What should businesses do to meet the requirements of origin in the CPTPP?

Regulations on rules of origin of goods for the CPTPP market have been summarised by the Ministry of Industry and Trade in Circular No. 03/2019/TT-BCT dated January 22, 2019 with five chapters and nine appendices. Photo: N.Hue.

Big chance

Most economic experts said that the CPTPP includes commitments to cut taxes and open services, investment, distribution, bringing good opportunities to Vietnamese enterprises to expand markets with participating CPTPP countries.

The agreement clearly states that participating countries commit to eliminate 78% - 95% of tariff lines for Vietnamese goods entering their markets as soon as the agreement goes into effect. At the end of the schedule, the rate of elimination is 97% - 100%. Even countries with which Vietnam has no bilateral trade agreements, such as Canada, Mexico and Peru, will eliminate a large amount of import tax rates. Experts affirmed that market development opportunities will open. However, if enterprises want to take advantage of that incentive, their production must meet the requirements of the CPTPP, the most important of which is the regulation of goods origin. In particular, pure origin (production and raw materials in exporting countries), in-country origin and partial origin.

Identifying opportunities from CPTPP for businesses, according to Ms. Nguyen Thi Thu Trang, Director of WTO and Integration Center, Vietnam Chamber of Commerce and Industry, enterprises have not taken advantage of opportunities in reduced import tax rates because the rule of origin is not an easy matter, it takes time to meet the requirement. It is necessary to change the supplier and production processes to achieve rules of origin. So it is difficult for businesses to take advantage if they are not interested in finding out how to change. Overcoming this drawback, it requires good development of supporting industries. CPTPP will also facilitate the Vietnamese supporting industry to develop faster. Regarding objective reasons, there are many "Made in Vietnam" products using materials from other countries with high value of raw material that will not meet the requirements of tariff. Not to mention the advantage of goods, the tax rate is not reduced much and vice versa.

Many points to be noted

According to Ms. Trinh Minh Hien, Department of Import and Export (Ministry of Industry and Trade), CPTPP brings a great opportunity to get tax reduction from 11 importing countries, in which there are three markets such as Canada, Mexico and Peru with which Vietnam does not have bilateral trade agreements. However, in order to enjoy preferential taxes, enterprises must enter countries that meet the origin requirements, namely C/O in CPTPP.

For example, if footwear imported into Canada without CPTPP will be subject to an import tax of 18%, if there is a CPTPP C/O, it will be considered for a 0% tax rate. Similarly, textile products with CPTPP C/O will also receive tax reduction from 16-17% to 0%. This is a huge gap that businesses must take advantage of.

According to Ms. Trinh Minh Hien, the regulations on rules of origin of goods for CPTPP market have been legalized by the Ministry of Industry and Trade in Circular No.03/2019/TT-BCT dated January 22, 2019 with five chapters and nine appendices. In particular, enterprises need to pay attention to appendices 4, 5, 6 on the declaration of CPTPP C/O form. In the declaration, there is a list of required information of the exporters must have email and phone number. This is a big difference of CPTPP compared to previous FTAs. Previous FTAs ​​only require the name and address, no email or phone is required. When the agency of the importing country suspects origin, they will contact the Import and Export Department to verify. With CPTPP, process of C/O verification is the Customs of the importing country will directly contact the enterprise. So in case of not being able to contact via email and phone number, the business may be suspected of committing C/O fraud.

Enterprises need to pay attention to this issue when they get C/O because C/O not only proves the origin of goods to the importing country but also helps enterprises retain the preferential tax amount that they have enjoyed. If there are not enough criteria to verify C/O, the enterprise will have to return the tax that has been subject to preferential treatment.

The Ministry of Industry and Trade also encourages enterprises to apply for C/O online to serve the verification process of origin that may arise later. The procedures of electronic C/O application will help businesses save all documents on the electronic system, making it convenient for related agencies to support and protect enterprises if problems arise from goods origin.

A number of other points need to be noted regarding the C/O CPTPP, according to Ms. Trinh Minh Hien, the enterprises can request a retroactive or later issued C/O agency for export shipments from December 31, 2018 (the date CPTPP officially takes effect) until March 8, 2019 (the date Circular 03/2019 / TT-BCT takes effect) to be considered for preferential treatment by the importing countries according to law. For the faulty C/O companies need to inform the issuer so that these agencies will notify the importing countries to replace the other C/O.

For the tax reduction roadmap, representatives of the Ministry of Industry and Trade recommend that enterprises should consider the reduced tax rate of CPTPP compared to other FTAs ​​that Vietnam has with some countries in this group. For example, when exporting to Japan, enterprises are entitled to tax reduction incentives of ASEAN-Japan FTA with a high tax reduction but under the CPTPP, the tax reduction is still low due. However, for some items with immediate tax reduction of 0%, enterprises can use CPTPP C/O immediately.

Which level is exempted from C/O?

Regarding the C/O exemption, most of the previous FTAs ​​that Vietnam used to participate in have an exemption of 200 USD, in this CPTPP level of exemption is 1,000 USD. Thus, shipments with a value of less than USD 1,000 do not need to apply for a C/O and will also enjoy tax reduction. This provision facilitates sample shipments, or exhibitions of enterprises. However, if enterprises take advantage of this rule to break down shipments to avoid origin certificates, they will not be banned, but businesses will be at risk of being included in the risk management flow to monitor at importing countries.

Documents proving the origin of goods must be the lists in the appendix of Circular 05, including vouchers and invoices for purchasing raw materials to serve the origin inspection. Therefore, the exporters, when purchasing raw materials at domestic companies, note that the contract must contain the binding responsibility of the supplier in the process of verifying the origin of the importing countries, avoiding in the case of being inspected, the input companies refuses to inspect origin of goods, the exporting enterprise be refunded the preferential tax which has been granted preferential treatment abroad.

Another point to note is that for some sensitive products such as some agricultural products and some processed industrial products in the black list of the United States and China because of the risk of going from the US through intermediary countries to China and vice versa to evade taxes due to the impact of the trade war between the US and China, when doing business with foreign partners, enterprises must ensure that the goods in that list must prove the origin of goods in order to limit possible fraud to these items.