Dr. Oliver Massmann PhD (Int.Buss.Law) EGS Paris

Lawyer in Vietnam Oliver Massmann EU Vietnam Free Trade Agreement Effect on Supply Chains Rules of Origin

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2. www.duanemorris.com AGENDA: • Rules of Origin (“RoO”) in the EVFTA • Impacts on supply chains • Sector study • Recommendations 2
3. www.duanemorris.com RoO in the EVFTA • Products are considered originating under the agreement if they meet one of the following requirements: – wholly obtained in the EU Member States or in Vietnam – products produced in the EU or in Vietnam incorporating materials which have not been wholly obtained there, provided that such materials have undergone sufficient working or processing within the EU or Vietnam. • There are prescribed set procedures for certain goods that must be completed within the EU or Vietnamese borders to be qualified as originating goods. • Procedures such as breaking-up and assembly of packages; simple painting and polishing operations or sharpening, etc. are exempted areas of working to obtain originating status. 3
4. www.duanemorris.com Global Supply Chain Distribution - Forecasting - Customer service - Finished Goods Inventory - Outbound transportation Operation - Product Planning - Production scheduling - Work in progress inventory Supply - Sourcing - Purchasing - Inbound Transportation - Raw material and part inventory 4 Source: Supply Chain Management (the basic and beyond), Copacino, W.C (1997).
5. www.duanemorris.com Impacts on supply chains • Imported materials and intermediate goods are mainly used for final exported products.  Companies will have to better structure their supply chains to take advantage of preferential tariff treatment under the EVFTA for goods exported to EVFTA countries, both on the sourcing of components and raw material side and on the final destination of the end products 5
6. www.duanemorris.com Impacts on supply chains • The RoOs will encourage investment in untapped part of the value chain in Vietnam • The RoOs will also improve the technical and technology system  complete the manufacturing value chain in Vietnam  Encourage the use of materials in Vietnam, stimulate import-export and investment in Vietnam 6
7. www.duanemorris.com Textile sector 7
8. www.duanemorris.com EVFTA – Fabric-forward rule • Requirement of the use of fabrics produced in Vietnam, with the only exception being of fabrics produced in South Korea, another FTA partner of the EU. • Tariff elimination within seven years for Vietnam’s textiles, apparel and footwear products, from the existing duty rate of 12.4 per cent. 8
9. www.duanemorris.com Imported fabrics by source (per cent of fabrics import value) 9 Source: Rules of Origin, labor standards and the TPP (David Vanzetti and Pham Lan Huong, 2014)
10. www.duanemorris.com Impact on Vietnam’s textile industry • Current status and Issues: – Around 6,000 textile companies in Vietnam – Vietnam’s role in the global supply chain does not occupy an important position – Domestic production of materials has not met the demand – Yarn production must go together with weaving and dying but environment protection is currently an issue. – There is a risk that clothing goods from Vietnam will very often not meet the requirements for preferences and will have to be imported under normal conditions. 10
11. www.duanemorris.com Impact on Vietnam’s textile industry • What to do next? – More foreign investment in textile industry with investment value of up to USD1 billion. – Sourcing managers are looking for alternatives due to rising costs, labour shortages, strict compliance and environmental regulations and a move to production of high value products in China – Establish domestic supply chain – Bring into operation domestic yarn production factories 11
12. www.duanemorris.com Footwear sector 12
13. www.duanemorris.com EVFTA – RoO for footwear • Export duties for footwear from Vietnam to EU will be totally cut down to 0% after 7 years after effective of EVFTA. • Most of sport, canvas and protective shoes will have 0% duty right after effectiveness, but leather shoes will have 0% after 5-7 years • About 60% of materials and accessories for footwear production in Vietnam are imported from China, Korea, Taiwan… Vietnam is a processing partner and relies heavily on imported materials for exported products. • In 2014 FDI occupied 77% of total export turnover of Vietnamese footwear. 13
14. www.duanemorris.com Recommendations • Each multinational company assesses impacts of the EVFTA on their own global supply chains and develops a plan accordingly • Source for materials and intermediate goods for exported products in Vietnam and within the EVFTA region • Carefully study RoOs for each type of products produced and exported by the company to capitalize on the EVFTA • Promote trade in new goods having high processing / technology value in traditional markets • Diversify markets to minimize risks 14
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