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  • Writer's pictureBjörn Koslowski

“Is my product originating in Vietnam?” – Guide to Rules of Origin within the EVFTA (Part 2/2)

Updated: Jun 30, 2020

To make use of the EVFTA tariff reductions goods must be “originating” from within either the European Union (EU) or Vietnam. While this will probably not pose a challenge for vertically integrated European industries, the story for Vietnam is quite different. This emerging country produces a relatively low added value. Its industry is focusing on assembling materials sourced abroad. These assembly jobs often do in many cases not contribute much to the value of a finished product. Thus, many goods produced here may not be considered “originating in Vietnam” in the context of the EVFTA. This challenge is widely known in Vietnam with the discussion focusing on its sprawling garment sector. In the first part of this blog mini series we gave you guide on which rules of origin apply for your products. Today, we will discuss if regulations could indeed be a challenge for local suppliers.

Many terms used in this article are quite content-specific. We explained them in the first part of this blog:


Differences in Rules of Origin between EVFTA and GSP

The EU unilaterally grants Vietnamese enterprises preferred access to its market through the GSP – or “Generalized System of Preferences”. In 2018, 24% of Vietnamese exports to the EU fell under the GSP, sometimes at a discounted tariff rate and often even at 0% tariff. (see examples in part I) In fact, within the roughly 70 EU-GSP countries, Vietnam is the third-biggest profiteer after India and Bangladesh in terms of trade turnover. Now, when the EVFTA comes into effect the GSP will immediately become ineffective. While the GSP knows ROOs too, the EVFTA rules are in some cases stricter. This can take the following forms:

  • Sufficient processing is defined tighter in the EVFTA

  • The cumulation principle is more lenient within GSP

  • Tolerances for weight and price are stricter in the EVFTA

If products cannot fulfill these tighter regulations their tariff rates will rise to MFN – or “Most Favored Nations” status (see examples in part I) granted to WTO member states. Vietnamese suppliers should therefore have a close look if a change to rules of origin between GSP and EVFTA will affect them.

Low Value-Add of Vietnamese Enterprises

As indicated above many Vietnamese enterprises concentrate on assembly or finishing jobs. They import input materials and process them into final goods. This is true for almost every Vietnamese manufacturing branch. The country has a relatively small pre-processing industry. Vietnam’s comparative advantage is to blame for this situation: The country is boasting low labor costs and a high “quality” of available workers. It is therefore well suited for labor-intensive assembly tasks. However, local companies are lacking access to technical know-how and financial resources. For these reasons the capital-intensive supplying industry - which often requires know-how and expensive machinery - has not yet gained a foothold in Vietnam.

Foreign investors in Vietnam also face the challenge to find local suppliers for their manufacturing processes. For example, it has been reported that Samsung - Vietnam’s largest foreign company with an investment of over 17 billion US-Dollars - sports a “localization rate” of just 10%. It sources almost all the parts for its phone, display and household electronics assembly from Korea and China. Many other foreign companies state that they have similarly low localization rates or even source nothing in Vietnam.

Industries at Risk

Many of these Vietnamese and international manufacturers might face challenges when overcoming the hurdles to create products “originating in Vietnam”. However, for some industries or products this will be harder than for others. The media is reporting a lot on this, focusing on garments. Here is a small selection:

As stated above some industries will be at a higher risk than others of not meeting originating status of their products. The potintial fulfillment of EVFTA ROOs can be drawn from current data from the GSP which has similar provisions as the EVFTA. It is hard to give a complete overview of all industries. However, we would like to draw spotlights at products that our clients often source in Vietnam. These are agricultural produce, apparel, metal products and furniture. In an earlier blog entry, we identified these goods from our database. Please refer to this link for more details:

Here are some goods with high export volumes to the EU:

(Non-processed) Agricultural produce, including fish and meat

  • HS chapters: 1 – 15 (as well as 2401, tobacco – excluded beneath)

  • EU imports 2018: 3.03 billion EUR

  • GSP eligible imports 2018: 0.87 billion EUR

  • Actual usage of GSP of eligible imports 2018: 84 %

  • Status: If the goods are from Vietnam they are mostly considered as “wholly obtained” without any further restrictions. Please note that processed food usually is not counted as “wholly obtained” but has certain conditions to be “originating”.

  • Industry risks: Low if the items are from Vietnam.


