1-Fred BAKERMCKENZIE Supply Chain Outlook Forum 2018

Vietnam Legal Update
Multilateralism in the
Context of Trade Wars
Fred Burke, Baker & McKenzie

November 22, 2018
1 Trade Tensions to Trade Wars Agenda
2 Multilaterism still popular
Customs Matters under
3
CPTPP
E-commerce and
4
CyberSecurity
5 How to Survive a Trade War?
Trade Tensions are
becoming Trade Wars
What do trade wars mean for 'Made in China'
goods
Decreasing demand from China to supply materials for

'Made in China' goods for export
Companies may relocate manufacturing outside of

China to avoid penalties placed on Chinese goods
© 2018 Baker McKenzie 4

Vietnam

Trade Wars
US MERCHANDISE TRADE WITH ASEAN, 2017
U.S. IMPORTS U.S. EXPORTS BALANCE
Brunei 22.8 121.1 98.3

Burma 366.1 211.1 -155.0
Cambodia 3,064.2 400.0 -2,664.2
Indonesia 20,208.9 6,868.0 -13,340.8
Laos 96.3 25.7 -70.6
Malaysia 37,408.9 12,826.2 -24,582.8
Philippines 11,626.6 8,466.9 -3,159.7
Singapore* 19,396.8 29,753.1 10,356.2
Thailand 31,189.8 10,837.1 -20,352.7
Vietnam 46,483.5 8,163.5 -38,320.0
ASEAN 169,863.8 77,672.7 -92,191.1
*Source: U.S. Chamber & Commerce

First, the Bad News :
Non-Tariff Barriers are
Thriving
Non-Tariff Barriers (“NTBs”)
Economic Needs Test • WTO exception to market access for wholesale, retail and
(ENT) commissioned agent distribution services. CTPP : 5 year phase out.
Trading License • New “baby permit” in between Enterprise Registration Certificate and
an Investment Registration Certificate.
Technology Transfer • Another new baby permit under the amended Law on Technology
Registration/Approval Transfer (Decree is pending).
• The impact of these and other baby permits is to slow down buiness development,
Impact? increase cost and delays, all reducing competitiveness in global supply chains.

Non-Tariff Barriers
• Testing requirements for retail apparel applied to existing (on the shelf)
Circular 21 products, non-apparel items (e.g., sanitary napins and nappies).
Retroactivity, practicality and prior notice issues.
• Testing agencies and the standards they apply. Capacity issues,

Testing Agencies market access issues for import testing, Domestic vs. International
Standards.
• Transparency issue in the TFA: Is posting on the Internet enough?

Opportunity to Comment Timing too tight, changes too frequent and many many drafts make it
impossible for businesses to keep up and participate meaningfully.
Administrative Reform? • “Wack a mole” game of new rules popping up even as old ones get reformed.

Multilaterism - Still
Popular
Vietnam
Vietnam’s Multilateralist Global Economic Integration Strategy : Multiplier
Effect
- WTO Trade Facilitation Agreement
- CPTPP (“TPP-11”, formerly the “TPP”)
- Regional Comprehensive Economic Partnership (RCEP)
- EU-Vietnam Free Trade Agreement
- Others already in effect or pending include: Hong Kong FTA, Korea-Vietnam
FTA, ASEAN-China FTA, AEC 2020 and ASEAN Economic Integration
- Implement with Domestic Economic & Administrative Reforms
- But: US-Vietnam – Still no Tax Treaty and no Bilateral FTA

Significance of the CPTPP
Vietnam, Malaysia, Australia, New Zealand, Brunei,
Singapore, Japan, Canada, Mexico, Peru, Chile
13-14% of global economy

Enters into Effect for First 6 Members by the
end of December, 2018
Vietnam and others 60 days after formal
ratification.
CPTPP vs TPP?
The CPTPP includes the entire text of the original TPP with
approximately 22 “suspended” provisions.
TPP text incorporated into CPTPP
Preamble 15. Government procurement **
Environment
1. Initial provisions and general definitions 16. Competition policy
Business
2. National treatment and market access for goods 17. State-owned enterprises and designated monopolies **
3. Rules of origin and origin procedures 18. Intellectual property **
4. Textiles and apparel chapter 19. Labour
Goods
5. Customs administration and trade facilitation ** 20. Environment **
6. Trade remedies 21. Cooperation and capacity building
Develop-
22. Competitiveness and business facilitation
ment
7. Sanitary and phytosanitary measures
23. Development
8. Technical barriers to trade
24. Small and medium-sized enterprises
9. Investment **
25. Regulatory coherence
10. Cross-border trade in services **
Transpar-
26. Transparency and anti-corruption **
ency
11. Financial services **
Services
27. Administrative and institutional provisions

