What should businesses do to meet the origin requirements of FTAs?

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The exports of textiles and garments will enjoy great incentives from the CPTPP if they meet the requirements of goods origin. Photo: Nguyen Hue.

30% of exports enjoy tax incentives from FTAs

According to the WTO and Integration Center, Vietnam Chamber of Commerce and Industry (VCCI), Vietnam has 10 effective FTAs. So far, two FTAs have been signed, one FTA has completed negotiations and three FTAs are being negotiating with a total of 58 economies, accounting for the majority of Vietnam's international trade.

All of these FTAs have commitments on preferential treatment and elimination of tariffs for the majority of import and export goods between Vietnam and partner markets. This creates extremely meaningful opportunities for Vietnam's export and import enterprises. However, for each FTA, in order to be able to enjoy tariff preferences that markets have committed to, the goods must meet the origin rules and have a certificate of origin that meet the demand for that FTA.

Recently, the implementation of 10 FTAs in effect with 21 markets of Vietnam shows that only about 30% of Vietnam's export goods enjoy tariff preferences from these FTAs. In other words, a large part of exported goods go to markets that have FTAs but still have to pay normal taxes (MFN taxes) but do not enjoy preferential tariffs. A fundamental cause is that enterprises do not know or have not met the requirements of origin to enjoy tariff preferences.

According to Ms. Nguyen Thi Thu Trang, Director of WTO Center and Integration, there are many reasons for the limitations in exploiting the advantages of tariff preferences of enterprises. In particular, the subjective cause is that enterprises have not paid much attention to rules of origin, while this is a prerequisite to take advantage of opportunities to enjoy tariff preferences. The story of rules of origin can hardly changeimmediately, it must be from finding supplies and production processes. If businesses are not interested in learning and do not change their ways, it is difficult to take advantage.

This is also one of the important reasons that causes enterprises tonot take advantage of preferential tariffs in export activities. In addition to the subjective reasons mentioned above, the objective cause of the low ability to take advantage of tariff preferences from FTAs for export is due to the fact that many export products of Vietnam use raw materials from abroad, those not included in FTAs. The use of material value is too large in the total value of goods that leads many export products to not meet the origin requirements to enjoy favorable rates.

Enterprises must be more proactive and professional

In order to overcome the above problems, according to Ms. Trang, enterprises must be proactive in understanding the rules of origin such as tariff opportunities for goods with strong advantages and also for products without advantages. Along with that, businesses must also implement specific tasks to change the model, produce raw materials and find other ways to take advantage of preferential tariff opportunities. In addition to overcoming the causes of using materials from abroad, especially those not included in FTAs, it is important to promote the development of supporting industries and other activities to serve production in Vietnam.

Understanding and implementing the requirements of origin in export markets not only helps enterprises take advantage of tariff preferences in FTAs but also helps enterprises take the initiative in arising problems related to origin in export activities, especially in the context of export activities becoming increasingly competitivedue to non-tariff barriers in exporting countries, which are increasingly built up, including barriers directly related to goods origin.

According to statistics of the Vietnam International Arbitration Center (VIAC), under the Chamber of Commerce and Industry of Vietnam, complaints from export markets for Vietnam's goods origin are on the rise. Mr. Chau Viet Bac, Deputy Secretary General of VIAC, said that by the end of December 2018, Vietnam Chamber of Commerce and Industry received 110 letters asking for verification of 287 sets of certificates of origin (C/O). In particular, in December 2018 alone, the VCCI received 5 requests for inspection. Commonly requested items for inspection are cars, tires, screws, clothing, ceramic tiles, shrimp, food, gloves and leather shoes. Of which, the EU market accounts for 90%, the remaining 10% are other main markets including Taiwan, India, Turkey and Iraq.

Causes of complaints about the origin of goods are due to suspicions over counterfeiting of authorized signatories of C/O signing and organization of issuing C/O under the Vietnamese law provisions on illegal transshipment goods, goods that does not meetthe rules on Vietnamese origin. Suspicion of goods that do not meet the Vietnamese origin criteria are mainly sensitive products which are being imposed a trade defense tax on large quantities to other countries or commodities that are suspected of producing capacity in Vietnam.

In addition, the US-China trade war also poses a problem of fraudulent goods, increasing trade barriers from the US market to Vietnam's export goods. This not only affects true businesses but also affects the investigation of origin of goods.

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According to Mr. Chau Viet Bac, the fact shows that in the process of checking the origin of goods, Vietnamese enterprises still face some problems of documents, data and production facilitiesfailing to meet the requirements. Therefore, in order to proactively deal with requirements of production facilities, enterprises must raise awareness of the management of vouchers related to origin of goods.

Accordingly, the storage and management of goods origin documents must be professional to be ready for the inspection process.