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Seize the day

Released at: 03:44, 08/10/2014

Seize the day

The Vietnam - EU FTA is good news for the country's wood product exporters but they must be ready to take advantage of the opportunities to come.

In the process of international economic integration, the competitive capacity of Vietnamese products in general and of wood product exports to the EU in particular will be indispensable when Vietnam and the EU sign a free trade agreement (FTA). Once signed, policies as well as the business environment must certainly be improved, which requires wood businesses to continuously enhance their competitiveness in the EU market.

Timber exports to EU

While many export industries face difficulties, the country’s wood processing industry is recording significant growth because demand in markets is gradually recovering. The export target of $5.5 billion in 2014 is very much within reach.

Vietnamese wood product exports to the EU and elsewhere

                                                                                                                     Unit: $ billion

Country/region

2011

2012

2013

March 2014

US

1.44

1.79

2

0.48

EU

0.59

0.63

0.61

0.19

Others

1.62

1.85

2.47

0.64

Source: General Statistics Office

In recent years Vietnam’s wood industry has recorded impressive growth in terms of both markets and export value. Besides traditional markets such as the US, Japan, and the EU, the Ministry of Industry and Trade (MoIT) has recently stated that Canada has become a potential market for Vietnamese enterprises to explore, for instance in wood-frame chairs and bedroom, living room and dining room furniture. According to MoIT, with a positive economic growth compared to many other countries, demand for furniture in Canada makes the market worth exploring and the country is already the top importer of Vietnamese bedroom furniture.

The EU is Vietnam’s second largest export market, following only the US. Export turnover from wood products to the market have continually achieved high growth rates, particularly after Vietnam joined the WTO in 2007, with growth standing at an average of 15 per cent per year since. In 2012 exports to the EU reached a record $928 million, or approximately 20 per cent of all wood exports.

However, compared with the total volume of imports and consumption in the EU, Vietnam’s exports remain modest and fall short of actual potential. Vietnam’s wood products are accessible in only four countries: Germany, France, the UK, and Spain. This creates a phenomenon whereby, on the one hand, Vietnam competes fiercely with wood products from China, Indonesia, the Philippines, Malaysia, Myanmar, and Eastern Europe, while on the other hand faces disadvantages that affect competitiveness, such as basic materials being imported, small and fragmented production facilities, lack of investment in manufacturing from design to quality, low and less efficient trade promotion and market research, and imbalances in material supply and distribution, etc. Furthermore, Vietnam enterprises in general and its timber industry in particular do not know how to cooperate when they are not strong enough or are already strong enough but wish to become stronger to compete with foreign rivals.

Post FTA

The EU is among Vietnam’s leading trade partners, and for this reason the signing of the FTA this September will have a major impact on the competitive capacity of Vietnam’s key exports to the market, wood products included. The FTA will present many opportunities, as well as challenges, to the competitive capacity of Vietnam’s wood products exported to the EU, such as the reduction of commercial barriers and a more favourable environment for increasing investment.

Regarding taxation, when the FTA is signed there may be a zero tax rate imposed on all wood products. With tax barriers torn down, the import of EU products in Vietnam will increase and become cheaper, especially the machinery and equipment used to produce wood products. This will improve workplace productivity and the production efficiency of Vietnam’s wood enterprises.

An increase in EU investment in the wood industry will also help to raise the value of Vietnam’s wood exports. However, we believe that the FTA will not only decrease tax rates, reduce tariffs and remove trade barriers, but will also highlight the existing problems facing Vietnam as a developing country, in regards to productive machinery, qualified human recourses, skilled planners of development policies, and capital for export products, especially wood. Together with tax reductions is the attraction of foreign investors from the EU towards investing in Vietnam with the intention of evading taxes in the host country.

Any wave of foreign direct investment (FDI) is sure to compete with local wood enterprises. Vietnam will be forced to change its legal framework to effectively protect intellectual property rights, tax policies on antidumping, origin of local products, and the enforcement of labour laws, etc. This will attract EU investors to Vietnam but also place the burden of cost and responsibility on local enterprises and therefore decrease the competitive capacity of wood exports from Vietnam.

Therefore, after the FTA is signed, Vietnamese wood product exporters must increase the competitive capacity of their products and complete management mechanisms to take advantage of the opportunities and challenges the FTA will bring.

Mr Tuan The Tran
from the Graduate Academy of Social Sciences
Mr Tam Thanh Pham
from the Thanh Do University
and Mr Hung Viet Dinh

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