An Introduction to Rules of Origin for Vietnamese Exports

Vietnam has entered into numerous free trade agreements, making it an optimal location for manufacturers seeking to establish production facilities. Given the advantages that Vietnam derives from these agreements, there has been increased scrutiny of products that violate the established rules of origin. Investors aiming to capitalize on the reduced tariffs must understand and adhere to these rules of origin directives.

For businesses seeking to take advantage of tariff-free exports and low labor costs, Vietnam has become the ideal destination.

Currently, Vietnam is among the most globally integrated economies, with its membership in multiple trade commitments, especially the new-generation free trade agreements (FTAs) such as the EU-Vietnam Free Trade Agreement (EVFTA) and the UK-Vietnam Free Trade Agreement (UKVFTA). These commitments are claimed to be a catalyst for the recent growth in Vietnam’s exports. Its export turnover has been increasing at an average of 22 to 23 percent annually over the past decade, from US$114.5 billion in 2012 to US$354.7 billion in 2023 and US$369.9 billion in the first 11 months of 2024.

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In the FTAs that Vietnam has formed with its partners, the rules of origin play a crucial role in protecting members’ rights to receive preferential tariff rates. A report from Vietnam’s Agency for Foreign Trade (AFT) states that under these FTAs, preferential import tariffs ​​can vary between 10 and 40 percent compared to the most-favored-nation (MFN) tariffs applied by World Trade Organization (WTO) member countries.

Although FTA agreements present a tempting way to lower export costs, the ability to tap into their benefits is largely contingent upon compliance with elaborate rules outlined within each agreement. At hundreds of pages in length, agreements set out specific tariff concessions and compliance requirements at a product-specific level.

Rules of origin: A primer

In order to ascertain the manner in which goods will be treated, it is first necessary to identify the Harmonized System (HS) code that will be designated to the finished product. This is to determine the applicable tariff. The HS system is a classification of products and allows participating countries to classify traded goods for customs purposes. HS codes classify goods in a six-digit code system.

From a compliance perspective, HS codes are also used to determine the requirements that a good will be subject to under an FTA. Areas of compliance will often pertain to the manner in which a good is produced, how it is labeled, and the certifications that it requires to be exported and recognized.

To understand the specifics applied under a given agreement, one of the most important sections of an FTA is the rules of origin.  Rules of origin establish the method by which signatories of free trade agreements determine if goods entering their borders qualify for the benefits of the agreement.

It is also important to note that rules of origin are incorporated into international law to determine when to apply anti-dumping duties. For Vietnamese exports to qualify for tariff reductions under free trade agreements to which Vietnam is a party, the rules of origin requirements mandate varying degrees of the manufacturing process to be conducted within Vietnam.

The objective of these rules is to enforce the trade agreement and to prevent third parties from free-riding off of the concessions of FTA signatories. Adapting to the complex and global nature of many corporate supply chains, rules of origin chapters have become increasingly complex and require careful due diligence to ensure compliance. 

Product-specific requirements

For a product to benefit from tariff reduction, it must “originate” from a country party to the trade agreement. The product can be “wholly obtained” from that nation or meet certain requirements in the event that the product is “not wholly obtained”. 

“Wholly obtained goods”

These generally refer to raw materials and other resources, such as livestock and agriculture. These goods must be sourced exclusively from within the FTA zone or territory to qualify for tariff reductions. Under many free trade agreements, a list of goods that must meet these requirements is specified.

For companies involved in the sale of similar goods from multiple jurisdictions, it will be important to ensure a thorough understanding of how raw materials and other exports are treated under Vietnam’s FTA framework. For companies exporting goods from both Vietnam and China, it may not be possible for Chinese-produced goods to qualify for tariff reductions under certain agreements.

Goods not “wholly obtained”

While some goods must be entirely sourced in Vietnam by their inclusion under FTAs as wholly obtained goods, modern trade agreements also attempt to accommodate the rise of multinational supply chains through certain allowances. Outlined under trade agreements as regulations pertaining to not wholly obtained products, many goods must meet certain requirements to benefit from tariff reductions.

