Navigating through rules of origin in new context

By Chris Vale-Director Rouse & Co International, Trung Tran-Intellectual property advisor Rouse Legal Vietnam Ltd.

Registered foreign direct investment (FDI) inflows to Vietnam is expected to reach an all-time high this year, particularly in the manufacturing sector. However, there is increasing importance in navigating the rules of origin.

Vietnam has taken major steps in its global economic integration and is on its way to becoming an investment hub. Recent significant milestones include its entrances into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and EU-Vietnam Free Trade Agreement (EVFTA). To maximise benefits from the FTAs, Vietnam will have to comply with the rules of origin – one of the most important aspects of the agreements.

Tighter rules of origin

For general exported goods to be considered “Made in Vietnam”, they must be either wholly obtained or produced in this country. If not, they must have a minimum Vietnamese input value of 30 per cent or different Harmonised System classifications.

Rules of origin under the CPTPP and EVFTA are stricter and more complex to implement compared to the aforementioned rule. While both agreements define “Made in Vietnam” products if they are wholly obtained or produced extensively in Vietnam, under the CPTPP, products are also considered as originating from Vietnam if they satisfy the Regional Value Content Rule.

Meanwhile, the EVFTA provides for a different set of origin rules, under which a product is considered as originating from Vietnam if they satisfy the agreement’s product-specific rules.

Certificate of origin

Products exported to CPTPP-affiliated and EU countries with a preferential origin must be accompanied by a certificate of origin (C/O) issued by a local competent authority. For export under the EVFTA, a self-declaration of origin of an exporter for a consignment with the total value not exceeding €6,000 ($7000) should be provided, or an exporter approved/registered on the database in accordance with regulations of the Ministry of Industry and Trade is also accepted.

Qualification inspection

In case of any suspicion of fraud or non-qualification in the origin of goods, the importing CPTPP country may conduct an inspection to verify the origin of goods exported from Vietnam from one or more of the following parties: (i) the competent Vietnamese authority; (ii) the importer of the goods; (iii) the exporter or producer of the goods; or request for on-site investigation to the premises of the exporter or producer of the goods, along with other procedures.

Following the request with sufficient information from the importing country, the competent authority shall carry out inspections according to the procedure as stipulated in Decree No.31/2018/ND-CP issued in March 2018 on guidelines for the Law on Foreign Trade Management in terms origin of goods.

Similar inspection procedures are applied under the EVFTA. According to the agreement, inspections of origin of goods can be carried out randomly or whenever the importing country has reasonable doubts as to the authenticity of the documents certifying the origin of goods.

Potential sanctions

If the authority concludes that the exported goods do not meet the “Made in Vietnam” criteria, the exporter may be held responsible for acts such as mis-declaration, manufacturing and trading of counterfeits, and smuggling.

Offenders under these acts may suffer administrative and criminal sanctions including fines, cessation of business operations and seizure of goods. If goods are being finished in Vietnam before being sent to the United States, then any disruption in the supply chain can be very painful.

Local mislabelling policies

In 2019, the government introduced Resolution No. 119/NQ-CP on emergency measures for enhancement of state management regarding prevention and combat against origin fraud and illegal goods transport. Resolution 119 sets out further cooperation on developing legislation and facilitating policy implementation on goods origins and foreign investment, implementing stricter management on the issuance of C/O, adopting suitable routes for self-certification of goods origin and C/O via the internet, and promoting international cooperation against evasion of trade remedies and origin fraud.

Inspections into C/O by Vietnamese customs authorities have recently intensified. According to a customs report, in the first six months of 2020 around one-third of exporters inspected have been found to violate regulations on rules of origin. The amount of money collected through sanctions is over VND33 billion ($1.42 million) and goods most likely to be inspected vary in range, from computers, mobile phones, textiles, leather shoes and bags.

As the ASEAN region has now become China’s largest trading partner, Chinese manufacturers are increasingly looking to the region for manufacturing support. To add to this, the trade war between the US and China has led to more goods being manufactured outside China to avoid import duties and/or increasing costs. With multiple countries providing inputs for production, navigating the rules of origin is becoming more critical.