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The risk of investigations into tax evasion on Vietnam’s exported goods has increased. Photo: Nguyen Thanh

Warning on a series of items

According to the Trade Remedies Authority of Vietnam (Ministry of Industry and Trade), during the period 2000-2016, there were 15 cases of investigations into evasion of trade remedies on Vietnamese exported goods. Thus, there was one case per year on average. However, in 2017 and 2018, three cases were initiated each year. It is expected that this trend will continue as Vietnam’s integrates further and the scope and number of products subject to trade remedies has increased.

Origin fraud and the investigation into the evasion of trade remedies is increasingly urgent, the Ministry of Industry and Trade has sent a list of products at risk of investigation into the evasion of trade remedies (updated in July 2019) to the People's Committees of provinces and cities.

Accordingly, the products are classified into four levels of alert. The products at alert level four and three need to be monitored closely and activities of related businesses need to be checked. The products at alert level two and level one need to be paid attention to and monitored continuously. In the list of 13 published products, plywood which uses hardwood material is the only item at level four. The US has initiated anti-dumping and anti-subsidy investigations on this item which was imported from China in December 2016; and temporarily imposed taxes from June 2017 and officially applied in December 2017. As the export of plywood from China to the US decreased and the export of this item from Vietnam to the US increased, Vietnam fell into the sights of the US’ tax evasion investigation.

“The US Customs and Border Protection has conducted a tax evasion investigation on the transshipment form of plywood products imported from Vietnam, so it is necessary to strengthen inspection and supervision for enterprises exporting this item to the US,” the Ministry of Industry and Trade stated.

For plywood exported to the US, the Ministry of Industry and Trade must send a report to the Prime Minister. In this report, the outstanding content is that enterprises imported Chinese plywood to re-process and then sell to the US. Even foreign enterprises disguised themselves as investors in Vietnam to get certificates of origin of goods (C/O) to export plywood to the US and evade taxes.

Talking to the Customs News, Nguyen Ton Quyen, Vice Chairman and General Secretary of Vietnam Wood and Forest Products Association, said there were businesses that abetted the origin fraud of goods when exporting plywood to the US. This was a concern. However, the level of fraud was being studied and clarified by the authorities. “The export turnover of timber and wood products this year is expected to be about 11 billion USD, of which plywood accounts for only a few hundred million USD. Therefore, the impact on the export of timber and wood products is not significant. However, in the long run, the issue of origin fraud should be clarified and warned as a deterrent to businesses, avoiding serious consequences,” said Quyen.

Higher export growth but mounting worries

The latest statistics of the Ministry of Industry and Trade showed that in the first eight months of this year, the US was Vietnam's largest export market with a turnover of 38.6 billion USD, up 25.3% over the same period last year. This was followed by markets such as the EU, reaching 27.7 billion USD, down by 0.5%; and China reaching 23.8 billion USD, down 2.5%. As usual, strong export growth in large markets like the US is a positive sign. However, in the current sensitive context, especially when the US-China trade war is increasingly tense, many experts expressed their concerns that higher export growth brings mounting worries. The representative of the Ministry of Industry and Trade’s European-American Market Department said: “Conforming to commodity groups, this growth needs more attention, whether Vietnamese origin goods show signs of tax evasion, origin fraud for exports or not.”

Paying special attention to lawsuits against tax evasion, Deputy Minister of Industry and Trade Tran Quoc Khanh said some countries, such as the United States, have made changes in approaching trade remedies evasion lawsuits, posing dangers to Vietnam. “The steel industry is an example. Over the past 70 years, Vietnam's hot rolled steel sheet manufacturing process is considered to have undergone a radical transformation by the US. However, if Vietnam uses Chinese hot rolled steel to produce corrugated iron for export to the US, it will be considered to be evading anti-dumping measures applied by the US to China. Countries importing goods like the US will most likely apply maximum anti-tax evasion measures. If they improperly apply this approach to textiles, footwear and cashew nuts, the problem becomes even more acute,” said Khanh.

Work together to combat origin fraud

In fact, on the basis of the trade war, the Government issued Decision 824/QD-TTg dated July 4, 2019, approving the scheme “Strengthening State management over the circumvention of trade remedies and fraudulent acts of origins”.

Many believe that all levels from the central to local, as well as the business community, needs to work together on the contents of the Scheme, which includes the most comprehensive and critical solutions to fight against origin fraud, reducing the risk of being sued because of trade remedies evasion.

Minister of Industry and Trade Tran Tuan Anh stated the Ministry would urgently coordinate with ministries, branches and People's Committees of provinces and centrally-run cities to seriously implement the tasks assigned by the Prime Minister in the Scheme. Accordingly, the implementation of the Scheme should be focused in order to create changes in the prevention of evasion and origin fraud. “It is necessary to strengthen management measures to forecast, prevent and strictly handle acts of tax evasion and origin fraud in order to develop production, import and export sustainably. This requirement is becoming more and more urgent as the trend of protectionism increases in many countries around the world and the US-China trade war is more and more complicated,” said Tran Tuan Anh.

Some specific tasks to be implemented by the Ministry of Industry and Trade include: establishing an interdisciplinary working group to combat origin fraud of goods chaired by the Ministry of Industry and Trade, reviewing the mechanism and system of issuing C/O to propose issuing fines for acts of origin fraud; reviewing and strengthening inspection and management of transshipment, temporary import for re-export, especially for goods with high risk of origin fraud. In addition, the Ministry of Industry and Trade will formulate a coordination mechanism between ministries and sectors, establish a permanent group consisting of representatives of the Ministry of Industry and Trade, the Ministry of Finance, the Ministry of Planning and Investment, the Ministry of Public Security, and the Vietnam Chamber of Commerce and Industry (VCCI); make contact lists at ministries, branches, localities, some major industry associations for regular contact.

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In Decision 824/QD-TTg, dated July 4, 2019, approving the scheme “Strengthening State management over the circumvention of trade remedies and fraudulent acts of origins”, the objectives include: improving the efficiency of the international economic integration process, especially joining new generation free trade agreements, ensuring the serious and effective implementation of the commitments under the World Trade Organization (WTO) and signed free trade agreements to prevent acts of trade remedies evasion, especially fraud of goods origin, preventing the phenomenon that Vietnam is taken advantage of being a transshipment point to export goods to third countries, in a comprehensive, synchronous and timely manner, effectively exploiting international commitments and developing sustainably for export; protecting Vietnam's rights and interests in international trade and true Vietnamese manufacturing and trading businesses.