US wants Vietnam to pay higher tariff based on foreign content: sources
Exports to the US that contain the highest proportion of foreign components would be charged at the top end of the range, around 20 per cent or above, the people said, asking not to be identified as the talks are confidential. Products that contain a lower percentage of foreign components would be set a slightly reduced rate, while those entirely from Vietnam would face the lowest rate – potentially the existing universal 10 per cent levy, the people said. The details continue to be discussed and could still change.
Vietnam has been engaged in weeks of intense diplomacy with the US, its largest export market, during which the US has pressured Hanoi to get tougher on trade fraud and do more to prevent Chinese goods being rerouted and repackaged through Vietnam to skirt higher tariffs.
Prime Minister Pham Minh Chinh said last week he expects to see 'positive results' from the negotiations with the US sooner than the Jul 9 deadline, when the so-called reciprocal tariff rate of 46 per cent is due to come into effect. Chinh also said the nation needs to balance relations with the US and China, its two most important trading partners, underscoring the challenge facing the country's leadership.
Even a more moderate levy will create significant challenges for exporters, including navigating tighter trade protection requirements and investigations into rules of origin, according to Can Van Luc, a member of the National Financial and Monetary Policy Advisory Council.
'If tariffs are 10 to 15 per cent, then there would be roughly US$25 billion additional tax to be paid, but it would likely have minimal impact,' Luc said.
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Vietnam is heavily reliant on China for the raw materials essential to maintain its manufacturing-driven growth. China accounted for approximately 38 per cent of Vietnam's total imports last year, according to customs data. In the first five months of the year, imports from China reached US$69.4 billion, making it the nation's biggest source for items such computer and electrical components, machinery and fabrics.
Vietnam's Ministry of Foreign Affairs did not immediately respond to a request for comment.
The nation has offered to remove all tariffs and repeatedly promised to purchase more American goods. Senior Vietnamese officials have flown to the US to rally support and sign billion-US dollar deals. The trade minister wooed executives from Nike, Gap and others, for which Vietnam provides a critical hub, producing goods ranging from T-shirts to basketball shoes.
The industrial shift from China to Vietnam over the past decade, which saw brands rush to relocate as trade tensions rose, also helped build the kind of massive trade gap that made it a prime tariff target. Last year Vietnam's trade surplus with the US was the third-largest globally on a country basis behind only China and Mexico.
In a sign of how much hinges on a pact, Communist Party chief To Lam is preparing to travel to the US in coming weeks with a delegation of Vietnamese officials and business executives, as the nation looks to seal more deals to buy additional American goods. BLOOMBERG
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