By Francesco Guarascio

HANOI (Reuters) - In a significant move to safeguard its trade relations and avoid punitive tariffs from the United States, Vietnam's Ministry of Industry and Trade has issued a directive aimed at curbing the illegal transshipment of goods. This directive, which came into effect on April 15, reflects Vietnam's proactive response to rising trade fraud, particularly against the backdrop of escalating tensions due to U.S. tariffs.

The ministry's directive highlights its concern that the risk of trade fraud is likely to increase as the U.S. government implements and maintains strict tariff measures. The document warns that failure to prevent such fraud could complicate Vietnam's ability to avoid sanctions or other penalties that could be applied to imported goods from the U.S. and other trading partners. This concern is particularly relevant given the reliance of Vietnam on its export economy, with the United States being its largest export market.

While the directive does not specifically identify the countries involved in illicit transshipment activities, it is noteworthy that nearly 40% of Vietnams imports come from China. The U.S. government has previously accused China of using Vietnam as a transshipment hub to circumvent U.S. tariffs, which could lead to unintended consequences for both countries.

In a recent development, the Vietnamese government has been under increasing pressure from the U.S., which has imposed a staggering 46% "reciprocal" tariffs on certain Vietnamese goods. Although these tariffs are currently on hold until July, the potential imposition of these tariffs poses a serious threat to Vietnams economic growth model, which heavily depends on exports to the U.S. and substantial foreign direct investment.

The directive outlines specific actions that officials from the Ministry of Industry and Trade, customs authorities, and other relevant agencies are mandated to undertake. These include enhancing supervision and inspection protocols for imported goods, particularly focusing on verifying the origins of raw materials used in production intended for export. This step is critical in ensuring that the labeling of goods as Made in Vietnam is legitimate and complies with international trade agreements.

Furthermore, Vietnams Prime Minister, Pham Minh Chinh, has reiterated the importance of addressing trade fraud and counterfeiting issues, emphasizing the need for transparency and integrity in dealings with the United States. This statement was made as Vietnam prepared to enter discussions with Washington regarding the ongoing tariff concerns.

Adding complexity to the situation, the trade ministry's directive was issued on the same day that Chinese President Xi Jinping concluded a visit to Vietnam. During this visit, several agreements were reached, including commitments to enhance cooperation among agencies responsible for certifying the origin of goods. This underscores the delicate balance Vietnam is trying to maintain in its international relationships, particularly amidst warnings from China against forming trade agreements that could disadvantage them.

Allegations of illegal transshipment practices suggest that goods exported from China often stop in Vietnam to change their certificates of origin, despite little to no value being added during this process. This practice allows these products to benefit from lower tariffs in the U.S., a loophole that Vietnam is now working to close.

In light of this, new, stricter procedures will be implemented to scrutinize factories and oversee the issuance of "Made in Vietnam" labels, particularly for companies experiencing a sudden spike in applications for certificates of origin. This move is intended to prevent potential abuse of the certification process and ensure compliance with trade regulations.