Free Trade Agreements (“FTA”) cover many elements of bi-lateral relationships between countries, however one of the most important outcomes is in respect to the trading of goods and products.
In respect of goods and product trade, understanding and implementing the Rules of Origin is one of the most substantial prerequisites of the EU-Vietnam Free Trade Agreement (“EVFTA”) and awareness of the underlying factors that determine the rules of origin of a good or a product which is traded between Vietnam and the EU is critical. International investors should have a clear understanding of the terminology used in the treaty to define proof of origin, processing scale, originating materials, wholly obtained goods and other relevant terms, as well the approval process and certifications that need to be obtained in order to prove the origin of a specific product.
In the following article we seek to delve into the specific criteria of origin and how the certification and inspection of origin are performed, providing practical insights which can be used as a guide to gain a deeper understanding on the trade of goods between the EU and Vietnam.
An introduction on the Origin of Goods and Products
The following products are considered as originating in a Party (i.e. Vietnam or EU):
- Products fully obtained in a Party (i.e. Wholly Obtained Product)
- Products obtained in a Party by incorporating materials which have not been fully obtained there, provided that these materials have undergone sufficient processing alteration work (i.e. Sufficiently Processed Products)
Wholly Obtained Products in a Party are considered:
- Mineral products extracted from their soil or their seabed
- Plants and vegetable products grown and harvested or gathered there
- Live animals born and raised there, and products from them
- Products obtained by hunting or finishing conducted there
- Products of the aquaculture, where the fish, crustaceans and molluscs are born or raised there
- Products of sea fishing taken from outside any territorial sea by its vessel and made aboard the ship exclusively from the same products
- Products extracted form the seabed or below which are situated outside any territorial sea but where the Party has exclusivity on exploration rights
- Waste resulted from manufacturing operations conducted there
- Goods produced there exclusively from the products specified above
Sufficiently Worked or Processed Products are defined as products which are not wholly obtained but are considered to be sufficiently worked or processed when certain conditions specified in the Agreement are met. These conditions indicate, for all products in this Agreement, the working or processing level which must be carried out on non-originating materials used in manufacturing and apply only in relation to such materials. The sufficient processing refers to:
- Processing a maximum content of non-originating materials which should not be exceeded
- Through the processing action, the HS heading/subheadings of the manufactured products become different than the HS codes of the materials that were used
- A specific processing operation is carried out
- Processing is carried out on certain wholly obtained products
Non-originating materials can be used in the manufacturing of a given product provided that their total value or net weight assessed for the product does not exceed 10% of the weight of the product or ex-works price (except processed fishery products), and the agreement provides specific product HS codes for a wide variety of cases.
International investors face challenges from the authorities in proving the origin of a product when they are not aware or purposefully do not consider the level of processing required so that these products are altered and modified enough the be considered sufficiently processed, so that they can benefit from the origin certification in Vietnam or EU and apply the preferential trade tariffs. In cases which may be more prevalent within Vietnamese supply chains, factories may apply minor changes to a product non-originating in the country in hopes to convert it into a ‘new’ product which can essentially be considered as originated from Vietnam, however there are specific rules and regulations to stop these practices from the outset.
The following operations are considered Insufficient Work or Processing when conferring the status of origin of a product, and should be carefully assessed by the manufacturing businesses to ensure they are in line with the requirements set out in the EVFTA:
- Preserving operations to ensure the product remains in good condition during storage and transport
- Breaking-up and assembly of packages
- Washing, cleaning, using paint or other coverings, polishing operations
- Ironing or pressing of textiles and textile articles
- Husking or partial/total milling of rice, polishing cereals
- Colour or flavour sugar, milling of crystal sugar
- Peeling, sheeling fruits, nuts, vegetables
- Sharpening, griding and simple grinding
- Sifting, screening, matching and sorting
- Simple packaging in bottles, cans, cases, flasks, boxes or other simple packaging operations
- Affixing or printing marks, labels, logos or other distinguishing signs on products or their packaging
- Simple mixing of products, whether or not they are different kinds
- Simple addition of water, dilution or denaturation of products
- Simple assembly of parts of articles to constitute a complete article, or disassembly of products into parts
- Slaughter of animals
Proof of Origin and key elements to be considered
Generally, a Proof of Origin is comprised of two main components: Certificate of Origin and Origin Declaration.