12. Temporary entry for business persons
28. Dispute settlement
13. Telecommunications **
29. Exceptions
15. Electronic commerce 30. Final provisions
13
© 2018 Baker McKenzie
Key Suspensions
Protection for biologics;
Extended copyright protection;
Certain specific provisions on express

shipment services, among other things;
Reduced scope of the controversial

provisions on investor-state dispute
settlement; and
Delayed implementation of state-owned

enterprises rules for Malaysia.

Side Letters
• A side letter is a mini bilateral
agreement that falls under the
CPTPP umbrella agreement
• Side letters allow the parties to
carve out certain exceptions to
the provisions in the CPTPP
and which would only apply to
the parties of the side letter
• Side letters are usually between
two parties

Potential Risks and Issues
Changing Business Transitionary Gaps New Market

Environment & Issues Players
 regulatory changes  readiness and  entry of new players as a
expected preparedness of regulators result of liberalisation
 compliance with enhanced  transitionary issues may  more competition in market
business environment and hinder businesses from  more opportunity for SMEs
standards, e.g. reaping benefits of CPTPP
transparency requirements
and new procedures for
COO

Potential Opportunities
Improved Business Overseas Expansion Improved Domestic

Environment Opportunities Market Access
 best practices in CPTPP  access to new preferential  regulation of behaviour of
which will gain stronger markets SOEs
footholds  access to overseas  better access to local
 more level playing field for government procurement government procurement
already compliant markets opportunities
businesses  greater transparency
 opportunities for SMEs creates more certainty for
businesses

Rules of Origin
Made in the CPTPP

• wholly obtained or produced
Accumulation
• CPTPP origin materials
• Product-specific rules
Recovered Materials Used

in Production of a
Remanufactured Good

Transit and Transshipment
Good retains
Good retains
originating status if it
originating status if it
transships through
transits through the
the territory of one or
territory of a CPTPP
more non-parties with
party
certain requirements

Greater Market Access
Duty-free Treatment of Goods Re-entered after Repair and Alteration (Article 2.6)
• Duty-free Entry of Commercial Samples and Advertising Material (Article 2.7)
• Duty-free for Goods Temporarily Admitted (Article 2.8)
20
Mitigating Risks
Identify Gaps & Review Business Develop

Action Items Strategy Capabilities
 review anticipated changes  anticipate heightened  roll out training to relevant
to business environment competition and identify personnel
and identify impact business risks  combine operational and
 conduct health checks to  review business strategy industrial expertise with
ensure compliance and strengthen business working knowledge of the
stronghold CPTPP

Maximising Opportunities
Identify Trade & Review Business Know Your Rights

Market Opportunities Strategy & Remedies
 new preferential markets  removal of domestic  understand the various
represent market protectionism means enforcement mechanisms
opportunities opportunity for growth available under CPTPP
 identify opportunities to get  government procurement,  utilize transparency tools
ahead of the curve protected industries, SOEs including procedures for
classification, valuation,
and rules of origin, export
licensing procedures etc.

CPTPP key takeaways
Entry into force 30 December
Pay attention to preferential Pay attention to the 22
2018 only for ratifying parties
duty rates, some are phased suspended provisions and
including Australia, Canada,
in over time (the tariff side letters eg, Australia/New
Japan, Mexico, New Zealand
schedules are found in the Zealand side letter, SOE side
and Singapore. Vietnam in
Annexes) letters
January. Others?
Conduct review of supply For investment, consider

chain structure and contracts operability of ISDS
with suppliers and freight provisions with suspended
forwarders provisions

Additional Members for the CPTPP?
The strong international consensus is that reducing trade barriers and
providing opportunities for growth across entire regions will maximize the
benefits of global trade.
The CPTPP accounts for about as much international trade as the EU

(approx. 13% vs. 14%).
The UK has sought formal stakeholder feedback on joining the CPTPP,

initial results positive. South Korea, Taiwan, Indonesia and others have
expressed interest. TPP-11 Convened in Tokyo this week to consider.
UK in the Comprehensive and
Progressive Trans-Pacific
Partnership?
25
Other Opportunities
Brexit The UK has voted to leave the European Union. It is

scheduled to depart at 11pm UK time on Friday 29
March, 2019.
The Secretary of the British Department of

