The survey conducted by the Vietnam Chamber of Commerce and Industry (VCCI) found the reason for this is that companies find complying with the rules of origin and other requirements much too complex.

“Most professionals working for domestic companies simply don’t think the benefits from FTAs are worth all the trouble,” said Nguyen Thi Thu Trang, director of the VCCI World Trade Organization (WTO) Centre.

VCCI surveyed trade management professionals from multiple domestic manufacturing industries in late 2015 and early 2016. The respondents were asked about many aspects of their work.

When asked if they were or plan to fully utilize all of the FTAs available in Vietnam and applicable to their company’s products, only 11.6% of the of 1,500 respondents said yes.

Almost universally, those responding said the biggest challenge in using FTAs was the complexity of the rules of origin.

To qualify for tariff-free treatment under an FTA, an exporter has to certify that a certain percentage of the product to be exported was made in Vietnam or a company from specific countries that varies by FTA.

The major problem here is that the majority of domestic clothing and footwear companies’ yarn and components are sourced from China or the Republic of Korea (RoK), making most of their product ineligible for exemption from tariffs.

“I don’t think there’ll be many changes in the economic model followed by companies in Vietnam as a result of FTAs,” said Luong Van Thu, director of a clothier in northern Hung Yen Province, recently.

“Companies will continue to outsource work on contract,” he said, adding that few if any are going to change to an import/export model to take advantage of FTAs, as few are that concerned about tariffs.

The 161 members of the WTO offer one another Most Favoured Nation (MFN) status, said Trang.

This means, among other things, low import tariffs. Most domestic companies find it more economical and less risky to pay the MFN tariff than to do the complicated and cumbersome work required to qualify for duty-free treatment under an FTA.

With manufacturing supply chains getting increasingly spread out across countries, it gets harder and harder to figure out how much of a product was made in Vietnam and how much was made elsewhere.

Making FTA usage even more difficult is that trade managers find it hard to get country of origin information from their suppliers, some of whom may have gotten components from yet a third country. In the survey, a most often cited problem with using FTAs concerned challenges in gathering raw material origin documentation from vendors.

For example, if a domestic company wants to export product to the RoK under the Vietnam-RoK Free Trade Agreement, it has to certify that at least 35% of the products’ components were made in Vietnam – or 45% depending on the method used for measuring domestic content.

There are two methods for determining domestic content – the build-up method and the build-down method, and they’re both extremely complicated.

The company has to know where all the other parts were made, then calculate whether those in Vietnam comprise more than 65% (build-up method), or 55% (build-down method) of the products total parts.

It’s easier for a company to comply with rules of origin if their product is made entirely in Vietnam using entirely domestic inputs. But those products are less common than they used to be, because supply chains have become increasingly international.

Respondents were given a list of chores that trade professionals commonly perform and asked which of them were the most time and resource intensive. Number one was import documentation and licensing.

Few respondents said they spent a lot of time on them.

Source: VOV