Updates on Negotiations Of VPA/FLEGT Between VN-EU Peer learning workshop Qui Nhon, 26 June 2015

Contents 1.Overview of the timber industry in Vietnam 2.New international regulations about timber legality and legal timber sources 3.VPA and negotiations results to-date 4.Verification system and FLEGT licensing 5.Challenges faced during negotiations

Timber Processing Industry billion USD 6. 2 billion USD > 4000 SMEs

 Vietnam export timber products to more than 100 countries;  4 major export markets: US, China, Japan & EU  Vietnam accounts for about 4% the indoor furniture trade in the world, and raked 6 th in the world, and 2 nd in Asia (after China). Timber and Timber Products Export Markets

Changes In The Markets Integrating trends globally, free trade, opened markets:  New international institutions form supported investments, trade and, labour movement: ASEAN community 2015, TPP (12 countries), comprehensive economic partnerships RCEP (ASEAN+ 6).  New generations of free trade agreements has been signed : FTA VN- South Korea, FTA-EU, custom alliances Russia, Belarus, Kazakhstan…  Tax barriers will be removed: taxes will be reduced and close to zero for many goods and products in coming years.  Alternatively, imported countries will increase their own trade protection measures and technical barriers.

Market Changes In Processing Industries 2008: US issue Lacey Act (effective from April 2010 applied to timber products), businesses have to declare timber origins. 2010: EU issue (EUTR - 995) effective from March 2013: Businesses have to do due diligence for their timber products in EU markets. 2012: Australia issue Prevention of illegal logging Act effective from 30 November 2014, companies have to do due diligences for timber products.

EU Timber regulations (EUTR 995/2010) Issued in October 2010 and effective from 3 March 2013 Illegal timber trade banned in the EU, a list of timber products will be compliant with this law. EU operators will have to conduct due diligence about timber origin, including measures and procedures: information access;risk assessment and analysis, risk reduction in supply chain

What is legal timber? Timbers are legally harvested, transported, processed and exported in accordance with existing laws and regulations of producing countries. Products with FLEGT and CITES licenses are compliant with EUTR. This means that operators will not have to do any further due diligences FLEGT licenses are only available in countries that sign VPA with EU EU Timber regulations (EUTR 995/2010)

What is VPA/FLEGT?  VPA is a bilateral trade agreement signed between EU and producing partner countries: Partner country commits to the fact that it will only export legal timber and timber products to EU markets. Partner country will develop Timber Legality Assurance System (TLAS) to verify and grant FLEGT licenses for timbers and timber products indicated in VPA for exporting to EU. An independent monitoring authority agreed by both sides will be set up for monitoring TLAS and FLEGT licensing system.

Vietnam Negotiations With EU About VPA/FLEGT Vietnam started negotiations since 11/2010 referring to proposals made by businesses and associations; We can not learn from any of the experiences lived by countries for our own VPA; 4 negotiation rounds, with changes after each round based on our own contexts; Aimed to be finalised in 2015.

1. Issuing Authority Name Address 2. Reserved for partner country purpose 3. FLEGT License number4. Expiration Date …../…../….. 5. Country of Export7. Means of transportation 6. Code ISO 8. Licensee Name Address 9. Commercial Description product 10. Common or scientific name 11. Code HS 12. Country of Harvest 13. Code(s) ISO 14. Volume (m3)Wt Net (kg) 16. Number of units 17. Distinguishing marks 18. Signature and stamp issuing authority 1.List of products in VPA 2.Legality Definition (LD) 3.Supply chain controls 4.TLAS 5.FLEGT licensing 6.Independent monitoring Negotiations focus on

List of Timber Products List of products in EUTR Chapter 44: timber , 4402, 4403….4418 Chapter 47: Paper pulp Chapter 48: Paper Chapter 94: Indoor furniture : Office furniture : Kitchen furniture : bedroom furniture : other indoor-furniture : : ready-made houses List of products in VPA Chapter 44: timber -4401, 4403, 4407, 4408, 4409, 4410, 4411, 4412, , , 4415, 4416, 4418 Chapter 94: indoor furniture : Office furniture : Kitchen furniture : bedroom furniture : other indoor-furniture

Legality Definition (Annex II Of VPA) Seven principles of LD for organizations Pr. 1Timber harvested domestically must follow land use rights, forest use rights, and environment management regulations Pr. 2Compliance with regulations on confiscated timbers Pr. 3Compliance with regulations on imported timbers Pr. 4Compliance with regulations on timber transportation and trade Pr. 5Compliance with regulations on timber processing Pr. 6Compliance with regulations on timber exporting Pr. 7Compliance with regulations on taxes and labor issues

Some Issues Related to LD Imported timbers: this is the most difficult issue in Vietnam as we are importing timbers from high risk countries EU requests that Vietnam should have similar regulations like EUTR to manage imported timbers but this is not relevant for Vietnam. Vietnam proposed solutions for timber from natural sources if they did not have international recognized certificates as FSC, PEFC. This will mean that they will have to submit harvest permits from the countries of origins. Timber from rubber tree: Vietnam does not have legal document for this timber so they will need to develop one in the near future.

