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Concerns FDI investment “hides” in the wood industry

Recently, localities have received many foreign investment (FDI) projects in the wood and forest product processing industry. However, along with them are outstanding worries about “underground” investment and “shadow” investment, putting Vietnamese wood at risk of trade defence investigations, especially against tax evasion.

Small capital scale, loose linkage

According to the Ministry of Planning and Investment, as of October, the country had more than 4,500 enterprises operating in the wood and forest product processing industry; Of which, there are 826 FDI projects with a total registered capital of $5.62 billion, accounting for nearly 1.5% of total registered FDI capital of the country and accounting for 2.5% of the total FDI in the processing and creating industry. The average capital scale of FDI projects in the wood and forest product processing sector is not high, about $ 6.8 million per project, lower than the average FDI project size of the processing industry at $14.9 million per project.

A total of 45 countries and territories are investing in the production and processing of wood and forest products, mainly countries and territories in Asia. However, only five partners, namely Taiwan, China, South Korea, Japan and Hong Kong, accounted for 68.4% of projects and 56.8% of total investment in this industry.

A representative of the Ministry of Planning and Investment assessed that FDI enterprises play an important role in exporting (although the number only accounts for less than 20% of the total number of enterprises, the export value accounts for nearly half of annual export turnover of the industry). However, the links between FDI enterprises and domestic firms are weak.

Talking about FDI in the wood industry, Nguyen Liem, Vice Chairman of Binh Duong Wood Processing Association, saidBinh Duong is the “capital” of wood export, accounting for billions weight of about 50% of the country’s wood export. There are many large timber enterprises, including FDI enterprises and Vietnamese wood enterprises. Normally, the province’s timber enterprises grow about 12-15% annually. This year, businesses try to boost exports, expand factories and the growth rate is expected to reach about 18-20%. However, at present in Binh Duong, many foreign enterprises, especially Chinese and Taiwanese (Chinese) firms have shifted their investment to Vietnam, causing competition with domestic enterprises. Currently, the cost of the premises has increased from $1.5-2 / m2 to $3/m2. Land prices also increased by about 2.5-3 times, making it difficult for domestic firms to expand their production areas.

Concerned about “hiding investment”

In attracting FDI into the wood industry, one of the biggest worries at present is investment “underground” and investment “shadow”. The Ministry of Planning and Investment analysed that the US tax of 10-25% on wood products imported from China into the US caused some Chinese wood enterprises to find ways to transfer their investment to other countries, including Vietnam. This makes the Vietnamese wood industry face market risks, in particular the increasing risk of trade fraud on product origin affecting the reputation of products on the world market.

Talking to Customs Newspaper, Do Xuan Lap, Chairman of the Vietnam Timber and Forest Products Association said the US-China trade tension on the one hand creates golden opportunities for Vietnamese businesses to replace Chinese wooden goods in the US. On the other hand, there are also risks of trade fraud, origin evasion and investment “hiding” from some Chinese firms currently operating in Vietnam. The US government is investigating the anti-evasion and anti-dumping of plywood products from Vietnam, which is one of the most obvious results of the negative impact of this risk on the Vietnamese wood industry.

From the above analysis, Chairman Do Xuan Lap proposed the Government strictly control trade fraud, including FDI projects, especially small-scale projects, simple technology, and items showing signs of fraud, capital from China, reducing the trade deficit in timber products between Vietnam and the US.

“We ask the Prime Minister to direct the Ministry of Planning and Investment and the People’s Committees of provinces and cities, especially the southeastern provinces which have a large presence of FDI enterprises to closely examine FDI investment. Focusing on investment projects in groups of products with high risks of trade fraud of the wood industry (items subject to anti-dumping tax imposed by the US), there is a special wave of investment with capital from China into provinces such as Binh Duong, Dong Nai and BinhPhuoc. We recommend that investment licensing should be carefully considered, prioritising the use of high technology in the spirit of Resolution 50-NQ/On August 20, 2019 of the Politburo on improving the quality of FDI investments. Technology in new investment projects in the wood industry should be appraised by the Advisory Council of the Vietnam Timber and Forest Products Association,” Do Xuan Lap said.

Around this issue, Nguyen Liem expressed his view that the Ministry of Planning and Investment should have a filter on capital sources and investment scale of FDI projects. The wood processing industry accepts competition but FDI with new technology must be selected.

A representative of the Ministry of Planning and Investment also stated that one of the solutions in the coming time is to study, develop, and amend legal documents to prevent and handle origin fraud and commercial fraud; promote propaganda, coordinate with local authorities to inspect and supervise the investment activities to control FDI projects.

VCN