  • HS chapters: 61 – 65

  • EU imports 2018: 3.42 billion EUR

  • GSP eligible imports 2018: 3.42 billion EUR

  • Actual usage of GSP of eligible imports 2018: 56% (garments: 14%, shoes: 94%)

  • Status: Almost all apparel HS codes underlie certain regulations regarding the pre-processing of fabrics and parts incorporated in these products. As pointed out in above-mentioned press articles, for garment production three processes have to be typically carried out in Vietnam or obtained through cumulation: Weaving or production of fabrics or other preparatory operations. The above-mentioned HS chapters are almost completely eligible for GSP. Conditions for originating status don’t vary much between both agreements.

  • Industry risks: Most Vietnamese apparel manufacturers concentrate on so-called “Cut-Make-Trim” or “CMT” processes. These are mostly the finishing steps of apparel production, e.g. sewing, which are labor-intensive. There is only a limited number of companies engaging in capital-intensive fabrics production. For this reason, most fabrics have to be imported; especially from China. To achieve originating status within the EVFTA framework, local manufacturers will have to reorganize their supply chains to source fabrics 1) in Vietnam, 2) in the EU or 3) in the RoK (see above: cumulation). However, many spectators doubt that they will be able to supplant their current Chinese suppliers in time for the EVFTA. Today, most shoes are already imported to the EU under GSP and therefore also should largely fulfill the rules of origin of the EVFTA. Garments are also fully eligible for GSP. However, only 14% of these products are currently imported with GSP tariff reductions; probably because the rest does not reach originating status. It is unlikely that these suppliers will be able to supply “originating products” under the EVFTA; at least in the short-term. The risk of suppliers from the garment industry not being able to supply originating products is therefore very high while shoe manufacturing should not be affected as much.

Metal products

  • HS chapter: 73 (for iron or steel products)

  • EU imports 2018: 0.98 billion EUR

  • GSP eligible imports 2018: 0.36 billion EUR

  • Actual usage of GSP of eligible imports 2018: 91%

  • Status: These products may be “manufactured from materials of any heading” and therefore are usually eligible for EVFTA tariff reductions even if all input materials are imported. This is critical because many special steels are not available from local Vietnamese manufacturers and thus have to be imported.

  • Industry risks: There should be a low risk of companies not achieving “originating status” of their products.

(Wooden) Furniture

  • HS chapter: 94

  • EU imports 2018: 1.49 billion EUR

  • GSP eligible imports 2018: 0.43 billion EUR

  • Actual usage of GSP of eligible imports 2018: 77%

  • Status: These products may be “manufactured from materials of any heading” and therefore are usually eligible for EVFTA tariff reductions even if parts (up to 70% of the ex-works price from this HS chapter) or wood are imported.

  • Industry risks: There should be a manageable risk of companies not achieving “originating status” of their products.


The ROO provisions of the GSP are very similar to the EVFTA. However, while only SOME tariff lines are eligible for GSP tariff reductions, ALL tariff lines are eligible for EVFTA tariff reductions. For a number of industries, it will be easier than for others to achieve “originating status”. For example, the GSP shows that companies from Vietnam’s sprawling garment sector will likely face hurdles in using the reduced EVFTA tariff rates. However, potential payoffs could be huge because the MFN rates for garments of typically 12% will largely be reduced to 0% immediately after come-into-force of the EVFTA. Overall, 70% of all Vietnamese exports to the EU will be eligible to 0% tax rates after the agreement comes into effect (probably during the summer of 2020). How many companies will actually use the EVFTA remains to be seen though: The utilization of the GSP stood at 64% of all eligible exports in 2018. Utilization of the EVFTA will also probably not reach 100% because some MFN rates already are either already 0% or very low. In these cases, making amendments to accommodate the EVFTA regulations might not be worth the trouble.

Overall, tariff reductions bear huge savings potentials. Suppliers in Vietnam as well as customers in the EU should generally be interested into checking if their products could be delivered by under reduced EVFTA tariff rates.

So, coming back to above question: “Should you worry about your Vietnamese supplier’s ability to deliver originating products?

The answer could be: “Generally no, because your supplier will probably be eligible for tariff reductions”.

However, many notable exceptions (e.g. garments!) and regulations apply. We therefore heavily recommend discussing the implementation of EVFTA regulations with suppliers in Vietnam.

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