International Trade (DIT), Liam Fox, called for
consultations to seek views on the possibility of the UK
seeking accession to the CPTPP.
Consultations closed 26 October 2018.
https
://consultations.trade.gov.uk/policy/consultation-on-uk-26
Regional Comprehensive Economic Partnership
ASEAN-centered agreement
 ASEAN + 6 existing FTA partners (Australia, New

Zealand, China, India, Japan, Korea)
 45% world's population, one-third of the world's GDP
 Key coverage: trade in goods, trade in services, IP,
investment, competition, e-commerce
 RCEP helps
 Upgrade existing 6 ASEAN + 1 FTAs
 Complement AEC 2025
 Harmonize/consolidate various ASEAN + 1 FTAs in
one easy-to-navigate FTA

Regional comprehensive economic partnership
 A lower-grade alternative for TPP?
 built on ASEAN's experience and guided by the "ASEAN way"
 may include less favourable terms for investment and other areas such as digital
economy and IP, compared to TPP
 may not include labour, environment and SOE provisions
 Negotiations are mostly closed door, the 22th round of negotiations recently concluded
in Singapore
 Driven by a consensus process, and likely more accommodative and flexible in
reaching the common end-goals
 It is reported that Japan and Australia are holding out for a higher quality RCEP and do
not want to rush negotiations, while China has been pushing for a rapid conclusion
with a deal mainly focusing on lowering tariff

Regional comprehensive economic partnership –
Challenges and concerns
 "Behind the border" issues:
 trade facilitation measures
 product standard and conformation
 trade-related infrastructure and services, etc.
 Tariff reduction considerations:
 tariff elimination rates are different across ASEAN+1 FTAs
 different tariff classifications and schedules among ASEAN and the six
FTA partners
 Trade in service and investment are not concluded for all ASEAN+1 FTAs

EU
Agreements
in the region
Japan
ECONOMIC  The EPA was finalised in December

PARTNERSHIP 2017
AGREEMENT  The European Commission
recommended the EPA to the European
(EPA) Council for approval in April 2018
 Expected to come into force by the end
of 2019
© 31
2018 Baker McKenzie
Vietnam
FREE TRADE  Negotiations concluded in December

AGREEMENT (FTA) 2015
 EU Parliament considering for ratification
(Eurocham delegation from Vietnam
visited last month).
 The European Commission expects that
the FTA will come into force by the end
of 2018
© 32
2018 Baker McKenzie
Wheat
 Japan maintains current national trading
system on barley and wheat
 Japan will greatly reduce the market by
45% by the 9th year
 In addition to WTO ceiling, Japan
accepted import ceiling on wheat from
Australia and Canada.
 Australia: 38,000 ton / year at
enforcement
50,000 ton / year in the 7th year
 Canada: 40,000 ton / year at
enforcement
Pork
 Current customs duty rate: JPY 482
(USD 4.5) /kg on lower price pork
 →JPY 125 (USD 1.17) / kg at enforcement
 →JPY 70 (USD 0.65) / kg in the 5th year
 →JPY 50 (USD 0.47) in the 10th year
 Safeguard will be introduced on lower
price pork in the 5th year:
JPY 70 (USD 0.65) → JPY 100 (USD 0.93)
Abolished in the 12th year

Customs Matters:
Rules of Origin and
Trade in Goods
looking forward to the
CPTPP
Rules of Origin
• US-Mexico-Canada Agreement (“USMCA”)
• More complex Rules of Origin (“ROO”) – 300+ pages, including
issues such as minimum US$16/hour wage in auto industry
• CPTPP – Not as bad but…
• Product-Specific Rules of Origin
• Applicable tariff shift, and/or
• Production process requirement, and/or
• Regional value content requirement, and/or
• Any other product-specific requirement
• Recovered Materials Used in Production of a Remanufactured Good
Regional Value Content –
Calculation Methods
Build-down Method: Focused Value Method:
Based on the value of non-originating Based on the value of specified non-originating
materials materials
Build-up Method: Net Cost Method:

Based on the value of originating materials For Automotive Goods Only

Certification, Recordkeeping and
Verification
• Self-Certification
• Producer
• Exporter
• Importer
• Certificate of Origin Minimum Data
Requirements
• Recordkeeping
• Verification of Origin

E-commerce and
Cybersecurity
E-commerce commitments in CPTPP
Support • Support electronic signatures and transactions

• Protections for spam, scams and privacy
E-commence • Cybersecurity protections
• No customs duties on electronic transmissions

