The document discusses rules of origin (RoO) under the Trans-Pacific Partnership (TPP) agreement and how they differ from the RoO in the EU-Vietnam Free Trade Agreement (EVFTA). RoO in the TPP are predominantly based on specified shifts in tariff classification, regional value content, and production stages. Most tariffs on textiles and apparel will be eliminated under the TPP, though some sensitive products will have longer phase-out periods. For footwear, the TPP provides more flexible RoO than for textiles, allowing sourcing from anywhere in the TPP with some exceptions. The EVFTA uses a "fabric-forward" rule for textiles compared to the "yarn-

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RULES OF ORIGIN UNDER THE TPP – WHAT IS
DIFFERENT FROM THE EVFTA?
Opportunities and challenges for certain sectors

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AGENDA:
• Rules of Origin (“RoO”) in the TPP
• How do RoO in the TPP differ from the EVFTA?
• Opportunities/ Challenges for business sectors
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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.
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RoO in the TPP
• Originating goods:
– Wholly obtained or produced goods;
– Produced in and from materials originating from TPP countries; or
– Produced in and using material not originating from TPP countries nut
satisfying TPP rules of origin.
• Separate RoO for each specific type of goods
• Separate chapter on RoO for textile products
• RoO in TPP are predominantly based on a specified shift in tariff
classification, regional value content and production stages
• No requirement for certificates of origin under TPP, or third-party
certification of origin but self-certification is sufficient
• Note that Vietnam applies different schedules of tariff elimination/
reduction for different categories of goods
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Textile sector
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Vietnamese sectoral effects in 2020 as a result of the
TPP
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TPP - Textiles and Apparel
• Most tariffs on textiles and apparel will be eliminated
immediately, although tariffs on some sensitive products will
be phased out as agreed by the TPP Parties.
• Yarn-forward RoR: all products in a garment from the yarn
stage forward, including yarn spinning, knitting and dyeing,
must be made in one of the countries that is party to the
agreement in order to qualify for preferential treatment under
TPP.
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15-20% import
tariff rate
0%

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Imported yarn and fiber by source (per cent of yarn
and fiber import value)
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Source: Rules of Origin, labor standards and the TPP
(David Vanzetti and Pham Lan Huong, 2014)

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Exceptions to the yarn-forward rule
– A carefully tailored short supply list (when certain yarns and
fabrics not widely available in the region can be sourced from
outside the region for qualifying products).
– Cut and sew rule: bras, synthetic baby garments and textile bags.
For those things, you can use yarn or fabric from anywhere and
cut and sew within the TPP
– de minimis: total weight of a textile or apparel’s non-TPP yarn
doesn’t exceed 10 percent of the main fabric.
– 1 for 1 rule applied for women’s and men’s cotton trousers
exported to the US: a company can get credit for exporting U.S.
fabric to Vietnam for use in cotton woven trousers. Those credits
can then be used by the company for use in cotton woven
trousers out of Vietnam using foreign fabric.
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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.
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Imported fabrics by source (per cent of fabrics
import value)
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Source: Rules of Origin, labor standards and the TPP
(David Vanzetti and Pham Lan Huong, 2014)

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Impact on Vietnam’s textile industry
• Current status and Issues:
– Around 6,000 textile companies in Vietnam - ~600,000 machines
have to be replaced
– 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.
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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
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Footwear sector
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Footwear is among top 10 most consumed products
in the world
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Source: Euromonitor

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Vietnam’s exported footwear turnover
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0
2
4
6
8
10
12
2009 2010 2011 2012 2013 2014
$ 4.2bn
$ 5.1 bn
$ 6.5 bn
$ 7.2 bn
$ 8.5 bn
$ 10.5
bn

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Vietnam’s exported footwear to three biggest markets
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TPP – RoO for footwear
• More flexible RoO than textile products
• Sourcing from anywhere within the TPP trade block would allow
for duty free benefits
• Exceptions:
1) import of raw materials from non-TPP countries for manufacturing
in TPP countries, without charging any duty
2) bring in some footwear parts from outside TPP countries, provided
the company meets a regional value content rule.
• The regional value content rule requires proof that at least 45% of
materials originated in TPP countries, or 55% or less came from
non-TPP countries. Uppers, parts of uppers and assemblies of
uppers will not be allowed under Exception 2).18

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TPP – RoO for footwear
• The tariff schedule lists 120 different footwear classifications at the
8-digit level and 102 will be duty-free immediately.
• The other 18 items will follow seven different phase-out schedules,
based on their 8-digit tariff classifications. Sensitive items include
categories like work boots, waterproof shoes, leather boots,
women’s pumps, cold weather boots and athletic shoes valued at
over $12 per pair, which would not see immediate duty free
benefits.
• Athletic shoe brands will benefit immediately: Vietnam can take
advantage of this as it a home base for athletic manufacturing and
the majority of sports footwear brands currently produce there
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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.
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Recommendations for enterprises
• Carefully study RoO in each trade agreement
• Understand which specific procedures apply for own products to
build an effective sourcing and product development plan
accordingly
• Further invest in machines and technology.
• Focus on more value added services
• Purchase domestic materials where available, sign cooperation
contracts with domestic suppliers, build a domestic supply chain,
improve the localization rate.
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Questions & Answers
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References (1)
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References (2)
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References (3)
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References (4)
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