Rule of Origin - Key to Make Use of EVFTA

The EU - Vietnam Free Trade Agreement (EVFTA) is set to take effect from August 1, 2020. In order to make good use of the opportunity from this new generation FTA, one of key points for many of Vietnam's billion-dollar export sectors is to meet the rules of origin.

Changes in rules of origin

According to the General Department of Vietnam Customs, the rules of origin in the EVFTA are not totally new to Vietnamese businesses because they are formulated and negotiated based on the rules of origin in the Generalized System of Preferences (GSP). This preference mechanism has been applied to Vietnam for years. However, unlike other FTAs that Vietnam is a signatory, the rules of origin in EVFTA have more new points, both in terms of expression of criteria and attached regulations.

For example, apparels, processed squid and octopus are allowed to compound origin with materials from countries which are not signatories to the pact; provisions on preferences for specific territories or subdivision of goods in a third country out of the agreement. The rules of origin in the EVFTA are not entirely new, but are quite complex.

Under the commitment, the agreement allows for the dual application of the certificate of origin (C/O form EUR.1) and the self-certification of origin of goods. In Vietnam, the time of self-certification of origin is set by the country. Before applying this mechanism, Vietnam will notify the EU and issue domestic guidelines.

Specifically, for Vietnam's exports, with shipments valued less than EUR6,000, any exporter is allowed to self-certify origin (similar to the current GSP regulations). For shipments valued at more than EUR6,000, the C/O is issued by competent agencies licensed by the Ministry of Industry and Trade. In the opposite direction, for goods imported into Vietnam, with shipments worth less than EUR6,000, any exporter is allowed to self-certify origin (similar to the current GSP regulations). For shipments valued at more than EUR6,000, only exporters qualified under EU regulations can certify the origin.

Businesses need to develop domestic input sources

Is it easy to meet the rules of origin in the EVFTA to be entitled to preferential tariffs? Madam Nguyen Thi Thu Trang, Director of the WTO Center under the Vietnam Chamber of Commerce and Industry (VCCI), said that this is not easy when she took into account the fisheries sector. She explained that commitments under new generation FTAs such as the EVFTA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) essentially increase environmental requirements on fishing. To catch quality seafood, enterprises must follow the rules of labor and environment among other things. Notably, compliance with these requirements will cost more and product prices will be higher as a result.

For the garment and textile industry, to better grasp EVFTA opportunities, one of the goals that the industry aims for is building a closed production chain from upstream (weaving and dyeing) to downstream (finished product) to increase the added value and competitiveness for apparel products. The Government, the Ministry of Industry and Trade and trade associations will play an important role in this process with enterprises.

In the coming time, to strengthen State management of origin certification and fight against origin fraud, the Import and Export Bureau will support Vietnamese businesses to handle, implement and review carefully technical requirements when they check and verify origin from the EU in case of necessity to protect their legitimate interests. In addition, in order to prevent origin fraud, in addition to building the capacity of C/O issuers, the bureau will set up delegations to directly inspect and verify the origin at their manufacturing facilities to make sure that they abide by EVFTA rules of origin.

For companies, the EVFTA rules of origin require large participation of raw materials in the FTA area, such as seafood, textile or footwear. Thus, Vietnamese companies need to improve deep production and processing capacity, source inputs in the impact region or develop local sources. In addition, they need to actively join trade promotion attended by EU partners to find new input suppliers and new customers, expand the supply chain in the region and expand business to EU countries that they previously had no or little approach.

Source: Vietnam Business Forum