Support internet trade • Online access to customs documentation
growth •
•
Non discriminatory treatment of digital content (local content considerations)
Source code not required as a condition of import
• No local data centre requirements

Support cross border • Does not apply to financial institutions and cross-border financial service
data transfer suppliers
• Governments may restrict for public policy reasons

E-commerce side letters –
TPP examples
• Vietnam - No dispute resolution recourse for

measures adopted / maintained pursuant to
Cybersecurity cybersecurity law for 5 years after the date of
entry into force of CPTPP for Vietnam
• Vietnam to consult on its cybersecurity law
• Not subject to dispute settlement for non-

discriminatory treatment of digital products, transfer
of information, and location of computing facilities
Digital Products, etc. for any existing measures for 2 years (5 years for
similar issues under side letter for Japan, NZ and
Canada).

No party shall require a covered person to use
or locate computing facilities in that party's
territory as a condition for conducting business
in that territory.
Helps to eliminate trade barriers for foreign
exporters, especially concerning the data driven
and innovative sectors;
Prohibits the propagation of 'forced localization'
CPTPP of technologies and servers;
Chapter 14 Preserves the privacy and safety of internet

consumers through consumer protection laws;
Guarantees free flow of data.

BUT These rules come with a "public policy objective",
which gives governments the capacity to regulate the
flow and storage of data for legitimate public policy
purposes.
Article 14.11 of CPTPP

EXCEPTIONS TO CHAPTER 14 FOR VIETNAM
CPTPP members
Members will not
have a dispute
settlement Measures adopted or maintained based on
mechanism against Vietnam's Cybersecurity Law or related legislations
Vietnam under the which may violate Vietnam's CPTPP obligations
CPTPP for any under Non-Discriminatory Treatment of Digital
incompatibility of Products, Cross-Border Transfer of Information by
Vietnam's existing Electronic Means, and Location of Computing
laws for a period of Facilities provisions.
two years
© 2018 Bakerconcerning:
McKenzie 44
SIDE LETTERS
Japan, New Zealand

and Canada have No suits for FIVE years for measures based on
agreed not to seek
Vietnam's Cybersecurity Law or related legislation
dispute settlement
which may violate Vietnam's CPTPP obligations
against Vietnam
under the CPTPP for under Cross-Border Transfer of Information by
certain sensitive Electronic Means and Location of Computing
provisions: Facilities provisions.

Taxation of E-commerce
Key developments
 Draft Law on Tax Administration – key amendments include Taxation of

Electronically Supplied Services (ESS), cross border E-commerce
revenue and "Digitalized" economic transactions
 CHECK : Are you likely to be a witholding agent? Might your local

counterparty?

Regional trend: VAT treatment of Electronically
Supplied Services (ESS) by non-residents
• China 6% Japan
Taxable, unless South Korea 10%
specifically exempt • B2C taxable 8%
under domestic rules • B2C taxable • B2B subject to
• PRC corporate buyer reverse charge
may claim input VAT
Taiwan 5%
credit
Thailand 7% • B2C taxable
• Not taxable
• Draft legislation to
extend VAT to ESS Vietnam 10%
undergoing • Not taxable
consultation • Extension of VAT to
ESS being actively
Malaysia considered
• New sales tax regime
• Does not capture Philippines 12%
ESS
• Not taxable
• Extension of VAT to
Singapore 7% ESS being actively
• From 1 Jan 2020: considered
B2C taxable and B2B
via reverse charge New Zealand 15%
• B2C taxable
Indonesia 10% Australia 10% • B2B exempt if
• B2C taxable evidentiary
• ESS not taxable • B2B exempt if requirements met
evidentiary
© 2018 Baker McKenzie requirements met 47
How to Survive a Trade
War?
How to manage risks?
Uncertainty - Migration of Manufacturing out of China Accelerating –

but will it last? In Vietnam? Or is Vietnam next in line?
Monitor the situation and how it impacts your product/business
USMCA – multilateralism still has a place
Contractual Risk Mitigation

'Noodle Bowl‘ or Spider’s Web?
 Appetite for bilateral trade agreements in
Asia resulting in ever increasing number
of overlapping FTAs
 Critics point to the trouble in untangling
Rules of Origin
 Enter the alternative – Accumulation
rules in TPP - now CPTPP
 Other important pending agreements
include RCEP, EV-FTA, etc.
 US-Vietnam Bilateral - Back to the
Future?

