Change in Vietnam’s Trade Status Could Improve Costs for Importers

As the pressure to diversify supply chains has accelerated over the past few years, Southeast Asia has garnered a lot of interest as an alternate region for manufacturing.  With its attractive demographics, growing vertical integration, and access to water – Vietnam in particular is growing as a prominent manufacturing hub.

In this video from The Franklin Partnership, contributing author Omar Nashashibi offers updates as the U.S. Department of Commerce is currently reviewing Vietnam’s status as a Nonmarket Economy and received a review request by the Government of Armenia in December 2023.

U.S. Review of Vietnam Nonmarket Economy Status

If you are currently importing from either Armenia or Vietnam, considering sourcing, or competing with businesses in those nations, a change to the Market Economy Status is quite significant and could mean lower dumping rates on imports. Dumping is a legal term in trade when a product is sold into a country at below fair market value – essentially a country is undercutting what you’d pay in a home market.

The U.S. Commerce Department’s International Trade Administration currently lists twelve countries as having the designation of being Nonmarket Economies. The difference between being designated as a Nonmarket Economy and having Market Economy Status, or MES, is very significant in the context of U.S. trade laws and the level of duties applied to imports into the U.S.

The Omnibus Trade and Competitiveness Act of 1988 defines a country as having Nonmarket Economy status when it does not “operate on market principles of cost or pricing structures, so that sales of merchandise in these countries do not reflect the fair value of the merchandise.”

The Commerce Department still has a lot of discretion when determining NME status, though they take into account six factors set forth in the Tariff Act of 1930:

1. The extent to which the currency of the foreign country is convertible into the currency of other countries;
2. The extent to which wage rates in the foreign country are determined by free bargaining between labor and management;
3. The extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country;
4. The extent of government ownership or control of the means of production;
5. The extent of government control over the allocation of resources and over the price and output decisions of enterprises; and
6. Such other factors as the administering authority considers appropriate

For countries with an NME designation, the U.S. Department of Commerce uses surrogate countries producing similar goods to determine the normal value of the product entering the U.S. For example, the U.S. Commerce Department could frequently use Thailand or Mexico for close comparisons to products from China, which currently has Nonmarket Economy status.

The Commerce Department currently uses six countries as surrogates for Vietnam: Egypt, Indonesia, Jordan, Morocco, Philippines, and Sri Lanka. 

In October 2023, the Commerce Department announced it would initiate a review of Vietnam’s Nonmarket Economy status after the country filed an official request on September 8, 2023. Formally known as a Changed Circumstance Review, it can take up to 270 days, placing the deadline around mid-July 2024.

If the Commerce Department changes Vietnam’s designation to Market Economy Status, the U.S. Government will use Vietnam-based pricing to compare with a U.S. product when determining whether a product is being dumped into the U.S.

Eight Democratic Senators sent a letter on January 30^th to the Commerce Secretary calling on the Department to reject the Changed Circumstances Review. The Senate letter, similar to one sent from members of the U.S. House, said, that “there is abundant evidence suggesting that Vietnam does not meet the legal requirements established by Congress to receive market economy status.”

If you are importing from Vietnam, considering sourcing from the country, or competing with products imported, it’s worth keeping a pulse on the Commerce Department review closely over the coming months.

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