KENFOX IP & Law Office > News  > Prevention of label tampering proving complex for customs

Prevention of label tampering proving complex for customs

The loose rules on exports and imports as well as the easy-going penalties for violations make for a hotbed for blatant origin fraud, with fake household electronics labelled Toshiba, Goldsun, and Sunhouse flooding the market. Kim Hara reports.

With the Lunar New Year coming, goods are being imported to Vietnam in increasing volumes – and while original goods are also seeing a spike, the market is growing chock-full of fake versions of larger brands like Toshiba, Sunhouse, Goldsun, and others.

Most recently, Binh Duong Customs seized a batch of 3,472 Toshiba-branded electric rice cookers at a total value of VND2.1 billion ($91,000) for violating rules of origin. Notably, the batch was imported from China and according to admission of the owner, the new rice cookers were assembled completely in China and are only shipped to Vietnam where they are kitted out with locally-sourced power cords and the appropriate labels.

The batch was imported as “materials serving manufacturing”, with a zero import tariff rate. After checking the batch, Binh Duong Customs found that the labels and packaging indicated that the goods were “Made in Vietnam” and “originated in Vietnam”. Besides that, the products were already equipped with warranty cards displaying information in Vietnamese about the brand and the appropriate business address.

In addition, information was enclosed stating that the products were  manufactured with permission from Toshiba Corporation by a manufacturer under an address in the southern province of Binh Duong. The information also said that Toshiba Vietnam Consumer Products Co., Ltd. was in charge of warranty, maintenance, and repair services. In addition, the cookers came with a Vietnamese barcode number, as well as Vietnamese-language warning and manual.

Legal issues at the border gate

Apart from the Toshiba batch seized by Binh Duong Customs, last week, the northern province of Lang Son’s Huu Nghi Customs branch detected a huge batch of finished Goldsun electric rice cookers with full Vietnamese labels being imported into the country.

According to customs officers, although these products do not violate legal provisions, they could confuse local customers as to their origin. Nguyen Cong Tuan, deputy director of the Huu Nghi Customs branch said, “Most of the goods carrying the label of overseas manufacturers meet regulations of Decree No.43/2017/ND-CP on goods labels. However, it could be difficult for customers to tell where these goods come from and for customs authorities to indicate violations because a lot of supplementary labels are in Vietnamese along with the ‘Vietnamese high-quality goods’ labels.”

Decree 43’s Article 7 on the language of labels stipulates that if goods imported to Vietnam do not provide enough mandatory information in Vietnamese, a supplementary label is required and the original label shall remain unchanged. There is no provision on the label depicting the origin of goods, so the penalty can only be issued once the goods enter commercial circulation. As a result, experts blamed that foreign businesses are using the loophole to import their fully assembled products.

“The foreign origin only appears in the customs declarations, but the manufacturer’s label is left blank when products are brought in. Later on, before entering commercial circulation, they will be labelled as ‘Made in Vietnam’. This is why customs authorities cannot punish these violations,” said Tran Anh Tuan, deputy director of Huu Nghi Customs branch. Toshiba and Goldsun are only examples for this malpractice as many cases have been detected, including other brands of foreign-invested enterprises.

Nguyen Vu Quan, senior associate of the intellectual property practice at Vision & Associates Co., Ltd., said, “Alarm bells are ringing in terms of origin fraud, especially in the context of the US-China trade dispute.”

With the trade conflict of the globe’s two largest economies affecting other countries, foreign companies are looking to restructure all or part of their manufacturing operations, said Quan.

“It is imperative that companies take a careful look at their operations to ensure that their activities legitimately qualify them to use the ‘Made in…’ label of the country of their choice. Given the complexities of determining origin, companies may want to seek professional advice in this regard,” he said.

Quan explained that there are two popular methods among manufacturers to change the origin of their goods. The first is to import unlabelled goods from China and then add the “Made in Vietnam” label once they are in the country.

The second one is to import goods that already have a label and then relabel them as “Made in Vietnam”. In another case, manufacturers themselves print and illegally stick the “Vietnamese high-quality goods” label on their products.

“This helps manufacturers enjoy massive benefits, including exemption from import tax, according to the free trade agreements between Vietnam and other countries. Goods from countries subject to high tariffs often find a way to be relabelled as Vietnamese in origin to be then exported to the United States, Europe, or Japan to avoid higher charges,” Quan said.

Strict sanctions

Article 8 of Decree No.185/2013/ND-CP outlining penalties on administrative violations in commercial activities, as well as the production and trade of counterfeit or banned goods stipulates that such acts are subject to a fine of up to $1,000 or penal liability examination.

Accordingly, the General Department of Vietnam Customs will strengthen the checking, inspection, and collection of information on violations, and will pay more attention to repeat offenders.

Talking with VIR, Nguyen Cong Binh, deputy director general of the General Department of Vietnam Customs said, “We carefully inspect every good, route, and export-import activity to create flexible criteria for risk management, as well as implement plans of anti-smuggling investigations, especially at border gate customs branches.”

Additionally, the department recommended the Ministry of Industry and Trade to amend and supplement regulations on labels of import goods, to empower customs authorities to fine businesses upon detection of origin fraud at the border gates.

Lawyer Quan said that forged labels and packaging poses unfair competition for honest local businesses manufacturing true “Made in Vietnam” products, and have a markedly negative impact on consumer trust. “These issues are not technical or personal mistakes – they are fully-intended by manufacturers and businesses,” he confirmed, adding that intent is an aggravating factor when determining penalties.

“The onslaught of cases of relabelling textile and electronics products detected recently proves that there are organised networks forging labels,” concluded Quan.