The U.S. Department of Commerce affirmed Vietnam's designation as a non-market economy, raising serious foreign policy concerns.
On August 2, 2024, the United States Department of Commerce announced Vietnam would remain classified as a non-market economy (NME) for the purpose of foreign trade, specifically in connection with United States (U.S.) antidumping and countervailing duties.[2] This designation, a continuance of a classification maintained by the U.S. since 2002, has raised serious foreign policy questions. Particularly, the concerns involve the broader context of the U.S.’s protracted competition with the People’s Republic of China (PRC) for influence within the global south.[3]
According to U.S. law, an NME country is “any foreign country that the [Department of Commerce] determines does not operate on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise.”[4] The Department of Commerce considers five factors when evaluating the status of another state:
(i) the extent to which the currency of the foreign country is convertible into the currency of other countries;
(ii) the extent to which wage rates in the foreign country are determined by free bargaining between labor and management,
(iii) the extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country,
(iv) the extent of government ownership or control of the means of production, [and]
(v) the extent of government control over the allocation of resources and over the price and output decisions of enterprises.[5]
The Department of Commerce’s initial determination that Vietnam was an NME, over two decades ago, was due to the Vietnamese government’s significant involvement in the country’s domestic economy, the distortion of prices for goods sold within the Vietnamese market, and severe deficiencies in Vietnamese labor laws.[6] As a result, the U.S. has imposed, and continues to impose, antidumping and countervailing duties on imports from Vietnam.
An antidumping duty is a protectionist tariff that a government will impose on foreign imports from a particular location or of a particular kind. The justification behind the tariff is the government believes that these imports are priced below fair market value, therefore undercutting domestic products.[7] Policymakers view this type of tariff as a means to level the playing field between domestically produced goods and significantly cheaper imported foreign goods. In the U.S., the International Trade Commission (ITC) has the power to impose anti-dumping duties based on recommendations from the Department of Commerce and previous investigations by either party into the subject material.[8] Within this framework, U.S. industries may petition the federal government to commence an investigation into the imports that the industry believes are sold at less than fair value—i.e., “dumped.”[9]
Once the government determines that a country has engaged in dumping in the U.S. market and classifies it as having a non-market economy, the designation remains in effect unless revoked by the Department of Commerce after a review of the country’s NME status.[10] For Vietnam, the government in Hanoi submitted a removal request just before U.S. President Biden’s visit to the Vietnamese capital in September 2023.[11] The review then began on October 30, 2023.[12]
Affirming Vietnam's status as an NME implicates important foreign policy considerations. Given the current geopolitical climate, particularly the U.S.’s rivalry with the PRC, this decision seems at odds with broader U.S. foreign policy. During President Biden’s visit to Hanoi in 2023, the two countries elevated diplomatic ties to a comprehensive strategic partnership.[13] One key pillar of this partnership is the aspect that seeks to expand economic ties while downplaying the security element to avoid antagonizing China.[14] This failure to lift the NME designation from Vietnam signals to China that the comprehensive strategic partnership more concerns security, and the decision signals to Hanoi a weak American commitment to expanding economic ties with the southeast Asian state.
This announcement also harms the U.S.’s attempt to use Vietnam as a method of “‘friend-shoring’ vital supply chains from China” by continuing to impose tariffs on goods coming from Vietnam.[15] Friend-shoring refers to rerouting supply chains to states considered “politically and economically safe.”[16] If the U.S. government is serious about establishing stable supply chains independent of the PRC, then it must consider overlooking certain characteristics such as government involvement in a state’s domestic economy. There is precedent for such leniency from the cases of Japan and South Korea during the Cold War. During that period, the U.S. government tolerated protectionist policies from the two east Asian countries as well as behavior similar to that cited by the Department of Commerce as reasons for preventing Vietnam being promoted to a market economy.[17] Thus, the U.S. government must consider its priorities in its foreign policy as policymakers look to counter the growing global influence of the PRC.
[1] Image of shipping containers, in Ha Nguyen, Supply Chain Shifts from China to Vietnam, Vietnam Cast Iron, https://vietnamcastiron.com/vietnam-supply-chain/ (last visited Oct. 28, 2024).
[2] David Brunnstrom & Phuong Nguyen, U.S. Keeps Vietnam as Non-Market Economy, Despite Efforts to Woo Hanoi, Reuters (Aug. 2, 2024, 11:57 AM), https://www.reuters.com/markets/us-continue-classify-vietnam-non-market-economy-country-commerce-2024-08-02/.
[3] Liana Wong & Mark E. Manyin, Vietnam’s Nonmarket Economy (NME) Status, Cong. Rsch. Serv. (Aug. 29, 2024), https://crsreports.congress.gov/product/pdf/IN/IN12326.
[4] 19 U.S.C. § 1677(18)(A).
[5] 19 U.S.C. § 1677(18)(B)(i)-(v). Section 167(18)(B) also calls for consideration of “such other factors as the [Department of Commerce] considers appropriate.” 19 U.S.C. § 1667(18)(B)(vi).
[6] Wong & Manyin, supra note 3; U.S. Mission Vietnam, Department of Commerce Final Decision in Review of the Non-Market Economy Status of Vietnam, U.S. Embassy & Consulate in Vietnam (Aug. 2, 2024), https://vn.usembassy.gov/department-of-commerce-final-decision-in-review-of-the-non-market-economy-status-of-vietnam/.
[7] Will Kenton, Anti-Dumping Duty: What It Is, How It Works, Examples, Investopedia (Oct. 6, 2020), https://www.investopedia.com/terms/a/anti-dumping-duty.asp#:~:tex...%20are%20typically,higher%20prices%20for%20domestic%20consumers.
[8] Id.
[9] Understanding Antidumping & Countervailing Duty Investigations, U.S. Int’l Trade Comm’n., https://www.usitc.gov/press_room/usad.htm.
[10] 19 U.S.C. § 1677(18)(C)(i).
[11] Wong & Manyin, supra note 3.
[12] Id.
[13] Brunnstrom & Nguyen, supra note 2.
[14] Khang Vu, Why the US Could Regret Not Lifting Vietnam’s ‘Non-Market Economy’ Status, The Diplomat (Aug. 5, 2024), https://thediplomat.com/2024/08/why-the-us-could-regret-not-lifting-vietnams-non-market-economy-status/.
[15] Vu, supra note 14.
[16] Stefan Ellerbeck, What’s The Difference Between ‘Friendshoring’ and Other Global Trade Buzzwords?, World Econ. F. (Feb. 17, 2023), https://www.weforum.org/agenda/2023/02/friendshoring-global-trade-buzzwords/#:~:text=Essentially%20friendshoring%20refers%20to%20the,to%20the%20flow%20of%20business.
[17] Vu, supra note 14.
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