United Kingdom & Vietnam: New circular to implement the UK-Vietnam FTA’s rules of origin

In brief

The UK-Vietnam Free Trade Agreement (UKVFTA) entered into force as a replacement for the Vietnam-EU Free Trade Agreement (EVFTA) due to Brexit, to leverage Vietnam-UK trade relations.

To implement preferential tariff treatment under the UKVFTA, the Ministry of Industry and Trade (MOIT) issued Circular No. 02/2021/TT-BCT that will regulate the origin issues and take effect on 27 June 2021.

In more detail

1. Product Specific Rules of Origin

Circular No. 02 adopts the Product Specific Rules of Origin (PSR) to every HS Chapter (two-digit), HS Heading (four-digit), and HS Subheading (six-digit), among which the HS Chapter and HS Heading are the most common classifications used in the PSR.

The PSR applies an origin determination approach that is unique and different from those under other free trade agreements that Vietnam has signed. In particular, the PSR is developed based on any of these four criteria:

• Maximum value of non-originating materials used in the production
• Change in Tariff Classification at two-digit, four-digit, and six-digit level
• Specific production steps
• Production steps using originating materials

2. De minimis

Non-originating materials which, in accordance with the conditions set out in Annex II to this circular, are not to be used in the manufacture of a given product, may nevertheless be used, provided that their total value or net weight assessed for the product does not exceed:

1. 10% of the weight of the product or ex-works price for products of HS Chapters 2 and 4 to 24, other than processed fishery products referred to in HS Chapter 16
2. 10% of the ex-works price of the product for other products, except for products of HS Chapters 50 to 63
3. For textile products of HS Chapters 50 to 63, further detailed tolerances will apply depending on product types.

3. Cumulation of origin

A significant point under Circular No. 02 is the acceptance of EU-originating goods as either of Vietnamese origin or of UK origin when such goods are used in producing the finished goods. Although the EU is not a party to this UKVFTA, products will be considered as originating in Vietnam or the UK if such products are obtained by incorporating materials originating in the EU, provided that the working or processing carried out in Vietnam goes beyond the operations set forth under the category of insufficient working or processing.

A number of materials listed in Annex III to this circular originating in an ASEAN country that concluded a preferential trade agreement with the EU in accordance with Article XXIV of GATT 1994 will be considered as materials originating in Vietnam when further processed or incorporated into one of the products listed in Annex IV to this circular. However, a number of conditions will apply.

4. Insufficient working or processing

Circular No. 11 sets forth operations considered as insufficient working or processing to confer the status of originating products, whether or not the origin determination criteria are satisfied, as follows:

1. preserving operations to ensure that the products remain in good condition during transport and storage
2. breaking-up and assembly of packages
3. washing, cleaning, and removal of dust, oxide, oil, paint or other coverings
4. ironing or pressing of textiles and textile articles
5. simple painting and polishing operations
6. husking and partial or total milling of rice; polishing and glazing of cereals and rice
7. operations to color or flavor sugar or form sugar lumps; partial or total milling of crystal sugar
8. peeling, stoning and shelling of fruits, nuts and vegetables
9. sharpening, simple grinding or simple cutting
10. sifting, screening, sorting, classifying, grading, or matching (including the making-up of sets of articles)
11. simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations
12. affixing or printing marks, labels, logos and other similar distinguishing signs on products or their packaging
13. simple mixing of products, whether or not of different kinds; mixing of sugar with any material
14. simple addition of water, dilution, dehydration or denaturation of products
15. simple assembly of parts of articles to constitute a complete article or disassembly of products into parts
16. a combination of two or more of the operations specified in subparagraphs (a) to (o)
17. slaughter of animals