The United States has recently formalized a trade agreement with Vietnam that introduces a 40% tariff on goods transshipped via Vietnam, targeting products rerouted from other countries to avoid existing US trade barriers. In exchange, a 20% tariff (substantially reduced from the tariff announced in April) will apply to Vietnamese-manufactured goods under the new framework. While the full implementation details have not yet been released, the agreement is expected to take effect shortly and may include provisions for stricter rules of origin, enhanced certification requirements, and joint enforcement mechanisms between US and Vietnamese customs authorities. This update aims to clarify the concept of transshipment and outline the practical implications for Vietnamese exporters.

Context of the US – Vietnam Agreement

Historically, transshipment has been a longstanding concern for the US government, particularly during the first Donald Trump administration. Since 2017, the Trump administration raised alarms about the growing practice of tariff circumvention by transshipment through Vietnam, which intensified amid the US – China trade war. Many manufacturers that had previously been manufacturing in China established shell operations or light assembly lines in Vietnam to exploit its favorable trade status with the US. By re-exporting goods under a Vietnamese label without substantial processing, they sought to bypass high US tariffs on Chinese-origin products. This had led to increased scrutiny by Vietnamese customs, especially targeting Chinese goods falsely declared as Vietnamese.

The new US – Vietnam agreement is likely is intended to close loopholes that enable tariff evasion and encourage genuine investment in Vietnam’s manufacturing sector, rather than superficial operations set up solely for transshipment purposes.

As a result, we anticipate that Vietnamese customs authorities may continue to tighten enforcement of rules of origin for Vietnam originating goods, which may include:

Exporters whose goods involve components or inputs from third countries must be prepared to demonstrate substantial transformation through detailed production records, bills of materials, and value-added calculations.

Understanding Transshipment Under Vietnamese Law

Since the full text of the US-VN agreement has not yet been released, it remains unclear exactly what goods will be classified as “transshipment items.” Under Vietnamese law, transshipment is defined under Decree 59/2018/ND-CP as follows:

"Transshipment goods are transported by sea from abroad to a transshipment area at a seaport, then exported abroad from the same transshipment area or transferred to a transshipment area at another port for further export. Transshipment goods moved between seaports must be transported via inland waterways or by sea. Transshipment goods are entirely exported abroad either once or multiple times."

In the context of the new agreement, this would mean that goods originating from third countries and routed through Vietnam to the US via specified transshipment areas or ports would be subject to the 40% tariff.

However, a more likely scenario would be that “transshipped goods” also in terms of the agreement may be more broadly defined to include goods that are imported into Vietnam from third countries and subsequently undergo only minimal processing before being exported to the US, as discussed in the context above. These goods fail to meet the rules of origin required to be classified as Vietnamese-origin and thus retain their original country of origin for customs purposes. Generally, there are two main rules of origin under international and Vietnamese laws:

Until the full details of the agreement are disclosed, businesses must exercise caution when exporting goods through Vietnam that do not meet the established rules of origin, as these items may be classified as transshipment goods and subject to the 40% tariff.

Implications for Vietnamese Exporters

The imposition of a 40% tariff on transshipments can have significant operational and strategic consequences for Vietnamese exporters. Exporters must ensure their goods meet Vietnam’s rules of origin to avoid punitive tariffs. This may involve more rigorous documentation, audits, and verification procedures. Exporters may consider engaging legal and trade compliance experts to audit their operations for this purpose. Moreover, businesses may need to adjust their supply chains and invest in deeper manufacturing capabilities within Vietnam to ensure substantial transformation occurs within Vietnam.

How VILAF Can Assist

At VILAF, we are committed to helping our clients adapt to these evolving trade regulations. We support our clients by reviewing their manufacturing processes to assess their production workflows and determine whether their goods may be classified as transshipments. We also provide guidance and representation during customs inspections to ensure our clients’ goods meet the rules of origin requirements.

For further details, please contact Mr. Ngo Thanh Tung at [email protected].