Contents
-
What is small-scale trade? What is official-channel trade?
-
Advantages and drawbacks of small-scale import and export
-
Advantages and drawbacks of official-channel import
-
The differences between small-scale and official-channel trade
-
What official-channel and small-scale transport require
-
The risks of small-scale export
In import and export, “small-scale” (tieu ngach) and “official channel” (chinh ngach) are familiar terms that still cause confusion. So what is small-scale trade and what is official-channel trade? They are two forms of cross-border trade with different processes, formalities and requirements. Understanding the difference helps businesses and traders choose the method that fits, stay within the law and get the most out of the trade. Let us look at each in detail with Green Lien Chieu.
1. What is small-scale trade? What is official-channel trade?
Small-scale trade
Small-scale trade is the exchange and sale of goods between people living near the border of two adjoining countries. In Vietnam that means residents of provinces bordering other countries, such as Lao Cai, Lang Son and Quang Ninh.
Traders favour it because the import-export formalities are simple and transport costs are low. Even so, participants must still pay tax and comply with the requirements on quality inspection, plant and animal quarantine, food safety and other standards checked by the state management agencies before goods are cleared.
Official-channel trade
Official-channel trade is a more international form, chosen by many businesses and traders for commerce with countries bordering Vietnam such as China, Laos and Cambodia.
It requires companies and businesses to sign a formal economic contract with the foreign partner, based on agreements or commitments established between countries, regions, organisations or international economic associations. Official-channel import and export complies fully with international rules and practice, which keeps the trade legally sound and transparent.
2. Advantages and drawbacks of small-scale import and export
Advantages
Small-scale transport has simple formalities and does not require the complex documents and invoices of the official channel. Filling in the small-scale declaration and paying the border-trade fee is enough for the goods to be cleared.
Compared with official-channel transport, small-scale transport is usually cheaper, which eases the financial burden on the trader.
Because the goods do not pass through official border gates, the tax declaration formalities and the tax schedule applied to small-scale goods usually carry lower charges than the official channel.
Drawbacks
The method does not offer stability in business, particularly for anyone trading high-end goods. Small-scale transport can carry considerable risk.
Each day’s transaction is capped in value, usually at a maximum of VND 2 million per person per day, so it only suits small-scale trading.
Without clear documents, invoices or commercial contracts, small-scale transport easily leads to disputes over price, quality and other matters.
If it is not controlled tightly during transport, goods can be swapped for lower-quality goods, which risks seizure when the market management authorities inspect them.
3. Advantages and drawbacks of official-channel import
Advantages of official-channel import and export
There is no cap on the value of goods imported or exported.
Goods have full origin documents, invoices and paperwork in line with the law, which reduces the risk of inspection and seizure by the market management authorities.
Each party’s rights are protected by the commercial contract, which limits disputes.
It suits high-end and luxury goods, and makes transport safer.
It is straightforward to move goods through countries that have signed economic cooperation agreements with Vietnam.
Drawbacks of official-channel import and export
It requires a good deal of paperwork and documentation; goods are only cleared once the declaration is complete and accurate.
It includes customs fees, import-export duty and other costs, and is more expensive than the small-scale route.
Goods are inspected more thoroughly, which can make clearance harder.
4. The differences between small-scale and official-channel trade
| Small-scale | Official channel | |
|---|---|---|
| Method of transport | Not through a border gate; by its own route | Must pass a border gate, under tight control |
| Goods | Low value, small quantity | Large quantity |
| Cost | Lower than the official channel | Higher, including import-export duty and other fees |
| Formalities | Simple; no invoice or contract required | Requires extensive documents, invoices and a commercial contract |
| Transaction value | Capped at VND 2,000,000 per person per day | No cap on transaction value |
| Safety of goods | Loosely managed; easily damaged or swapped | Tightly controlled; little risk in transport |
In short:
Small-scale transport is simple and cheap, but carries high risk and a cap on the value of the goods.
Official-channel transport requires complex formalities and costs more, but it is safe and there is no cap on the transaction value.
5. What official-channel and small-scale transport require
The document set for small-scale import-export formalities:
-
Goods declaration (HQ7A, HQ7B): 2 copies
-
Proof of border residency
-
Licence for small-scale border import-export business (issued by the provincial People’s Committee)
The decision to inspect the goods, collect the tax and approve clearance rests with the border-gate customs office, on the basis of the formalities and documents provided.
The document set for official-channel import-export formalities:
-
Sales contract
-
Commercial invoice
-
Packing list
-
Bill of lading
-
Customs declaration
-
Letter of credit (LC)
-
Receipt for payment into the state budget
-
Certificate of origin (Form E)
-
Freight invoice
-
Quarantine certificate (if applicable)
-
Other documents
6. The risks of small-scale export
Today, exporting by the small-scale route is increasingly ill-suited to the Chinese market, given the risks it carries. Small-scale goods often fail to meet China’s standards on quality, quarantine, origin, packaging and labelling.
Small-scale goods also usually have no international commercial contract, or only a very simple one. Exporters depend heavily on Chinese border traders and cannot control price or volume. That easily leads to being squeezed on price or grade, or to the “good harvest, bad price” pattern.
Small-scale goods are usually cleared through secondary gates, tracks and border openings, where the infrastructure and the official presence are less developed than at international gates. When something unusual occurs — an epidemic, or tighter border control — these points are often suspended, which backs goods up and stalls clearance.
Exporting by the small-scale route also creates a mistaken picture of the Chinese market, leading Vietnamese businesses and authorities to treat it as undemanding. In reality, exporting agricultural produce to China, fresh produce above all, requires market-opening negotiations and production and export to that country’s strict processes and standards.
Understanding what small-scale and official-channel trade are is an important step towards choosing the method that fits your needs and your business. Each has its own benefits and drawbacks, so weighing the legal formalities, the cost and the risk carefully is essential to trading effectively. We hope this article has given you a clearer view of the two, and a basis for sound business decisions.
Collected
