Facing a series of legal risks, what should the wood industry do?

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Many trade defense cases are targeting plywood products of Vietnam. Photo: N.H

The risk from imported wood

Theforest organization has just issued legal warnings about the supply of logs and sawn timber from Russia and Ukraine imported into Vietnam. This warning is based on recent sources of information about the legality of these supply flows.

Specifically, the annual import turnover of wood materials from this source into Vietnam is only around US$20 million, mainly sawn timber, plywood and planks, accounting for less than 1% of the total import turnover of Vietnam's wood materials from all markets.

However, the import of raw wood from Russia into Vietnam increased sharply during 2018-2019 with an increase in 84% in 2019. In the first five months of this year, wood imports from Russia also accounted for 85% of the total turnover in 2019.

According to Dr. To Xuan Phuc, an expert of Forest Trend, illegal timber has become a problem in Russia with a rate of about 10-60% of the total supply of raw wood from this country.

Illegal timber is exploited in various forms such as fake logging permits, over-quota exploitation, logging beyond government-authorized areas, and abusing exploitation permits.

The amount of potential raw wood material imported from Russia into Vietnam is mainly through China. Since the closure of the natural forest in 2017, the supply of wood materials for domestic Chinese firms has declined by about 50 millioncubic meters, which has been quickly replaced by imports, ofwhich the wood from Russia accounts for a large amount. About 95% of the timber harvested in the Far East and Siberia adjacent to China has been imported here and continues in many other regions. In 2019, the Russian government warned China to stop importing illegal timber from Russia; otherwise it would stop exporting completely.

Not only does the source of timber imported from Russia pose a risk of legality, but the source of timber from Ukraine carries the same risk. According to Dr. To Xuan Phuc, some sources said that the annual amount of illegal timber in Ukraine ranges from 25,000 m3 to 1.25 million m3. Illegal timber occurs with great frequency especially in the Carpathian region. Wood import turnover from Ukraine to Vietnam is about US$11 million per year. In June 2020, the Earth Rights Organization published a report warning about the legality of Ukrainian timber.

Dr.To Xuan Phuc said that although the amount of wood imported from Russia and Ukraine into Vietnam accounts for a very small proportion of the total amount of raw wood materials imported into Vietnam, the risks in this supply chain may harm the image of the industry in the international arena. To reduce risks in this supply flow, enterprises need to fulfill their accountability when importing timber into Vietnam. In addition, if possible, businesses can choose alternative sources of supply, with less risk, to ensure the product is legal. Doing this not only helps businesses, but also contributes to preserving and improving the image of the industry in the international arena.

Risks of trade remedies

In addition to the legal risks in the supply of timber from Russia and Ukraine, Vietnam's timber industry, particularly Vietnam's plywood, faces the risk of being accused of violating anti-dumping and anti-tax laws from major markets. The Vietnam Association of Wood and Forest Products (Viforest) has warned of the situation that some businesses take advantage of importing plywood from China to get Vietnamese origin and then export.

On June 9, the United States Department of Commerce (DOC) officially issued a decision to investigate Vietnam's plywood industry. This decision was made based on allegations by the Fair Trade Union for American Hardwoods that some wood exporting companies originated from China to Vietnam, after the processing, preliminary processing and installation stages. These products are assembled here, and although they do not meet the conditions of origin and labeling of Vietnam, these companies apply for certification of origin from the Vietnamese authorities to export these products under the label of Vietnam to this market.

Previously, in April 2020, the Korean Trade Commission announced a temporary tariff on all plywood products from Vietnam exported to this market would be at 9.18 – 10.56% (six companies in the investigation area have higher tax rates), temporarily applied from May 29 to September 28, 2020. Earlier (in 2015), Turkey's Ministry of Economy also officially investigated this item of Vietnam and applied a tax rate of US$240/m3 to all companies that did not respond to the requestof investigation.

Facing a series of risks, Mr. Le Xuan Quan, Chairman of Dong Nai Association of Timber and Handicraft, said that the local wood associations had to review export activities of member enterprises. There are differences between production capacity and export output. If fraudulent or transshipped goods are detected from China, they must be widely disclosed, requesting competent authorities to strictly handle them.

Meanwhile, Mr. Do Xuan Lap, Chairman of Viforest said that it is necessary to form and promote horizontal links between plywood enterprises and vertical links between plywood enterprises and furniture manufacturers. For the lawsuit initiated by the US, experts also advised businesses to actively participate in the explanation to prove the materials used to produce plywood products exported to the US originated from Vietnam or from another country other than China.

Some other businesses questioned that Chinese plywood is mainly made from poplar trees, while the main source of raw materials in Vietnam is cajuput wood (acacia). Accordingly, in order to prevent origin fraud, the Government should issue a policy to ban the export of plywood and plywood made of poplar wood to the US.