U.S. Denies Vietnam Market Economy Status

In this video from The Franklin Partnership, contributing author Omar Nashashibi discusses the recent rejection of Vietnam’s application to be considered a market economy.

On August 1, 2024, the U.S. Department of Commerce extended Vietnam’s status as a non-market economy country. Rejecting Vietnam’s application for market economy treatment keeps the country on the non-market economy list, which has 11 other nations including China, Russia, Armenia, Azerbaijan, and Uzbekistan.

What does this mean for imports from Vietnam?

Had Commerce approved Vietnam’s request for market economy status, Vietnam’s imports could benefit from lower dumping rates on imports. Dumping is a term in trade law describing products sold into the U.S. at below fair market value. The U.S. imposes duties on select imports to increase their price in cases where Commerce finds dumping occurred.

Vietnam’s continuation as a non-market economy will subject imports from Vietnam to the higher margin rates than a similar import from a market economy. In its press release announcing the action, Commerce said as part of its review, stakeholders submitted 36,000 pages of comments.

Why Commerce rejected Vietnam’s application for market economy treatment

Commerce said, “Despite Vietnam’s substantive reforms made over the past 20 years, the extensive government involvement in Vietnam’s economy distorts Vietnamese prices and costs and ultimately render them unusable for the purpose of calculating U.S. antidumping duties.”

Therefore, Commerce — when calculating the appropriate duty rate applied to Vietnamese imports — will continue to use third-country valuations as the benchmark for the market economy value of that product. In instances of a country having a non-market economy designation, the U.S. uses a group of countries as the reference point. In the case of Vietnam, Commerce will likely use their existing list of surrogate countries: Egypt, Indonesia, Jordan, Morocco, Philippines, and Sri Lanka.

Vietnam’s history as a non-market economy

The Omnibus Trade and Competitiveness Act of 1988 defines a country as having non-market economy status when it 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.”

Commerce began designating Vietnam as a non-market economy in 2002, which allows domestic U.S. industry to seek higher duty rates on imports. In its August 1, 2024 report, Commerce acknowledged Vietnam has made progress, but cited concerns over currency, foreign investment, and labor wage rates and free bargaining between labor and management. The report also factored in government ownership of domestic production and government control over recourses, pricing, and output decisions by enterprises.

Vietnam expressed its disappointment, noting 72 countries treat the country as a market economy, and said it would reapply for market economy status. Some U.S. industries such as steel and a few Congress members applauded the decision, indicating opposition may continue were Vietnam to reapply under a new president.

How CLA can help with trade questions about Vietnam

Earlier this year, CLA provided a video update on Vietnam’s application for market economy status. Relations with Vietnam will continue to receive significant attention in trade circles in Washington, D.C. as policymakers continue their focus on Asia. Contact us with any questions you have about Vietnamese imports or any other trade questions.