Cumulation of origin

The entry into force of the EVFTA allows exporters from the parties to take advantage of preferential tariffs. Within 10 years, 99% of tariff lines will be eliminated. However, as with any trade agreement, the benefit of these customs duties’ reductions is subject to certain requirements, particularly in terms of origin.

Concept of “originating products”

Under the EVFTA, European and Vietnamese products can obtain a custom duties’ reduction if they are qualified as "originating products". So, the products must be wholly obtained in the territory of an EU Member State or Vietnam. 

 

However, nowadays - due to globalization - it is difficult to obtain a wholly product within a single territory. As a result both the EU and Vietnam have added to bilateral cumulation other rules allowing products to be considered as originating from a party.

The originating status of a product can be obtained by carrying out sufficient working or processing in the territory of one of the parties. 

For example, a clock may be considered as originating from France if the value of all the non-originating materials used in the manufacture does not exceed 70% of the ex-works price of the product. 

 

 

Sectoral rules of cumulation

Some products from ASEAN countries or South Korea can be considered as originating from Vietnam. These are fishery products and textile products

On the request of the parties, these sectoral rules of cumulation may be extended to certain countries, in particular those that have concluded a preferential trade agreement with the EU and Vietnam. For example, it could be the case of Japanese fabrics.

 

 

Local added value : The main Vietnamese challenge to take advantage of the EVFTA ?

These rules of origin are important because they raise the question of the local added value of products. 

Indeed, to take advantage of the EVFTA, these products must concentrate a minimum of local production, which will sometimes involve a double transformation. 

Today, products manufactured in Vietnam have a foreign added value that is sometimes and often higher than the domestic added value. 

A study "Trade in Value Added" conducted by the OECD reveals that the Vietnamese manufacturing sector is highly dependent on imports. For example, in the Vietnamese automotive sector, 53% of inputs come from abroad. This proportion rises to 62% in the electronics sector.

These datas show that it is difficult for these products to meet the rules of origin imposed by the EVFTA and thus benefit from tariff advantages. 
As a consequence, the EVFTA will surely lead Vietnam to rethink its manufacturing chain. Rethinking the production chain implies developing auxiliary industries to facilitate the supply of materials to the domestic market. Here again, EVFTA offers opportunities for both European and Vietnamese companies

 

© Article written by the France-Vietnam Chamber of Commerce and Industry (CCIFV). Reproduction rights reserved.

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