Navigating the Trade Labyrinth: As Chinese Manufacturers Shift to Vietnam, Compliance Risks Loom Large

As geopolitical tensions simmer between China and the United States, Chinese manufacturers are increasingly relocating operations to Vietnam. This move aims to sidestep hefty Western tariffs and tap into Vietnam’s relatively low labor costs. However, as this trend evolves, legal consultants are stepping into the fray to guide businesses through a maze of compliance risks that are growing more complex by the day.

The Economic Landscape

Vietnam’s economic significance has intensified as trade friction between China and the U.S. escalates. The COVID-19 pandemic and fluctuating exchange rates have not stopped Vietnamese allure for foreign direct investment, with total inflows reaching approximately $25.35 billion in 2024. Chinese firms are steadily increasing their contributions, driven by a desire not just for cost efficiency but also to circumvent emerging regulatory barriers in Western markets.

Manufacturers are increasingly drawn to Vietnam for its lower operational costs. The advantages are amplified as sectors like new energy face anti-dumping measures in the U.S. and Europe. With products labeled “Made in Vietnam,” companies can more easily access lucrative Western markets.

Scrutiny from the U.S.

However, this trend has also caught the eye of U.S. trade officials. According to reports, Washington has conveyed a set of demands to Vietnam, urging the nation to diminish its reliance on Chinese components and to tighten supply chain controls. A “reciprocal” tariff of up to 46% looms as a potential consequence should Vietnam fail to comply.

The U.S. has long been concerned that Vietnam acts as a conduit for Chinese goods, allowing manufacturers to evade tariffs. Chang Junlan, a partner at W&H Law Firm, highlighted this concern, noting that goods labeled as originating from Vietnam often undergo minimal processing. The U.S. government is ramping up origin checks for products, raising the stakes significantly for businesses involved in this trade.

Vietnam’s Response

In turn, Vietnam has begun to take measures to reinforce its regulatory framework. The Ministry of Industry and Trade has outlined new guidelines that place stricter oversight on the origin of exported goods. Products failing to meet these newfound standards could face delayed customs clearance or, worse, be ineligible for preferential tariffs. Chang emphasized that the tightening of regulations means that many products previously relying on simple assembly or re-labeling may soon find themselves non-compliant.

Legal Advisement

With the landscape becoming increasingly difficult to navigate, many companies are turning to legal counsel for advice. W&H Law Firm, operating its Vietnamese office since 2019, has noticed a surge in inquiries regarding supply chain compliance. Manufacturers are particularly interested in ensuring that their production processes and sourcing strategies align with stringent origin requirements.

Chang noted that companies are now proactively seeking legal guidance to ensure that they can legitimately label their products as “Made in Vietnam.” Many are engaged in internal audits to identify compliance gaps that could lead to penalties. These “health checks” scrutinize everything from supply chains to operational logs, aiming to rectify issues before they escalate into legal conflicts.

Broader Strategic Adjustments

Beyond immediate compliance, some companies are re-evaluating their broader strategies. They’re considering new logistics routes, assessing export strategies, or even diversifying their production bases across Southeast Asia. A growing number of Chinese firms understand that merely transshipping through Vietnam is no longer a sustainable business model. Instead, there’s a distinct shift towards deeper local integration, including the sourcing of materials locally and engaging in value-added processing, rather than maintaining mere “shell” factories.

Shift in Investment Focus

While Chinese investment remains robust, reaching over $2.5 billion in 2024, there is a palpable shift in focus from speed and cost savings to long-term risk management. Investors now seek transparent, lawful pathways that can mitigate trade friction and minimize compliance risks. There’s a rising demand for specialized legal services that address complex trade compliance and origin verification issues.

For W&H, this means offering tailored services that help clients manage compliance with international standards. For example, creating thorough documentation that attests to the origin of products has become a critical service in the wake of growing scrutiny.

Comprehensive Legal Support

As Vietnamese regulations evolve, legal teams are becoming invaluable resources for navigating not just compliance but also disputes. Chang remarked on rising requests for comprehensive compliance manuals that cover everything from labor policies to operational oversight. Quick responses to disputes, like origin violations, have also proven essential.

Moreover, local legal teams are collaborating closely with their Chinese counterparts to provide regular updates on compliance issues that impact their clients. This proactive approach helps businesses stay ahead of the regulatory curve and facilitates a smoother operational flow.

Multi-Sector Exploration

Traditionally, Chinese investments in Vietnam concentrated on manufacturing sectors like electronics and textiles. However, with Vietnam’s emphasis on sustainable development and digital transformation, Chinese firms are diversifying. Opportunities now exist in emerging sectors such as semiconductors and renewable energy.

Legal guidance becomes crucial as businesses explore development projects, significantly in real estate and industrial parks. As foreign investors cannot directly purchase land, they often must navigate complex agreements to secure usage rights, necessitating local expertise.

Addressing Cultural Nuances

The interplay between Chinese business practices and Vietnamese legal frameworks can create cultural friction. Chang underscores that discrepancies in procedural expectations can lead to misunderstandings. Vietnamese processes may lack the predictability that Chinese clients often expect from legal engagements. W&H bridges this gap by training both local and Chinese lawyers, ensuring that teams can effectively navigate these cultural nuances.

Future Trends

Moving into the next couple of years, the legal landscape in Vietnam will continue to evolve, particularly as trade compliance investigations take center stage. Firms like W&H are preparing for this shift by cataloging common compliance risks and developing regular training and audit programs for clients.

As Vietnam cements its position within global supply chains, Chinese businesses recognize the necessity of robust legal support that extends beyond mere transactional advice. With a focus on compliance and risk management, legal counsel plays an increasingly pivotal role in shaping successful business operations in this changing environment.