Cheats and Tricks in Origin Fraud

9:32:20 AM | 25/8/2020

As of April 2020, Vietnam had signed 16 free trade agreements (FTAs), including 12 effective agreements​, one blueprint pact and three deals under negotiation. Notably, the EU - Vietnam Free Trade Agreement (EVFTA), effective from August 1, 2020, is expected to open up many opportunities to promote exports and attract investment for Vietnam. In addition to its benefits, origin fraudulence appears to be more rampant.

Imported components assembled into Vietnamese goods

At a press conference on origin fraud inspections and investigations conducted by customs authorities, hosted by the General Department of Vietnam Customs (GDC) on July 6, 2020, Mr. Nguyen Tien Loc, Director of Post-Customs Clearance Inspection Bureau (GDC), said origin fraud is becoming increasingly sophisticated and particularly “hot” after the United States under the Donald Trump administration officially imposed extra duties (including safeguard duty, anti-dumping duty and export countervailing duty) on Chinese goods after the U.S.-China trade war was ignited. The extra duty on goods imported from China ranges from 7.5% to 285%, depending on item, leading to tariff differentials between Vietnamese goods and Chinese goods imported into the U.S. Among Chinese manufacturing sectors subject to additional tariffs, many Vietnamese exports to the U.S. surged in value, including electronics, garments, footwear, bicycles, furniture, steel and solar panels.

After fiercely working with suspected companies, the customs sector examined, investigated and verified 76 cases and discovered 24 origin violations. Customs authorities confiscated 3,590 completely built bicycles, more than 4,000 bicycle parts and more than 12,000 kitchen cabinet components. Inspected commodities include bicycles, electric bicycles, solar panels and wooden furniture.

Regarding bicycles and electric bicycles, post-customs clearance inspection was conducted into four assemblers of electric bicycles and bicycles exported to the U.S. All four manufacturers were found violating origin rules.

Their acts of violation are importing separate components into Vietnam to assemble complete bicycles or electric bicycles. Imported components do not undergo any stage of manufacturing but undergo simple processing stages that do not change the nature of the goods (painting and labeling to become finished products. According to the Post-Customs Clearance Inspection Department, the above manufacturing processes are not officially recognized as “Vietnam origin” according to the code changing criteria and origin criteria (CTC - Change in chapter, CTSH - Change in tariff subheading) and LVC percentage criteria specified in Decree 31/2018/ND-CP and Circular 05/2018/TT-BCT dated April 3, 2018, of the Ministry of Industry and Trade.

As for solar cells, all five inspected companies were found in violation. According to the bureau, components are imported into Vietnam for assembling and carrying a “Made-in-Vietnam” label.

Different cheats and tricks

The above discoveries partly paint a picture of product origin cheating. To take advantage of tariff preferences that Vietnam enjoys in other signatory countries, many companies use “Vietnam origin” to get preferences applied to exported goods.

Being aware of origin fraud methods and tricks, GDC officials added customs inspectors to unearth various origin and label tricks and cheats by checking and managing customs procedures for imported and exported goods and carrying out anti-smuggling investigations and post-customs clearance inspections.

As for labeling and intellectual property infringement, imported products were already affixed with the “Made in Vietnam” label, or the label information, company address, website and warranty centers in Vietnam are displayed in Vietnamese language on the product and/or package for domestic consumption or for export.

In other cases, imported goods which are either labeled with origin in manufacturing countries, or not labelled, were replaced with the “Made in Vietnam” label when brought onto the domestic consumption market.

As for the origin of goods, both Vietnamese and FDI manufacturers import parts, semi-finished products and components for production, processing and assembly into finished products. However, products do not undergo processing and manufacturing stages but just through simple processing, production or assembly steps that do not meet origin criteria and rules.

The above cheats and tricks show that origin fraud and intellectual property infringement are very complicated. With new-generation FTAs that offer various attractive tariff preferences, faking Vietnam origin to get illegal gains is highly likely and we need more firm and consistent measures to respond to this reality.

By Le Hien, Vietnam Business Forum