Can manufacturers relocate?
Structuring Establishing
Resolving & Strategy Global
Disputes
Manufacturing
Commercial Design,
Compliance
& Risk
Supply Production
and
MGMT Chain Sourcing
Import/
Export &
Post-sales
Downstream Cross-
Advertising Distribution Border
Marketing & Logistics
Promotions and Sales

How to Deal with Pending Changes
Identify and secure FTA benefits
 ensure the best benefits are received based on the supply chain structure, ie, is it
best to utilize the CPTPP, ASEAN agreement or an EU agreement for preferential
duty claims?
 evaluate supply chain under the lense of full accumulation under the CPTPP, ASEAN
accumulation under the EUSFTA etc.
 ensure country of origin procedures are in place for self-certification/time allowances

for government authorized certificates of origin
 Consider the non-tariff barrier provisions in the various agreements for supply chain
management

Best Practices
Protect FTA preferential duty claims under audit/verification
 conduct health checks to ensure that origin claims are valid and supported
 ensure that supply contracts with importers, exporters and producers include
language addressing certificate of origin signature requirements
 conduct due diligence on importers, exporters and producers to ensure that the
certifying parties maintain adequate manufacturing documents and production
records
 ensure that the exporter or producer can and will produce all information relied on
for the certification
 ensure importers maintain sufficient records for the claims

Q&A
Thank you
If you have any questions, please

contact Fred Burke at:
Fred.Burke@bakermckenzie.com
www.bakermckenzie.com
Baker & McKenzie International is a global law firm with member law firms around the world. In accordance with the
common terminology used in professional service organizations, reference to a "partner" means a person who is a
partner or equivalent in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may
qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.
© 2018 Baker & McKenzie

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Vietnam Legal Update

Fred Burke, Baker & McKenzie

Decreasing demand from China to supply materials for

Companies may relocate manufacturing outside of

© 2018 Baker McKenzie 4

© 2018 Baker McKenzie 5

Brunei 22.8 121.1 98.3

ASEAN 169,863.8 77,672.7 -92,191.1

*Source: U.S. Chamber & Commerce

© 2018 Baker McKenzie 8

• Testing agencies and the standards they apply. Capacity issues,

• Transparency issue in the TFA: Is posting on the Internet enough?

© 2018 Baker McKenzie 9

© 2018 Baker McKenzie 11

13-14% of global economy

5. Customs administration and trade facilitation ** 20. Environment **

6. Trade remedies 21. Cooperation and capacity building

27. Administrative and institutional provisions

Protection for biologics;

Extended copyright protection;

Certain specific provisions on express

Reduced scope of the controversial

Delayed implementation of state-owned

© 2018 Baker McKenzie 14

© 2018 Baker McKenzie 15

Changing Business Transitionary Gaps New Market

© 2018 Baker McKenzie 16

Improved Business Overseas Expansion Improved Domestic

© 2018 Baker McKenzie 17

Made in the CPTPP

Recovered Materials Used

© 2018 Baker McKenzie 18

© 2018 Baker McKenzie 19

• Duty-free Entry of Commercial Samples and Advertising Material (Article 2.7)

• Duty-free for Goods Temporarily Admitted (Article 2.8)

Identify Gaps & Review Business Develop

© 2018 Baker McKenzie 21

Identify Trade & Review Business Know Your Rights

© 2018 Baker McKenzie 22

Conduct review of supply For investment, consider

© 2018 Baker McKenzie 23

The CPTPP accounts for about as much international trade as the EU

The UK has sought formal stakeholder feedback on joining the CPTPP,

Brexit The UK has voted to leave the European Union. It is

The Secretary of the British Department of

Consultations closed 26 October 2018.

 ASEAN + 6 existing FTA partners (Australia, New

© 2018 Baker McKenzie 27

© 2018 Baker McKenzie 28

© 2018 Baker McKenzie 29

ECONOMIC  The EPA was finalised in December

FREE TRADE  Negotiations concluded in December

© 2018 Baker McKenzie 34

Build-up Method: Net Cost Method:

© 2018 Baker McKenzie 37

© 2018 Baker McKenzie 38

Support • Support electronic signatures and transactions

• No customs duties on electronic transmissions

• No local data centre requirements

© 2018 Baker McKenzie 40

• Vietnam - No dispute resolution recourse for

• Not subject to dispute settlement for non-

© 2018 Baker McKenzie 41

Chapter 14 Preserves the privacy and safety of internet

5. Customs administration and trade facilitation 20. Environment