Solid prospects lie in wood exports to the US

Vietnam’s wooden furniture exports to the US are expected to increase steadily in the years following the entry into force of the TPP

BTA fosters growth of wood exports

In 2001, Vietnam earned a paltry $16 million in timber and wooden furniture exports to the US. This figure skyrocketed to $116 million in 2003, immediately after the historic Vietnam-US Bilateral Trade Agreement (BTA) came into force. Since then, Vietnam’s wood exports to the US have increased robustly, touching $1 billion in 2008, and $2.64 billion in 2015. Incredibly, in the 14 years since the BTA, exports of wood products to the US market have jumped 165 fold.

Vo Truong Thanh, chairman of leading Vietnamese furniture maker Truong Thanh Furniture Corporation JSC, told VIR that the US market currently makes up over half of his company’s total export value. In the first half of this year, the value of orders from the US market amount to several hundred million US dollars.

According to general secretary of the Vietnam Timber and Forest Products Association (Vinafores) Nguyen Ton Quyen, the US is the priority market for Vietnamese timber and wooden furniture items.

“Made-in-Vietnam woodwork is rated highly in the US thanks to product diversification, particularly regarding wooden furniture. Export of this product group to the US market is forecast to grow steadily at 15-17 per cent per year in the coming years,” said Quyen.

According to the Ministry of Industry and Trade, Vietnamese woodwork has made forays into 37 markets, raking in $6.9 billion in export value in 2015, a 10 per cent jump on-year. The US is the largest export market for made-in-Vietnam woodwork, holding nearly 39 per cent of Vietnam’s total export value of wooden products last year when the country gained $2.64 billion from wooden US exports alone, up 18 per cent on-year. More than 70 per cent of the sum came from wooden furniture as well as other wooden products used in construction.

TPP to benefit both imports and exports

According to Vinafores’ Nguyen Ton Quyen, as the US imports $25 billion in wooden products each year from around the globe, Vietnam’s current slice of that figure ($2.64 billion) would suggest that there is still room for further growth, particularly following the signing of the TPP.

This year, Vietnam hopes to take in about $7.7 billion from woodwork exports, with 38-40 per cent coming from the US market. Vinafores forecasts that by 2020 Vietnam could be earning $12-15 billion from woodwork exports, with more than 35 per cent coming from the US.

“The signing of the TPP will make made-in-Vietnam woodwork less costly thanks to tax cuts. This will prompt a lot of US importers to shift towards placing orders with Vietnamese partners, instead of partners from China and other ASEAN countries,” said Vo Diep Van Tuan, Truong Thanh Furniture’s deputy general director.

“In fact, although the TPP has yet to take effect, many US importers have already placed orders with Vietnamese partners. We have also received rising tentative orders from new customers and such orders will surely be on the rise down the road,” Tuan added.

Another opportunity for made-in-Vietnam woodwork through the enforcement of the TPP is the huge public procurement market in the US, which is valued in the tens of billions in US dollars. The TPP is also forecast to increase the import of wooden materials from the US into Vietnam.

“Locally sourced materials can now meet only 50-60 per cent of the local demand, and so local firms must import wooden materials for production. The US is Vietnam’s leading wooden material supplier. Last year, we imported $380-400 million in such materials from the US. When the TPP comes into force, intra-bloc import duty on wooden materials will fall to zero per cent, paving the way for a rise in US imports, which can cash in on tax cuts while ensuring product origin legitimacy,” said Quyen.

Aside from trade relations, the signing of the TPP may also spur co-operation in investment and technology in this field between the two countries. Vinafores revealed that several US firms have met with them searching for investment opportunities in anticipation of the TPP.

Industry experts assume that what local furniture makers expect most from the TPP is access to US cutting-edge technologies. The main bottleneck to Vietnam’s wood processing industry at present is its backward production technology, which has been out-of-date for years. As such, with import duty on technological innovations falling to zero per cent after the TPP’s enforcement, local firms will be able to improve their production capacity while saving on costs.

Obeying wood origin legitimacy crucial for wood exports to US market

Vietnam is the second-largest wood product exporter to the US market, behind China. Made-in-China wooden products have faced three anti-dumping lawsuits in the US, while Vietnamese wooden products have not.

“In terms of value, Vietnamese wooden product exports to the US are second only to China. Also, we are not facing any (anti-dumping) lawsuit. This is an indication of the prestige and quality of our wooden items in this market,” said Quyen.

According to Vinafores, when exporting timber and wooden products to US market, local firms must heed the origin legitimacy rule as required by the Lacey Act. To date, Vietnamese woodwork export firms have adhered to this rule, and so have faced no difficulties in export activity. Since the US’ Lacey Act took effect in 2008, no export shipment of wood products to US market has had to be returned.

To ensure this continues, over the years the government has kept a close eye on imported wooden material sources. Suppliers are required to certify the legitimacy of their materials when selling to Vietnam.

In addition, the Ministry of Agriculture and Rural Development as well as individual businesses have scaled up their efforts to drive up afforestation to ensure timber is only taken from Forest Stewardship Council (FSC)-certified forests. This not only helps meet import market requirements, it also develops the domestic wood processing industry in a sustainable manner.

Although Vietnam’s wooden product export to the US market has enjoyed stable annual growth, Vinafores knows that this can only last as long as the nation’s exports retain their untarnished reputation. As such, he has warned firms to strictly adhere to the wood origin legitimacy rule so that Vietnam’s wooden export sector can avoid threats of anti-dumping lawsuits as has happened to Chinese firms.