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Logging is Putting Strain on Vietnam's Wood Trade

HO CHI MINH CITY - Reputational concerns are stacking up for a Vietnamese lumber business already suffering from a drop in demand from the pandemic's peak.

Vietnam, one of the world's largest wood and furniture exporters, saw an increase in orders as international consumers spent C0V1D lockdowns refurbishing their homes and kitchens.

However, since the start of the China-US trade war in 2018, the Southeast Asian country has been accused of importing Chinese goods for re-export with "Made in Vietnam" labels. Now that there is a real war in Ukraine, there is danger that sanctioned Russian exports would be routed through Vietnam, which, like Beijing and Washington, maintains a neutral posture on the crisis between Kyiv and Moscow. A third source of worry is the logging of fuel wood, which has contributed to the strain.

According to the nonprofit Environmental Investigation Agency (EIA) in the United States, Western sanctions over the war have resulted in Russian wood being exported through other nations to conceal its provenance.

The EIA interviewed Chinese intermediaries and examined U.S. purchases of plywood and furniture, determining that "the majority of the birch in these items came from Russia and went via China and Vietnam before entering the United States."

Transshipment is prohibited if shipments are routed through a third nation for no other reason than to avoid taxes or restrictions.

Transshipment is typical, according to a Vietnamese broker that connects firms in the wood products and other foreign industries, who told Nikkei Asia, "It's perfectly regular. Because of Vietnam's position, it is simple to transship commodities."

The communist country shares a border with China and has a coastline of 3,200 kilometers along important commercial routes.

In Vietnam, there is a wood products fair. According to the Environmental Investigation Agency, its monthly birch plywood shipments to the United States increased 200% while those to Russia decreased 40%. 

When queried about Russian lumber earlier this month, Vietnam's Foreign Ministry stated that the nation "always respects and completely complies with" global trade regulations and proposed negotiations with the US to "quickly resolve emergent concerns."

The Commerce Department of the United States has begun many investigations into Vietnamese wood exporters for alleged illicit transshipments. One of those cases is set to be decided this month. Fines or import restrictions are common penalties.

Last week, the Forest Stewardship Council (FSC) revoked a local business of its ethical sourcing accreditation, dealing another blow to Vietnam's wood products industry.

The worldwide conservation organization ensures that supply networks are deforested and free of other infractions. For three and a half years, it barred An Viet Phat Energy from exporting wood pellets for fuel. On October 18, the FSC announced that it had received complaints alleging that the Vietnamese business had sold "a substantial number" of pellets with forged certifications.

Nikkei Asia's efforts for comment were not returned. The FSC stated that it will release more findings from its probe, which includes other Asian corporations, before the end of the year.

Analysts expect that this will impact Japanese importers who buy only certified wood and source from Vietnam and Thailand, as do buyers in South Korea. Other environmental organizations have pressured the FSC to increase supply-chain transparency, citing worries that corporations use its mark while benefitting from illegally harvested trees in Indonesia, Cambodia, Laos, and China.

The council stated in March that commodities from Russia and Belarus will be unable to sell with FSC marks "until the invasion ended."

These reputational concerns are putting further strain on Vietnam's wood and wood products businesses, which are already dealing with a steep decline in demand as the globe recovers from the epidemic.

"With people locked in their houses, up to three years' worth of home renovations [have been] done in a year," American Hardwood Export Council Director Michael Snow told Nikkei Asia, noting that Vietnam, after China and Canada, is the trade group's top buyer, with the majority of the wood used for re-export.

However, according to customs statistics, Vietnam's wood product exports fell 21% from August to September this year, outpacing the 14.6% reduction in overall shipments. According to the Observatory of Economic Complexity, furniture exports in 2020 will be valued $7.3 billion, trailing only China and Germany.

Despite the upheaval of the war and sanctions, some in Vietnam perceive a silver lining.

According to Nguyen Van Dong, director of FSC-certified lumber firm Hoa Linh, orders are down 50% this year compared to 2021 as inflation impacts demand and drives up material costs, while some supply chains remain clogged.

While the immediate prognosis is gloomy, Dong is optimistic that his business can assist cover the supply vacuum caused by Russia sanctions.

"The furniture sector in Vietnam is really large," Dong remarked in an interview. "Why not go with local sources?"

Source: https:// asia. nikkei. com/ Spotlight/Supply-Chain/Vietnam-s-wood-trade-under-pressure-from-logging-Ukraine-war

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