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De Minimis Tolerance in EVFTA Rules of Origin: How It Applies to Pharmaceuticals

5 min readFLAT LAW FIRM

Short answer: The tolerance (de minimis) in Article 5 of EVFTA Protocol 1 lets producers use non-originating materials — otherwise banned by the product-specific rule — provided their total value does not exceed 10% of the ex-works price of the finished product (for pharmaceuticals of HS Chapter 30). For Vietnam’s pharma industry, where active ingredients (APIs) are mostly imported from India and China, the 10% tolerance is a lifeline when a minor excipient or secondary API breaks the tariff-classification-change rule. But tolerance is not a blanket exemption: it may not be used to exceed the product-specific rule’s maximum thresholds, and it is measured per unit of product.

Article 5 of Protocol 1: the 10% ex-works tolerance

Protocol 1 of the EVFTA (rules of origin) has applied with the agreement since August 1, 2020. Article 5(3) provides that non-originating materials which, under the product-specific rule in Annex II, may not be used to make a given product, may nevertheless be used if their total value (or net weight) does not exceed:

  • (a) 10% of the product’s weight or ex-works price — for agricultural goods of HS chapters 2 and 4–24 (other than processed fishery products of chapter 16);
  • (b) 10% of the ex-works price — for other products, except textiles and apparel of HS chapters 50–63 (which follow the separate tolerances in Notes 6 and 7 of Annex I).

Pharmaceuticals (HS Chapter 30) fall under (b): the tolerance is measured by value, not weight. And Article 5(4) sets a hard ceiling: tolerance may not be used to exceed any maximum percentage of non-originating materials laid down in the product-specific rule.

When tolerance saves pharmaceutical origin

A typical Vietnamese pharma production chain: imported APIs (usually from India or China) → blending, tableting or encapsulation, packaging in Vietnam → export to the EU. The product-specific rules for many pharma lines in Annex II typically require a tariff-classification change (e.g., from inputs of another chapter into Chapter 30) or cap the non-originating share.

Tolerance does its work in cases like these:

  1. An imported excipient breaks the classification change: a tablet has eight excipients; one imported preservative (3% of ex-works price) shares the finished product’s HS chapter, defeating the “change of chapter” rule — the 10% tolerance absorbs that 3%, and origin holds.
  2. A low-value secondary API: a combination formula with two APIs, the main one qualifying (or of EU/Vietnamese origin), the secondary imported at 6% of value — tolerance saves it.
  3. Packaging and ancillary materials: under some rule structures, low-value non-originating packaging is likewise carried by tolerance.

Conversely, tolerance cannot save a case where the main API is 40–60% of product value, non-originating, and the product-specific rule caps non-originating materials at 30% — Article 5(4) forbids using tolerance to breach the specific rule’s ceiling.

Three limits pharma companies commonly breach

  1. Measured per unit of product, not averaged across the shipment: the 10% tolerance applies to each unit of qualification (e.g., each box of medicine under its HS code) — qualifying boxes cannot offset non-qualifying ones in the same consignment.
  2. No stacking on top of the specific rule’s ceiling: if the product rule allows at most 40% non-originating materials and the company has used the full 40%, no additional 10% tolerance can be added — the total still may not exceed 40%.
  3. Values must be provable: the ex-works price and the value of non-originating materials need clear invoices and records. EU customs in post-clearance checks may demand the full calculation sheet — 9.8% versus 10.2% decides pass or fail.

Checklist for applying tolerance to a pharma shipment to the EU

  1. Fix the finished product’s exact HS code (Chapter 30) and look up its specific rule in Annex II of Protocol 1.
  2. List every input: origin, value, HS code — separating “qualifying” from “non-qualifying” materials under the specific rule.
  3. Compute the non-originating value over ex-works price; if it breaches the specific rule, check whether the excess fits within the 10% tolerance (without violating paragraph 4).
  4. Prepare origin documentation under Protocol 1 (Circular 14/2026/TT-BCT — effective May 10, 2026, replacing the repealed Circular 11/2020/TT-BCT — guides EVFTA origin implementation).
  5. Archive the tolerance calculation with input invoices — the first document EU customs asks for in post-clearance verification.

Frequently asked questions

What is the EVFTA de minimis tolerance?
10%: for pharmaceuticals (and industrial goods generally, except HS chapters 50–63 textiles), the total value of non-originating materials must not exceed 10% of the finished product’s ex-works price (Article 5(3)(b) of Protocol 1).

Does the tolerance apply to textiles?
Yes, but under a separate regime: HS chapters 50–63 textiles follow the tolerances in Notes 6 and 7 of Annex I to Protocol 1, not the general 10% ex-works rule.

Can tolerance save a product whose Indian API is 50% of product value?
No — if the product-specific rule caps non-originating materials below 50%. Article 5(4) forbids using tolerance to exceed the specific rule’s ceiling.

Is tolerance measured per shipment or per product?
Per unit of product (the unit of qualification under the HS code) — ratios may not be averaged across a consignment.

What documents prove correct use of tolerance?
The input schedule (origin, value, HS code), input purchase invoices, the ex-works price calculation and origin documentation under Protocol 1 — retained for EU customs post-clearance checks.

This article has been quality-reviewed by the FLAW AI Legal Council

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