Business Responsibilities in the Supply Chain Compliance with regulations on import, customs, business registrations and taxes… Compliance with regulations on land use, forest harvest, environment requirement with domestic timbers … Compliance with regulations on transportation, trade, business registration and taxes … Compliance with regulations on timber processing, business registration, environment labor and taxes… Compliance with regulations on export, custom, business, taxes … Business imported timbers Timbers in Vietnam processed by businesses Businesses have timber transport and trade services Businesses processing timbers and produce indoor furniture Export business

National control system applied for all markets and businesses both domestic and export Additional measures applied for companies exporting timber products to EU markets 1. Legality Definition: Organizations and households 2. Establishment, verification, and approval of verifiers in each step of the supply chain 3. Internal inspection and monitoring 4. Verification of compliance of organizations and households, including business classification based on risk assessment and verification 5. FLEGT Licensing 6. Independent Evaluation SUPPLY CHAIN CONTROL CHART – SUPPLY CHAIN CONTROL IN VPA

FLEGT LICENSING FLEGT licenses will be granted for each shipment in the annex 1 of VPA before exporting to the EU; Licensing authority: expected CITES in Vietnam; Verification office: Forest Protection Offices; Vietnam will classify businesses to provide licenses and expect to divide businesses to two categories:  Category 1: Export companies that meet all requirements of LD and have no violations.  Category 2: Export Companies that have not met the LD requirements fully and/or have certain violations.

FLEGT LICENSING STEPS Step 1: Companies who want to export their products to EU will send requests to the licensing office to grant permits for each shipment; Step 2 : FLEGT licensing office will receive the documents and will conduct the following activities :  For businesses in category 1 that do not have any suspicions indicated on the papers submitted, the FLEGT licenses will be granted promptly.  For businesses in category 1 or 2 with suspicions, FLEGT licensing office will send profiles to verification offices. The verification offices will notify results which will be based on whether the FLEGT licenses will be granted or not. Step 3 : Based on compliance of LD and supply chain controls and verification of TLAS, the FLEGT licensing office may or may not grant a FLEGT license for each of the shipments.

Storage - Storage records, products codes Inspection of buyers -Invoices, receipts, contracts …based on product codes, production monitoring Custom check -Custom declaration (list, out-of storage records, sale contracts, bill of lading, seal containers same as step (2), apply for FLEGT Transporta tion - Transportati on contract, sale contracts, out-of storage records same as step (3) Custom clearance - Custom declaration forms, out-of storage records, sale contracts same as step (4) Shipment and transfer for buyers (FOB price) same as step 5 Exporting process of Vietnamese businesses Apply for FLEGT In the case that there is a discrepancy between FLEGT licenses and the actual shipment quantity, how would you deal with this?

Independent monitoring - TLAS Regular monitoring of: – Implementation – Effectiveness and trustworthiness of the VNTLAS and FLEGT licensing systems for timber products exported to EU and verification of the needs for system improvements. Vietnam will assign the independent monitoring system after consultations with EU. Independent monitoring experts will have access to profiles submitted for licenses for all timbers and timber products exported to EU in FLEGT licensing offices and verification offices

Verification (Forest Protection Offices) Verifiers based on LD Independent monitoring Export companies (category 1 and 2 classified by forest protection agencies CHART - VNTLAS – DRAFT VERSION OF JEM 9 AS OF JUNE 2015 AGRIRULTURE AND RURAL DEVELOPMENT SECTOR: Established and verified all proofs about timber legality ENRIRONMENT AND NATURAL RESOURCES SECTOR: establish and verify proofs about land and environment issues FINANCE SECTOR: establish and verify proofs about taxes and customs TRADE, JUSTICE, PLANING AND INVESTMENT SECTORS : establish and verify proofs about import and business registration. LABOR AND SOCIAL ISSUES SECTOR: establish and verify proofs about labor and insurance PEOPLE’S COMMITTEES AT ALL LEVELS: establish and verify other necessary proofs required by current regulations FLEGT licensing provided by CITES VN – based on - Business in category 1: Based on documents submitted -- Business category 2: Based on verifification results from forest protection offices Regular monitoring from authorities Check verifiers from agriculture and rural development sector and approve Check verifiers when suspicions Independent monitoring Send documents for verification of category 2 Aplications for FLEGT licenses FLEGT licensing process Verification process and results Send FLEGT licenses for businesses Send verification results

Comparisons  Due diligence according to EU requirements  Ensures timber legality throughout supply chain, establishing a system to trace timber origins  Under inspections of both EU and Vietnamese authorities  Increased costs for businesses in EU  Risk of returned goods, businesses fines and penalties which could result in close- out businesses  Businesses applied for FLEGT in Vietnam for timber products exported to EU  Businesses ensure timber legality throughout supply chain according to LD and VNTLAS  Under inspection and verification of forest protection agencies in Vietnam, independent monitoring experts  Increase costs and administrative procedures for Vietnamese businesses  No due diligence required – no risk in EU EUTRVPA

Challenges Faced During Negotiations of VPA For Vietnam FLEGT licenses increase costs for businesses despite the fact that the government is trying to reduce costs for businesses. Vietnamese businesses are now working with operators in EU resulting in conducting due diligence for EUTR to be easier than getting FLEGT licenses. Some of the technical issues in granting FLEGT licenses have not been addressed. Six other countries have already signed VPAs but no FLEGT licenses are available. Is VPA really working? EU is conducting overall evaluations on FLEGT including VPA negotiations.

Conclusions 1.Whether or not Vietnam is going to sign VPA, Vietnamese businesses have to meet the requirements set for international markets; 2.Integration context: Vietnamese businesses have to comply with international regulations and standards; 3.Should continue to negotiate VPA to comply with EU regulations to fit with Vietnamese contexts 4.If VPA with EU is successful, there will be positive impacts on other markets such as US and Australia. Tạo đ iều kiện mở rộng thị tr ư ờng xuất khẩu cho ngành gỗ Việt Nam

Nguyễn T ư ờng Vân Phó Vụ tr ư ởng Vụ KHCN và HTQT Tổng cục Lâm nghiệp (VNFOREST), MARD Thank you!