Vietnam customs says that it is clamping down on trade origin fraud, which has spiked over the past year, as exporters reroute their goods through the country to take advantage of its free trade agreements (FTAs) and circumvent additional duties.

In December, Vietnam customs said that it had detected “many cases” of origin fraud within its exports, and that it has identified 19 product groups at high risk of origin fraud in the country.

The department cites the US and China trade war as the catalyst for the increased origin fraud, as Chinese exporters routed their US-destined goods via Vietnam to forge their country of origin, side-stepping the hefty duties imposed by the US on Chinese goods in the process.

Despite a phase one trade deal signed between the two countries last month, trade origin fraud in Vietnam remains a problem.

In part, this is due to the country’s many free trade agreements: in June, Vietnam signed an FTA with the European Union, which will eventually eliminate 99% of tariffs and was hailed as the “most ambitious free trade deal between the EU and an emerging economy to date” by the European Commission. The country is also part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade agreement that plans to remove 95% of tariffs among its 11 member states: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Dat Tien Le, trade specialist and managing partner at Vietnam-based law firm Apolat Legal, tells GTR that companies are looking to take advantage of such lucrative deals because “during the implementation of these FTAs, the majority of goods originating from Vietnam benefit from import duty exemption when exported to other members of the FTA”.

Le adds that trade policy tools, such as anti-dumping tax, are also playing a part in Vietnamese origin fraud. “As a result of many countries and partners in the world increasingly adopting trade remedies, namely anti-dumping tax, countervailing duties and safeguard tax, with high rates that impair the export capabilities of countries which said taxes are imposed on, some enterprises attempt to falsify goods origin and exploit Vietnamese origin of goods to receive benefits and goodwill or to evade trade remedies illegally,” he says.

In October 2019, Vietnam customs discovered and seized more than US$4bn-worth of Chinese aluminium falsely labelled as made in Vietnam, before it was due to be shipped to the US, in a blatant attempt to avoid trade war tariffs. Although it is not only Vietnam where this occurs – and experts say that there are likely other Asia hotbeds for trade origin fraud – the volume of mislabelling being uncovered in Vietnam is a cause for concern.

Nevertheless, Chian Voen Wong, senior trade consultant for Asia Pacific at K&L Gates Straits Law, says that the trade deal between the US and China and stricter enforcement measures and penalties for country of origin fraud introduced by the Vietnamese government will largely reduce blatant origin mislabelling going forward.

“Last year, Vietnam put in rules to clarify how goods meet the made in Vietnam criteria. Vietnam customs has also stepped up its enforcement efforts,” Wong tells GTR. “The type of fraudulent origin activities that are more visible, the ones where finished goods are imported and then mislabelled, these type of activities have been controlled. I don’t foresee too much of an increase in this area because the products traditionally attempting to circumvent the rules are on the watchlist.” Watchlist products, she says, include steel and aluminium products, seafood, clothing and electronics.

Vietnam customs says it plans to select enterprises which are newly established since the end of 2018, and which import components, materials and spare parts from China and export products to the US and EU markets, to be examined.

Unintentional trade origin fraud is also a cause for concern in Vietnam. Wong explains: “The other part is legitimate trade, which involves genuine manufacturers or assemblers who have operations in Vietnam, but who may not be aware of, or understand how, the origin rules work. Even operations like assembly may not meet the origin criteria. It is inevitable that some companies or exporters will slip through the net; though I wouldn’t call this origin fraud because it’s not deliberate action to circumvent the origin requirements.”

Even though exporters with operations in Vietnam may not be aware that they are breaking country of origin rules, Wong says ignorance is no excuse for origin mislabelling, adding that Vietnam customs has now made what does – and what does not – constitute as made in Vietnam much more visible to businesses.

However, she adds: “As long as there is an incentive, and there is a huge monetary incentive if the difference in tariffs is 10, 20, 25%, there will still be cases where companies will attempt to circumvent country of origin rules – be it in Vietnam or somewhere else. I expect to see the blatant origin fraud quietening down a little bit, but there will still be some.”