Products originated in the European Union which are imported into Vietnam will be entitled to the tariff benefit stated in the EVFTA upon the submission of any of the following proof of origin documents:
- A Certificate of Origin which is in accordance with the Protocol
- An Origin Declaration prepared in accordance with the Protocol by an approved exporter for any consignment regardless of its value, or by any exporter for consignments where the total value does not exceed EUR 6000
- A Statement of Origin prepared by exporters registered in an electronic database in accordance with the relevant legislation of the European Union (after the EU has notified Vietnam that such legislation applies to its exporters)
Consequently, products originated in Vietnam which are imported into European Union will be entitled to the tariff benefit stated in the EVFTA upon the submission of any of the following proof of origin documents:
- A Certificate of Origin which is in accordance with the Protocol
- An Origin Declaration prepared in accordance with the Protocol by any exporter for consignments where the total value is to be determined by the legislation of Vietnam and which does not exceed EUR 6000
- A Statement of Origin prepared by exporters approved and registered in accordance with the relevant legislation of Vietnam (after the EU has notified Vietnam that such legislation applies to its exporters)
The Origin Declaration is required to be prepared by the exporter based on the relevant invoice, the delivery note or any other commercial documents which describe the products concerned in sufficient detail to enable them to be properly identified. The form of the declaration is either type form as a printed document which is signed and stamped using a specific format in accordance with the provisions of the domestic law of the exporting Party, or a hand-written declaration, which must be in capital letters.
Exporters from the European Union and Vietnam can apply to the relevant authorities for the status of Approved Exporter, which enables them to export consignments under the Agreement and prepare Origin Declarations irrespective of the value of the products concerned. The relevant authorities may grand the status of approved exporter subject to any conditions specified in the domestic legislation which they consider appropriate, and will provide an authorization number which is required to be stated on the Origin Declaration.
Guidance of the General Department of Customs of Vietnam and how does the Origin Declaration work in practice
Under the provisions of the Agreement, the European Union commits to apply the self-certification of origin of goods submitted on the Registered Exporter System (REX). Therefore, Vietnam will allow any incentives gained from the self-certification of origin issued by registered exporters (with REX) codes or by any exporter with goods not exceeding EUR 6000.
In Vietnam, exporters are able to fill in the electronic form available at the address www.ecosys.gov.vn for the certificate of origin issued by the authority designated by the Ministry of Industry and Trade or the self-certificate of origin.
In order to claim the preferential tariff treatment in accordance with the provisions of the EVFTA, the Proof of Origin documents are required to be submitted to the Customs Authorities of the Importing Party in accordance with the procedures applicable in that Party, and a translation may be required if the proof of origin is not issued in English.
Exemptions from the Proof of Origin provisions
Products represented by small packages send by private individuals to private individuals or part of travellers’ personal luggage are admitted as originating products without requiring the submission of a proof of origin. However, the total value of the products mentioned above shall not exceed EUR 500 when entering the EU for small packages and EUR 200 for travellers’ personal luggage, and when entering Vietnam, USD 200 in both cases.
The EVFTA is one of the most significant commercial treaties signed by Vietnam and enables international investors from both the EU and Vietnam to leverage a broad range of preferential tariffs and benefits. However, in order to access these benefits in practice, investors should be aware of the rules of origin, proof of origin and all the key elements related to how they can prove the origin of a product or good so that they can take advantage of the preferential tariffs.
If you seek to discover more information on the benefits of the EU – Vietnam Free Trade Agreement or other significant trade agreements which Vietnam is part of, you can peruse our previous article on the subject here and follow our new releases on international trade and commerce to discover how you can leverage these in your business operations.