Country of Origin Rules Every Manufacturer Should Know

As Western attitudes toward “Made in China” sour and the threat of higher tariffs looms, many companies are restructuring their supply chains to avoid Chinese country of origin labels.

The goal is simple: reduce their products’ official connection to China, at least on paper.

Yet here’s the thing: China’s sophisticated supply chains are unmatched, and likely to remain so for decades. This means that diversification more often than not involves moving final assembly to countries like Vietnam, Thailand or Mexico, while the fundamental dependence on Chinese components and technical capabilities remains unchanged. In reality, most companies end up with this hybrid model – critical components still coming from China, with just the assembly lines relocated to a third country.

While this final assembly step is usually enough to satisfy basic country of origin requirements, this sleight of hand hasn’t gone unnoticed.

Regulators worldwide are taking a harder look at what “Made in [Country]” really means.

So what makes a product truly “Made in Thailand or Vietnam,” and more importantly, is moving assembly just to change a label worth it?

What is Country of Origin?

Country of origin rules tell us where a product was officially “made.” This matters because it affects how much tax (tariffs) companies pay when shipping products across borders. It also impacts trade limits and other rules about buying and selling internationally.

In the past, this was easy – if all parts came from France and it was made in France, it was French. Today, it’s trickier. A single product might have:

• Parts from China
• Assembly in Vietnam
• Packaging in Thailand

So, countries follow this basic rule: A product’s “home” is usually where it changed the most. For example, if raw steel from China becomes a car in Japan, it’s considered Japanese.

But here’s where it gets tricky – countries disagree on what “changed the most” (or “value-added” in technical language) means.

UK Approach:

The U.K. has a “50% rule” for deciding where a product comes from. This is based on the “ex-works price” – basically what the product costs when it rolls out of the factory, before anyone adds shipping costs or taxes.

Want to slap “Made in Vietnam” on your product? At least half of that factory-gate value needs to come from Vietnamese materials, labour, or manufacturing. Pretty straightforward, right?

But not everyone plays by the same rulebook. The EU follows strict, detailed guidelines that spell out exactly what manufacturing steps must happen in Vietnam. The U.S., meanwhile, takes a more flexible look at the overall picture. So you might satisfy U.S. customs but still run into trouble at EU borders – same product, different rules.

The Risks Are Real

Getting origin claims wrong carries serious consequences. In the U.K., customs authorities can:

• Demand repayment of all missed taxes
• Pile on hefty penalties
• Dig through your paperwork going back years
• Hit you with immediate fines (we’re talking £50,000+ for serious cases)

And regulators are getting tougher. In January 2024, U.S. officials raided Qingdao Sunsong after discovering their Thailand operation was merely reshipping Chinese products to dodge tariffs. The EU’s enforcement is also intensifying, with trade defense cases nearly tripling from seven in 2022 to 20 in 2023.

Think Before You Move

Of course, most companies diversifying to Southeast Asia stay compliant and legitimately add value in their new locations. There are many solid arguments for diversification, and in many cases, it’s absolutely the right strategic choice. The key, however, is having strong strategic reasons beyond just tariff avoidance.

Look, there’s a reason companies chose China in the first place – you can’t easily replicate its logistics, skilled workforce, and sophisticated supply chains anywhere else. While tariffs and political risks are good reasons for shifting assembly southeast, hasty moves based on these factors alone might do more harm than good.

Companies pursuing diversification face significant challenges including increased logistics costs, quality control issues, and customs scrutiny. Not to mention longer shipping routes and bigger carbon footprints just as ESG reporting gets tougher.

Some companies rush into these moves simply because investors or consumers want “non-China” products. This approach can be problematic, especially in situations where Chinese Original Design Manufacturers (ODMs) remain crucial to the production process.

For example, moving final assembly to the Philippines while still relying on Chinese suppliers for 80% of components and design work might look good on paper but could only marginally reduce actual China exposure.

And while “Made in Thailand” or “Made in Vietnam” rules haven’t changed dramatically, customs authorities are getting smarter about spotting superficial relocations, particularly when it comes to Chinese-sourced components. Therefore, it’s crucial to ensure your assembly operations in third countries generate sufficient value to meet compliance requirements.

In short, moving assembly to Thailand just to get a different “Made in” label shouldn’t be the only driver for relocation. Country of Origin compliance should flow naturally from smart, strategic decisions, not lead them.

Making It Work

Kinyu specialises in helping companies navigate the complexities of cross-border manufacturing, particularly in managing the additional import/export processes that come with distributed supply chains. Our expertise becomes especially valuable as companies rush to adjust their manufacturing footprint ahead of potential policy changes.

Kinyu helps companies like yours build and maintain compliant manufacturing operations across Asia’s key production hubs. As your employer of record across Asia, we provide: