Axed tariffs spurs wood sector

Industry insiders fear that foreign firms will dominate Vietnam’s wood processing sector - photo Le Toan

Nguyen Ton Quyen, chairman of the Timber and Forest Product Association of Vietnam (Vifores), told VIR that since late last year, hundreds of wood product investors from over 30 nations in the world came to Vietnam to do business, with several dozen projects starting implementation. All major global wood firms were already present in Vietnam.

“This time last year, the number of these investors and projects entering Vietnam was small,” Quyen said.

Sweden’s IKEA, the world’s largest home furnishing retailer, is spending hundreds of millions of dollars per year purchasing wood products from Vietnam. IKEA has financed many local partners to buy timber materials and then purchase the finished products for export. Notably, IKEA is working with Vietnamese authorities for a plan to open its billion-dollar retail chain and commercial network in Vietnam.

“The commercial presence will help IKEA boost its furniture business with Vietnam,” Quyen said. “Other firms including Cosco, Carrefour, Big C, and Metro are also planning to invest in furniture projects in co-operation with Vietnamese partners.”

According to the Binh Duong Department of Planning and Investment, the southern province, which is one of Vietnam’s wood processing hubs, is being eyed by big foreign investors. Recently, Samoa’s Wood Best Holding Limited was licensed for a $50-million project to make wooden products. The project is expected to come on line later this year, with products exported worldwide.

Huynh Van Hanh, vice chairman of the Ho Chi Minh City Handicraft and Wood Industry Association (HAWA), said that many of HAWA’s member companies, mostly from Japan, China, Taiwan, Singapore, and the EU, were planning to expand production in Vietnam.

One of the reasons behind the surge in foreign furniture and wood processing projects in Vietnam is that foreign firms are gradually shifting their orders and production from China to Vietnam, where labour costs are cheaper. Compounding this shift is the anti-dumping tax being imposed on many of China’s wooden products. Notably, according to Quyen, under Vietnam’s already-signed free trade agreements (FTAs), the local wood industry is benefiting significantly from tariff slashes on wood products under the FTAs. Currently, almost all tariffs on materials for wood products imported into Vietnam are at 0 per cent.

Chinese and South Korean exporters currently face an average import tariff rate of 15 per cent when exporting their wood products to external markets. However, the same rate for Vietnam is 0 per cent.

Vietnam earned $6.9 billion from wood product exports last year, of which 40 per cent came from foreign firms. It is expected that the turnover will be $7.6 billion this year, of which 50 per cent will be held by foreign firms.

“The competition is becoming hotter and hotter. I think the rate of foreign market share will reach 60-70 per cent over the next few years,” Quyen said.