Kristian Rouz – Vietnam plans to crack down on the practice of re-labelling Chinese-made goods as 'Made in Vietnam' for the purpose of re-exporting such products to the US amid the ongoing trade dispute between Washington and Beijing. The upcoming move is seen as benefiting Vietnamese manufacturers, while potentially hitting a significant number of export-oriented industries in China.
According to Vietnam's Customs Department, there have been multiple cases of illegal re-labelling of Chinese goods in the South-east Asian country over the past few years. However, Vietnamese officials say US tariffs on $250 bln worth of Chinese products, and the looming threat of duties on another $300 bln worth of goods could affect Vietnam if such practices continue.
In this light, officials in Hanoi have decided to fully enforce the customs law, which could come to the detriment of Chinese industries.
"The faking of origin and the illegal trans-shipment of goods happens most often in the sectors of textiles, seafood, agricultural products, tiles, honey, steel and iron, aluminium and timber products," the Customs Department said in a statement posted on its website on Sunday.
Hanoi claims it wishes to distance itself from the Sino-American trade tensions. Meanwhile, Vietnam has become a major exporter of manufactured goods to the US over the past few years, particularly, in the consumer goods segment – and local manufacturers are set to welcome the announcement.
The move, however, could also result in higher prices for US consumers – while also boosting revenues for Vietnamese manufacturers. Vietnam's overall exports revenues, however, might drop, as Chinese re-exports appear to have been a substantial share of the nation's total exports – although the customs service didn't disclose the exact numbers.
Some experts, however, believe the re-routing of Chinese goods has not been as widespread as officials in Hanoi say.
"There will always be leakages and workarounds to avoid tariffs, but we do not see it as a widespread phenomenon," Rahul Kapoor of Bloomberg Intelligence says.
Nonetheless, Vietnam appears to be adamant to put an end to such abuses in order to preserve its ties with the US.
Yet, experts warn there might be legal ramifications of Vietnam's planned crackdown, let alone a possible further deterioration in its relations with Mainland China.
"It’s always a cat-and-mouse game," Fred Burke of law firm Baker & McKenzie (Vietnam) Ltd. said. "As long as people are willing to take risks in search of those arbitrages of say 25 per cent duties, it’s very difficult to enforce."
Hanoi said US customs have recently discovered that a Vietnamese-based exporter of timber was importing actual Chinese timber, only to repackage it as 'Made in Vietnam' and sell to the US.
The discovery came to the dismay of the US. Vietnam, for its part, doesn't appear to be willing to jeopardise trading ties with one of its biggest exports markets.
Customs officials in Hanoi say they have yet to improve the process of identifying the origin of the nation's exported goods, and slap fines and penalties on malevolent exporters whenever they are found.
"A cottage industry for circumventing US tariffs will likely bloom, given the high tariff rates and huge potential profit," Chua Hak Bin of Singapore-based Maybank Kim Eng Research Pte. said. "ASEAN governments will likely crackdown on such re-routing for fear of being seen as a backdoor."
Meanwhile, US officials are already looking into Vietnam's own trade practices. Washington has suggested recently Hanoi could be manipulating its currency's exchange rate – by artificially lowering it to gain an unfair competitive advantage in international trade.
Vietnam has firmly rejected such allegations, but in this light, it's hardly surprising that Hanoi wants to demonstrate its good will when it comes to trade – including by penalising the companies dealing with Chinese goods subject to US tariffs.