There are two ways that a not wholly obtained product is generally classified as eligible for tax breaks:

• It has been sufficiently transformed within the FTA zone; and
• A certain percentage of the product is originating from that area.

The standard for each of these categories varies based on the agreement and the goods in question. It is common for FTAs to require that a certain percentage of inputs be sourced from within the FTA zone and that the goods undergo a degree of change within the zone to qualify for reductions. Furthermore, the technique by which the value for each category is evaluated differs based on the agreement and the goods in question.

For companies attempting to benefit from tariff reductions, the challenge is not only to navigate complex rules that determine an originating product, but also to manufacture goods in a way that is suitable under several trade agreements. It is crucial to conduct a cost-benefit analysis of manufacturing in accordance with the complex FTA guidelines.

Supply chain and logistics optimization

Vietnamese-based operations are never far away from potential suppliers in China and India, while a great distance from sources of demand in the Americas and Europe. To facilitate regional supply chain integration and support the shipment of goods to their final destination, free trade agreements increasingly implement articles dealing with extra FTA supply and transit.

Advantages of cumulation

In an attempt to further adjust to extensive supply chains, articles pertaining to cumulation allow companies to maintain multinational supply chains without losing originating status. Because it is impractical for businesses to manufacture entirely in one nation, FTAs authorize the producer to tap into tax reductions while utilizing the comparative advantage of several countries that may not be included within the FTA in question.

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Manufacturers can work in countries within the zone of an FTA or in a nation collaborating with the agreement. For example, under the EU-Vietnam FTA, if a fabric originating in South Korea is brought to Vietnam and further processed, it can be considered as originating in Vietnam and is applicable to the tariff break under the agreement.

Those with existing supply chains in close proximity to Vietnam should review articles of cumulation found within Vietnam’s FTA network to ensure that goods are afforded the lowest tariffs possible upon export.

Transit/Transshipment

To accommodate companies whose products are shipped through several ports, FTAs ensure that applicable goods do not lose preferential status simply due to the transit route. While this gives manufacturers the freedom to ship along the best-suited lane, importers may require proof that the goods were in no way altered at an intermediate location, which would disqualify them from the reduced tariff.

Challenges

The rules of origin under the FTAs are incredibly detailed and complex. Nations may also be part of several FTAs that have different rules of origin. With extensive supply chains, it is important for companies to harmonize them in accordance with the varying trade agreements. Manufacturers are also obligated to keep records of the eligibility of their goods and are subject to customs audits. At the very least, this involves keeping track of the origin of the materials.

Vietnam’s legal framework implements rules of origin

Since 2020, the annual issuance of preferential certificates of origin (C/O) has grown by approximately 20 percent, with a projected increase of 18 percent in 2024 compared to 2023. The Ministry of Industry and Trade (MOIT) has released 42 legal documents addressing goods’ origins, which detail procedures for C/O issuance and enforce ROO aligned with Vietnam’s commitments.

Vietnam’s initiatives have gained wide recognition from WTO member countries after a regular meeting of the WTO Committee on ROO in early April 2025. During this meeting, Vietnam’s representative emphasized that the legal framework for C/O issuance in the country is based on several key documents, including:

• Decree No. 31/2018/ND-CP dated March 8, 2018;
• Circular No. 05/2018/TT-BCT dated April 3, 2018; and
• Circular No. 44/2023/TT-BCT dated December 29, 2023.

Vietnam has expressed its intent to enhance cooperation with WTO member states in origin verification and share practical insights on origin certification. Looking ahead, Vietnam plans to implement an electronic data exchange system for origins with several importing nations, aiming to streamline customs processes and enhance the efficiency of origin inspections.

Takeaway

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Vietnam’s strategic position in global trade, bolstered by numerous free trade agreements, offers significant opportunities for manufacturers. However, to fully benefit from reduced tariffs, businesses must thoroughly understand and comply with the rules of origin detailed in each agreement.

By ensuring that their products meet the specified requirements, companies can effectively navigate the complexities of international trade and maximize their export potential. Adhering to these regulations is crucial for maintaining a competitive edge in the global marketplace.

This article was originally published June 8, 2016. It was last updated April 21, 2025.

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