On September 8, 2023, just two days before the historic visit of President Biden to Vietnam and the upgradation of the bilateral relationship to a Comprehensive Strategic Partnership, the Vietnamese Government filed a case with the US Department of Commerce (DOC), requesting a “Changed Circumstances Review” of Vietnam’s non-market economy (NME) status.
The proposal for the United States to soon recognize Vietnam’s market economy status was mentioned in many high-level meetings, including the joint statement between President Biden and General Secretary Nguyen Phu Trong on September 10, 2023 and the meeting between Prime Minister Pham Minh Chinh and US Secretary of Commerce Gina Raimondo on September 19, 2023. In a recent speech by Vietnam’s President Vo Van Thuong at the Council of Foreign Relations in San Francisco on November 15, he urged the US government to omit rigid regulations and recognize Vietnam’s market economy status with political will.
The Vietnamese government stated that during the past over 20 years, Vietnam’s economy has undergone dramatic developments and reforms, especially on six factors determining NME status set out by the United States. Their arguments include:
“(i) The currency of Vietnam is convertible into the currency of other countries in a transparent manner based on market principles, fairness, and non-discrimination. The US Department of Treasury has previously confirmed that Vietnam does not manipulate currency;”
“(ii) Wage rates in Vietnam are determined by free bargaining between Labor and Management. The extent of the Government’s involvement in negotiating wages is limited;”
“(iii) Joint ventures or other investments by firms of other foreign countries are permitted in Vietnam. In fact, Vietnam has become an attractive destination for foreign investment. From 2018 to June 2023, the whole country had 14,553 valid projects with a total registered capital of 102.24 billion USD from 120 countries and territories;”
“(iv) The Government of Vietnam does not own or control the means of production to a significant extent;”
“(v) The Government of Vietnam does not have significant control over the allocation of resources or over the price and output decisions of enterprises;”
“(vi) Other factors indicate that Vietnam economy operates on market principles, such as having a basic legal framework for enterprises bankruptcy, transparency in the corporate governance system, ensuring a consistent legal system, and diversifying and expanding foreign economic relations.”
These reforms and developments were recognized and appreciated by many countries. 72 countries have recognized Vietnam as a market economy including major economies such as the United Kingdom, Canada, Australia, Japan, and South Korea.
Since 2002, when the United States started the first anti-dumping investigation against certain frozen fish fillets from Vietnam, the United States determined Vietnam as a “non-market economy.”
Currently, the DOC has identified 12 non-market economies for the purposes of US anti-dumping duty law, including Russia, China, Vietnam, and nine former Soviet republics.
Non-market economy status generally results in significantly higher duty rates through the use of surrogate costs from comparable market economy producers. It means that when calculating the dumping margin, the United States will use the data of a third country (considered a market economy and economically comparable to Vietnam) to calculate the production costs of enterprises in Vietnam instead of using Vietnam’s data.
According to Nguyen Thi Thu Trang, Director of the Center for WTO and Integration of the Vietnam Chamber of Commerce and Industry (VCCI), when manufacturers in alternative countries are competitors of Vietnamese exporters, they can give detrimental figures in these surveys. It may cause the dumping margin to be pushed up very high and does not reflect Vietnamese production situation.
In the case of Vietnam, an August 24, 2023 memorandum published by the DOC identifies Indonesia, Egypt, Jordan, Morocco, Philippines, and Sri Lanka as countries that are economically comparable to Vietnam based on their relative gross national income (GNI) per capita in 2022.
During the past 21 years, the United States has imposed anti-dumping duties on many Vietnam’s export goods, including agricultural products (such as honey, fish fillets, shrimp, etc.) and industrial products (washers, steel wire garment hangers, paper file folders, etc.)
Previously, to join the WTO, Vietnam agreed to be treated as an NME until December 31, 2018, by other WTO members. However, the United States continues to designate Vietnam as an NME. Since 2018, Vietnam and the United States have conducted 10 technical sessions to discuss Vietnam’s market situation.
The US Review and Implications for Vietnam
After receiving Vietnam’s request, on October 24, 2023, the US Department of Commerce announced that they would initiate the review of the NME status of Vietnam. The review process will be completed in 270 days, which includes a public comment period before reaching any final decision.
Before announcing the review, the DOC received comments in opposition to Vietnam’s request from several American producer associations of honey, catfish, shrimp, metal, steel, kitchen cabinet, and millwork.
Until now, it is still uncertain whether Vietnam’s non-market economy status can be revoked after the review or not. But in case it can be revoked, the DOC will then analyze Vietnamese dumping by comparing US sale prices against Vietnamese sale prices and costs, not by comparing with the sale prices and costs from a third country. It will be much more beneficial for Vietnam’s export goods if they are treated equally with export goods from other countries.
If the United States determines Vietnam to be a market economy, Vietnam will be in a better position to request the recognition of market economy from other countries, especially the EU, helping Vietnam’s goods have better access to those markets. Moreover, it will also help Vietnam improve its prestige and position in negotiating new trade deals with other international partners.
Furthermore, Vietnam being determined as a market economy will also encourage US companies to invest in Vietnam, supporting the implementation of the country’s industrial policy. However, its effect in attracting investment will not be enduring in the long run if Vietnam’s government does not modify the regulations to support foreign companies. For example, on November 7, 2023, Intel called off a planned investment in Vietnam due to the instability of power supplies and excessive bureaucracy. Vietnam is home to Intel's largest factory worldwide for assembling, packaging, and testing chips. The planned investment was expected to double Intel’s operation in Vietnam, representing a blow to Vietnam’s ambition to play a bigger role in the global semiconductor supply chain.
During the past months, the Vietnamese government has shown strong efforts in convincing the United States to designate Vietnam as a market economy. If the United States decides to do so, Vietnam’s economy will receive a lot of benefits, at least in trade.
Thao Dang is a Young Professional at the East-West Center in Washington. She is a graduate student at the Elliott School of International Affairs, George Washington University, where she is focusing on US foreign policy.