Deputy Minister of Agriculture and Rural Development Ha Cong Tuan, when the EVFTA is successfully signed, Vietnamese wood enterprises will not be worried or surprised about the provisions related to the origin of wood products. Because, VPA/FLEGT has solved this problem. This agreement has affirmed Vietnam's commitment and determination to integrate deeply and comprehensively into the world as well as bringing benefits to Vietnam in all three economic - social - environmental areas, notably expanding export markets. Especially improving institutions on forest management, solving the situation of illegal logging and trade, contributing to the sustainable development of Vietnam's wood processing export industry.

According to Mr. Nguyen Quoc Tri, Director General of the General Department of Forestry, Vietnam is making efforts to quickly build and operate the Vietnam Timber Legality Assurance System (VNTLAS) to ensure that Vietnam's exported timber and timber products have legal origins, including systematic verification to ensure that Vietnamese enterprises import timber that is legally harvested and traded in accordance with the laws of the harvesting country.

Along with that, there will be an official FLEGT licensing mechanism of the VNTLAS system. When there is a FLEGT license, the competitiveness of Vietnamese wood products will be enhanced because businesses exporting to the EU will not have to explain about traceability.

Nghe An forestry industry is assessed to have great potential to increase value. Photo: Document

The EU is also one of the main markets supplying raw wood materials to Vietnam. The main import items include sawn timber, logs, and veneer. In 2018, Vietnam imported 246.47 million USD worth of wood and wood products from the EU, an increase of 5% compared to 2017. In the EU, the countries supplying large raw wood materials to Vietnam include Belgium, Germany, Finland, and Croatia.

The types of wood imported from the EU are mainly oak, ash, beech, walnut, etc. This is the second largest legal source of wood after the US market, and Vietnam is aiming to use raw materials with clear origins.

According to Mr. Nguyen Ton Quyen, Vice President of the Vietnam Timber and Forest Products Association, Vietnamese enterprises will also benefit from imported goods and raw materials from the EU. In particular, enterprises will have the opportunity to access machinery, equipment, and high technology/industry to improve the productivity and quality of their products. At the same time, imported goods and services from the EU will create competitive pressure for Vietnamese enterprises to strive to improve their competitiveness.

This is a golden opportunity for Vietnamese wood enterprises to develop production and business with high and sustainable growth rate. To take advantage of this, the Vietnam Timber and Forest Products Association recommends that the Government and ministries and branches pay attention to and support the Vietnamese wood business community to focus resources on technological innovation, especially having a specific plan to implement product design and build Vietnamese wood product brands.