ASEAN: Regional Trends in Economic Integration, Export ... - USITC

FDI in hardwood plywood and flooring include one U.S. company known to have a
flooring plant in Malaysia 70 and one Japanese company that recently announced plans to
construct a major new $250 million plywood mill in Vietnam. 71 Taiwan is also often cited
as a major investor in Vietnam, mostly in furniture, but also reportedly in enterprises that
produce bamboo for flooring manufacturing. 72
Many ASEAN countries restrict foreign investors from majority ownership and/or do not
offer them national treatment. For example, countries may impose additional licensing,
registration or other regulations on foreign enterprises not required of domestic investors.
When fully implemented, the ASEAN Comprehensive Investment Agreement (ACIA)
will provide additional investor protections, particularly to ASEAN-based investors,
although it is too early to assess the effects of the ACIA on flows into the hardwood
plywood and flooring sector. 73
Hardwood plywood and flooring differ from other manufacturing sectors because of their
close link to production in forests, where foreign investment is typically tightly
controlled. With few exceptions, ASEAN countries prohibit foreigners from owning
forest land outright, and government concessions are generally restricted to joint ventures
that have majority local ownership. 74 Restrictions currently apply equally to ASEAN
investors as well as investors from outside of the region.
Consistent with measures in the Roadmap, all ASEAN countries encourage new forest
plantations, but limited land availability and cumbersome regulatory requirements tend to
discourage foreign investment. For example, the Malaysian government provides
favorable loan terms to investors for establishing and managing forest plantations, but
loans are available only to wholly owned Malaysian non-publicly listed companies or to
publicly listed companies with majority Malaysian equity ownership. 75 Nevertheless,
some foreign investment in plantations has been permitted from enterprises in non-
ASEAN countries seeking to secure wood supplies for their own (or joint venture)
industries. Korean and Chinese investors have undertaken forest-related investments in
Vietnam, Cambodia, Laos, Indonesia, and Thailand. Singaporean and Malaysian
companies have invested in Indonesia. 76 Overall, outside investments are not as extensive
as those from local investors.
The Roadmap recognizes that investments in securing stable wood supplies are necessary
to foster integration in the hardwood plywood and flooring industry. To that end, the
Roadmap includes measures to promote plantations as a way of augmenting the region’s
wood supplies. Many ASEAN members have incentive programs and other policies in
place to promote forest plantations. The vast majority of plantations have been
established to supply the pulp and paper industry, but plantations of teak, rubberwood,
khaya, and other species intended for making plywood, furniture, and other products are
being established. In the case of rubberwood, the latex is tapped for a number of years,
and then the trees are harvested for wood and veneer to be used for lumber, plywood,
70 Industry representative, telephone interview by USITC staff, April 22, 2010.
71 Saigon Times, “Sumitomo Forestry to Build Plywood Factory,” January 13, 2010.
72 Industry representative, interview by USITC staff, Washington, DC, March 23, 2010.
73 The ACIA replaces the Framework Agreement on the ASEAN Investment Area (AIA) signed in 1998,
but has not yet entered into force. See chap. 2 for additional information on the ACIA and AIA.
74 U.S. Department of State, “Investment Climate Statements” for ASEAN countries; Economic Research
Institute for ASEAN and East Asia (ERIA), “Deepening East Asian Economic Integration,” Chap. 5, table 6.
75 Malaysia Timber Industry Board, “Credit Opportunities in Forest Plantations,” n.d.
76 Industry representative, telephone interview by USITC staff, Singapore, January 27, 2010.
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