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Wood enterprises on evfta “highway”

The Euro- Vietnam Free Trade Agreement (EVFTA) will give great opportunities to a number of Vietnam’s export products and wood products in particular. The EVFTA brings long-term opportunities for Vietnam’s wood sector. However, to have breakthroughs from the Agreement, enterprises have to face a number of issues if they want to have more advantages for the sector.

HAVING BOTH BENEFITS AND DIFFICULTIES

EVFTA officially comes to effect from August 01st, it is expected to be one of important driving forces to promote market expansion for Vietnams’ goods, including wood and wood products exported to the EU.

Vietnam currently exports the total of 253 wood products to the EU. In 2019, Vietnam’s export turnover of wood products to the EU countries reached USD 864.6 m- an increase of 10% compared to that of 2018, accounting for 8.1% of the total export value of USD 10.6 b. About 88% of the total export turnover to the EU is furniture, the rest is raw material wood (HS 44).

However, before the EVFTA took effect, 117 wood products (equivalent to 46.2%) had import duties on the EU at 0%. Although only accounting for less than 50% of the total Vietnam’s wood products exported to the EU yearly, this group’s turnover is about USD 500 million, equivalent to nearly 90% of the total export turnover of all wood products to markets of 27 EU countries (except UK). Therefore, the new preferential tariffs will not create new incentives to enhance competitiveness and market expansion for Vietnam’s wood products exported to the EU in the future.

In terms of tax, the EVFTA will not have too much impact on Vietnam’s wood sector. However, besides taxes, it includes other fields as infrastructure development, eliminating barriers in business operations, public investment expansion, intellectual property,... The implementation of the agreement will bring great changes to the fields in the future. At the same time, the agreement will have potentials to promote and expand markets for Vietnam’s wood products.

Minh Duong Furniture Corporation - said:” Before the EVFTA took effect, the EU market accounted for about 30% of the company’s export volume in a year. After the agreement took effect, the export voulume reduced 26% year-over-year from August to November. It was due to the lengthened outbreak of the pandemic in Europe and probably the agreement impacts to the company a short time after it took effect in August 2020.

When the EVFTA takes effect, the wood sector will benefit when the import tax to the EU reduces to 0% and the import tax on EU’s machinery and equipment to Vietnam also reduces sharply. However, the advantages are not clear. Although the tariff is reduced to 0%, existing taxes the company is being imposed are also nearly 0%.

The enterprise has managed around 70%-80% of raw materials domestically, so although import tax is reduced, importing raw material wood from the EU market will be limited.

MANY REGULATIONS OF GOODS ORIGIN IMPOSED

As the agreement takes effect, EU will require wood products to ensure origin (including imported wood and domestic wood). According to Minh Duong Furniture Corporation: “Currently, the world is based on FSC and Minh Duong has FSC certification. In fact, we buy 100% legal timber, wood imported from the US”.

According to Minh Duong Furniture Corporation, it is not easy to have the certification due to complicated procedures, which need verification from growers, manufacturers, wood processing factories, wood delivery centers, funiture producing factories, partners and customers selling finished products.

Minh Duong Furniture Corporation shared: “In fact, to control the above chain of processes is a difficult task for furniture manufacturers because the company only buys wood directly from suppliers and distributors. traceability of material wood to the origin and having FSC certificate to all factory partners will require a great effort from all sides.

Another issue is the use of wood with FSC certificate will push the price much higher. It will be difficult for enterprises to compete in term of prices and it will be also difficult for customers to consume these products on markets.

ENTERPRISES SHOULDCHANGE FOR BETTER BREAKTHROUGHS

In terms of tax, the EVFTA will not have too much impact on Vietnam’s wood sector. However, besides taxes, it includes other fields as infrastructure development, eliminating barriers in business operations, public investment expansion, intellectual property,... The implementation of the agreement will bring great changes to the fields in the future. At the same time, the agreement will have potentials to promote and expand markets for Vietnam’s wood products.

Many wood enterprises have currently had production innovation and improvements of their competition abilities for export boost,... Minh Duong Furniture Corporation is focusing on overcoming consequences from the pandemic of COVID-19 for continuing cooperation with their existing businesses from Europe. In long-term, it will maintain and strengthen their competition abilities by improving their abilities of production, management and business. It will find more standardized suppliers for wider cooperation and new customers.

In addition to enhancing their competition abilities, Vietnamese wood businesses are recently stepping up in selling products on global e-commerce sites. The breakdown in the export supply chains due to the limitations of social isolation in recent years shows that the Vietnamese wood sector needs to accelerate the change of sales methods- a proper move for current time.

The EVFTA will be a solid foundation for sustainable developments in the world’s unstable situations. It will help Vietnam to improve their legal frame, institution and create bi-lateral trade corridor that helps Vietnam’s wood enterprises enhance their competition abilities for higher position in the world market.

The Government, ministries and sector should pay more attention to the community of Vietnam’s wood business and help them to change technology and to have particular plan for product design and branding of Vietnam’s wood products.

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